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As Filed With The Securities And Exchange Commission On November 5, 1996
Registration No. _______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.
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Post-Effective Amendment No.
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No.
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PROVIDIAN SERIES TRUST
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(Exact Name of Registrant as Specified in Charter)
Post Office Box 32700
400 West Market Street
Louisville, Kentucky 40232
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(Address of Principal Executive Offices) (Zip Code)
(502) 560-2000
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(Registrant's Telephone Number, including Area Code)
Kimberly A. Scouller, Esquire
Providian Corporation
400 West Market Street
Louisville, Kentucky 40202
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(Name and Address of Agent for Service of Process)
Copies to:
Michael Berenson, Esquire
Ann B. Furman, Esquire
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant declares that an indefinite amount of shares is being registered
under the Securities Act of 1933.
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 this Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
shall determine.
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PROVIDIAN SERIES TRUST
Contents of Registration Statement
This Registration Statement consists of the following papers and documents:
. Cover Sheet
. Contents of Registration Statement
. Cross Reference Sheet
. Part A- Prospectus for High Quality Stock Fund, Fixed Income Fund,
International Active Fund, and Money Market Fund
Prospectus for Capital Preservation Portfolio, Income Oriented
Portfolio, Growth and Income Portfolio, Capital Growth Portfolio,
Maximum Appreciation Portfolio, and Money Market Fund
. Part B- Statement of Additional Information for High Quality Stock Fund,
Fixed Income Fund, International Active Fund, and Money Market
Fund
Statement of Additional Information for Capital Preservation
Portfolio, Income Oriented Portfolio, Growth and Income
Portfolio, Capital Growth Portfolio, Maximum Appreciation
Portfolio, and Money Market Fund
. Part C- Other Information
. Signature Pages
. Exhibits
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PROVIDIAN SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
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N-1A Location in
Item No. Registration Statement
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Part A: Information Required In Prospectus
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1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Summary
5. Management of the Fund Management
6. Capital Stock and Other Securities Investment Objectives and
Policies of the Funds
7. Purchase of Securities Being Offered Purchase and Redemption of
Shares
8. Redemption or Repurchase Purchase and Redemption of
Shares
9. Pending Legal Proceedings Not Applicable
Part B: Information Required In
Statement of Additional Information
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10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History General Information
13. Investment Objectives and Policies Investment Objectives
14. Management of the Registrant Management
15. Control Persons and Principal Holders of Securities Not Applicable
16. Investment Advisory and Other Services Management
17. Brokerage Allocation Portfolio Turnover and Securities
Transactions
18. Capital Stock and Other Securities General Information
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N-1A Location in
Item No. Registration Statement
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19. Purchase, Redemption and Pricing of Net Asset Values of the Shares
Securities Being Offered of the Funds
20. Tax Status Taxes
21. Underwriters Not Applicable
22. Calculation of Performance Data Investment Performance
23. Financial Statements Financial Statements
Part C: Other Information
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24. Financial Statements and Exhibits Financial Statements and Exhibits
25. Persons Controlled by or Under Common Control Persons Controlled by or Under Common Control
26. Number of Holders of Securities Number of Holders of Securities
27. Indemnification Indemnification
28. Business and Other Connections Business and Other Connections
of Investment Adviser of Investment Adviser
29. Principal Underwriters Not Applicable
30. Location of Accounts and Records Location of Accounts and Records
31. Management Services Management Services
32. Undertakings Undertakings
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER , 1996
PROSPECTUS
PROVIDIAN SERIES TRUST
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
, 1997
Providian Series Trust (the "Trust") is a diversified investment company
presently consisting of nine separate series (the "Funds") each having
different investment objectives and policies. Shares of four Funds are offered
through this prospectus.
The investment objectives of the four Funds are as follows:
The HIGH QUALITY STOCK FUND seeks long term growth of capital. The Fund pursues
its investment objective by investing primarily in stocks in three categories
of companies that are publicly traded in the United States: the 500 largest in
market capitalization, the 501st to the 1250th largest in market
capitalization, and the 1000th to the 3000th largest in market capitalization
at the time of purchase.
The FIXED INCOME FUND seeks the highest level of income as is consistent with
the preservation of capital. The Fund pursues its investment objective
primarily by investing in investment grade debt securities, which range in
maturity from one to ten years, including securities issued by the U.S.
government or an agency or instrumentality of the U.S. government, asset-backed
securities and corporate debt obligations.
The INTERNATIONAL ACTIVE FUND seeks long term growth of capital. The Fund
pursues its objective by investing primarily in a diversified portfolio of
international equity securities.
The MONEY MARKET FUND seeks current income, a stable share price, and daily
liquidity. The Fund invests in corporate, bank, and government instruments that
present minimal credit risk. AN INVESTMENT IN THE MONEY MARKET FUND IS NOT
INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE
THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
The purpose of the Trust currently is to serve as the investment medium for
variable annuity contracts ("Contracts") offered by insurance companies (see
"Purchase and Redemption of Shares"). One or more of the Funds offered through
this Prospectus will be the investment medium for five other series of the
Trust whose shares are offered through another prospectus. The Trust may offer
other series of shares in the future. The Funds' shares will not be offered
directly to the public. There is no assurance that any of the Funds will
achieve their investment objectives.
This Prospectus sets forth concisely the information about the Trust that an
investor should know before investing. A Statement of Additional Information
(the "SAI") dated , 1997, containing additional information about the
Trust, has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus in its entirety. You may obtain a
copy of the SAI without charge by calling or writing the Trust.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
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TABLE OF CONTENTS
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SUMMARY..................................................................... 1
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS............................. 1
PORTFOLIO TURNOVER.......................................................... 5
IMPLEMENTATION OF POLICIES AND RISKS........................................ 5
MANAGEMENT.................................................................. 7
PURCHASE AND REDEMPTION OF SHARES........................................... 8
NET ASSET VALUE AND PRICING................................................. 8
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................................... 8
PERFORMANCE AND YIELD INFORMATION........................................... 9
GENERAL INFORMATION......................................................... 9
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS....................... 11
APPENDIX A--COMMON STOCK RANKINGS........................................... A-1
APPENDIX B--SECURITIES RATINGS.............................................. B-1
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SUMMARY
The Providian Series Trust (the "Trust") was organized as a Massachusetts
business trust on October 22, 1996. The Trust is a diversified, no-load, open-
end management investment company registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940 ("1940 Act"). The
Trust is a "series" type of mutual fund which issues separate classes (or
series) of stock, each of which represents a separate diversified portfolio of
investments. This Prospectus offers shares of four funds ("Funds") of the
Trust, each with its own investment objective or objectives and investment
policies.
The shares of the Funds are offered to separate accounts of insurance
companies to fund various variable annuity contracts issued by Providian Life
and Health Insurance Company ("Providian Life"). Shares of the Funds may be
offered to qualified plans and, in the future, in connection with variable
life insurance policies. The rights of an insurance company holding Trust
shares for a separate account are different from the rights of the owner of a
Contract. The terms "shareholder" or "shareholders" in this Prospectus shall
refer to the insurance companies and qualified plans, and not to any Contract
Owner.
Providian Investment Advisors, Inc. (the "Adviser") serves as the Trust's
investment adviser. Atlanta Capital Management Company, L.L.C. ("Atlanta
Capital") serves as the sub-adviser to the High Quality Stock Fund and the
Fixed Income Fund. Blairlogie Capital Management ("Blairlogie") serves as the
sub-adviser to the International Active Fund.
serves as the sub-adviser to the Money
Market Fund. (Atlanta Capital, Blairlogie and are
referred to collectively as the "Sub-Advisers.") The Adviser supervises the
Trust's overall management and investment program, performs a variety of
administrative services on behalf of the Trust, pays the Sub-Advisers and all
fees and expenses of officers and Trustees of the Trust who are affiliated
persons of the Adviser, the Sub-Advisers or the Trust. The Trust pays all
other expenses incurred in the operation of the Trust, including fees and
expenses of Trustees who are unaffiliated persons of the Adviser, the Sub-
Advisers, or the Trust.
The Adviser has agreed to limit the operating expenses (excluding advisory
fees) of each Fund so that the ratio of expenses to net assets on an annual
basis for each Fund does not exceed 0.20%. These limitations will apply for
two years after commencement of operations.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each of the Funds has a different investment objective or objectives as
described below. The High Quality Stock Fund and the Fixed Income Fund are
managed by Atlanta Capital; the International Active Fund is managed by
Blairlogie; and the Money Market Fund is managed by .
There can be no assurance that any of the Funds will achieve their investment
objective or objectives. Each Fund is subject to the risk of changing economic
conditions, as well as the risk inherent in the ability of the Sub-Advisers to
make changes in a Fund's investments in anticipation of changes in economic,
business, and financial conditions.
The different types of securities and investment techniques common to one or
more Funds all have attendant risks of varying degrees. For example, with
respect to equity securities, there can be no assurance of capital
appreciation and there is a substantial risk of decline. With respect to debt
securities, there can be no assurance that the issuer of such securities will
be able to meet its obligations on interest or principal payments in a timely
manner. In addition, the value of debt instruments generally rises and falls
inversely with changes in interest rates.
The investments and investment techniques common to one or more Funds,
including the risks of each, are described in greater detail below and in the
"Description of Securities and Investment Techniques" in the SAI.
The Funds are subject to investment restrictions that are described under
"Investment Restrictions" in the SAI. Each Fund's investment objective and
investment restrictions are "fundamental policies," which means that they may
not be changed without a majority vote of shareholders of the affected Funds.
Except for investment objectives and fundamental policies, all investment
policies and practices described in this Prospectus and in the SAI are not
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fundamental, meaning that the Board of Trustees may change them without
shareholder approval. See "Description of Securities and Investment
Techniques" and "Investment Restrictions" in the SAI for further information.
HIGH QUALITY STOCK FUND
In seeking its objective of long term growth of capital, the High Quality
Stock Fund will attempt to achieve a high total return (i.e., price
appreciation plus potential dividend yield) primarily through investment in
selected high quality common stocks of large, medium and small size companies
that are publicly traded in the United States. The High Quality Stock Fund
primarily selects stocks from among three categories of companies: the largest
500 in market capitalization, the 501st to the 1250th largest in market
capitalization, and the 1,000th to the 3,000th largest in market
capitalization at the time of purchase. Each company must have a common stock
ranking of B+ or better by Standard & Poor's Corporation ("S&P") (or if not
ranked by S&P, of comparable quality ranking by another recognized ranking
service, or if unranked, of comparable quality in the opinion of Atlanta
Capital) (hereafter this standard is referred to as a "common stock ranking of
B+ or better"). From this universe of stock issues, Atlanta Capital selects
stocks based upon a favorable combination of valuation, price volatility and
earnings stability. Approximately 50 stocks of large market capitalization
companies, 60 stocks of medium market capitalization companies, and 75 stocks
of small market capitalization companies are included in the Fund's portfolio.
Atlanta Capital generally believes that high quality companies, that is,
companies with superior track records of consistent earnings and dividend
growth, tend to outperform the stock market over the long term. The Fund seeks
to outperform its benchmarks, the S&P 500 Composite Stock Price Index and the
Russell 3000 Index. Atlanta Capital's stock selection methods will be based
upon, among other things, the analysis of variables which it believes
significantly relate to the future market performance of a stock, such as
recent changes in earnings per share and their deviations from analysts'
expectations, past growth trends, price action of the stock itself, publicly
recorded trading transactions by corporate insiders, and relative price-
earnings ratios.
By investing in securities that are subject to market risk, the High Quality
Stock Fund is also subject to greater fluctuations in its market value and a
higher degree of risk as compared to a fund seeking stability of principal,
such as a money market fund or a fund investing primarily in debt obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities (these obligations are referred to in this Prospectus as
"U.S. government securities").
The High Quality Stock Fund's investment philosophy is based on extensive
research which shows that high quality growth companies have produced
consistently increasing earnings and dividends, thereby providing attractive
returns with moderate risk over the long term. To qualify for purchase, each
company must have a common stock ranking of B+ or better. Atlanta Capital will
conduct fundamental income statement and balance sheet research on individual
companies to estimate future sustainable growth rates, evaluate current
earnings momentum, and estimate relative value of the stock. Atlanta Capital
intends to sell stocks based on such factors as deteriorating fundamentals,
below B+ quality ranking, and/or poor relative valuation.
If market conditions indicate their desirability, Atlanta Capital may, for
defensive purposes, temporarily invest, without limitation, the assets of the
High Quality Stock Fund in cash or cash equivalents. See "Cash Equivalents"
below, and "Debt Securities" under "Description of Securities and Investment
Techniques" in the SAI for further information.
FIXED INCOME FUND
In seeking its objective of the highest level of income as is consistent with
the preservation of capital, the Fixed Income Fund will invest in securities
issued by the U.S. government or an agency or instrumentality of the U.S.
government, including mortgage-related securities. The U.S. government
securities which may be purchased by the Fixed Income Fund include direct
obligations issued by the United States Treasury, such as Treasury bills,
certificates of indebtedness, notes and bonds. The Fixed Income Fund may also
purchase instruments issued or guaranteed by agencies or instrumentalities of
the United States government, including mortgage-related securities.
The Fixed Income Fund may also purchase mortgage-related securities or asset-
backed securities not issued by the U.S. government or any agency or
instrumentality thereof. The Fixed Income Fund may also invest in investment
grade corporate debt securities rated in one of the three highest rating
categories by Moody's Investor Service, Inc. ("Moody's"), S&P, Fitch Investor
Services, or another nationally recognized statistical rating organization
("NRSRO"),
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or if unrated, of comparable quality in the opinion of Atlanta Capital. While
non-U.S. government securities may present greater credit risk than U.S.
government securities, they also tend to afford higher yields than U.S.
government securities. Debt securities purchased by the Fund may be of any
maturity. It is anticipated that the weighted average maturity of the debt
portfolio generally will be between 3 and 7 years, but may be shorter or
longer under unusual market circumstances.
Among the mortgage-related securities that may be purchased by the Fixed
Income Fund are "mortgage-backed securities" of the Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") and the Federal National Mortgage Association ("FNMA"). These
mortgage-backed securities include "pass-through" securities and
"participation certificates," both of which are similar, representing pools of
mortgages that are assembled, with interests sold in each pool. Payments of
principal (including prepayments) and interest by individual mortgagors are
"passed through" to the holders of the interests in each pool; thus, each
payment to holders may contain varying amounts of principal and interest.
Another type of mortgage-backed security is the collateralized mortgage
obligation ("CMO"). A CMO is a security that is backed by mortgage pass-
through securities or in some cases mortgage loans. The cash flow from the
pass-throughs or loans is redirected to one or more classes or tranches in a
prescribed manner. Timely payment of principal and interest on GNMA pass-
throughs is guaranteed by the full faith and credit of the United States.
FHLMC and FNMA are both instrumentalities of the U.S. government, but their
obligations are not backed by the full faith and credit of the United States.
See "Mortgage-Backed Securities" under "Description of Securities and
Investment Techniques" in the SAI for further information.
There is minimal credit risk involved in the purchase of government or
government-guaranteed securities. However, as with any fixed income
investment, when interest rates decline, the market value of a portfolio
invested at higher yields can be expected to rise. Conversely, when interest
rates rise, the market value of a portfolio invested at lower yields can be
expected to decline. Therefore, Atlanta Capital may engage in portfolio
trading to take advantage of market developments and yield disparities, for
example, shortening the average maturity of the portfolio in anticipation of a
rise in interest rates so as to minimize depreciation of principal, or
lengthening the average maturity of the portfolio in anticipation of a decline
in interest rates so as to maximize appreciation of principal.
The Fixed Income Fund seeks to outperform the Lehman Brothers Intermediate
Aggregate Index (the "Index") over an interest rate cycle. (See the SAI for a
description of the Index). The portfolio duration will generally range from
80% to 120% of the Index duration. Typically, this causes the weighted average
maturity of the portfolio to vary between 3 and 7 years. Atlanta Capital sets
duration strategy based on its assessment of secular and cyclical economic,
demographic and political trends.
The Fixed Income Fund may invest in asset-backed securities which represent
fractional interests in pools of leases, retail installment loans and
revolving credit receivables, both secured and unsecured. The Fixed Income
Fund may also use various other investment strategies and techniques when
Atlanta Capital determines that such use is appropriate in an effort to meet
the Fund's investment objective. Such strategies and techniques include, but
are not limited to, entering into repurchase agreements and investing in when-
issued or delayed delivery securities. See "Description of Securities and
Investment Techniques" in the SAI for further information.
INTERNATIONAL ACTIVE FUND
The International Active Fund seeks long term growth of capital. In pursuing
this objective, the Fund invests primarily in a diversified portfolio of
international equity securities. The Morgan Stanley Capital International EAFE
(Europe, Australia, Far East) Index ("EAFE Index") is used as a basis for
choosing the countries in which the Fund invests, however, the Fund is not
limited to the countries and weightings of the EAFE Index. Blairlogie applies
two levels of screening in selecting investments for the Fund. First, an
active country selection model analyzes world markets and assigns a relative
value ranking, or "favorability weighting," to each country in the relevant
universe to determine markets which are relatively undervalued. Second, at the
stock selection level, quality analysis and value are applied to each
security, assessing variables such as balance sheet strength and earnings
growth (quality factors) and performance relative to the industry, price to
earnings ratios and price to book ratios (value factors). This two-level
screening method identifies undervalued securities for purchase as well as
provides a sell discipline for fully valued securities. While Blairlogie
endeavors to apply the same variables to all stockmarkets, the applicability
of analytical tools can differ between countries. In selecting securities,
Blairlogie considers, to the extent practicable and on the basis of
information available to it for research, a company's environmental business
practices.
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Most of the foreign securities in which the Fund invests will be denominated
in foreign currencies. The Fund may engage in foreign currency transactions to
protect itself against fluctuations in currency exchange rates in relation to
the U.S. dollar or to the weighting of a particular foreign currency on the
EAFE Index. Such foreign currency transactions may include forward foreign
currency contracts, currency exchange transactions on a spot (i.e., cash)
basis, put and call options on foreign currencies, and foreign exchange
futures contracts. The Fund may invest in stock index futures contracts,
foreign exchange futures contracts, and options thereon, and may sell (write)
call and put options. The Fund also may engage in equity index swap
transactions.
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies which
are described below and in the SAI.
MONEY MARKET FUND
The Money Market Fund seeks current income, a stable share price, and daily
liquidity. The Money Market Fund's investments include corporate, bank, and
government instruments that present minimal credit risk.
The Money Market Fund seeks money market yields with no anticipated
fluctuations in principal. Because the Fund seeks to maintain a constant net
asset value of $1.00 per share, capital appreciation is not expected to play a
role in the Fund's returns, and dividend income alone is expected to provide
its entire investment return. All money market instruments can change in value
when interest rates or an issuer's creditworthiness changes dramatically. THE
FUND CANNOT GUARANTEE THAT IT WILL ALWAYS BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE. An investment in the Fund is neither insured
nor guaranteed by the U.S. government.
The Money Market Fund invests in a combination of bank, corporate, and
government obligations that present minimal credit risks. The Fund restricts
its investments to instruments that meet certain maturity and quality
standards required or permitted by Rule 2a-7 under the 1940 Act for money
market funds. Accordingly, the Fund:
(i)limits its average portfolio maturity to 90 days or less;
(ii)buys only securities with remaining maturities of 13 months or less;
and
(iii) buys only U.S. dollar-denominated securities that represent minimal
credit risks and are "high quality," as described below.
The Fund invests only in high quality securities. Accordingly, the Fund will
invest at least 95% of its total assets in "first-tier" securities, generally
defined as those securities that, at the time of acquisition, are rated in the
highest rating category by at least two NRSROs, or, if unrated, are determined
by to be of comparable quality. The balance of the Fund, up
to 5% of its total assets, may be invested in securities that are considered
"second-tier" securities, generally defined as those securities that, at the
time of acquisition, are rated in the second-highest rating category or are
determined by to be of comparable quality.
The Fund may not invest in any debt obligation that does not meet the maturity
and quality standards of Rule 2a-7 under the 1940 Act for money market funds.
Debt obligations in which the Fund may invest include (i) corporate debt
securities, including bonds, debentures, and notes; (ii) bank obligations,
such as certificates of deposit, banker's acceptances, and time deposits of
domestic and foreign banks and their subsidiaries and branches, and domestic
savings and loans associations (in amounts in excess of the insurance
coverage, currently $100,000 per account provided by the Federal Deposit
Insurance Corporation); (iii) commercial paper (including variable-amount
master demand notes); (iv) repurchase agreements; (v) floating- or variable-
rate debt obligations; (vi) asset-backed debt obligations; (vii) U.S. dollar
denominated foreign debt obligations; (viii) U.S. government securities issued
or guaranteed by the U.S. Treasury (such as bills, notes, or bonds) or by an
agency or instrumentality of the U.S. government; and (ix) municipal
obligations.
PORTFOLIO TURNOVER
Each Fund's turnover rate is not expected to exceed 50% annually. A Fund may
purchase or sell securities to accommodate purchases and sales of its shares.
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IMPLEMENTATION OF POLICIES AND RISKS
In addition to the investment policies described above (and subject to certain
restrictions described below), the Funds may invest in some or all of the
following securities and may employ some or all of the following investment
techniques, some of which may present special risks as described below. A more
complete discussion of certain of these securities and investment techniques
and the associated risks is contained in the Funds' SAI.
GOVERNMENT SECURITIES
U.S. government securities are issued or guaranteed by the U.S. government or
its agencies or instrumentalities. Securities issued by the government include
U.S. Treasury obligations, such as Treasury bills, notes and bonds. Securities
issued or guaranteed by government agencies or instrumentalities include the
following:
. the Federal Housing Administration, Farmers Home Administration, Export-
Import Bank of the United States, Small Business Administration, and the
Government National Mortgage Association, including GNMA pass-through
certificates, whose securities are supported by the full faith and
credit of the United States;
. the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right
of the agency to borrow from the U.S. Treasury;
. the Federal National Mortgage Association, whose securities are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; and
. the Student Loan Marketing Association, the Interamerican Development
Bank, and International Bank for Reconstruction and Development, whose
securities are supported only by the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
CASH EQUIVALENTS
Each Fund may from time to time invest in cash or cash equivalents, which
include, but are not limited to the following instruments:
(a) short term (maturing in 13 months or less) obligations issued or
guaranteed as to interest and principal by the U.S. Government or any
agency or instrumentality thereof;
(b) obligations of banks (including certificates of deposit and bankers'
acceptances) that have capital, surplus, and undivided profits (as of the
date of their most recently published financial statements) in excess of
$100,000,000; and obligations of other banks or savings and loan
associations if such obligations are federally insured, provided that not
more than 10% of the total assets of the Fund will be invested in such
other insured obligations;
(c) commercial paper rated in the top two categories by an NRSRO (short-
term unsecured promissory notes of corporations including variable rate
master demand notes);
(d) short term (maturing in one year or less) corporate obligations;
(e) obligations of U.S. and non-U.S. issuers denominated in U.S. dollars
and in securities of foreign branches of U.S. banks, such as negotiable
certificates of deposit, and including variable rate master demand notes
and floating rate notes; and
(f) debt instruments not specifically described if such instruments are
deemed by the Sub-Advisers to be of comparable high quality and liquidity.
Each Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933 (the
"1933 Act"). Section 4(2) commercial paper is restricted as to disposition
under federal securities laws and is generally sold to institutional
investors, such as the Funds, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like
5
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the Funds through or with the assistance of the issuer or investment dealers
who make a market in Section 4(2) commercial paper, thus providing liquidity.
For a description of the ratings referred to above, see Appendix B to this
Prospectus.
FOREIGN SECURITIES
The High Quality Stock Fund and the International Active Fund may invest in
foreign securities. These include dollar-denominated securities traded in the
U.S. on the New York Stock Exchange (the "NYSE"). The High Quality Stock Fund
may invest in foreign securities if the foreign securities are traded on the
NYSE.
The International Active Fund may invest directly in foreign equity
securities; U.S. dollar- or foreign currency-denominated foreign corporate
debt securities; foreign preferred securities; certificates of deposit, fixed
time deposits and bankers' acceptances issued by foreign banks; obligations of
foreign governments or their subdivisions, agencies and instrumentalities,
international agencies and supranational entities; and securities represented
by European Depositary Receipts ("EDRs"), American Depositary Receipts
("ADRs"), or Global Depositary Receipts ("GDRs"). ADRs are dollar-denominated
receipts issued generally by domestic banks and representing the deposit with
the bank of a security of a foreign issuer, and are publicly traded on
exchanges or over-the-counter in the United States. EDRs are receipts similar
to ADRs and are issued and traded in Europe. GDRs are global receipts similar
to ADRs and may be offered privately in the United States and also trade in
public or private markets in other countries.
Investing in the securities of issuers in any foreign country involves special
risks and considerations not typically associated with investing in U.S.
companies and governments of foreign nations. These risks include: differences
in accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of
the ability to transfer currency from a country); and political instability
which could affect U.S. investments in foreign countries. Additionally,
foreign securities and dividends and interest payable on those securities may
be subject to foreign taxes, including taxes withheld from payments on those
securities. Foreign securities often trade with less frequency and volume than
domestic securities and therefore may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may
include higher custodial fees than apply to domestic custodial arrangements
and transaction costs of foreign currency conversions. Changes in foreign
exchange rates also will affect the value of securities denominated or quoted
in currencies other than the U.S. dollar.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency rates may fluctuate significantly over short periods of time.
They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention (or the failure to
intervene) by U.S. or foreign governments or central banks, by currency
controls or political developments in the U.S. or abroad. Currencies in which
the International Active Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
The International Active Fund may, in addition to buying and selling foreign
currency futures contracts and options on foreign currencies and foreign
currency futures, enter into forward foreign currency exchange contracts to
reduce the risks of adverse changes in foreign exchange rates. A forward
foreign currency exchange contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. By entering into a forward foreign currency
contract, the Fund "locks in" the exchange rate between the currency it will
deliver and the currency it will receive for the duration of the contract. As
a result, the Fund reduces its exposure to changes in the value of the
currency it will deliver and increases its exposure to changes in the value of
the currency it will exchange into. The effect on the value of the Fund is
similar to selling securities denominated in one currency and purchasing
securities denominated in another. Contracts to sell foreign currency would
limit any potential gain which might be realized by the Fund if the value of
the hedged currency increases. The Fund may enter into these contracts for the
purpose of hedging against foreign exchange risk arising from the Fund's
investment or anticipated investment in securities
6
<PAGE>
denominated in foreign currencies. The Fund also may enter into these
contracts for purposes of increasing exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to another.
The Fund may use one currency (or a basket of currencies) to hedge against
adverse changes in the value of another currency (or a basket of currencies)
when exchange rates between the two currencies are positively correlated. The
Fund will segregate liquid assets, such as cash or high grade debt
obligations, in a segregated account to cover forward currency contracts
entered into for non-hedging purposes.
MANAGEMENT
The Board of Trustees is responsible for the overall operations of the Trust,
including reviewing the actions of the Trust's Adviser and Sub-Advisers as set
forth below. The Trust's officers supervise the daily business operations of
the Trust.
PROVIDIAN INVESTMENT ADVISORS, INC., 400 West Market Street, Louisville,
Kentucky 40202, has been retained under an Investment Advisory Agreement with
the Trust, dated , 1997, in general to supervise the management and
investment program of the Trust and each Fund. In addition, the Adviser
generally manages the affairs of the Trust, subject to the supervision of the
Board of Trustees. For information about the Board of Trustees and the Trust's
officers, see "Management" in the SAI. Under the Investment Advisory
Agreement, the Adviser receives an investment advisory fee equal to an annual
rate of 0.65% of the daily net asset value of the Fixed Income Fund, 0.65% of
the daily net asset value of the High Quality Stock Fund, 0.90% of the daily
net asset value of the International Active Fund, and 0.35% of the daily net
assets of the Money Market Fund.
ATLANTA CAPITAL MANAGEMENT COMPANY, L.L.C., Two Midtown Plaza, Suite 1600,
1360 Peachtree Street, Atlanta, Georgia 30309, has been retained by the
Adviser pursuant to a Sub-Advisory Agreement with the Adviser, dated ,
1997, to serve as the sub-adviser to the High Quality Stock Fund and the Fixed
Income Fund and in that capacity to select investments for those Funds.
Atlanta Capital, founded in 1969, performs investment management services for
various clients, including pension, profit sharing and other employee benefit
plans as well as other institutions and individuals. The firm manages
approximately $1.8 billion in fixed income and equity assets. Atlanta Capital
is owned and operated by six partners. For these services Atlanta Capital
receives a group fee from the Adviser based on the monthly average net assets
of the High Quality Stock Fund and Fixed Income Fund. This fee equals .50%
annually on assets up to $25 million, and .40% on assets above $25 million and
up to $ 50 million, and .30% annually on assets over $50 million.
BLAIRLOGIE CAPITAL MANAGEMENT, 125 Princes Street, Fourth Floor, Edinburgh EH2
4AD, Scotland, has been retained by the Adviser pursuant to a Sub-Advisory
Agreement with the Adviser dated , 1997, to serve as the sub-adviser
to the International Active Fund. Blairlogie is an investment management firm,
organized as a limited partnership under the laws of Scotland, United Kingdom,
with two general partners and one limited partner. The general partners are
PIMCO Advisors, which serves as the supervisory partner, and Blairlogie
Holdings Limited, a wholly owned corporate subsidiary of PIMCO Advisors, which
serves as the managing partner. The limited partner is Blairlogie Partners,
L.P., a limited partnership, the general partner of which is Pacific Financial
Asset Management Corporation, and the limited partners of which are the
principal executive officers of Blairlogie Capital Management. Blairlogie
Partners L.P. has agreed with PIMCO Advisors that PIMCO Advisors will acquire
one-fifth of its 25% interest annually, beginning December 31, 1997.
Blairlogie Capital Management Ltd., the predecessor investment adviser to
Blairlogie, commenced operations in 1992. Accounts managed by Blairlogie had
combined assets as of July 31, 1996 of approximately $.7 billion. Blairlogie
is registered as an investment adviser with the SEC in the United States and
with the Investment Management Regulatory Organization ("IMRO") in the United
Kingdom. As compensation for its services, the Adviser pays Blairlogie a fee
based on the monthly average net assets of the International Active Fund. This
fee equals 0.75% annually on assets up to $25 million, 0.60% annually on
assets above $25 million and up to $50 million, and 0.50% annually on assets
above $50 million.
The investment professionals primarily responsible for the management of each
Fund, with the respective responsibilities and business experience for the
past five years are as follows:
HIGH QUALITY STOCK FUND: Daniel W. Boone III, Senior Partner of Atlanta
Capital. He is responsible for the research and portfolio management of the
High Quality Stock Fund's equity portfolio and oversight of the equity
investment process. Mr. Boone joined Atlanta Capital in 1976.
7
<PAGE>
FIXED INCOME FUND: Gregory L. Coleman, Partner of Atlanta Capital. He is
responsible for the fixed income trading, portfolio management of the Fixed
Income Fund and investment strategy. Mr. Coleman joined Atlanta Capital in
1990.
INTERNATIONAL ACTIVE FUND: James Smith, a Managing Director and Chief
Investment Officer of Blairlogie. Mr. Smith is responsible for managing an
investment team of seven professionals who, in turn, specialize in selection
of stocks within Europe, Asia, the Americas and in currency and derivatives.
He joined Blairlogie as a founder in 1992 and previously served as a senior
portfolio manager at Murray Johnstone in Glasgow, Scotland, responsible for
international investment management for North American clients.
MONEY MARKET FUND:
PURCHASE AND REDEMPTION OF SHARES
Shares of each Fund are purchased or redeemed at their respective net asset
values next computed after receipt of an order (without a sales charge). For
information on how shares of the Funds are purchased and redeemed, read the
Contract prospectus.
NET ASSET VALUE AND PRICING
The net asset value of shares of each Fund is determined as of the close of
trading (currently 4:00 p.m. Eastern Time) on each Monday through Friday,
except customary national business holidays on which the New York Stock
Exchange is not open for trading, and days that the U.S. Postal Service or
national banks are closed. The net asset value of shares for each Fund is
determined by adding up the value of its securities (determined as set forth
below) and other assets, subtracting the liabilities, and dividing by the
number of shares outstanding.
Securities held by the Funds (other than the Money Market Fund) are valued
based upon readily available market quotations. Where such market quotations
are not available, securities are valued at fair value as determined by or
under the general supervision of the Board of Trustees.
The securities in the Money Market Fund are valued on an amortized-cost basis.
Under this method of valuation, a security is initially valued at its
acquisition cost, and thereafter, amortization of any discount or premium is
assumed each day, regardless of the impact of fluctuating interest rates on
the market value of the instrument. Under most conditions,
believes it will be possible to maintain the net asset value of the Fund at
$1.00 per share. Calculations are periodically made to compare the value of
the Fund's portfolio valued at amortized cost with market values. If a
deviation of 1/2 of 1% or more were to occur between the net asset value
calculated by reference to market values and the Fund's $1.00 per share net
asset value, or if there were any other deviation that the Board of Trustees
believed would result in a material dilution to shareholders or purchasers,
the Board of Trustees would promptly consider what action, if any, should be
initiated. See "Net Asset Values of the Shares of the Funds" in the SAI for
details.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund is treated as a separate taxable entity and will elect to qualify as
a "regulated investment company" under applicable provisions of the Internal
Revenue Code of 1986 (the "Code"). As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timing of its distributions, and the diversification of its assets, each fund
will be allowed a deduction for amounts distributed to its shareholders from
its ordinary income and net realized capital gains and will not be subject to
federal income tax on such amounts. To qualify for treatment as a "regulated
investment company," each Fund must, among other things, derive in each
taxable year at least 90 percent of its gross income from dividends, interest
and gains from the sale or other disposition of securities, and derive less
than 30 percent of its gross income in each taxable year from the gains
(without deduction for losses) from the sale or other disposition of
securities held for less than three months.
Each Fund intends to distribute sufficient net investment income to avoid the
application of federal income tax on the Trust. Each Fund also intends to
distribute sufficient income to avoid the losses from the sale of its
investments less its estimated expenses (including fees payable to the
Adviser).
8
<PAGE>
In order to comply with certain potentially applicable regulations under
Section 817(h) of the Code concerning variable annuity contracts and variable
life insurance policies, each Fund will diversify its investments so that on
the last day of each quarter of a calendar year, no more than 55% of the value
on each Fund is represented by any one investment, no more than 70% is
represented by any two investments, no more than 80% is represented by any
three investments, and no more than 90% is represented by any four
investments. For this purpose, securities of a single issuer are treated as
one investment and each U.S. Government agency or instrumentality is treated
as a separate issuer. Any security issued, guaranteed, or insured (to the
extent so guaranteed or insured) by the U.S. Government or an agency or
instrumentality of the U.S. Government is treated as a security issued by the
U.S. Government or its agency or instrumentality, whichever is applicable.
Dividends from the Funds (other than the Money Market Fund) will be declared
and distributed monthly. Dividends from the Money Market Fund will be declared
on each day its net asset value is calculated except bank holidays. Income
earned on weekends, holidays (including bank holidays), and days on which net
asset value is not calculated is declared as a dividend on the day on which
the Fund's net asset value was most recently calculated. The Trustees may
decide to declare dividends at other intervals.
All net realized long-term capital gains of the Trust, if any, are declared
and distributed annually after the close of the Trust's fiscal year to the
shareholders of the Fund or Funds to which such gains are attributable.
PERFORMANCE AND YIELD INFORMATION
From time to time, the Trust may advertise a variety of types of performance
information including "yield," "average annual total return," "total return,"
"cumulative total return," and "effective yield." Each of these figures will
be based on historical information and is not intended to indicate future
performance of the Funds.
The yield of a Fund (other than the Money Market Fund) refers to the
annualized income generated by an investment in that Fund over a specified 30-
day period. The yield is calculated by assuming that the income generated by
the investment during that 30-day period is generated each 30-day period over
a twelve-month period and is shown as a percentage of the investment. The
Money Market Fund's yield and effective yield are measures of the net
investment income per share earned by the Fund over a specific seven-day
period and are shown as a percentage of the investment. However, effective
yield will be slightly higher than the yield because effective yield assumes
that the net investment income earned by the Fund will be reinvested.
The total return of a Fund refers to return quotations assuming an investment
has been held in the Fund for various periods of time including, but not
limited to, one year and a period measured from the date the Fund commenced
operations. When a Fund has been in operation for five and ten years,
respectively, the total return for these periods will be provided. The total
return quotations will represent the average annual compounded rates of return
that would equate an initial investment of $1,000 to the redemption value of
that investment as of the last day of each of the periods for which total
return quotations are provided.
The yield and total return calculations do not reflect the effect of the
charges that may be applicable to a particular Contract or separate account.
Such charges will reduce the net yield and total return of that Contract.
Performance figures for a Fund will only be advertised if the comparable
figures for the Contract are included in the advertisement.
GENERAL INFORMATION
SHARES OF BENEFICIAL INTEREST
All shares of beneficial interest of the Trust are entitled to one vote, and
votes are generally on an aggregate basis. However, on matters where the
interests of the Funds differ (such as approval of an investment advisory
agreement or a change in fundamental investment policies), the voting is on a
Fund-by-Fund basis. The Trust does not hold routine annual shareholders'
meetings. The shares of each Fund issued, are fully paid and non-assessable,
have no preference, conversion, exchange or similar rights, and are freely
transferrable. In addition, each issued and outstanding share in a Fund is
entitled to participate equally in dividends and distributions declared by
such Fund. Providian Life and Health Insurance Company Separate Account V is
the legal owner of the shares it holds and as such has the right to vote to
elect the Trustees of the Trust, to vote upon certain matters that are
required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund and to vote upon any other matter that may be
9
<PAGE>
voted upon at a shareholders' meeting. However, in accordance with its view of
presently applicable law, Providian Life and Health Insurance Company Separate
Account V will vote the shares of the Trust at special meetings of the
shareholders of the Trust in accordance with instructions received from
Contract Owners.
AUDITORS
Ernst & Young LLP serves as independent auditors for the Trust and will audit
each Fund's financial statements annually.
LEGAL COUNSEL
Legal advice regarding certain matters relating to the Federal securities laws
has been provided by Jorden Burt Berenson & Johnson LLP, Washington, D.C.
CUSTODIAN
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is the Custodian of the Trust's assets.
REPORTS TO SHAREHOLDERS
The Trust will send annual and semi-annual reports to Contract Owners showing
the financial conditions of the Funds and the investments held in each.
OTHER INFORMATION
Inquiries and requests for the Statement of Additional Information should be
directed to the Trust at (800) or P.O. Box 32700, Louisville,
Kentucky 40232.
10
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more details
concerning the subjects discussed in this Prospectus. The following is the
Table of Contents for the SAI:
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives...................................................... B-2
Description of Securities and Investment Techniques........................ B-4
Portfolio Turnover and Securities Transactions............................. B-24
Management................................................................. B-25
Net Asset Values of the Shares of the Funds................................ B-27
Investment Performance..................................................... B-28
Taxes...................................................................... B-32
General Information........................................................ B-32
Independent Accountants.................................................... B-34
Financial Statements....................................................... F-
</TABLE>
11
<PAGE>
APPENDIX A--STANDARD AND POOR'S
EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
In establishing Standard and Poor's quality rankings for common stocks, growth
and stability of earnings and dividends are deemed key elements. The point of
departure in arriving at these rankings is a computerized scoring system based
on per-share earnings and dividend records of the most recent ten years. Basic
scores are computed for earnings and dividends, then adjusted as indicated by
a set of predetermined modifiers for growth, stability within long-term trend,
and cyclicality.
The final score for each stock is measured against a scoring matrix determined
by analysis of the scores of a large and representative sample of stocks. The
range of scores in the array of this sample has been aligned with the
following ladder of rankings:
<TABLE>
<S> <C> <C>
A+ Highest A- Above Average B- Lower
A High B+ Average C Lowest
B Below Average D in Reorganization
</TABLE>
NR signifies no ranking because of insufficient data or because the stock is
not amenable to the ranking process.
A-1
<PAGE>
APPENDIX B--SECURITIES RATINGS
DESCRIPTION OF CORPORATE BOND
RATINGS
Moody's Investor Service, Inc.'s Corporate Bond Ratings:
Aaa--Bonds which are rated Aaa by Moody's Investor Service, Inc. ("Moody's")
are judged to be the best quality and carry the smallest degree of investment
risk. 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 which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
Standard & Poor's Corporation's Corporate Bond Ratings:
AAA--This is the highest rating assigned by Standard & Poor's ("S&P") to a
debt obligation and indicates an extremely strong capacity to pay principal
and interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
B-1
<PAGE>
BB/B/CCC/CC--Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from AA to B may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
B-2
<PAGE>
PROVIDIAN SERIES TRUST
ADMINISTRATIVE OFFICE
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
, 1997
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER , 1996
PROSPECTUS
PROVIDIAN SERIES TRUST
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
, 1997
Providian Series Trust (the "Trust") is a diversified investment company
presently consisting of nine separate series each having different investment
objectives and policies. This prospectus describes five series of shares, each
a professionally managed investment portfolio (a "Portfolio"). These Portfolios
currently serve as the investment medium for variable annuity contracts
("Contracts") offered by insurance companies (see "Purchase and Redemption of
Shares"). Each Portfolio seeks to achieve its objective by investing in a
number of Providian mutual funds. This prospectus also describes the Money
Market Fund, which is available only for the purpose of depositing and holding
initial purchase payments during the Free Look Period for the Contracts issued
in certain states.
The CAPITAL PRESERVATION PORTFOLIO seeks high current income with low
volatility of principal.
The INCOME ORIENTED PORTFOLIO seeks income and, secondarily, long term growth
of capital.
The GROWTH AND INCOME PORTFOLIO seeks growth of capital and income.
The CAPITAL GROWTH PORTFOLIO seeks long term growth of capital and,
secondarily, current income.
The MAXIMUM APPRECIATION PORTFOLIO seeks capital appreciation.
The MONEY MARKET FUND seeks current income, a stable share price, and daily
liquidity. The Money Market Fund invests in corporate, bank, and government
instruments that present minimal credit risk. AN INVESTMENT IN THE MONEY MARKET
FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
The Trust may offer other series of shares in the future. The Portfolios'
shares will not be offered directly to the public. There is no assurance that
any of the Portfolios will achieve their investment objectives.
This Prospectus sets forth concisely the information about the Trust and each
of the Portfolios that an investor should know before investing. A Statement of
Additional Information (the "SAI") dated , 1997, containing additional
information about the Trust, has been filed with the Securities and Exchange
Commission and is incorporated by reference in this Prospectus in its entirety.
You may obtain a copy of the SAI without charge by calling or writing the
Trust.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY.................................................................... 1
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS....................... 2
RISK FACTORS AND SPECIAL CONSIDERATIONS.................................... 3
PORTFOLIO TURNOVER......................................................... 4
INVESTMENT RESTRICTIONS.................................................... 4
DESCRIPTION OF THE UNDERLYING FUNDS........................................ 4
IMPLEMENTATION OF POLICIES AND RISKS OF THE UNDERLYING FUNDS............... 8
MANAGEMENT................................................................. 10
PURCHASE AND REDEMPTION OF SHARES.......................................... 11
NET ASSET VALUE AND PRICING................................................ 12
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 12
PERFORMANCE AND YIELD INFORMATION.......................................... 13
GENERAL INFORMATION........................................................ 13
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS...................... 15
APPENDIX A--COMMON STOCK RANKINGS.......................................... A-1
APPENDIX B--SECURITIES RATINGS............................................. B-1
</TABLE>
<PAGE>
SUMMARY
The Providian Series Trust (the "Trust") was organized as a Massachusetts
business trust on October 22, 1996. The Trust is a diversified, no-load, open-
end management investment company registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940 ("1940 Act"). The
Trust is a "series" type of mutual fund which issues separate classes (or
series) of stock, each of which represents a separate diversified portfolio of
investments. This Prospectus offers shares of five investment portfolios
("Portfolios") of the Trust and the Money Market Fund (for the purpose of
holding initial deposits during the free look period for Contracts issued in
certain states).
INVESTMENT OBJECTIVES. Each Portfolio seeks to achieve its objective by
investing in a number of other Providian mutual funds. The Capital
Preservation Portfolio seeks high current income with low volatility of
principal. The Income Oriented Portfolio seeks income and, secondarily, long-
term growth of capital. The Growth and Income Portfolio seeks growth of
capital and income. The Capital Growth Portfolio seeks long-term growth of
capital and, secondarily, current income. The Maximum Appreciation Portfolio
seeks capital appreciation. Each Portfolio seeks to achieve its investment
objective by investing in a diverse mix of "Underlying Funds," which consist
of open-end management investment companies or series thereof for which
Providian Investment Advisors, Inc. acts as investment adviser. Investors may
choose to invest in one of the Portfolios based on their personal investment
goals, risk tolerance and financial circumstances. See "Investment Objectives
and Policies of the Portfolios."
The shares of the Portfolios are offered to separate accounts of insurance
companies to fund variable annuity contracts issued by Providian Life and
Health Insurance Company ("Providian Life"). Shares of the Portfolios may be
offered to qualified plans and, in the future, in connection with variable
life insurance policies. The rights of an insurance company holding Trust
shares for a separate account are different from the rights of the owner of a
Contract ("Contract Owner"). The terms "shareholder" or "shareholders" in this
Prospectus shall refer to the insurance companies and qualified plans, and not
to any Contract Owner.
Providian Investment Advisors, Inc. (the "Adviser") serves as each Portfolio's
investment adviser. Atlanta Capital Management Company, L.L.C. ("Atlanta
Capital") serves as each Portfolio's sub-adviser. serves
as the sub-adviser to the Money Market Fund. Atlanta Capital, ,
and Blairlogie Capital Management ("Blairlogie") serve as sub-advisers to the
Underlying Funds (collectively referred to as the "Sub-Advisers"). The Adviser
supervises the Trust's overall management and investment program, performs a
variety of administrative services on behalf of the Trust, pays the Sub-
Advisers of the Underlying Funds and fees and expenses of officers and
Trustees of the Trust who are affiliated persons of the Adviser, the Sub-
Advisers or the Trust. The Trust pays all other expenses incurred in the
operation of the Trust, including fees and expenses of Trustees who are
unaffiliated persons of the Adviser, the Sub-Advisers, or the Trust. Although
the Portfolios do not pay an investment management fee in connection with
management of the Portfolios, the Portfolios will indirectly bear their pro
rata share of the fees and expenses incurred by the Underlying Funds. The
Adviser has agreed to limit the operating expenses (excluding advisory fees)
of each Portfolio so that the ratio of expenses of net assets on an annual
basis incurred directly or incurred on a pass through basis as a result of a
Portfolio's ownership of Underlying Funds does not exceed .20%. This
limitation will apply for two years after commencement of operations.
RISK FACTORS AND SPECIAL CONSIDERATIONS. The assets of each Portfolio are
invested in certain Underlying Funds, so each Portfolio's investment
performance is directly related to the investment performance of the
Underlying Funds held. The ability of each Portfolio to meet its investment
objective is directly related to the ability of the Underlying Funds held to
meet their objectives as well as the allocation among those Underlying Funds
by the Adviser and Atlanta Capital. There can be no assurance that the
investment objective of any Portfolio or any Underlying Fund will be achieved.
The value of the Underlying Funds' investments, and thus the net asset value
of both those Underlying Funds' and the Portfolios' shares, will fluctuate in
response to changes in market and economic conditions, as well as the
financial condition and prospects of issuers in which the Underlying Funds
invest. For a description of the risks involved in an investment in the
Portfolios, see "Investment Objectives and Policies of the Portfolios," and
"Description of the Underlying Funds."
1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
The Portfolios will be managed so that each Portfolio can serve as a complete
investment program for the Contracts. Each of the Portfolios invests in a
select group of Underlying Funds suited to the Portfolio's particular
investment objective. The allocation of assets among Underlying Funds within
each Portfolio is determined by Atlanta Capital within guidelines established
by the Trustees of the Trust according to fundamental and quantitative
analysis of the expected long term return and risk characteristics for each
Underlying Fund. Because the assets will be adjusted only periodically and
only within pre-determined ranges that will attempt to ensure broad
diversification, there should not be any sudden large scale changes in the
allocation of a Portfolio's investments among Underlying Funds. The Portfolios
are not designed as a tactical asset allocation vehicle, but rather as a
simple and conservative approach to helping investors meet retirement and
other long-term goals.
The Providian Series Trust is an open-end, diversified, management investment
company that currently offers nine investment portfolios. The Portfolios seek
to achieve their investment objective by investing within specified ranges
among Underlying Funds. Initially, each Portfolio will invest in the
Underlying Funds listed below.
Atlanta Capital will allocate investments for each Portfolio among Underlying
Funds based on their outlook for the economy, financial markets and the
relative performance of the Underlying Funds. The allocation among the
Underlying Funds will be made within investment ranges established by the
Trustees of the Trust which designate minimum and maximum percentages for each
of the Underlying Funds.
The Capital Preservation Portfolio seeks high current income with low
volatility of principal. The Income Oriented Portfolio seeks income and,
secondarily, long term growth of capital. The Growth and Income Portfolio
seeks growth of capital and income. The Capital Growth Portfolio seeks long
term growth of capital and, secondarily, current income. The Maximum
Appreciation Portfolio seeks capital appreciation. Each Portfolio's investment
objective is fundamental and may be changed only with the approval of a
majority of the Portfolio's outstanding shares. There can be no assurance that
any Portfolio's investment objective will be achieved.
By investing in Underlying Funds, the Portfolios seek to maintain different
allocations between equity funds and fixed income funds (including the Money
Market Fund) depending on a Portfolio's investment objective. Allocating
investments between equity funds and fixed income funds permits each Portfolio
to attempt to optimize performance consistent with its investment objective.
The tables below illustrate the initial equity/fixed income/money market fund
allocation targets and ranges for each Portfolio:
EQUITY/FIXED INCOME/MONEY MARKET FUND RANGE (PERCENT OF EACH PORTFOLIO'S NET
ASSETS)
<TABLE>
<CAPTION>
INITIAL POLICY
TYPE OF FUND TARGET RANGE
- ------------ ------- -------
<S> <C> <C>
CAPITAL PRESERVATION PORTFOLIO
Equity....................................................... 0 0
Fixed Income................................................. 50% 40%-60%
Money Market................................................. 50% 40%-60%
---
100%
INCOME ORIENTED PORTFOLIO
Equity....................................................... 35% 25%-40%
Fixed Income................................................. 50% 40%-60%
Money Market................................................. 15% 0-25%
---
100%
GROWTH AND INCOME PORTFOLIO
Equity....................................................... 50% 40%-60%
Fixed Income................................................. 40% 30%-50%
Money Market................................................. 10% 0-25%
---
100%
CAPITAL GROWTH PORTFOLIO
Equity....................................................... 75% 60%-85%
Fixed Income................................................. 25% 15%-35%
Money Market................................................. 0 0-25%
---
100%
MAXIMUM APPRECIATION PORTFOLIO
Equity....................................................... 100% 85%-100%
Fixed Income................................................. 0 0-15%
Money Market................................................. 0 0-15%
---
100%
</TABLE>
2
<PAGE>
The Portfolios invest their assets in the Underlying Funds listed below within
the ranges indicated.
INVESTMENT RANGE (PERCENT OF EACH PORTFOLIO'S NET ASSETS)
<TABLE>
<CAPTION>
CAPITAL INCOME GROWTH & CAPITAL MAXIMUM
PRESERVATION ORIENTED INCOME GROWTH APPRECIATION
UNDERLYING FUND PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------- ------------ --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
High Quality Stock Fund. 0% 15-40% 25-55% 35-75% 50-90%
International Active
Fund................... 0% 0-10% 5-15% 10-25% 10-35%
Total Equity Funds...... 0% 25-40% 40-60% 60-85% 85-100%
Fixed Income Fund....... 40-60% 40-60% 30-50% 15-35% 0-15%
Money Market Fund....... 40-60% 0-25% 0-25% 0-25% 0-15%
</TABLE>
The Underlying Funds have been selected to represent a broad spectrum of
investment options for the Portfolios. The equity/fixed income/money market
ranges and the investment ranges are based on the degree to which the
Underlying Funds selected are appropriate for a Portfolio's particular
investment objective. If, as a result of appreciation or depreciation, the
percentage of a Portfolio's assets invested in an Underlying Fund exceeds or
is less than the applicable percentage limitations set forth above, Atlanta
Capital will consider, in its discretion, whether to reallocate the assets of
the Portfolio to comply with the foregoing percentage limitations. THE
PARTICULAR UNDERLYING FUNDS IN WHICH EACH PORTFOLIO MAY INVEST, THE
EQUITY/FIXED INCOME/MONEY MARKET FUND TARGETS AND RANGES AND THE INVESTMENT
RANGES APPLICABLE TO EACH UNDERLYING FUND MAY BE CHANGED FROM TIME TO TIME BY
THE BOARD OF TRUSTEES WITHOUT THE APPROVAL OF THE PORTFOLIO'S SHAREHOLDERS.
Each Portfolio can invest a certain portion of its cash reserves in money
market instruments and U.S. government securities. Each Portfolio may also
invest its cash reserves in the Money Market Fund. A reserve position provides
flexibility in meeting redemptions, expenses and the timing of new
investments, and serves as a short term defense during periods of unusual
volatility.
FOR INFORMATION ABOUT THE INVESTMENT OBJECTIVES OF EACH OF THE UNDERLYING
FUNDS AND THE INVESTMENT TECHNIQUES AND THE RISKS INVOLVED IN THE UNDERLYING
FUNDS, PLEASE REFER TO "DESCRIPTION OF THE UNDERLYING FUNDS" AND THE SAI.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investment Practices of the Underlying Funds. The different types of
securities and investment techniques common to one or more of the Underlying
Funds all have attendant risks of varying degrees. For example, with respect
to equity securities, there can be no assurance of capital appreciation and
there is a substantial risk of decline. With respect to debt securities, there
can be no assurance that the issuer of such securities will be able to meet
its obligations on interest or principal payments in a timely manner. In
addition, the value of debt instruments generally rises and falls inversely
with changes in interest rates.
The Portfolios differ in terms of stock market risk, interest rate risk, and
credit risk. Stock market risk is the possibility that stock prices in general
will decline over short or extended periods. Stock markets tend to be cyclical
with periods when stock prices generally rise or fall. The Maximum
Appreciation, Capital Growth, Growth and Income and Income Oriented Portfolios
also may have exposure to foreign stock markets, which are generally thought
to be riskier than domestic markets. Interest rate risk is the possibility
that bond prices will decline over short or long periods due primarily to
changes in market interest rates. Credit risk is the possibility that an
issuer's ability to make debt service payments will decline.
Three of the Portfolios, Maximum Appreciation, Capital Growth and Growth and
Income, will have a higher exposure to stock market risk because of the
significant investment these Portfolios have in equity funds. The other two
Portfolios, Capital Preservation and Income Oriented, will have higher
exposure to interest rate and credit risk because of the significant
investment exposure these Portfolios have in bond funds.
The investments and investment techniques common to one or more of the
Underlying Funds are described in greater detail, including the risks of each,
in the "Description of Securities and Investment Techniques" in the SAI.
3
<PAGE>
Affiliated Persons. The Adviser, the investment manager of the Portfolios,
Atlanta Capital, the sub-adviser of the Portfolios, and the officers and
Trustees of the Trust presently serve as investment adviser, sub-adviser, and
Trustees, respectively, of the Underlying Funds. Therefore, conflicts
theoretically may arise as these persons fulfill their fiduciary
responsibilities to the Portfolios and the Underlying Funds.
PORTFOLIO TURNOVER
Each Portfolio's turnover rate is not expected to exceed 25% annually. A
Portfolio may purchase or sell securities to (a) accommodate purchases and
sales of its shares; (b) change the percentages of its assets invested in the
Underlying Funds in response to market conditions; or (c) maintain or modify
the allocation of its assets between equity and fixed income/money market
funds and among the Underlying Funds within the percentage limits described
previously.
INVESTMENT RESTRICTIONS
In addition to the investment objectives of each Portfolio, the Portfolios are
subject to investment restrictions that are described under "Investment
Objectives" in the SAI. Each Portfolio's investment objective and investment
restrictions are "fundamental policies," which means that they may not be
changed without a majority vote of shareholders of the affected Portfolios.
Except for fundamental policies, all investment policies and practices
described in this Prospectus and in the SAI are not fundamental, meaning that
the Board of Trustees may change them without shareholder approval. See
"Description of Securities and Investment Techniques" and "Investment
Restrictions" in the SAI for further information.
The following is a concise description of the investment objectives and
practices for each of the Underlying Funds in which the Portfolios may invest.
There can be no assurance that the investment objectives of the Underlying
Funds will be met. Additional information regarding the investment practices
of the Underlying Funds is located in the SAI and in the prospectus of the
Underlying Funds. No offer is made in this Prospectus of any of the Underlying
Funds except the Money Market Fund, which is only used during the Free Look
Period under the Contracts in certain states.
DESCRIPTION OF THE UNDERLYING FUNDS
Four Underlying Funds serve as investment medium for the Portfolios. The
investment objectives of the four Underlying Funds are as follows:
. The HIGH QUALITY STOCK FUND seeks long-term growth of capital. The Fund
pursues its investment objective by investing primarily in stocks of three
categories of companies that are publicly traded in the United States: the
500 largest in market capitalization, the 501st to the 1250th largest in
market capitalization, and the 1000th to the 3000th largest in market
capitalization at the time of purchase.
. The FIXED INCOME FUND seeks the highest level of income as is consistent
with the preservation of capital. The Fund pursues its investment objective
primarily by investing in investment grade debt securities, which range in
maturity from one to ten years, including securities issued by the U.S.
government or an agency or instrumentality of the U.S. government, asset-
backed securities and corporate debt obligations.
. The INTERNATIONAL ACTIVE FUND seeks long term growth of capital. The Fund
pursues its objective by investing primarily in a diversified portfolio of
international equity securities.
. The MONEY MARKET FUND seeks current income, a stable share price, and daily
liquidity. The Fund invests in corporate, bank, and government instruments
that present minimal credit risk.
The Adviser serves as each Underlying Fund's investment adviser. Atlanta
Capital serves as the sub-adviser to the High Quality Stock Fund and the Fixed
Income Fund. Blairlogie serves as the sub-adviser to the International Active
Fund. serves as the sub-adviser to the Money Market Fund.
4
<PAGE>
HIGH QUALITY STOCK FUND
In seeking its objective of long term growth of capital, the High Quality
Stock Fund will attempt to achieve a high total return (i.e., price
appreciation plus potential dividend yield) primarily through investment in
selected high quality common stocks of large, medium and small size companies
that are publicly traded in the United States. The High Quality Stock Fund
primarily selects stocks from among three categories of companies: the 500
largest in market capitalization, the 501st to the 1250th largest in market
capitalization and the 1000th to the 3000th largest in market capitalization
at the time of purchase. Each company must have a common stock ranking of B+
or better by Standard & Poor's Corporation ("S&P") (or if not ranked by S&P,
of comparable quality ranking by another recognized ranking service, or if
unranked, of comparable quality in the opinion of Atlanta Capital) (this
standard is referred to as a "common stock ranking of B+ or better"). From
this universe of stock issues, Atlanta Capital selects stocks based upon a
favorable combination of valuation, price volatility and earnings stability.
Approximately 50 stocks of large market capitalization companies, 60 stocks of
medium market capitalization companies, and 75 stocks of small market
capitalization companies are included in the Fund's portfolio.
Atlanta Capital, the investment sub-adviser to the High Quality Stock Fund,
generally believes that high quality companies, that is, companies with
superior track records of consistent earnings and dividend growth, tend to
outperform the stock market over the long term. The Fund seeks to outperform
its benchmarks, the S&P 500 Composite Stock Price Index and the Russell 3000
Index. Atlanta Capital's stock selection methods will be based upon, among
other things, the analysis of variables which it believes significantly relate
to the future market performance of a stock, such as recent changes in
earnings per share and their deviations from analysts' expectations, past
growth trends, price action of the stock itself, publicly recorded trading
transactions by corporate insiders, and relative price-earnings ratios.
By investing in securities that are subject to market risk, the High Quality
Stock Fund is also subject to greater fluctuations in its market values and a
higher degree of risk as compared to a fund seeking stability of principal,
such as a money market fund or a fund investing primarily in debt obligations
issued or guaranteed by the U.S. government or its agencies or
instrumentalities (these obligations are referred to in this Prospectus as
"U.S. government securities").
The High Quality Stock Fund's investment philosophy is based on extensive
research which shows that high-quality growth companies have produced
consistently increasing earnings and dividends, thereby providing attractive
returns with moderate risk over the long term. To qualify for purchase, each
company must have a common stock ranking of B+ or better. Atlanta Capital will
conduct fundamental income statement and balance sheet research on individual
companies to estimate future sustainable growth rates, evaluate current
earnings momentum, and estimate relative value of the stock. Atlanta Capital
intends to sell stocks based on such factors as deteriorating fundamentals,
below B+ quality ranking, and/or poor relative valuation.
If market conditions indicate their desirability, Atlanta Capital may, for
defensive purposes, temporarily invest, without limitation, the assets of the
High Quality Stock Fund in cash or cash equivalents. See "Cash Equivalents"
below, and "Debt Securities" under "Description of Securities and Investment
Techniques" in the SAI for further information.
FIXED INCOME FUND
In seeking its objective of the highest level of income as is consistent with
the preservation of capital, the Fixed Income Fund will invest in securities
issued by the U.S. government or an agency or instrumentality of the U.S.
government, including mortgage-related securities. The U.S. government
securities which may be purchased by the Fixed Income Fund include direct
obligations issued by the United States Treasury, such as Treasury bills,
certificates of indebtedness, notes and bonds. The Fixed Income Fund may also
purchase instruments issued or guaranteed by agencies or instrumentalities of
the United States government, including mortgage-related securities.
The Fixed Income Fund may also purchase mortgage-related securities and asset-
backed securities not issued by the U.S. government or any agency or
instrumentality thereof. The Fixed Income Fund may also invest in investment
grade corporate debt securities rated in one of the three highest rating
categories by Moody's Investor Service, Inc. ("Moody's"), S&P, Fitch Investor
Services, or another nationally recognized statistical rating organization
("NRSRO"), or if unrated, of comparable quality in the opinion of Atlanta
Capital. While non-U.S. government securities may present greater credit risk
than U.S. government securities, they also tend to afford higher yields than
U.S. government securities. Debt securities purchased by the Fund may be of
any maturity. It is anticipated that the weighted average maturity of the debt
portfolio generally will be between 3 and 7 years, but may be shorter or
longer under unusual market circumstances.
5
<PAGE>
Among the mortgage-related securities that may be purchased by the Fixed Income
Fund are "mortgage-backed securities" of the Government National Mortgage
Association ("GNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and
the Federal National Mortgage Association ("FNMA"). These mortgage-backed
securities include "pass-through" securities and "participation certificates,"
both of which are similar, representing pools of mortgages that are assembled,
with interests sold in each pool. Payments of principal (including prepayments)
and interest by individual mortgagors are "passed through" to the holders of
the interests in each pool; thus, each payment to holders may contain varying
amounts of principal and interest. Another type of mortgage-backed security is
the collateralized mortgage obligation ("CMO"). A CMO is a security that is
backed by mortgage pass-through securities or in some cases mortgage loans. The
cash flow from the pass-throughs or loans is redirected to one or more classes
or tranches in a prescribed manner. Timely payment of principal and interest on
GNMA pass-throughs is guaranteed by the full faith and credit of the United
States. FHLMC and FNMA are both instrumentalities of the U.S. government, but
their obligations are not backed by the full faith and credit of the United
States. See "Mortgage-Backed Securities" under "Description of Securities and
Investment Techniques" in the SAI for further information.
There is minimal credit risk involved in the purchase of government or
government-guaranteed securities. However, as with any fixed income investment,
when interest rates decline, the market value of a portfolio invested at higher
yields can be expected to rise. Conversely, when interest rates rise, the
market value of a portfolio invested at lower yields can be expected to
decline. Therefore, Atlanta Capital may engage in portfolio trading to take
advantage of market developments and yield disparities, for example, shortening
the average maturity of the portfolio in anticipation of a rise in interest
rates so as to minimize depreciation of principal, or lengthening the average
maturity of the portfolio in anticipation of a decline in interest rates so as
to maximize appreciation of principal.
The Fixed Income Fund seeks to outperform the Lehman Brothers Intermediate
Aggregate Index (the "Index") over an interest rate cycle. (See the SAI for a
description of the Index). The portfolio duration will generally range from 80%
to 120% of the Index duration. Typically, this causes the weighted average
maturity of the portfolio to vary between 3 and 7 years. Atlanta Capital sets
duration strategy based on its assessment of secular and cyclical economic,
demographic and political trends.
The Fixed Income Fund may invest in asset-backed securities which represent
fractional interests in pools of leases, retail installment loans and revolving
credit receivables, both secured and unsecured. The Fixed Income Fund may also
use various other investment strategies and techniques when Atlanta Capital
determines that such use is appropriate in an effort to meet the Fund's
investment objective. Such strategies and techniques include, but are not
limited to, entering into repurchase agreements and investing in when-issued or
delayed delivery securities. See "Description of Securities and Investment
Techniques" in the SAI for further information.
INTERNATIONAL ACTIVE FUND
The International Active Fund seeks long term growth of capital. In pursuing
this objective, the Fund invests primarily in a diversified portfolio of
international equity securities. The Morgan Stanley Capital International EAFE
(Europe, Australia, Far East) Index ("EAFE Index") is used as a basis for
choosing the countries in which the Fund invests. However, the Fund is not
limited to the countries and weightings of the EAFE Index. Blairlogie applies
two levels of screening in selecting investments for the Fund. First, an active
country selection model analyzes world markets and assigns a relative value
ranking, or "favorability weighting," to each country in the relevant universe
to determine markets which are relatively undervalued. Second, at the stock
selection level, quality analysis and value are applied to each security,
assessing variables such as balance sheet strength and earnings growth (quality
factors) and performance relative to the industry, price to earnings ratios and
price to book ratios (value factors). This two-level screening method
identifies undervalued securities for purchase as well as provides a sell
discipline for fully valued securities. While Blairlogie endeavors to apply the
same variables to all stock markets, the applicability of the analytical tools
can differ between countries. In selecting securities, Blairlogie considers, to
the extent practicable and on the basis of information available to it for
research, a company's environmental business practices.
Most of the foreign securities in which the Fund invests will be denominated in
foreign currencies. The Fund may engage in foreign currency transactions to
protect itself against fluctuations in currency exchange rates in relation to
the U.S. dollar or to the weighting of a particular foreign currency on the
EAFE Index. Such foreign currency transactions may include forward foreign
currency contracts, currency exchange transactions on a spot (i.e., cash)
basis, put and call options on foreign currencies, and foreign exchange futures
contracts. The Fund may invest in stock index futures contracts, foreign
exchange futures contracts, and options thereon, and may sell (write) call and
put options. The Fund also may engage in equity index swap transactions.
6
<PAGE>
Investing in the securities of foreign involves special risks and
considerations not typically associated with investing in U.S. companies. For
information on other investment policies, see the SAI for more details on
investment practices.
MONEY MARKET FUND
The Money Market Fund seeks current income, a stable share price, and daily
liquidity. The Money Market Fund's investments include corporate, bank, and
government instruments that present minimal credit risk.
The Money Market Fund will be used during the Free Look Period under the
Contracts in certain states. Because the Fund seeks to maintain a constant net
asset value of $1.00 per share, capital appreciation is not expected to play a
role in the Fund's returns, and dividend income alone is expected to provide
its entire investment return. All money market instruments can change in value
when interest rates or an issuer's creditworthiness changes dramatically. THE
FUND CANNOT GUARANTEE THAT IT WILL ALWAYS BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE. An investment in the Fund is neither insured
nor guaranteed by the U.S. government.
The Money Market Fund invests in a combination of bank, corporate, and
government obligations that present minimal credit risks. The Fund restricts
its investments to instruments that meet certain maturity and quality standards
required or permitted by Rule 2a-7 under the 1940 Act for money market funds.
Accordingly, the Fund:
(i) limits its average portfolio maturity to 90 days or less;
(ii) buys only securities with remaining maturities of 13 months or less;
and
(iii) buys only U.S. dollar-denominated securities that represent minimal
credit risks and are "high quality," as described below.
The Fund invests only in high quality securities. Accordingly, the Fund will
invest at least 95% of its total assets in "first-tier" securities, generally
defined as those securities that, at the time of acquisition, are rated in the
highest rating category by at least two NRSROs, or, if unrated, are determined
by to be of comparable quality. The balance of the Fund, up to 5%
of its total assets, may be invested in securities that are considered "second-
tier" securities, generally defined as those securities that, at the time of
acquisition, are rated in the second-highest rating category or are determined
by to be of comparable quality.
The Fund may not invest in any debt obligation that does not meet the maturity
and quality standards of Rule 2a-7 under the 1940 Act for money market funds.
Debt obligations in which the Fund may invest include (i) corporate debt
securities, including bonds, debentures, and notes; (ii) bank obligations, such
as certificates of deposit, banker's acceptances, and time deposits of domestic
and foreign banks and their subsidiaries and branches, and domestic savings and
loans associations (in amounts in excess of the insurance coverage, currently
$100,000 per account provided by the Federal Deposit Insurance Corporation);
(iii) commercial paper (including variable-amount master demand notes); (iv)
repurchase agreements; (v) floating- or variable-rate debt obligations; (vi)
asset-backed debt obligations; (vii) U.S. dollar denominated foreign debt
obligations; (viii) U.S. government securities issued or guaranteed by the U.S.
Treasury (such as bills, notes, or bonds) or by an agency or instrumentality of
the U.S. government; and (ix) municipal obligations.
IMPLEMENTATION OF POLICIES AND RISKS OF THE UNDERLYING FUNDS
In addition to the investment policies described above (and subject to certain
restrictions described below), the Underlying Funds may invest in some or all
of the following securities and may employ some or all of the following
investment techniques, some of which may present special risks as described
below. A more complete discussion of certain of these securities and investment
techniques and the associated risks is contained in the SAI.
GOVERNMENT SECURITIES
U.S. government securities are issued or guaranteed by the U.S. government or
its agencies or instrumentalities. Securities issued by the government include
U.S. Treasury obligations, such as Treasury bills, notes and bonds. Securities
issued or guaranteed by government agencies or instrumentalities include the
following:
. the Federal Housing Administration, Farmers Home Administration, Export-
Import Bank of the United States, Small Business Administration, and the
Government National Mortgage Association, including GNMA pass-through
certificates, whose securities are supported by the full faith and credit of
the United States;
7
<PAGE>
. the Federal Home Loan Banks, Federal Intermediate Credit Banks, and the
Tennessee Valley Authority, whose securities are supported by the right of
the agency to borrow from the U.S. Treasury;
. the Federal National Mortgage Association, whose securities are supported by
the discretionary authority of the U.S. government to purchase certain
obligations of the agency or instrumentality; and
. the Student Loan Marketing Association, the Interamerican Development Bank,
and International Bank for Reconstruction and Development, whose securities
are supported only by the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. The U.S. government and its agencies and
instrumentalities do not guarantee the market value of their securities;
consequently, the value of such securities will fluctuate.
CASH EQUIVALENTS
Each Fund may from time to time invest in cash or cash equivalents, which
include, but are not limited to the following instruments:
(a) short term (maturing in 13 months or less) obligations issued or
guaranteed as to interest and principal by the U.S. government or any
agency or instrumentality thereof;
(b) obligations of banks (including certificates of deposit and bankers'
acceptances) that have capital, surplus, and undivided profits (as of the
date of their most recently published financial statements) in excess of
$100,000,000; and obligations of other banks or savings and loan
associations if such obligations are federally insured, provided that not
more than 10% of the total assets of the Fund will be invested in such
other insured obligations;
(c) commercial paper rated in the top two categories by an NRSRO (short-
term unsecured promissory notes of corporations including variable rate
master demand notes);
(d) short term (maturing in one year or less) corporate obligations;
(e) obligations of U.S. and non-U.S. issuers denominated in U.S. dollars
and in securities of foreign branches of U.S. banks, such as negotiable
certificates of deposit, and including variable rate master demand notes
and floating rate notes; and
(f) debt instruments not specifically described if such instruments are
deemed by the Sub-Advisers to be of comparable high quality and liquidity.
Each Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933 (the
"1933 Act"). Section 4(2) commercial paper is restricted as to disposition
under federal securities laws and is generally sold to institutional investors,
such as the Funds, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors like the Funds through or with
the assistance of the issuer or investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity.
For a description of the ratings referred to above, see Appendix B to this
Prospectus.
FOREIGN SECURITIES
The High Quality Stock Fund and the International Active Fund may invest in
foreign securities. These include dollar-denominated securities traded in the
U.S. on the New York Stock Exchange (the "NYSE"). The High Quality Stock Fund
may invest in foreign securities if the foreign securities are traded on the
NYSE.
The International Active Fund may invest directly in foreign equity securities;
U.S. dollar- or foreign currency-denominated foreign corporate debt securities;
foreign preferred securities; certificates of deposit, fixed time deposits and
bankers' acceptances issued by foreign banks; obligations of foreign
governments or their subdivisions, agencies and instrumentalities,
international agencies and supranational entities; and securities represented
by European Depositary Receipts ("EDRs"), American Depositary Receipts
("ADRs"), or Global Depositary Receipts ("GDRs"). ADRs are dollar-denominated
receipts issued generally by domestic banks and representing the deposit with
the bank of a security of a foreign issuer, and are publicly traded on
exchanges or over-the-counter in the United States. EDRs are receipts similar
to ADRs and are issued and traded in Europe. GDRs are global receipts similar
to ADRs and may be offered privately in the United States and also trade in
public or private markets in other countries.
8
<PAGE>
Investing in the securities of issuers in any foreign country involves special
risks and considerations not typically associated with investing in U.S.
companies and governments of foreign nations. These risks include: differences
in accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of
the ability to transfer currency from a country); and political instability
which could affect U.S. investments in foreign countries. Additionally,
foreign securities and dividends and interest payable on those securities may
be subject to foreign taxes, including taxes withheld from payments on those
securities. Foreign securities often trade with less frequency and volume than
domestic securities and therefore may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may
include higher custodial fees than apply to domestic custodial arrangements
and transaction costs of foreign currency conversions. Changes in foreign
exchange rates also will affect the value of securities denominated or quoted
in currencies other than the U.S. dollar.
FOREIGN CURRENCY TRANSACTIONS
Foreign currency rates may fluctuate significantly over short periods of time.
They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates and other complex
factors, as seen from an international perspective. Currency exchange rates
also can be affected unpredictably by intervention (or the failure to
intervene) by U.S. or foreign governments or central banks, by currency
controls or political developments in the U.S. or abroad. Currencies in which
the International Active Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
The International Active Fund may, in addition to buying and selling foreign
currency futures contracts and options on foreign currencies and foreign
currency futures, enter into forward foreign currency exchange contracts to
reduce the risks of adverse changes in foreign exchange rates. A forward
foreign currency exchange contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any fixed number of days
from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. By entering into a forward foreign currency
contract, the Fund "locks in" the exchange rate between the currency it will
deliver and the currency it will receive for the duration of the contract. As
a result, the Fund reduces its exposure to changes in the value of the
currency it will deliver and increases its exposure to changes in the value of
the currency it will exchange into. The effect on the value of the Fund is
similar to selling securities denominated in one currency and purchasing
securities denominated in another. Contracts to sell foreign currency would
limit any potential gain which might be realized by the Fund if the value of
the hedged currency increases. The Fund may enter into these contracts for the
purpose of hedging against foreign exchange risk arising from the Fund's
investment or anticipated investment in securities denominated in foreign
currencies. The Fund also may enter into these contracts for purposes of
increasing exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one country to another. The Fund may use one
currency (or a basket of currencies) to hedge against adverse changes in the
value of another currency (or a basket of currencies) when exchange rates
between the two currencies are positively correlated. The Fund will segregate
liquid assets, such as cash or high grade debt obligations, in a segregated
account to cover forward currency contracts entered into for non-hedging
purposes.
MANAGEMENT
The Board of Trustees is responsible for the overall operations of the Trust,
including reviewing the actions of the Trust's Adviser and Sub-Advisers as set
forth below. The Trust's officers supervise the daily business operations of
the Trust.
PROVIDIAN INVESTMENT ADVISORS, INC., 400 West Market Street, Louisville,
Kentucky 40202, has been retained under an Investment Advisory Agreement with
the Trust, dated , 1997, in general to supervise the management and
investment program of the Trust and each Portfolio. In addition, the Adviser
generally manages the affairs of the Trust, subject to the supervision of the
Board of Trustees. For information about the Board of Trustees and the Trust's
officers, see "Management" in the SAI. The Adviser does not receive an
investment management fee for the advisory and asset allocation services it
provides to the Portfolios. Under an Advisory Agreement with each Portfolio,
the Adviser has agreed to limit the operating expenses of each Portfolio so
that the ratio of expenses (excluding advisory fees) to net assets on an
annual basis incurred directly or incurred on a pass through basis as a result
of a Portfolio's ownership of Underlying Funds does not exceed 0.20%. This
limitation will apply for two years after commencement of operations.
9
<PAGE>
ATLANTA CAPITAL MANAGEMENT COMPANY, L.L.C., Two Midtown Plaza, Suite 1600,
1360 Peachtree Street, Atlanta, Georgia 30309, has been retained by the
Adviser pursuant to a Sub-Advisory Agreement with the Adviser, dated ,
1997, to serve as the sub-adviser to the Portfolios. Atlanta Capital, founded
in 1969, performs investment management services for various clients,
including pension, profit sharing and other employee benefit plans as well as
other institutions and individuals. The firm, which is owned and operated by
six partners, manages approximately $1.8 billion in fixed income and equity
assets. Subject to the supervision and direction of the Board of Trustees,
Atlanta Capital will determine how each Portfolio's assets will be invested in
the Underlying Funds and in other securities pursuant to the investment
objective and policies of each Portfolio set forth in this Prospectus and make
recommendations to the Board of Trustees concerning changes to (a) the
Underlying Funds in which the Portfolios may invest, (b) the percentage range
of assets that may be invested by each Portfolio in any one Underlying Fund
and (c) the percentage range of assets of any Portfolio that may be invested
in equity funds and fixed income funds (including the money market fund). The
Trustees of the Trust will periodically monitor the allocations made and the
basis upon which such allocations were made or maintained. Atlanta Capital
also serves as sub-adviser of the High Quality Stock Fund and the Fixed Income
Fund for which it receives a fee equal to 0.50% annually on assets up to $25
million, 0.40% annually on assets above $25 million and up to $50 million, and
0.30% annually on assets above $50 million.
BLAIRLOGIE CAPITAL MANAGEMENT, 125 Princes Street, Fourth Floor, Edinburgh EH2
4AD, Scotland, has been retained by the Adviser pursuant to a Sub-Advisory
Agreement with the Advisor dated , 1997, to serve as the sub-adviser
to the International Active Fund. Blairlogie is an investment management firm,
organized as a limited partnership under the laws of Scotland, United Kingdom,
with two general partners and one limited partner. The general partners are
PIMCO Advisors, which serves as the supervisory partner, and Blairlogie
Holdings Limited, a wholly owned corporate subsidiary of PIMCO Advisors, which
serves as the managing partner. The limited partner is Blairlogie Partners,
L.P., a limited partnership, the general partner of which is Pacific Financial
Asset Management Corporation, and the limited partners of which are the
principal executive officers of Blairlogie Capital Management. Blairlogie
Partners L.P. has agreed with PIMCO Advisors that PIMCO Advisors will acquire
one-fifth of its 25% interest annually, beginning December 31, 1997.
Blairlogie Capital Management Ltd., the predecessor investment adviser to
Blairlogie, commenced operations in 1992. Accounts managed by Blairlogie had
combined assets as of July 31, 1996 of approximately $.7 billion. Blairlogie
is registered as an investment adviser with the SEC in the United States and
with the Investment Management Regulatory Organization ("IMRO") in the United
Kingdom. As compensation for its services, the Adviser pays Blairlogie a fee
based on the monthly average net assets of the International Active Fund. This
fee equals 0.75% annually on assets up to $25 million, 0.60% annually on
assets above $25 million and up to $50 million, and 0.50% annually on assets
above $50 million.
Each Portfolio, as a shareholder in the Underlying Funds, will indirectly bear
its proportionate share of any investment management fees and other expenses
paid by the Underlying Funds. The effective management fee of each of the
Underlying Funds in which the Portfolios may invest is set forth below as a
percentage rate of the Fund's annual net assets:
<TABLE>
<CAPTION>
MANAGEMENT
UNDERLYING FUND FEES
--------------- ----------
<S> <C>
High Quality Stock Fund........................................ .65%
Fixed Income Fund.............................................. .65%
International Active Fund...................................... .90%
Money Market Fund.............................................. .35%
</TABLE>
The investment professionals primarily responsible for the management of each
Portfolio, with the respective responsibilities and business experience for
the past five years are as follows:
GROWTH AND INCOME, CAPITAL GROWTH AND MAXIMUM APPRECIATION PORTFOLIOS: Daniel
W. Boone III, Senior Partner of Atlanta Capital. He is responsible for the
research and portfolio management of the High Quality Stock Fund's equity
portfolio and oversight of the equity investment process. Mr. Boone joined
Atlanta Capital in 1976.
CAPITAL PRESERVATION AND INCOME ORIENTED PORTFOLIOS: Gregory L. Coleman,
Partner of Atlanta Capital. He is responsible for the fixed income trading,
portfolio management of the Fixed Income Fund, and investment strategy. Mr.
Coleman joined Atlanta Capital in 1990.
10
<PAGE>
MONEY MARKET FUND:
PURCHASE AND REDEMPTION OF SHARES
Investment in the Portfolios currently is available to owners of variable
annuity contracts issued by insurance companies through their separate accounts
and to qualified plans. Shares of each Portfolio and the Money Market Fund are
purchased or redeemed at their respective net asset values next computed after
receipt of an order (without a sales charge).
NET ASSET VALUE AND PRICING
The net asset value of shares of each Portfolio and the Money Market Fund is
determined as of the close of trading on each day the New York Stock Exchange
is open for trading (currently 4:00 P.M. Eastern Time), and days that the
United States Postal Service and national banks are open. The net asset value
of shares for each Portfolio and the Money Market Fund is determined by adding
up the value of its securities (determined as set forth below) and other
assets, subtracting the liabilities, and dividing by the number of shares
outstanding. The value of each Underlying Fund will be its net asset value at
the time of computation.
Securities held by the Portfolios (other than the Money Market Fund) are valued
based upon readily available market quotations. Where such market quotations
are not available, securities are valued at fair value as determined by or
under the general supervision of the Board of Trustees.
The securities in the Money Market Fund are valued on an amortized-cost basis.
Under this method of valuation, a security is initially valued at its
acquisition cost, and thereafter, amortization of any discount or premium is
assumed each day, regardless of the impact of fluctuating interest rates on the
market value of the instrument. Under most conditions, believes
it will be possible to maintain the net asset value of the Portfolio at $1.00
per share. Calculations are periodically made to compare the value of the
Portfolio's portfolio valued at amortized cost with market values. If a
deviation of 1/2 of 1% or more were to occur between the net asset value
calculated by reference to market values and the Portfolio's $1.00 per share
net asset value, or if there were any other deviation that the Board of
Trustees believed would result in a material dilution to shareholders or
purchasers, the Board of Trustees would promptly consider what action, if any,
should be initiated. See "Net Asset Values of the Shares of the Portfolios" in
the SAI for details.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio and the Money Market Fund are treated as separate taxable
entities and will elect to qualify as a "regulated investment company" under
applicable provisions of the Internal Revenue Code of 1986 (the "Code"). As
such and by complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the diversification
of its assets, each Portfolio and the Money Market Fund will be allowed a
deduction for amounts distributed to its shareholders from its ordinary income
and net realized capital gains and will not be subject to federal income tax on
such amounts. To qualify for treatment as a "regulated investment company,"
each Portfolio and the Money Market Fund must, among other things, derive in
each taxable year at least 90 percent of its gross income from dividends,
interest and gains from the sale or other disposition of securities, and derive
less than 30 percent of its gross income in each taxable year from the gains
(without deduction for losses) from the sale or other disposition of securities
held for less than three months.
Each Portfolio and the Money Market Fund intends to distribute sufficient net
investment income to avoid the application of federal income tax on the Trust.
Each Portfolio and the Money Market Fund also intends to distribute sufficient
income to avoid the application of any federal excise tax. For dividend
purposes, the net investment income of each Portfolio and the Money Market Fund
will consist of all payments of dividends or interest received and any net
short-term gains or losses from the sale of its investments less its estimated
expenses (including fees payable to the Adviser and Sub-Adviser).
In order for the separate accounts to comply with regulations under Section
817(h) of the Code applicable to investment companies used as the investment
medium for variable annuity contracts, each Portfolio and the Money Market Fund
will diversify its investments so that, after a one year start-up period, on
the last day of each calendar quarter, no more than 55% of the value on each
Portfolio is represented by any one investment, no more than 70% is represented
by any two investments, no more than 80% is represented by any three
investments, and no more than 90% is represented by any four investments. For
this purpose, securities of a single issuer are treated as one
11
<PAGE>
investment and each U.S. government agency or instrumentality is treated as a
separate issuer. Any security issued, guaranteed, or insured (to the extent so
guaranteed or insured) by the U.S. government or an agency or instrumentality
of the U.S. government is treated as a security issued by the U.S. government
or its agency or instrumentality, whichever is applicable.
Dividends from the Portfolios (other than the Money Market Fund) will be
declared and distributed monthly. Dividends from the Money Market Fund will be
declared on each day its net asset value is calculated except bank holidays.
Income earned on weekends, holidays (including bank holidays), and days on
which net asset value is not calculated is declared as a dividend on the day on
which the Portfolio's net asset value was most recently calculated. The
Trustees may decide to declare dividends at other intervals. All net realized
long-term capital gains of the Trust, if any, are declared and distributed
annually after the close of the Trust's fiscal year to the shareholders of the
Portfolio or Portfolios to which such gains are attributable
PERFORMANCE AND YIELD INFORMATION
From time to time, the Trust may advertise a variety of types of performance
information including "yield," "average annual total return," "total return,"
"cumulative total return," and "effective yield." Each of these figures will be
based on historical information and are not intended to indicate future
performance.
The yield of the Portfolios refers to the annualized income generated by an
investment in that Portfolio over a specified 30-day period. The yield is
calculated by assuming that the income generated by the investment during that
30-day period is generated each 30-day period over a twelve-month period and is
shown as a percentage of the investment. The Money Market Fund's yield and
effective yield are measures of the net investment income per share earned by
the Fund over a specific seven-day period and are shown as a percentage of the
investment. However, effective yield will be slightly higher than the yield
because effective yield assumes that the net investment income earned by the
Portfolio will be reinvested.
The total return of a Portfolio refers to return quotations assuming an
investment has been held in the Portfolio for various periods of time
including, but not limited to, one year and a period measured from the date the
Portfolio commenced operations. When a Portfolio has been in operation for five
and ten years, respectively, the total return for these periods will be
provided. The total return quotations will represent the average annual
compounded rates of return that would equate an initial investment of $1,000 to
the redemption value of that investment as of the last day of each of the
periods for which total return quotations are provided.
The yield and total return calculations do not reflect the effect of the
charges that may be applicable to a particular Contract or separate account.
Such charges will reduce the net yield and total return of that Contract.
Performance figures for a Portfolio or the Money Market Fund will only be
advertised if the comparable figures for the Contract are included in the
advertisement.
GENERAL INFORMATION
SHARES OF BENEFICIAL INTEREST
All shares of beneficial interest of the Trust are entitled to one vote, and
votes are generally on an aggregate basis. However, on matters where the
interests of the Portfolios differ (such as approval of an investment advisory
agreement or a change in fundamental investment policies), the voting is on a
Portfolio-by-Portfolio basis. The Trust does not hold routine annual
shareholders' meetings. The shares of each Portfolio issued, are fully paid and
non-assessable, have no preference, conversion, exchange or similar rights, and
are freely transferable. In addition, each issued and outstanding share in a
Portfolio is entitled to participate equally in dividends and distributions
declared by such Portfolio. Providian Life and Health Insurance Company
Separate Account V is the legal owner of the shares it holds and as such has
the right to vote to elect the Trustees of the Trust, to vote upon certain
matters that are required by the 1940 Act to be approved or ratified by the
shareholders of a mutual fund and to vote upon any other matter that may be
voted upon at a shareholders' meeting. However, in accordance with its view of
presently applicable law, Providian Life and Health Insurance Company Separate
Account V will vote the shares of the Trust at special meetings of the
shareholders of the Trust in accordance with instructions received from
Contract Owners.
AUDITORS
Ernst & Young LLP serves as independent auditors for the Trust and will audit
each Fund's financial statements annually.
12
<PAGE>
LEGAL COUNSEL
Legal advice regarding certain matters relating to the Federal securities laws
has been provided by Jorden Burt Berenson & Johnson LLP, Washington, D.C.
CUSTODIAN
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is the Custodian of the Trust's assets.
REPORTS TO SHAREHOLDERS
The Trust will send annual and semi-annual reports to Contract Owners showing
the financial conditions of the Funds and the investments held in each.
OTHER INFORMATION
Inquiries and requests for the Statement of Additional Information should be
directed to the Trust at (800) or P.O. Box 32700, Louisville,
Kentucky 40232.
13
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more details
concerning the subjects discussed in this Prospectus. The following is the
Table of Contents for the SAI:
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investment Objectives..................................................... B-
Description of Securities and Investment Techniques....................... B-
Portfolio Turnover and Securities Transactions............................ B-
Management................................................................ B-
Net Asset Values of the Shares of the Portfolios and the Money Market
Fund..................................................................... B-
Investment Performance.................................................... B-
Taxes..................................................................... B-
General Information....................................................... B-
Independent Accountants................................................... B-
Financial Statements...................................................... F-
</TABLE>
14
<PAGE>
APPENDIX A--STANDARD AND POOR'S
EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
In establishing Standard and Poor's quality rankings for common stocks, growth
and stability of earnings and dividends are deemed key elements. The point of
departure in arriving at these rankings is a computerized scoring system based
on per-share earnings and dividend records of the most recent ten years. Basic
scores are computed for earnings and dividends, then adjusted as indicated by
a set of predetermined modifiers for growth, stability within long-term trend,
and cyclicality.
The final score for each stock is measured against a scoring matrix determined
by analysis of the scores of a large and representative sample of stocks. The
range of scores in the array of this sample has been aligned with the
following ladder of rankings:
<TABLE>
<S> <C> <C>
A+ Highest A- Above Average B- Lower
A High B+ Average C Lowest
B Below Average D in Reorganization
</TABLE>
NR signifies no ranking because of insufficient data or because the stock is
not amenable to the ranking process.
A-1
<PAGE>
APPENDIX B--SECURITIES RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investor Service, Inc.'s Corporate Bond Ratings:
Aaa--Bonds which are rated Aaa by Moody's Investor Service, Inc. ("Moody's")
are judged to be the best quality and carry the smallest degree of investment
risk. 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 which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
Standard & Poor's Corporation's Corporate Bond Ratings:
AAA--This is the highest rating assigned by Standard & Poor's ("S&P") to a
debt obligation and indicates an extremely strong capacity to pay principal
and interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB/B/CCC/CC--Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
CI--The rating CI is reserved for income bonds on which no interest is being
paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from AA to B may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
B-1
<PAGE>
PROVIDIAN SERIES TRUST
ADMINISTRATIVE OFFICE
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
, 1997
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
_________, 1997
PROVIDIAN SERIES TRUST
HIGH QUALITY STOCK FUND
FIXED INCOME FUND
INTERNATIONAL ACTIVE FUND
MONEY MARKET FUND
This Statement of Additional Information is not a prospectus. It contains
additional information about the Providian Series Trust (the "Trust") and should
be read in conjunction with the Trust's Prospectus dated _________, 1997. You
can obtain a copy by contacting the Trust's Administrative Office, P. O. Box
32700, Louisville, Kentucky 40232.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Investment Objectives B-
Description of Securities and Investment Techniques B-
Portfolio Turnover and Securities Transactions B-
Management B-
Net Asset Values of the Shares of the Funds B-
Investment Performance B-
Taxes B-
General Information B-
Independent Accountants B-
Financial Statements B-
</TABLE>
B-1
<PAGE>
Providian Series Trust (the "Trust") is an investment company presently
consisting of nine separate series (the "Funds") each having different
investment objectives and policies. This SAI pertains to four Funds. The
investment objectives of the Funds are as follows:
The HIGH QUALITY STOCK FUND seeks long-term growth of capital. The Fund pursues
its investment objective by investing primarily in stocks of three categories of
companies that are publicly traded in the United States: the 500 largest in
market capitalization, the 501st to the 1250th largest in market capitalization,
and the 1000th to the 3000th largest in market capitalization at the time of
purchase.
The FIXED INCOME FUND seeks the highest level of income as is consistent with
the preservation of capital. The Fund pursues its investment objective primarily
by investing in investment grade debt securities, which range in maturity from
one to ten years, including securities issued by the U.S. government or an
agency or instrumentality of the U.S. government, asset-backed securities and
corporate debt obligations.
The INTERNATIONAL ACTIVE FUND seeks long-term growth of capital. The Fund
pursues its objective by investing primarily in a diversified portfolio of
international equity securities.
The MONEY MARKET FUND seeks current income, a stable share price, and daily
liquidity. The Fund invests in corporate, bank, and government instruments that
present minimal credit risk.
INVESTMENT OBJECTIVES
The Trust has adopted the following policies relating to the investment of
assets of the Funds and their activities. These are fundamental policies and may
not be changed without the approval of the holders of a "majority" of the
outstanding shares of each Fund affected. Under the Investment Company Act of
1940 (the "1940 Act"), the vote of such a "majority" means the vote of the
holders of the lesser of (i) 67 percent of the shares represented at a meeting
at which more than 50 percent of the outstanding shares are represented or (ii)
more than 50 percent of the outstanding shares. A change in policy affecting
only one Fund may be effected with the approval of the holders of a "majority"
B-2
<PAGE>
of the outstanding shares of such Fund. The Trust may not, and each Fund may not
(except as noted):
1. Invest more than 5 percent of the value of its assets in the securities of
any one issuer if thereafter the Fund in question would have more than 5 percent
of its assets in the securities of any issuer; this restriction does not apply
to securities issued by the U.S. government or its agencies or
instrumentalities;
2. Invest in the securities of issuers in any one industry if thereafter more
than 25 percent of the assets of the Fund in question would be invested in
securities of issuers in that same industry; investing in cash items (including
time and demand deposits such as certificates of deposit and obligations of
domestic banks), U.S. government securities, or repurchase agreements as to
these securities, shall not be considered investments in an industry;
3. Purchase securities on margin or sell securities short, except that each
Fund may make short sales against the box and that effecting short sales against
the box will not be deemed to constitute a purchase of securities on margin;
4. Purchase or sell commodities or commodity contracts (which, for the purpose
of this restriction, shall not include foreign currency futures or forward
currency contracts);
5. Borrow money except that (i) the High Quality Stock Fund, the International
Active Fund, and the Money Market Fund may borrow from banks as a temporary
measure for extraordinary or emergency purposes, but only if immediately after
each borrowing and continuing thereafter it will have an asset coverage of at
least 300 percent; and (ii) the Fixed Income Fund, the International Active
Fund, and the Money Market Fund may enter into reverse repurchase agreements as
described in the Prospectus and in this Statement of Additional Information.
(The deposit of assets in escrow in connection with the purchase of securities
on a when-issued or delayed delivery basis will not be deemed to be pledges of a
Fund's assets);
6. Underwrite securities of another issuer's securities, except to the extent
that a Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of portfolio
securities;
7. Invest in securities of a company for the purpose of exercising control or
management;
8. Participate on a joint or a joint and several basis in any trading account
in securities;
9. Purchase or sell real estate, except that it may purchase marketable
securities which are issued by companies which invest in real estate or
interests therein;
B-3
<PAGE>
10. Make loans of its assets if, as a result, more than 50% of a Fund's total
assets (33 1/3% in the case of the Money Market Fund) would be lent to other
persons, except (i) to purchase or hold money market instruments permitted by a
Fund's investment objective and policies, or (ii) to enter into repurchase
agreements or through lending of a Fund's portfolio securities, or (iii) through
purchases of debt securities or other debt instruments;
11. Issue senior securities, except as permitted under the 1940 Act. For
purposes of this restriction, the purchase or sale of securities on a when-
issued or delayed delivery basis, permissible borrowings entered into in
accordance with a Fund's investment policies, and reverse repurchase agreements
for which a segregated account has been established to cover such transactions
or for which an offsetting position has been established by the Fund, are not
deemed to be issuances of senior securities; or
12. Purchase securities of registered open-end investment companies or
registered unit investment trusts in reliance on Sections 12(d)(1)(F) or (G) of
the 1940 Act.
As a non-fundamental restriction, the Money Market Fund may not engage in any
transaction or practice which is not permissible under Rule 2a-7 of the 1940
Act, notwithstanding any other fundamental investment limitation or non-
fundamental operating policy.
In order to limit the risks associated with entry into repurchase agreements,
the Trustees have adopted certain criteria (which are not fundamental policies)
to be followed by the Funds. These criteria provide for entering into repurchase
agreement transactions (a) only with banks or broker-dealers meeting certain
guidelines for creditworthiness, (b) that are fully collateralized as defined,
(c) on an approved standard form of agreement and (d) that meet limits on
investments in the repurchase agreements of any one bank, broker or dealer. In
accordance with regulatory requirements, the Board of Trustees has also adopted
procedures for segregating Fund assets whenever a Fund enters into reverse
repurchase agreements with institutions other than banks.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes in greater detail different types of
securities and investment techniques used by the individual Funds, as described
in "Investment Objectives and Policies of the Funds" in the Prospectus, as well
as the risks associated with such securities and techniques.
OTHER INVESTMENT POLICIES OF THE FIXED INCOME FUND
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Corporate debt securities may bear fixed, contingent, or variable rates of
interest and may involve equity features, such as conversion or exchange rights
or warrants for the
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acquisition of stock of the same or a different issuer, participations based on
revenues, sales or profits, or the purchase of common stock in a unit
transaction (where corporate debt securities and common stock are offered as a
unit).
Under normal market conditions, not more than 10% of the value of the Fixed
Income Fund's total assets will be invested in equity securities, including
common stocks, preferred stocks, warrants and rights.
When and if available, debt securities may be purchased at a discount from face
value. However, the Fund does not intend to hold such securities to maturity for
the purpose of achieving potential capital gains, unless yields to maturity on
these securities remain attractive. From time to time the Fund may purchase
securities not paying interest or dividends at the time acquired if, in the
opinion of Atlanta Capital Management ("Atlanta Capital"), the Fund's sub-
adviser, such securities have the potential for future income (or capital
appreciation).
Since shares of the Fund represent an investment in securities with fluctuating
market prices, the value of shares of the Fund will vary as the aggregate value
of the Fund's portfolio securities increases or decreases. Lower rated fixed
income securities generally tend to reflect short-term corporate and market
developments to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates. Changes in the
value of securities subsequent to their acquisition will not affect cash income
to the Fund but will be reflected in the net asset value of the Fund's shares.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
The Fixed Income Fund may invest in mortgage-backed securities, and in other
asset-backed securities (unrelated to mortgage loans) that are offered to
investors in the future. The value of some mortgage-backed or asset-backed
securities in which the Fund invests may be particularly sensitive to changes in
prevailing interest rates, and, like the other investments of the Funds, the
ability of the Fund to successfully utilize these instruments may depend in part
upon the ability of Atlanta Capital to forecast interest rates and other
economic factors correctly.
MORTGAGE PASS-THROUGH SECURITIES. 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
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Mortgage Association ("GNMA")) are described as "modified pass through"
securities. 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 mortgage-related securities is the GNMA.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. 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 Federal Housing Administration insured or Veterans Administration-
guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and credit of
the U.S. Government) 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. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved sellers/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks, credit unions and mortgage bankers. Pass-
through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a government-
sponsored corporation formerly owned by the twelve Federal Home Loan Banks and
now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of these pools may be supported by various
forms of insurance, guarantees or structures, including individual loan, title,
pool and hazard insurance and letters of credit. The insurance and guarantees
are issued by governmental entities, private insurers and the mortgage poolers.
Such
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insurance and guarantees and the creditworthiness of the issuers thereof will be
considered in determining whether a mortgage-related security meets the Fund's
investment quality standards. There can be no assurance that the private
insurers, or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. The Fund may buy mortgage-related securities without
insurance or guarantees if through an examination of the structure or the loan
experience and practices of the originator/servicers and poolers, Atlanta
Capital determines that the securities meet the Fund's quality standards.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable. The Fund will not purchase mortgage-related securities or any other
assets which in the opinion of the Atlanta Capital are illiquid if, as a result,
more than 15% of the value of the Fund's total assets will be illiquid.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid on a CMO, in most cases, monthly. CMOs
may be collateralized by whole mortgage loans, but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will 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 investors holding the shortest maturity class. Investors holding the
longer maturity class receive principal only after the first call has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple series
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third-party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bonds currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
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OTHER MORTGAGE-RELATED SECURITIES. Mortgage-related securities are interests in
pools of mortgage loans made to 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
(see "Mortgage Pass-Through Securities," below). The Fixed Income Fund may also
invest in debt securities which are secured with collateral consisting of
mortgage-related securities (see "Collateralized Mortgage Obligations," at page
_____), and in other types of mortgage-related securities. The Fixed Income Fund
will not purchase mortgage-related securities or any other assets which in the
opinion of Atlanta Capital are illiquid, if, as a result, more than 15% of the
value of this Fund's assets will be illiquid.
Other mortgage-related securities include securities other than those described
above that directly or indirectly represent a participation in, or are secured
by and payable from, mortgage loans on real property, including CMO residuals or
stripped mortgage-backed securities. Other mortgage-related securities may be
equity or debt securities issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, homebuilders, mortgage banks,
commercial banks, investment banks, partnerships, trusts and special purpose
entities of the foregoing.
CMO RESIDUALS. CMO residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs is
applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("I0") class of stripped mortgage backed securities. See "Stripped
Mortgage-Backed Securities." In addition, if a series of a CMO includes a class
that bears interest at an adjustable rate, the yield to maturity on the related
CMO residual will also be extremely sensitive to changes in the level of the
index upon which interest rate adjustments are based. As described below with
respect to stripped mortgage-backed securities, in certain circumstances the
Fund may fail to recoup fully its initial investment in a CMO residual.
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CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may or, pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended. CMO residuals,
whether or not registered under such Act, may be subject to certain restrictions
on transferability, and may be deemed "illiquid" and subject to the Fund's
limitations on investment in illiquid securities.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped Mortgage-Backed Securities
("SMBS") are derivative multiclass mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the mortgage assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the "I0" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an I0 class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the Fund's yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may fail to fully recoup its initial investment in these securities
even if the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, these securities may be deemed "illiquid" and
subject to the Fund's limitations on investment in illiquid securities.
ASSET-BACKED SECURITIES
The Fixed Income Fund and the Money Market Fund may invest in asset-backed
securities which represent fractional interests in pools of leases, retail
installment loans and revolving credit receivables, both secured and unsecured.
These assets are generally held by a trust. Payments of principal and interest
or interest only are passed through to certificate holders and may be guaranteed
up to certain amounts by letters of credit issued
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by a financial institution affiliated or unaffiliated with the trustee or
originator of the trust.
Underlying automobile sales contracts or credit card receivables are subject to
prepayment, which may reduce the overall return to certificate holders.
Nevertheless, principal repayment rates tend not to vary much with interest
rates and the short-term nature of the underlying car loans or other receivables
tends to dampen the impact of any change in the prepayment level. Certificate
holders may also experience delays in payment on the certificates if the full
amounts due on underlying sales contracts or receivables are not realized by the
trust because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If consistent with
its investment objective and policies, the Funds may invest in other asset-
backed securities that may be developed in the future.
OTHER INVESTMENT POLICIES OF THE INTERNATIONAL ACTIVE FUND
- ----------------------------------------------------------
DERIVATIVE INSTRUMENTS
The International Active Fund may purchase and write call and put options on
securities, securities indexes and foreign currencies, and enter into futures
contracts and use options on futures contracts as further described below. The
International Active Fund may engage in the purchase and writing of call and put
options on foreign currencies. The International Active Fund also may enter into
swap agreements with respect to securities indexes. The Fund may use these
techniques to hedge against changes in interest rates, foreign currency exchange
rates or securities prices; to increase exposure to a foreign currency; to shift
exposure to foreign currency fluctuations from one country to another; or as
part of its overall investment strategies. The Fund will maintain segregated
accounts consisting of liquid assets, such as cash, and U.S. Government
securities (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under options, futures, and swaps
to avoid leveraging of the Fund.
The Fund considers derivative instruments to consist of securities or other
instruments whose value is derived from or related to the value of some other
instrument or asset, and not to include those securities whose payment of
principal and/or interest depends upon cash flows from underlying assets, such
as mortgage or asset-backed securities. The value of some derivative instruments
in which the Fund invests may be particularly sensitive to changes in prevailing
interest rates, and, like the other investments of the Fund, the ability of the
Fund to successfully utilize these instruments may depend in part upon the
ability of Blairlogie Capital Management ("Blairlogie") to forecast interest
rates and other economic factors correctly. If Blairlogie incorrectly forecasts
such factors and has taken positions in derivative instruments contrary to
prevailing market trends, the Fund could be exposed to the risk of loss.
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The Fund might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. If Blairlogie
incorrectly forecasts interest rates, market values or other economic factors in
utilizing a derivatives strategy for the Fund, the Fund might have been in a
better position if it had not entered into the transaction at all. The use of
these strategies involves certain special risks, including a possible imperfect
correlation, or even no correlation, between price movements of derivative
instruments and price movements of related investments. While some strategies
involving derivative instruments can reduce the risk of loss, they can also
reduce the opportunity for gain or even result in losses by offsetting favorable
price movements in related investments, or due to the possible inability of the
Fund to purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for the Fund to sell a portfolio
security at a disadvantageous time, because the Fund is required to maintain
asset coverage or offsetting positions in connection with transactions in
derivative instruments, and the possible inability of the Fund to close out or
to liquidate its derivatives positions.
OPTIONS ON SECURITIES, SECURITIES INDEXES, AND CURRENCIES. The International
Active Fund may purchase put options on securities. One purpose of purchasing
put options is to protect holdings in an underlying or related security against
a substantial decline in market value. The Fund may also purchase call options
on securities. One purpose of purchasing call options is to protect against
substantial increases in prices of securities the Fund intends to purchase
pending its ability to invest in such securities in an orderly manner. The Fund
may sell put or call options it has previously purchased, which could result in
a net gain or loss depending on whether the amount realized on the sale is more
or less than the premium and other transaction costs paid on the put or call
option which is sold. The Fund may write a call or put option only if the option
is "covered" by the Fund holding a position in the underlying securities or by
other means which would permit immediate satisfaction of the Fund's obligation
as a writer of the option. Prior to exercise or expiration, an option may be
closed out by an offsetting purchase or sale of an option of the same series.
The purchase and writing of options involve certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security remains equal to or greater than the
exercise price (in the case of a put), or remains less than or equal to the
exercise price (in the case of a call), the Fund will lose its entire investment
in the option. Also, where a put or call option on a particular security is
purchased to
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hedge against price movements in a related security, the price of the put or
call option may move more or less than the price of the related security. There
can be no assurance that a liquid market will exist when the Fund seeks to close
out an option position. Furthermore, if trading restrictions or suspension are
imposed on the options markets, the Fund may be unable to close out a position.
The International Active Fund may buy or sell put and call options on foreign
currencies as a hedge against changes in the value of the U.S. dollar (or
another currency) in relation to a foreign currency in which the Fund's
securities may be denominated. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of the
Fund to reduce foreign currency risk using such options. Over-the-counter
options differ from traded options in that they are two-party contracts with
price and other terms negotiated between buyer and seller and generally do not
have as much market liquidity as exchange-traded options. The Fund may be
required to treat as illiquid over-the-counter options purchased and securities
being used to cover certain written over-the-counter options.
SWAP AGREEMENTS. The International Active Fund may enter into equity index swap
agreements for purposes of gaining exposure to the stocks making up an index of
securities in a foreign market without actually purchasing those stocks. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard swap transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or "swapped" between the parties are generally
calculated with respect to a "notional amount," i.e., the return on or increase
in value of a particular dollar amount invested at a particular interest rate,
or in a "basket" of securities representing a particular index.
Most swap agreements entered into by the Fund would calculate the obligations of
the parties to the agreement on a "net basis." Consequently, the Fund's current
obligations (or rights) under a swap agreement will generally be equal to the
net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
The Fund's current obligations under a swap agreement will be accrued daily
(offset against amounts owed to the Fund), and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by the maintenance of a
segregated account consisting of liquid assets such as cash, U.S. Government
securities, or high grade debt obligations, to avoid any potential leveraging of
the Fund's portfolio. Obligations under swap agreements so covered will not be
construed to be "senior securities" for purposes of the Fund's investment
restriction concerning senior securities. The Fund will not enter into a swap
agreement with any single party if the net amount owed or to be received under
existing contracts with that party would exceed 5% of the Fund's assets.
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Whether the Fund's use of swap agreements will be successful in furthering its
investment objective will depend on Blairlogie's ability to predict correctly
whether certain types of investments are likely to produce greater returns than
other investments. Because they are two-party contracts and because they may
have terms of greater than seven days, swap agreements may be considered to be
illiquid investments. Moreover, the Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Fund will enter into swap
agreements only with counterparties that meet certain standards for
creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Fund's repurchase agreement guidelines).
Certain restrictions imposed on the Funds by the Internal Revenue Code of 1986
(the "Code") may limit the Fund's ability to use swap agreements. The swaps
market is a relatively new market and is largely unregulated. It is possible
that developments in the swaps market, including potential government
regulation, could adversely affect the Fund's ability to terminate existing swap
agreements or to realize amounts to be received under such agreements.
FUTURES CONTRACTS AND OPTIONS ON FUTURE CONTRACTS. The International Active
Fund may invest in exchange futures contracts and options thereon ("futures
options") that are traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. The Fund may engage
in such futures transactions as an adjunct to its securities activities.
There are several risks associated with the use of futures and futures options
for hedging purposes. There can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the portfolio securities
being hedged. An incorrect correlation could result in a loss on both the hedged
securities in the Fund and the hedging vehicle so that the portfolio return
might have been greater had hedging not been attempted. There can be no
assurance that a liquid market will exist at a time when the Fund seeks to close
out a futures contract or a futures option position. Most futures exchanges or
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain of these instruments are relatively new and without
a significant trading history. As a result, there is no assurance that an active
secondary market will develope or continue to exist. Lack of a liquid market for
any reason may prevent the Fund from liquidating an unfavorable position, and
the Fund would remain obligated to meet margin requirements until the position
is closed.
The Fund will only enter into futures contracts or futures options which are
standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. The Fund will use
financial futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission ("CFTC"), or, with respect
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to positions in financial futures and related options that do not qualify as
"bona fide hedging" positions, will enter such positions only to the extent that
aggregate initial margin deposits plus premium paid by it for open futures
option positions, less the amount by which any such positions are "in-the-money"
would not exceed 5% of the Fund's net assets.
OTHER INVESTMENT POLICIES OF THE MONEY MARKET FUND
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RULE 2a-7: MATURITY QUALITY AND DIVERSIFICATION RESTRICTIONS
The Money Market Fund is subject to certain maturity restrictions pursuant to
Rule 2a-7 under the 1940 Act for money market funds that use the amortized cost
method of valuation to maintain a stable net asset value of $1.00 per share.
Accordingly, the Fund will (i) maintain a dollar weighted average portfolio
maturity of 90 days or less, and (ii) will purchase securities with a remaining
maturity of no more than 13 months (397 calendar days). Further, the Fund will
limit its investments to U.S. dollar denominated securities which present
minimal credit risks and meet certain credit quality and diversification
requirements. For purposes of calculating the maturity of portfolio instruments,
the Fund will follow the requirements of Rule 2a-7. Under Rule 2a-7, the
maturity of portfolio instruments is calculated as indicated below.
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining (calculated from the trade date or such other date on which the
Fund's interest in the instrument is subject to market action) until the date
noted on the face of the instrument as the date on which the principal amount
must be paid, or in the case of an instrument called for redemption, the date on
which the redemption payment must be made, except that:
(1) An instrument that is issued or guaranteed by the U.S. government or any
agency thereof which has a variable rate of interest readjusted no less
frequently than every 762 days shall be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
(2) A Variable Rate Instrument, the principal amount of which is scheduled on
the face of the instrument to be paid in 397 calendar days or less shall be
deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(3) A Variable Rate Instrument that is subject to a Demand Feature shall be
deemed to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
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(4) A Floating Rate Instrument that is subject to a Demand Feature shall be
deemed to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
(5) A repurchase agreement shall be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the underlying
securities is scheduled to occur, or, where no date is specified but the
agreement is subject to a demand, the notice period applicable to a demand for
the repurchase of the securities.
The Money Market Fund is subject to certain credit quality restrictions pursuant
to Rule 2a-7 under the 1940 Act. The Fund will invest at least 95% of its assets
in instruments that are determined to present minimal credit risks and at the
time of acquisition, that are (i) obligations issued or guaranteed by the U.S.
government, its agencies, or instrumentalities; (ii) rated by at least two
nationally recognized rating agencies (or by one agency if only one agency has
issued a rating) (the "required rating agencies") in the highest rating category
for short-term debt obligations; (iii) unrated but whose issuer is rated in the
highest category by the required rating agencies with respect to a class of
short-term debt obligations or any security within that class that is comparable
in priority and security with the instrument; or (iv) unrated (other than the
type described in (iii)) but determined by the Board of Trustees to be of
comparable quality to the foregoing (provided the unrated security has not
received a short-term rating, and with respect to a long-term security with a
remaining maturity within the Fund's maturity restrictions, has not received a
long-term rating from any agency that is other than in its highest rating
category). The foregoing are referred to as "first-tier securities."
The balance of the securities in which the Fund may invest are instruments
determined to present minimal credit risks, which do not qualify as first-tier
securities, and at the time of acquisition, are (i) rated by the required rating
agencies in one of the two highest rating categories for short-term debt
obligations; (ii) unrated but whose issuer is rated in one of the two highest
categories by the required rating agencies with respect to a class of short-term
debt obligations or any security within that class that is comparable in
priority and security with the obligation; or (iii) unrated (other than
described in (ii)) but determined by the Board of Trustees to be of comparable
quality to the foregoing (provided the unrated security has not received a
short-term rating and with respect to a long-term security with a remaining
maturity within the Fund's maturity restrictions, has not received a long-term
rating from any agency that is other than in one of its highest two rating
categories). The foregoing are referred to as "second-tier securities."
In addition to the foregoing guidelines, the Fund is subject to certain
diversification restrictions pursuant to Rule 2a-7 under the 1940 Act, which
include (i) the Fund will not acquire a second-tier security of an issuer if,
after giving effect to the acquisition, the Fund would have invested more than
the greater of 1% of its total assets or one
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million dollars in second-tier securities issued by that issuer, and (ii) the
Fund will not invest more than 5% of the Fund's assets in the securities (other
than securities issued by the U.S. government or any agency or instrumentality
thereof) issued by a single issuer, except for certain investments held for not
more than 3 business days.
As used herein, all capitalized but undefined terms shall have the meaning such
terms have in Rule 2a-7.
MORTGAGE DOLLAR ROLLS
The Money Market Fund may also enter into mortgage dollar rolls, in which the
Fund would sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forgo principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. At the time the Fund would enter
into a mortgage dollar roll, it would set aside permissible liquid assets in a
segregated account to secure its obligation for the forward commitment to buy
mortgage-backed securities. Mortgage dollar roll transactions may be considered
a borrowing by the Fund. (See "Borrowing" below.)
The mortgage dollar rolls entered into by the Fund may be used as arbitrage
transactions in which the Fund will maintain an offsetting position in
investment grade debt obligations or repurchase agreements that mature on or
before the settlement date on the related mortgage dollar roll. Since the Fund
will receive interest on the securities in which it invests the transaction
proceeds, such transactions may involve leverage. However, since such securities
will be high quality and will mature on or before the settlement date of the
mortgage dollar roll, ___________________ believes that such arbitrage
transactions do not present the risks to the Fund that are associated with other
types of leverage.
INVESTMENT PRACTICES COMMON TO TWO OR MORE FUNDS
- ------------------------------------------------
Except as otherwise noted below, the following description of investment
practices is applicable to all of the Funds.
BORROWING
As a temporary measure for extraordinary or emergency purposes, such as to
facilitate redemptions, the High Quality Stock Fund, the International Active
Fund and the Money Market Fund may borrow money from a bank, but only if
immediately after each such borrowing and continuing thereafter the Fund would
have asset coverage of 300 percent. Any such borrowings will exaggerate the
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effect of any increase or decrease in the value of portfolio securities on a
Fund's net asset value; money borrowed will be subject to interest and other
costs (which may include commitment fees and/or the cost of maintaining minimum
average balances), which may or may not exceed the income received from the
securities purchased with borrowed funds. The use of borrowing tends to result
in a faster than average movement, up or down, in the net asset value of a
Fund's shares. 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.
FOREIGN SECURITIES
The High Quality Stock Fund and the International Active Fund may invest in
foreign securities. These include dollar-denominated securities traded in the
U.S. on the New York Stock Exchange (the "NYSE"). The High Quality Stock Fund
may invest in foreign securities in the form of American Depositary Receipts
("ADRs"), or in other similar securities convertible into securities of foreign
issuers if the foreign securities are traded on the NYSE.
The International Active Fund may invest in U.S. dollar- or foreign currency-
denominated corporate debt securities of foreign issuers; preferred securities
of foreign issuers; certain foreign bank obligations; and U.S. dollar- or
foreign currency-denominated obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international agencies and
supranational entities. The International Active Fund may also invest in common
stocks issued by foreign companies or in securities represented by ADRs,
European Depositary Receipts ("EDRs"), or Global Depositary Receipts ("GDRs").
ADRs are dollar-denominated receipts issued generally by domestic banks and
represent the deposit with the bank of a security of a foreign issuer. EDRs are
foreign currency-denominated receipts similar to ADRs and are issued and traded
in Europe, and are publicly traded on exchanges or over-the-counter in the
United States. GDRs may be offered privately in the United States and also trade
in public or private markets in other countries. ADRs, EDRs and GDRs may be
issued as sponsored or unsponsored programs. In sponsored programs, an issuer
has made arrangements to have its securities trade in the form of ADRs, EDRs or
GDRs. In unsponsored programs, the issuer may not be directly involved in the
creation of the program. Although regulatory requirements with respect to
sponsored and unsponsored programs are generally similar, in some cases it may
be easier to obtain financial information from an issuer that has participated
in the creation of a sponsored program.
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
include: differences in accounting, auditing and financial reporting standards,
generally higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations (which may include
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suspension of the ability to transfer currency from a country), political
instability which can affect U.S. investments in foreign countries and potential
restrictions on the flow of international capital. In addition, foreign
securities and dividends and interest payable on those securities may be subject
to foreign taxes, including taxes withheld from payments on those securities.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Changes in
foreign exchange rates will affect the value of those securities which are
denominated or quoted in currencies other than the U.S. dollar.
The International Active Fund may also purchase and sell foreign currency
options and foreign currency futures contracts and related options (see
"Derivative Instruments"), and enter into forward foreign currency exchange
contracts in order to protect against uncertainty in the level of future foreign
exchange rates in the purchase and sale of securities. The Fund may also use
foreign currency options and foreign currency forward contracts to increase
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another.
A forward foreign currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts may be bought or sold to protect the Fund
against a possible loss resulting from an adverse change in the relationship
between foreign currencies and the U.S. dollar or to increase exposure to a
particular foreign currency. Open positions in forward contracts used for non-
hedging purposes will be covered by the segregation with the Trust's custodian
of liquid assets, such as cash, U.S. Government securities and high quality
short-term investments and are marked to market daily. Although forward
contracts are intended to minimize the risk of loss due to a decline in the
value of the hedged currencies, at the same time, they tend to limit any
potential gain which might result should the value of such currencies increase.
LENDING OF PORTFOLIO SECURITIES
Each Fund may seek to increase its income by lending portfolio securities. Under
present regulatory policies, such loans may be made to institutions, such as
broker-dealers, and would be required to be secured continuously by collateral
in cash, cash equivalents or liquid assets, including equity securities and debt
securities of any grade, maintained on a current basis at an amount at least
equal to the market value of the securities loaned. A Fund would have the right
to call a loan and obtain the securities loaned at any time on five days'
notice. For the duration of a loan, a Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and would also receive compensation from the investment of the
collateral. A Fund would not, however, have the right to vote any securities
having voting rights during the existence of the loan, but a Fund would call the
loan in anticipation of an important vote to be taken among holders of the
securities or of the giving or withholding of their
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consent on a material matter affecting the investment. As with other extensions
of credit, there are risks of delay in recovery of, or even loss of rights in,
the collateral should the borrower of the securities fail financially. However,
the loans would be made only to firms deemed by the appropriate Sub-Adviser to
be of good standing, and when, in the judgment of the Sub-Adviser, the
consideration which can be earned currently from securities loans of this type
justifies the attendant risk. If the Sub-Adviser determines to make securities
loans, it is intended that the value of the securities loaned would not exceed
50% of the value of the total assets of the lending Fund (33 1/3% in the case of
the Money Market Fund).
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements with any member bank of the
Federal Reserve System or a member firm of the National Association of
Securities Dealers, Inc. A repurchase agreement, which provides a means for a
Fund to earn income on uninvested cash for periods as short as overnight, is an
arrangement under which the purchaser (i.e., a Fund) purchases a U.S. Government
or other high quality short-term debt obligation (the "Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. The custody of the Obligation will be maintained by the Fund's
Custodian. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
repurchase price upon repurchase. In either case, the income to a Fund is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
the Fund to the seller of the Obligation. It is not clear whether a court would
consider the Obligation purchased by a Fund subject to a repurchase agreement as
being owned by the Fund or as being collateral for a loan by the Fund to the
seller. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, a Fund may encounter delays and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the Obligation. If the court characterizes the transaction as a loan
and a Fund has not perfected a security interest in the Obligation, a Fund may
be required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, a Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for a Fund, the
Fund's Sub-Adviser seeks to minimize the risk of loss from repurchase agreements
by analyzing the creditworthiness of the obligor, in this case the seller of the
Obligation. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the security. However,
if the market value of the Obligation subject to the repurchase agreement
becomes less than the repurchase price (including accrued interest), the Fund
will direct the seller of the Obligation to deliver additional securities so
that the market
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value of all securities subject to the repurchase agreement equals or exceeds
the repurchase price.
REVERSE REPURCHASE AGREEMENTS
The Fixed Income Fund, International Active Fund and Money Market Fund may enter
into reverse repurchase agreements. These agreements involve the sale of debt
securities (obligations) held by a Fund, with an agreement to repurchase the
obligations at an agreed upon price, date and interest payment. The proceeds
will be used to purchase other debt securities either maturing, or under an
agreement to resell, at a date simultaneous with or prior to the expiration of
the reverse repurchase agreement. Reverse repurchase agreements will be
utilized, when permitted by law, only when the expected interest income to be
earned from the investment of the proceeds from the transaction is greater than
the interest expense of the reverse repurchase transaction. When a Fund enters
into such an agreement, it will establish a segregated account with the Fund's
Custodian in which it will maintain cash or cash equivalents or other liquid
assets, including equity securities and debt securities of any grade equal in
value to the repurchase price (which price will already include interest
charges). If the buyer of the debt securities pursuant to the reverse repurchase
agreement becomes bankrupt, realization upon the underlying securities may be
delayed and there is a risk of loss due to any decline in their value. Reverse
repurchase agreements will not extend for more than 30 days nor will such
agreements involve more than 10% of the net assets of a Fund.
WHEN-ISSUED SECURITIES
The Fixed Income Fund, the International Active Fund, and the Money Market Fund
may from time to time purchase securities on a "when-issued" basis. Debt
securities are often issued in this manner. The price of such securities, which
may be expressed in yield terms, is fixed at the time a commitment to purchase
is made, but delivery of and payment for the when-issued securities take place
at a later date. Normally, the settlement date occurs within one month of the
purchase. During the period between purchase and settlement, no payment is made
by a Fund and no interest accrues to a Fund. Although when-issued securities may
be sold prior to the settlement date, a Fund intends to purchase such securities
with the purpose of actually acquiring them unless a sale appears desirable for
investment reasons.
At the time a Fund makes the commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the amount due and the value
of the security in determining a Fund's net asset value. The market value of the
when-issued securities may be more or less than the purchase price payable at
the settlement date. The Trustees do not believe that a Fund's net asset value
or income will be exposed to additional risk by the purchase of securities on a
when-issued basis. A Fund will establish a segregated account in which it will
maintain cash, U.S. Government securities or other liquid assets
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at least equal in value to commitments for when-issued securities. Such
segregated securities either will mature or, if necessary, be sold on or before
the settlement date.
VARIABLE OR FLOATING-RATE SECURITIES
The Fixed Income and Money Market Funds may invest in securities which offer a
variable or floating rate of interest. Variable-rate securities provide for
automatic establishment of a new interest rate at fixed intervals (e.g., daily,
monthly, semi-annually, etc.). Floating-rate securities generally provide for
automatic adjustment of the interest rate whenever some specified interest rate
index changes. The interest rate on variable or floating-rate securities is
ordinarily determined by reference to or is a percentage of a bank's prime rate,
the 90-day U.S. Treasury bill rate, the rate of return on commercial paper or
bank certificates of deposit, an index of short-term interest rates, or some
other objective measure.
Variable or floating-rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time on 7 days notice: in other
cases, the demand feature is exercisable at any time on 30 days notice or on
similar notice at intervals of not more than one year. Some securities which do
not have variable or floating interest rates may be accompanied by puts
producing similar results and price characteristics. When considering the
maturity of any instrument which may be sold or put to the issuer or a third
party, a Fund may consider that instrument's maturity to be shorter than its
stated maturity. Any such determination by the Money Market Fund will be made in
accordance with Rule 2a-7.
Variable-rate demand notes include master demand notes that are obligations
that permit a Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between a Fund, as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. The interest rate on a floating-rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments will generally be traded. There generally is
not an established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations are not secured
by letters of credit or other credit support arrangements, a Fund's right to
redeem is dependent on the ability of the borrower to pay principal and interest
on demand. Such obligations frequently are not rated by
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credit rating agencies and, if not so rated, a Fund may invest in them only if
the appropriate Sub-Adviser determines that at the time of investment the
obligations are of comparable quality to the other obligations in which the Fund
may invest. The Sub-Adviser, on behalf of a Fund, will consider on an ongoing
basis the creditworthiness of the issuers of the floating and variable-rate
demand obligations in the Fund's portfolio.
A Fund will not invest more than 10% of its net assets in variable and floating-
rate demand obligations that are not readily marketable (a variable or floating-
rate demand obligation that may be disposed of on not more than seven days
notice will be deemed readily marketable and will not be subject to this
limitation). (See "Illiquid Securities" and "Investment Objectives.") In
addition, each variable or floating-rate obligation must meet the credit quality
requirements applicable to all the Fund's investments at the time of purchase.
When determining whether such an obligation meets the Fund's credit quality
requirements, the Fund may look to the credit quality of the financial guarantor
providing a letter of credit or other credit support arrangement.
In determining the Fund's weighted average portfolio maturity, the Fund will
consider a floating or variable-rate security to have a maturity equal to its
stated maturity (or redemption date if it has been called for redemption),
except that it may consider (i) variable-rate securities to have a maturity
equal to the period remaining until the next readjustment in the interest rate,
unless subject to a demand feature, (ii) variable-rate securities subject to a
demand feature to have a remaining maturity equal to the longer of (a) the next
readjustment in the interest rate or (b) the period remaining until the
principal can be recovered through demand, and (iii) floating rate securities
subject to a demand feature to have a maturity equal to the period remaining
until the principal can be recovered through demand. Variable and floating-rate
securities generally are subject to less principal fluctuation than securities
without these attributes since the securities usually trade at par following the
readjustment in the interest rate.
ILLIQUID SECURITIES
The Funds may invest in illiquid securities (i.e., securities that are not
readily marketable). However, a Fund will not acquire illiquid securities if, as
a result, they would comprise more than 15%, or 10% with respect to the Money
Market Fund, of the value of the Fund's net assets (or such other amounts as may
be permitted under the 1940 Act).
The Board of Trustees, or its delegate, has the ultimate authority to determine,
to the extent permissible under the federal securities laws, which securities
are illiquid for purposes of this limitation. Certain securities exempt from
registration or issued in transactions exempt from registration under the
Securities Act of 1933 (the "Securities Act"), such as securities that may be
resold to institutional investors under Rule 144A of the Securities Act and
Section 4(2) commercial paper, may be considered liquid under guidelines adopted
by the Board of Trustees.
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The Board of Trustees has delegated to the respective Sub-Advisers the day-to-
day determination of the liquidity of a security, although it has retained
oversight and ultimate responsibility for such determinations. The Board of
Trustees has directed each Sub-Adviser to look to such factors as (i) the
frequency of trades or quotes for a security, (ii) the number of dealers willing
to purchase or sell the security and number of potential buyers, (iii) the
willingness of dealers to undertake to make a market in the security, (iv) the
nature of the security and nature of the marketplace trades, such as the time
needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer, (v) the likelihood that the security's marketability will
be maintained throughout the anticipated holding period, and (vi) any other
relevant factors. A Sub-Adviser may determine 4(2) commercial paper to be liquid
if (i) the 4(2) commercial paper is not traded flat or in default as to
principal and interest, (ii) the 4(2) commercial paper is rated in one of the
two highest rating categories by at least two NRSROs, or if only one NRSRO rates
the security, by that NRSRO, or is determined by the Sub-Adviser to be of
equivalent quality and (iii) the Sub-Adviser considers the trading market for
the specific security taking into account all relevant factors. A foreign
security may be considered liquid by a Sub-Adviser (despite its restricted
nature under the Securities Act) if the security can be freely traded in a
foreign securities market and all the facts and circumstances support a finding
of liquidity.
RESTRICTED SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a SEC Staff position set forth in the adopting
release for Rule 144A under the Securities Act (the "Rule"). The Rule is a
nonexclusive safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws. The
Rule provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Trust believes that the Staff
of the SEC has left the question of determining the liquidity of all restricted
securities to the Trustees, who will consider established factors in making such
a determination.
TEMPORARY DEFENSIVE POSITION
When a Sub-Adviser determines that market conditions warrant a temporary
defensive position, a Fund may invest without limitation in cash and short-term
fixed income securities, including U.S. government securities, commercial paper,
banker's acceptances, certificates of deposit, and time deposits.
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PORTFOLIO TURNOVER AND SECURITIES TRANSACTIONS
A portfolio turnover rate is, in general, the percentage computed by taking the
lesser of purchases or sales of portfolio securities (excluding certain short-
term securities) for a year and dividing it by the monthly average of the market
value of such securities during the year. The Funds do not have a predetermined
rate of portfolio turnover since such turnover will be incidental to
transactions taken with a view to achieving their respective objectives.
High turnover and short-term trading involve correspondingly greater commission
expenses and transaction costs. If a Fund derives more than 30 percent of its
gross income from the sale of securities held less than three months, the Fund
may fail to qualify under the tax laws as a regulated investment company in
particular years and thereupon would lose certain beneficial tax treatment of
its income (see "Dividends, Distributions and Taxes" in the Prospectus).
Each Sub-Adviser is responsible for decisions to buy and sell securities,
broker-dealer selection, and negotiation of its brokerage commission rates.
The Sub-Adviser's primary consideration in effecting a securities transaction
will be execution at the most favorable price. In certain instances, the Sub-
Adviser may make purchases of underwritten issues at prices which include
underwriting fees, and, in selecting a broker-dealer to execute each particular
transaction, the Sub-Adviser will take the following into consideration: the
best net price available; the reliability, integrity and financial condition of
the broker-dealer; and the size of contribution of the broker-dealer to the
investment performance of the Funds on a continuing basis. The Sub-Adviser shall
not be deemed to have acted unlawfully or to have breached any duty created by
the Investment Advisory Agreements in question or otherwise solely by reason of
its having caused the Trust to pay a broker-dealer that provides brokerage and
research services to the Sub-Adviser an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Sub-
Adviser determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the Sub-
Adviser's overall responsibilities with respect to the Trust.
Each Sub-Adviser allocates the orders placed by it on behalf of a Fund to such
broker-dealers who also provide research or statistical material, or other
services to the Funds, the Sub-Adviser or its clients. Such allocation shall be
in such amounts and proportions as the Sub-Adviser shall determine and the Sub-
Adviser will report on said allocations regularly to the Trust indicating the
broker-dealers to whom such allocations have been made and the basis therefor.
Broker-dealers may be selected who provide brokerage and/or research services to
the Funds and/or other accounts over which the Sub-Adviser exercises investment
discretion. Such services may include advice concerning the value of securities
(including providing quotations as to securities); the advisability of investing
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in, purchasing or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishing analysis and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto, such as clearance and settlement.
The receipt of research from broker-dealers may be useful to the Sub-Adviser
in rendering investment management services to the Trust and/or the Sub-
Adviser's other clients; conversely, such information provided by broker-
dealers who have executed transaction orders on behalf of other clients may be
useful to the Sub-Adviser in carrying out its obligations to the Trust. The
receipt of such research will not be substituted for the independent research
of the Sub-Adviser. It does enable the Sub-Adviser to reduce costs to less
than those which would have been required to develop comparable information
through its own staff. The use of broker-dealers who supply research may
result in the payment of higher commissions than those available from other
broker-dealers who provide only the execution of portfolio transactions.
Orders on behalf of the Trust may be bunched with orders on behalf of other
clients of the Sub-Adviser.
The Board of Trustees periodically reviews each Sub-Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Trust.
MANAGEMENT
Providian Investment Advisors, Inc. (the "Adviser") in general supervises the
Trust's management and investment program, prepares reports for the Trust,
monitors compliance by the Trust in its investment activities and pays all
compensation of officers and Trustees of the Trust who are affiliated persons of
the Adviser. The Trust pays all other expenses incurred in the operation of the
Trust, including fees and expenses of unaffiliated Trustees of the Trust.
Pursuant to the Sub-Advisory Agreements with the Adviser, subject to the
supervision of the Trustees of the Trust, and in conformity with the stated
policies of the Funds, Atlanta Capital Management Company L.L.C. ("Atlanta
Capital") manages the investment operations of the High Quality Stock Fund and
the Fixed Income Fund, Blairlogie Capital Management ("Blairlogie") manages the
investment operations of the International Active Fund, and ________________
manages the investment operations of the Money Market Fund. The Sub-Advisers
also manage the composition of each respective Fund's portfolio, including the
purchase, retention, disposition and loan of securities.
Each Investment Advisory and Sub-Advisory Agreement will remain in effect for
two years following its effective date, and will continue in effect thereafter
only if such
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continuance is specifically approved at least annually by the Trustees or by
vote of a majority of the outstanding voting securities of the particular Fund
(as defined in the 1940 Act and in a rule under the Act) and, in either case, by
a majority of the Trustees who are not parties to the Investment Advisory
Agreements or interested persons of any such party.
The Adviser and Sub-Advisers (collectively the "Advisers") have each authorized
any of their officers and employees who have been elected or appointed as
Trustees or officers of the Trust to serve in the capacities in which they have
been elected or appointed. In connection with the services it renders, the
Advisers each bear the salaries and expenses of all of its respective personnel.
Other than as imposed by law, the Investment Advisory and Sub-Advisory
Agreements provide that the Advisers shall not be liable to the Funds for any
error of judgment by the Advisers or for any loss sustained by the Funds except
in the case of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. Each Agreement also provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party upon no more than 60 days' nor less than 30 days' written notice.
The Investment Advisory and Sub-Advisory Agreements provide that the Advisers
shall not be liable for any error in judgment or mistake of law or for any loss
suffered by the Trust in connection with any investment policy or the purchase,
sale or redemption of any securities on the recommendations of the Advisers. The
Agreements provide that the Advisers are not protected against any liability to
the Trust or its security holders for which the Advisers shall otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon them by the Agreements or the
violation of any applicable law.
TRUSTEES AND OFFICERS
The names of the Trustees and executive officers of the Trust, their
affiliations, if any, with the Advisers and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" of the Trust, as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Positions(s) Held Principal Occupation(s)
Name and Address Age With Registrant During Past Five Years
<S> <C> <C> <C>
Kris A. Robbins* 37 President and Chief Group Sales and Product Development Officer of Providian
Trustee Corporation since September 1996; Manager, Institutional
Marketing of Providian Corporation, from 1994 to September 1996;
Director, Managed Funds of Providian Corporation, from 1992 to 1994;
Director of Providian Investment Advisors, Inc.
Thomas Hartlage* 44 Chief Financial Director, Product Management, of Providian Corporation since 1995;
Officer Director, Institutional Marketing of Providian Corporation from 1993
to 1995; Director, New Initiatives of Providian Corporation from
1992-1993; Director, Business Planning of Providian Corporation from
1991-1992; Director of Providian Investment Advisors, Inc.
</TABLE>
B-26
<PAGE>
NET ASSET VALUES OF THE SHARES OF THE FUNDS
As set forth in the Prospectus under the caption "Net Asset Value and Pricing,"
the net asset value of each Fund will be determined as of the close of trading
on each day the NYSE is open for trading (currently 4:00 P.M. Eastern Time), and
days that the U.S Postal Service and national banks are open. The New York Stock
Exchange is open for trading Monday through Friday except New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. Additionally, if any of the aforementioned
holidays falls on a Saturday, the NYSE will not be open for trading on the
preceding Friday, and when any such holiday falls on a Sunday, the NYSE will not
be open for trading on the succeeding Monday, unless unusual business conditions
exist, such as the ending of a monthly or yearly accounting period.
Securities held by all Funds will be valued as follows: Fund securities which
are traded on stock exchanges are valued at the last sale price as of the close
of business on the day the securities are being valued (currently 4:00 P.M.
Eastern Time), or lacking any sales, at the last quoted bid price. Bonds and
other fixed income securities (other than short-term obligations), including
listed issues, are valued using matrix pricing systems of a major dealer in
bonds which take into account 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, without exclusive reliance
upon quoted exchange or over-the-counter prices. Short-term debt securities with
61 days or more to maturity at time of purchase are valued, through the 61st day
prior to maturity, at market value based on quotations obtained from market
makers or other appropriate sources; thereafter, the value on the 61st day is
amortized on a straight-line basis over the remaining number of days to
maturity. Securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Trust. Debt securities with maturities
of sixty days or less are valued at amortized cost.
The Money Market Fund values its securities on the amortized cost basis and
seeks to maintain its net asset value at a constant $1.00 per share. In the
event a difference of 1/2 of 1% or more were to occur between the net asset
value calculated by reference to market values of the Money Market Fund's $1.00
per share net asset value, or if there were any other deviation which the Board
of Trustees believed would result in a material dilution to shareholders or
purchasers, the Board of Trustees would consider taking any one or more of the
following actions or any other action considered appropriate: selling portfolio
securities to shorten average portfolio maturity or to realize capital gains or
losses, reducing or suspending shareholder income accruals, redeeming shares in
kind, or utilizing a value per unit based upon available indications of market
value. Available indications of market value may include, among other things,
quotations or market value estimates of securities and/or values based on yield
data relating to money market securities that are published by reputable
sources.
B-27
<PAGE>
INVESTMENT PERFORMANCE
YIELD CALCULATIONS
- ------------------
The Trust may from time to time disclose the current annualized yield of the
High Quality Stock, Fixed Income and International Active Funds for 30-day
periods. The annualized yield of these Funds refers to the income generated by
the Fund over a specified 30-day period. Because the yield is annualized, the
yield generated by the Fund during the 30-day period is assumed to be generated
each 30-day period. The yield is computed by dividing the net investment income
per share earned during the period by the price per share on the last day of the
period, according to the following formula:
YIELD = 2[(a-b + 1)/6/ - 1]
---
cd
Where: a = net investment income earned during the period by the Fund.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period.
d = the maximum offering price per share on the last day of the period.
Net investment income will be determined in accordance with rules established by
the SEC. Accrued expenses will include all recurring fees that are charged to
all shareholder accounts. The yield calculations do not reflect the effect of
any charges that may be applicable to a particular Policy.
Because of the charges and deductions imposed by the separate accounts and, in
certain cases, by series of the Trust which invest in the Funds described in
this SAI, the yield realized by Contract Owners in the investment divisions of
the separate accounts will be lower than the yield for the corresponding Fund of
the Trust. The yield on amounts held in the High Quality Stock, Fixed Income and
International Active Funds normally will fluctuate over time. Therefore, the
disclosed yield for any given past period is not an indication or representation
of future yields or rates of return. Each of the High Quality Stock, Fixed
Income and International Active Funds actual yield will be affected by the types
and quality of Fund securities held by the respective Fund, and its operating
expenses.
B-28
<PAGE>
CURRENT YIELD
- -------------
The Money Market Fund's current yield quotation is based on a seven-day period
and is computed as follows. The first calculation is net investment income
per share, which is accrued interest on portfolio securities, plus or minus
amortized premium, less accrued expenses. This number is then divided by the
price per share (expected to remain constant at $1.00) at the beginning of the
period ("based period return"). The result is then divided by 7 and
multiplied by 365 and the resulting yield figure is carried to the nearest
one-hundredth of one percent. Realized capital gains or losses and unrealized
appreciation or depreciation of investments are not included in the
calculation.
EFFECTIVE YIELD
- ---------------
The Money Market Fund's effective yield is determined by taking the base
period return (computed as described above) and calculating the effect of
assumed compounding. The formula for the effective yield is: (base period
return + 1)/(365/7)/ - 1.
STANDARDIZED TOTAL RETURN CALCULATIONS
- --------------------------------------
The Trust may from time to time also disclose average annual total returns for
the Funds for various periods of time. Average annual total return quotations
are computed by finding the average annual compounded rates of return over
one, five and ten year periods that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
P (1 + T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one, five, or ten-year period at the end of
the one, five, or ten-year period (or fractional portion thereof).
All recurring fees that are charged to all shareholder accounts are recognized
in the ending redeemable value. The average annual total return calculations
for the Fund will not reflect the effect of charges that may be applicable to
a particular policy.
NON-STANDARDIZED PERFORMANCE. In addition, in order to more completely
represent a Fund's performance or more accurately compare such performance to
other measures of investment return, a Fund also may include in
advertisements, sales literature and shareholder reports other total return
performance data ("Non-Standardized Return"). Non-Standardized Return may be
quoted for the same or different periods as those for
B-29
<PAGE>
which Standardized Return is quoted; it may consist of an aggregate or average
annual percentage rate of return, actual year-by-year rates or any combination
thereof. Non-Standardized Return will be accompanied by Standardized Return.
Non-Standardized Return may or may not take sales charges into account;
performance data calculated without taking the effect of sales charges into
account will be higher than data including the effect of such charges. All
non-standardized performance will be advertised only if the standard
performance data for the same period, as well as for the required periods, is
also presented.
GENERAL INFORMATION. From time to time, the Funds may advertise their
performance compared to similar funds using certain unmanaged indices,
reporting services and publications. Descriptions of some of the indices
which may be used are listed below.
The Standard & Poor's 500 Composite Stock Price Index is a well diversified
list of 500 companies representing the U.S. stock market.
The Standard & Poor's 400 Midcap Index tracks the stock price movement of 400
companies with mid-size market capitalization of $300 million to $5 billion.
Stocks are chosen for market size, liquidity and industry group
representation.
The Standard and Poor's Small Cap 600 index is designed to represent price
movements in the small cap U.S. equity market. It contains companies chosen
by the Standard & Poors Index Committee for their size, industry,
characteristics, and liquidity. None of the companies in the S&P 600 overlap
with the S&P 500 or the S&P 400 (MidCap Index). The S&P 600 is weighted by
market capitalization. REITs are not eligible for inclusion.
The NASDAQ Composite OTC Price Index is a market value-weighted and unmanaged
index showing the changes in the aggregate market value of approximately 3,500
stocks.
The Lehman Brothers Aggregate Bond Index is an index consisting of the Lehman
Brothers Government/Corporate Bond Index, the Lehman Brothers Mortgage-Backed
Securities Index, and the Lehman Brothers Assets-Backed Securities Index. The
Government/Corporate Bond Index is described below. The Mortgage-Backed
Securities Index consists of 15 and 30-year fixed rate securities backed by
mortgage pools of GNMA, FHLMC and FNMA (excluding buy downs, manufactured
homes and graduated equity mortgages). The Asset-Backed Securities Index
consists of credit card, auto and home equity loans (excluding subordinated
tranches) with an average life of one year. Each Index includes income and
distributions but does not reflect fees, brokerage commissions or other
expenses of investing.
The Lehman Brothers Intermediate Aggregate Index consists of 1-10 year
government bonds, 1-10 year corporate bonds rated A or higher by an NRSRO, all
mortgages, and all asset backed securities within the Aggregate Index (i.e.,
the Lehman Brothers Aggregate
B-30
<PAGE>
Index less the Long Government/Corporate Index). This Index offers a broad
based benchmark with a shorter duration than the Lehman Brothers Aggregate
Index.
The Lehman Brothers Government Bond Index is a measure of the market value of
all public obligations of the U.S. Treasury; all publicly issued debt of all
agencies of the U.S. Government and all quasi-federal corporations; and all
corporate debt guaranteed by the U.S. Government; mortgage backed securities,
bonds and foreign targeted issues are not included in the Lehman Government
Index.
The Lehman Brothers Government/Corporate Bond Index is a measure of the market
value of approximately 5,300 bonds with a face value currently in excess of
$1.3 trillion. To be included in the Lehman Government/Corporate Index, an
issue must have amounts outstanding in excess of $1 million, have at least one
year to maturity and be rated "Baa" or higher ("investment grade") by a
nationally recognized rating agency.
The Russell 3000 Index is composed of the 3,000 largest U.S. companies ranked by
market capitalization representing approximately 98% of the U.S. equity market.
The Russell 2000 Index represents the bottom two thirds of the largest 3000
publicly traded companies domiciled in the U.S. Russell uses total market
capitalization to sort its universe to determine the companies that are
included in the index. Only common stocks are included in the Index. REITs
are eligible for inclusion.
The Wilshire Mid Cap 750 Index is a subset of the Wilshire 5000 Index of
common stocks. The Mid Cap 750 Index consists of those Wilshire 5000
companies ranked between 501 and 1,250 according to market capitalization.
The Wilshire 5000 Equity Index represents the return on the market value of all
common equity securities for which daily pricing is available.
In addition, from time to time in reports and promotions: (1) a Fund's
performance may be compared to other groups of mutual funds tracked by: (a)
Lipper Analytical Services, a widely used independent research firm which
ranks mutual funds by overall performance, investment objectives, and assets;
(b) Morningstar, Inc., another widely used independent research firm which
ranks mutual funds by overall performance, investment objectives, and assets;
or (c) other financial or business publications, such as Business Week, Money
Magazine, Forbes and Barron's which provide similar information; (2) the
Consumer Price Index (measure of inflation) may be used to assess the real
rate of return from an investment in a Fund; (3) other statistics such as GNP,
and net import and export figures derived from governmental publications,
e.g., The Survey of Current Business or other independent parties, e.g., the
Investment Company Institute, may be used to illustrate investment attributes
of a Fund or the general economic, business, investment, or financial
environment in which a Fund operates; (4) various financial economic and
market statistics developed by brokers, dealers and other persons may be used
to illustrate aspects of a Fund's performance; (5) the effect of tax-deferred
compounding on a Fund's investment returns, or on returns in general, may be
illustrated by graphs, charts, etc. where such graphs or charts would compare,
at various points in time, the return from an investment in a Fund (or returns
in general) on a tax-deferred basis (assuming reinvestment of capital gains
and dividends and assuming one or more tax rates) with the return on a taxable
basis; and (6) the sectors or industries in which the Fund invests may
B-31
<PAGE>
be compared to relevant indices or surveys (e.g., S&P Industry Surveys) in
order to evaluate the Fund's historical performance or current or potential
value with respect to the particular industry or sector.
TAXES
Each Fund intends to elect to qualify as a "regulated investment company"
under the provisions of Subchapter M of the Internal Revenue Code of 1986 (the
"Code"). If each Fund qualifies as a "regulated investment company" and
complies with the appropriate provisions of the Code, each Fund will be
relieved of federal income tax on the amounts distributed.
In order to qualify as a regulated investment company, in each taxable year
each Fund must, among other requirements, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of securities,
and gains (without deduction for losses) from the sale or other disposition of
securities or foreign currencies (subject to the authority of the Secretary of
the Treasury to exclude certain foreign currency gains) or other income
derived with regard to its investing in such securities or currencies and (b)
derive less than 30% of its gross income from gains (without deduction for
losses) realized on the sale or other disposition of securities held for less
than three months. In order to meet this 30% requirement, a Fund may defer
selling certain investments beyond the time when it might otherwise do so.
The discussion of "Taxes" in the Prospectus, in conjunction with the
foregoing, is a general summary of applicable provisions of the Code and U.S.
Treasury Regulations now in effect as currently interpreted by the courts and
the Internal Revenue Service. The Code and these Regulations, as well as the
current interpretations thereof, may be changed at any time by legislative,
judicial or administrative action.
GENERAL INFORMATION
The Trustees themselves have the power to alter the number and terms of office
of the Trustees, and they may at any time lengthen their own terms or make
their terms of unlimited duration (subject to certain removal procedures) and
appoint their own successors, provided that always at least a majority of the
Trustees have been elected by the shareholders of the Trust. The voting rights
of shareholders are not cumulative, so that holders of more than 50 percent of
the shares voting can, if they choose, elect all Trustees being selected,
while the holders of the remaining shares would be unable to elect any
Trustees. The Trust is not required to hold Annual Meetings of Shareholders
for action by shareholders' vote except as may be required by the 1940 Act or
the Declaration of Trust. The Declaration of Trust provides that shareholders
can remove Trustees by a vote of two-thirds of the vote of the outstanding
shares. The Trustees will call a meeting of
B-32
<PAGE>
shareholders to vote on the removal of a Trustee upon the written request of
the holders of 10 percent of the Trust's shares. In addition, 10 or more
shareholders meeting certain conditions and holding the lesser of $25,000
worth or one percent of the Trust's shares may advise the Trustees in writing
that they wish to communicate with other shareholders for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then either give
those shareholders access to the shareholder list or, if requested by those
shareholders, mail at the shareholders' expense the shareholders'
communication to all other shareholders. See the Contract Prospectus for
information as to the voting of shares by Contract Owners.
Each issued and outstanding share of each Fund is entitled to participate
equally in dividends and distributions of the respective Fund and in the net
assets of such Fund upon liquidation or dissolution remaining after
satisfaction of outstanding liabilities. The shares of each Fund have no
preference, preemptive, conversion, exchange or similar rights, and are freely
transferable.
Under Rule 18f-2 under the 1940 Act, as to any investment company which has
two or more series (such as the Funds) outstanding and as to any matter
required to be submitted to shareholder vote, such matter is not deemed to
have been effectively acted upon unless approved by the holders of a
"majority" (as defined in that Rule) of the voting securities of each series
affected by the matter. Such separate voting requirements do not apply to the
election of Trustees or the ratification of the selection of accountants. The
Rule contains special provisions for cases in which an advisory contract is
approved by one or more, but not all, series. A change in investment policy
may go into effect as to one or more series whose holders so approve the
change even though the required vote is not obtained as to the holders of
other affected series.
Under Massachusetts law, shareholders of a trust such as the Trust may, under
certain circumstances, be held personally liable as partners for the
obligations of the Trust. The Declaration of Trust, however, contains an
express disclaimer of shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Trust or its
Trustees. The Declaration of Trust provides for indemnification and
reimbursement of expenses out of Trust property for any shareholder held
personally liable for its obligations. The Declaration of Trust also provides
that the Trust shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Trust and satisfy any
judgment thereon. Thus, while Massachusetts law permits a shareholder of a
trust such as the Trust to be held personally liable as a partner under
certain circumstances, the risk of a Contract Owner incurring financial loss
on account of shareholder liability is highly unlikely and is limited to the
relatively remote circumstances in which the Trust would be unable to meet its
obligations.
B-33
<PAGE>
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Trust has Codes of Ethics governing the personal securities transactions
of officers and employees, its Adviser and Sub-Advisers.
INDEPENDENT ACCOUNTANTS
The financial statements of the Trust included in the Prospectus and the
Statement of Additional Information have been examined by Ernst & Young,
L.L.P., independent accountants, for the periods indicated in their reports as
stated in their opinion and have been so included in reliance upon such
opinion given upon the authority of the firm as experts in accounting and
auditing.
FINANCIAL STATEMENTS
B-34
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
_________, 1997
PROVIDIAN SERIES TRUST
CAPITAL PRESERVATION PORTFOLIO
INCOME ORIENTATED PORTFOLIO
GROWTH AND INCOME PORTFOLIO
CAPITAL GROWTH PORTFOLIO
MAXIMUM APPRECIATION PORTFOLIO
MONEY MARKET FUND
This Statement of Additional Information is not a prospectus. It contains
additional information about the Providian Series Trust (the "Trust") and should
be read in conjunction with the Trust's Prospectus dated _________, 1997. You
can obtain a copy by contacting the Trust's Administrative Office, P. O. Box
32700, Louisville, Kentucky 40232.
TABLE OF CONTENTS
Page
Investment Objectives B-
Description of Securities and Investment Techniques B-
Portfolio Turnover and Securities Transactions B-
Management B-
Net Asset Values of the Shares of the Portfolios
and the Money Market Fund B-
Investment Performance B-
Taxes B-
General Information B-
Independent Accountants B-
Financial Statements B-
B-1
<PAGE>
Providian Series Trust (the "Trust") is an investment company presently
consisting of nine separate series (the "Funds") each having different
investment objectives and policies. This SAI pertains to six series, five of
which are professionally managed investment portfolios (each, a "Portfolio")
which seek to achieve their investment objective by investing in a diverse mix
of "Underlying Funds," which consist of open-end management investment companies
or series thereof for which Providian Investment Advisors, Inc. acts as
investment adviser. The investment objectives of the Portfolios and the Money
Market Fund are as follows:
The CAPITAL PRESERVATION PORTFOLIO seeks high current income with low volatility
of principal.
The INCOME ORIENTED PORTFOLIO seeks income and, secondarily, long-term growth
of capital.
The GROWTH AND INCOME PORTFOLIO seeks growth of capital and income.
The CAPITAL GROWTH PORTFOLIO seeks long-term growth of capital and, secondarily,
current income.
The MAXIMUM APPRECIATION PORTFOLIO seeks capital appreciation.
The MONEY MARKET FUND seeks current income, a stable share price, and daily
liquidity. The Portfolio invests in corporate, bank, and government instruments
that present minimal credit risk.
INVESTMENT OBJECTIVES
The Trust has adopted the following policies relating to the investment of
assets of the Portfolios and the Money Market Fund and their activities. These
are fundamental policies and may not be changed without the approval of the
holders of a "majority" of the outstanding shares of each Portfolios and the
Money Market Fund affected. Under the Investment Company Act of 1940 (the "1940
Act"), the vote of such a "majority" means the vote of the holders of the lesser
of (i) 67 percent of the shares represented at a meeting at which more than 50
percent of the outstanding shares are represented or (ii) more than 50 percent
of the outstanding shares. A change in policy affecting only one Portfolio or
the Money Market Fund may be effected with the approval of the holders of a
"majority" of the outstanding shares of such Portfolio or the Money Market Fund.
The Trust may not, and each Portfolio and the Money Market Fund may not (except
as noted):
1. Purchase securities on margin or sell securities short, except that each Fund
may make short sales against the box and that effecting short sales against the
box will not be deemed to constitute a purchase of securities on margin;
B-2
<PAGE>
2. Purchase or sell commodities or commodity contracts (which, for the purpose
of this restriction, shall not include foreign currency futures or forward
currency contracts);
3. Borrow money except from banks as a temporary measure for extraordinary or
emergency purposes, but only if immediately after each borrowing and continuing
thereafter it will have an asset coverage of at least 300%;
4. Underwrite securities of other issuers, except to the extent that a Portfolio
or the Money Market Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in connection with the purchase and sale of
portfolio securities;
5. Invest in securities of a company for the purpose of exercising control or
management;
6. Participate on a joint or a joint and several basis in any trading account in
securities;
7. Purchase or sell real estate, except that it may purchase marketable
securities which are issued by companies which invest in real estate or
interests therein;
8. Make loans of its assets if, as a result, more than 50% of a Portfolio's
total assets (33 1/3% in the case of the Money Market Fund) would be lent to
other persons, except (i) to purchase or hold money market instruments permitted
by a Portfolio's investment objective and policies, or (ii) to enter into
repurchase agreements or through lending of a Portfolio's portfolio securities,
or (iii) through purchases of debt securities or other debt instruments;
9. Issue senior securities, except as permitted under the 1940 Act; or
10. Purchase securities of registered open-end investment companies or
registered unit investment trusts in reliance on Sections 12(d)(1)(F) or (G) of
the 1940 Act.
Notwithstanding the foregoing investment restrictions, the Underlying Funds in
which the Portfolios invest have adopted certain investment restrictions which
may be more or less restrictive than those listed above, thereby permitting a
Portfolio to engage in investment strategies indirectly that are prohibited
under the investment restrictions listed above. The investment restrictions of
an Underlying Fund are located in its Statement of Additional Information.
As a non-fundamental restriction, the Money Market Fund may not engage in any
transaction or practice which is not permissible under Rule 2a-7 of the 1940
Act, notwithstanding any other fundamental investment limitation or non-
fundamental operating policy.
B-3
<PAGE>
Because of their investment objectives and policies, the Portfolios will each
concentrate more than 25% of their assets in the mutual fund industry. In
accordance with the Portfolios' investment programs set forth in the Prospectus,
each of the Portfolios may invest more than 25% of its assets in certain
Underlying Funds. However, each of the Underlying Funds in which each Fund will
invest will not concentrate more than 25% of its total assets in any one
industry.
In order to limit the risks associated with entry into repurchase agreements,
the Trustees have adopted certain criteria (which are not fundamental policies)
to be followed by the Portfolios and the Money Market Fund. These criteria
provide for entering into repurchase agreement transactions (a) only with banks
or broker-dealers meeting certain guidelines for creditworthiness, (b) that are
fully collateralized as defined, (a) on an approved standard form of agreement
and (d) that meet limits on investments in the repurchase agreements of any one
bank, broker or dealer. In accordance with regulatory requirements, the Board of
Trustees has also adopted procedures for segregating Portfolio or Money Market
Fund assets whenever a Portfolio or Money Market Fund enters into reverse
repurchase agreements with institutions other than banks.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The Prospectus discusses the investment objectives of the Portfolios, the Money
Market Fund and each of the Underlying Funds in which the Portfolios may invest,
as well as the policies employed to achieve those objectives. This section
contains supplemental information concerning the types of securities and other
instruments in which the Underlying Funds may invest (and repurchase agreements
in which the Portfolios and/or the Underlying Funds may invest), the investment
policies and portfolio strategies the Underlying Funds may utilize and certain
risks attendant to such investments, policies and strategies. There can be no
assurance that the respective investment objectives of the Portfolios or the
Underlying Funds will be achieved.
The Declaration of Trust for the Portfolio permits the Board of Trustees to
establish additional Portfolios from time to time. The investment objectives,
policies and restrictions applicable to additional Portfolios would be
established by the Board of Trustees at the time such portfolios were
established and may differ from those set forth in the Prospectus and this SAI.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
The Fixed Income Fund may invest in mortgage-backed securities, and in other
asset-backed securities (unrelated to mortgage loans) that are offered to
investors in the future. The value of some mortgage-backed or asset-backed
securities in which the Fund invests may be particularly sensitive to changes in
prevailing interest rates, and, like the other investments of the Funds, the
ability of the Fund to successfully utilize these instruments
B-4
<PAGE>
may depend in part upon the ability of Atlanta Capital Management Company,
L.L.C. ("Atlanta Capital"), sub-adviser of the Portfolios, to forecast interest
rates and other economic factors correctly.
MORTGAGE PASS-THROUGH SECURITIES. 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 ("GNMA")) are described as "modified
pass through" securities. 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 mortgage-related securities is the GNMA.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. 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 Federal Housing Administration insured or Veterans Administration-
guaranteed mortgages.
Government-related guarantors (i.e., not backed by the full faith and credit of
the U.S. Government) 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. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved sellers/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks, credit unions and mortgage bankers. Pass-
through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a government-
sponsored corporation formerly owned by the twelve Federal Home Loan Banks and
now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC
B-5
<PAGE>
guarantees the timely payment of interest and ultimate collection of principal,
but PCs are not backed by the full faith and credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of these pools may be supported by various
forms of insurance, guarantees or structures, including individual loan, title,
pool and hazard insurance and letters of credit. The insurance and guarantees
are issued by governmental entities, private insurers and the mortgage poolers.
Such insurance and guarantees and the creditworthiness of the issuers thereof
will be considered in determining whether a mortgage-related security meets the
Fund's investment quality standards. There can be no assurance that the private
insurers, or guarantors can meet their obligations under the insurance policies
or guarantee arrangements. The Fund may buy mortgage-related securities without
insurance or guarantees if through an examination of the structure or the loan
experience and practices of the originator/servicers and poolers, the Atlanta
Capital determines that the securities meet the Fund's quality standards.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable. The Fund will not purchase mortgage-related securities or any other
assets which in the opinion of the Atlanta Capital are illiquid if, as a result,
more than 15% of the value of the Fund's total assets will be illiquid.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid on a CMO, in most cases, monthly. CMOs
may be collateralized by whole mortgage loans, but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will 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 investors holding the shortest maturity class. Investors holding the
longer maturity class receive principal only after the first call has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
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In a typical CMO transaction, a corporation ("issuer") issues multiple series
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third-party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bonds currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.
OTHER MORTGAGE-RELATED SECURITIES. Mortgage-related securities are interests in
pools of mortgage loans made to 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
(see "Mortgage Pass-Through Securities," above). The Fixed Income Fund may also
invest in debt securities which are secured with collateral consisting of
mortgage-related securities (see "Collateralized Mortgage Obligations," at page
_____), and in other types of mortgage-related securities. The Fixed Income Fund
will not purchase mortgage-related securities or any other assets which in the
opinion of Atlanta Capital are illiquid, if, as a result, more than 15% of the
value of this Fund's assets will be illiquid.
Other mortgage-related securities include securities other than those described
above that directly or indirectly represent a participation in, or are secured
by and payable from, mortgage loans on real property, including CMO residuals or
stripped mortgage-backed securities. Other mortgage-related securities may be
equity or debt securities issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, homebuilders, mortgage banks,
commercial banks, investment banks, partnerships, trusts and special purpose
entities of the foregoing.
CMO RESIDUALS. CMO residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs is
applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash
B-7
<PAGE>
flow resulting from a CMO will depend on, among other things, the
characteristics of the mortgage assets, the coupon rate of each class of CMO,
prevailing interest rates, the amount of administrative expenses and the
prepayment experience on the mortgage assets. In particular, the yield to
maturity on CMO residuals is extremely sensitive to prepayments on the related
underlying mortgage assets, in the same manner as an interest-only ("I0") class
of stripped mortgage backed securities. See "Stripped Mortgage-Backed
Securities." In addition, if a series of a CMO includes a class that bears
interest at an adjustable rate, the yield to maturity on the related CMO
residual will also be extremely sensitive to changes in the level of the index
upon which interest rate adjustments are based. As described below with respect
to stripped mortgage-backed securities, in certain circumstances the Fund may
fail to recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may or, pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended. CMO residuals,
whether or not registered under such Act, may be subject to certain restrictions
on transferability, and may be deemed "illiquid" and subject to the Fund's
limitations on investment in illiquid securities.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped Mortgage-Backed Securities
("SMBS") are derivative multiclass mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different proportions
of the interest and principal distributions on a pool of mortgage assets. A
common type of SMBS will have one class receiving some of the interest and most
of the principal from the mortgage assets, while the other class will receive
most of the interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the "I0" class), while the
other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an I0 class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the Fund's yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal,
the Fund may fail to fully recoup its initial investment in these securities
even if the security is in one of the highest rating categories.
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<PAGE>
Although SMBS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these securities were
only recently developed. As a result, established trading markets have not yet
developed and, accordingly, these securities may be deemed "illiquid" and
subject to the Fund's limitations on investment in illiquid securities.
ASSET-BACKED SECURITIES
The Fixed Income Fund and the Money Market Fund may invest in asset-backed
securities which represent fractional interests in pools of leases, retail
installment loans and revolving credit receivables, both secured and unsecured.
These assets are generally held by a trust. Payments of principal and interest
or interest only are passed through to certificate holders and may be guaranteed
up to certain amounts by letters of credit issued by a financial institution
affiliated or unaffiliated with the trustee or originator of the trust.
Underlying automobile sales contracts or credit card receivables are subject to
prepayment, which may reduce the overall return to certificate holders.
Nevertheless, principal repayment rates tend not to vary much with interest
rates and the short-term nature of the underlying car loans or other receivables
tends to dampen the impact of any change in the prepayment level. Certificate
holders may also experience delays in payment on the certificates if the full
amounts due on underlying sales contracts or receivables are not realized by the
trust because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If consistent with
its investment objective and policies, the Funds may invest in other asset-
backed securities that may be developed in the future.
DERIVATIVE INSTRUMENTS
The International Active Fund may purchase and write call and put options on
securities, securities indexes and foreign currencies, and enter into futures
contracts and use options on futures contracts as further described below. The
International Active Fund may engage in the purchase and writing of call and put
options on foreign currencies. The International Active Fund also may enter into
swap agreements with respect to securities indexes. The Fund may use these
techniques to hedge against changes in interest rates, foreign currency exchange
rates or securities prices; to increase exposure to a foreign currency; to shift
exposure to foreign currency fluctuations from one country to another; or as
part of its overall investment strategies. The Fund will maintain segregated
accounts consisting of liquid assets, such as cash, and U.S. Government
securities (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under options, futures, and swaps
to avoid leveraging of the Fund.
B-9
<PAGE>
The Fund considers derivative instruments to consist of securities or other
instruments whose value is derived from or related to the value of some other
instrument or asset, and not to include those securities whose payment of
principal and/or interest depend upon cash flows from underlying assets, such as
mortgage or asset-backed securities. The value of some derivative instruments in
which the Fund invests may be particularly sensitive to changes in prevailing
interest rates, and, like the other investments of the Fund, its ability to
successfully utilize these instruments may depend in part upon the ability of
Blairlogie Capital Management ("Blairlogie") to forecast interest rates and
other economic factors correctly. If Blairlogie incorrectly forecasts such
factors and has taken positions in derivative instruments contrary to prevailing
market trends, the Fund could be exposed to the risk of loss.
The Fund might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. If Blairlogie
incorrectly forecasts interest rates, market values or other economic factors in
utilizing a derivatives strategy for the Fund, the Fund might have been in a
better position if it had not entered into the transaction at all. The use of
these strategies involves certain special risks, including a possible imperfect
correlation, or even no correlation, between price movements of derivative
instruments and price movements of related investments. While some strategies
involving derivative instruments can reduce the risk of loss, they can also
reduce the opportunity for gain or even result in losses by offsetting favorable
price movements in related investments, or due to the possible inability of the
Fund to purchase or sell a portfolio security at a time that otherwise would be
favorable for it to do so, or the possible need for the Fund to sell a portfolio
security at a disadvantageous time, because the Fund is required to maintain
asset coverage or offsetting positions in connection with transactions in
derivative instruments, and the possible inability of the Fund to close out or
to liquidate its derivatives positions.
OPTIONS ON SECURITIES, SECURITIES INDEXES, AND CURRENCIES. The International
Active Fund may purchase put options on securities. One purpose of purchasing
put options is to protect holdings in an underlying or related security against
a substantial decline in market value. The Fund may also purchase call options
on securities. One purpose of purchasing call options is to protect against
substantial increases in prices of securities the Fund intends to purchase
pending its ability to invest in such securities in an orderly manner. The Fund
may sell put or call options it has previously purchased, which could result in
a net gain or loss depending on whether the amount realized on the sale is more
or less than the premium and other transaction costs paid on the put or call
option which is sold. The Fund may write a call or put option only if the option
is "covered" by the Fund holding a position in the underlying securities or by
other means which would permit immediate satisfaction of the Fund's obligation
as a writer of the option. Prior to exercise or expiration, an option may be
closed out by an offsetting purchase or sale of an option of the same series.
B-10
<PAGE>
The purchase and writing of options involves certain risks. During the option
period, the covered call writer has, in return for the premium on the option,
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price, but, as long as its obligation as a writer
continues, has retained the risk of loss should the price of the underlying
security decline. The writer of an option has no control over the time when it
may be required to fulfill its obligation as a writer of the option. Once an
option writer has received an exercise notice, it cannot effect a closing
purchase transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security remains equal to or greater than the
exercise price (in the case of a put), or remains less than or equal to the
exercise price (in the case of a call), the Fund will lose its entire investment
in the option. Also, where a put or call option on a particular security is
purchased to hedge against price movements in a related security, the price of
the put or call option may move more or less than the price of the related
security. There can be no assurance that a liquid market will exist when the
Fund seeks to close out an option position. Furthermore, if trading restrictions
or suspension are imposed on the options markets, the Fund may be unable to
close out a position.
The International Active Fund may buy or sell put and call options on foreign
currencies as a hedge against changes in the value of the U.S. dollar (or
another currency) in relation to a foreign currency in which the Fund's
securities may be denominated. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of the
Fund to reduce foreign currency risk using such options. Over-the-counter
options differ from traded options in that they are two-party contracts with
price and other terms negotiated between buyer and seller and generally do not
have as much market liquidity as exchange-traded options. The Fund may be
required to treat as illiquid over-the-counter options purchased and securities
being used to cover certain written over-the-counter options.
SWAP AGREEMENTS. The International Active Fund may enter into equity index swap
agreements for purposes of gaining exposure to the stocks making up an index of
securities in a foreign market without actually purchasing those stocks. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard swap transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or "swapped" between the parties are generally
calculated with respect to a "notional amount," i.e., the return on or increase
in value of a particular dollar amount invested at a particular interest rate,
or in a "basket" of securities representing a particular index.
Most swap agreements entered into by the Fund would calculate the obligations of
the parties to the agreement on a "net basis." Consequently, the Fund's current
obligations
B-11
<PAGE>
(or rights) under a swap agreement will generally be equal to the net amount to
be paid or received under the agreement based on the relative values of the
positions held by each party to the agreement (the "net amount"). The Fund's
current obligations under a swap agreement will be accrued daily (offset against
amounts owed to the Fund), and any accrued but unpaid net amounts owed to a swap
counterparty will be covered by the maintenance of a segregated account
consisting of liquid assets such as cash, U.S. Government securities, or high
grade debt obligations, to avoid any potential leveraging of the Fund's
portfolio. Obligations under swap agreements so covered will not be construed to
be "senior securities" for purposes of the Funds' investment restriction
concerning senior securities. The Fund will not enter into a swap agreement with
any single party if the net amount owed or to be received under existing
contracts with that party would exceed 5% of the Fund's assets.
Whether the Fund's use of swap agreements will be successful in furthering its
investment objective will depend on Blairlogie's ability to predict correctly
whether certain types of investments are likely to produce greater returns than
other investments. Because they are two-party contracts and because they may
have terms of greater than seven days, swap agreements may be considered to be
illiquid investments. Moreover, the Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counterparty. The Fund will enter into swap
agreements only with counterparties that meet certain standards for
creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Fund's repurchase agreement guidelines).
Certain restrictions imposed on the Funds by the Internal Revenue Code of 1986
(the "Code") may limit the Fund's ability to use swap agreements. The swaps
market is a relatively new market and is largely unregulated. It is possible
that developments in the swaps market, including potential government
regulation, could adversely affect the Fund's ability to terminate existing swap
agreements or to realize amounts to be received under such agreements.
FUTURES CONTRACTS AND OPTIONS ON FUTURE CONTRACTS. The International Active
Fund may invest in exchange futures contracts and options thereon ("futures
options") that are traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. The Fund may engage
in such futures transactions as an adjunct to their securities activities.
There are several risks associated with the use of futures and futures options
for hedging purposes. There can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the portfolio securities
being hedged. An incorrect correlation could result in a loss on both the hedged
securities in the Fund and the hedging vehicle so that the portfolio return
might have been greater had hedging not been attempted. There can be no
assurance that a liquid market will exist at a time when the Fund seeks to close
out a futures contract or a futures option position. Most futures exchanges or
boards of trade limit the amount of fluctuation permitted in futures contact
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<PAGE>
prices during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain of these instruments are relatively new and without
a significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Fund from liquidating an unfavorable position, and
the Fund would remain obligated to meet margin requirements until the position
is closed.
The Fund will only enter into futures contracts or futures options which are
standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. The Fund will use
financial futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission ("CFTC"), or, with respect to positions in financial
futures and related options that do not qualify as "bona fide hedging"
positions, will enter such positions only to the extent that aggregate initial
margin deposits plus premium paid by it for open futures option positions, less
the amount by which any such positions are "in-the-money" would not exceed 5% of
the Fund's net assets.
RULE 2A-7: MATURITY QUALITY AND DIVERSIFICATION RESTRICTIONS
The Money Market Fund is subject to certain maturity restrictions pursuant to
Rule 2a-7 under the 1940 Act for money market funds that use the amortized cost
method of valuation to maintain a stable net asset value of $1.00 per share.
Accordingly, the Fund will (i) maintain a dollar weighted average portfolio
maturity of 90 days or less, and (ii) will purchase securities with a remaining
maturity of no more than 13 months (397 calendar days). Further, the Fund will
limit its investments to U.S. dollar denominated securities which present
minimal credit risks and meet certain credit quality and diversification
requirements. For purposes of calculating the maturity of portfolio instruments,
the Fund will follow the requirements of Rule 2a-7. Under Rule 2a-7, the
maturity of portfolio instruments is calculated as indicated below.
Generally, the maturity of a portfolio instrument shall be deemed to be the
period remaining (calculated from the trade date or such other date on which the
Fund's interest in the instrument is subject to market action) until the date
noted on the face of the instrument as the date on which the principal amount
must be paid, or in the case of an instrument called for redemption, the date on
which the redemption payment must be made, except that:
(1) An instrument that is issued or guaranteed by the U.S. government or any
agency thereof which has a variable rate of interest readjusted no less
frequently than every 762 days shall be deemed to have a maturity equal to the
period remaining until the next readjustment of the interest rate.
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<PAGE>
(2) A Variable Rate Instrument, the principal amount of which is scheduled on
the face of the instrument to be paid in 397 calendar days or less shall be
deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(3) A Variable Rate Instrument that is subject to a Demand Feature shall be
deemed to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
(4) A Floating Rate Instrument that is subject to a Demand Feature shall be
deemed to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
(5) A repurchase agreement shall be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the underlying
securities is scheduled to occur, or, where no date is specified but the
agreement is subject to a demand, the notice period applicable to a demand for
the repurchase of the securities.
The Money Market Fund is subject to certain credit quality restrictions pursuant
to Rule 2a-7 under the 1940 Act. The Fund will invest at least 95% of its assets
in instruments that are determined to present minimal credit risks and at the
time of acquisition, that are (i) obligations issued or guaranteed by the U.S.
government, its agencies, or instrumentalities; (ii) rated by at least two
nationally recognized rating agencies (or by one agency if only one agency has
issued a rating) (the "required rating agencies") in the highest rating category
for short-term debt obligations; (iii) unrated but whose issuer is rated in the
highest category by the required rating agencies with respect to a class of
short-term debt obligations or any security within that class that is comparable
in priority and security with the instrument; or (iv) unrated (other than the
type described in (iii)) but determined by the Board of Trustees to be of
comparable quality to the foregoing (provided the unrated security has not
received a short-term rating, and with respect to a long-term security with a
remaining maturity within the Fund's maturity restrictions, has not received a
long-term rating from any agency that is other than in its highest rating
category). The foregoing are referred to as "first-tier securities."
The balance of the securities in which the Fund may invest are instruments
determined to present minimal credit risks, which do not qualify as first-tier
securities, and at the time of acquisition, are (i) rated by the required rating
agencies in one of the two highest rating categories for short-term debt
obligations; (ii) unrated but whose issuer is rated in one of the two highest
categories by the required rating agencies with respect to a class of short-term
debt obligations or any security within that class that is comparable in
priority and security with the obligation; or (iii) unrated (other than
described in (ii)) but determined by the Board of Trustees to be of comparable
quality to the foregoing (provided the unrated security has not received a
short-term rating and
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<PAGE>
with respect to a long-term security with a remaining maturity within the Fund's
maturity restrictions, has not received a long-term rating from any agency that
is other than in one of its highest two rating categories). The foregoing are
referred to as "second-tier securities."
In addition to the foregoing guidelines, the Fund is subject to certain
diversification restrictions pursuant to Rule 2a-7 under the 1940 Act, which
include (i) the Fund will not acquire a second-tier security of an issuer if,
after giving effect to the acquisition, the Fund would have invested more than
the greater of 1% of its total assets or one million dollars in second-tier
securities issued by that issuer, or (ii) the Fund will not invest more than 5%
of the Fund's assets in the securities (other than securities issued by the U.S.
government or any agency or instrumentality thereof) issued by a single issuer,
except for certain investments held for not more than 3 business days.
As used herein, all capitalized but undefined terms shall have the meaning such
terms have in Rule 2a-7.
MORTGAGE DOLLAR ROLLS
The Money Market Fund may also enter into mortgage dollar rolls, in which the
Fund would sell mortgage-backed securities for delivery in the current month and
simultaneously contract to purchase substantially similar securities on a
specified future date. While the Fund would forego principal and interest paid
on the mortgage-backed securities during the roll period, the Fund would be
compensated by the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the initial sale. The Fund also could be compensated through the receipt of
fee income equivalent to a lower forward price. At the time the Fund would enter
into a mortgage dollar roll, it would set aside permissible liquid assets in a
segregated account to secure its obligation for the forward commitment to buy
mortgage-backed securities. Mortgage dollar roll transactions may be considered
a borrowing by the Fund. (See "Borrowing" below.)
The mortgage dollar rolls entered into by the Fund may be used as arbitrage
transactions in which the Fund will maintain an offsetting position in
investment grade debt obligations or repurchase agreements that mature on or
before the settlement date on the related mortgage dollar roll. Since the Fund
will receive interest on the securities in which it invests the transaction
proceeds, such transactions may involve leverage. However, since such securities
will be high quality and will mature on or before the settlement date of the
mortgage dollar roll, __________ believes that such arbitrage transactions do
not present the risks to the Fund that are associated with other types of
leverage.
BORROWING
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As a temporary measure for extraordinary or emergency purposes, such as to
facilitate redemptions, the High Quality Stock Fund, the International Active
Fund and the Money Market Fund may borrow money from a bank, but only if
immediately after each such borrowing and continuing thereafter the Fund would
have asset coverage of 300 percent. Any such borrowings will exaggerate the
effect of any increase or decrease in the value of portfolio securities on a
Fund's net asset value; money borrowed will be subject to interest and other
costs (which may include commitment fees and/or the cost of maintaining minimum
average balances), which may or may not exceed the income received from the
securities purchased with borrowed funds. The use of borrowing tends to result
in a faster than average movement, up or down, in the net asset value of a
Fund's shares. 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.
FOREIGN SECURITIES
The High Quality Stock Fund and the International Active Fund may invest in
foreign securities. These include dollar-denominated securities traded in the
U.S. on the New York Stock Exchange (the "NYSE"). The High Quality Stock Fund
may invest in foreign securities in the form of American Depositary Receipts
("ADRs"), or in other similar securities convertible into securities of foreign
issuers if the foreign securities are traded on the NYSE.
The International Active Fund may invest in U.S. dollar- or foreign currency-
denominated corporate debt securities of foreign issuers; preferred securities
of foreign issuers; certain foreign bank obligations; and U.S. dollar- or
foreign currency-denominated obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international agencies and
supranational entities. The International Active Fund may also invest in common
stocks issued by foreign companies or in securities represented by ADRs,
European Depositary Receipts ("EDRs"), or Global Depositary Receipts ("GDRs").
ADRs are dollar-denominated receipts issued generally by domestic banks and
represent the deposit with the bank of a security of a foreign issuer. EDRs are
foreign currency-denominated receipts similar to ADRs and are issued and traded
in Europe, and are publicly traded on exchanges or over-the-counter in the
United States. GDRs may be offered privately in the United States and also trade
in public or private markets in other countries. ADRs, EDRs and GDRs may be
issued as sponsored or unsponsored programs. In sponsored programs, an issuer
has made arrangements to have its securities trade in the form of ADRs, EDRs or
GDRs. In unsponsored programs, the issuer may not be directly involved in the
creation of the program. Although regulatory requirements with respect to
sponsored and unsponsored programs are generally similar, in some cases it may
be easier to obtain financial information from an issuer that has participated
in the creation of a sponsored program.
B-16
<PAGE>
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
include: differences in accounting, auditing and financial reporting standards,
generally higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country), political instability which can
affect U.S. investments in foreign countries and potential restrictions on the
flow of international capital. In addition, foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
taxes withheld from payments on those securities. Foreign securities often trade
with less frequency and volume than domestic securities and therefore may
exhibit greater price volatility. Changes in foreign exchange rates will affect
the value of those securities which are denominated or quoted in currencies
other than the U.S. dollar.
The International Active Fund may also purchase and sell foreign currency
options and foreign currency futures contracts and related options (see
"Derivative Instruments"), and enter into forward foreign currency exchange
contracts in order to protect against uncertainty in the level of future foreign
exchange rates in the purchase and sale of securities. The Fund may also use
foreign currency options and foreign currency forward contracts to increase
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another.
A forward foreign currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts may be bought or sold to protect the Fund
against a possible loss resulting from an adverse change in the relationship
between foreign currencies and the U.S. dollar or to increase exposure to a
particular foreign currency. Open positions in forward contracts used for non-
hedging purposes will be covered by the segregation with the Trust's custodian
of liquid assets, such as cash, U.S. Government securities and high quality
short-term investments and are marked to market daily. Although forward
contracts are intended to minimize the risk of loss due to a decline in the
value of the hedged currencies, at the same time, they tend to limit any
potential gain which might result should the value of such currencies increase.
LENDING OF PORTFOLIO SECURITIES
Each Underlying Fund may seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as broker-dealers, and would be required to be secured
continuously by collateral in cash, cash equivalents or liquid assets, including
equity securities and debt securities of any grade, maintained on a current
basis at an amount at least equal to the market value of the securities loaned.
A Fund would have the right to call a loan and obtain the securities loaned at
any time on five days' notice. For the duration of a loan, a Fund would continue
B-17
<PAGE>
to receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and would also receive compensation from the investment of the
collateral. A Fund would not, however, have the right to vote any securities
having voting rights during the existence of the loan, but a Fund would call the
loan in anticipation of an important vote to be taken among holders of the
securities or of the giving or withholding of their consent on a material matter
affecting the investment. As with other extensions of credit, there are risks of
delay in recovery of, or even loss of rights in, the collateral should the
borrower of the securities fail financially. However, the loans would be made
only to firms deemed by the appropriate Sub-Adviser to be of good standing, and
when, in the judgment of the Sub-Adviser, the consideration which can be earned
currently from securities loans of this type justifies the attendant risk. If
the Sub-Adviser determines to make securities loans, it is intended that the
value of the securities loaned would not exceed 50% of the value of the total
assets of the lending Fund (33 1/3% in the case of the Money Market Fund).
REPURCHASE AGREEMENTS
The Underlying Funds may enter into repurchase agreements with any member bank
of the Federal Reserve System or a member firm of the National Association of
Securities Dealers, Inc. A repurchase agreement, which provides a means for a
Fund to earn income on uninvested cash for periods as short as overnight, is an
arrangement under which the purchaser (i.e., a Fund) purchases a U.S. Government
or other high quality short-term debt obligation (the "Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. The custody of the Obligation will be maintained by the Fund's
Custodian. The repurchase price may be higher than the purchase price, the
difference being income to the Fund, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Fund together with the
repurchase price upon repurchase. In either case, the income to a Fund is
unrelated to the interest rate on the Obligation subject to the repurchase
agreement.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
a Fund to the seller of the Obligation. It is not clear whether a court would
consider the Obligation purchased by a Fund subject to a repurchase agreement as
being owned by the Fund or as being collateral for a loan by the Fund to the
seller. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, a Fund may encounter delays and incur costs before
being able to sell the security. Delays may involve loss of interest or decline
in price of the Obligation. If the court characterizes the transaction as a loan
and a Fund has not perfected a security interest in the Obligation, the Fund may
be required to return the Obligation to the seller's estate and be treated as an
unsecured creditor of the seller. As an unsecured creditor, the Fund would be at
the risk of losing some or all of the principal and income involved in the
transaction. As with any unsecured debt instrument purchased for a Fund, the
Fund's Sub-Adviser seeks to minimize the risk of loss from repurchase agreements
by analyzing the creditworthiness
B-18
<PAGE>
of the obligor, in this case the seller of the Obligation. Apart from the risk
of bankruptcy or insolvency proceedings, there is also the risk that the seller
may fail to repurchase the security. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including accrued interest), the Fund will direct the seller of the
Obligation to deliver additional securities so that the market value of all
securities subject to the repurchase agreement equals or exceeds the repurchase
price.
REVERSE REPURCHASE AGREEMENTS
The Fixed Income Fund, International Active Fund and Money Market Fund may enter
into reverse repurchase agreements. These agreements involve the sale of debt
securities (obligations) held by a Fund, with an agreement to repurchase the
obligations at an agreed upon price, date and interest payment. The proceeds
will be used to purchase other debt securities either maturing, or under an
agreement to resell, at a date simultaneous with or prior to the expiration of
the reverse repurchase agreement. Reverse repurchase agreements will be
utilized, when permitted by law, only when the expected interest income to be
earned from the investment of the proceeds from the transaction is greater than
the interest expense of the reverse repurchase transaction. When a Fund enters
into such an agreement, it will establish a segregated account with the Fund's
Custodian in which it will maintain cash or cash equivalents or other liquid
assets, including equity securities and debt securities of any grade equal in
value to the repurchase price (which price will already include interest
charges). If the buyer of the debt securities pursuant to the reverse repurchase
agreement becomes bankrupt, realization upon the underlying securities may be
delayed and there is a risk of loss due to any decline in their value. Reverse
repurchase agreements will not extend for more than 30 days nor will such
agreements involve more than 10% of the net assets of a Fund.
WHEN-ISSUED SECURITIES
The Fixed Income Fund, the International Active Fund, and the Money Market Fund
may from time to time purchase securities on a "when-issued" basis. Debt
securities are often issued in this manner. The price of such securities, which
may be expressed in yield terms, is fixed at the time a commitment to purchase
is made, but delivery of and payment for the when-issued securities take place
at a later date. Normally, the settlement date occurs within one month of the
purchase. During the period between purchase and settlement, no payment is made
by a Fund and no interest accrues to a Fund. Although when-issued securities may
be sold prior to the settlement date, a Fund intends to purchase such securities
with the purpose of actually acquiring them unless a sale appears desirable for
investment reasons.
At the time a Fund makes the commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the amount due and the value
of the security in determining the Fund's net asset value. The market value of
the when-issued securities
B-19
<PAGE>
may be more or less than the purchase price payable at the settlement date. The
Trustees do not believe that a Fund's net asset value or income will be exposed
to additional risk by the purchase of securities on a when-issued basis. A Fund
will establish a segregated account in which it will maintain cash, U.S.
Government securities or other liquid assets at least equal in value to
commitments for when-issued securities. Such segregated securities either will
mature or, if necessary, be sold on or before the settlement date.
VARIABLE OR FLOATING-RATE SECURITIES
The Fixed Income and Money Market Funds may invest in securities which offer a
variable or floating rate of interest. Variable-rate securities provide for
automatic establishment of a new interest rate at fixed intervals (e.g., daily,
monthly, semi-annually, etc.). Floating-rate securities generally provide for
automatic adjustment of the interest rate whenever some specified interest rate
index changes. The interest rate on variable or floating-rate securities is
ordinarily determined by reference to or is a percentage of a bank's prime rate,
the 90-day U.S. Treasury bill rate, the rate of return on commercial paper or
bank certificates of deposit, an index of short-term interest rates, or some
other objective measure.
Variable or floating-rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par. In many cases,
the demand feature can be exercised at any time on 7 days notice: in other
cases, the demand feature is exercisable at any time on 30 days notice or on
similar notice at intervals of not more than one year. Some securities which do
not have variable or floating interest rates may be accompanied by puts
producing similar results and price characteristics. When considering the
maturity of any instrument which may be sold or put to the issuer or a third
party, a Fund may consider that instrument's maturity to be shorter than its
stated maturity. Any such determination by the Money Market Fund will be made in
accordance with Rule 2a-7.
Variable-rate demand notes include master demand notes that are obligations that
permit a Fund to invest fluctuating amounts, which may change daily without
penalty, pursuant to direct arrangements between a Fund, as lender, and the
borrower. The interest rates on these notes fluctuate from time to time. The
issuer of such obligations normally has a corresponding right after a given
period, to prepay in its discretion the outstanding principal amount of the
obligations plus accrued interest upon a specified number of days' notice to the
holders of such obligations. The interest rate on a floating-rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments will generally be traded. There generally is
not an established secondary
B-20
<PAGE>
market for these obligations, although they are redeemable at face value.
Accordingly, where these obligations are not secured by letters of credit or
other credit support arrangements, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. Such
obligations frequently are not rated by credit rating agencies and, if not so
rated, a Fund may invest in them only if the appropriate Sub-Adviser determines
that at the time of investment the obligations are of comparable quality to the
other obligations in which the Fund may invest. The Sub-Adviser, on behalf of a
Fund, will consider on an ongoing basis the creditworthiness of the issuers of
the floating and variable-rate demand obligations in the Fund's portfolio.
A Fund will not invest more than 10% of its net assets in variable and floating-
rate demand obligations that are not readily marketable (a variable or floating-
rate demand obligation that may be disposed of on not more than seven days
notice will be deemed readily marketable and will not be subject to this
limitation). (See "Illiquid Securities" and "Investment Objectives.") In
addition, each variable or floating-rate obligation must meet the credit quality
requirements applicable to all the Fund's investments at the time of purchase.
When determining whether such an obligation meets the Fund's credit quality
requirements, the Fund may look to the credit quality of the financial guarantor
providing a letter of credit or other credit support arrangement.
In determining the Fund's weighted average portfolio maturity, the Fund will
consider a floating or variable-rate security to have a maturity equal to its
stated maturity (or redemption date if it has been called for redemption),
except that it may consider (i) variable-rate securities to have a maturity
equal to the period remaining until the next readjustment in the interest rate,
unless subject to a demand feature, (ii) variable rate securities subject to a
demand feature to have a remaining maturity equal to the longer of (a) the next
readjustment in the interest rate or (b) the period remaining until the
principal can be recovered through demand, and (iii) floating-rate securities
subject to a demand feature to have a maturity equal to the period remaining
until the principal can be recovered through demand. Variable and floating-rate
securities generally are subject to less principal fluctuation than securities
without these attributes since the securities usually trade at par following the
readjustment in the interest rate.
ILLIQUID SECURITIES
The Underlying Funds may invest in illiquid securities (i.e., securities that
are not readily marketable). However, an Underlying Fund will not acquire
illiquid securities if, as a result, they would comprise more than 15%, or 10%
with respect to the Money Market Fund, of the value of the Fund's net assets (or
such other amounts as may be permitted under the 1940 Act).
The Board of Trustees, or its delegate, has the ultimate authority to determine,
to the extent permissible under the federal securities laws, which securities
are illiquid for purposes of this limitation. Certain securities exempt from
registration or issued in
B-21
<PAGE>
transactions exempt from registration under the Securities Act of 1933 (the
"Securities Act"), such as securities that may be resold to institutional
investors under Rule 144A of the Securities Act and Section 4(2) commercial
paper, may be considered liquid under guidelines adopted by the Board of
Trustees.
The Board of Trustees has delegated to the respective Sub-Advisers the day-to-
day determination of the liquidity of a security, although it has retained
oversight and ultimate responsibility for such determinations. The Board of
Trustees has directed each Sub-Adviser to look to such factors as (i) the
frequency of trades or quotes for a security, or (ii) the number of dealers
willing to purchase or sell the security and number of potential buyers, (iii)
the willingness of dealers to undertake to make a market in the security, (iv)
the nature of the security and nature of the marketplace trades, such as the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer, (v) the likelihood that the security's marketability will
be maintained throughout the anticipated holding period, and (vi) any other
relevant factors. A Sub-Adviser may determine 4(2) commercial paper to be liquid
if (i) the 4(2) commercial paper is not traded flat or in default as to
principal and interest, (ii) the 4(2) commercial paper is rated in one of the
two highest rating categories by at least two NRSROs, or if only one NRSRO rates
the security, by that NRSRO, or is determined by the Sub-Adviser to be of
equivalent quality and (iii) the Sub-Adviser considers the trading market for
the specific security taking into account all relevant factors. A foreign
security may be considered liquid by a Sub-Adviser (despite its restricted
nature under the Securities Act) if the security can be freely traded in a
foreign securities market and all the facts and circumstances support a finding
of liquidity.
RESTRICTED SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a SEC Staff position set forth in the adopting
release for Rule 144A under the Securities Act (the "Rule"). The Rule is a
nonexclusive safe-harbor for certain secondary market transactions involving
securities subject to restrictions on resale under federal securities laws. The
Rule provides an exemption from registration for resales of otherwise restricted
securities to qualified institutional buyers. The Trust believes that the Staff
of the SEC has left the question of determining the liquidity of all restricted
securities to the Trustees, who will consider established factors in making such
a determination.
TEMPORARY DEFENSIVE POSITION
When a Sub-Adviser determines that market conditions warrant a temporary
defensive position, a Fund may invest without limitation in cash and short-term
fixed income securities, including U.S. government securities, commercial paper,
banker's acceptances, certificates of deposit, and time deposits.
B-22
<PAGE>
OTHER INVESTMENT POLICIES OF THE FIXED INCOME FUND
Corporate debt securities may bear fixed, contingent, or variable rates of
interest and may involve equity features, such as conversion or exchange rights
or warrants for the acquisition of stock of the same or a different issuer,
participations based on revenues, sales or profits, or the purchase of common
stock in a unit transaction (where corporate debt securities and common stock
are offered as a unit).
Under normal market conditions, not more than 10% of the value of the Fixed
Income Fund's total assets will be invested in equity securities, including
common stocks, preferred stocks, warrants and rights.
When and if available, debt securities may be purchased at a discount from face
value. However, the Fund does not intend to hold such securities to maturity for
the purpose of achieving potential capital gains, unless yields to maturity on
these securities remain attractive. From time to time the Fund may purchase
securities not paying interest or dividends at the time acquired if, in the
opinion of Atlanta Capital such securities have the potential for future income
(or capital appreciation).
Since shares of the Fund represent an investment in securities with fluctuating
market prices, the value of shares of the Fund will vary as the aggregate value
of the Fund's portfolio securities increases or decreases. Lower rated fixed
income securities generally tend to reflect short-term corporate and market
developments to a greater extent than higher rated securities which react
primarily to fluctuations in the general level of interest rates. Changes in the
value of securities subsequent to their acquisition will not affect cash income
to the Fund but will be reflected in the net asset value of the Fund's shares.
PORTFOLIO TURNOVER AND SECURITIES TRANSACTIONS
A portfolio turnover rate is, in general, the percentage computed by taking the
lesser of purchases or sales of portfolio securities (excluding certain short-
term securities) for a year and dividing it by the monthly average of the market
value of such securities during the year. The Portfolios do not have a
predetermined rate of portfolio turnover since such turnover will be incidental
to transactions taken with a view to achieving their respective objectives.
High turnover and short-term trading involve correspondingly greater commission
expenses and transaction costs. If a Portfolio derives more than 30 percent of
its gross income from the sale of securities held less than three months, the
Portfolio may fail to qualify under the tax laws as a regulated investment
company in particular years and thereupon would lose certain beneficial tax
treatment of its income (see "Dividends, Distributions and Taxes" in the
Prospectus).
B-23
<PAGE>
Each Underlying Fund Sub-Adviser is responsible for decisions to buy and sell
securities, broker-dealer selection, and negotiation of its brokerage commission
rates. The Sub-Adviser's primary consideration in effecting a securities
transaction will be execution at the most favorable price. In certain instances,
the Sub-Adviser may make purchases of underwritten issues at prices which
include underwriting fees, and, in selecting a broker-dealer to execute each
particular transaction, the Sub-Adviser will take the following into
consideration: the best net price available; the reliability, integrity and
financial condition of the broker-dealer; and the size of contribution of the
broker-dealer to the investment performance of the Funds on a continuing basis.
The Sub-Adviser shall not be deemed to have acted unlawfully or to have breached
any duty created by the Investment Advisory Agreements in question or otherwise
solely by reason of its having caused the Trust to pay a broker-dealer that
provides brokerage and research services to the Sub-Adviser an amount of
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker-dealer would have charged for effecting that
transaction, if the Sub-Adviser determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer, viewed in terms of either that
particular transaction or the Sub-Adviser's overall responsibilities with
respect to the Trust.
Each Sub-Adviser allocates the orders placed by it on behalf of a Fund to such
broker-dealers who also provide research or statistical material, or other
services to the Funds, the Sub-Adviser or its clients. Such allocation shall be
in such amounts and proportions as the Sub-Adviser shall determine and the Sub-
Adviser will report on said allocations regularly to the Trust indicating the
broker-dealers to whom such allocations have been made and the basis therefor.
Broker-dealers may be selected who provide brokerage and/or research services to
the Funds and/or other accounts over which the Sub-Adviser exercises investment
discretion. Such services may include advice concerning the value of securities
(including providing quotations as to securities); the advisability of investing
in, purchasing or selling securities; the availability of securities or the
purchasers or sellers of securities; furnishing analysis and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and performance of accounts; and effecting securities transactions and
performing functions incidental thereto, such as clearance and settlement.
The receipt of research from broker-dealers may be useful to the Sub-Adviser in
rendering investment management services to the Trust and/or the Sub-Adviser's
other clients; conversely, such information provided by broker-dealers who have
executed transaction orders on behalf of other clients may be useful to the Sub-
Adviser in carrying out its obligations to the Trust. The receipt of such
research will not be substituted for the independent research of the Sub-
Adviser. It does enable the Sub-Adviser to reduce costs to less than those which
would have been required to develop comparable information through its own
staff. The use of broker-dealers who supply research may result in the payment
of higher commissions than those available from other broker-dealers who
B-24
<PAGE>
provide only the execution of portfolio transactions. Orders on behalf of the
Trust may be bunched with orders on behalf of other clients of the Sub-Adviser.
The Board of Trustees periodically reviews each Sub-Adviser's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Trust.
MANAGEMENT
Providian Investment Advisors, Inc. (the "Adviser") in general supervises the
Trust's management and investment program, prepares reports for the Trust,
monitors compliance by the Trust in its investment activities and pays all
compensation of officers and Trustees of the Trust who are affiliated persons of
the Adviser. The Trust pays all other expenses incurred in the operation of the
Trust, including fees and expenses of unaffiliated Trustees of the Trust.
Although the Portfolios do not pay an investment management fee in connection
with management of the Portfolios, the Portfolios will indirectly bear their pro
rata share of the fees and expenses incurred by the Underlying Funds. The
Adviser has agreed to limit the operating expenses (excluding advisory fees) of
each Portfolio so that the ratio of expenses of net assets on an annual basis
incurred directly or incurred on a pass through basis as a result of a
Portfolio's ownership of Underlying Funds does not exceed 0.20%.
Subject to the supervision and direction of the Board of Trustees, Atlanta
Capital will determine how each Portfolio's assets will be invested in the
Underlying Funds and in money market instruments and U.S. government securities
pursuant to the investment objective and policies of each Portfolio set forth in
this Prospectus and make recommendations to the Board of Trustees concerning
changes in (a) the Underlying Funds in which the Portfolios may invest, (b) the
percentage range of assets that may be invested by each Portfolio in any one
Underlying Fund and (c) the percentage range of assets of any Portfolio that may
be invested in equity funds and fixed income funds (including money market
funds). The Trustees of the Trust will periodically monitor the allocations made
and the basis upon which such allocations were made or maintained.
Pursuant to the Sub-Advisory Agreements with the Adviser, subject to the
supervision of the Trustees of the Trust, and in conformity with the stated
policies of the Funds, Atlanta Capital manages the investment operations of the
High Quality Stock Fund and the Fixed Income Fund, Blairlogie manages the
investment operations of the International Active Fund, and ____________________
manages the investment operations of the Money Market Fund. The Sub-Advisers
also manage the composition of each respective Fund's portfolio, including the
purchase, retention, disposition and loan of securities.
Each Investment Advisory and Sub-Advisory Agreement will remain in effect for
two years following its effective date, and will continue in effect thereafter
only if such
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<PAGE>
continuance is specifically approved at least annually by the Trustees or by
vote of a majority of the outstanding voting securities of the particular Fund
(as defined in the 1940 Act and in a rule under the Act) and, in either case, by
a majority of the Trustees who are not parties to the Investment Advisory
Agreements or interested persons of any such party.
The Adviser and Sub-Advisers (collectively the "Advisers") have each authorized
any of their officers and employees who have been elected or appointed as
Trustees or officers of the Trust to serve in the capacities in which they have
been elected or appointed. In connection with the services it renders, the
Advisers each bear the salaries and expenses of all of its respective personnel.
Other than as imposed by law, the Investment Advisory and Sub-Advisory
Agreements provide that the Advisers shall not be liable to the Funds for any
error of judgment by the Advisers or for any loss sustained by the Funds except
in the case of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty. Each Agreement also provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party upon no more than 60 days' nor less than 30 days' written notice.
The Investment Advisory and Sub-Advisory Agreements provide that the Advisers
shall not be liable for any error in judgment or mistake of law or for any loss
suffered by the Trust in connection with any investment policy or the purchase,
sale or redemption of any securities on the recommendations of the Advisers. The
Agreements provide that the Advisers are not protected against any liability to
the Trust or its security holders for which the Advisers shall otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon them by the Agreements or the
violation of any applicable law.
TRUSTEES AND OFFICERS
The names of the Trustees and executive officers of the Trust, their
affiliations, if any, with the Advisers and their principal occupations during
the past five years are set forth below. Each Trustee who is an "interested
person" of the Trust, as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
Positions(s) Held Principal Occupation(s)
Name and Address Age With Registrant During Past Five Years
<S> <C> <C> <C>
Kris A. Robbins* 37 President and Chief Group Sales and
Trustee Product Development
Officer of Providian
Corporation since
September 1996; Manager,
Institutional Marketing of
Providian Corporation, from
1994 to September 1996;
Director, Managed Funds of
Providian Corporation, from
1992 to 1994; Director of
Providian Investment Advisors,
Inc.
Thomas Hartlage* 44 Chief Financial Director, Product Management
Officer of Providian Corporation since
1995; Director, Institutional
Marketing of Providian
Corporation from 1993 to 1995;
Director, New Initiatives of
Providian Corporation from
1992-1993; Director, Business
Planning of Providian
Corporation from 1991-1992;
Director of Providian
Investment Advisors, Inc.
</TABLE>
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<PAGE>
NET ASSET VALUES OF THE SHARES OF THE PORTFOLIOS AND THE MONEY MARKET FUND
As set forth in the Prospectus under the caption "Net Asset Value and Pricing,"
the net asset value of each Portfolio and the Money Market Fund will be
determined as of the close of trading on each day the NYSE is open for trading
(currently 4:00 P.M. Eastern Time), and the U.S. Postal Service and national
banks are open. The New York Stock Exchange is open for trading Monday through
Friday except New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. Additionally,
if any of the aforementioned holidays falls on a Saturday, the NYSE will not be
open for trading on the preceding Friday, and when any such holiday falls on a
Sunday, the NYSE will not be open for trading on the succeeding Monday, unless
unusual business conditions exist, such as the ending of a monthly or yearly
accounting period.
Securities held by all Portfolios will be valued as follows: underlying fund
shares held by Portfolios are valued at the net asset value per share determined
as of the close of business (4:00 P.M. Eastern Time) on the day the securities
are being valued. Short-term debt securities with 61 days or more to maturity at
time of purchase are valued, through the 61st day prior to maturity, at market
value based on quotations obtained from market makers or other appropriate
sources; thereafter, the value on the 61st day is amortized on a straight-line
basis over the remaining number of days to maturity. Securities and assets for
which market quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of Trustees of
the Trust. Debt securities with maturities of sixty days or less are valued
at amortized cost.
The Money Market Fund values its securities on the amortized cost basis and
seeks to maintain its net asset value at a constant $1.00 per share. In the
event a difference of 1/2 of 1% or more were to occur between the net asset
value calculated by reference to market values of the Money Market Fund's $1.00
per share net asset value, or if there were any other deviation which the Board
of Trustees believed would result in a material dilution to shareholders or
purchasers, the Board of Trustees would consider taking any one or more of the
following actions or any other action considered appropriate: selling portfolio
securities to shorten average portfolio maturity or to realize capital gains or
losses, reducing or suspending shareholder income accruals, redeeming shares in
kind, or utilizing a value per unit based upon available indications of market
value. Available indications of market value may include, among other things,
quotations or market value estimates of securities and/or values based on yield
data relating to money market securities that are published by reputable
sources.
B-27
<PAGE>
INVESTMENT PERFORMANCE
YIELD CALCULATIONS
- ------------------
The Trust may from time to time disclose the current annualized yield of the
Portfolios for 30-day periods. The annualized yield of a Portfolio refers to the
income generated by the Portfolio over a specified 30-day period. Because the
yield is annualized, the yield generated by the Portfolio during the 30-day
period is assumed to be generated each 30-day period. The yield is computed by
dividing the net investment income per share earned during the period by the
price per share on the last day of the period, according to the following
formula:
YIELD = 2[(a-b + 1)/6/ - 1]
---
cd
Where: a = net investment income earned during the period by the Portfolio.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period.
d = the maximum offering price per share on the last day of the
period.
Net investment income will be determined in accordance with rules established by
the SEC. Accrued expenses will include all recurring fees that are charged to
all shareholder accounts. The yield calculations do not reflect the effect of
any charges that may be applicable to a particular Policy.
Because of the charges and deductions imposed by the separate accounts and, in
certain cases, by series of the Trust which invest in the Underlying Funds
described in this SAI, the yield realized by Contract Owners in the investment
divisions of the separate accounts will be lower than the yield for the
corresponding Fund of the Trust. The yield on amounts held in the Portfolios
normally will fluctuate over time. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields or rates of
return. Each of the Portfolios yield will be affected by the types and quality
of Underlying Fund securities held by the respective Underlying Fund, and its
operating expenses.
CURRENT YIELD
- -------------
The Money Market Fund's current yield quotation is based on a seven-day period
and is computed as follows. The first calculation is net investment income per
share, which is accrued interest on portfolio securities, plus or minus
amortized premium, less accrued expenses. This number is then divided by the
price per share (expected to remain
B-28
<PAGE>
constant at $1.00) at the beginning of the period ("based period return"). The
result is then divided by 7 and multiplied by 365 and the resulting yield figure
is carried to the nearest one-hundredth of one percent. Realized capital gains
or losses and unrealized appreciation or depreciation of investments are not
included in the calculation.
EFFECTIVE YIELD
- ---------------
The Money Market Fund's effective yield is determined by taking the base period
return (computed as described above) and calculating the effect of assumed
compounding. The formula for the effective yield is:
(base period return + 1)/(365/7)/ - 1.
STANDARDIZED TOTAL RETURN CALCULATIONS
- --------------------------------------
The Trust may from time to time also disclose average annual total returns for
the Portfolios for various periods of time. Average annual total return
quotations are computed by finding the average annual compounded rates of return
over one, five and ten year periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
P (1 + T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one, five, or ten-year period at the end of the
one, five, or ten-year period (or fractional portion thereof).
All recurring fees that are charged to all shareholder accounts are recognized
in the ending redeemable value. The average annual total return calculations for
the Portfolio will not reflect the effect of charges that may be applicable to a
particular policy.
NON-STANDARDIZED PERFORMANCE. In addition, in order to more completely represent
a Portfolio's performance or more accurately compare such performance to other
measures of investment return, a Portfolio also may include in advertisements,
sales literature and shareholder reports other total return performance data
("Non-Standardized Return"). Non-Standardized Return may be quoted for the same
or different periods as those for which Standardized Return is quoted; it may
consist of an aggregate or average annual percentage rate of return, actual
year-by-year rates or any combination thereof. Non-Standardized Return will be
accompanied by Standardized Return. Non-Standardized Return may or may not take
sales charges into account; performance data calculated without taking the
effect of sales charges into account will be higher than data including
B-29
<PAGE>
the effect of such charges. All non-standardized performance will be advertised
only if the standard performance data for the same period, as well as for the
required periods, is also presented.
GENERAL INFORMATION. From time to time, the Portfolios may advertise their
performance compared to similar funds using certain unmanaged indices, reporting
services and publications. Descriptions of some of the indices which may be used
are listed below.
The Standard & Poor's 500 Composite Stock Price Index is a well diversified list
of 500 companies representing the U.S. stock market.
The Standard & Poor's 400 Midcap Index tracks the stock price movement of 400
companies with mid-size capitalization of $300 million to $5 billion. Stocks are
chosen for market size, liquidity and industry group representation.
The Standard and Poor's Small Cap 600 index is designed to represent price
movements in the small cap U.S. equity market. It contains companies chosen by
the Standard & Poors Index Committee for their size, industry, characteristics,
and liquidity. None of the companies in the S&P 600 overlap with the S&P 500 or
the S&P 400 (MidCap Index). The S&P 600 is weighted by market capitalization.
REITs are not eligible for inclusion.
The NASDAQ Composite OTC Price Index is a market value-weighted and unmanaged
index showing the changes in the aggregate market value of approximately 3,500
stocks.
The Lehman Brothers Aggregate Bond Index is an index consisting of the Lehman
Brothers Government/Corporate Bond Index, the Lehman Brothers Mortgage-Backed
Securities Index, and the Lehman Brothers Assets-Backed Securities Index. The
Government/Corporate Bond Index is described below. The Mortgage-Backed
Securities Index consists of 15 and 30-year fixed rate securities backed by
mortgage pools of GNMA, FHLMC and FNMA (excluding buy downs, manufactured homes
and graduated equity mortgages). The Asset-Backed Securities Index consists of
credit card, auto and home equity loans (excluding subordinated tranches) with
an average life of one year. Each Index includes income and distributions but
does not reflect fees, brokerage commissions or other expenses of investing.
The Lehman Brothers Intermediate Aggregate Index consists of 1-10 year
government bonds, 1-10 year corporate bonds rated A or higher by an NRSRO, all
mortgages, and all asset backed securities within the Aggregate Index (i.e., the
Lehman Brothers Aggregate Index less the Long Government/Corporate Index). This
Index offers a broad based benchmark with a shorter duration than the Lehman
Brothers Aggregate Index.
The Lehman Brothers Government Bond Index is a measure of the market value of
all public obligations of the U.S. Treasury; all publicly issued debt of all
agencies of the U.S.
B-30
<PAGE>
Government and all quasi-federal corporations; and all corporate debt guaranteed
by the U.S. Government; mortgage backed securities, bonds and foreign targeted
issues are not included in the Lehman Government Index.
The Lehman Brothers Government/Corporate Bond Index is a measure of the market
value of approximately 5,300 bonds with a face value currently in excess of $1.3
trillion. To be included in the Lehman Government/Corporate Index, an issue must
have amounts outstanding in excess of $1 million, have at least one year to
maturity and be rated "Baa" or higher ("investment grade") by a nationally
recognized rating agency.
The Russell 3000 Index is composed of the 3,000 largest U.S. companies ranked by
market capitalization representing approximately 98% of the U.S. equity market.
The Russell 2000 Index represents the bottom two thirds of the largest 3000
publicly traded companies domiciled in the U.S. Russell uses total market
capitalization to sort its universe to determine the companies that are included
in the index. Only common stocks are included in the Index. REITs are eligible
for inclusion.
The Wilshire Mid Cap 750 Index is a subset of the Wilshire 5000 Index of common
stocks. The Mid Cap 750 Index consists of those Wilshire 5000 companies ranked
between 501 and 1,250 according to market capitalization.
The Wilshire 5000 Equity Index represents the return on the market value of all
common equity securities for which daily pricing is available.
In addition, from time to time in reports and promotions, a Portfolio's
performance may be compared to (i) other groups of mutual funds tracked by: (a)
Lipper Analytical Services, a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets; (b)
Morningstar, Inc., another widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets; or (c)
other financial or business publications, such as Business Week, Money Magazine,
Forbes and Barron's which provide similar information; (2) the Consumer Price
Index (measure of inflation) may be used to assess the real rate of return from
an investment in a Portfolio; (3) other statistics such as GNP, and net import
and export figures derived from governmental publications, e.g., The Survey of
Current Business or other independent parties, e.g., the Investment Company
Institute, may be used to illustrate investment attributes of a Fund or the
general economic, business, investment, or financial environment in which a Fund
operates; (4) various financial economic and market statistics developed by
brokers, dealers and other persons may be used to illustrate aspects of a
Portfolio's performance; (5) the effect of tax-deferred compounding on a
Portfolio's investment returns, or on returns in general, may be illustrated by
graphs, charts, etc. where such graphs or charts would compare, at various
points in time, the return from an investment in a Portfolio (or returns in
general) on a tax-deferred basis (assuming reinvestment of capital gains and
dividends and assuming one or more tax rates) with the return on a taxable
basis; and (6) the sectors or industries in which the Portfolio invests may be
compared to relevant indices or surveys (e.g., S&P Industry Surveys) in order to
evaluate the Portfolio's historical performance or current or potential value
with respect to the particular industry or sector.
B-31
<PAGE>
TAXES
The following is a summary of certain Federal income tax considerations that may
affect the Portfolios and their shareholders. The summary is not intended as a
substitute for individual tax advice, and investors are urged to consult their
tax advisors as to the tax consequences of an investment in any Portfolio.
Tax Status of the Portfolios and the Money Market Fund
- ------------------------------------------------------
Each Portfolio and the Money Market Fund will be treated as a separate taxable
entity for Federal income tax purposes.
Each Portfolio and the Money Market Fund intend to qualify separately each year
as a "regulated investment company" under the Code. A qualified Portfolio and
the Money Market Fund will not be liable for Federal income taxes to the extent
that its taxable net investment income and net realized capital gains are
distributed to its shareholders, provided that each Portfolio and the Money
Market Fund distribute at least 90% of its net investment income.
Each Portfolio and the Money Market Fund intend to accrue dividend income for
Federal income tax purposes in accordance with the rules applicable to regulated
investment companies. In some cases, these rules may have the effect of
accelerating (in comparison to other recipients of the dividend) the time at
which the dividend is taken into account by a Portfolio and the Money Market
Fund as taxable income.
Distributions of an Underlying Fund's investment company taxable income are
taxable as ordinary income to a Portfolio which invests in the Underlying Fund.
Distributions of the excess of an Underlying Fund's net long-term capital gain
over its net short-term capital loss, which are properly designated as "capital
gain dividends," are taxable as long-term capital gain to a Portfolio which
invests in the Fund, regardless of how long the Portfolio held the Fund's
shares, and are not eligible for the corporate dividends-received deduction.
Upon the sale or other disposition by a Portfolio of shares of any Underlying
Fund, the Portfolio generally will realize a capital gain or loss which will be
long-term or short-term, generally depending upon the Portfolio's holding period
for the shares.
Tax Treatment of Shareholders
- -----------------------------
The Portfolios and the Money Market Fund have been informed that the life
insurance company offering Contracts intends to qualify the Separate Account as
a "segregated asset account" within the meaning of the Code. For a Separate
Account to qualify as a segregated asset account, the underlying investment
company in which such Separate Account holds shares must meet the
diversification requirements of Section 817(h) of the Code and the regulations
promulgated thereunder. To meet those requirements, an underlying investment
company must, after a one year start-up period, on the last day of
B-32
<PAGE>
each calendar quarter, or during a 30 day grace period thereafter, invest no
more than certain specified percentages of its assets in the securities of any
one, two, three or four issuers. For these purposes, all obligations of the
United States Treasury and each instrumentality are treated as securities of
separate issuers.
Income on assets of a Separate Account qualified as a segregated asset account
whose underlying investments are adequately diversified will not be taxable to
Contract Owners. However, in the event a Separate Account is not so qualified,
all annuities allocating any amount of premiums to such Separate Account will
not qualify as annuities for federal income tax purposes and the holders of such
annuities would be taxed on any income on the annuities during the period of
disqualification.
The Portfolios have undertaken to meet the diversification requirements of
Section 817(h) of the Code. This undertaking may limit the ability of a
particular Portfolio to make certain otherwise permitted investments. For
purposes of asset diversification testing, the regulations under the Code set
forth a "look through" rule. Providian believes that under this rule, the
Separate Account must be tested for compliance with the percentage limitations
by "looking through" both the shares in Portfolios that are held by the
Separate Account and the shares in the Underlying Funds that are held by the
Portfolios to the investment assets held by the Underlying Funds.
Taxation of the Underlying Funds
- --------------------------------
Each Underlying Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Code. In any year in
which an Underlying Fund qualifies as a regulated investment company and timely
distributes all of its taxable income, the Underlying Fund generally will not
pay any federal income or excise tax.
If more than 50% in value of an Underlying Fund's assets at the close of any
taxable year consists of stocks or securities of foreign corporations, that
Underlying Fund may elect to treat certain foreign taxes paid by it as paid by
its shareholders. The shareholders would then be required to include their
proportionate share of the electing Fund's foreign income and related foreign
taxes in income even if the shareholder does not receive the amount representing
foreign taxes. Shareholders itemizing deductions could then deduct the foreign
taxes, or, whether or not deductions are itemized but subject to certain
limitations, claim a direct dollar for dollar tax credit against their U.S.
federal income tax liability attributable to foreign income. In many cases, a
foreign tax credit will be more advantageous than a deduction for foreign taxes.
Each of the Portfolios may invest in some Underlying Funds that expect to be
eligible to make the above-described election. While a Portfolio will be able to
deduct the foreign taxes that it will be treated as receiving if the election is
made, the Portfolio will not itself be able to elect to treat its foreign taxes
as paid by its shareholders. Accordingly, the shareholders of the Portfolio will
not have an option of claiming a foreign tax credit for foreign taxes paid by
the Underlying Funds.
B-33
<PAGE>
GENERAL INFORMATION
The Trustees themselves have the power to alter the number and terms of office
of the Trustees, and they may at any time lengthen their own terms or make their
terms of unlimited duration (subject to certain removal procedures) and appoint
their own successors, provided that always at least a majority of the Trustees
have been elected by the shareholders of the Trust. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees. The Trust
is not required to hold Annual Meetings of Shareholders for action by
shareholders' vote except as may be required by the 1940 Act or the Declaration
of Trust. The Declaration of Trust provides that shareholders can remove
Trustees by a vote of two-thirds of the vote of the outstanding shares. The
Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the holders of 10 percent of the Trust's shares. In
addition, 10 or more shareholders meeting certain conditions and holding the
lesser of $25,000 worth or one percent of the Trust's shares may advise the
Trustees in writing that they wish to communicate with other shareholders for
the purpose of requesting a meeting to remove a Trustee. The Trustees will then
either give those shareholders access to the shareholder list or, if requested
by those shareholders, mail at the shareholders' expense the shareholders'
communication to all other shareholders. See the Contract Prospectus for
information as to the voting of shares by Contract Owners.
Each issued and outstanding share of each Fund is entitled to participate
equally in dividends and distributions of the respective Fund and in the net
assets of such Fund upon liquidation or dissolution remaining after satisfaction
of outstanding liabilities. The shares of each Fund have no preference,
preemptive, conversion, exchange or similar rights, and are freely transferable.
Under Rule 18f-2 under the 1940 Act, as to any investment company which has two
or more series (such as the Funds) outstanding and as to any matter required to
be submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in that Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.
Under Massachusetts law, shareholders of a trust such as the Trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the Trust. The Declaration of Trust, however, contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in
B-34
<PAGE>
each agreement, obligation or instrument entered into or executed by the Trust
or its Trustees. The Declaration of Trust provides for indemnification and
reimbursement of expenses out of Trust property for any shareholder held
personally liable for its obligations. The Declaration of Trust also provides
that the Trust shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. Thus, while Massachusetts law permits a shareholder of a trust such as
the Trust to be held personally liable as a partner under certain circumstances,
the risk of a Contract Owner incurring financial loss on account of shareholder
liability is highly unlikely and is limited to the relatively remote
circumstances in which the Trust would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Trust has Codes of Ethics governing the personal securities transactions of
officers and employees, its Adviser and Sub-Advisers.
INDEPENDENT ACCOUNTANTS
The financial statements of the Trust included in the Prospectus and the
Statement of Additional Information have been examined by Ernst & Young, L.L.P.,
independent accountants, for the periods indicated in their reports as stated in
their opinion and have been so included in reliance upon such opinion given upon
the authority of the firm as experts in accounting and auditing.
FINANCIAL STATEMENTS
B-35
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
None
(b) Exhibits:
(1) Agreement and Declaration of Trust/1/
(2) By-laws/1/
(3) Not Applicable
(4) Not Applicable
(5)(a) Investment Advisory Agreement between Providian Series Trust
and Providian Investment Advisor, Inc./2/
(5)(b) Sub-Advisory Agreement between Providian Investment Advisor,
Inc. and Atlanta Capital Management Company, LLC/2/
(5)(c) Sub-Advisory Agreement between Providian Investment Advisor,
Inc. and Blairlogie Capital Management/2/
(6) Not Applicable
(7) Not Applicable
(8) Custody Agreement/2/
(9)(a) Administrative Agreement/2/
(9)(b) Transfer Agency Agreement/2/
(10) Opinion and Consent of Counsel as to the Legality of the
Securities being Registered/2/
(11)(a) Consent of Ernst & Young, L.L.P./2/
(11)(b) Consent of Jorden Burt Berenson & Johnson LLP/2/
<PAGE>
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Not Applicable
(18) Not Applicable
____________________
/1/ Filed herewith.
/2/ To be filed by amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
None.
ITEM 27. INDEMNIFICATION.
Reference is made to Articles II and V of the Agreement and Declaration of
Trust filed herewith.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Certain of the officers and directors of the Registrant's investment
adviser also serve as officers and/or directors for other subsidiaries of
Providian Corporation. For additional information, please see Parts A and B.
ITEM 29. PRINCIPAL UNDERWRITERS.
Not Applicable
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession of the Adviser or the
Custodian.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
1. 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 Registrant's 1933 Act Registration Statement.
2. Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, this Registration Statement has been signed on
behalf of the Registrant in the City of Louisville and Commonwealth of Kentucky
on the 4th day of November, 1996.
PROVIDIAN SERIES TRUST
By: /s/ Kris A. Robbins
--------------------------
Kris A. Robbins
President and Trustee
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities with the Registrant and
on the dates indicated on this 4th day of November, 1996.
Signature Title Date
--------- ----- ----
/s/ Kris A. Robbins President and Trustee November 4, 1996
- --------------------
Kris A. Robbins
/s/ Thomas Hartlage Principal Financial November 4, 1996
- -------------------- Officer
Thomas Hartlage
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Kimberly A. Scouller and R. Michael Slaven, and each of them, jointly and
severally, his or her true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution, for him or her and in his or her name,
place, and stead, in all of his or her capacities as a Trustee of Providian
Series Trust (the "Trust"), to sign on his or her behalf any and all
Registration Statements (including any post-effective amendments to Registration
Statements) under the Securities Act of 1933, as amended, and/or the Investment
Company Act of 1940, as amended, filed by the Trust and any amendments and
supplements thereto, and other documents in connection therewith, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the U.S. Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully as to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorney-
in-fact and agent, and each of them, may lawfully do or cause to be done by
virtue hereof. This power of attorney hereby revokes any and all powers of
attorney previously granted by the undersigned in connection with the
aforementioned matters.
DATED this 4th day of November, 1996.
/s/ Kris A. Robbins
------------------------------
Kris A. Robbins
Trustee
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
- -------
(1) -- Agreement and Declaration of Trust
(2) -- By-Laws
<PAGE>
EXHIBIT 1
AGREEMENT AND DECLARATION OF TRUST
PROVIDIAN SERIES TRUST
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
<TABLE>
<CAPTION>
RECITAL
ARTICLE I
THE TRUST
<S> <C> <C>
SECTION 1.1 Name............................................................1
SECTION 1.2 Location........................................................2
SECTION 1.3 Nature of Trust.................................................2
SECTION 1.4 Definitions.....................................................2
ARTICLE II
POWERS OF TRUSTEES
SECTION 2.1 General.........................................................3
SECTION 2.2 Investments.....................................................4
SECTION 2.3 Legal Title.....................................................4
SECTION 2.4 Disposition of Assets...........................................5
SECTION 2.5 Taxes...........................................................5
SECTION 2.6 Rights as Holder of Securities..................................5
SECTION 2.7 Delegation; Committees..........................................6
SECTION 2.8 Collection......................................................6
SECTION 2.9 Expenses........................................................6
SECTION 2.10 Borrowing.......................................................7
SECTION 2.11 Deposits........................................................7
SECTION 2.12 Allocation......................................................7
SECTION 2.13 Valuation.......................................................7
SECTION 2.14 Fiscal Year.....................................................7
SECTION 2.15 Concerning the Trust and Certain Affiliates.....................7
SECTION 2.16 Power to Contract...............................................9
SECTION 2.17 Insurance.......................................................9
SECTION 2.18 Pension and Other Plans........................................10
SECTION 2.19 Seal...........................................................10
SECTION 2.20 Charitable Contributions.......................................10
SECTION 2.21 Indemnification................................................10
SECTION 2.22 Remedies.......................................................10
SECTION 2.23 Separate Accounting............................................10
SECTION 2.24 Further Powers.................................................11
</TABLE>
i
<PAGE>
ARTICLE III
ADVISER AND DISTRIBUTOR
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 3.1 Appointment....................................................11
SECTION 3.2 Provisions of Agreement........................................11
ARTICLE IV
INVESTMENTS
SECTION 4.1 Statement of Investment Objectives and Policies................11
SECTION 4.2 Restrictions...................................................11
SECTION 4.3 Percentage Restrictions........................................12
SECTION 4.4 Amendment of Investment Objectives and Policies and of Investment
Limitations....................................................12
ARTICLE V
LIMITATIONS OF LIABILITY
SECTION 5.1 Liability to Third Persons.....................................12
SECTION 5.2 Liability to Trust or to Shareholders..........................12
SECTION 5.3 Indemnification................................................12
SECTION 5.4 Surety Bonds...................................................15
SECTION 5.5 Apparent Authority.............................................15
SECTION 5.6 Recitals.......................................................15
SECTION 5.7 Reliance on Experts, etc.......................................15
SECTION 5.8 Liability Insurance............................................15
ARTICLE VI
CHARACTERISTICS OF SHARES
SECTION 6.1 General........................................................15
SECTION 6.2 Division of Beneficial Interest................................16
SECTION 6.3 Evidence of Share Ownership....................................17
SECTION 6.4 Death of Shareholders..........................................18
SECTION 6.5 Repurchase of Shares...........................................18
SECTION 6.6 Trustees as Shareholders.......................................18
SECTION 6.7 Redemption and Stop Transfers for Tax Purposes;
Redemption to Maintain Constant Net Asset Value................18
SECTION 6.8 Information from Shareholders..................................19
SECTION 6.9 Redemptions....................................................19
SECTION 6.10 Suspension of Redemption; Postponement of Payment..............19
SECTION 6.11 Power of Trustees to Change Provisions Relating to Shares......20
SECTION 6.12 Establishment and Designation of Series and Classes............21
</TABLE>
ii
<PAGE>
ARTICLE VII
RECORD AND TRANSFER OF SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 7.1 Share Register.................................................24
SECTION 7.2 Transfer Agent.................................................24
SECTION 7.3 Owner of Record................................................24
SECTION 7.4 Transfers of Shares............................................25
SECTION 7.5 Limitation of Fiduciary Responsibility.........................25
SECTION 7.6 Notices........................................................25
ARTICLE VIII
SHAREHOLDERS
SECTION 8.1 Meetings of Shareholders.......................................25
SECTION 8.2 Quorums........................................................26
SECTION 8.3 Notice of Meetings.............................................26
SECTION 8.4 Record Date for Meetings.......................................26
SECTION 8.5 Proxies, etc...................................................26
SECTION 8.6 Reports........................................................27
SECTION 8.7 Inspection of Records..........................................27
SECTION 8.8 Shareholder Action By Written Consent..........................27
SECTION 8.9 Voting Rights of Shareholders..................................27
ARTICLE IX
TRUSTEES
SECTION 9.1 Number and qualification.......................................27
SECTION 9.2 Term and Election..............................................28
SECTION 9.3 Resignation and Removal........................................28
SECTION 9.4 Vacancies......................................................29
SECTION 9.5 Meetings.......................................................29
SECTION 9.6 Officers.......................................................30
SECTION 9.7 By-laws........................................................30
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND
DETERMINATION OF NET ASSET VALUE AND NET INCOME
SECTION 10.1 General........................................................31
SECTION 10.2 Retained Earnings..............................................31
SECTION 10.3 Source of Distributions........................................31
SECTION 10.4 Net Asset Value................................................31
SECTION 10.5 Power to Modify Valuation Procedures...........................32
</TABLE>
iii
<PAGE>
ARTICLE XI
CUSTODIAN
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 11.1 Appointment and Duties.........................................32
SECTION 11.2 Central Certificate System.....................................33
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
SECTION 12.1 Recording......................................................33
ARTICLE XIII
AMENDMENT OR TERMINATION OF TRUST
SECTION 13.1 Amendment or Termination.......................................33
SECTION 13.2 Power to Effect Reorganization.................................35
SECTION 13.3 Other Amendments...............................................35
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 Governing Law..................................................35
SECTION 14.2 Counterparts...................................................35
SECTION 14.3 Reliance by Third Parties......................................35
SECTION 14.4 Provisions in Conflict with Law or Regulations.................36
SECTION 14.5 Section Headings...............................................36
SECTION 14.6 Construction of 1940 Act.......................................36
SECTION 14.7 Action of Prospectus or Proxy Statement........................36
ARTICLE XV
DURATION OF TRUST
SECTION 15.1 Duration.......................................................37
</TABLE>
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PROVIDIAN SERIES TRUST
AGREEMENT AND DECLARATION OF TRUST
This Agreement and Declaration of Trust is made the 21st day of October,
1996 by the Trustee(s) hereunder and holders of shares of beneficial interest
issued hereunder and to be issued hereunder as hereinafter provided.
WITNESSETH that:
WHEREAS, the Trustee(s) desire to establish an unincorporated voluntary
association commonly known as a business trust, as described in the provisions
of Chapter 182 of the General Laws of Massachusetts, for the principal purpose
of the investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustee(s) desire that such trust be a registered open-end
investment company under the Investment Company Act of 1940; and
WHEREAS, it is proposed that the beneficial interest in the trust's assets
shall be divided into transferable shares of beneficial interest, which shall be
evidenced by the Share Register maintained by the trust or its agent, as
hereinafter provided;
NOW, THEREFORE, the Trustee(s) hereby declare that they will hold all
property of every type and description which they are acquiring or may hereafter
acquire as such Trustees, together with the proceeds thereof, in trust, to
manage and dispose of the same for the benefit of the holders of record from
time to time of the Shares being issued and to be issued hereunder and in the
manner and subject to the provisions hereof.
ARTICLE I
THE TRUST
1.1 Name. The name of the trust created by this Declaration of Trust
shall be Providian Series Trust (hereinafter called the "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 used in this Declaration of Trust, except where the context
otherwise requires) shall refer to the Trustees in their capacity as Trustees,
and not individually or personally and shall not refer to the officers, agents,
employees or Shareholders of the Trust or of such Trustees. Should the Trustees
determine that the use of such name is not practicable, legal or convenient,
they may use such other designation or they may adopt such other name for the
Trust as they deem proper and the Trust may hold property and conduct its
activities under such designation or name.
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1.2 Location. The principal office of the Trust, currently located at 400
West Market Street, 6th Floor, Louisville, Kentucky 40202, shall be located
henceforth within or without the Commonwealth Massachusetts, as the Trustees may
from time to time determine.
1.3 Nature of Trust. The Trust shall be of the type commonly termed a
business trust. The Trust is not intended to be, shall not be deemed to be and
shall not be treated as, a general partnership, limited partnership, joint
venture, corporation or joint stock company. The Shareholders shall be
beneficiaries and their relationship to the Trustees shall be solely in that
capacity in accordance with the rights conferred upon them hereunder. The Trust
is intended to have the status of a registered open-end investment company under
the Investment Company Act of 1940 and of a "regulated investment company" as
that term is defined in Section 851 of the Internal Revenue Code of 1986, as
amended, and this Declaration of Trust and all actions of the Trustees hereunder
shall be construed in accordance with such intent.
1.4 Definitions. As used in this Declaration of Trust, the following
terms shall have the following meanings unless the context hereof otherwise
requires:
(a) "1940 Act" shall mean the Investment Company Act of 1940, as amended
from time to time.
(b) "Adviser" and "Distributor" shall mean any Person or Persons
appointed, employed or contracted with by the Trustee under the applicable
provisions of Section 3.1 hereof.
(c) "Affiliate" shall have the same meaning as the term Affiliated Person
under the 1940 Act.
(d) "Assignment," "Commission," and "Prospectus" shall have the meanings
given them in the 1940 Act.
(e) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as may be amended, restated, or modified from time to time.
References in this Declaration of Trust to "Declaration," "hereof,"
"herein," "hereby" and "hereunder" shall be deemed to refer to the
Declaration of Trust and shall not be limited to the particular text,
article, or section in which such words appear.
(f) "Person" shall mean and include individuals, corporations, limited
partnerships, general partnerships, joint stock companies or associations,
joint ventures, associations, companies, trusts, banks, trust companies,
land trusts, business trusts or other entities whether or not legal
entities and governments and agencies and political subdivisions thereof.
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(g) "Securities" shall mean any stock, shares, voting trust certificates,
bonds, debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise or, in general, any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for,
guarantees of, or any right to subscribe to, purchase or acquire any of the
foregoing.
(h) "Shareholders" shall mean, as of any particular time, all holders of
record of outstanding Shares at such time.
(i) "Shares" shall mean the equal proportionate transferable units of
interest into which the beneficial interest in the Trust or in the Trust
property belonging to any series of the Trust or in any class of Shares of
the Trust (as the context may require) shall be divided from time to time,
as described in Article VI.
(j) "Series Company" shall mean the form of registered open-end investment
company described in Section 18(f)(2) of the 1940 Act or in any successor
statutory provision.
1. The term "Series" refers to series of Shares established and
designated under or in accordance with the provisions of Article VI;
2. The term "Multi-Class Series" refers to series of Shares
established and designated as Multi-Class Series under or in
accordance with the provisions of Article VI; and
3. The terms "Class" and "Class of Shares" refer to the division of
Shares representing any Multi-Class Series into two or more classes in
accordance with the provisions of Article VI.
(k) "Trust Property" shall mean, as of any particular time, any and all
property, real, personal, or otherwise, tangible or intangible, which is
transferred, conveyed or paid to the Trust or Trustees and all income,
profits and gains therefrom and which at such time is owned or held by, or
for the account of, the Trust or the Trustees.
ARTICLE II
POWERS OF TRUSTEES
2.1 General. The Trustees shall have, without other or further
authorization, full, exclusive and absolute power, control and authority over
the Trust Property and over the business of the Trust to the same extent as if
the Trustees were the sole and absolute owners of the Trust Property and
business in their own right, and with such powers of delegation as may be
permitted by this Declaration of Trust. The Trustees may do and perform such
acts and things as in their sole
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judgment and discretion are necessary and proper for conducting the business and
affairs of the Trust or promoting the interests of the Trust and the
Shareholders. The enumeration of any specific power or authority herein shall
not be construed as limiting the aforesaid power or authority or any specific
power or authority. The Trustees shall have the power to enter into commitments
to make any investment, purchase or acquisition, or to exercise any power
authorized by this Declaration of Trust. Such powers of the Trustees may be
exercised without order of or resort to any court.
2.2 Investments. The Trustees shall have power, subject in all respects
to Article IV hereof,
(a) to conduct, operate and carry on the business of an investment
company; and
(b) for such consideration as they may deem proper, to subscribe for,
invest in, reinvest in, purchase or otherwise acquire, hold, pledge,
sell, assign, transfer, exchange, distribute or otherwise deal in or
dispose of negotiable or nonnegotiable instruments, obligations,
evidences of indebtedness, bankers' acceptances, certificates of
deposit or indebtedness, commercial paper, securities subject to
repurchase agreements and other money market securities, including,
without limitation, those issued, guaranteed or sponsored by the
United States Government or its agencies or instrumentalities, or
international instrumentalities, or by any of the several states of
the United States of America or their political subdivisions, agencies
or instrumentalities, or any bank or savings institution, or by any
corporation organized under the laws of the United States or of any
state, territory or possession thereof, or by corporations organized
under foreign laws; marketable straight debt securities; securities
(payable in U.S. dollars) of, or guaranteed by, the government of
Canada or of a Province of Canada; common stock, securities
convertible into common stock, purchase rights, warrants and options;
and nothing herein shall be construed to mean the Trustees shall not
have the foregoing powers with respect to any Securities in which the
Trust may invest in accordance with Article IV hereof.
In the exercise of their powers, the Trustees shall not be limited,
except as otherwise provided hereunder, to investing in Securities
maturing before the possible termination of the Trust, nor shall the
Trustees be limited by any law now or hereafter in effect limiting the
investments which may be held or retained by trustees or other
fiduciaries, but they shall have full authority and power to make any
and all investments within the limitations of this Declaration of
Trust, that they, in their absolute discretion, shall determine, and
without liability for loss, even though such investments shall be of a
character or in amount not considered proper for the investment of
trust funds.
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2.3 Legal Title. Legal title to all the Trust Property shall be vested in
the Trustees as joint tenants and held by and transferred to the Trustees,
except that the Trustees shall have power to cause legal title to any Trust
Property to be held by, or in the name of, one or more of the Trustees with
suitable reference to their trustee status, or in the name of the Trust, or in
the name of any other Person as nominee, on such terms, in such manner and with
such powers as the Trustees may determine, so long as in their judgment the
interest of the Trust is adequately protected.
The right, title and interest of the Trustees in and to the Trust Property
shall vest automatically in all persons who may hereafter become Trustees upon
their due election and qualification without any further act. Upon the
resignation, removal or death of a Trustee, he (and in the event of his death,
his estate) shall automatically cease to have any right, title or interest in or
to any of the Trust Property, and the right, title and interest of such Trustee
in and to the Trust Property shall vest automatically in the remaining Trustees
without any further act. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
2.4 Disposition of Assets. Subject in all respects to Article IV hereof,
the Trustees shall have power to sell, lease, exchange or otherwise dispose of
or grant options with respect to any and all Trust Property free and clear of
any and all trusts, at public or private sale, for cash or on terms, without
advertisement, and subject to such restrictions, stipulations, agreements and
reservations as they shall deem proper, and to execute and deliver any deed or
other instrument in connection with the foregoing. The Trustees shall also have
the power, subject in all respects to Article IV hereof, to:
(a) rent, lease or hire from others for terms which may extend beyond
the termination of this Declaration of Trust any property or
rights to property, real, personal or mixed, tangible or
intangible, and, except for real property, to own, manage, use
and hold such property and such rights;
(b) give consents and make contracts relating to Trust Property or
its use;
(c) grant security interests in or otherwise encumber Trust Property
in connection with borrowings; and
(d) release any Trust Property.
2.5 Taxes. The Trustees shall have power to pay all taxes or assessments,
of whatever kind or nature, imposed upon or against the Trust or the Trustees in
connection with the Trust Property or upon or against the Trust Property or
income or any part thereof, to settle and compromise disputed tax liabilities
and, for the foregoing purposes, to make such returns and do all other such acts
and things as may be deemed by the Trustees to be necessary or desirable.
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2.6 Rights as Holder of Securities. The Trustees shall have the power to
exercise all the rights, powers and privileges appertaining to the ownership of
all or any Securities or other property forming part of the Trust Property to
the same extent that any individual might, and, without limiting the generality
of the foregoing, to vote or give any consent, request or notice or waive any
notice either in person or by proxy or power of attorney with or without power
of substitution, to one or more Persons, which proxies and powers of attorney
may be for meetings or action generally or for any particular meetings or
action, and may include the exercise of discretionary powers.
2.7 Delegation; Committees. The Trustees shall have power, consistent
with their continuing exclusive authority over the management of the Trust, the
conduct of its affairs and the management and disposition of Trust Property, to
delegate from time to time to such one or more of their number (who may be
designated as constituting a Committee of the Trustees) 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
as their attorney or attorneys or otherwise as the Trustees may from time to
time deem expedient.
2.8 Collection. The Trustees shall have power to collect, sue for,
receive and receipt for all sums of money or other property due to the Trust, to
consent to extensions of the time for payment, or to the renewal of any
Securities or obligations; to engage or intervene in, prosecute, defend,
compound, compromise, abandon or adjust by arbitration or otherwise any actions,
suits, proceedings, disputes, claims, demands or things relating to the Trust
Property; to foreclose any Security or other instrument securing any notes,
debentures, bonds, obligations or contracts, by virtue of which any sums of
money are owed to the Trust; to exercise any power of sale held by them, and to
convey good title thereunder free of any and all trusts, and in connection with
any such foreclosure or sale, to purchase or otherwise acquire title to any
property; to be parties to reorganization and to transfer to and deposit with
any corporation, committee, voting trustee or other Person any Securities or
obligations of any corporation, trust, association or other organization, the
Securities of which form a part of the Trust Property, for the purpose of any
reorganization of any such corporation, trust, association or other
organization, or otherwise, to participate in any arrangement for enforcing or
protecting the interests of the Trustees as the owners or holders of such
Securities or obligations and to pay any assessment levied in connection with
such reorganization or arrangement; to extend the time (with or without
security) for the payment or delivery of any debts or property and to execute
and enter into releases, agreements and other instruments; and to pay or satisfy
any debts or claims upon any evidence that the Trustees shall think sufficient.
2.9 Expenses. The Trustees shall have power to incur and pay any charges
or expenses which, in the opinion of the Trustees, are necessary or incidental
to or proper for carrying out any of the purposes of this Declaration of Trust,
and to reimburse others for the payment therefor, and to pay appropriate
compensation or fees from the funds of the Trust to themselves as Trustees and
to Persons with whom the Trust has contracted or transacted business. The
Trustees shall fix the compensation of all officers, employees and Trustees. The
Trustees may be paid reasonable compensation for their general services as
Trustees and officers hereunder, and the Trustees may pay themselves or any one
or more of themselves such compensation for special services, including legal
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services, as they in good faith may deem reasonable and reimbursement for
expenses reasonably incurred by themselves or any one or more of themselves on
behalf of the Trust. Each Series or Class must pay the expenses directly
attributable to it. However, to the extent that the Trustees can effect cost
savings by the sharing of expenses they are authorized to do so. Such general
administrative expenses will be allocated on the basis of the asset size of the
respective Series or Class.
2.10 Borrowing. The Trustees shall have power to borrow money only to the
extent, for the purposes and in the manner authorized by Article IV hereof.
2.11 Deposits. The Trustees shall have power to deposit any monies or
Securities included in the Trust Property with one or more banks, trust
companies or other banking institutions whether or not such deposits will draw
interest. Such deposits are to be subject to withdrawal in such manner as the
Trustees may determine, and the Trustees shall have no responsibility for any
loss which may occur by reason of the failure of the bank, trust company or
other banking institution with whom the monies or Securities have been
deposited.
2.12 Allocation. The Trustees shall have power to determine whether
monies or other assets received by the Trust shall be charged or credited to
income or capital or allocated between income and capital, including the power
to amortize or fail to amortize any part or all of any premium or discount, to
treat any part or all the profit resulting from the maturity or sale of any
asset, whether purchased at a premium or at a discount, as income or capital or
apportion the same between income and capital, to apportion the sale price of
any asset between income and capital and to determine in what manner any
expenses or disbursements are to be borne as between income and capital, whether
or not in the absence of the power and authority conferred by this Section 2.12,
such assets would be regarded as income or as capital or such expense or
disbursement would be charged to income or to capital; to treat any dividend or
other distribution on any investment as income or capital or apportion the same
between income and capital; to provide or fail to provide reserves for
depreciation, amortization or obsolescence in respect of any Trust Property in
such amounts and by such methods and for such purposes as they shall determine,
and to allocate to the share of beneficial interest account less than all of the
consideration received for Shares and to allocate the balance thereof to paid-in
capital, all as the Trustees may reasonably deem proper.
2.13 Valuation. The Trustees shall have power to determine in good faith,
conclusively, the value of any of the Trust Property and of any services,
Securities, assets or other consideration hereafter to be acquired or disposed
of by the Trust, and to revalue the Trust Property.
2.14 Fiscal Year. The Trustees shall have power to determine the fiscal
year of the Trust and the method or form in which its accounts shall be kept
and, from time to time, to change the fiscal year or method or form of accounts.
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2.15 Concerning the Trust and Certain Affiliates.
(a) The Trust may enter into transactions with any Affiliate of the Trust
or the Adviser or any Affiliate of any Trustee, director, officer or
employee of the Trust or of the Adviser if (i) each such transaction
has, after disclosure of such affiliation, been approved or ratified
by the affirmative vote of a majority of the Trustees, including a
majority of the Trustees who are not Affiliates of any Person (other
than the Trust) who is a party to the transaction with the Trust, (ii)
such transaction is, in the opinion of the Trustees, on terms fair and
reasonable to the Trust and the Shareholders and at least as favorable
to them as similar arrangements for comparable transactions (of which
the Trustees have knowledge) with organizations unaffiliated with the
Trust or with the Person who is a party to the transaction with the
Trust, and (iii) such transaction is in accordance with the 1940 Act
or an exemption granted thereunder.
(b) Except as otherwise provided by this Declaration of Trust and in the
absence of fraud, a contract, act or other transaction, between the
Trust and any other Person, or in which the Trust is interested, is
valid and no Trustee, officer, employee or agent of the Trust has any
liability as a result of entering into any such contract, act or
transaction even though (i) one or more of the Trustees, officers,
employees or agents of the Trust is directly or indirectly interested
in or affiliated with, or are trustees, partners, directors,
employees, officers or agents of such other Person, or (ii) one or
more of the Trustees, officers, employees or agents of the Trust,
individually or jointly with others, is a party or are parties to, or
directly interested in, or affiliated with, such contract, act or
transaction, provided that (A) such interest or affiliation is
disclosed to the Trustees and the Trustees authorized such contract,
act or other transaction by a vote of a majority of the unaffiliated
Trustees, or (B) such interest or affiliation is disclosed to the
Shareholders, and such contract, act or transaction is approved by the
Shareholders.
(c) Any Trustee or officer, employee or agent of the Trust may acquire,
own, hold and dispose of Shares for his individual account, and may
exercise all rights of a holder of such Shares to the same extent and
in the same manner as if he were not such a Trustee or officer,
employee or agent. The Trustees shall use their best efforts to obtain
through the Adviser or other Persons a continuing and suitable
investment program, consistent with the policies and objectives of
each Series or Class. Any Trustee or officer, employee or agent of the
Trust may, in his personal capacity, or in a capacity as trustee,
officer, director, stockholder, partner, member, adviser or employee
of any Person, have business interests and engage in business
activities in addition to those relating to the Trust, which interests
and activities may be similar to those of
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the Trust and include the acquisition, syndication, holding,
management, operation or disposition, of his own account or for the
account of such Person, and each Trustee, officer, employee and agent
of the Trust shall be free of any obligation to present to the Trust
any investment opportunity which comes to him in any capacity other
than solely as Trustee, officer, employee or agent of the Trust, even
if such opportunity is of a character which, if presented to the
Trust, could be taken by the Trust.
Subject to the provisions of Article III hereof, any Trustee or
officer, employee or agent of the Trust may be interested as Trustee,
officer, director, stockholder, partner, member, adviser or employee
of, or otherwise have a direct or indirect interest in, any Person who
may be engaged to render advice or services to the Trust, and may
receive compensation from such Person as well as compensation as
Trustee, officer, employee or agent of the Trust or otherwise
hereunder. None of the activities referred to in this paragraph shall
be deemed to conflict with his duties and powers as Trustee, officer,
employee or agent of the Trust. To the extent that any other provision
of this Declaration of Trust conflicts with, or is otherwise contrary
to, the provisions of this Section 2.15 the provisions of this Section
shall be deemed controlling.
2.16 Power to Contract. Subject to the provisions of Sections 2.7 and 3.1
hereof with respect to delegation of authority by the Trustees, the Trustees
shall have power to appoint, employ or contract with any Person (including one
or more of themselves) and any corporation, partnership or trust of which one or
more of them may be an Affiliate, subject to the applicable, requirements of
Section 2.15 hereof as the Trustees may deem necessary or desirable for the
transaction of the business of the Trust, including any Person, who, under the
supervision of the Trustees, may, among other things: serve as the Trust's
investment adviser and consultant in connection with policy decisions made by
the Trustees; furnish reports to the Trustees and provide research, economic and
statistical data in connection with the Trust's investments; act as consultants,
accountants, technical advisers, attorneys, brokers, underwriters, corporate
fiduciaries, escrow agents, depositories, custodians or agents for collection,
insurers or insurance agents, transfer agents or registrars for Shares or in any
other capacity deemed by the Trustees necessary or desirable; investigate,
select, and, on behalf of the Trust, conduct relations with Persons acting in
such capacities and pay appropriate fees to, and enter into appropriate
contracts with, or employ, or retain services performed or to be performed by,
any of them in connection with the investments acquired, sold, or otherwise
disposed of, or committed, negotiated, or contemplated to be acquired, sold or
otherwise disposed of; substitute any other Person for any such Person; act as
attorney-in-fact or agent in the purchase or sale or other disposition of
investments, and in the handling, prosecuting or settling of any claims of the
Trust, including, the foreclosure or other enforcement of any lien or security
securing investments; and assist in the performance of such ministerial
functions necessary in the management of the Trust as may be agreed upon with
the Trustees or officers of the Trust.
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2.17 Insurance. The Trustees shall have the power to purchase and pay
for, entirely out of Trust Property, insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment advisers,
including the Adviser or independent contractors of the Trust, individually
against all claims and liabilities of every nature arising by reason of holding,
being or having held any such office or position, or by reason of any action
alleged to have been, taken or omitted by any such Person as Shareholder,
Trustee, officer, employee, agent, investment adviser or independent contractor,
including any action taken or omitted that may be determined to constitute
negligence. However, such policies shall not pay or reimburse any director,
officer, investment adviser or principal underwriter for any liability arising
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of duties. Such policies are to set forth a reasonable and fair means
for determining whether payment or reimbursement shall be made.
2.18 Pension and Other Plans. The Trustees shall have the power to pay
pensions for faithful service, as deemed appropriate by the Trustees, and to
adopt, establish and carry out pension, profit-sharing, savings, thrift and
other retirement, incentive and benefit plans, trust, and provisions, including,
without limitation, the purchasing of life insurance and annuity contracts as a
means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
2.19 Seal. The Trustees shall have the power to adopt and use a seal for
the Trust, but, unless otherwise required by the Trustees, it shall not be
necessary for the seal to be placed on, and its absence shall not impair the
validity of, any document, instrument or other paper executed and delivered by
or on behalf of the Trust.
2.20 Charitable Contributions. The Trustees shall have the power to make
donations, irrespective of benefit to the Trust, for the public welfare or for
community fund, hospital, charitable, religious, educational, scientific,
literary, civic or similar purpose and, in time of war or other national
emergency, in aid thereof.
2.21 Indemnification. In addition to the mandatory indemnification
provided for in Section 5.3 hereof, the Trustees shall have power, to the extent
permitted by law, to indemnify or enter into agreements with respect to
indemnification with any Person with whom the Trust has dealings, including,
without limitation, any investment adviser, including the Adviser, or any
principal underwriter, including the Distributor, or independent contractor, to
such extent as the Trustees shall determine.
2.22 Remedies. Notwithstanding any provision in this Declaration of
Trust, when the Trustees deem that there is a significant risk that an obligor
to the Trust may default or is in default under the terms of any obligation to
the Trust, the Trustees shall have power to pursue any remedies permitted by law
which, in their sole judgment, are in the interests of the Trust, and the
Trustees shall have the power to enter into any investment, commitment or
obligation of the Trust resulting from the pursuit of such remedies as are
necessary or desirable to dispose of property acquired in the pursuit of such
remedies.
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2.23 Separate Accounting. The Trustees shall establish the books and
records for each Series and maintain such records separately as if each Series
were a separate legal entity.
2.24 Further Powers. The Trustees shall have power to do all such other
matters and things and execute all such instruments as they deem necessary,
proper or desirable in order to carry out, promote or advance the interests of
the Trust although such matters or things are not herein specifically mentioned.
Any determination as to what is in the best interests of the Trust made by the
Trustees in good faith shall be conclusive. In construing the provisions of this
Declaration of Trust, the presumption shall be in favor of a grant of power to
the Trustees. The Trustees will not be required to obtain any court order to
deal with the Trust Property.
ARTICLE III
ADVISER AND DISTRIBUTOR
3.1 Appointment. The Trustees are responsible for the general investment
policy of the Trust, the distribution of its Shares and for the general
supervision of the business of the Trust conducted by officers, agents,
employees, investment advisers, distributors or independent contractors of the
Trust. However, the Trustees are not required personally to conduct all of the
business of the Trust and, consistent with their ultimate responsibility as
stated herein, the Trustees may appoint, employ or contract with an investment
adviser (the "Adviser") and/or a distributor and underwriter for the Trust's
Shares (the "Distributor"), and may grant or delegate such authority to the
Adviser and/or Distributor (pursuant to the terms of Section 2.16 hereof) or to
any other Person the services of whom are obtained by the Adviser or
Distributor, as the Trustees may, in their sole discretion, deem to be necessary
or desirable, without regard to whether such authority is normally granted or
delegated by trustees.
3.2 Provisions of Agreement. The Trustees shall not enter into any
agreement with the Adviser or Distributor pursuant to the provisions of Section
3.1 hereof unless such agreement is consistent with the provisions of Section 15
of the 1940 Act.
ARTICLE IV
INVESTMENTS
4.1 Statement of Investment Objectives and Policies. The Trustees shall
be guided in their actions by the Investment Objectives and Policies as set
forth in the most current effective registration statement for the Trust as
filed with the Securities and Exchange Commission. Because the Trust is divided
into separate Series, the Trustees shall supervise the investments and the
record-keeping for each Series within the Trust as if it was a separate legal
entity. In addition to any other power granted to the Trustees, the Trustees
may, as they deem appropriate, provide for additional Series or Classes in a
manner consistent with the Investment Company Act.
4.2 Restrictions. Notwithstanding anything in this Declaration of Trust
which may be deemed to authorize the contrary, the Trust, with respect to each
Series, shall conduct its affairs in
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accordance with the Investment Limitations (Restrictions) as set forth in the
most current, effective registration statement for the Trust as filed with the
Securities and Exchange Commission.
4.3 Percentage Restrictions. If the percentage restrictions as set forth
in the Investment Limitation described in Section 4.2 above are adhered to at
the time of each investment, a later increase or decrease in percentage
resulting from a change in the value of a Series' assets is not a violation of
such investment restrictions.
4.4 Amendment of Investment Objectives and Policies and of Investment
Limitations. The Investment Objectives and policies and the Investment
Limitations are deemed to be fundamental policies and may not be changed without
the approval of the holders of a majority of the outstanding voting Shares of
each Series affected which, for purpose herein, shall mean the lesser of (i) 67%
of the Shares represented at a meeting which more than 50% of the outstanding
Shares are represented or (ii) more than 50% of the outstanding Shares. A change
in policy affecting only one Series may be effected only with the approval of a
majority of the outstanding Shares of such Series.
ARTICLE V
LIMITATIONS OF LIABILITY
5.1 Liability to Third Persons. No Shareholder shall be subject to any
personal liability whatsoever, in tort, contract or otherwise, to any other
Person or Persons in connection with the Trust Property or the affairs of the
Trust; and no Trustee, officer, employee or agent of the Trust shall be subject
to any personal liability whatsoever, in tort, contract or otherwise; to any
other Person or Persons in connection with Trust Property or the affairs of the
Trust, except for that arising from his bad faith, willful misconduct, gross
negligence or reckless disregard of his duties or for his Failure to act in good
faith in the reasonable belief that his action was in the best interest of the
Trust; and all such other Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust. If any Shareholder, Trustee, officer, employee or agent, as such, of
the Trust is made a party to any suit or proceedings to enforce any such
liability, he shall not on account thereof be held to any personal liability.
5.2 Liability to Trust or to Shareholders. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust or to any Shareholder,
Trustee, officer, employee or agent of the Trust 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 own bad faith,
willful misfeasance, gross negligence or reckless disregard for his duties.
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5.3 Indemnification.
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(a) The Trust shall indemnify and hold each Shareholder harmless from
and against all claims and liabilities, whether they proceed to
judgment or are settled or otherwise brought to a conclusion, to which
such Shareholder may become subject by reason of his being or having
been a Shareholder, and shall reimburse such Shareholder for all legal
and other expenses reasonably incurred by him in connection with any
such claim or liability. The rights accruing to a Shareholder under
this Section 5.3 shall not exclude any other right to which such
Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically
provided herein; provided, however, that the Trust shall have no
liability to reimburse Shareholders for taxes assessed against them by
reason of their ownership of Shares, nor for any losses suffered by
reason of changes in the market value of Shares.
(b) (1) As used in this subsection (b) of this Section 5.3, the
following terms shall have the meanings set forth below:
(i) the term "indemnitee" shall mean any present or former
Trustee, officer or employee of the Trust, any present or former
Trustee or officer of another trust or corporation whose
securities are or were owned by the Trust or of which the Trust
is or was a creditor and who served or serves in such capacity at
the request of the Trust, any present or former investment
adviser, sub-adviser or principal underwriter of the Trust and
the heirs, executors, administrators, successors and assigns of
any of the foregoing; however, whenever conduct by an indemnitee
is referred to, the conduct shall be that of the original
indemnitee rather than that of the heir, executor, administrator,
successor or assignee;
(ii) the term "covered proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which an indemnitee
is or was a party or is threatened to be made a party by reason
of the fact or facts under which he or it is an indemnitee as
defined above;
(iii) the term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office in question;
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(iv) the term "covered expenses" shall mean expenses (including
attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by an indemnitee in connection
with a covered proceeding; and
(v) the term "adjudication of liability" shall mean, as to any
covered proceeding and as to any indemnitee, an adverse
determination as to the indemnitee whether by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent.
(2) The Trust shall not indemnify any indemnitee for any covered
expenses in any covered proceeding if there has been an adjudication
of liability against such indemnitee expressly based on a finding of
disabling conduct.
(3) Except as set forth in (2) above, the Trust shall indemnify any
indemnitee for covered expenses in any covered proceeding, whether or
not there is an adjudication of liability as to such indemnitee, if a
determination has been made that the indemnitee was not liable by
reason of disabling conduct by (i) a final decision of the court or
other body before which the covered proceeding was brought; or (ii) in
the absence of such decision, a reasonable determination, based on a
review of the facts, by either (A) the vote of a majority of a quorum
of Trustees who are neither "interested persons", as defined in the
1940 Act nor parties to the covered proceeding or (B) an independent
legal counsel in a written opinion; provided that such Trustees or
counsel, in reaching such determination, may but need not presume the
absence of disabling conduct on the part of the indemnitee by reason
of the manner in which the covered proceeding was terminated.
(4) Covered expenses incurred by an indemnitee in connection with a
covered proceeding shall be advanced by the Trust to an indemnitee
prior to the final disposition of a covered proceeding upon the
request of the indemnitee for such advance and the undertaking by or
on behalf of the indemnitee to repay the advance unless it is
ultimately determined that the indemnitee is entitled to
indemnification thereunder, but only if one or more of the following
is the case: (i) the indemnitee shall provide a security for each
undertaking; (ii) the Trust shall be insured against losses arising
out of any lawful advances; or (iii) there shall have been a
determination, based on a review of the readily available facts (as
opposed to a full trial-type inquiry) that there is a reason to
believe that the indemnitee ultimately will be found entitled to
indemnification by either independent legal counsel in a written
opinion or by the vote of a majority of a quorum of trustees who are
neither
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"interested persons" as defined in the 1940 Act nor parties to the
covered proceeding.
(5) Nothing herein shall be deemed to affect the right of the Trust
and/or any indemnitee to acquire and pay for any insurance covering
any or all indemnitees to the extent permitted by the 1940 Act or to
affect any other indemnification rights to which any indemnitee may be
entitled to the extent permitted by the 1940 Act.
5.4 Surety Bonds. No Trustee shall, as such, be obligated to give any
bond or surety or other security for the performance of his duties.
5.5 Apparent Authority. No purchaser, lender, transfer agent 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 such officer, employee or agent or
make inquiry concerning or be liable for the application of money or property
paid, loaned or delivered to or on the order of the Trustees or of such officer,
employee or agent.
5.6 Recitals. Any written instrument creating an obligation of the Trust
shall be conclusively taken to have been executed or done by a Trustee or
Trustees or an officer, employee or agent of the Trust only in their or his
capacity as Trustees or Trustee under this Declaration of Trust or in the
capacity of officer, employee or agent of the Trust. Any written instrument
creating an obligation of the Trust shall refer to this Declaration of Trust and
contain a recital to the effect that the obligations thereunder are not
personally binding upon, nor shall resort be had to the private property of, any
of the Trustees, Shareholders, officers, employees or agents of the Trust, but
the Trust Property or a specific portion thereof only shall be bound, and may
contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
of the Trustees, Shareholders, officers, employees or agents of the Trust.
5.7 Reliance on Experts, etc. Each Trustee and each officer of the Trust
shall, in the performance of his 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 the Adviser, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees or officers of the
Trust, regardless of whether such counsel or expert may also be a Trustee.
5.8 Liability Insurance. The Trustees shall, at all times, maintain
insurance for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover all foreseeable tort liability to the extent available at
reasonable rates.
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ARTICLE VI
CHARACTERISTICS OF SHARES
6.1 General. The ownership of the Trust Property of every description and
the right to conduct any business hereinbefore described are vested exclusively
in the Trustees, and the Shareholders shall have no interest therein other than
the beneficial interest conferred by their Shares, and they shall have no right
to call for any partition or division of any property, profits, rights or
interests of the Trust nor can they be called upon to share or assume any losses
of the Trust or suffer an assessment of any kind by virtue of their ownership of
Shares, except as provided in Section 10.5 hereof. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration of
Trust.
6.2 Division of Beneficial Interest. The beneficial interest in the Trust
shall at all times be divided into an unlimited number of transferable Shares,
having no par value. The Shares of the Trust shall be issued in one or more
Series or Classes, as the Trustees may, without Shareholder approval, authorize.
The Shares shall have the characteristics set forth in (a) through and including
(f) below. The Trustees may from time to time divide or combine the Shares of
each Series or Class into a greater or lesser number without thereby changing
the proportionate beneficial interest of that Series or Class in the assets
belonging to that Series or Class, attributable to that Series or Class, or in
any way affecting the rights of Shares of any other Series or Class. Except as
provided in Section 6.12 of this Article VI, with respect to Shares of Multi-
Class Series, no Share shall have priority of preference over another.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or 1/1,000ths of a Share or multiple thereof. The Board of
Trustees may classify unissued Shares into one or more additional Series or
Classes which shall, together with the issued Shares of each Series or Class,
have such designations as the Trustees may determine and shall, subject to any
applicable rule, regulation or order of the Commission or other applicable law
or regulation, have the characteristics set forth in (a) through and including
(f) below.
(a) All consideration received by the Trust for the issue or sale of
Shares of each Series or Class, together with all income, earnings,
profits and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the
same may be, shall, for all purposes, irrevocably belong to the Series
or Class with respect to which such assets, payments, or funds were
received by the Trust, subject only to the rights of creditors, and
shall be so handled upon the books of account of the Trust. Such
assets, income, earnings, profits and proceeds thereof, any asset
derived from any reinvestment of such proceeds, in whatever form the
same may be, are herein referred to as "assets belonging to" such
Series or Class.
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(b) Dividends or distributions on Shares of any Series or Class, whether
payable in Shares or cash, shall be paid only out of earnings, surplus
or other assets belonging to such Series or Class.
(c) In the event of the liquidation or dissolution of the Trust,
Shareholders of each such Series or Class shall be entitled to
receive, as a class, out of the assets of the Trust available for
distribution to Shareholders, but other than general assets not
belonging to any particular Series or Class, the assets belonging to
such Series or Class; and the assets so distributable to the
Shareholders of any such Class shall be distributed among such
Shareholders in proportion to the number of Shares of such Series or
Class held by them and recorded on the books of the Trust. In the
event that there are any general assets not belonging to any
particular Series or Class and available for distribution, such
distribution shall be made to the holders of Shares of all Series and
Classes in proportion to the asset value of the respective Series or
Class.
(d) The assets belonging to any such Series or Class shall be charged with
the liabilities in respect to such Series or Class and shall be
charged with their share of the general liabilities of the Trust. The
determination of the Trustees shall be conclusive as to the amount of
liabilities, including accrued expenses and reserves, and as to the
allocation of the same as to a given Series or Class, and as to
whether the same, or general assets of the Trust, are allocable to one
or more Series or Class. The liabilities so allocated are herein
referred to as "liabilities belonging to" such Series or Class.
(e) At all meetings of Shareholders, each Shareholder of each Share of
each Series or Class shall be entitled to one vote for each Share,
irrespective of the Series or Class, standing in his name on the books
of the Trust, except that where a vote of the holders of the Shares of
any Series or Class, or of more than one Series or Class, voting by
Series or Class, is required by the 1940 Act and/or Massachusetts law
as to any proposal, only the holders of such Series or Class(es),
voting by Series or Class, shall be entitled to vote upon such
proposal and the holders of any other Series or Class(es) shall not be
entitled to vote thereon. Any fractional Share, if any such fractional
Shares are outstanding, shall carry proportionately all the rights of
a whole Share, including the right to vote and the right to receive
dividends. There shall be no cumulative voting rights with respect to
any Shares or Series or Class of the Trust.
(f) When the Trust has more than one Series or Class: (i) the redemption
rights provided to the holders of the Trust's Shares in Section 6.9
shall be deemed to apply only to the assets belonging to the Series or
Class in question; and
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(ii) the net asset value per Share computation as provided for in
Section 10.4 shall be applied as if each Series or Class were the
Trust as referred to in such computation, but with its assets limited
to the assets belonging to such Series or Class and its liabilities
limited to the liabilities belonging to such Series or Class.
6.3 Evidence of Share Ownership. Evidence of Share ownership shall be
reflected in the Share register maintained by or on behalf of the Trust pursuant
to Section 7.1 hereof, and the Trust shall not be required to issue certificates
as evidence of Share ownership; provided, however, that the Trustees may, in
their discretion, authorize the use of certificates as a means of evidencing the
ownership of Shares by setting forth in the Trust's By-laws or in a resolution,
provisions for the form of certificates and regulations governing their
execution, issuance and transfer. Subject to Section 6.7 hereof, such
certificates shall be treated as negotiable and title thereto and to the Shares
represented thereby shall be transferred by delivery thereof to the same extent
in all respects as a stock certificate, and the Shares represented thereby, of a
Massachusetts business corporation.
6.4 Death of Shareholders. The death of a Shareholder during the
continuance of the Trust shall not terminate this Declaration of Trust nor give
such Shareholder's legal representatives a right to an accounting or to take any
action in the courts or otherwise against other Shareholders or the Trustees or
the Trust Property, but shall simply entitle the legal representatives of the
deceased Shareholder to require the recordation of such legal representative's
ownership of or rights in the deceased Shareholder's Shares, and, upon the
acceptance thereof, such legal representative shall succeed to all the rights of
the deceased Shareholder under this Declaration of Trust.
6.5 Repurchase of Shares. The Trustees may, on behalf of the Trust,
purchase or otherwise acquire outstanding Shares from time to time for such
consideration and on such terms as they may deem proper. Shares so purchased or
acquired by the Trustees for the account of the Trust shall not, so long as they
belong to the Trust, receive distributions (other than, at the option of the
Trustees, distributions in Shares) or be entitled to any voting rights. Such
Shares may, in the discretion of the Trustees, be canceled and the number of
Shares issued thereby reduced, or such Shares may, in the discretion of the
Trustees, be held in the treasury and may be disposed of by the Trustees at such
time or times, to such party or parties and for such considerations as the
Trustees may determine.
6.6 Trustees as Shareholders. Any Trustee in his individual capacity may
purchase and otherwise acquire or sell and otherwise dispose of Shares or other
Securities issued by the Trust, and may exercise all the rights of a Shareholder
to the same extent as though he were not a Trustee.
6.7 Redemption and Stop Transfers for Tax Purposes; Redemption to Maintain
Constant Net Asset Value. If the Trustees shall, at any time and in good faith,
be of the opinion that direct or indirect ownership of Shares or other
Securities of the Trust has or may become concentrated in any person to an
extent which would disqualify the Trust as a regulated investment company under
the Internal Revenue Code, then the Trustees shall have the power by lot or
other means deemed
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equitable by them (i) to call for redemption a number, or principal amount, of
Shares or other Securities of the Trust sufficient, in the opinion of the
Trustees, to maintain or bring the direct or indirect ownership of Shares or
other Securities of the Trust into conformity with the requirements for such
qualification and (ii) to refuse to transfer or issue Shares or other Securities
of the Trust to any Person whose acquisition of the Shares or other Securities
of the Trust in question would, in the opinion of the Trustees, result in such
disqualification. The redemption shall be effected at a redemption price
determined in accordance with Section 6.9.
The Shares of the Trust shall also be subject to redemption pursuant to the
procedure for reduction of outstanding Shares set forth in Section 10.5 hereof
in order to maintain the constant net asset value per Share.
6.8 Information from Shareholders. The holders of Shares or other
securities of the Trust shall, upon demand, disclose to the Trustees in writing
such information with respect to direct and indirect ownership of Shares or
other Securities of the Trust, as the Trustees reasonably deem necessary, to
comply with the provisions of the Internal Revenue Code, or to comply with the
requirements of any other taxing authority.
6.9 Redemptions. All outstanding Shares may be redeemed at the option of
the holders thereof, upon and subject to the terms and conditions provided in
this Declaration of Trust. The Trust shall, upon application of any Shareholder,
redeem or repurchase from such Shareholder outstanding Shares for an amount per
Share determined by the application of a formula adopted for such purpose by the
Trustees (which formula shall be consistent with the 1940 Act and the rules and
regulations promulgated thereunder); provided that such amount per Share shall
not exceed the cash equivalent of the proportionate interest of each Share in
the assets of the Trust at the time of the purchase or redemption. The
procedures for effecting redemption shall be as adopted by the Trustees and set
forth in the Prospectus from time to time.
6.10 Suspension of Redemption: Postponement of Payment. The Trustees may
suspend the right of redemption or postpone the date of payment for the whole or
any part of any period (i) during which the New York Stock Exchange is closed
other than customary weekend and holiday closings, (ii) during which trading on
the New York Stock Exchange is restricted, (iii) during which an emergency
exists as a result of which disposal by the Trust of Securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Trust to
determine fairly the value of its net assets, or (iv) during any other period
when the Securities and Exchange Commission (or any succeeding governmental
authority) may for the protection of security holders of the Trust by order
permit suspension of the right of redemption or postponement of the date of
payment on redemption; provided that applicable rules and regulations of the
Commission (or any succeeding governmental authority) shall govern as to whether
the conditions prescribed in (ii), (iii) or (iv) exist. Such suspensions shall
take effect at such time as the Trustees shall specify but not later than the
close of business on the business day next following the declaration of
suspension, and thereafter there shall be no right of redemption or payment
until the Trustees shall declare the suspension at an end, except that the
suspension shall terminate in any event on the first day on which said stock
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exchange shall have reopened or the period specified in (ii), (iii), or (iv)
shall have expired (as to which in the absence of an official ruling by said
Commission or succeeding authority, the determination of the Trustees shall be
conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the net asset value existing after the termination of the suspension.
6.11 Power of Trustees to Change Provisions Relating to Shares.
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(a) Notwithstanding any other provisions of this Declaration of Trust and
without limiting the power of the Trustees to amend the Declaration of
Trust as provided elsewhere herein, the Trustees shall have the power
to amend this Declaration of Trust, at any time and from time to time,
in such manner as the Trustees may determine in their sole discretion,
without the need for Shareholder action, so as to add to, delete,
replace or otherwise modify any provisions relating to the Shares
contained in this Declaration of Trust for the purpose of responding
to or complying with any regulations, orders, rulings or
interpretations of any governmental agency or any laws, now or
hereafter applicable to the Trust, provided that before adopting any
such amendment without Shareholder approval the Trustees shall
determine that it is consistent with the fair and equitable treatment
of all Shareholders.
(b) The Trustees may designate or establish Series or Classes of Shares.
The establishment and designation of any Series or Class of Shares
shall be effective upon the adoption by vote or written consent of a
majority of the then Trustees of a resolution setting forth such
establishment and designation and the relative rights and preferences
of such Series or Class and such eligibility requirements for
investment therein as the Trustees may determine, or as otherwise
provided in such resolution. Without limiting the generality of the
foregoing, the Trustees may, for the above-stated purposes:
(i) create one or more Series or Classes of Shares (in addition to
any Series or Class(es) already existing or otherwise) with
such rights and preferences and such eligibility requirements
for investment therein as the Trustees shall determine and
reclassify any or all outstanding Shares as shares of
particular Series or Classes in accordance with such
eligibility requirements;
(ii) amend any of the provisions set forth in paragraphs (a) through
(i) of Section 6.12 of this Article VI;
(iii) combine one or more Series or Classes of Shares into a single
Series or Class on such terms and conditions as the Trustees
shall determine;
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(iv) change or eliminate any eligibility requirements for investment
in Shares of any Series or Class, including without limitation,
the power to provide for the issuance of Shares of any Series
or Class in connection with any merger or consolidation of the
Trust with another trust or company or any acquisition by the
Trust of part or all of the assets of another trust or company;
(v) change the designation of any Series or Class of Shares;
(vi) change the method of allocating dividends among the various
Series and Classes of Shares;
(vii) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more
Series or Classes of Shares;
(viii) terminate any Series or Class of Shares by written notice to
the Shareholders of such Series or Class; and
(ix) specifically allocate assets to any or all Series or Classes of
Shares or create one or more additional Series or Classes of
Shares which are preferred over all other Series or Classes of
Shares in respect of assets specifically allocated thereto or
any dividends paid by the Trust with respect to any net income,
however determined, earned from the investment and reinvestment
of any assets so allocated or otherwise and provide for any
special voting or other rights with respect to such Series or
Classes.
6.12 Establishment and Designation of Series and Classes. Shares of each
Series shall have the following rights and preferences relative to Shares of
each other Series, and Shares of each Class of a Multi-Class Series shall have
such rights and preferences relative to other Classes of the same Series as are
set forth below, together with such other rights and preferences relative to
such other Classes as are set forth in any resolution of the Trustees
establishing and designating such Class of Shares:
(a) Assets Belonging to Series. Subject to the provisions of paragraph (c)
of this Section 6.12:
All consideration received by the Trust for the issuance or
sale of Shares of a particular Series, together with all assets in
which such consideration is invested or reinvested, all income,
earnings, profits and proceeds thereof from whatever source derived,
including without limitation, any proceeds derived from the sale,
exchange or liquidation of such assets,
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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,
and shall be so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits and proceeds thereof,
from whatever source derived, including without limitation, 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, are herein referred
to as "assets belonging to" that Series. In the event that there are
any assets, income, earnings, profits and proceeds thereof, funds or
payments which are not readily identifiable as belonging to any
particular Series (collectively "General Assets"), the Trustees shall
allocate such General Assets to, between or 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, and any General Asset so allocated to a particular Series
shall belong to that Series. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series
for all purposes.
(b) Liabilities Belonging to Series. Subject to the provisions of
paragraph (c) of this Section 6.12:
The assets belonging to each particular Series shall be charged
solely with the liabilities of the Trust in respect to that Series,
expenses, costs, charges and reserves attributable to that Series, and
any general liabilities of the Trust which are not readily
identifiable as belonging to any particular Series but which are
allocated and charged by the Trustees to and among any one or more of
the Series established and designated from time to time in a manner
and on such basis as the Trustees in their sole discretion deem fair
and equitable. The liabilities, expenses, costs, charges and reserves
so charged to a Series are herein referred to as "liabilities
belonging to" that Series. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive and
binding upon the holders of all Series for all purposes.
(c) Apportionment of Assets etc. in Case of Multi-Class Series. In the
case of any Multi-Class Series, to the extent necessary or appropriate
to give effect to the relative rights and preferences of any Classes
of Shares of such Series, (i) any assets, income, earnings, profits,
proceeds, liabilities, expenses, charges, costs and reserves belonging
or attributable to that Series may be allocated or attributed to a
particular Class of Shares of that Series or apportioned among two or
more Classes of Shares of that Series; and (ii) Shares of any Class of
such Series may have priority or preference over
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Shares of other Classes of such Series with respect to dividends or
distributions upon termination of the Trust or termination of such
Series or Class or otherwise, provided that no Share shall have any
priority or preference over any other Shares of the same Class and
that all dividends and distributions to Shareholders of a particular
Class shall be made ratably among all Shareholders of such Class
according to the number of Shares of such Class held of record by such
Shareholders on the record date for any dividend or distribution or on
the date of termination, as the case may be.
(d) Dividends, Distributions, Redemptions and Repurchases. Notwithstanding
any other provisions of this Declaration, including without
limitation, Article X, no dividend or distribution (including without
limitation, any distribution paid upon termination of the Trust or of
any Series or Class) with respect to, nor any redemption or repurchase
of, the Shares of any Series or Class shall be effected by the Trust
other than from the assets belonging to such Series or attributable to
such Class, nor shall any Shareholder of any particular Series or
Class otherwise have any right or claim against the assets belonging
to any other Series or attributable to any other Class except to the
extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series or Class.
(e) Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Article VIII, the
Shareholders of any particular Series or Class shall not be entitled
to vote on any matters as to which such Series or Class is not
affected. On any matter submitted to a vote of Shareholders, all
Shares of the Trust then entitled to vote shall be voted by individual
Series, unless otherwise required by the 1940 Act or other applicable
law.
(f) Equality. Except to the extent necessary or appropriate to give
effect to the relative rights and preferences of any Classes of Shares
of a Multi-Class Series, all the Shares 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 Share of any particular Series shall be equal to
each other Share of that Series. All the Shares of each particular
Class of Shares within a Multi-Class Series shall represent an equal
proportionate interest in the assets belonging to such Series that are
attributable to such Class (subject to the liabilities attributable to
such Class), and each Share of any particular Class within a Multi-
Class Series shall be equal to each other Share of such Class.
(g) Fractions. Any fractional Share of a Series or Class shall carry
proportionately all the rights and obligations of a whole share of
that Series
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or Class, including rights with respect to voting, receipt of
dividends and distributions, redemption of Shares and termination of
the Trust.
(h) Exchange Privilege. The Trustees shall have the authority to provide
that the holders of Shares of any Series or Class shall have the right
to exchange said Shares for Shares of one or more other Series or
Classes of Shares in accordance with such requirements and procedures
as may be established by the Trustees.
(i) Combination of Series. The Trustees shall have the authority, without
the approval of the Shareholders of any Series unless otherwise
required by applicable law, to combine the assets and liabilities
belonging to any two or more Series into assets and liabilities
belonging to a single Series or Class.
(j) Certain Redemptions of Shares. The Trustees shall have the authority,
without the approval of the Shareholders of any Series unless
otherwise required by applicable law, to establish and modify the
minimum investment level for each Series or Class of Shares and to
require Shareholders to maintain at least the minimum investment
level. If any Shareholder fails to maintain at least the minimum
investment level, his or her Shares may be subject to mandatory
involuntary redemption in accordance with the instructions of the
Trustees.
ARTICLE VII
RECORD AND TRANSFER OF SHARES
7.1 Share Register. One or more registers shall be kept by or on behalf
of the Trustees, under the direction of the Trustees, which shall contain the
names and addresses of the Shareholders and the number of Shares held by them
respectively and a record of all transfers thereof. A separate register shall
be maintained for each Series and Class. Each such register shall be conclusive
as to who are the holders of the Shares. Only Shareholders whose ownership of
Shares is recorded on such register shall be entitled to vote or to receive
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive any distribution, nor to have notice
given to him as herein provided, until he has given his address to a transfer
agent or such other officer or agent of the Trust as shall keep the register for
entry thereon.
7.2 Transfer Agent. The Trustees shall have power to employ, within or
without the Commonwealth of Massachusetts, a transfer agent or transfer agents
and, if they so determine, a registrar or registrars. The transfer agent or
transfer agents may keep the register(s) and record therein the original issues
and transfers of Shares. Any such transfer agents and registrars shall perform
the duties usually performed by transfer agents and registrars of certificates
and shares of stock in a corporation, except as modified by the Trustees.
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7.3 Owner of Record. Any person becoming entitled to any Share in
consequence of the death, bankruptcy or insolvency of any Shareholder, or
otherwise, by operation of law, shall be recorded as holder of such Shares. But
until such record is made, the Shareholder of record shall be deemed to be the
holder of such Shares for all purposes hereof and neither the Trustees nor any
transfer agent or registrar nor any officer or agent of the Trust shall be
affected by any notice of such death, bankruptcy, insolvency or other event.
7.4 Transfers of Shares. Shares shall be transferable on the records of
the Trust (other than by operation of law) only by the record holder thereof or
by his agent thereunto duly authorized in writing upon delivery to the Trust or
a transfer agent of the Trust of a duly executed instrument of transfer,
together with such evidence of the genuineness of execution and authorization
and of other matters as may reasonably be required by the Trust or the transfer
agent. Upon such delivery, the transfer shall be recorded on the register(s) of
the Trust. But until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereof and neither the
Trustees nor the Trust nor any transfer agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of the proposed transfer.
This Section 7.4 and Section 7.3 hereof are subject in all respects to the
provisions of Section 6.7 hereof.
7.5 Limitation of Fiduciary Responsibility. The Trustees shall not, nor
shall the Shareholders or any officer, transfer agent or other agent of the
Trust, be bound to see to the execution of any trust, express, implied or
constructive, or of any charge, pledge or equity to which any of the Shares or
any interest therein are subject, or to ascertain or inquire whether any sale or
transfer of any such Shares or interest therein by any such Shareholder or his
personal representative is authorized by such trust, charge, pledge or equity,
or to recognize any Person as having any interest therein except the Persons
recorded as such Shareholders. The receipt of the Person in whose name any
Share is recorded, or, if such Share is recorded in the names of more than one
Person, the receipt of any one such Persons or of the duly authorized agent of
any such Person shall be a sufficient discharge for all money, Securities and
other property payable, issuable or deliverable in respect of such Share and
from all liability to see the proper application thereof.
7.6 Notices. Any and all notices to which Shareholders hereunder may be
entitled, and any and all communications, shall be deemed duly served or given
if mailed, postage prepaid, addressed to Shareholders of record at their last
known post office addresses as recorded on the Share register provided for in
Section 7.1 hereof.
ARTICLE VIII
SHAREHOLDERS
8.1 Meetings of Shareholders. Meetings of the Shareholders (to mean,
hereafter, only Shareholders of the Class(es) or Series as may be appropriate
under the circumstances) may be called at any time by a majority of the Trustees
and shall be called by any Trustee upon written request of Shareholders holding
in the aggregate not less than ten (10%) percent of the outstanding Shares
having voting rights, such request specifying the purpose or purposes for which
such meeting is to
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be called. Any such meeting shall be held within or without the Commonwealth of
Massachusetts on such day and at such time as the Trustees shall designate. In
the event that the number of Trustees elected by vote of the Shareholders shall,
at any time, fall below a majority a Special Meeting shall be called at the
earliest practicable time for the election of Trustees; provided, however, that
such meeting shall, in any event be held within sixty (60) days of the date of
the number of Trustees elected by vote of the Shareholders falls below a
majority.
8.2 Quorums. The holders of a majority of outstanding Shares, entitled to
vote at such a meeting, present in person or by proxy shall constitute a quorum
at any meeting of Shareholders.
8.3 Notice of Meetings. Notice of all meetings of the Shareholders
entitled to vote at such a meeting, stating the time, place and purposes of the
meeting, shall be given by the Trustees by mail to each Shareholder at his
registered address, mailed at least ten (10) days and not more than sixty (60)
days before the meeting. Only the business stated in the notice of the meeting
shall be considered at such meeting. Any adjourned meeting may be held as
adjourned without further notice.
8.4 Record Date for Meetings. For the purposes of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to participate in any dividend or distribution, or
for the purpose of any other action, the Trustees may from time to time close
the transfer books for such period, not exceeding thirty (30) days, as the
Trustees may determine; or without closing the transfer books, the Trustees may
fix a date not more than sixty (60) days prior to the date of any meeting of
Shareholders or other actions as a record date for the determination of
Shareholders entitled to vote at such meeting or any adjournment thereof or to
be treated as Shareholders of record for purposes of such other action, except
for dividend payments which shall be governed by Section 10.1, and any
Shareholder who was a Shareholder at the time so fixed shall be entitled to vote
at such meeting or any adjournment thereof, even though he has since that date
disposed of his Shares, and no Shareholder becoming such after that date shall
be so entitled to vote at such meeting or any adjournment thereof or to be
treated as a Shareholder of record for purposes of such other action.
8.5 Proxies, etc. At any meeting of Shareholders, any holder of Shares
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 the verification prior to the time at which such vote shall be
taken. 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 Shareholders of record shall be entitled to vote and each full
Share shall be entitled to one vote and fractional Shares shall be entitled to
fractional votes. When any Share is held jointly by several persons, any one of
them may vote at any meeting in person or by Proxy in respect of such Share, 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 Share. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged
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at or prior to its exercise, and the burden of proving invalidity shall rest on
the challenger. If the holder of any such Share is a minor or a person of
unsound mind, and subject to guardianship or to the legal control of any other
person as regards the charge or management of such Share, he may vote by his
guardian or such other person appointed or having such control, and such vote
may be given in person or by proxy.
8.6 Reports. The Trustees shall, to the extent required by the 1940 Act,
cause to be prepared at least annually a report of operations containing a
balance sheet and statements of income and undistributed income of the Trust
prepared in conformity with generally accepted accounting principles and an
opinion of an independent certified public accountant on such financial
statements based on an examination of the books and records of the Trust, and
made in accordance with generally accepted auditing standards. A signed copy of
such report and opinion shall be filed with the Trustees, and copies of such
reports shall be mailed or delivered to all Shareholders within the time
required by the 1940 Act. The Trustees also shall, to the extent required by
the 1940 Act, furnish to the Shareholders, at least semi-annually, an interim
report containing an unaudited balance sheet of the Trust as at the end of such
semi-annual period and a statement of income and surplus for the period from the
beginning of the current fiscal year to the end of such semi-annual period.
8.7 Inspection of Records. The records of the Trust shall be open to
inspections by Shareholders to the same extent as is permitted shareholders of a
Massachusetts business corporation.
8.8 Shareholder Action By Written Consent. Any action taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust) consent to the
action in writing and the written consents are filed with the records of the
meetings of Shareholders. Such consent shall be treated for all purposes as a
vote taken at a meeting of Shareholders.
8.9 Voting Rights of Shareholders. The Shareholders shall be entitled to
vote only upon the following matters: (a) election of Trustees as provided in
Section 9.2 and Section 9.4 hereof; (b) amendment of the Declaration of Trust or
termination of this Trust as provided in Section 4.4 and Section 13.1 hereof;
(c) reorganization of this Trust as provided in Section 13.2 hereof; and (d) all
matters for which the approval of the Shareholders of the Trust is required by
the Investment Company Act of 1940, as amended. Except with respect to the
foregoing matters specified in this Section 8.9, no action taken by the
Shareholders at any meeting shall in any way bind the Trustees.
ARTICLE IX
TRUSTEES
9.1 Number and Qualification. The number of Trustees shall be fixed from
time to time by resolution of a majority of the Trustees then in office,
provided, however, that the number of Trustees shall in no event be less than
three (3) or more than fifteen (15). A vacancy on the Board
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of Trustees may be filled by the appointment of an individual having the
qualifications described in this Section 9.1 made by a resolution of a majority
of the Trustees then in office, so long as two-thirds of the members of the
resulting Board of Trustees have been elected by vote of the Shareholders. The
appointment of a new Trustee shall not become effective, however, until the
individual named in the resolution of appointment shall have accepted in writing
such appointment and agreed in writing to be bound by the terms of this
Declaration of Trust. No reduction in the number of Trustees shall have the
effect of removing any Trustee from office prior to the expiration of his term.
Whenever a vacancy in the number of Trustees shall occur, until such vacancy is
filled as provided in Section 9.4 hereof, the Trustees or Trustee continuing 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 of Trust. A Trustee shall be an individual at least twenty-one (21)
years of age who is not under legal disability. The Trustees, in their capacity
as Trustees, shall not be required to devote their entire time to the business
and affairs of the Trust.
9.2 Term and Election. Each Trustee named herein, or elected or appointed
as provided in Section 9.1 and 9.4 hereof shall (except in the event of
resignations or removals or vacancies pursuant to Sections 9.3 or 9.4 hereof)
hold office until his successor has been elected and has qualified to serve as
Trustee. Election of Trustees shall be by a plurality of the votes cast. The
election of any Trustee (other than an individual who was serving as a Trustee
immediately prior to such election) pursuant to this Section 9.2 shall not
become effective unless and until such person shall have in writing accepted his
election and agreed to be bound by the terms of this Declaration of Trust.
Trustees may, but need not, own Shares.
9.3 Resignation and Removal. Any Trustee may resign (without need for
prior of subsequent accounting) by an instrument in writing signed by him and
delivered or mailed to the Chairman, the President or the Secretary (referred to
in Section 9.6 hereof) and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the notice. Any of the
Trustees may be removed (provided the aggregate number of Trustees after such
removal shall not be less than the number required by Section 9.1 hereof) with
cause, by the action of two-thirds (2/3) of the remaining Trustees. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he 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
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence.
No natural person shall serve as Trustee after the holders of record of not
less than two-thirds of the outstanding Shares of beneficial interest in the
Trust have declared that he be removed from that office either by declaration in
writing filed with the Custodian of the securities of the Trust or by votes cast
in person or by proxy at a meeting called for the purpose.
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The Trustees shall promptly call a meeting of Shareholders for the purpose
of voting upon the question of removal of any such Trustee or Trustees if
requested in writing so to do by the record holders of not less than ten (10)
per centum of the outstanding Shares.
Whenever ten or more Shareholders of record, who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either Shares having a net asset value of at least $25,000 or at least
one (1) per centum of the outstanding Shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
Shareholders with a view to obtaining signatures to a request for a meeting for
the purposes of removing Trustee(s) and accompanied by a form of communication
and request which they wish to transmit, the Trustees shall, within five (5)
business days after receipt of such application, either
(a) afford to such applicants access to a list of the names and addresses
of all Shareholders as recorded on the books of the Trust; or
(b) inform such applicants as to the approximate number of Shareholders of
record, and the approximate cost of mailing to them the proposed
communication and form of request.
If the Trustees elect to follow the course specified in (b) above, upon the
written request of such applicants, accompanied by a tender of the material to
be mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all Shareholders of record at their addresses
as recorded on the books, unless within five (5) business days after such tender
the Trustees shall mail to such applicants and file with the Securities and
Exchange Commission, together with a copy of the material to be mailed, a
written statement signed by at least a majority of the Trustees to the effect
that in their opinion either such material contains untrue statements of fact or
omits to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
9.4 Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, bankruptcy,
adjudicated incompetence or other incapacity to exercise the duties of the
office, or removal of a Trustee. No such vacancy shall operate to annul this
Declaration of Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust, and title to any Trust Property held in the
name of any Trustee alone, jointly with one or more of the other Trustees or
otherwise, shall, in the event of the death, resignation, removal, bankruptcy,
adjudicated incompetence or other incapacity to exercise the duties of the
office of such Trustee, vest in the continuing or surviving Trustees without
necessity of any further act or conveyance. In the case of an existing vacancy
(other than by reason of increase in the number of Trustees) the holders of at
least a majority of the Shares entitled to vote, acting at any meeting of
Shareholders called for the purpose, or a majority of the Trustees continuing in
office acting by resolution, may fill such vacancy, and any Trustee so elected
by the Trustees shall hold office until his successor has been elected and has
qualified to serve as Trustee. Upon the effectiveness of any such appointment
as provided in this Section, the Trust Property shall vest in such new Trustee
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jointly with the continuing or surviving Trustees without the necessity of any
further act or conveyance; provided, however, that no such election or
appointment as provided in this Section 9.4 shall become effective unless or
until the new Trustee shall have accepted in writing his appointment and agreed
to be bound by the terms of this Declaration of Trust.
9.5 Meetings. Meetings of the Trustees shall be held from time to time
upon the call of the Chairman, the President, the Secretary or any two Trustees.
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 mailed or otherwise given not less than forty-eight (48)
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 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. The Trustees
may act with or without a meeting. A quorum for all meetings of the Trustees
shall be a majority of the Trustees. Subject to Section 2.15 hereof and unless
specifically provided otherwise in this Declaration of Trust, 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 consents of a
majority of the Trustees. Any agreement, or other instrument or writing
executed by one or more of the Trustees or by any authorized Person shall be
valid and binding upon the Trustee and upon the Trust when authorized or
ratified by action of the Trustees as provided in this Declaration of Trust.
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 a majority of the members thereof. Unless otherwise
specifically provided in this Declaration of Trust, 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.
With respect to actions of the Trustees and any committee thereof, Trustees
who are affiliated within the meaning of Section 2.15 hereof or otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 9.5 and shall be entitled to vote to the extent permitted by the
1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by utilizing conference, telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and, to the extent permitted under the 1940 Act,
participation in a meeting pursuant to such communications shall constitute
presence in person at such meeting. The minutes of any meeting of Trustees held
by utilizing such communications equipment shall be prepared in the same manner
as those of a meeting of Trustees held in person.
9.6 Officers. The Trustees shall elect a Chairman from among their number
and shall appoint a President, Secretary and Treasurer and such other officers
as they deem necessary or
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appropriate to carry out the business of the Trust. Such officers shall be
appointed and hold office in accordance with By-law provisions.
9.7 By-laws. The Trustees may adopt and, from time to time, amend or
repeal By-laws for the conduct of the business of the Trust, and in such By-laws
may define the duties of the respective officers, agents, employees and
representatives.
ARTICLE X
DISTRIBUTIONS TO SHAREHOLDERS AND
DETERMINATION OF NET ASSET VALUE AND NET INCOME
10.1 General. The Trustees may, from time to time, declare and pay to the
Shareholders, in proportion to their respective ownership of Shares, out of the
earnings, net profits or surplus (including paid-in capital), capital or assets
in the hands of the Trustees, such dividends or other distributions as they may
determine. Except as otherwise permitted by paragraph (c) of Section 6.12 of
Article VI in the case of Multi-Class Series, distributions of each year's
income of each Series shall be made pro rata to Shareholders of a Series in
proportion to the number of Shares of such Series held by each of them. The
declaration and payment of such dividends or other distributions and the
determination of earnings, profits, surplus (including paid-in capital) and
capital available for dividends and other purposes shall lie wholly in the
discretion of the Trustees and no Shareholder shall be entitled to receive or be
paid any dividends or to receive any distribution except as determined by the
Trustees in the exercise of said discretion. The Trustees may, in addition,
from time to time in their discretion, declare and pay as dividends or other
distributions such additional amounts, whether or not out of earnings, profits
and surplus available therefor, sufficient to enable the Trust to avoid or
reduce its liability for Federal income taxes, inasmuch as the computations of
net income and gains for Federal income tax purposes may vary from the
computations thereof on the books of the Trust. Any of all such dividends or
other distributions may be made, in whole or in part, in cash, property or other
assets or obligations of the Trust, as the Trustees may in their sole discretion
from time to time determine. The Trustees may also distribute to the
Shareholders, in proportion to their respective ownership of Shares, additional
Shares issuable hereunder in such manner and on such terms as they may deem
proper. Any or all such dividends or distributions may be made among the
Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such later date as the Trustees shall determine.
10.2 Retained Earnings. The Trustees, except as provided in Section 10.1
hereof, may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust, to meet obligations of the
Trust, to establish reserves or as they may deem desirable to use in the conduct
of its affairs or to retain for future requirements or extensions of the
business of the Trust.
10.3 Source of Distributions. Shareholders shall receive annually a
statement in writing advising the Shareholders of the source of the funds so
distributed so that distributions of ordinary income, return of capital and
capital gains income will be clearly distinguished.
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10.4 Net Asset Value. The net asset value of each outstanding Share of
the Trust shall be determined once on each business day, as of the close of
trading on the New York Stock Exchange or at any other time as the Trustees, by
resolution, may determine and which is in compliance with the 1940 Act. The
method of determination of net asset value shall be determined by the Trustees
and shall be set forth in the Prospectus. The power and duty to make the daily
calculations may be delegated by the Trustees to the Adviser, the Custodian, the
Transfer Agent, the Distributor or such other person as the Trustees by
resolution may determine. The Trustees may suspend the daily determination of
net asset value to the extent permitted by the 1940 Act.
10.5 Power to Modify Valuation Procedures. Notwithstanding any of the
foregoing provisions of this Article X, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the per share
net asset value of the Trust's Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, or any rule or
regulation thereunder, including any rule or regulation adopted pursuant to
Section 22 of the 1940 Act by the Commission or any securities association
registered under the Securities Exchange Act of 1934, or any order of exemption
issued by said Commission, all as in effect now or as hereafter amended or
modified.
ARTICLE XI
CUSTODIAN
11.1 Appointment and Duties. The Trustees shall, at all times, employ a
bank or trust company organized under the laws of the United States of America
or one of the several states thereof having a capital, surplus and undivided
profits of at least two million dollars ($2,000,000) as Custodian with authority
as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the By-laws of the Trust and the
1940 Act:
(a) to hold the securities owned by the Trust and deliver the same upon
written order;
(b) to receive and receipt for any monies due to the Trust and deposit the
same in its own banking department or elsewhere as the Trustees may
direct;
(c) to disburse such funds upon orders or vouchers;
(d) if authorized by the Trustees, to keep the books and accounts of the
Trust and furnish clerical and accounting services; and
(e) if authorized to do so by the Trustees, to compute the net income of
the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and Custodian. The Trust may also employ the Custodian as its agent for other
purposes.
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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 Trustees, provided that, in
every case, such Sub-Custodian shall be a bank or trust company organized under
the laws of the United States of America or one of the several states thereof
and having capital, surplus and undivided profits of at least two million
dollars ($2,000,000).
11.2 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, or such other person as may be permitted by the
Commission, or otherwise 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, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust.
ARTICLE XII
RECORDING OF DECLARATION OF TRUST
12.1 Recording. This Declaration of Trust and any amendment hereto shall
be filed in the office of the Secretary of the Commonwealth of Massachusetts and
may also be filed or recorded in such other places as the Trustees deem
appropriate. Each amendment so filed shall be accompanied by a certificate
signed and acknowledged by a Trustee stating that such action was duly taken in
a manner provided herein; and unless such amendment or such certificate filed
with the Secretary of the Commonwealth of Massachusetts sets forth some earlier
or later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing with the Secretary of said Commonwealth. An amended
Declaration, containing the original Declaration and all amendments theretofore
made, may be executed any time or from time to time by a majority of the
Trustees and shall, upon filing with the Secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may thereafter be referred to in lieu of the original Declaration and the
various amendments thereto.
ARTICLE XIII
AMENDMENT OR TERMINATION OF TRUST
13.1 Amendment or Termination. The provisions of this Declaration of
Trust may be amended or altered (except as to the limitations on personal
liability of the Shareholders and Trustees and the prohibition of assessments
upon Shareholders), or the Trust (or any Series or Class of Shares) may be
terminated, at any meeting of the Shareholders called for the purpose, by the
affirmative vote of the holders of a majority of the Shares of such Series or
Class then outstanding and entitled to vote, or by an instrument or instruments
in writing, without a meeting, signed by a majority of the Trustees and the
holders of a majority of such Shares; provided, however, that the
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Trustees may, from time to time by a two-thirds (2/3) vote of the Trustees, and
after fifteen (15) days prior written notice to the Shareholders, amend or alter
the provisions of this Declaration of Trust, without the vote or assent of the
Shareholders, to the extent deemed by the Trustees in good faith to be necessary
to conform this Declaration to the requirements of the regulated investment
company provisions of the Internal Revenue Code or the requirements of
applicable federal laws or regulations or any interpretation thereof by a court
or other governmental agency of competent jurisdiction but the Trustees shall
not be liable for failing so to do. Notwithstanding the foregoing, (i) no
amendment may be made pursuant to this Section 13.1 which would change any
rights with respect to any outstanding Shares of the Trust (or such Series or
Class, as the case may be) by reducing the amount payable thereon upon
liquidation of the Trust or by diminishing or eliminating any voting rights
pertaining thereto, except with the vote or written consent of the holders of
two-thirds (2/3) of the outstanding Shares entitled to vote thereon; and (ii) no
amendment may be made with respect to the investment restrictions contained in
Section 4.2 hereof without the affirmative vote of the holders of a majority (as
defined in the 1940 Act) of the Shares of the Class of stock affected by such
change. Upon the termination of the Trust or any one or more Series or Classes
of Shares, as the case may be, pursuant to this Section 13.1:
(a) The Trust (or such Series or Class, as the case may be) shall carry
on no business except for the purpose of winding up its affairs.
(b) The Trustees shall proceed to wind up the affairs of the Trust (or
such Series or Class, as the case may be) and all of the powers of the
Trustees under this Declaration of Trust shall continue until the
affairs of the Trust, Series or Class shall have been wound up,
including the power to fulfill or discharge the contracts of the
Trust, Series or Class, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the
remaining Trust Property (belonging to the Trust or to such Series or
Class, as the case may be) 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,
transfer or other disposition of all or substantially all of the Trust
Property (belonging to the Trust or to such Series or Class, as the
case may be) shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by
affirmative vote of not less than a majority of all outstanding Shares
(of the Trust, Series or Class, as the case may be) entitled to vote.
(c) 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 (belonging to the
Trust, Series or Class, as the case
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may be), in cash or in kind or partly of each, among the Shareholders
(of the Trust, Series or Class, as the case may be) according to their
respective rights.
Upon termination of the Trust, Series or Class, as the case may be, and
distribution to the Shareholders 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 the Trustees shall thereupon be
discharged from all further liabilities and duties hereunder (with respect to
the Trust or such Series or Class, as the case may be), and the right, title and
interest of all Shareholders (of the Trust, Series or Class, as the case may be)
shall cease and be canceled and discharged.
A certification in recordable form signed by a majority of the Trustees
setting forth an amendment and reciting that it was duly adopted by the
Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as
amended, in recordable form, and executed by a majority of the Trustees, shall
be conclusive evidence of such amendment when lodged among the records of the
Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of Shares shall have become effective, this
Declaration of Trust 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.
13.2 Power to Effect Reorganization. The Trustees, by vote or written
approval of a majority of the Trustees, may select or direct the organization
of a corporation, association, trust or other organization with which the Trust
may merge, or which shall take over the Trust Property and carry on the affairs
of the Trust, and after receiving an affirmative vote of not less than a
majority of the outstanding Shares entitled to vote at any meeting or
Shareholders, the notice for which included a statement of such proposed action,
the Trustees may effect such merger or may sell, convey and transfer the Trust
Property to any such corporation, association, trust or organization in exchange
for cash or shares or securities thereof, or beneficial interest therein upon
making provision for the payment of Trust liabilities, by assumption by the
transferee or otherwise; and thereupon the Trustees shall terminate the Trust
and deliver such cash, shares, securities or beneficial interest ratably among
the Shareholders of this Trust in redemption of their Shares.
13.3 Other Amendments. Amendments having the purpose of changing the name
or address of the Trust (or any Series of the Trust) or supplying any omission,
curing any ambiguity or curing, correcting or supplementing any defective or
inconsistent provision contained herein shall not require authorization by
Shareholder vote.
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ARTICLE XIV
MISCELLANEOUS
14.1 Governing Law. This Declaration Trust is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity, construction and
effect of every provision hereof shall be subject to and construed according to
the laws of said Commonwealth and reference shall be specifically made to the
Business Corporation Law of the Commonwealth of Massachusetts as to the
construction of matters not specifically covered herein or as to which an
ambiguity exists.
14.2 Counterparts. This Declaration of Trust may be simultaneously
executed in several counterparts, each of which so executed shall be deemed to
be an original, and such counterparts, together, shall constitute but one and
the same instrument, which shall be sufficiently evidenced by any such original
counterpart.
14.3 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 Shareholders, (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 Shareholders, (d) the fact that the
number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration of Trust, (e)
the form of any By-law 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 or any of them and
the successors of such person.
14.4 Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration of Trust are severable and if the
Trustees shall determine, with the advice of counsel, that any one or
more of such provisions (the "Conflicting Provisions") are in
conflict with the regulated investment company provisions of the
Internal Revenue Code or with other applicable federal or state laws
and regulations, the Conflicting Provisions shall be deemed never to
have constituted a part of this Declaration of Trust; provided,
however, that such determination by the Trustees shall not affect or
impair any of the remaining provisions of this Declaration of Trust
or render invalid or improper any action taken or omitted (including,
but not limited to, the election of Trustees) prior to such
determination.
(b) If any provisions of this Declaration of Trust 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
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affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Declaration of Trust in
any jurisdiction.
14.5 Section Headings. Sections headings have been inserted for
convenience only and are not a part of this Declaration of Trust.
14.6. Construction of 1940 Act. Whenever any action is taken under this
Declaration of Trust under any authorization to take action which is permitted
by the 1940 Act, such action shall be deemed to have been properly taken if such
action is in accordance with the construction of the 1940 Act then in effect as
expressed in "no action" letters of the staff of the Commission or any release,
rule, regulation or order under the 1940 Act or any decision of a court of
competent jurisdiction, notwithstanding that any of the foregoing shall later be
found to be invalid or otherwise reversed or modified by any of the foregoing.
14.7 Action of Prospectus or Proxy Statement. Any action which may be
taken by the Trustees under this Declaration of Trust or its By-laws may be
taken by the description thereof in the then effective prospectus relating to
the Shares under the Securities Act of 1933 or in any proxy statement of the
Trust rather than by formal resolution of the Board.
ARTICLE XV
DURATION OF TRUST
15.1 Duration. Subject to possible termination in accordance with the
provisions of Article XIII hereof, the Trust created hereby shall continue
without limitation of time.
IN WITNESS WHEREOF, the undersigned Trustee(s) of the Trust have caused these
presents to be executed as of the 21st day of October, 1996.
Position
Name With Trust Address
---- ---------- -------
/s/ Kris A. Robbins Trustee 400 West Market Street, 6th Floor
- ----------------------
Kris A. Robbins Louisville, Kentucky 40202
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EXHIBIT 2
BY-LAWS
FOR PROVIDIAN SERIES TRUST
<PAGE>
BY-LAWS
OF
PROVIDIAN SERIES TRUST
ARTICLE I
Agreement and Declaration of Trust and Principal Office
-------------------------------------------------------
Section 1.1 Agreement and Declaration of Trust. These By-laws are made and
adopted pursuant to the Agreement and Declaration of Trust establishing
PROVIDIAN SERIES TRUST (the "Trust"), as from time to time may be amended,
restated or modified (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. If any term or provision of these By-laws shall be in
conflict with any term or provision of the Declaration, the terms and provisions
of the Declaration shall be controlling.
Section 1.2 Principal Office of the Trust. The principal office of the Trust
shall be located within or without the Commonwealth of Massachusetts as the
Trustees may determine or as they may authorize.
ARTICLE II
Shareholders' Meetings and Record Dates
---------------------------------------
Section 2.1 General. All meetings of the Shareholders shall be held, pursuant
to written notice, within or without the Commonwealth of Massachusetts and on
such day and at such time as the Trustees shall designate. Notice shall be given
by mail not less than ten (10) nor more than sixty (60) days prior to the day
named for the meeting, and shall be deemed to have been properly given to a
Shareholder when deposited in the United States mail with first class postage
prepaid, directed to his or her address as given to a transfer agent or such
other officer or agent of the Trust as shall keep the register for entry
thereon. A certificate or affidavit by the Secretary or an Assistant Secretary
or a transfer agent shall be prima facie evidence of the giving of any notice
required by the Declaration.
Section 2.2 Notice of Adjournments. Upon adjournment of any meeting of
Shareholders, it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted thereat, other than by announcement
at the meeting at which such adjournment is taken. At any adjourned meeting at
which a quorum shall be present or represented, only such business may be
transacted which might have been transacted at the meeting originally called. If
after the adjournment, the Trustees fix a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Shareholder of
record on the new record date entitled by law to receive such notice.
Section 2.3 Chairman. The Chairman shall act as chairman at all meetings of the
Shareholders; in his or her absence, the President shall act as chairman; and in
the absence of the Chairman and
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President, the Trustee or Trustees present at each meeting may elect a temporary
chairman for the meeting, who may be one of themselves.
Section 2.4 Voting Powers. The Shareholders shall have power to vote only (i)
for the election of Trustees as provided in Article IX, Sections 2 and 4 of the
Declaration, provided, however, that no meeting of Shareholders is required to
be called for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees have been elected by the shareholders, (ii)
with respect to any termination of this Trust to the extent and as provided in
Article XIII, Section 1 of the Declaration, (iii) with respect to any amendment
of the Declaration to the extent and as provided in Article IV, Section 4 and
Article XIII, Section 1 of the Declaration, (iv) with respect to any
reorganization of the Trust as provided in Article XIII, Section 2 of the
Declaration, (v) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders, and (vi) with respect to such
additional matters relating to the Trust as may be required by law, the
Declaration, these By-laws, or any registration of the Trust with the Securities
and Exchange Commission or any State, or as the Trustees may consider necessary
or desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote, and each fractional Share shall be entitled to a
proportionate fractional vote. On any matter submitted to a vote of
Shareholders, all Shares of the Trust then entitled to vote shall be voted by
individual Class or Series, as the case may be, except (i) when required by the
1940 Act, Shares shall be voted in the aggregate and not by individual Class or
Series and (ii) when the Trustees have determined that the matter affects only
the interests of one or more Class or Series, then only Shareholders of such
Class or Series shall be entitled to vote thereon. There shall be no cumulative
voting in the election of Trustees. Shares held in the name of two or more
persons shall be valid if executed by any one of them unless at or prior to
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on behalf
of a Shareholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required by law, the Declaration, or these By-laws to be
taken by Shareholders.
Section 2.5 Proxies; Voting. Shareholders may vote at any meeting, or by
consent in writing without a meeting pursuant to the Declaration, either in
person or by proxy. Every proxy shall be executed in writing by the Shareholder,
or by his or her duly authorized attorney-in fact, with each full share
represented at the meeting being entitled to one vote and fractional shares to
fractional votes. A proxy, unless coupled with an interest, shall be revocable
at will, notwithstanding any other agreement or any provision in the proxy to
the contrary, but the revocation of a proxy shall not be effective until notice
thereof has been given to the Secretary, or such other officer or agent of the
Trust as the Secretary may direct. No proxy shall be valid after eleven (11)
months from the date of its execution, unless a longer time is expressly stated
in such proxy, but in no event shall a proxy, unless coupled with an interest,
be voted on after three (3) years from the date of its execution. A proxy shall
not be revoked by the death or incapacity of the maker unless, before the vote
is counted
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or the authority is exercised, written notice of such death or incapacity is
given to the Secretary or to such other officer or agent of the Trust as the
Secretary may direct.
Section 2.6 Action by Written Consent. Any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof as shall be required by any express
provision of law, the Declaration, or these By-laws) consents to the action in
writing and such written consents are filed with the records of the meetings of
Shareholders. Such consents shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Section 2.7 Closing of Transfer Books and Fixing Record Dates. For the purpose
of determining which Series or Class(es) of Shareholders are entitled to notice
of or to vote or act at any meeting, including any adjournment thereof, or who
are entitled to participate in any dividend or distribution, or for any other
proper purpose, the Trustees may from time to time close the transfer books or
fix a record date in the manner provided in the Declaration. If the Trustees do
not, prior to any meeting of Shareholders, so fix a record date or close the
transfer books, then the record date shall be the close of business of the day
next preceding the date of mailing of notice of the meeting, or in the case of a
dividend or other distribution, the close of business on the day upon which the
dividend or distribution resolution is adopted, or on such later day as the
Trustees may determine.
Section 2.8 Inspectors of Election. In advance of any meeting of Shareholders,
the Trustees may appoint Inspectors of Election, who may but need not be
Shareholders, to act at such meeting or any adjournment thereof. If Inspectors
of Election are not so appointed, the chairman of any such meeting may, and upon
the request of any Shareholder or his or her proxy shall, make such appointment
at the meeting. The number of Inspectors shall be either one (1) or three (3).
If appointed at the meeting on the request of one or more Shareholders or
proxies, a majority of Shares present shall determine whether one or three
Inspectors are to be appointed, but failure to allow such determination by the
Shareholders or proxies 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 must 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 number of Shares outstanding, the Shares 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
impartiality, and fairness to all Shareholders. If there are three Inspectors of
Election, the decision, act or certificate or a majority shall be effective in
all respects as the decision, act or certificate of all. On request of the
chairman of the meeting, or of any Shareholder or his or her proxy, the
Inspectors of Election shall make a written report on any challenge or question
or matter determined by them and execute a certificate of any fact found by
them.
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ARTICLE III
Trustees
--------
Section 3.1 Regular Meetings. Regular meetings of the Trustees may be held at
such time and place as the Trustees may by resolution from time to time
determine without call or notice. If any day fixed for a regular meeting shall
be a legal holiday in the Commonwealth of Massachusetts or the place designated
for regular meetings, then the meeting shall be held at the same hour and place
on the next succeeding business day.
Section 3.2 Special Meetings. Special Meetings of the Trustees shall be held
upon the call of the Chairman, the President, or the Secretary, or any two
Trustees, at such time, on such day, and at such place, as shall be designated
in the notice or the meeting.
Section 3.3 Notice of Special Meetings. Notice of any special meeting,
specifying the place, day and hour of the meeting, shall be given to a Trustee
either personally or by sending a copy thereof through the mail, with first
class postage prepaid, or by facsimile, to his or her address appearing on the
books of the Trust or supplied by him or her to the Trust for the purpose of
notice, at least forty-eight (48) hours, prior to the time named for such
meeting. If the notice is sent by mail, it shall be deemed to have been given to
the person entitled thereto when deposited in the United States mail, postage
prepaid, for transmission to such person. Notice by telephone shall constitute
personal delivery for these purposes. 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 unanimous consent.
Section 3.4 Waiver of Notice. Whenever any notice is required by the
Declaration or these By-laws to be given to a Trustee, a waiver thereof in
writing, whether signed by him or her before or after the meeting, shall be
deemed equivalent to the giving of due notice. Attendance of any Trustee at any
meeting shall constitute a waiver of notice of such meeting except where such
Trustee attends the meeting for the express purpose of objecting to the
transaction of any business because the meeting was not lawfully called or
convened.
Section 3.5 Adjournment. Adjournment or adjournments of any meeting may be
taken, and it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted thereat other than by announcement at the
meeting at which such adjournment is taken. At any adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted at the meeting originally called.
Section 3.6 Executive and Other Committees. Subject to the provisions of
Section 3.4 hereof, the Trustees may, by resolution adopted by a majority
thereof, designate one or more of their number to constitute an Executive
Committee, and may designate one or more of their number as alternate members of
the Executive Committee, who may replace any absent or disqualified member at
any meeting of the Committee, and similarly may create other committees as
deemed necessary or appropriate, including, but not limited to, an Audit
Committee. The President shall be notified in
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advance of all Executive Committee meetings, and whenever feasible or convenient
for him or her, the President shall attend meetings of the Executive Committee
and serve ex officio, as a non-voting advisory member. Any such Executive
Committee, to the extent provided in such resolution and the Declaration, shall
have and exercise the authority of the Trustees in the management of the
business and affairs of the Trust and the management and disposition of Trust
Property. Vacancies in the membership of any committee shall be filled by the
Trustees. In the absence or disqualification of any member of such committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another Trustee to act at the meeting in the place of any such absent or
disqualified member. The committees shall keep regular minutes of their
proceedings and report the same to the Trustees.
Section 3.7 Chairman; Records. The Chairman shall act as chairman at all
meetings of the Trustees; in his or her absence the Trustees present may 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 consents of the Trustees
without a meeting, shall be recorded by the Secretary.
Section 3.8 Meeting of Shareholders. Meetings of Shareholders shall be held at
such times and in such places as the Trustees shall, by resolution, direct.
ARTICLE IV
Officers, Agents and Employees
------------------------------
Section 4.1 Officers of the Trust. The officers of the Trust shall be a
Chairman chosen from among the Trustees and a President, a Secretary and a
Treasurer or persons who shall act as such regardless of the name or title by
which they may be designated, elected or appointed. One or more Vice-Presidents,
one or more Assistant Secretaries and Assistant Treasurers, and such other
officers or agents as the Trustee shall deem necessary or appropriate to carry
out the business of the Trust also may be elected or appointed. Any two or more
offices may be held by the same person, except those of President and Secretary
and provided that no officer shall execute, acknowledge or verify any instrument
in more than one capacity if such instrument is required to be executed,
acknowledged or verified by two or more officers. In addition to the powers and
duties prescribed by the Declaration and these By-laws, the officers and
assistant officers shall have such authority and shall perform such duties as
from time to time shall be prescribed by the Trustees. The officers and
assistant officers of the Trust shall hold office until their successors are
chosen and have qualified, unless their term of office is sooner terminated, by
death, resignation or removal. The Trustees may amend the title of any officer
or assistant officer or create a new office, by utilizing a word or words
descriptive of his or her powers or the general character of his or her duties.
If the office of any officer or assistant officer becomes vacant for any reason,
the vacancy may be filled by the Trustees at any time.
Section 4.2 Removal of Officers, Agents or Employees. Any officer, assistant
officer, agent or employee may be removed or have his or her authority revoked
at any time, with or without cause, by a majority of the Trustees, whenever in
their judgment the best interests of the Trust will be
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served thereby, but such removal or revocation shall be without prejudice to the
right, if any, of the person so removed to receive compensation or other
benefits in accordance with the terms of existing contracts. Any agent or
employee likewise may be removed by the President or Chairman or, subject to the
supervision or the President or Chairman, by the person having authority with
respect to the appointment of such agent or employee. Any officer may resign at
any time by written notice signed by such officer and delivered or mailed to the
Chairman, President, or Secretary, and such resignation shall take effect upon
receipt by the Chairman, President, or Secretary, or at a later date according
to the terms of such notice.
Section 4.3 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 4.4 Chairman of the Board or Trustees; Powers and Duties. The Chairman
shall, if present, preside at all meetings of the Shareholders and of the
Trustees. He or she shall perform such other powers and duties as may from time
to time be assigned to him or her by the Trustees.
Section 4.5 The President. Subject to such supervisory powers, if any, as may
be given by the Trustees, the President shall be the chief operating 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 or management as are usually
vested in the office of president of a Massachusetts business corporation. In
the absence of the Chairman, the President shall preside at all meetings of the
Shareholders and of the Trustees. Subject to direction of the Trustees, the
President shall have 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 and shall be an ex officio member of the Executive Committee
and of all standing committees (if any) appointed by the Trustees.
Section 4.6 Vice-President; Powers and Duties. The Vice-President, if any,
shall, in the absence or disability of the President, perform all the duties of
the President, and when so acting shall have all the powers and be subject to
all of the restrictions upon the President. If there be more than one Vice-
President, their seniority in performing such duties and exercising such powers
shall be in order of their rank as fixed by the Trustees, or, if more than one
and not ranked, then by determination of the Trustees, or, in the absence of
such determination, by the order in which they were first elected. Subject to
the direction of the Trustees, and the President, 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 instruments in
writing, and, in addition, shall have such other duties and
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powers as shall be designated from time to time by the Trustees or the President
and as by general usage appertain to the office.
Section 4.7 Secretary; Powers and Duties. The Secretary shall keep the minutes
of all meetings of, and record all votes of, Shareholders, Trustees and the
executive or other committee, if any. He or she shall give, or cause to be
given, as required by the Declaration or these By-laws, notice of meetings of
the Shareholders and of the Trustees, and shall perform such other duties as may
be prescribed by the Trustees, or the President. He or she shall keep in safe
custody the seal of the Trust, and may affix the same, or, if permitted, a
facsimile thereof, to any instrument executed by the Trust and attest the seal
and the signature or signatures of the officer or officers executing such
instrument on behalf of the Trust. The Secretary shall also perform any other
duties commonly incident to such office in a Massachusetts business corporation,
and shall have such other authorities and duties as the Trustees or the
President shall from time to time determine.
Section 4.8 Treasurer; Powers and Duties. 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
President all powers and duties normally incident to his or her 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 in such depositories as the Trustees shall designate. He or
she shall be responsible for such disbursement of the funds of the Trust as may
be ordered by the Trustees, or 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 financial and accounting officer or the Trust.
He or she shall have such other duties and authorities as the Trustees or the
President shall from time to time determine. Notwithstanding anything to the
contrary herein contained, the Trustees may authorize the Investment Adviser,
the Custodian, or the Transfer Agent to maintain bank accounts and deposit and
disburse funds of the Trust on behalf of the Trust.
Section 4.9 Delegation of Officers' Duties. The Trustees may appoint 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,
shall assist that officer in the duties of his or her office and shall have such
other duties and authority as may be conferred upon them by the Trustees or
delegated to them by the President. In case of the absence or disability of any
officer or assistant officer of the Trust or for any other reason that the
Trustees may deem sufficient, the Trustees may delegate or authorize the
delegation of his or her powers or duties, for the time being, to any person.
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ARTICLE V
Shares
------
Section 5.1 Evidence of Share Ownership. Certificates representing the Trust's
Shares shall not be physically issued. Shares in the Trust shall be recorded on
a register maintained for the Trust by the Transfer Agent appointed by the
Trustees. The holders of Shares so maintained shall have the same rights of
ownership with respect to such shares as if certificates had been issued. The
Trustees shall, from time to time, by appropriate resolution, establish such
rules for authentication of Shareholders for purposes of purchase and redemption
as they shall deem necessary. The Trustees may create or discontinue, at their
discretion, one or more Series or Class(es) of Shares.
ARTICLE VI
Miscellaneous
-------------
Section 6.1 Depositories. The funds of the Trust shall be deposited in such
depositories as the Trustees shall designate in accordance with the provisions
of the Declaration, and shall be drawn out on checks, drafts or other orders
signed by such officer, officers, agent or agents (including the Adviser), as
the Trustees may from time to time authorize.
Section 6.2 Signatures. Except as the Trustees may otherwise authorize, all
contracts and other instruments shall be executed on behalf of the Trust by such
officer, officers, agent or agents, as provided in the Declaration or these By-
laws and need not bear the seal of the Trust.
Section 6.3 Seal. The Seal of the Trust shall have inscribed thereon the words
"Providian Series Trust, a Massachusetts Voluntary Association, Common Seal,
1996." Such seal may be used by causing it or a facsimile thereof, to be
impressed or affixed or in any manner reproduced and attested as if it had been
impressed and attested manually.
ARTICLE VII
Amendment of By-laws
--------------------
Section 7.1 General. In accordance with the Declaration, the Trustees have the
power to alter, amend or repeal the By-laws or adopt new By-laws at any time.
Action by the Trustees with respect to the By-laws shall be taken by an
affirmative vote of a majority of the Trustees. The Trustees shall in no event
adopt By-laws which are in conflict with the Declaration, and any apparent
inconsistency shall be construed in favor of the related provisions in the
Declaration.
As adopted at a meeting of the Board of Trustees on _____________ ___, 1996.
WDC-2076_2
8
