<PAGE>
As Filed With The Securities And Exchange Commission On October 31, 1997
Registration Nos. 333-15555
811-07911
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 __X__
Pre-Effective Amendment No. ____
Post-Effective Amendment No. __1__
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 __X__
Amendment No. __3__
PROVIDIAN SERIES TRUST
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(Exact Name of Registrant as Specified in Charter)
400 West Market Street
Louisville, Kentucky 40202
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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
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Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant to paragraph (b)
[ ] On , pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On , pursuant to paragraph (a)(1)
[ ] 70 days after filing pursuant to paragraph (a)(2)
[ ] On , pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
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
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PROVIDIAN SERIES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
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 Financial Highlights
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 of Repurchase Purchase and Redemption of
Shares
9. Pending Legal Proceedings Not Applicable
</TABLE>
<TABLE>
<CAPTION>
Part B: Information Required In
Statement of Additional Information
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<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History General Information
13. Investment Objectives and Policies Investment Policies
14. Management of the Registrant Management
15. Control Persons and 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
</TABLE>
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<TABLE>
<CAPTION>
N-1A Location in
Item No. Registration Statement
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<S> <C> <C>
19. Purchase, Redemption and Pricing of Net Asset Values of 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
</TABLE>
<TABLE>
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
</TABLE>
<PAGE>
The purpose of this filing is to comply with an undertaking pursuant to Item
32(b) of Form N-1A to file a post-effective amendment containing unaudited
financial statements within four to six months from the effective date of the
Registration Statement with respect to Providian Series Trust. The Prospectuses,
both dated May 1, 1997, are incorporated into Part A by reference to the
Registration Statement.
<PAGE>
PROVIDIAN SERIES TRUST
Supplement Dated October 31, 1997
To Prospectus Dated May 1, 1997
High Quality Stock Fund, Fixed Income Fund, International Active Fund
and Money Market Fund (the "Funds")
FINANCIAL HIGHLIGHTS
The following table of "Financial Highlights" relating to the Funds
supplements information contained in the Prospectus dated May 1, 1997 and is
from the Funds' unaudited Financial Statements dated September 30, 1997.
<TABLE>
<CAPTION>
Fixed International Money
Income Active Market
Fund Fund Fund
<S> <C> <C> <C>
Net asset value, beginning of period............................................ $10.00 $10.00 $1.00
---------- ----------- ----------
Income from investment operations:
Net investment income (1)....................................................... 0.21 0.07 0.02
Net realized and unrealized gain on investments................................. 0.17 0.14 --
---------- ----------- ----------
Total from investment operations................................................ 0.38 0.21 0.02
---------- ----------- ----------
Less Distributions:
Distributions from net investment income........................................ -- -- (0.02)
========== =========== ==========
Total distributions............................................................. -- -- (0.02)
========== =========== ==========
Net asset value, end of period.................................................. $10.38 $10.21 $1.00
========== =========== ==========
Total Return (2)................................................................ 3.80% 2.10% 2.00%
========== =========== ==========
Ratios and supplemental data:
Net assets, end of period....................................................... $5,250,172 $10,248,446 $2,061,814
Ratio of operating expenses to average net assets (1)(3)........................ 0.90% 1.15% 0.65%
Ratio of operating expenses to average net assets before voluntary
expense reimbursement(1)(3).................................................... 1.26% 1.37% 1.81%
Ratio of net investment income to average net assets(3)......................... 5.16% 1.83% 4.97%
Ratio of net investment income (loss) to average net assets before voluntary
expense reimbursement(1)(3).................................................... 4.79% 1.61% 3.81%
Net investment income (loss) before voluntary expense reimbursement
(1)(3).......................................................................... $0.21 $0.07 $0.02
Portfolio turnover rate (4)..................................................... 168% 42% N/A
Average commission rate paid.................................................... -- $0.0207 N/A
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</TABLE>
(1) Net investment income is after reimbursement of certain fees and expenses by
Providian Investment Advisors, Inc. (See Note 3 to the financial statements).
Had Providian not undertaken to reimburse expenses related to the Lifestyle
Portfolios and Underlying Funds, net investment income per share and ratio of
operating expenses to average net assets would have been as noted above.
(2) Total return figures are not annualized for periods less than one year.
Total returns does not reflect expenses that apply to the separate account or
related variable insurance contracts and inclusion of these charges would result
in reducing the total return figures for the period shown.
(3) Annualized for periods less than one year.
(4) Portfolio turnover rates are not annualized.
<PAGE>
PROVIDIAN SERIES TRUST
Supplement Dated October 31, 1997
To Prospectus Dated May 1, 1997
High Quality Stock Fund, Fixed Income Fund, International Active Fund
and Money Market Fund (the "Funds")
FINANCIAL HIGHLIGHTS (Cont.)
For a share outsanding throughout the period May 9, 1997
(commencement of investment operations) through September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
High
Quality
Stock Fund
<S> <C>
Net asset value, beginning of period............................................ $10.00
----------
Income from investment operations:
Net investment income (1)....................................................... 0.06
Net realized and unrealized gain on investments................................. 1.47
----------
Total from investment operations................................................ 1.53
----------
Net asset value, end of period.................................................. $11.53
==========
Total Return(2)................................................................. 15.30%
==========
Ratios and supplemental data:
Net assets, end of period....................................................... $11,606,468
Ratio of operating expenses to average net assets (1)(3)........................ 0.90%
Ratio of operating expenses to average net assets before voluntary
expense reimbursement(1)(3).................................................... 1.00%
Ratio of net investment income to average net assets(3)......................... 1.43%
Ratio of net investment income (loss) to average net assets before voluntary
expense reimbursement(1)(3).................................................... 1.34%
Net investment income (loss) before voluntary expense reimbursement
(1)(3).......................................................................... $0.06
Portfolio turnover rate(4)...................................................... 13%
Average commission rate paid.................................................... $0.1199
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</TABLE>
(1) Net investment income is after reimbursement of certain fees and expenses by
Providian Investment Advisors, Inc. (See Note 3 to the financial statements).
Had Providian not undertaken to reimburse expenses related to the Lifestyle
Portfolios and Underlying Funds, net investment income per share and ratio of
operating expenses to average net assets would have been as noted above.
(2) Total return figures are not annualized for periods less than one year.
Total returns does not reflect expenses that apply to the separate account or
related variable insurance contracts and inclusion of these charges would result
in reducing the total return figures for the period shown.
(3) Annualized for periods less than one year.
(4) Portfolio turnover rates are not annualized.
<PAGE>
PROVIDIAN SERIES TRUST
Supplement Dated October 31, 1997
To Prospectus Dated May 1, 1997
Capital Preservation Portfolio, Income Oriented Portfolio, Growth and Income
Portfolio, Capital Growth Portfolio, Maximum Appreciation Portfolio and Money
Market Fund (the "Funds")
FINANCIAL HIGHLIGHTS
The following table of "Financial Highlights" relating to the Funds
supplements information contained in the Prospectus dated May 1, 1997 and is
from the Funds' unaudited Financial Statements dated September 30, 1997.
<TABLE>
<CAPTION>
Capital Income Growth
Preservation Oriented and Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Net asset value, beginning of period............................................ $ 10.00 $ 10.00 $ 10.00
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Income from investment operations:
Net investment income (1)....................................................... 0.05 -- 0.01
Net realized and unrealized gain on investments................................. 0.26 0.66 0.79
-------- ----------- -------
Total from investment operations................................................ 0.31 0.66 0.80
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Net asset value, end of period.................................................. $ 10.31 $ 10.66 $ 10.80
======== =========== =======
Total Return (2)................................................................ 3.10% 6.60% 8.00%
======== =========== =======
Ratios and supplemental data:
Net assets, end of period....................................................... $ 14,139 $ 265 $64,281
Ratio of operating expenses to average net assets (1)(3)........................ 0.00% 0.00% 0.00%
Ratio of operating expenses to average net assets before voluntary
expense reimbursement(1)(3).................................................... 334.45% 20,868.44% 69.36%
Ratio of net investment income to average net assets(3)......................... 2.65% 0.00% 0.49%
Ratio of net investment income (loss) to average net assets before voluntary
expense reimbursement(1)(3).................................................... (331.79%) (20,868.44%) (68.87%)
Net investment income (loss) before voluntary expense reimbursement
(1)(3).......................................................................... $ (6.88) $ (379.98) $ (1.55)
Portfolio turnover rate (4)..................................................... 47% 0% 0%
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</TABLE>
(1) Net investment income is after reimbursement of certain fees and expenses by
Providian Investment Advisors, Inc. (See Note 3 to the financial statements).
Had Providian not undertaken to reimburse expenses related to the Lifestyle
Portfolios and Underlying Funds, net investment income per share and ratio of
operating expenses to average net assets would have been as noted above.
(2) Total return figures are not annualized for periods less than one year.
Total returns does not reflect expenses that apply to the separate account or
related variable insurance contracts and inclusion of these charges would result
in reducing the total return figures for the period shown.
(3) Annualized for periods less than one year.
(4) Portfolio turnover rates are not annualized.
<PAGE>
PROVIDIAN SERIES TRUST
Supplement Dated October 31, 1997
To Prospectus Dated May 1, 1997
Capital Preservation Portfolio, Income Oriented Portfolio,
Growth and Income Portfolio, Capital Growth
Portfolio, Maximum Appreciation Portfolio and Money Market Fund (the "Funds")
FINANCIAL HIGHLIGHTS (Cont.)
For a share outstanding throughout the period May 9, 1997
(commencement of investment operations) through September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Capital Maximum Money
Growth Appreciation Market
Portfolio Portfolio Fund
<S> <C> <C> <C>
Net asset value, beginning of period................................................ $10.00 $10.00 $ 1.00
------ ------ ------
Income from investment operations:
Net investment income (1)........................................................... -- -- 0.02
Net realized and unrealized gain on investments..................................... 1.04 1.26 --
------ ------ ------
Total from investment operations.................................................... 1.04 1.26 0.02
------ ------ ------
Less Distributions:
Distributions from net investment income............................................ -- -- (0.02)
====== ====== ======
Total Distributions................................................................. -- -- (0.02)
====== ====== ======
Net asset value, end of period...................................................... $11.04 $11.26 $ 1.00
====== ====== ======
Total Return (2).................................................................... 10.40% 12.60% 2.00%
===== ====== ======
Ratios and supplemental data:
Net assets, end of period........................................................... $104,008 $88,173 $2,061,814
Ratio of operating expenses to average net assets(1)(3)............................. 0.00% 0.00% 0.65%
Ratio of operating expenses to average net assets before voluntary
expense reimbursement (1)(3)....................................................... 54.94% 71.72% 1.81%
Ratio of net investment income to average net assets (3)............................ 0.00% 0.00% 4.97%
Ratio of net investment income (loss) to average net assets before voluntary
expense reimbursement (1)(3)....................................................... (54.94%) (71.72)% 3.81%
Net investment income (loss) before voluntary expense reimbursement
(1)(3)............................................................................ $(1.00) $(1.21) $0.02
Portfolio turnover rate (4)......................................................... 0% 1% N/A
Average commission rate paid........................................................ -- -- N/A
</TABLE>
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(1) Net investment income is after reimbursement of certain fees and expenses
by Providian Investment Advisors, Inc. (See Note 3 to the financial statements).
Had Providian not undertaken to reimburse expenses related to the Lifestyle
Portfolios and Underlying Funds, net investment income per share and ratio of
operating expenses to average net assets would have been as noted above.
(2) Total return figures are not annualized for periods less than one year.
Total returns does not reflect expenses that apply to the separate account or
related variable insurance contracts and inclusion of these charges would result
in reducing the total return figures for the period shown.
(3) Annualized for periods less than one year.
(4) Portfolio turnover rates are not annualized.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
October 31, 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 May 1, 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
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Investment Policies 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 Auditors B-34
Financial Statements B-34
</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 to provide current income consistent with stability
of principal and liquidity. The Fund invests in money market instruments
maturing in thirteen months or less from the time of investment.
INVESTMENT POLICIES
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"
of the outstanding shares of such fund.
POLICIES PERTAINING TO THE FUNDS, OTHER THAN THE MONEY MARKET FUND
Each Fund, other than the Money Market Fund, may not (except as noted):
1. With respect to 75% of a Fund's total assets, purchase the securities
of any issuer if, immediately after such purchase, (i) more than 5% of the
Fund's total assets would be invested in the securities of such issuer or (ii)
the Fund would own more than 10% of the outstanding voting securities of such
issuer, except that this restriction does not apply to purchases by the Fund of
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities;
B-2
<PAGE>
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 and the
International Active Fund each 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 and the International Active 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 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.
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.
POLICIES PERTAINING TO THE MONEY MARKET FUND
- --------------------------------------------
The Money Market Fund may not (except as noted):
1. sell any securities short or purchase any securities on margin, but may
obtain such short-term credits as may be necessary for clearance of purchases
and sales of portfolio securities;
2. issue senior securities except that the Fund may borrow money directly or
through reverse repurchase agreements as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling the Fund
to meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous, and then only in amounts not in
excess of one-third of the value of its total assets; provided that, while
borrowings and reverse repurchase agreements outstanding exceed 5% of the Fund's
total assets, any such borrowings will be repaid before additional investments
are made;
3. borrow money or engage in reverse repurchase agreements for investment
leverage purposes;
4. mortgage, pledge, or hypothecate any assets except to secure permitted
borrowings. In those cases, it may mortgage, pledge or hypothecate assets having
a market value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of its total assets at the time of borrowing;
5. purchase securities if, as a result of such purchase, 25% or more of its
total assets would be invested in securities of companies engaged principally in
any one industry other than finance companies and banks. However, the Fund may
at any time invest 25% or more of its total assets in cash or cash items and
securities issued and/or guaranteed by the U.S. government, its agencies or
instrumentalities;
6. purchase or sell commodities, commodity contracts, or commodity futures
contracts;
7. purchase or sell real estate, including limited partnership interests in
real estate, although it may invest in securities of companies whose business
involves the purchase or sale of real estate or in securities secured by real
estate or interests in real estate;
8. lend any of its assets, except portfolio securities up to one-third of its
total assets. This shall not prevent the Fund from purchasing or holding money
market instruments, corporate or U.S. government bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer, entering
into repurchase agreements, or engaging in other transactions which are
permitted by the Fund's investment objective and policies or the Trust's
Declaration of Trust;
9. underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the sale of
securities in accordance with its investment objective, policies, and
limitations;
10. with respect to 75% of its total assets, purchase the securities of any one
issuer (other than cash, cash items, or securities issued and/or guaranteed by
the U.S. government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if, as a result, more than 5% of
its total assets would be invested in the securities of that issuer.
11. 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.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material changes
in this limitation becomes effective. Unless otherwise indicated, the Money
Market Fund may not:
1. invest more than 10% of its net assets in illiquid securities, including,
among others, repurchase agreements providing for settlement more than seven
days after notice and certain restricted securities not determined by the
Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value of total or net assets will not result in a violation
of such restriction.
The Money Market Fund has no present intention to borrow money in excess of 5%
of the value of its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Money Market Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings association having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
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
- --------------------------------------------------
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
B-4
<PAGE>
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 SECURITIES
The Fixed Income Fund may invest in mortgage-backed securities, and in other
asset-backed securities (unrelated to mortgage loans) see description under
heading "Investment Practices Common to Two or More Funds: Asset-Backed
Securities" 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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<PAGE>
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 ("CMO's"). 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
B-7), 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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<PAGE>
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.
B-9
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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 FUTURES 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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<PAGE>
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
- --------------------------------------------------
The Money Market Fund may follow non-fundamental operational policies that are
more restrictive than its fundamental investment limitations, as set forth in
its prospectus and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the 1940 Act. In particular, the Fund will comply with the
various requirements of Rule 2a-7, which regulates money market mutual funds.
The Fund will determine the effective maturity of its investments, as well as
its ability to consider a security as having received the requisite short-term
ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational
policies to reflect changes in the laws and regulations without the approval of
its shareholders.
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 security 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 security is subject to market action) until the date on which,
in accordance with the terms of the security, the principal amount must
unconditionally be paid, or in the case of a security called for redemption,
the date on which the redemption payment must be made, except that:
(1) A Government Security which is a Variable Rate Security where the variable
rate of interest is 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. A Government Security which is a Floating
Rate Security shall be deemed to have a remaining maturity of one day.
(2) A Variable Rate Security, the principal amount of which, in accordance with
the terms of the security, must unconditionally be paid in 397 calendar days or
less shall be deemed to have a maturity equal to the earlier 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.
(3) A Variable Rate Security, the principal amount of which is scheduled to be
paid in more than 397 days, 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 Security, the principal amount of which, in accordance with
the terms of the security, must unconditionally be paid in 397 calendar days or
less shall be deemed to have a maturity of one day.
(5) A Floating Rate Security, the principal amount of which is scheduled to be
paid in more than 397 days, 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.
(6) 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 the agreement is subject to demand,
the notice period applicable to a demand for the repurchase of the securities.
(7) A portfolio lending agreement shall be treated as having a maturity equal
to the period remaining until the date on which the loaned securities are
scheduled to be returned, or, where the agreement is subject to demand, the
notice period applicable to a demand for the return of the loaned securities.
(8) An investment in a money market fund shall be treated as having a maturity
equal to the period of time within which the acquired money market fund is
required to make payment upon redemption, unless the acquired money market fund
has agreed in writing to provide redemption proceeds to the investing money
market fund within a shorter time period, in which case the maturity of such
investment shall be deemed to be the shorter period.
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<PAGE>
The Money Market Fund is subject to certain credit quality restrictions pursuant
to Rule 2a-7 under the 1940 Act. The Fund will invest its assets in
instruments that are determined to present minimal credit risks. In so doing,
the Fund will invest at least 95% of its assets in instruments that are at the
time of acquisition, (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; (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); or
(v) a security issued by a registered investment company that is a money market
fund. The foregoing are referred to as "first-tier securities."
The balance of the securities in which the Fund may invest are instruments,
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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<PAGE>
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.
Set forth below are descriptions of certain instruments in which the Money
Market Fund may invest and certain investment risks, policies and restrictions
applicable to the Money Market Fund.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from daily
to annually), and is normally based on a published interest rate or interest
rate index. Most variable rate demand notes allow the Fund to demand the
repurchase of the security on not more than seven days prior notice. Other notes
only permit the Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals. See "Demand Features." The Fund treats
variable rate demand notes as maturing on the later of the date of the next
interest adjustment or the date on which the Fund may next tender the security
for repurchase.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participations in,
short-term revolving credit facilities with corporate borrowers. Demand notes
and other short-term credit arrangements usually provide for floating or
variable rates of interest.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have
been credit enhanced by a guaranty, letter of credit or insurance. Any
bankruptcy receivership or default of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
BANK INSTRUMENTS. The Fund only invests in bank instruments either
issued by an institution having capital, surplus and undivided profits over $100
million or insured by the Bank Insurance Fund ("BIF") or the Savings Association
Insurance Fund ("SAIF"). The Fund will treat securities credit enhanced by a
bank as bank instruments. In addition to domestic bank obligations such as
certificates of deposit, demand and time deposits, savings shares, and bankers'
acceptances, the Money Market Fund may invest in:
(1) Eurodollar Certificates of Deposit ("ECDs") issued by foreign branches of
U.S. or foreign banks;
(2) Eurodollar Time Deposits ("ETDs"), which are U.S. dollar-denominated
deposits in foreign branches of U.S. or foreign banks;
(3) Canadian Time Deposits, which are U.S. dollar-denominated deposits issued
by branches of major Canadian banks located in the U.S.; and
(4) Yankee Certificates of Deposit ("Yankee CDs"), which are U.S. dollar-
denominated certificates of deposit issued by U.S. branches of foreign
banks and held in the U.S.
RATINGS. An NRSROs two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated A-1+,
A-1 or A-2 by Standard & Poor's Ratings Group ("S&P"), Prime-1 or Prime-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1 (+ or -) or F-2 (+ or -) by
Fitch Investors Service, Inc. ("Fitch") are all considered rated in one of the
two highest short-term rating categories. The Money Market Fund will limit its
investments in securities rated in the second highest short-term rating category
(e.g., A-2 by S&P, Prime-2 by Moody's or F-2 (+ or -) by Fitch) to not more than
5% of its total assets, with not more than 1% invested in the securities of any
one issuer. The Fund will follow applicable regulations in determining whether a
security rated by more than one NRSRO can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two NRSROs in one of their two highest rating categories.
U.S. GOVERNMENT OBLIGATIONS. The types of U.S. government obligations in
which the Money Market Fund may invest generally include direct obligations of
the U.S. Treasury (such as U.S. Treasury bills, notes, and bonds) and
obligations issued and/or guaranteed by U.S. government agencies or
instrumentalities. These securities are backed by:
(1) the full faith and credit of the U.S. Treasury;
(2) the issuer's right to borrow from the U.S. Treasury;
(3) the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
(4) the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
(1) Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks, and Banks for Cooperatives;
(2) Federal Home Loan Banks;
(3) Federal Home Loan Mortgage Corporation;
(4) Federal National Mortgage Association; and
(5) Student Loan Marketing Association.
CREDIT ENHANCEMENT. The Money Market Fund typically evaluates the credit
quality and ratings of credit-enhanced securities based upon the financial
condition and ratings of the party providing the credit enhancement (the "credit
enhancer"), rather than the issuer. However, credit-enhanced securities will not
be treated as having been issued by the credit enhancer for diversification
purposes, except in some instances when the securities will be treated as having
been issued by both the issuer and the credit enhancer. The Fund may have more
than 25% of its total assets invested in securities credit enhanced or issued by
banks.
CONCENTRATION OF INVESTMENTS. The Fund may invest 25% or more of its total
assets in commercial paper issued by finance companies. The finance companies in
which the Fund intends to invest can be divided into two categories, commercial
finance companies and consumer finance companies. Commercial finance companies
are principally engaged in lending to corporations or other businesses. Consumer
finance companies are primarily engaged in lending to individuals. Captive
finance companies or finance subsidiaries which exist to facilitate the
marketing and financial activities of their parent will, for purposes of
industry concentration, be classified by the Fund in the industry of its parent
corporation.
In addition, the Fund may invest more than 25% of the value of its total assets
in cash or cash items, securities issued or guaranteed by the U.S. government,
its agencies, or instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements.
CERTAIN INVESTMENT RISKS. ECDs, ETDs, Yankee CDs, Canadian commercial
paper, and Europaper are subject to somewhat different risks than domestic
obligations of domestic banks. Examples of these risks include international,
economic and political developments, foreign governmental restrictions that may
adversely affect the payment of principal or interest, foreign withholding or
other taxes on interest income, difficulties in obtaining or enforcing a
judgment against the issuing bank, and the possible impact of interruptions in
the flow of international currency transactions. Different risks may also exist
for ECDs, ETDs, and Yankee CDs because the banks issuing these instruments, or
their domestic or foreign branches, are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing, and
recordkeeping, and the public availability of information. These factors will be
carefully considered by Federated in selecting investments for the Fund.
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 three 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. The Funds may enter into repurchase agreements with
foreign banks and broker-dealers that meet credit quality and other requirements
of the Funds' Board of Trustees. 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 or broker that has entered into a tri-party arrangement
with the Fund and the 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 (or, in the case of
the Money Market Fund, no more than 33 1/3% of the total assets of the
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. The Money Market Fund does not intend to engage in
when-issued transactions to an extent that would cause the segregation of more
than 20% of the total value of its assets.
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 Federal Fund's target 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 or the
Federal Fund's target 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.
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.
ASSET-BACKED SECURITIES
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. 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.
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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<PAGE>
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.
The Adviser is wholly owned by Commonwealth General Corporation, a wholly owned
subsidiary of AEGON International N.V. AEGON International N.V. is a wholly
owned subsidiary of AEGON N.V. Vereniging AEGON (a Netherlands membership
association) has a 53% interst in AEGON N.V.
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 Federated Investment
Counseling ("Federated") 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 Invest ment 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
B-25
<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, reckless disregard
of duty or negligence with respect to the Adviser, Atlanta Capital and
Blairlogie and gross negligence with respect to Federated. 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, reckless disregard of the
duties imposed upon them by the Agreements or negligence with respect to the
Adviser, Atlanta Capital and Blairlogie and gross negligence with respect to
Federated or the violation of any applicable law.
TRUSTEES AND OFFICERS
The names of the Trustees and 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>
Thomas J. Hartlage* 45 President and Director, Sales & Marketing of
400 W. Market St. Trustee Diversified Financial Products
Louisville, KY 40202 Inc. since 1997; Director,
Product Management of Commonwealth
General Corporation from 1995-1997;
Director, Institutional Marketing
of Commonwealth General Corporation
from 1993 to 1995; Director, New
Initiatives of Commonwealth General
Corporation from 1992-1993;
Vice President of Providian
Investment Advisors, Inc.
Michael G. Ayers 49 Chief Financial Director, Financial of Diversified
400 W. Market St. Officer Financial Products Inc. since
Louisville, KY 40202 1997; Director, Financial of
Commonwealth General Corporation
from 1977-1997.
Stephen L. Zeitz 39 Treasurer Director, Investment Operations
400 W. Market St. of Diversified Financial Products
Louisville, KY 40202 Inc. since 1995; Director, Cash
Management of Commonwealth
General Corporation, from 1994-
1995; Manager, Cash Management
of Commonwealth General
Corporation from 1988-1994;
Treasurer of Providian
Investment Advisors, Inc.
Kimberly A. Scouller 35 Secretary Assistant General Counsel of
400 W. Market St. Financial Markets Division-
Louisville, KY 40202 AEGON USA since 1997;
Assistant General Counsel of
Commonwealth General Corporation
from 1993-1997; Vice President
and Chief Compliance Officer of
Providian Securities Corporation
since 1996; Attorney, Greenebaum
Treitz Brown and Marshall, from
1989-1993.
Kirk Buese* 36 Trustee Director, Private Placements for
400 W. Market St. AEGON USA - Investment Management
Louisville KY 40202 since 1997; Director, Private
Placements/Credit of Providian
Capital Management, Inc. from
1992-1997.
Jesse A. Holshouser, III 44 Trustee Chief Financial Officer of
100 Avenue of Champions Professional Golfers'
Palm Beach Gardens, FL 33418 Association of America since
1988.
David L. Eager 54 Trustee Consultant and Managing
100 Mallard Creek Director of Eager & Associates
Louisville KY 40205 since 1984.
William T. Mills, III 45 Trustee Partner of Highland Associates
P.O. Box 55469 since 1987.
Birmingham, AL 35255
Michael G. Herp 35 Vice President Director, Product & Market
400 W. Market St. Development of Diversified
Louisville, KY 40202 Financial Products Inc. since
1997; Director, Product &
Market Development of
Commonwealth General Corporation
1983-1997.
</TABLE>
B-24
<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). 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 60 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.
FINANCIAL STATEMENTS
The following statements are the unaudited Financial Statements for the Funds
dated September 30, 1997 including the notes thereto.
[State Street Bank will provide financials.]
B-34
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
October 31, 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 May 1, 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 Policies B-2
Description of Securities and Investment Techniques B-4
Portfolio Turnover and Securities Transactions B-21
Management B-23
Net Asset Values of the Shares of the Portfolios
and the Money Market Fund B-25
Investment Performance B-26
Taxes B-30
General Information B-32
Independent Auditors B-33
Financial Statements B-33
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 to provide current income consistent with
stability of principal and liquidity. The Fund invests in money market
instruments maturing in thirteen months or less from the time of investment.
INVESTMENT POLICIES
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.
POLICIES PERTAINING TO THE PORTFOLIOS
Each Portfolio may not (except as noted):
1. Purchase securities on margin or sell securities short, except that each
Portfolio 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
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 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.
The foregoing investment restrictions do not apply to the Money Market Fund.
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 Statem ent of Additional Information.
POLICIES PERTAINING TO THE MONEY MARKET FUND
- --------------------------------------------
The Money Market Fund may not (except as noted):
1. sell any securities short or purchase any securities on margin, but may
obtain such short-term credits as may be necessary for clearance of purchases
and sales of portfolio securities;
2. issue senior securities except that the Fund may borrow money directly or
through reverse repurchase agreements as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling the Fund
to meet redemption requests when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous, and then only in amounts not in
excess of one-third of the value of its total assets; provided that, while
borrowings and reverse repurchase agreements outstanding exceed 5% of the Fund's
total assets, any such borrowings will be repaid before additional investments
are made;
3. borrow money or engage in reverse repurchase agreements for investment
leverage purposes;
4. mortgage, pledge, or hypothecate any assets except to secure permitted
borrowings. In those cases, it may mortgage, pledge or hypothecate assets having
a market value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of its total assets at the time of borrowing;
5. purchase securities if, as a result of such purchase, 25% or more of its
total assets would be invested in securities of companies engaged principally in
any one industry other than finance companies and banks. However, the Fund may
at any time invest 25% or more of its total assets in cash or cash items and
securities issued and/or guaranteed by the U.S. government, its agencies or
instrumentalities;
6. purchase or sell commodities, commodity contracts, or commodity futures
contracts;
7. purchase or sell real estate, including limited partnership interests in
real estate, although it may invest in securities of companies whose business
involves the purchase or sale of real estate or in securities secured by real
estate or interests in real estate;
8. lend any of its assets, except portfolio securities up to one-third of its
total assets. This shall not prevent the Fund from purchasing or holding money
market instruments, corporate or U.S. government bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer, entering
into repurchase agreements, or engaging in other transactions which are
permitted by the Fund's investment objective and policies or the Trust's
Declaration of Trust;
9. underwrite any issue of securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the sale of
securities in accordance with its investment objective, policies, and
limitations; or
10. with respect to 75% of its total assets, purchase the securities of any one
issuer (other than cash, cash items, or securities issued and/or guaranteed by
the U.S. government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if, as a result, more than 5% of
its total assets would be invested in the securities of that issuer.
11. purchase securities of registered open-end investment companies or
registered unit investment trusts in reliance on Section 12(d)(1)(F) or (G) of
the 1940 Act.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material changes
in this limitation becomes effective. Unless otherwise indicated, the Money
Market Fund may not:
1. invest more than 10% of its net assets in illiquid securities, including,
among others, repurchase agreements providing for settlement more than seven
days after notice and certain restricted securities not determined by the
Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value of total or net assets will not result in a violation
of such restriction.
The Money Market Fund has no present intention to borrow money in excess of 5%
of the value of its net assets during the coming fiscal year.
For purposes of its policies and limitations, the Money Market Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings association having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
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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; except that the Money Market Fund may invest 25% or more of its total
assets in commercial paper issued by finance companies.
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 Portfolios 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
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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
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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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<PAGE>
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
B-6), 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.
B-8
<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 FUTURES 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
B-12
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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.
B-13
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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
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.
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<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 three days' notice. For the duration of a loan, a Fund would
continue
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<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. The Funds may enter into repurchase agreements with
foreign banks and broker-dealers that meet credit quality and other requirements
of the Funds' Board of Trustees. 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 or broker that has entered into atri-party arrangement with
the Fund and the 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-16
<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 (or, in the case of
the Money Market Fund, no more than 33 1/3% of the total assets of the 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
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<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. The Money
Market Fund does not intend to engage in when-issued transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
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 Federal Fund's target 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 or the
Federal Fund's target 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.
B-18
<PAGE>
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-19
<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-20
<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.
OTHER INVESTMENT POLICIES OF THE MONEY MARKET FUND
The Money Market Fund may follow non-fundamental operational policies that are
more restrictive than its fundamental investment limitations, as set forth in
its prospectus and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the 1940 Act. In particular, the Fund will comply with the
various requirements of Rule 2a-7, which regulates money market mutual funds.
The Fund will determine the effective maturity of its investments, as well as
its ability to consider a security as having received the requisite short-term
ratings by NRSROs, according to Rule 2a-7. The Fund may change these operational
policies to reflect changes in the laws and regulations without the approval of
its shareholders.
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 security 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 security is subject to market action) until the date on which,
in accordance with the terms of the security, the principal amount must
unconditionally be paid, or in the case of a security called for redemption, the
date on which the redemption payment must be made, except that:
(1) A Government Security which is a Variable Rate Security where the variable
rate of interest is 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. A Government Security which is a Floating
Rate Security shall be deemed to have a remaining maturity of one day.
(2) A Variable Rate Security, the principal amount of which, in accordance with
the terms of the security, must unconditionally be paid in 397 calendar days or
less shall be deemed to have a maturity equal to the earlier 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.
(3) A Variable Rate Security, the principal amount of which is scheduled to be
paid in more than 397 days, 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 Security, the principal amount of which, in accordance with
the terms of the security, must unconditionally be paid in 397 calendar days or
less shall be deemed to have a maturity of one day.
(5) A Floating Rate Security, the principal amount of which is scheduled to be
paid in more than 397 days, 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.
(6) 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 the agreement is subject to demand,
the notice period applicable to a demand for the repurchase of the securities.
(7) A portfolio lending agreement shall be treated as having a maturity equal to
the period remaining until the date on which the loaned securities are scheduled
to be returned, or, where the agreement is subject to demand, the notice period
applicable to a demand for the return of the loaned securities.
(8) An investment in a money market fund shall be treated as having a maturity
equal to the period of time within which the acquired money market fund is
required to make payment upon redemption, unless the acquired money market fund
has agreed in writing to provide redemption proceeds to the investing money
market fund within a shorter time period, in which case the maturity of such
investment shall be deemed to be the shorter period.
The Money Market Fund is subject to certain credit quality restrictions pursuant
to Rule 2a-7 under the 1940 Act. The Fund will invest its assets in instruments
that are determined to present minimal credit risks. In so doing, the Fund will
invest at least 95% of its assets in instruments that are at the time of
acquisition, (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; (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); or (v) a
security issued by a registered investment company that is a money market fund.
The foregoing are referred to as "first-tier securities."
The balance of the securities in which the Fund may invest are instruments,
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 with 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, 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.
Set forth below are descriptions of certain instruments in which the Money
Market Fund may invest and certain investment risks, policies and restrictions
applicable to the Money Market Fund.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
corporate debt instruments that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at its
stated principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par. The
interest rate may float or be adjusted at regular intervals (ranging from daily
to annually), and is normally based on a published interest rate or interest
rate index. Most variable rate demand notes allow the Fund to demand the
repurchase of the security on not more than seven days prior notice. Other notes
only permit the Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals. See "Demand Features." The Fund treats
variable rate demand notes as maturing on the later of the date of the next
interest adjustment or the date on which the Fund may next tender the security
for repurchase.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participations in,
short-term revolving credit facilities with corporate borrowers. Demand notes
and other short-term credit arrangements usually provide for floating or
variable rates of interest.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may have
been credit enhanced by a guaranty, letter of credit or insurance. Any
bankruptcy receivership or default of the party providing the credit enhancement
will adversely affect the quality and marketability of the underlying security.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
BANK INSTRUMENTS. The Fund only invests in bank instruments either
issued by an institution having capital, surplus and undivided profits over $100
million or insured by the Bank Insurance Fund ("BIF") or the Savings Association
Insurance Fund ("SAIF"). The Fund will treat securities credit enhanced by a
bank as bank instruments. In addition to domestic bank obligations such as
certificates of deposit, demand and time deposits, savings shares, and bankers'
acceptances, the Money Market Fund may invest in:
(1) Eurodollar Certificates of Deposit ("ECDs") issued by foreign branches of
U.S. or foreign banks;
(2) Eurodollar Time Deposits ("ETDs"), which are U.S. dollar-denominated
deposits in foreign branches of U.S. or foreign banks;
(3) Canadian Time Deposits, which are U.S. dollar-denominated deposits issued
by branches of major Canadian banks located in the U.S.; and
(4) Yankee Certificates of Deposit ("Yankee CDs"), which are U.S. dollar-
denominated certificates of deposit issued by U.S. branches of foreign
banks and held in the U.S.
RATINGS. An NRSRO's two highest rating categories are determined without
regard for sub-categories and gradations. For example, securities rated A-1+,
A-1 or A-2 by Standard & Poor's Ratings Group ("S&P"), Prime-1 or Prime-2 by
Moody's Investors Service, Inc. ("Moody's"), or F-1 (+ or -) or F-2 (+ or -) by
Fitch Investors Service, Inc. ("Fitch") are all considered rated in one of the
two highest short-term rating categories. The Money Market Fund will limit its
investments in securities rated in the second highest short-term rating category
(e.g., A-2 by S&P, Prime-2 by Moody's or F-2 (+ or -) by Fitch) to not more than
5% of its total assets, with not more than 1% invested in the securities of any
one issuer. The Fund will follow applicable regulations in determining whether a
security rated by more than one NRSRO can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two NRSROs in one of their two highest rating categories.
U.S. GOVERNMENT OBLIGATIONS. The types of U.S. government obligations in
which the Money Market Fund may invest generally include direct obligations of
the U.S. Treasury (such as U.S. Treasury bills, notes, and bonds) and
obligations issued and/or guaranteed by U.S. government agencies or
instrumentalities. These securities are backed by:
(1) the full faith and credit of the U.S. Treasury;
(2) the issuer's right to borrow from the U.S. Treasury;
(3) the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
(4) the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
(1) Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks, and Banks for Cooperatives;
(2) Federal Home Loan Banks;
(3) Federal Home Loan Mortgage Corporation;
(4) Federal National Mortgage Association; and
(5) Student Loan Marketing Association.
CREDIT ENHANCEMENT. The Money Market Fund typically evaluates the credit
quality and ratings of credit-enhanced securities based upon the financial
condition and ratings of the party providing the credit enhancement (the "credit
enhancer"), rather than the issuer. However, credit-enhanced securities will not
be treated as having been issued by the credit enhancer for diversification
purposes, except in some instances when the securities will be treated as having
been issued by both the issuer and the credit enhancer. The Fund may have more
than 25% of its total assets invested in securities credit enhanced or issued by
banks.
CONCENTRATION OF INVESTMENTS. The Fund may invest 25% or more of its total
assets in commercial paper issued by finance companies. The finance companies in
which the Fund intends to invest can be divided into two categories, commercial
finance companies and consumer finance companies. Commercial finance companies
are principally engaged in lending to corporations or other businesses. Consumer
finance companies are primarily engaged in lending to individuals. Captive
finance companies or finance subsidiaries which exist to facilitate the
marketing and financial activities of their parent will, for purposes of
industry concentration, be classified by the Fund in the industry of its parent
corporation.
In addition, the Fund may invest more than 25% of the value of its total assets
in cash or cash items, securities issued or guaranteed by the U.S. government,
its agencies, or instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements.
CERTAIN INVESTMENT RISKS. ECDs, ETDs, Yankee CDs, Canadian commercial
paper, and Europaper are subject to somewhat different risks than domestic
obligations of domestic banks. Examples of these risks include international,
economic and political developments, foreign governmental restrictions that may
adversely affect the payment of principal or interest, foreign withholding or
other taxes on interest income, difficulties in obtaining or enforcing a
judgment against the issuing bank, and the possible impact of interruptions in
the flow of international currency transactions. Different risks may also exist
for ECDs, ETDs, and Yankee CDs because the banks issuing these instruments, or
their domestic or foreign branches, are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing, and
recordkeeping, and the public availability of information. These factors will be
carefully considered by Federated in selecting investments for the Fund.
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-21
<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-22
<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 waive operating expenses for each Portfolio and to limit
the operating expenses (excluding advisory fees) of each Underlying Fund so that
the ratio of expenses of net assets on an annual basis incurred does not exceed
0.25%. Expenses in excess of such amounts will be assumed by the Adviser until
the earlier of (a) the end of three years after commencement of operations or
(b) the termination by the Trustees or the Funds' or the Portfolios'
shareholders, but not the Adviser, of the Trust's Advisory Agreement with the
Adviser.
The Adviser is wholly owned by Commonwealth General Corporation, a wholly owned
subsidiary of AEGON International N.V. AEGON International N.V. is a wholly
owned subsidiary of AEGON N.V. Vereniging AEGON (a Netherlands membership
association) has a 53% interest in AEGON N.V.
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 Federated Investment
Counseling ("Federated") 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
B-23
<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, reckless disregard of duty or
negligence with respect to the Adviser, Atlanta Capital and Blairlogie and gross
negligence with respect to Federated. 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, reckless disregard of the
duties imposed upon them by the Agreements or negligence with respect to the
Adviser, Atlanta Capital and Blairlogie and gross negligence with respect to
Federated or the violation of any applicable law.
TRUSTEES AND OFFICERS
The names of the Trustees and 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>
Thomas J. Hartlage* 45 President and Director, Sales & Marketing of
400 W. Market St. Trustee Diversified Financial Products
Louisville, KY 40202 Inc. since 1997; Director,
Product Management of Commonwealth
General Corporation from 1995-1997;
Director, Institutional Marketing
of Commonwealth General Corporation
from 1993 to 1995; Director, New
Initiatives of Commonwealth General
Corporation from 1992-1993;
Vice President of Providian
Investment Advisors, Inc.
Michael G. Ayers 49 Chief Financial Director, Financial of Diversified
400 W. Market St. Officer Financial Products Inc. since
Louisville, KY 40202 1997; Director, Financial of
Commonwealth General Corporation
from 1977-1997.
Stephen L. Zeitz 39 Treasurer Director, Investment Operations
400 W. Market St. of Diversified Financial Products
Louisville, KY 40202 Inc. since 1995; Director, Cash
Management of Commonwealth
General Corporation, from 1994-
1995; Manager, Cash Management
of Commonwealth General
Corporation from 1988-1994;
Treasurer of Providian
Investment Advisors, Inc.
Kimberly A. Scouller 35 Secretary Assistant General Counsel of
400 W. Market St. Financial Markets Division-
Louisville, KY 40202 AEGON USA since 1997;
Assistant General Counsel of
Commonwealth General Corporation
from 1993-1997; Vice President
and Chief Compliance Officer of
Providian Securities Corporation
since 1996; Attorney, Greenebaum
Treitz Brown and Marshall, from
1989-1993.
Kirk Buese* 36 Trustee Director, Private Placements for
400 W. Market St. AEGON USA - Investment Management
Louisville KY 40202 since 1997; Director, Private
Placements/Credit of Providian
Capital Management, Inc. from
1992-1997.
Jesse A. Holshouser, III 44 Trustee Chief Financial Officer of
100 Avenue of Champions Professional Golfers'
Palm Beach Gardens, FL 33418 Association of America since
1988.
David L. Eager 54 Trustee Consultant and Managing
100 Mallard Creek Director of Eager & Associates
Louisville KY 40205 since 1984.
William T. Mills, III 45 Trustee Partner of Highland Associates
P.O. Box 55469 since 1987.
Birmingham, AL 35255
Michael G. Herp 35 Vice President Director, Product & Market
400 W. Market St. Development of Diversified
Louisville, KY 40202 Financial Products Inc. since
1997; Director, Product &
Market Development of
Commonwealth General Corporation
1983-1997.
</TABLE>
B-24
<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). 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 60 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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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 Life and Health Insurance Company and
First Providian Life and Health Insurance Company believe 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-31
<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-32
<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.
FINANCIAL STATEMENTS
The following statements are the unaudited Financial Statements for the Funds
dated September 30, 1997 including the notes thereto.
[STATE STREET BANK WILL PROVIDE FINANCIALS]
B-33
<PAGE>
PROVIDIAN SERIES TRUST
CAPITAL PRESERVATION PORTFOLIO
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
Investment Companies 100.0%
Providian Series Trust
Money Market Fund.................. 7,017 $ 7,017
Providian Series Trust
Fixed Income Fund.................. 683 7,090
-------
TOTAL INVESTMENT COMPANIES
-(Cost $14,011) 14,107
-------
TOTAL INVESTMENTS - (Cost $14,011) - 100.0% 14,107
OTHER ASSETS LESS LIABILITIES - 0.0% 32
-------
NET ASSETS -- 100.0% $14,139
=======
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Portfolio.
PROVIDIAN SERIES TRUST
INCOME ORIENTED PORTFOLIO
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
Investment Companies 100.0%
Providian Series Trust
Money Market Fund.................. 39.0 $ 39
Providian Series Trust
High Quality Stock Fund............ 6.6 76
Providian Series Trust
Fixed Income Fund.................. 12.7 132
Providian Series Trust
International Active Fund.......... 1.8 18
----
TOTAL INVESTMENT COMPANIES
-(Cost $261) 265
----
TOTAL INVESTMENTS - (Cost $261) - 100.0% 265
OTHER ASSETS LESS LIABILITIES - 0.0% 0
----
NET ASSETS - 100.0% $265
====
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Portfolio.
The notes to the financials are an integral part of this report.
1
<PAGE>
PROVIDIAN SERIES TRUST
GROWTH AND INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
Investment Companies 100.0%
Providian Series Trust
Money Market Fund................. 6,206 $ 6,206
Providian Series Trust
High Quality Stock Fund........... 2,317 26,715
Providian Series Trust
Fixed Income Fund................. 2,423 25,151
Providian Series Trust
International Active Fund......... 606 6,187
-------
TOTAL INVESTMENT COMPANIES
-(Cost $61,707) 64,259
-------
TOTAL INVESTMENTS - (Cost $61,707) - 100.0% 64,259
OTHER ASSETS LESS LIABILITIES - 0.0% 22
-------
NET ASSETS - 100.0% $64,281
=======
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Portfolio.
PROVIDIAN SERIES TRUST
CAPITAL GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
Investment Companies 100.0%
Providian Series Trust
High Quality Stock Fund........... 5,532 $ 63,784
Providian Series Trust
Fixed Income Fund................. 2,443 25,358
Providian Series Trust
International Active Fund......... 1,456 14,866
--------
TOTAL INVESTMENT COMPANIES
-(Cost $100,065) 104,008
--------
TOTAL INVESTMENTS - (Cost $100,065) - 100.0% 104,008
OTHER ASSETS LESS LIABILITIES - 0.0% 0
--------
NET ASSETS - 100.0% $104,008
========
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Portfolio.
The notes to the financials are an integral part of this report.
2
<PAGE>
PROVIDIAN SERIES TRUST
MAXIMUM APPRECIATION PORTFOLIO
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
Investment Companies 100.0%
Providian Series Trust
High Quality Stock Fund................. 6,184 $71,302
Providian Series Trust
International Active Fund............... 1,652 16,867
-------
TOTAL INVESTMENT COMPANIES
-(Cost $84,127) 88,169
-------
TOTAL INVESTMENTS - (Cost $84,127) - 100.0% 88,169
OTHER ASSETS LESS LIABILITIES - 0.0% 4
-------
NET ASSETS -- 100.0% $88,173
=======
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Portfolio.
PROVIDIAN SERIES TRUST
HIGH QUALITY STOCK FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCK AND OTHER
EQUITY INTERESTS - 98.8%
Aerospace - 2.2%
Allied Signal Incorporated................ 2,600 $110,500
Boeing Company............................ 2,000 108,875
OEA Incorporated.......................... 1,000 34,375
--------
253,750
--------
Apparel & Textiles - 1.7%
G & K Services Incorporated............... 1,200 41,700
Guilford Mills Incorporated............... 2,200 57,200
Nautica Enterprises Incorporated (a)...... 1,800 50,625
Unifi Incorporated........................ 1,100 45,031
--------
194,556
--------
Auto Parts - 1.9%
Clarcor Incorporated...................... 1,700 48,663
Eaton Corporation......................... 1,100 101,613
Modine Manufacturing Company.............. 1,100 38,363
Superior Industries International
Incorporated (a).......................... 1,300 35,994
--------
224,633
--------
Automobiles - 0.3%
Federal Signal Corporation (a)............ 1,300 32,988
--------
Banks - 7.0%
Banc One Corporation...................... 2,200 122,788
BancorpSouth Incorporated................. 1,400 49,350
CCB Financial Corporation................. 600 48,375
Citizens Banking Corporation.............. 1,300 57,200
CoreStates Financial Corporation.......... 1,800 119,138
Deposit Guaranty Corporation.............. 1,300 43,306
First Commercial Corporation.............. 1,000 48,000
First Virginia Banks Incorporated......... 900 42,750
Firstbank of Illinois Company............. 1,650 52,903
Old Kent Financial Corporation............ 630 40,635
Union Planters Corporation................ 700 39,113
Wachovia Corporation...................... 1,500 108,000
Wilmington Trust Corporation.............. 800 43,700
--------
815,258
--------
Broadcasting - 0.4%
TCA Cable TV Incorporated................. 1,200 46,800
--------
Building Construction - 1.2%
Harsco Corporation (a).................... 900 40,838
Lawson Products Incorporated.............. 1,700 50,150
Thor Industries Incorporated.............. 1,800 55,125
--------
146,113
--------
Business Services - 4.1%
ABM Industries Incorporated............... 2,100 55,503
Automatic Data Processing Incorporated.... 2,100 105,000
Banta Corporation......................... 1,500 41,813
Fair Issac & Company Incorporated......... 900 39,825
Interpublic Group of Companies
Incorporated.............................. 2,400 123,150
Kronos Incorporated....................... 1,600 41,400
Olsten Corporation........................ 1,900 35,269
Sun Guard Data Systems Incorporated (a)... 1,400 33,950
--------
475,910
--------
</TABLE>
The notes to the financials are an integral part of this report.
3
<PAGE>
PROVIDIAN SERIES TRUST
HIGH QUALITY STOCK FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCK AND OTHER
EQUITY INTERESTS (CONTINUED)
Chemicals - 2.4%
Brady W. H.......................... 1,600 $ 50,000
E.I du Pont de Nemours & Company.... 1,700 104,656
Fuller H.B. Company................. 800 43,350
MacDermid Incorporated.............. 600 52,275
Nalco Chemical Company.............. 900 36,056
--------
286,337
--------
Communications Services - 0.5%
True North Communications
Incorporated........................ 2,100 52,106
--------
Computers & Business Equipment - 2.6%
American Management Systems
Incorporated (a).................... 1,500 28,688
Cabletron Systems Incorporated...... 3,300 105,600
General Binding Corporation......... 1,400 41,825
Hewlett-Packard Company............. 1,900 132,169
--------
308,282
--------
Computer Services - 0.9%
Electronic Data Systems Corporation. 2,900 102,950
--------
Conglomerates - 0.9%
Textron Incorporated................ 1,600 104,000
--------
Construction & Mining Equipment - 0.3%
Foster Wheeler Corporation.......... 900 39,544
--------
Construction Materials - 0.3%
Vulcan Materials Company............ 400 34,800
--------
Containers & Glass - 0.7%
Bemis Company Incorporated.......... 800 35,800
Mark IV Industries Incorporated..... 1,500 40,313
--------
76,113
--------
Cosmetics & Toiletries - 1.3%
Block Drug Company Incorporated..... 900 42,975
Kimberly-Clark Corporation.......... 2,300 112,556
--------
155,531
--------
Drugs & Health Care - 8.5%
Abbott Laboratories................. 1,700 108,694
Bard C. R. Incorporated............. 1,000 33,938
Biomet Incorporated................. 1,900 45,600
Diagnostic Products Corporation..... 1,300 39,244
Invacare Corporation................ 1,600 37,600
Johnson & Johnson................... 1,800 103,725
Life Technologies Incorporated...... 1,500 45,375
Manor Care Incorporated............. 1,100 36,575
Mylan Laboratories Incorporated..... 1,700 38,144
Patterson Dental Company (a)........ 1,200 48,600
Pfizer Incorporated................. 2,000 120,125
Rotech Medical Corporation (a)...... 2,700 51,975
Schering Plough Corporation......... 2,200 113,300
Thermedics Incorporated (a)......... 2,500 47,188
Warner-Lambert Company.............. 900 121,444
--------
991,527
--------
Electronics - 5.7%
AMP Incorporated.................... 2,100 112,481
Avnet Incorporated.................. 500 31,781
Dionex Corporation................... 1,000 53,938
Harris Corporation................... 800 36,600
Intel Corporation.................... 1,200 110,775
Methode Electronics.................. 2,200 56,650
Nichols Research Corporation......... 1,900 47,025
SCI Systems Incorporated............. 1,000 49,563
Technitrol Incorporated.............. 1,400 55,738
Teleflex Incorporated................ 1,200 41,550
Thomas & Betts Corporation........... 600 32,775
Varian Associates Incorporated....... 600 37,275
--------
666,151
--------
Electrical Equipment - 3.5%
Baldor Electric Company.............. 1,400 42,613
Cohu Incorporated.................... 900 48,375
Dentsply International Incorporated.. 600 33,600
General Electric Company............. 1,500 102,094
Hubbell Incorporated................. 800 37,000
MTS Systems Corporation.............. 1,500 54,750
National Service Industries.......... 800 35,150
--------
353,582
--------
Electric Utilities - 2.2%
Central & South West Corporation..... 4,900 108,719
Duke Energy Corporation.............. 2,200 108,763
UtiliCorp United Incorporated........ 1,300 39,163
--------
256,645
--------
Financial Services - 2.4%
Legg Mason Incorporated.............. 1,066 56,267
Merrill Lynch & Company.............. 1,700 126,119
ReliaStar Financial Corporation...... 1,000 39,813
United States Trust Corporation...... 900 50,738
--------
272,937
--------
Food & Beverages - 3.7%
CPC International Incorporated....... 1,200 111,150
Dean Foods Company................... 900 41,625
Hormel Foods Corporation............. 1,300 41,681
PepsiCo Incorporated................. 2,900 117,631
Sysco Corporation (a)................ 3,100 114,506
--------
426,593
--------
Funeral Services - 0.4%
Stewart Enterprises Incorporated..... 1,000 43,750
--------
Gas Exploration - 1.2%
Energen Corporation.................. 1,200 42,675
Murphy Oil Corporation............... 700 39,988
Unocal Corporation................... 2,700 116,775
--------
199,438
--------
Gas & Pipeline Utilities - 3.9%
Coastal Corporation.................. 2,000 122,500
Eastern Enterprises.................. 1,200 44,775
Equitable Resources Incorporated..... 1,200 37,800
National Fuel Gas Company............ 800 35,200
Northwest Natural Gas Company........ 1,600 41,200
Oneok Incorporated................... 1,400 45,675
Piedmont Natural Gas Company......... 1,600 46,600
Questar Corporation.................. 900 36,506
Southwestern Energy Company.......... 3,200 41,000
--------
451,256
--------
</TABLE>
The notes to the financials are an integral part of this report.
4
<PAGE>
PROVIDIAN SERIES TRUST
HIGH QUALITY STOCK FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCK AND OTHER
EQUITY INTERESTS (CONTINUED)
Home Builders - 0.4%
Lennar Corporation....................... 1,100 $46,750
-------
Household Appliances - 1.7%
Interface Incorporated................... 1,700 49,513
La- Z- Boy Incorporated.................. 1,200 44,400
Newell Company........................... 2,600 104,000
-------
197,913
-------
Household Products - 0.9%
Colgate-Palmolive Company................ 1,500 104,531
-------
Hotels & Restaurants - 0.3%
Cracker Barrel Old Country Store
Incorporated............................. 1,200 38,850
-------
Investment Advisory Firms - 2.4%
A.G. Edwards Incorporated................ 900 46,238
Eaton Vance Corporation.................. 1,500 53,625
T. Price Rowe & Associates Incorporated.. 700 47,075
Quick & Reilly Group Incorporated........ 1,300 48,669
SEI Investment Company................... 1,600 52,800
United Asset Management Corporation...... 1,200 34,425
-------
282,832
-------
Industrial Machinery - 1.6%
Crane Company............................ 800 32,900
Graco Incorporated....................... 1,400 50,050
Tennant Company.......................... 1,400 51,800
X-Rite Incorporated...................... 2,500 51,875
-------
186,625
-------
Insurance - 6.9%
American Bankers Insurance
Group Incorporated....................... 1,600 58,400
American Heritage Life Investment
Corporation.............................. 1,500 60,000
American International Group
Incorporated............................. 1,050 108,347
Chubb Corporation........................ 1,500 106,594
Equitable of Iowa Companies.............. 600 40,200
Fremont General Corporation.............. 900 42,975
Frontier Insurance Group Incorporated.... 1,400 53,200
General Re Corporation................... 500 99,250
Liberty Corporation...................... 1,000 45,250
NAC Re Corporation....................... 900 46,238
Orion Capital Corporation................ 1,200 54,375
Protective Life Corporation.............. 700 35,350
W.R. Berkley Corporation................. 1,050 45,216
-------
795,395
-------
International Oil - 0.9%
Mobil Corporation........................ 1,400 103,600
-------
Machinery - 0.9%
Deere & Company.......................... 1,900 102,125
-------
Newspapers - 1.3%
Lee Enterprises Incorporated............. 1,300 37,375
Tribune Company.......................... 2,100 111,956
-------
149,331
-------
Non-Ferrous Metals - 0.4%
Commercial Metals Company (a)............ 1,300 41,519
------
Office Furnishings & Supplies - 1.4%
American Business Products
Incorporated............................. 1,800 45,225
Avery Dennison Corporation............... 2,800 112,000
--------
157,225
--------
Paper - 2.1%
Lydall Incorporated (a).................. 1,800 42,188
Pentair Incorporated..................... 1,000 36,875
Sonoco Products Company.................. 3,400 115,388
Wausau Paper Mills Company............... 2,100 51,450
--------
245,901
--------
Petroleum Services - 1.4%
Dresser Industries Incorporated.......... 2,900 124,700
MAPCO Incorporated....................... 1,100 36,231
--------
160,931
--------
Publishing - 0.8%
Houghton Mifflin Company................. 1,400 52,850
Pulitzer Publishing Company.............. 800 45,200
--------
98,050
--------
Railroads & Equipment - 1.2%
GATX Corporation......................... 600 40,538
Norfolk Southern Corporation............. 1,000 103,250
--------
143,788
--------
Retail Grocery - 1.2%
Casey's General Stores Incorporated...... 2,200 54,175
Quality Foods Centers Incorporated (a)... 1,000 40,938
Ruddick Corporation...................... 3,000 48,375
--------
143,488
--------
Retail Trade - 3.1%
Arbor Drugs Incorporated................. 2,000 46,500
Home Depot Incorporated.................. 2,250 117,281
Office Depot Incorporated (a)............ 2,000 40,375
Pep Boys-Manny Moe & Jack................ 1,400 38,150
Wal-Mart Stores Incorporated............. 3,200 117,200
--------
359,506
--------
Savings And Loan - 0.4%
First Financial Corporation.............. 1,500 51,094
--------
Software - 1.4%
Autodesk Incorporated.................... 900 40,838
Computer Associates International
Incorporated............................. 1,600 114,900
--------
155,738
--------
Steel - 1.5%
Carpenter Technology Corporation......... 900 44,550
Nucor Corporation........................ 1,700 89,569
Worthington Industries Incorporated...... 1,800 36,450
--------
170,569
--------
Telephone - 3.8%
Aliant Communications Incorporated....... 2,100 50,925
Alltel Corporation....................... 3,100 106,950
Bell Atlantic Corporation................ 1,400 112,613
Century Telephone Enterprises
Incorporated............................. 1,100 48,400
</TABLE>
The notes to the financials are an integral part of this report.
5
<PAGE>
PROVIDIAN SERIES TRUST
HIGH QUALITY STOCK FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCK AND OTHER
EQUITY INTERESTS (CONTINUED)
Telephone (continued)
Frontier Corporation.................. 5,100 $ 117,300
-----------
436,188
-----------
Tires & Rubber - 0.8%
Carlise Companies Incorporated........ 1,200 53,325
Lancaster Colony Corporation.......... 800 42,500
-----------
95,825
-----------
Tobacco - 0.8%
Philip Morris Companies Incorporated.. 2,300 95,594
-----------
Trucking & Freight Forwarding - 1.0%
Air Express International Corporation.. 1,800 65,700
Rollins Truck Leasing Corporation...... 2,900 49,481
-----------
115,181
-----------
TOTAL COMMON STOCK
(Cost $10,147,006)..................... 11,490,099
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
---------
<S> <C> <C>
SHORT TERM INVESTMENTS - 1.2%
Investment Company - 1.2%
SSgA U.S. Government
Money Market Fund,
5.230% *........................ $ 118,299 118,299
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $118,299)................................... 118,299
-----------
TOTAL INVESTMENTS - (Cost $10,265,305) - 100.0%... 11,608,398
OTHER ASSETS LESS LIABILITIES - 0.0%.............. (1,930)
-----------
NET ASSETS - 100.0%.............................. $11,606,468
===========
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
(a) Non-income producing securities.
* The rate shown reflects the yield in effect on September 30, 1997.
PROVIDIAN SERIES TRUST
FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal
Security Description Amount Value
- -------------------- -------- ----------
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY
SECURITIES - 73.8%
Government Agency - 28.6%
Federal Home Loan Mortgage
Corporation 5.950%, 01/19/06..... $ 750,000 $ 729,023
-----------
Federal National Mortgage Association
6.375%, 01/16/02................... 500,000 504,610
5.875%, 02/02/06................... 275,000 265,763
-----------
770,373
Mortgage-Backed Obligations - 1.8%
Federal National Mortgage Association
Guaranteed REMIC Pass-Thru
Certificates, Series X-225B Class VD
5.75%, 06/25/10................ 100,000 98,781
-----------
98,781
-----------
U.S. Government - 43.4%
U.S. Treasury Note
5.875%, 08/31/99............... 750,000 750,586
6.125%, 12/31/01............... 250,000 251,132
6.500%, 08/15/05............... 1,250,000 1,276,563
-----------
2,278,281
-----------
TOTAL U.S.GOVERNMENT AND
AGENCY SECURITIES
- (Cost $3,804,394)............................... 3,876,458
-----------
SHORT TERM INVESTMENTS - 25.7%
Investment Company - 4.3%
SSgA U.S. Government
Money Market Fund,
5.230% *......................... 225,000 225,000
-----------
Repurchase Agreement - 2.8%
Agreement with State Street Bank and
Trust Company, dated 9/30/1997,
bearing 4.250%, to be repurchased at
$147,953 on 10/01/1997 (secured by
$150,000 par value U.S. Treasury
Notes, 6.125%, due 5/15/1998, with a
value of $153,938 )................. 147,935 147,935
-----------
Government Agency - 18.6%
Federal Farm Credit Bank Discount
Note 5.390%, 01/09/98.............. 500,000 492,515
Federal Home Loan Bank Discount Note
6.080%, 5/29/98.................... 500,000 481,866
-----------
974,381
-----------
TOTAL SHORT TERM INVESTMENTS
- (Cost $1,347,318)................................. 1,347,316
-----------
TOTAL INVESTMENTS - (Cost $5,151,712) - 99.5%....... 5,223,774
OTHER ASSETS LESS LIABILITIES - 0.5%................ 26,398
-----------
NET ASSETS - 100.0% $ 5,250,172
===========
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
* The rate shown reflects the yield in effect on September 30, 1997.
6
<PAGE>
PROVIDIAN SERIES TRUST
INTERNATIONAL ACTIVE FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCK AND OTHER
EQUITY INTERESTS - 91.4%
Argentina - 1.6%
Astra CIA................................. 3,750 $ 7,276
BCO De Galicia (a)........................ 1,800 13,232
BCO Frances (a)........................... 550 5,941
Irsa Inversiones Y (a).................... 75 3,319
Molions Rio............................... 1,300 4,290
Perez Companc SA.......................... 1,500 23,813
Siderca................................... 4,880 14,642
Telefonica De Arg SA...................... 1,000 36,625
YPFA SA................................... 1,600 59,000
----------
168,138
----------
Australia - 0.9%
Amcor Limited............................. 1,485 9,356
Broken Hill Proprietary Company Limited... 1,213 14,144
Comalco Limited........................... 1,946 9,638
Leighton Holdings Limited................. 1,117 5,912
News Corporation Limited.................. 2,340 12,008
Pasminco Limited.......................... 8,806 14,687
Pasminco Rights........................... 2,516 529
QNI Limited............................... 2,569 3,539
TABCORP Holdings Limited.................. 1,044 5,299
Westpac Banking Corporation Limited....... 3,463 21,847
----------
96,959
----------
Belgium - 3.0%
Webs Index Fund Incorporated.............. 18,075 302,756
----------
Chile - 1.6%
Banco Santander Chile ADR................. 1,020 15,045
Chilgener SA Sponsored ADR................ 687 18,850
Compania Cervecerias Unidas SA
Sponsored ADR............................. 339 9,746
Compania de Telecom De Chile
Sponsored ADR............................. 1,015 32,861
Empresa Nacional Electricidad
Sponsored ADR............................. 1,169 24,768
Enersis Sponsored ADR..................... 945 35,024
Madeco SA Sponsored ADR................... 312 7,644
Maderas Y Sinteticos Sponsored ADR........ 432 6,048
Quimica Y Minera Chile SA
Sponsored ADR............................. 190 11,210
----------
161,196
----------
Finland - 4.2%
Enso...................................... 1,600 16,450
Hartwall Ab Oy............................ 379 33,791
Metsa Serla Oy............................ 1,781 16,453
Neste Oy.................................. 606 16,530
Nokia Ab Oy............................... 2,080 198,539
Okobank Osuuspankk........................ 1,652 27,891
Rautaruukki Oy............................ 2,273 24,577
UPM Kymmene Corporation Oy................ 1,536 42,832
Werner Soderstrom Osakeyhtio.............. 1,002 35,164
YIT-Yhtymaoy Oy........................... 1,399 18,179
----------
430,406
----------
France - 9.9%
Alcatel Alsthom........................... 632 84,239
AXA UAP................................... 685 46,057
Banque Nationale de Paris................. 1,460 73,722
Compagnie De St. Gobain................... 330 51,010
Compagnie Generale des Eaux............... 521 61,434
Elf Aquitaine SA.......................... 626 83,757
Groupe Danone............................. 411 64,919
Hermes International...................... 729 57,882
L'Oreal................................... 220 88,269
Larfarge SA............................... 914 67,136
Peugeot................................... 680 89,833
Schneider SA.............................. 504 31,886
Societe Generale.......................... 827 120,010
Synthelabo................................ 458 54,315
Valeo SA.................................. 685 45,084
----------
1,019,553
----------
Germany - 11.0%
Allianz AG................................ 395 95,763
Bayer AG.................................. 3,243 129,352
Commerzbank AG............................ 1,465 52,947
Daimler-Benz AG........................... 1,107 91,669
Degussa AG................................ 1,936 106,438
Dresdner Bank AG.......................... 1,541 70,907
MAN AG.................................... 381 93,601
Mannesmann AG............................. 233 111,046
Siemens AG................................ 1,785 120,671
VEBA AG................................... 3,040 177,742
Volkswagen AG............................. 105 73,008
----------
1,123,144
----------
Israel - 1.7%
Bank Hapoalim Limited..................... 7,900 18,331
Bezeq Israeli Telecommunication
Corporation Limited (a)................... 4,500 13,184
Blue Square-Israel Limited (a)............ 1,100 9,851
Clal Israel Limited....................... 40,000 12,131
ECI Telecommunication Limited............. 1,000 32,375
Elco Holdings Limited..................... 1,200 8,346
Elite Industries Limited (a).............. 300 8,712
Formula Systems Limited (a)............... 410 12,423
Industrial Buildings Corporation (a)...... 7,800 15,220
Israel Chemicals Limited.................. 12,800 15,711
Teva Pharmaceutical Industries Limited.... 480 27,517
----------
173,801
----------
Italy - 7.6%
Alleanza Assicurazioni.................... 3,521 34,041
Asic Generali............................. 2,000 45,292
Banca Commerciale Italiana................ 25,167 72,484
Benetton Group SPA........................ 2,080 34,844
Danieli & Company......................... 5,001 40,045
Eni SPA................................... 26,903 169,808
Fiat SPA.................................. 23,301 83,348
Instituto Nazionale delle Assicurazioni
Istituto (a).............................. 37,646 60,223
Istituto Mobiliare Italiano SPA........... 7,018 75,471
Telcom Italia Mobile...................... 13,080 87,344
Telecom Italia............................ 18,000 71,596
----------
774,496
----------
Japan - 19.9%
Aoyama Trading Company Limited (a)........ 4,500 129,356
Autobacs Seven Company Limited............ 1,500 70,410
Dainippon Screen Manufacturing
Company Limited........................... 12,000 106,675
Daiwa Securities Company Limited.......... 16,000 98,367
Fanuc..................................... 3,200 122,028
Fuji Photo Film Company (a)............... 3,000 124,122
</TABLE>
7
<PAGE>
PROVIDIAN SERIES TRUST
INTERNATIONAL ACTIVE FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCK AND OTHER
EQUITY INTERESTS (CONTINUED)
Japan - (continued)
Fujisawa Pharmaceutical Company....... 6,000 $ 51,343
Kirin Brewery Company (a)............. 7,000 57,807
Marubeni Corporation.................. 28,000 93,050
Matsushita Electric Works............. 10,000 104,681
Mitsui O.S.K. Lines Limited(a)........ 36,000 46,059
Murata Manufacturing Company Limited.. 3,000 130,104
NEC Corporation....................... 12,000 146,554
Nippon Telephone & Telegraph
Corporation........................... 16 147,551
NKK Corporation....................... 64,000 86,138
Sumitomo Bank Limited................. 10,000 151,206
Sumitomo Metal Mining Company......... 13,000 69,771
Sumitomo Trust & Banking.............. 12,000 119,636
Tokyu Corporation..................... 19,000 91,554
Tokyo Tatemono Company Limited........ 24,000 97,104
-----------
2,043,516
-----------
Korea - 1.2%
Korea Fund Incorporated............... 10,000 118,750
-----------
Mexico - 1.7%
Webs Index Fund Incorporated.......... 10,100 172,963
-----------
Netherlands - 4.7%
ABN AMRO Holdings NV.................. 1,532 31,099
Akzo Nobel............................ 203 34,777
ING Groep NV.......................... 569 26,197
Koninklijke Ahold NV.................. 755 29,740
Philips Electronics NV................ 424 35,966
Polygram NV........................... 1,000 58,079
Royal Dutch Petroleum Company......... 2,548 142,981
Unilever NV, PLC...................... 234 50,072
Vendex International NV............... 593 35,247
VNU-Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit..... 1,610 37,468
-----------
481,626
-----------
Portugal - 3.6%
Banco Com Portugues................... 2,200 46,547
Banco Espirito........................ 2,200 61,185
Cimpor Cimento........................ 1,700 46,040
Elec De Portugal (a).................. 2,500 43,012
Jeronimo Martins...................... 500 38,557
Portugal Telecom...................... 2,700 117,335
Sonae Investimento.................... 550 21,785
-----------
374,461
-----------
Switzerland - 7.9%
ABB AG (a)............................ 30 44,324
Clariant AG........................... 61 49,229
Credit Suisse Group................... 368 49,878
Holderbankk Financiere Glarus AG...... 51 48,546
Kuoni Reisen Holding AG............... 14 55,913
Nestle SA............................. 67 93,631
Novartis AG........................... 126 193,812
Roche Holding AG...................... 15 133,471
Tag Heuer International SA (a)........ 349 46,942
Union Bank of Switzerland............. 77 90,238
-----------
805,984
-----------
</TABLE>
<PAGE>
PROVIDIAN SERIES TRUST
INTERNATIONAL ACTIVE FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Security Description Shares Value
- -------------------- ------ -----
<S> <C> <C>
COMMON STOCK AND OTHER
EQUITY INTERESTS (CONTINUED)
United Kingdom - 10.9%
Abbey National......................... 3,675 $ 56,627
Boots Company PLC...................... 3,826 54,260
British Petroleum...................... 1,400 21,143
British Telcommunications PLC.......... 4,474 29,576
Commercial Union PLC................... 3,967 51,521
EMI Group PLC.......................... 4,123 40,534
Glaxo Holdings......................... 2,400 54,029
HSBC Holdings.......................... 1,450 51,509
IMI PLC................................ 5,777 38,237
Lasmo PLC.............................. 10,500 46,105
Lloyds TSB Group PLC................... 8,496 114,455
Prudential Corporation PLC............. 4,685 52,224
Scottish & Newcastle PLC............... 4,971 56,696
Scottish Power PLC..................... 10,384 80,380
Shell Transport & Trading Company PLC.. 9,277 67,917
Smithkline Beecham PLC................. 8,088 78,537
Tesco.................................. 4,400 33,420
Unilever PLC........................... 1,863 54,541
Wolseley PLC........................... 6,359 52,714
Zeneca Group PLC (a)................... 2,496 81,454
-----------
1,115,879
-----------
TOTAL COMMON STOCK AND OTHER
EQUITY INTERESTS (Cost $8,995,657) 9,363,628
-----------
SHORT TERM INVESTMENTS - 9.1%
Principal
Amount
------
Time Deposit - 9.1%
State Street Bank and Trust
Company Time Deposit,
4.75%, 7/01/97 *...................... $ 933,769 933,769
-----------
TOTAL SHORT TERM INVESTMENTS
- (Cost $933,769) 933,769
-----------
TOTAL INVESTMENTS - (Cost $9,929,426) - 100.5% 10,297,397
OTHER ASSETS LESS LIABILITIES - (0.50)% (48,951)
-----------
NET ASSETS - 100.0% $10,248,446
===========
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
(a) Non-income producing securities.
ADR- American Depositary Receipts.
GDR- Global Depositary Receipts.
* The rate shown reflects the yield in effect on September 30, 1997.
8
<PAGE>
PROVIDIAN SERIES TRUST
INTERNATIONAL ACTIVE FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
Ten largest industry holdings at September 30, 1997
<TABLE>
<S> <C>
Banking 11.89%
Telecommunications 7.76%
Health & Personal Care 6.67%
Energy Sources 6.29%
Investment Companies 5.87%
Electrical & Electronics 4.95%
Merchandising 4.18%
Electronic Components 4.05%
Insurance 3.75%
Utilities 3.70%
</TABLE>
The notes to the financials are an integral part of this report.
PROVIDIAN SERIES TRUST
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal
Security Description Amount Value
- -------------------- ---------- ----------
<S> <C> <C>
ASSET BACKED SECURITIES - 13.2%
Arcadia Automobile Receivables Trust
1997-C
5.650%, 09/15/98.................... $100,000 $ 100,000
Chase Manhattan RV Owner Trust
1997-A, A-1
5.589%, 10/15/98.................... 100,000 100,000
Copelco Capital Funding Corp.
X 1997-A
5.809%, 07/20/98.................... 73,190 73,190
----------
TOTAL ASSET BACKED
- (Cost $273,190) 273,190
----------
VARIABLE RATE NOTES - 30.2%
Edgefield County, SC County School
District, Series, 1997
5.719%, 12/01/04 +.................... 100,000 100,000
Grand Aire Express, Inc., Series 1997
5.660%, 07/01/12 +.................... 100,000 100,000
IT Spring Wire, LLC, Series 1997
5.660%, 07/01/07 +.................... 100,000 100,000
International Processing Corporation
5.720%, 01/02/08 +.................... 10,000 10,000
JFK Family Borrowing, LLP, Series 1997
5.706%, 10/01/22 +.................... 50,000 50,000
La-Man Corporation
5.720%, 09/01/12 +.................... 100,000 100,000
Scranton Times, LP., Series 1997
5.690%, 05/31/07 +.................... 100,000 100,000
Westcourt
5.720%, 06/01/16 +.................... 60,000 60,000
----------
TOTAL VARIABLE RATE NOTES
- (Cost $620,000) 620,000
----------
REPURCHASE AGREEMENTS - 56.8%
Chase Manhattan Bank*
6.25%, 10/01/97 400,000 400,000
Goldman Sachs*
6.375%, 10/01/97 400,000 400,000
Lehman Brothers*
6.250%, 10/01/97 72,000 72,000
Morgan Stanley*
6.375%, 10/01/97 100,000 100,000
Swiss Bank Corporation*
6.270%, 10/01/97 100,000 100,000
UBS Securities*
6.300%, 10/01/97 100,000 100,000
----------
TOTAL REPURCHASE AGREEMENTS
(Cost $1,172,000) 1,172,000
----------
TOTAL INVESTMENTS AT AMORTIZED
COST AND VALUE -100.2%.................. 2,065,190
OTHER ASSETS LESS LIABILITIES - (0.2%) (3,376)
----------
NET ASSETS - 100.0% $2,061,814
==========
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
9
<PAGE>
PROVIDIAN SERIES TRUST
MONEY MARKET FUND
SCHEDULE OF INVESTMENTS
September 30, 1997 (Unaudited)
+ Variable rate demand notes are payable upon not more than one, seven, or
thirty day's notice. The interest rate shown reflects the rate currently
in effect.
* The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of purchase.
The investments in repurchase agreements are through participation in a
joint account with other portfolios advised by Federated Investment
Counseling.
The notes to the financials are an integral part of this report.
10
<PAGE>
PROVIDIAN SERIES TRUST
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Capital Income Growth and
Preservation Oriented Income
ASSETS Portfolio Portfolio Portfolio
--------------------------------------------------
<S> <C> <C> <C>
Investments in securities, at value (a)................... $14,107 $ 265 $64,259
Cash, including foreign currency, at value................ 4,406 1,479 4,702
Receivable for securities sold............................ -- -- --
Interest receivable....................................... 31 -- 22
Dividends receivable...................................... -- -- --
Receivable for forward contract sold...................... -- -- --
Receivable due from Investment Adviser (Note 3)........... 2,980 5,913 2,147
Foreign income tax reclaim receivable..................... -- -- --
---------------------------------------------
TOTAL ASSETS............................................ 21,524 7,657 71,130
LIABILITIES
Payable for securities purchased.......................... -- -- --
Payable for forward currency contracts (Note 6)........... -- -- --
Payable to custodian...................................... -- -- --
Payable for Trustee's fees................................ 383 383 383
Payable due to Investment Adviser......................... -- -- --
Accounts payable and accrued expenses..................... 7,002 7,009 6,466
---------------------------------------------
TOTAL LIABILITIES....................................... 7,385 7,392 6,849
---------------------------------------------
NET ASSETS.............................................. $14,139 $ 265 $64,281
=============================================
NET ASSETS CONSIST OF:
Paid-in capital (Note 5).................................. $13,945 $ 261 $61,653
Undistributed net investment income (Note 2).............. 75 -- 63
Accumulated net realized gain on investments and
foreign currency transactions........................... 23 -- 13
Net unrealized appreciation (depreciation) of:
Investments............................................. 96 4 2,552
Foreign currency translations........................... -- -- --
---------------------------------------------
NET ASSETS.............................................. $14,139 $ 265 $64,281
=============================================
NET ASSET VALUE PER SHARE
Offering and redemption price per share
(based on shares of beneficial interest outstanding)..... $ 10.31 $10.66 $ 10.80
Total shares outstanding at end of period................. 1,372 24.87 5,951
(a) Investments in securities and repurchase agreements,
at cost............................................... $14,011 $ 261 $61,707
</TABLE>
The notes to the financials are an integral part of this report.
11
<PAGE>
<TABLE>
<CAPTION>
Capital Maximum High Fixed Money
Growth Appreciation Quality Income International Market
Portfolio Portfolio Stock Fund Fund Active Fund Fund
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$104,008 $88,169 $11,608,398 $5,223,774 $10,297,397 $2,065,190
4,591 4,724 1,449 1,010 46,615 --
-- 4 -- -- 361,714 --
-- -- 17 36,462 123 4,333
-- -- 13,497 -- 13,433 --
-- -- -- -- 4,121 --
2,780 2,639 1,330 1,723 2,138 2,145
-- -- -- -- 8,297 --
- ------------------------------------------------------------------------------------------------------------------
111,379 95,535 11,624,691 5,262,969 10,733,838 2,071,668
-- -- -- -- 461,707 --
-- -- -- -- 2,839 --
-- -- -- -- -- 31
383 383 401 383 383 383
-- -- 6,077 2,786 7,372 1,531
6,988 6,979 11,745 9,628 13,091 7,909
- ------------------------------------------------------------------------------------------------------------------
7,371 7,362 18,223 12,797 485,392 9,854
- ------------------------------------------------------------------------------------------------------------------
$104,008 $88,173 $11,606,468 $5,250,172 $10,248,446 $2,061,814
==================================================================================================================
$100,065 $84,120 $10,068,591 $5,056,780 $10,038,017 $2,061,814
-- -- 61,387 105,019 74,363 --
-- 11 133,397 16,311 (231,634) --
3,943 4,042 1,343,093 72,062 367,971 --
-- -- -- -- (271) --
- ------------------------------------------------------------------------------------------------------------------
$104,008 $88,173 $11,606,468 $5,250,172 $10,248,446 $2,061,814
==================================================================================================================
$ 11.04 $ 11.26 $ 11.53 $ 10.38 $ 10.21 $ 1.00
9,422 7,829 1,006,465 505,561 1,003,714 2,061,814
$100,065 $84,127 $10,265,305 $5,151,712 $ 9,929,426 $2,065,190
</TABLE>
The notes to the financials are an integral part of this report.
12
<PAGE>
PROVIDIAN SERIES TRUST
STATEMENTS OF OPERATIONS
For the period May 9, 1997* through September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Capital Income Growth and
Preservation Oriented Income
Portfolio Portfolio Portfolio
---------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest income........................................ $ -- $ -- $ --
Dividend income........................................ 75 -- 63
Less foreign taxes withheld.......................... -- -- --
---------------------------------------
TOTAL INVESTMENT INCOME................................ 75 -- 63
EXPENSES
Investment adviser fee (Note 3)........................ -- -- --
Accounting fee......................................... 2,448 2,448 2,396
Audit fee.............................................. 954 954 641
Custodian fees and expenses............................ 653 653 639
Trustee's fees (Note 3)................................ 883 883 865
Printing expense....................................... 2,039 2,039 1,997
Legal fee.............................................. 1,019 1,019 998
Insurance expense...................................... 1,277 1,277 1,251
Miscellaneous expense.................................. 179 177 171
---------------------------------------
Total operating expenses before reimbursement.......... 9,452 9,450 8,958
Expenses reimbursed by the Investment Adviser (Note 3)... (9,452) (9,450) (8,958)
---------------------------------------
NET EXPENSES........................................... 0 0 0
---------------------------------------
NET INVESTMENT INCOME.................................. 75 0 63
NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS AND FOREIGN CURRENCY
Net realized gain on:
Investments............................................. 23 -- 13
Foreign currency transactions........................... -- -- --
---------------------------------------
23 -- 13
Change in unrealized appreciation (depreciation)
during the period on:
Investments........................................... 96 4 2,552
Translations of assets and liabilities in foreign -- -- --
currencies............................................
96 4 2,552
---------------------------------------
NET REALIZED AND UNREALIZED GAIN........................ 119 4 2,565
---------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................... $ 194 $ 4 $ 2,628
=======================================
</TABLE>
* Commencement of investment operations.
The notes to the financials are an integral part of this report.
13
<PAGE>
<TABLE>
<CAPTION>
Capital Maximum High Fixed Money
Growth Appreciation Quality Income International Market
Portfolio Portfolio Stock Fund Fund Active Fund Fund
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ -- $ -- $ 41,380 $ 123,342 $ 19,655 $45,354
-- -- 58,471 -- 113,909 --
-- -- -- -- (12,453) --
- ---------------------------------------------------------------------------------
-- -- 99,851 123,342 121,111 45,354
-- -- 27,779 13,233 36,585 3,225
2,448 2,448 2,499 2,448 7,341 2,448
954 954 3,633 3,319 3,319 3,319
653 653 1,820 909 1,807 371
883 883 901 883 883 883
2,039 2,039 2,591 2,549 2,549 2,549
1,019 1,019 1,906 947 1,882 386
1,277 1,277 1,304 1,277 1,277 1,277
177 177 184 178 178 177
- ---------------------------------------------------------------------------------
9,450 9,450 42,617 25,743 55,821 14,635
(9,450) (9,450) (4,153) (7,420) (9,073) (9,394)
- ---------------------------------------------------------------------------------
0 0 38,464 18,323 46,748 5,241
- ---------------------------------------------------------------------------------
-- -- 61,387 105,019 74,363 40,113
-- 11 133,397 16,311 (163,294) --
-- -- -- -- (68,340) --
- ---------------------------------------------------------------------------------
-- 11 133,397 16,311 (231,634) --
3,943 4,042 1,343,093 72,062 367,971 --
-- -- -- -- (271) --
- ---------------------------------------------------------------------------------
3,943 4,042 1,343,093 72,062 367,700 --
- ---------------------------------------------------------------------------------
3,943 4,042 1,476,490 88,373 136,066 --
- ---------------------------------------------------------------------------------
$ 3,943 $4,053 $1,537,877 $193,392 $ 210,429 $40,113
=================================================================================
</TABLE>
The notes to the financials are an integral part of this report.
14
<PAGE>
PROVIDIAN SERIES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
For the period May 9, 1997* through September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Capital Income Growth
Preservation Oriented and Income
Portfolio Portfolio Portfolio
--------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
Net investment income............................................. $ 75 $ -- $ 63
Net realized gain................................................. 23 -- 13
Change in unrealized appreciation (depreciation)
during the period............................................... 96 4 2,552
--------------------------------------------
Net increase in net assets resulting from operations.......... 194 4 2,628
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................ -- -- --
FUND SHARE TRANSACTIONS (Note 5).................................. 13,945 261 61,653
--------------------------------------------
TOTAL INCREASE IN NET ASSETS...................................... 14,139 265 64,281
NET ASSETS:
Beginning of period............................................... -- -- --
--------------------------------------------
End of period (a)................................................. $14,139 $265 $64,281
============================================
(a) Including undistributed net investment income..................... $ 75 $265 $ 63
============================================
* Commencement of investment operations.
</TABLE>
The notes to the financials are an integral part of this report.
15
<PAGE>
<TABLE>
<CAPTION>
Capital Maximum High Fixed Money
Growth Appreciation Quality Income International Market
Portfolio Portfolio Stock Fund Fund Active Fund Fund
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ -- $ -- $ 61,387 $ 105,019 $ 74,363 $ 40,113
-- 11 133,397 16,311 (231,634) --
3,943 4,042 1,343,093 72,062 367,700 --
- -------------------------------------------------------------------------------------------------------
3,943 4,053 1,537,877 193,392 210,429 40,113
-- -- -- -- (40,113)
100,065 84,120 10,068,591 5,056,780 10,038,017 2,056,814
- -------------------------------------------------------------------------------------------------------
104,008 88,173 11,606,468 5,250,172 10,248,466 2,056,814
-- -- -- -- 5,000
- -------------------------------------------------------------------------------------------------------
$104,008 $88,173 $11,606,468 $5,250,172 $10,248,466 $2,061,814
=======================================================================================================
$ -- $ -- $ 61,837 $ 105,019 $ 74,363 $40,113
=======================================================================================================
</TABLE>
The notes to the financials are an integral part of this report.
16
<PAGE>
PROVIDIAN SERIES TRUST
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period May 9, 1997
(commencement of investment operations) through September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Capital Income Growth
Preservation Oriented and Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Net asset value, beginning of period................................ $ 10.00 $ 10.00 $ 10.00
------------ ----------- ----------
Income from investment operations:
Net investment income (1)........................................... 0.05 -- 0.01
Net realized and unrealized gain on investments..................... 0.26 0.66 0.79
------------ ----------- ----------
Total from investment operations.................................... 0.31 0.66 0.80
------------ ----------- ----------
Net asset value, end of period...................................... $ 10.31 $ 10.66 $ 10.80
============ =========== ==========
Total Return (2).................................................... 3.10% 6.60% 8.00%
============ =========== ==========
Ratios and supplemental data:
Net assets, end of period........................................... $ 14,139 $ 265 $64,281
Ratio of operating expenses to average net assets (1)(3)............ 0.00% 0.00% 0.00%
Ratio of operating expenses to average net assets before voluntary
expense reimbursement (1)(3)...................................... 334.45% 20,868.44% 69.36%
Ratio of net investment income to average net assets (3)............ 2.65% 0.00% 0.49%
Ratio of net investment income (loss) to average net assets
before voluntary expense reimbursement (1)(3)...................... (331.79%) (20,868.44%) (68.87%)
Net investment income (loss) before voluntary expense
reimbursement (1)(3)............................................... $ (6.88) $ (379.98) $ (1.55)
Portfolio turnover rate (4)......................................... 47% 0% 0%
</TABLE>
==============
(1) Net investment income is after reimbursement of certain fees and expenses by
Providian Investment Advisors, Inc. (See Note 3 to the financial
statements). Had Providian not undertaken to reimburse expenses related to
the Lifestyle Portfolios and Underlying Funds, net investment income per
share and ratio of operating expenses to average net assets would have been
as noted above.
(2) Total return figures are not annualized for periods less than one year.
Total returns does not reflect expenses that apply to the separate account
or related variable insurance contracts and inclusion of these charges would
result in reducing the total return figures for the period shown.
(3) Annualized for periods less than one year.
(4) Portfolio turnover rates are not annualized.
17
<PAGE>
PROVIDIAN SERIES TRUST
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period May 9, 1997
(commencement of investment operations) through September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Capital Maximum High
Growth Appreciation Quality
Portfolio Portfolio Stock Fund
<S> <C> <C> <C>
Net asset value, beginning of period................................ $ 10.00 $ 10.00 $ 10.00
-------- ------------ -----------
Income from investment operations:
Net investment income (1)........................................... -- -- 0.06
Net realized and unrealized gain on investments..................... 1.04 1.26 1.47
-------- ------------ -----------
Total from investment operations.................................... 1.04 1.26 1.53
-------- ------------ -----------
Net asset value, end of period...................................... $ 11.04 $ 11.26 $ 11.53
======== ============ ===========
Total Return (2).................................................... 10.40% 12.60% 15.30%
======== ============ ===========
Ratios and supplemental data:
Net assets, end of period........................................... $104,008 $ 88,173 $11,606,468
Ratio of operating expenses to average net assets (1)(3)............ 0.00% 0.00% 0.90%
Ratio of operating expenses to average net assets before voluntary
expense reimbursement (1)(3)...................................... 54.94% 71.72% 1.00%
Ratio of net investment income to average net assets (3)............ 0.00% 0.00% 1.43%
Ratio of net investment income (loss) to average net assets
before voluntary expense reimbursement (1)(3)..................... (54.94%) (71.72)% 1.34%
Net investment income (loss) before voluntary expense
reimbursement (1)(3)............................................... $ (1.00) $ (1.21) $ 0.06
Portfolio turnover rate (4)......................................... 0% 1% 13%
Average commission rate paid........................................ -- -- $ 0.1199
</TABLE>
- ----------------------
(1) Net investment income is after reimbursement of certain fees and expenses
by Providian Investment Advisors, Inc. (See Note 3 to the financial
statements). Had Providian not undertaken to reimburse expenses related to
the Lifestyle Portfolios and Underlying Funds, net investment income per
share and ratio of operating expenses to average net assets would have been
as noted above.
(2) Total return figures are not annualized for periods less than one year.
Total returns does not reflect expenses that apply to the separate account
or related variable insurance contracts and inclusion of these charges
would result in reducing the total return figures for the period shown.
(3) Annualized for periods less than one year.
(4) Portfolio turnover rates are not annualized.
18
<PAGE>
PROVIDIAN SERIES TRUST
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period May 9, 1997
(commencement of investment operations) through September 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Fixed International Money
Income Active Market
Fund Fund Fund
<S> <C> <C> <C>
Net asset value, beginning of period............................................... $ 10.00 $ 10.00 $ 1.00
---------- ----------- --------
Income from investment operations:
Net investment income(1)........................................................... 0.21 0.07 0.02
Net realized and unrealized gain on investments.................................... 0.17 0.14 --
---------- ----------- --------
Total from investment operations................................................... 0.38 0.21 0.02
---------- ----------- --------
Less Distributions:
Distributions from net investment investment income................................ -- -- (0.02)
========== =========== ========
Total distributions................................................................ -- -- (0.02)
========== =========== ========
Net asset value, end of period..................................................... $ 10.38 $ 10.21 $1.00
========== =========== ========
Total Return(2).................................................................... 3.80% 2.10% 2.00%
========== =========== ========
Ratios and supplemental data:
Net assets, end of period.......................................................... $5,250,172 $10,248,446 $2,061,814
Ratio of operating expenses to average net assets(1)(3)............................ 0.90% 1.15% 0.65%
Ratio of operating expenses to average net assets before voluntary
expense reimbursement(1)(3)...................................................... 1.26% 1.37% 1.81%
Ratio of net investment income to average net assets(3)............................ 5.16% 1.83% 4.97%
Ratio of net investment income (loss) to average net assets before voluntary
expense reimbursement(1)(3)...................................................... 4.79% 1.61% 3.81%
Net investment income (loss) before voluntary expense reimbursement (1)(3)......... $0.21 $0.07 $0.02
Portfolio turnover rate(4)......................................................... 168% 42% N/A
Average commission rate paid....................................................... -- $0.0207 N/A
</TABLE>
- ---------------
(1) Net investment income is after reimbursement of certain fees and expenses
by Providian Investment Advisors, Inc. (See Note 3 to the financial
statements). Had Providian not undertaken to reimburse expenses related to
the Lifestyle Portfolios and Underlying Funds, net investment income per
share and ratio of operating expenses to average net assets would have been
as noted above.
(2) Total return figures are not annualized for periods less than one year.
Total returns does not reflect expenses that apply to the separate account
or related variable insurance contracts and inclusion of these charges
would result in reducing the total return figures for the period shown.
(3) Annualized for periods less than one year.
(4) Portfolio turnover rates are not annualized.
19
<PAGE>
PROVIDIAN SERIES TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1997 (Unaudited)
NOTE 1 -- ORGANIZATION
Providian Series Trust (the "Trust") was organized as a Massachusetts business
trust on October 22, 1996 and is registered under the Investment Company Act of
1940 and the Securities Act of 1933, as a diversified, no-load, open-end
management investment company. 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. The Trust is currently composed
of nine series (the "Series") which consist of five investment portfolios
(Capital Preservation Portfolio, Income Oriented Portfolio, Growth and Income
Portfolio, Capital Growth Portfolio, and Maximum Appreciation Portfolio -
collectively, the "Investment Portfolios") and four underlying funds (Fixed
Income Fund, High Quality Stock Fund, International Active Fund, and Money
Market Fund - collectively, the "Underlying Funds") with each Fund having
differing investment objectives and policies. The Investment Portfolios seek to
achieve their investment objectives by investing within specific ranges among
the Underlying Funds. On February 3, 1997, Providian Life and Health Separate
Account V (the "Separate Account") made an initial purchase of shares of
beneficial interest in the amount of 5,000 shares of the Money Market Fund. On
May 9, 1997, the Separate Account purchased an additional 1,995,000 shares of
the Money Market Fund, 1,000,000 shares of the High Quality Stock Fund and
International Active Fund, and 500,000 shares of the Fixed Income Fund. Shares
of the Investment Portfolios are offered to separate accounts of insurance
companies to fund variable annuity contracts. The shares of the Underlying Funds
are purchased by the Investment Portfolios and are offered to qualified plans
and separate accounts of insurance companies to fund variable annuity contracts.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Trust in the preparation of its financial statements.
Estimates -- The preparation of the financial statements in conformity with
generally accepted accounting principles may require management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of these financial statements and the reported amounts
of increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
Valuation of Investments -- Securities held by the Funds (other than the Money
Market Fund) that are traded on a national securities exchange are valued on the
basis of the last sale price as of the close of business on the day the
securities are being valued, or lacking any sales, at the last quoted bid price.
Bonds and other fixed income securities with maturities greater than 60 days at
the time of purchase, are valued by a pricing service. 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. Short-term securities and debt securities with a remaining maturity
of 60 days or less, are valued at amortized cost which approximates market
value. The Money Market Fund by the approval of the Board of Trustees, utilizes
the amortized cost method for valuing securities, whereby all investments are
valued by reference to their acquisition cost as adjusted for amortization of
premium or accretion of discount.
Foreign Securities -- Foreign securities traded on a recognized securities
exchange are valued at the last sale price in the principal market where they
are traded, or if closing prices are unavailable, at the last bid price
available prior to the time a Fund's net assets value is determined. Foreign
prices are furnished by quotation services expressed in the local currency's
value and translated into the U.S. dollars at the current rate of exchange.
20
<PAGE>
NOTE 2 (CONTINUED)
Repurchase Agreements -- The Trust may enter into repurchase agreements with
institutions that the Trust's investment advisor, Providian Investment Advisors,
Inc. has determined are creditworthy pursuant to criteria adopted by the Board
of Trustees. In connection with transactions in repurchase agreements, the
Trust's custodian takes possession of the underlying collateral securities, the
value of which is at least equal to the principal amount, including interest, of
the repurchase agreement. To the extent that the term of any repurchase
agreement exceeds one business day, the value of the collateral is marked-to-
market on a daily basis to ensure the adequacy of the collateral. In the event
of default of the obligation to repurchase, the Trust has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral or proceeds may
be subject to legal proceedings.
Investment Transactions -- Investment security transactions are accounted for on
the date the securities are purchased or sold. Realized gains and losses from
security transactions are determined on an identified cost basis.
Investment Income -- Dividend income is recorded on the ex-dividend date.
Interest income, which includes accretion of original discount, is accrued as
earned. Investment income is recorded net of foreign taxes withheld where
recovery of such taxes is uncertain.
Foreign Currency Translations -- The records of the Trust are maintained in U.S.
dollars. Investment securities and other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars based on current exchange
rates supplied by a quotation service. The affects of changes in foreign
currency exchange rates on investments in securities are included in net
realized and unrealized gain or loss on investments in the statement of
operations.
Reported net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of forward currency
contracts, disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on security transactions, and the
difference between the amount of net investment income accrued and the U.S.
dollar amount actually received. Net unrealized foreign exchange gains and
losses arise from changes in the value of receivables and payables resulting
from changes in exchange rates.
Forward Currency Contracts -- A forward foreign currency contract ("Forward") is
an agreement between two parties to buy and sell a currency at a set price on a
future date. The market value of the Forward fluctuates with changes in currency
exchange rates. The Forward is marked-to-market daily and the change in the
market value is recorded by a Fund as an unrealized gain or loss. Realized gains
and losses are recognized when contracts are settled and are reflected in the
statement of operations. The Fund could be exposed to risk if a counter-party is
unable to meet the terms of the contract or if the value of the currency changes
unfavorably. The Fund may enter into these contacts 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 purpose of increasing exposure to a foreign
currency to hedge against adverse changes in the value of another currency when
exchange rates between the two currencies are positively correlated.
Expenses -- Expenses directly attributable to a Investment Portfolio or
Underlying Fund are charged to that Portfolio or Fund. Expenses not directly
attributable to a Portfolio or Fund are allocated among the affected Portfolios
and Funds. Costs related to the organization and registration of the Trust have
been funded by Providian Corporation and its subsidiaries. The Trust will not
reimburse Providian for these organizational costs.
Distributions to Shareholders -- Each of the Investment Portfolios and
Underlying Funds (except the Money Market Fund) declares and distributes
dividends from net investment income and distributes its net realized capital
gains, if any, at least annually. The Money Market Fund declares dividends daily
and distributes monthly. All distributions are paid in shares of the relevant
Portfolio/Fund at net asset value. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
differing treatments for market discount, foreign currency transactions, losses
deferred due to wash sales, "post October 31 losses" and excise tax regulations.
Distributions are recorded on the ex-dividend date.
21
<PAGE>
NOTE 2 (CONTINUED)
Federal Income Taxes -- Each Investment Portfolio and Underlying Fund is treated
as a separate entity for federal tax purposes. Each Investment Portfolio and
Underlying Fund intends to qualify each year as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986. By so qualifying, each
Investment Portfolio and Underlying Fund will not be subject to federal income
taxes to the extent that they distribute all of their taxable income, including
realized capital gains, for the fiscal year. In addition, by distributing
substantially all of their net investment income, capital gains and certain
other amounts during the calendar year, the Investment Portfolios and Underlying
Funds will not be subject to a federal excise tax.
NOTE 3 -- AGREEMENTS AND FEES
Providian Investment Advisors, Inc. (the "Adviser"), a wholly owned subsidiary
of Providian Corporation, a wholly owned indirect subsidiary of AEGON N.V., has
been retained under an Investment Advisory Agreement (the "Agreement") with the
Trust, in general to supervise the management and investment program of the
Trust. In addition, the Adviser generally manages the affairs of the Trust
subject to the supervision of the Board of Trustees. The Adviser does not
receive an investment management fee for the advisory and asset allocation
services it provides to the Investment Portfolios.
As full compensation for its services under the Agreement, each Underlying Fund
will pay the Adviser a monthly fee at the following rates based on the average
daily net assets of each Fund:
High Quality Stock Fund 0.65%
Fixed Income Fund 0.65%
International Active Fund 0.90%
Money Market Fund 0.40%
Under an Advisory Agreement with each Investment Portfolio and Underlying Fund,
the Adviser has agreed to waive all operating expenses of each Portfolio and to
limit the operating expenses of each Underlying Fund so that the ratio of
expenses (excluding advisory fees) to net assets on an annual basis incurred
does not exceed 0.25%. Expenses in excess of such amount will be assumed by the
Adviser until the earlier of the end of three years after commencement of
operations or the termination by the Trustees or the Funds' or the Portfolios'
shareholders, but not the Adviser, of the Trust's Advisory Agreement with the
Adviser. For the period ended September 30, 1997, Providian Investment Advisors,
Inc. had agreed to reimburse the Trust $76,800 for expenses in excess of the
voluntary expense limitations, of which $23,795 was owed to the Trust as of
September 30, 1997.
Providian Investment Advisors, Inc. has entered into a Sub-Advisory Agreement
with Atlanta Capital Management, L.L.C. to serve as sub-adviser to the
Investment Portfolios. Subject to the supervision and direction of the Board of
Trustees, they will determine how each Investment Portfolio's assets will be
invested in the Underlying Funds. Atlanta Capital also serves as sub-adviser of
the High Quality Stock Fund and the Fixed Income Portfolio 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.
Providian Investment Advisors, Inc. has entered into a Sub-Advisory Agreement
with Blairlogie Capital Management to serve as sub-adviser to the International
Active Fund. As compensation for its services, the Adviser pays Blairlogie for
which it receives a fee equal to 0.65% annually on assets up to $50 million, and
0.50% annually on assets above $50 million.
Providian Investment Advisors, Inc. has entered into a Sub-Advisory Agreement
with Federated Investment Counseling to serve as sub-adviser to the Money Market
Fund. As compensation for its services, the Adviser pays Federated for which it
receives a fee equal to 0.25% annually on assets up to $75 million, and 0.20%
annually on assets above $75 million.
Each Trustee of the Trust who is not an interested person of the Trust or
Adviser or Sub-Adviser receives $1,500 for each Trustees' meeting attended.
22
<PAGE>
NOTE 4 -- INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of investments, excluding
short-term securities, for the period ended September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Non-U.S. U.S. Non-U.S. U.S.
Government Government Government Government
Purchases Purchases Sales Sales
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Preservation Portfolio............... $ 17,014 $ -- $ 3,026 $ --
Income Oriented Portfolio.................... 261 -- -- --
Growth and Income Portfolio.................. 61,956 -- 262 --
Capital Growth Portfolio..................... 100,065 -- -- --
Maximum Appreciation Portfolio............... 84,520 -- 404 --
High Quality Stock Fund...................... 10,995,555 -- 981,947 --
Fixed Income Fund............................ -- 9,297,186 -- 5,495,248
International Active Fund.................... 12,547,536 -- 3,351,038 --
Money Market Fund............................ -- -- -- --
</TABLE>
The identified cost of investments in securities and repurchase agreements owned
by the Trust for federal income tax purposes and their respective gross
unrealized appreciation and depreciation at September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Identified Unrealized Unrealized Appreciation
Cost Appreciation (Depreciation) (Depreciation)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Preservation Portfolio............... $ 14,011 $ 96 $ -- $ 96
Income Oriented Portfolio.................... 261 4 -- 4
Growth Income Portfolio...................... 61,707 2,552 -- 2,552
Capital Growth Portfolio..................... 100,065 3,943 -- 3,943
Maximum Appreciation Portfolio............... 84,127 4,042 -- 4,042
High Quality Stock Fund...................... 10,265,305 1,407,131 (64,038) 1,343,093
Fixed Income Fund............................ 5,151,712 72,062 -- 72,062
International Active Fund.................... 9,929,426 778,222 (410,251) 367,971
Money Market Fund............................ 2,065,190 -- -- --
</TABLE>
The aggregate cost of each Portfolio's investments was the same for book and
federal income tax purposes at September 30, 1997.
23
<PAGE>
NOTE 5 - SHAREHOLDER TRANSACTIONS:
Transactions in shares and dollars were as follows for the period May 9, 1997*
through September 30, 1997:
<TABLE>
<CAPTION>
Capital Preservation Portfolio Income Oriented Portfolio
Shares Dollars Shares Dollars
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold................................ 1,668 $ 16,970 25 $ 261
Shares issued to shareholders in
reinvestment of dividends................. -- -- -- --
Shares redeemed............................ (296) (3,025) -- --
--------- ---------- --------- -----------
Net increase............................... 1,372 $ 13,945 25 $ 261
========= ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Growth And Income Portfolio Capital Growth Portfolio
Shares Dollars Shares Dollars
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold................................ 5,975 $ 61,916 9,422 $ 100,065
Shares issued to shareholders in
reinvestment of dividends................. -- -- -- --
Shares redeemed............................ (24) (263) -- --
--------- ---------- --------- -----------
Net increase............................... 5,951 $ 61,653 9,422 $ 100,065
========= ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Maximum Appreciation Portfolio High Quality Stock Fund
Shares Dollars Shares Dollars
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold................................ 7,869 $ 84,524 1,014,079 $10,152,495
Shares issued to shareholders in
reinvestment of dividends................. -- -- -- --
Shares redeemed............................ (40) (404) (7,614) (83,904)
--------- ---------- --------- -----------
Net increase............................... 7,829 $ 84,120 1,006,465 $10,068,591
========= ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Fixed Income Fund International Active Fund
Shares Dollars Shares Dollars
--------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold................................ 505,718 $5,058,397 1,003,724 $10,038,124
Shares issued to shareholders in
reinvestment of dividends................. -- -- -- --
Shares redeemed............................ (157) (1,617) (10) (107)
--------- ---------- --------- -----------
Net increase............................... 505,561 $5,056,780 1,003,714 $10,038,017
========= ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Money Market Fund
Shares Dollars
--------- ----------
<S> <C> <C>
Shares sold................................ 2,060,124 $2,060,124
Shares issued to shareholders in
reinvestment of dividends................. 40,113 40,113
Shares redeemed............................ (43,423) (43,423)
--------- ----------
Net increase............................... 2,056,814 $2,056,814
========= ==========
</TABLE>
* Commencement of investment operations.
24
<PAGE>
NOTE 6 FORWARD FOREIGN CURRENCY CONTRACTS
At September 30, 1997, the outstanding forward exchange currency contracts,
which contractually obligate the Trust to deliver currencies at a specified
date, were as follows:
INTERNATIONAL ACTIVE FUND
- -------------------------
<TABLE>
<CAPTION>
U.S. Dollar
Cost on U.S. Dollar Unrealized
Currency Purchased Currency Sold Settlement Origination Current Appreciation/
Date Date Value (Depreciation)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIM USD 10/01/1997 $ 87,453 $ 87,655 $ 202
GBP USD 10/03/1997 554,680 558,599 3,919
JPY USD 10/16/1997 1,002,339 999,500 (2,839)
-------------------------------------------------------
$1,644,472 $1,645,754 $ 1,282
</TABLE>
Glossary of Terms
- -----------------
FIM - Finnish Markka
GBP - British Pound
JPY - Japanese Yen
USD - United States Dollar
25
<PAGE>
PROVIDIAN SERIES TRUST
____________________
TRUSTEES AND EXECUTIVE OFFICERS
Thomas J. Hartlage, Trustee, Chief Executive Officer and President*
David L. Eager, Trustee
Jesse A. Holshouser III, Trustee
William T. Mills III, Trustee
Kirk Buese, Trustee *
Michael Ayers, Chief Financial Officer
Kimberly A. Scouller, Secretary
Steve Zeitz, Treasurer
Michael Herp, Vice President
* Interested Trustee
____________________
Ernst & Young LLP, Independent Auditors
Jorden Burt Berenson & Johnson LLP, Legal Counsel
Providian Investment Advisors, Inc., Investment Advisor
- --------------------------------------------------------------------------------
The information contained in this report is intended for general informational
purposes only. This report is not authorized for distribution to prospective
investors unless preceded or accompanied by current Trust and Separate Account
prospectuses which contain important information concerning the Trust, the
Company, and its current public offering of variable annuity contracts.
- --------------------------------------------------------------------------------
26
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements/3/
Statement of Assets and Liabilities of Providian Series Trust as of
September 30, 1997
(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 Advisors, Inc./3/
(5)(b) Sub-Advisory Agreement between Providian Investment Advisors,
Inc. and Atlanta Capital Management Company, LLC/3/
(5)(c) Sub-Advisory Agreement between Providian Investment Advisors,
Inc. and Blairlogie Capital Management/3/
(5)(d) Sub-Advisory Agreement between Providian Investment Advisors,
Inc. and Federated Investment Counseling /3/
(6) Not Applicable
(7) Not Applicable
(8) Custody Agreement/3/
(9) Administrative Agreement/3/
(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) Financial Data Schedule accompanying NSAR Filing as of
9/30/97./3/
(18) Not Applicable
____________________
/1/ Previously filed with Registrant's Initial Registration Statement on
Form N-1A on November 5, 1996.
/2/ Previously filed with Registrant's Pre-Effective Amendment No. 2 on
March 14, 1997.
/3/ Filed with this 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 POST-EFFECTIVE AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT HAS BEEN SIGNED ON BEHALF OF THE REGISTRANT IN THE CITY
OF LOUISVILLE AND COMMONWEALTH OF KENTUCKY ON THE 31ST DAY OF OCTOBER, 1997.
Providian Series Trust
By: /s/ Thomas J. Hartlage
---------------------
Thomas J. Hartlage
President and Trustee
AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS POST-EFFECTIVE AMENDMENT NO.
1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES WITH THE REGISTRANT AND ON THE DATES INDICATED ON THIS 31ST DAY
OF OCTOBER, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Thomas J. Hartlage President and Trustee October 31, 1997
----------------------
Thomas J. Hartlage
/s/ Michael G. Ayers Chief Financial Officer October 31, 1997
--------------------
Michael G. Ayers
</TABLE>
<PAGE>
PROVIDIAN SERIES TRUST
INDEX TO EXHIBITS
EXHIBIT 5(a) INVESTMENT ADVISORY AGREEMENT BETWEEN
PROVIDIAN SERIES TRUST AND PROVIDIAN
INVESTMENT ADVISORS, INC.
EXHIBIT 5(b) SUB-ADVISORY AGREEMENT BETWEEN PROVIDIAN
INVESTMENT ADVISORS, INC. AND ATLANTA
CAPITAL MANAGEMENT
EXHIBIT 5(c) SUB-ADVISORY AGREEMENT BETWEEN PROVIDIAN
INVESTMENT ADVISORS, INC. AND BLAIRLOGIE
CAPITAL MANAGEMENT
EXHIBIT 5(d) SUB-ADVISORY AGREEMENT BETWEEN PROVIDIAN
INVESTMENT ADVISORS, INC. AND FEDERATED
INVESTMENT COUNSELING
EXHIBIT 8 CUSTODY AGREEMENT
EXHIBIT 9 ADMINISTRATIVE AGREEMENT
Exhibit 17 FINANCIAL DATA SCHEDULE
<PAGE>
Exhibit 5(a)
INVESTMENT ADVISORY AGREEMENT
-----------------------------
Between PROVIDIAN SERIES TRUST
and
PROVIDIAN INVESTMENT ADVISORS, INC.
THIS INVESTMENT ADVISORY AGREEMENT is entered into as of this 25th day of
March, 1997, by and between Providian Series Trust (the "Trust"), a
Massachusetts business trust, on behalf of its nine separate series consisting
of five investment portfolios (collectively, the "Portfolios") and four
underlying funds (collectively, the "Funds"), and Providian Investment Advisors,
Inc. (the "Adviser"), a Delaware corporation.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust currently consists of nine separate series, five
Portfolios which invest in four underlying Funds, each of which Portfolios and
Funds operates as an open-end management investment company under the 1940 Act;
WHEREAS, the Adviser is an investment adviser, registered as such pursuant
to the provisions of the Investment Advisers Act of 1940 (the "Advisers Act"),
and is engaged in the business of rendering investment advice and investment
management services as an independent contractor;
WHEREAS, the Trust desires and has agreed to retain the Adviser to render
advice and services to the Trust in connection with the management and operation
of the Portfolios and the Funds pursuant to terms and conditions set forth
herein; and
WHEREAS, the Adviser desires and has agreed to render such advice and
furnish such services pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, conditions and agreements contained herein, and for such
other good and valuable consideration the receipt and sufficiency of which are
hereby
<PAGE>
acknowledged, the parties, each intending to be legally bound hereby, mutually
agree as follows:
1. Employment. The Trust hereby employs the Adviser, and the Adviser
hereby accepts such employment, to render investment advice and investment
management services with respect to the Portfolios and the Funds, subject to the
supervision and direction of the Board of Trustees of the Trust (the
"Trustees"). In the event the Trust wishes to retain the Adviser to render
investment advisory services to one or more additional portfolios or funds,
other than the Portfolios and the Funds, the Trust shall notify the Adviser in
writing. If the Adviser is willing to render such services, it shall notify the
Trust in writing, whereupon such portfolio or fund shall become a Portfolio or
Fund hereunder and be subject to this Agreement.
2. Adviser Duties. The Adviser shall, except as otherwise provided
herein, render or make available all services needed for the management and
operation of the Portfolios and the Funds, and shall, as part of its duties
hereunder, (i) furnish advice and recommendations with respect to the investment
of the assets of the Portfolios and the Funds and the purchase and sale of the
portfolio securities of the Portfolios and the Funds, including the taking of
such other steps as may be necessary to implement such advice and
recommendations, (ii) furnish reports, statements and other data on securities,
economic conditions and other pertinent subjects which the Trustees may request,
(iii) furnish such office space and personnel as is needed by the Portfolios and
the Funds, and (iv) in general, superintend and manage the investments of the
Portfolios and the Funds, subject to the ultimate supervision and direction of
the Trustees. It is agreed that the standard of care imposed upon the Adviser
is to act with the care, skill, prudence and diligence under the circumstances
then prevailing that a prudent person acting in a like capacity and familiar
with such matters would use in the conduct of an enterprise of like character
and with like aims. In performing these duties, the Adviser:
(a) Shall not disclose or use any records or information obtained
pursuant to this Agreement (excluding investment research and investment advice)
in any manner whatsoever except as expressly authorized in this Agreement or in
the ordinary course of business in connection with placing orders for the
purchase and sale of securities, and shall keep confidential any information
obtained pursuant to the Agreement, and disclose such information only if the
Trust has authorized such disclosure, or if such disclosure is required by
applicable federal or state law or regulations or regulatory authorities having
the requisite authority. The Trust and the Adviser shall not disclose or use any
records or information respecting the Adviser obtained pursuant to this
Agreement in any manner whatsoever except as expressly authorized in this
Agreement, and shall keep confidential any information obtained pursuant to this
Agreement, and disclose such information only as expressly authorized in this
Agreement, if the Trust has authorized such disclosure, or if such disclosure is
required by applicable federal or state law or regulations or regulatory
authorities having the requisite authority.
<PAGE>
(b) Shall be responsible for making reasonable inquiries and for
reasonably ensuring that any employee of the Adviser has not, to the best of the
Adviser's knowledge:
(i) been convicted, in the last ten (10) years, of any felony or
misdemeanor involving the purchase or sale of any security or arising out of
such person's conduct as an underwriter, broker, dealer, investment adviser,
municipal securities dealer, government securities broker, government securities
dealer, transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesperson, or employee of
any investment company, bank, insurance company, or entity or person required to
be registered under the Commodity Exchange Act; or
(ii) been permanently or temporarily enjoined by reason of any
misconduct, by order, judgment, or decree of any court of competent jurisdiction
from acting as an underwriter, broker, dealer, investment adviser, municipal
securities dealer, government securities broker, government securities dealer,
transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesperson or employee of
any investment company, bank, insurance company, or entity or person required to
be registered under the Commodity Exchange Act or from engaging in or continuing
any conduct or practice in connection with any such activity or in connection
with the purchase or sale of any security.
(c) Shall provide to the Trust by April 1 of each calendar year a copy
of the Adviser's Form ADV as amended and most recently filed with the Securities
and Exchange Commission ("SEC") and a list of persons who the Adviser has
authorized to give written and/or oral instructions to custodians of Trust
assets for the Trust.
3. Best Efforts. The Adviser hereby agrees to use its best judgment and
efforts in rendering the advice and services with respect to the Portfolios and
the Funds as contemplated by this Agreement. The Adviser further agrees to use
its best efforts in the preparation of reports and information and in the
management of the respective assets of the Portfolios and the Funds pursuant to
this Agreement. For this purpose the Adviser shall, at its own expense,
maintain such staff and employ or retain such personnel and consult with such
other persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the Adviser shall be
deemed to include persons employed or retained by the Adviser to furnish
statistical, research, and other factual information, advice regarding economic
factors and trends, information with respect to technical and scientific
developments, and such other information, advice and assistance as the Adviser
may desire and request. It is anticipated that the Adviser will, and the
Adviser is authorized to retain the services of one or more Sub-Advisers to
render advice and services to the Portfolios and the Funds.
<PAGE>
4. Independent Contractor. The Adviser shall, for all purposes herein,
be deemed to be an independent contractor, and shall, unless otherwise expressly
provided and authorized, have no authority to act for or represent the Trust,
the Portfolios or the Funds in any way, or in any way be deemed an agent of the
Trust, the Portfolios or the Funds. It is expressly understood and agreed that
the services to be rendered by the Adviser pursuant to the provisions of this
Agreement are not to be deemed exclusive with respect to the Adviser's rendering
of services, and the Adviser shall therefore be free to render similar or
different services to others, provided, that its ability to render the services
described herein shall not be impaired thereby.
5. Furnishing of Information. (a) The Adviser shall from time to time
furnish to the Trust detailed statements of the investments and assets of the
Portfolios and the Funds. The Adviser shall provide any materials reasonably
related to the investment advisory services provided hereunder as may be
reasonably requested in writing by the designated officers of the Trust, the
Portfolios or the Funds or as may be required by any governmental agency having
jurisdiction. The Trust shall from time to time furnish to the Adviser
information pertaining to the investment objectives and needs of the Portfolios
and the Funds, and shall make available to the Adviser such financial reports,
proxy statements, legal and other information in the possession of or available
to the Trust relating to Portfolio and Fund investments, as the same may be
relevant to the performance by the Adviser of its obligations hereunder. The
Trust shall furnish such other information as the Adviser may reasonably
request.
(b) The Adviser has reviewed the Trust's registration statement, as
amended and supplemented from time to time, filed with the SEC (the
"Registration Statement") and represents and warrants that, with respect to the
disclosure about the Adviser or information relating, directly or indirectly, to
the Adviser, such Registration Statement contains, as of the date hereof, no
untrue statement of any material fact and does not omit any statement of a
material fact which was required to be stated therein or necessary to make the
statements contained therein not misleading. The Adviser further represents and
warrants that it is a duly registered investment adviser under the Advisers Act
and a duly registered investment adviser in all states in which the Adviser is
required to be registered. The Adviser agrees promptly to provide written
notice to the Trust of any change of ownership of the Adviser and any other
matter which is disclosed in the Registration Statement and becomes untrue.
6. Ownership of Records. The Adviser agrees that all records which it
maintains for the Portfolios and the Funds shall be the property of the
Portfolios and the Funds, and that it shall surrender promptly to the designated
officers of the Portfolios and the Funds any such records upon request. The
Adviser further agrees to preserve for the period prescribed by the rules and
regulations of the SEC all records as are required to be maintained pursuant to
said rules. The Adviser agrees that it will maintain all records and accounts
regarding the investment activities of the Portfolios and the Funds in a
confidential manner. Within five (5) business days of a written request, all
such records
<PAGE>
and accounts shall be made available to the accountants or auditors of the
Portfolios and the Funds during regular business hours at the Adviser's offices.
7. Relationship with Sub-Advisers. In connection with the rendering of
services required under this Agreement, the Adviser has entered into agreements
dated as of March 25, 1997 (the "Sub-Advisory Agreements"), with Atlanta Capital
Management Company, LLC, Blairlogie Capital Management and Federated Investment
Counseling (collectively, "Sub-Advisers"), pursuant to which the Sub-Advisers
will render portfolio management services to the Adviser with respect to the
various Portfolios and Funds, subject to the supervision of the Adviser. It is
acknowledged and agreed that the Sub-Advisers will be subject to the investment
restrictions as set forth in the 1940 Act and the rules and regulations
thereunder, the Internal Revenue Code of 1986, as amended, the supervision and
control of the Trustees, the specific instructions and limitations as the
Trustees or the Adviser may adopt and communicate to the Sub-Advisers from time
to time, and the investment objectives, policies and restrictions of the
Portfolios and the Funds. In consideration for the services to be rendered by
the Sub-Advisers pursuant to the Sub-Advisory Agreements, the Adviser shall be
solely responsible for paying the Sub-Advisers a fee based on the daily net
assets under management by the Sub-Advisers.
8. Tender Offers. The Adviser hereby agrees that whenever the Adviser
has determined that the Portfolios and the Funds should tender securities
pursuant to a "tender offer solicitation," the Adviser shall designate an
affiliate as the "tendering dealer," so long as such affiliate is legally
permitted to act in such capacity under the federal securities laws, the rules
promulgated thereunder and the rules of any securities exchange or association
of which such affiliate may be a member. Such affiliated dealer shall not be
obligated to make any additional commitments of capital, expense or personnel
beyond that committed as of the date of this Agreement (other than normal
periodic fees or payments necessary to maintain its corporate existence and its
membership in the National Association of Securities Dealers, Inc.). This
Agreement shall not obligate the Adviser or such affiliate to (i) act pursuant
to the foregoing requirement under any circumstance in which either might
reasonably believe that liability might be imposed upon it as a result of so
acting, or (ii) institute legal or other proceedings to collect fees which may
be considered to be due to it from others as a result of such a tender, unless
the Portfolios and the Funds shall enter into an agreement with the Adviser or
such affiliate to reimburse it for all expenses connected with attempting to
collect such fees (including legal fees and expenses and that portion of the
compensation due to their respective employees which amount is directly
attributable to the time involved in attempting to collect such fees).
9. Allocation of Costs and Expenses. The Adviser shall bear and pay the
costs of rendering its services pursuant to the terms of this Agreement,
including the fees paid to any Sub-Adviser which the Adviser may retain and any
value added taxes due in connection therewith. The Portfolios and the Funds
shall bear and pay for all other expenses of their operation, including but not
limited to, organizational and offering expenses and expenses incurred in
connection with the issuance and registration of
<PAGE>
shares; fees of the custodian and transfer agent; costs and expenses of pricing
and calculating the daily net asset value of the shares and of maintaining the
books of account required by the 1940 Act; expenditures in connection with
meetings of shareholders and Trustees, other than those called solely to
accommodate the Adviser; salaries of officers and fees and expenses of Trustees
or members of any advisory board or committee who are not affiliated with or
interested persons of the Trust or the Adviser; salaries of personnel involved
in placing orders for the execution of portfolio transactions; insurance
premiums on property or personnel of the Portfolios and the Funds which inure to
their benefit; the cost of preparing and printing reports, proxy statements and
prospectuses of the Trust or other communications for distribution to its
shareholders; legal, auditing, and accounting fees; trade association dues; the
Trust's portion of any Rule 24f-2 fees under the 1940 Act; fees and expenses of
registering and maintaining registration of shares for sale under applicable
federal securities laws; and all other charges and costs associated with the
Portfolios' and the Funds' operations, plus any extraordinary and non-recurring
expenses, except as otherwise prescribed herein. To the extent the Adviser
incurs any costs or performs any services which are an obligation of the
Portfolios and the Funds as set forth herein and to the extent such costs or
services have been reasonably rendered, (a) the Portfolios and the Funds shall
promptly reimburse the Adviser for such costs and expenses, and (b) the Adviser
shall be entitled to recover from the Portfolios and the Funds the actual costs
incurred by the Adviser in rendering such services subject to any limitation on
expenses set forth in the Registration Statement. The Portfolios, as
shareholders of the underlying Funds, will indirectly bear a proportionate share
of any investment advisory fees and other expenses paid by the underlying Funds.
10. Advisory Fees. (a) In exchange for the rendering of advice and
services pursuant hereto, each Fund shall pay to the Adviser, and the Adviser
shall accept as full compensation for all investment advisory services furnished
or provided to the Portfolios and the Funds and as full reimbursement for all
expenses assumed by the Adviser, an advisory fee as set forth in the
Supplements to this Agreement.
(b) The advisory fee shall be accrued daily by the Funds and paid to
the Adviser at the end of each calendar month.
(c) In the case of termination of this Agreement during any month, the
advisory fee for that month shall be calculated on the basis of the number of
business days during which it is in effect for that month.
(d) The advisory fee payable by the Funds hereunder shall be reduced
to the extent that an affiliate of the Adviser has actually received cash
payments of tender offer solicitation fees (less certain costs and expenses
incurred in connection therewith) as referred to in Paragraph 8 hereof.
11. Compliance with Applicable Law. Nothing contained herein shall be
deemed to require the Portfolios or the Funds to take any action contrary to (a)
the Agreement and Declaration of Trust of the Trust, (b) the By-laws of the
Trust, (c) the
<PAGE>
Registration Statement or (d) any applicable statute or regulation. Nothing
contained herein shall be deemed to relieve or deprive the Trustees of their
responsibility for and control of the conduct of the affairs of the Portfolios
and the Funds.
12. Liability. (a) In the absence of willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Adviser, the Adviser shall not be subject to liability to the Portfolios
or the Funds or to any shareholder of the Portfolios or the Funds for any act or
omission in the course of or in connection with rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security by the Portfolios or the Funds.
(b) The Adviser agrees to indemnify and hold harmless, the Trust, any
affiliated person within the meaning of Section 2(a)(3) of the 1940 Act
("affiliated person") of the Trust, and each person, if any, who, within the
meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"), controls
("controlling person") the Trust (collectively, "Indemnified Persons") against
any and all losses, claims, damages, liabilities or litigation (including legal
and other expenses) to which an Indemnified Person may become subject under the
1933 Act, the 1940 Act, the Advisers Act, any other statute, at common law or
otherwise, arising out of the Adviser's responsibilities to the Trust which (i)
may be based upon any negligence or willful misconduct by the Adviser, any of
its employees or representatives, or any affiliate of or any person acting on
behalf of the Adviser, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, or
the omission or alleged omission to state therein a material fact required to be
stated or necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information furnished to the
Trust, or any affiliated person of the Trust by the Adviser or any affiliated
person of the Adviser; provided, however, that in no case is the Adviser's
indemnity in favor of Indemnified Persons deemed to protect such persons against
any liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or negligence in the performance of his or her
duties or by reason of reckless disregard of obligations and duties under this
Agreement.
(c) Notwithstanding the foregoing, the Adviser agrees to reimburse the
Portfolios and the Funds for any and all costs, expenses, and counsel and
Trustees' fees reasonably incurred by the Portfolios and the Funds in connection
with (i) preparation, printing and distribution of proxy statements, (ii)
amendments to their Registration Statement, (iii) the holding of meetings of
shareholders or Trustees, (iv) the conduct of factual investigations, and (v)
any legal or administrative proceedings (including any applications for
exemptions or determinations by the SEC) which the Portfolios and the Funds
incur as a result of action or inaction on the part of the Adviser where the
action or inaction necessitating such expenditures is (A) directly or indirectly
related to any transactions or proposed transaction in the shares or control of
the Adviser or its affiliates (or litigation related to any transactions or
proposed transaction involving such shares or control) which shall have been
undertaken without the prior express approval of the Trustees, or (B) within the
sole control of the Adviser or any of its affiliates or any of
<PAGE>
their respective officers, directors, employees or shareholders. So long as this
Agreement remains in effect, the Adviser shall pay to the Portfolios and the
Funds the amount due for expenses subject to this Subparagraph 12(b) within
thirty (30) days after a bill or statement has been received by the Portfolios
and the Funds therefor. This provision shall not be deemed to be a waiver of any
claim which the Portfolios and the Funds may have or may assert against the
Adviser or others for costs, expenses, or damages heretofore incurred by the
Trust or for costs, expenses, or damages the Portfolios or the Funds may
hereafter incur which are not reimbursable to it hereunder.
(d) No provision of this Agreement shall be construed to protect any
Trustee or officer of any Portfolio or Fund, or any director or officer of the
Adviser from liability in violation of Sections 17(h) and (i) of the 1940 Act.
(e) The Adviser understands that the obligations of this Agreement are
not personally binding upon any shareholder, Trustee, officer, employee or agent
of the Portfolios or Funds, but bind only the Trust's property. The Adviser
represents that it has notice of the provisions of the Agreement and Declaration
of Trust of the Trust disclaiming shareholder, Trustee, officer, employee and
agent liability for acts or obligations of the Trust.
13. Term of Agreement. This Agreement shall become effective on the date
hereof and shall continue in effect with respect to any Portfolio or Fund for
two years from such date unless sooner terminated as hereinafter provided, and
shall continue in effect from year to year thereafter so long as such
continuation is approved at least annually with respect to any Portfolio or Fund
by (i) the Trustees or by vote of a majority of the outstanding voting
securities of the Portfolios and the Funds, and (ii) the vote of a majority of
the Trustees who are not parties to this Agreement or interested persons of any
such party, with such vote being cast in person at a meeting called for the
purpose of voting on such approval.
14. Termination. This Agreement may be terminated with respect to any
Portfolio or Fund at any time, without payment of any penalty, (a) by the
Trustees or by vote of a majority of the outstanding voting securities of such
Portfolio or Fund, upon sixty (60) days written notice to the Adviser, or (b) by
the Adviser upon sixty (60) days written notice to the Trust. This Agreement
shall terminate automatically in the event of any transfer or assignment hereof,
as defined in the 1940 Act. Paragraphs 2(a), 6, 12 and 21 and Section 4 of the
Supplements to this Agreement (subject to the following sentence) shall survive
the termination of this Agreement. In the event of a termination under
subparagraph (a) above, the Adviser shall be relieved from its obligation to pay
the Trust's operating expenses in excess of .25% as set forth in Section 4 of
the Supplements to this Agreement. In the event of a termination under
subparagraph (b) above, the Adviser shall continue to be obligated to pay such
amount as set forth in Section 4 of the Supplements to this Agreement until the
end of the third year after commencement of operations of the Trust.
<PAGE>
15. No Waiver. The waiver by any party of any breach of or default
under any provision or portion of this Agreement shall not operate as or be
construed to be a waiver of any subsequent breach or default.
16. Severability. The provisions of this Agreement shall be considered
severable and if for any reason any provision of this Agreement which is not
essential to the effectuation of the basic purpose of this Agreement is deemed
to be invalid or contrary to any existing or future law, such invalidity shall
not impair the operation of or affect any other provision of this Agreement
which is valid.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
18. Entire Agreement. This Agreement represents the entire understanding
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior understandings or agreements between the parties
pertaining to the subject matter hereof, whether oral or written. This
Agreement may only be modified or amended by mutual written agreement of the
parties hereto and, as required, upon approval of a majority of the outstanding
voting securities of the Fund.
19. Definitions. For purposes of application and operation of the
provisions of this Agreement, the term "majority of the outstanding voting
securities" shall have the meaning as set forth in the 1940 Act.
20. Use of Name. In consideration of the execution of this Agreement,
the Adviser hereby grants to the Trust the right to use the name "Providian" or
any name the Adviser may use in the future, as part of the Trust's name and the
names of series thereof. The Trust agrees that in the event this Agreement is
terminated, it shall immediately take such steps as are necessary to amend its
name to remove the reference to "Providian" or such future name.
21. Cooperation. Each party to this Agreement agrees to cooperate with
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC and state
insurance authorities) in connection with any investigation or inquiry relating
to this Agreement or the Trust.
22. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Kentucky.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN SERIES TRUST,
on behalf of each of its Portfolios and
Funds
ATTEST:
By: /s/ Kris Robbins
-------------------------------------
/s/ Kimberly A. Scouller Kris A. Robbins, President
PROVIDIAN INVESTMENT ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
<PAGE>
INVESTMENT ADVISORY AGREEMENT SUPPLEMENT
----------------------------------------
Between PROVIDIAN SERIES TRUST
and
PROVIDIAN INVESTMENT ADVISORS, INC.
THIS INVESTMENT ADVISORY AGREEMENT SUPPLEMENT is entered into as of this
25th day of March, 1997, by and between Providian Series Trust (the "Trust"), a
Massachusetts business trust, on behalf of its Capital Preservation Portfolio
(the "Portfolio"), and Providian Investment Advisors, Inc. (the "Adviser"), a
Delaware corporation.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Portfolio is a separate investment series of the Trust which
invests in other investment series of the Trust ("Underlying Funds"); and
WHEREAS, the Trust has adopted an Investment Advisory Agreement (the
"Agreement") dated as of March 25, 1997, pursuant to which the Trust has
appointed the Adviser to provide the investment advisory services specified
therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Trust hereby adopts the Agreement
with respect to the Portfolio, and the Adviser hereby acknowledges that the
Agreement shall pertain to the Portfolio, the terms and conditions of such
Agreement being hereby incorporated herein by reference.
2. The term "Portfolio(s)" as used in the Agreement shall, for purposes of
this Supplement, pertain to the Portfolio.
<PAGE>
3. The Portfolio shall not pay the Adviser a separate investment advisory
fee for the advisory and asset allocation services provided by the Adviser
pursuant to the Agreement.
4. The Adviser shall waive the operating expenses of the Portfolio and
shall limit the operating expenses of the Underlying Funds so that the ratio of
expenses (excluding advisory fees) to net assets on an annual basis does not
exceed 0.25%. Expenses in excess of such amount will be assumed by the Adviser
until the earlier of (a) the end of three years after commencement of operations
of the Trust or (b) the termination by the Trustees or the Portfolio's
shareholders, but not the Adviser, of the Agreement.
5. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Portfolio,
and (ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
6. This Supplement may be terminated with respect to the Portfolio at any
time, without payment of any penalty, (a) by the Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio, upon sixty (60)
days written notice to the Adviser, or (b) by the Adviser upon sixty (60) days
written notice to the Trust. This Agreement shall terminate automatically in
the event of any transfer or assignment hereof, as defined in the 1940 Act. In
the event of a termination under subparagraph (a) above, the Adviser shall be
relieved from its obligation to pay the Portfolio's operating expenses in excess
of .25% as set forth in Section 4 above. In the event of a termination under
subparagraph (b) above, the Adviser shall continue to be obligated to pay such
amount as set forth in Section 4 until the end of the third year after
commencement of operations of the Portfolio.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN SERIES TRUST,
on behalf of its Capital Preservation
Portfolio
ATTEST:
By: /s/ Kris Robbins
/s/ Kimberly A. Scouller -----------------------------------
Kris A. Robbins, President
PROVIDIAN INVESTMENT
ADVISORS, INC.
ATTEST:
By: /s/ Frederick Kessell
/s/ R. Michael Slaven ----------------------------------
Frederick C. Kessell, President
and Chief Financial Officer
<PAGE>
INVESTMENT ADVISORY AGREEMENT SUPPLEMENT
----------------------------------------
Between PROVIDIAN SERIES TRUST
and
PROVIDIAN INVESTMENT ADVISORS, INC.
THIS INVESTMENT ADVISORY AGREEMENT SUPPLEMENT is entered into as of this
25th day of March, 1997, by and between Providian Series Trust (the "Trust"), a
Massachusetts business trust, on behalf of its High Quality Stock Fund (the
"Fund"), and Providian Investment Advisors, Inc. (the "Adviser"), a Delaware
corporation.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Fund is a separate series of the Trust; and
WHEREAS, the Trust has adopted an Investment Advisory Agreement (the
"Agreement") dated as of March 25, 1997, pursuant to which the Trust has
appointed the Adviser to provide the investment advisory services specified
therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Trust hereby adopts the Agreement
with respect to the Fund, and the Adviser hereby acknowledges that the Agreement
shall pertain to the Fund, the terms and conditions of such Agreement being
hereby incorporated herein by reference.
2. The term "Fund(s)" as used in the Agreement shall, for purposes of this
Supplement, pertain to the Fund.
3. The Fund shall pay to the Adviser an investment advisory fee for the
advisory services provided by the Adviser pursuant to the Agreement. The fee,
which
<PAGE>
shall accrue daily and be paid monthly, is equal to an annual rate of 0.65% of
the daily net asset value of the Fund.
4. The Adviser shall limit the operating expenses of the Fund so that the
ratio of expenses (excluding advisory fees) to net assets on an annual basis
does not exceed 0.25%. Expenses in excess of such amount will be assumed by the
Adviser until the earlier of (a) the end of three years after commencement of
operations of the Trust or (b) the termination by the Trustees or the Fund's
shareholders, but not the Adviser, of the Agreement.
5. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Fund, and
(ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
6. This Supplement may be terminated with respect to the Fund at any time,
without payment of any penalty, (a) by the Trustees or by vote of a majority of
the outstanding voting securities of the Fund, upon sixty (60) days written
notice to the Adviser, or (b) by the Adviser upon sixty (60) days written notice
to the Trust. This Agreement shall terminate automatically in the event of any
transfer or assignment hereof, as defined in the 1940 Act. In the event of a
termination under subparagraph (a) above, the Adviser shall be relieved from its
obligation to pay the Fund's operating expenses in excess of .25% as set forth
in Section 4 above. In the event of a termination under subparagraph (b) above,
the Adviser shall continue to be obligated to pay such amount as set forth in
Section 4 until the end of the third year after commencement of operations of
the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN SERIES TRUST,
on behalf of its High Quality Stock Fund
ATTEST:
By: /s/ Kris A. Robbins
------------------------------------
/s/ Kimberly A. Scouller Kris A. Robbins, President
PROVIDIAN INVESTMENT
ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
-----------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
<PAGE>
INVESTMENT ADVISORY AGREEMENT SUPPLEMENT
----------------------------------------
Between PROVIDIAN SERIES TRUST
and
PROVIDIAN INVESTMENT ADVISORS, INC.
THIS INVESTMENT ADVISORY AGREEMENT SUPPLEMENT is entered into as of this
25th day of March, 1997, by and between Providian Series Trust (the "Trust"), a
Massachusetts business trust, on behalf of its Income Oriented Portfolio (the
"Portfolio"), and Providian Investment Advisors, Inc. (the "Adviser"), a
Delaware corporation.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Portfolio is a separate investment series of the Trust which
invests in other investment series of the Trust ("Underlying Funds");
WHEREAS, the Trust has adopted an Investment Advisory Agreement (the
"Agreement") dated as of March 25, 1997, pursuant to which the Trust has
appointed the Adviser to provide the investment advisory services specified
therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Trust hereby adopts the Agreement
with respect to the Portfolio, and the Adviser hereby acknowledges that the
Agreement shall pertain to the Portfolio, the terms and conditions of such
Agreement being hereby incorporated herein by reference.
2. The term "Portfolio(s)" as used in the Agreement shall, for purposes of
this Supplement, pertain to the Portfolio.
<PAGE>
3. The Portfolio shall not pay the Adviser a separate investment advisory
fee for the advisory and asset allocation services provided by the Adviser
pursuant to the Agreement.
4. The Adviser shall waive the operating expenses of the Portfolio and
shall limit the operating expenses of the Underly Funds so that the ratio of
expenses (excluding advisory fees) to net assets on an annual basis does not
exceed 0.25%. Expenses in excess of such amount will be assumed by the Adviser
until the earlier of (a) the end of three years after commencement of operations
of the Trust or (b) the termination by the Trustees or the Portfolio's
shareholders, but not the Adviser, of the Agreement.
5. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Portfolio,
and (ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
6. This Supplement may be terminated with respect to the Portfolio at any
time, without payment of any penalty, (a) by the Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio, upon sixty (60)
days written notice to the Adviser, or (b) by the Adviser upon sixty (60) days
written notice to the Trust. This Agreement shall terminate automatically in
the event of any transfer or assignment hereof, as defined in the 1940 Act. In
the event of a termination under subparagraph (a) above, the Adviser shall be
relieved from its obligation to pay the Portfolio's operating expenses in excess
of .25% as set forth in Section 4 above. In the event of a termination under
subparagraph (b) above, the Adviser shall continue to be obligated to pay such
amount as set forth in Section 4 until the end of the third year after
commencement of operations of the Portfolio.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN SERIES TRUST,
on behalf of its Income Oriented Portfolio
ATTEST:
By: /s/ Kris A. Robbins
-------------------------------------
/s/ Kimberly A. Scouller Kris A. Robbins, President
PROVIDIAN INVESTMENT
ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
<PAGE>
INVESTMENT ADVISORY AGREEMENT SUPPLEMENT
----------------------------------------
Between PROVIDIAN SERIES TRUST
and
PROVIDIAN INVESTMENT ADVISORS, INC.
THIS INVESTMENT ADVISORY AGREEMENT SUPPLEMENT is entered into as of this
25th day of March, 1997, by and between Providian Series Trust (the "Trust"), a
Massachusetts business trust, on behalf of its Growth and Income Portfolio (the
"Portfolio"), and Providian Investment Advisors, Inc. (the "Adviser"), a
Delaware corporation.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Portfolio is a separate investment series of the Trust which
invests in other investment series of the Trust ("Underlying Funds");
WHEREAS, the Trust has adopted an Investment Advisory Agreement (the
"Agreement") dated as of March, 1997, pursuant to which the Trust has appointed
the Adviser to provide the investment advisory services specified therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Trust hereby adopts the Agreement
with respect to the Portfolio, and the Adviser hereby acknowledges that the
Agreement shall pertain to the Portfolio, the terms and conditions of such
Agreement being hereby incorporated herein by reference.
2. The term "Portfolio(s)" as used in the Agreement shall, for purposes of
this Supplement, pertain to the Portfolio.
<PAGE>
3. The Portfolio shall not pay the Adviser a separate investment advisory
fee for the advisory and asset allocation services provided by the Adviser
pursuant to the Agreement.
4. The Adviser shall waive the operating expenses of the Portfolio and
shall limit the operating expenses of the Underlying Funds so that the ratio of
expenses (excluding advisory fees) to net assets on an annual basis does not
exceed 0.25%. Expenses in excess of such amount will be assumed by the Adviser
until the earlier of (a) the end of three years after commencement of operations
of the Trust or (b) the termination by the Trustees or the Portfolio's
shareholders, but not the Adviser, of the Agreement.
5. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Portfolio,
and (ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
6. This Supplement may be terminated with respect to the Portfolio at any
time, without payment of any penalty, (a) by the Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio, upon sixty (60)
days written notice to the Adviser, or (b) by the Adviser upon sixty (60) days
written notice to the Trust. This Agreement shall terminate automatically in
the event of any transfer or assignment hereof, as defined in the 1940 Act. In
the event of a termination under subparagraph (a) above, the Adviser shall be
relieved from its obligation to pay the Portfolio's operating expenses in excess
of .25% as set forth in Section 4 above. In the event of a termination under
subparagraph (b) above, the Adviser shall continue to be obligated to pay such
amount as set forth in Section 4 until the end of the third year after
commencement of operations of the Portfolio.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN SERIES TRUST,
on behalf of its Growth and Income
Portfolio
ATTEST:
By: /s/ Kris A. Robbins
-------------------------------------
/s/ Kimberly A. Scouller Kris A. Robbins, President
PROVIDIAN INVESTMENT ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
<PAGE>
INVESTMENT ADVISORY AGREEMENT SUPPLEMENT
----------------------------------------
Between PROVIDIAN SERIES TRUST
and
PROVIDIAN INVESTMENT ADVISORS, INC.
THIS INVESTMENT ADVISORY AGREEMENT SUPPLEMENT is entered into as of this
25th day of March, 1997, by and between Providian Series Trust (the "Trust"), a
Massachusetts business trust, on behalf of its Capital Growth Portfolio (the
"Portfolio"), and Providian Investment Advisors, Inc. (the "Adviser"), a
Delaware corporation.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Portfolio is a separate investment series of the Trust which
invests in other investment series of the Trust ("Underlying Funds");
WHEREAS, the Trust has adopted an Investment Advisory Agreement (the
"Agreement") dated as of March 25, 1997, pursuant to which the Trust has
appointed the Adviser to provide the investment advisory services specified
therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Trust hereby adopts the Agreement
with respect to the Portfolio, and the Adviser hereby acknowledges that the
Agreement shall pertain to the Portfolio, the terms and conditions of such
Agreement being hereby incorporated herein by reference.
2. The term "Portfolio(s)" as used in the Agreement shall, for purposes of
this Supplement, pertain to the Portfolio.
<PAGE>
3. The Portfolio shall not pay the Adviser a separate investment advisory
fee for the advisory and asset allocation services provided by the Adviser
pursuant to the Agreement.
4. The Adviser shall waive the operating expenses of the Portfolio and
shall limit the operating expenses of the Underlying Funds so that the ratio of
expenses (excluding advisory fees) to net assets on an annual basis does not
exceed 0.25%. Expenses in excess of such amount will be assumed by the Adviser
until the earlier of (a) the end of three years after commencement of operations
of the Trust or (b) the termination by the Trustees or the Portfolio's
shareholders, but not the Adviser, of the Agreement.
5. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Portfolio,
and (ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
6. This Supplement may be terminated with respect to the Portfolio at any
time, without payment of any penalty, (a) by the Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio, upon sixty (60)
days written notice to the Adviser, or (b) by the Adviser upon sixty (60) days
written notice to the Trust. This Agreement shall terminate automatically in
the event of any transfer or assignment hereof, as defined in the 1940 Act. In
the event of a termination under subparagraph (a) above, the Adviser shall be
relieved from its obligation to pay the Portfolio's operating expenses in excess
of .25% as set forth in Section 4 above. In the event of a termination under
subparagraph (b) above, the Adviser shall continue to be obligated to pay such
amount as set forth in Section 4 until the end of the third year after
commencement of operations of the Portfolio.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN SERIES TRUST,
on behalf of each of its Capital Growth
Portfolio
ATTEST:
By: /s/ Kris A. Robbins
-------------------------------------
/s/ Kimberly A. Scouller Kris A. Robbins, President
PROVIDIAN INVESTMENT
ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
<PAGE>
INVESTMENT ADVISORY AGREEMENT SUPPLEMENT
----------------------------------------
Between PROVIDIAN SERIES TRUST
and
PROVIDIAN INVESTMENT ADVISORS, INC.
THIS INVESTMENT ADVISORY AGREEMENT SUPPLEMENT is entered into as of this
25th day of March, 1997, by and between Providian Series Trust (the "Trust"), a
Massachusetts business trust, on behalf of its Maximum Appreciation Portfolio
(the "Portfolio"), and Providian Investment Advisors, Inc. (the "Adviser"), a
Delaware corporation.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Portfolio is a separate investment series of the Trust which
invests in other investment series of the Trust ("Underlying Funds");
WHEREAS, the Trust has adopted an Investment Advisory Agreement (the
"Agreement") dated as of March 25, 1997, pursuant to which the Trust has
appointed the Adviser to provide the investment advisory services specified
therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Trust hereby adopts the Agreement
with respect to the Portfolio, and the Adviser hereby acknowledges that the
Agreement shall pertain to the Portfolio, the terms and conditions of such
Agreement being hereby incorporated herein by reference.
2. The term "Portfolio(s)" as used in the Agreement shall, for purposes of
this Supplement, pertain to the Portfolio.
<PAGE>
3. The Portfolio shall not pay the Adviser a separate investment advisory
fee for the advisory and asset allocation services provided by the Adviser
pursuant to the Agreement.
4. The Adviser shall waive the operating expenses of the Portfolio and
shall limit the operating expenses of the Underlying Funds so that the ratio of
expenses (excluding advisory fees) to net assets on an annual basis does not
exceed 0.25%. Expenses in excess of such amount will be assumed by the Adviser
until the earlier of (a) the end of three years after commencement of operations
of the Trust or (b) the termination by the Trustees or the Portfolio's
shareholders, but not the Adviser, of the Agreement.
5. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Portfolio,
and (ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
6. This Supplement may be terminated with respect to the Portfolio at any
time, without payment of any penalty, (a) by the Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio, upon sixty (60)
days written notice to the Adviser, or (b) by the Adviser upon sixty (60) days
written notice to the Trust. This Agreement shall terminate automatically in
the event of any transfer or assignment hereof, as defined in the 1940 Act. In
the event of a termination under subparagraph (a) above, the Adviser shall be
relieved from its obligation to pay the Portfolio's operating expenses in excess
of .25% as set forth in Section 4 above. In the event of a termination under
subparagraph (b) above, the Adviser shall continue to be obligated to pay such
amount as set forth in Section 4 until the end of the third year after
commencement of operations of the Portfolio.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN SERIES TRUST,
on behalf of its Maximum Appreciation
Portfolio
ATTEST:
By: /s/ Kris A. Robbins
/s/ Kimberly A. Scouller -----------------------------------
Kris A. Robbins, President
PROVIDIAN INVESTMENT
ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
/s/ R. Michael Slaven ----------------------------------
Frederick C. Kessell, President
and Chief Financial Officer
<PAGE>
INVESTMENT ADVISORY AGREEMENT SUPPLEMENT
----------------------------------------
Between PROVIDIAN SERIES TRUST
and
PROVIDIAN INVESTMENT ADVISORS, INC.
THIS INVESTMENT ADVISORY AGREEMENT SUPPLEMENT is entered into as of this
25th day of March, 1997, by and between Providian Series Trust (the "Trust"), a
Massachusetts business trust, on behalf of its Fixed Income Fund (the "Fund"),
and Providian Investment Advisors, Inc. (the "Adviser"), a Delaware corporation.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Fund is a separate series of the Trust; and
WHEREAS, the Trust has adopted an Investment Advisory Agreement (the
"Agreement") dated as of March 25, 1997, pursuant to which the Trust has
appointed the Adviser to provide the investment advisory services specified
therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Trust hereby adopts the Agreement
with respect to the Fund, and the Adviser hereby acknowledges that the Agreement
shall pertain to the Fund, the terms and conditions of such Agreement being
hereby incorporated herein by reference.
2. The term "Fund(s)" as used in the Agreement shall, for purposes of this
Supplement, pertain to the Fund.
3. The Fund shall pay to the Adviser an investment advisory fee for the
advisory services provided by the Adviser pursuant to the Agreement. The fee,
which
<PAGE>
shall accrue daily and be paid monthly, is equal to an annual rate of 0.65% of
the daily net asset value of the Fund.
4. The Adviser shall limit the operating expenses of the Fund so that the
ratio of expenses (excluding advisory fees) to net assets on an annual basis
does not exceed 0.25%. Expenses in excess of such amount will be assumed by the
Adviser until the earlier of (a) the end of three years after commencement of
operations of the Trust or (b) the termination by the Trustees or the Fund's
shareholders, but not the Adviser, of the Agreement.
5. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Fund, and
(ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
6. This Supplement may be terminated with respect to the Fund at any time,
without payment of any penalty, (a) by the Trustees or by vote of a majority of
the outstanding voting securities of the Fund, upon sixty (60) days written
notice to the Adviser, or (b) by the Adviser upon sixty (60) days written notice
to the Trust. This Agreement shall terminate automatically in the event of any
transfer or assignment hereof, as defined in the 1940 Act. In the event of a
termination under subparagraph (a) above, the Adviser shall be relieved from its
obligation to pay the Fund's operating expenses in excess of .25% as set forth
in Section 4 above. In the event of a termination under subparagraph (b) above,
the Adviser shall continue to be obligated to pay such amount as set forth in
Section 4 until the end of the third year after commencement of operations of
the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN SERIES TRUST,
on behalf of its Fixed Income Fund
ATTEST:
By: /s/ Kris A. Robbins
/s/ Kimberly A. Scouller -----------------------------------
Kris A. Robbins, President
PROVIDIAN INVESTMENT
ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
/s/ R. Michael Slaven ----------------------------------
Frederick C. Kessell, President
and Chief Financial Officer
<PAGE>
INVESTMENT ADVISORY AGREEMENT SUPPLEMENT
----------------------------------------
Between PROVIDIAN SERIES TRUST
and
PROVIDIAN INVESTMENT ADVISORS, INC.
THIS INVESTMENT ADVISORY AGREEMENT SUPPLEMENT is entered into as of this
25th day of March, 1997, by and between Providian Series Trust (the "Trust"), a
Massachusetts business trust, on behalf of its International Active Fund (the
"Fund"), and Providian Investment Advisors, Inc. (the "Adviser"), a Delaware
corporation.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Fund is a separate series of the Trust; and
WHEREAS, the Trust has adopted an Investment Advisory Agreement (the
"Agreement") dated as of March 25, 1997, pursuant to which the Trust has
appointed the Adviser to provide the investment advisory services specified
therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Trust hereby adopts the Agreement
with respect to the Fund, and the Adviser hereby acknowledges that the Agreement
shall pertain to the Fund, the terms and conditions of such Agreement being
hereby incorporated herein by reference.
2. The term "Fund(s)" as used in the Agreement shall, for purposes of this
Supplement, pertain to the Fund.
3. The Fund shall pay to the Adviser an investment advisory fee for the
advisory services provided by the Adviser pursuant to the Agreement. The fee,
which
<PAGE>
shall accrue daily and be paid monthly, is equal to an annual rate of 0.90% of
the daily net asset value of the Fund.
4. The Adviser shall limit the operating expenses of the Fund so that the
ratio of expenses (excluding advisory fees) to net assets on an annual basis
does not exceed 0.25%. Expenses in excess of such amount will be assumed by the
Adviser until the earlier of (a) the end of three years after commencement of
operations of the Trust or (b) the termination by the Trustees or the Fund's
shareholders, but not the Adviser, of the Agreement.
5. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Fund, and
(ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
6. This Supplement may be terminated with respect to the Fund at any time,
without payment of any penalty, (a) by the Trustees or by vote of a majority of
the outstanding voting securities of the Fund, upon sixty (60) days written
notice to the Adviser, or (b) by the Adviser upon sixty (60) days written notice
to the Trust. This Agreement shall terminate automatically in the event of any
transfer or assignment hereof, as defined in the 1940 Act. In the event of a
termination under subparagraph (a) above, the Adviser shall be relieved from its
obligation to pay the Fund's operating expenses in excess of .25% as set forth
in Section 4 above. In the event of a termination under subparagraph (b) above,
the Adviser shall continue to be obligated to pay such amount as set forth in
Section 4 until the end of the third year after commencement of operations of
the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN SERIES TRUST,
on behalf of its International Active
Fund
ATTEST:
By: /s/ Kris A. Robbins
/s/ Kimberly A. Scouller -----------------------------------
Kris A. Robbins, President
PROVIDIAN INVESTMENT
ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
/s/ R. Michael Slaven ----------------------------------
Frederick C. Kessell, President
and Chief Financial Officer
<PAGE>
INVESTMENT ADVISORY AGREEMENT SUPPLEMENT
----------------------------------------
Between PROVIDIAN SERIES TRUST
and
PROVIDIAN INVESTMENT ADVISORS, INC.
THIS INVESTMENT ADVISORY AGREEMENT SUPPLEMENT is entered into as of this
25th day of March, 1997, by and between Providian Series Trust (the "Trust"), a
Massachusetts business trust, on behalf of its Money Market Fund (the "Fund"),
and Providian Investment Advisors, Inc. (the "Adviser"), a Delaware corporation.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Fund is a separate series of the Trust; and
WHEREAS, the Trust has adopted an Investment Advisory Agreement (the
"Agreement") dated as of March 25, 1997, pursuant to which the Trust has
appointed the Adviser to provide the investment advisory services specified
therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Trust hereby adopts the Agreement
with respect to the Fund, and the Adviser hereby acknowledges that the Agreement
shall pertain to the Fund, the terms and conditions of such Agreement being
hereby incorporated herein by reference.
2. The term "Fund(s)" as used in the Agreement shall, for purposes of this
Supplement, pertain to the Fund.
3. The Fund shall pay to the Adviser an investment advisory fee for the
advisory services provided by the Adviser pursuant to the Agreement. The fee,
which
<PAGE>
shall accrue daily and be paid monthly, is equal to an annual rate of 0.40% of
the daily net asset value of the Fund.
4. The Adviser shall limit the operating expenses of the Fund so that the
ratio of expenses (excluding advisory fees) to net assets on an annual basis
does not exceed 0.25%. Expenses in excess of such amount will be assumed by the
Adviser until the earlier of (a) the end of three years after commencement of
operations of the Trust or (b) the termination by the Trustees or the Fund's
shareholders, but not the Adviser, of the Agreement.
5. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Fund, and
(ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
6. This Supplement may be terminated with respect to the Fund at any time,
without payment of any penalty, (a) by the Trustees or by vote of a majority of
the outstanding voting securities of the Fund, upon sixty (60) days written
notice to the Adviser, or (b) by the Adviser upon sixty (60) days written notice
to the Trust. This Agreement shall terminate automatically in the event of any
transfer or assignment hereof, as defined in the 1940 Act. In the event of a
termination under subparagraph (a) above, the Adviser shall be relieved from its
obligation to pay the Fund's operating expenses in excess of .25% as set forth
in Section 4 above. In the event of a termination under subparagraph (b) above,
the Adviser shall continue to be obligated to pay such amount as set forth in
Section 4 until the end of the third year after commencement of operations of
the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN SERIES TRUST,
on behalf of its Money Market Fund
ATTEST:
By: /s/ Kris A. Robbins
/s/ Kimberly A. Scouller -----------------------------------
Kris A. Robbins, President
PROVIDIAN INVESTMENT
ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
/s/ R. Michael Slaven ----------------------------------
Frederick C. Kessell, President
and Chief Financial Officer
<PAGE>
Exhibit 5(b)
INVESTMENT SUB-ADVISORY AGREEMENT
---------------------------------
Between PROVIDIAN INVESTMENT ADVISORS, INC.
and
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
THIS INVESTMENT SUB-ADVISORY AGREEMENT is entered into as of this 25th day
of March, 1997, by and between Providian Investment Advisors, Inc. (the
"Adviser"), a Delaware corporation, and Atlanta Capital Management Company, LLC
(the "Sub-Adviser"), a Georgia limited liability company.
WITNESSETH:
----------
WHEREAS, the Providian Series Trust (the "Trust"), a Massachusetts business
trust, has retained the Adviser to render investment advisory services pursuant
to an Investment Advisory Agreement entered into as of March 25, 1997, and such
agreement authorizes the Adviser to engage sub-advisers to discharge the
Adviser's responsibilities with respect to the investment management of the
Trust, a copy of which agreement has been provided to the Sub-Adviser and is
incorporated by reference herein;
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust currently consists of nine separate series, each having
different investment objectives and policies;
WHEREAS, the Adviser and Sub-Adviser are each an investment adviser,
registered as such pursuant to the provisions of the Investment Advisers Act of
1940 (the "Advisers Act"), and each is engaged in the business of rendering
investment advice and investment management services as an independent
contractor;
WHEREAS, the Adviser desires to retain the Sub-Adviser to render advice and
services to the Trust in connection with the management and operation of its
portfolios ( "Portfolios") and funds ("Funds") designated in Supplements to this
Agreement pursuant to the terms and conditions set forth herein; and
<PAGE>
WHEREAS, the Sub-Adviser desires and has agreed to render such advice and
furnish such services with regard to the Portfolios and Funds of the Trust
designated in Supplements to this Agreement pursuant to the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, conditions and agreements contained herein, and for such
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties, each intending to be legally bound hereby,
mutually agree as follows:
1. Employment. The Adviser hereby employs the Sub-Adviser and the Sub-
Adviser hereby accepts such employment, to render investment advice and
investment management services with respect to the Portfolios and the Funds,
subject to the supervision and direction of the Adviser and the Trust. In the
event the Adviser wishes to retain the Sub-Adviser to render investment advisory
services to one or more additional portfolios or funds, other than the
Portfolios and the Funds, the Adviser shall notify the Sub-Adviser in writing.
If the Sub-Adviser is willing to render such services, it shall notify the
Adviser in writing, whereupon such portfolio or fund shall become a Portfolio or
Fund hereunder and be subject to this Agreement.
2. Authority. From the effective date of this Agreement, the Sub-Adviser
shall have and exercise the power and authority to manage, and to direct the
acquisition or disposition of, assets in the Portfolios and the Funds, except
for any such assets which the Adviser may from time to time designate as not
being subject to the supervision of the Sub-Adviser, subject only to the
investment policies established from time to time by the Trust and communicated
in writing to the Sub-Adviser. When it deems appropriate and without prior
consultation with the Adviser, the Sub-Adviser may (a) buy, sell, exchange,
convert and otherwise trade in, retain, or reinvest in stocks, bonds, and other
securities, (b) place orders for the execution of such securities transactions
with or through such brokers or dealers as the Sub-Adviser may select, and (c)
take such other action or nonaction that the Sub-Adviser reasonably and in good
faith deems appropriate; provided, that all investments shall conform with:
(a) the investment objectives, policies, limitations, procedures and
guidelines of the applicable Portfolio or Fund;
(b) any additional objectives, policies or guidelines established by
the Adviser or by the Trust that have been furnished in writing to the Sub-
Adviser;
(c) the provisions of Section 851 of the Internal Revenue Code ("IRC")
applicable to "regulated investment companies";
(d) the diversification requirements specified in Section 817(h) of
the IRC, and the regulations thereunder; and
<PAGE>
(e) the provisions of the 1940 Act and the rules and regulations
thereunder applicable to each Portfolio and Fund.
3. Sub-Adviser Duties. The Sub-Adviser shall, except as otherwise
provided herein, render or make available all services needed for the management
and operation of the Portfolios and the Funds, and shall, as part of its duties
hereunder, (i) furnish advice and recommendations with respect to the investment
of the assets of the Portfolios and the Funds and the purchase and sale of the
portfolio securities of the Portfolios and the Funds, including the taking of
such other steps as may be necessary to implement such advice and
recommendations, (ii) furnish reports, statements and other data on securities,
economic conditions and other pertinent subjects which the Adviser or the
Trustees of the Trust ("Trustees") may request, (iii) furnish such office space
and personnel as is needed by the Portfolios and the Funds in connection with
the investment of the assets of the Portfolios and the Funds, and (iv) in
general, superintend and manage the investments of the Portfolios and the Funds,
subject to the ultimate supervision and direction of the Trustees of the Trust.
Furthermore, the Sub-Adviser agrees to manage, and to direct the acquisition and
disposition of, Portfolio and Fund investments in accordance with the
Portfolios' and the Funds' investment policies as communicated to the Sub-
Adviser in writing from time to time. The Sub-Adviser will deliver to the
Adviser not less than quarterly a written statement of the investments of the
Portfolios and the Funds. It is agreed that the standard of care imposed upon
the Sub-Adviser is to act with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of like
character and with like aims. It is further agreed that the Sub-Adviser, in the
maintenance of its records, does not assume responsibility for the accuracy of
information furnished by the Adviser. In performing these duties, the Sub-
Adviser:
(a) Shall not disclose or use any records or information obtained
pursuant to this Agreement (excluding investment research and investment advice)
in any manner whatsoever except as expressly authorized in this Agreement or in
the ordinary course of business in connection with placing orders for the
purchase and sale of securities, and shall keep confidential any information
obtained pursuant to the Agreement, and disclose such information only if the
Trust has authorized such disclosure, or if such disclosure is required by
applicable federal or state law or regulations or regulatory authorities having
the requisite authority. The Trust and the Adviser shall not disclose or use any
records or information respecting the Sub-Adviser obtained pursuant to this
Agreement in any manner whatsoever except as expressly authorized in this
Agreement, and shall keep confidential any information obtained pursuant to this
Agreement, and disclose such information only as expressly authorized in this
Agreement, if the Trust has authorized such disclosure, or if such disclosure is
required by applicable federal or state law or regulations or regulatory
authorities having the requisite authority.
<PAGE>
(b) Shall be responsible for making reasonable inquiries of each of
Sub-Adviser's employees such that such employee has not, to the best of the Sub-
Adviser's knowledge:
(i) been convicted, in the last ten (10) years, of any felony or
misdemeanor involving the purchase or sale of any security or arising out of
such person's conduct as an underwriter, broker, dealer, investment adviser,
municipal securities dealer, government securities broker, government securities
dealer, transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesperson, or employee of
any investment company, bank, insurance company, or entity or person required to
be registered under the Commodity Exchange Act; or
(ii) been permanently or temporarily enjoined by reason of any
misconduct, by order, judgment, or decree of any court of competent jurisdiction
from acting as an underwriter, broker, dealer, investment adviser, municipal
securities dealer, government securities broker, government securities dealer,
transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesperson or employee of
any investment company, bank, insurance company, or entity or person required to
be registered under the Commodity Exchange Act or from engaging in or continuing
any conduct or practice in connection with any such activity or in connection
with the purchase or sale of any security.
(c) Shall provide to Adviser and the Trust by April 1 of each calendar
year a copy of the Sub-Adviser's Form ADV as amended and most recently filed
with the Securities and Exchange Commission ("SEC") and a list of persons who
the Sub-Adviser has authorized to give written and/or oral instructions to
custodians of Trust assets for the Trust.
4. Best Efforts. The Sub-Adviser hereby agrees to use its best judgment
and efforts in rendering the advice and services with respect to the Portfolios
and the Funds as contemplated by this Agreement. The Sub-Adviser further agrees
to use its best efforts in the preparation of reports and information and in the
management of the respective assets of the Portfolios and the Funds pursuant to
this Agreement. For this purpose the Sub-Adviser shall, at its own expense,
maintain such staff and employ or retain such personnel and consult with such
other persons as it shall from time to time determine to be necessary to the
performance of its obligations under this Agreement. The staff and personnel of
the Sub-Adviser who furnish statistical, research, and other factual
information, advice regarding economic factors and trends, information with
respect to technical and scientific developments, and such other information,
advice and assistance as the Sub-Adviser may desire and request shall be
employed or retained by the Sub-Adviser at its expense.
5. Independent Contractor. The Sub-Adviser shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly
<PAGE>
provided and authorized, have no authority to act for or represent the Adviser,
the Trust, the Portfolios or the Funds in any way, or in any way be deemed an
agent of the Adviser, the Trust, the Portfolios or the Funds. It is expressly
understood and agreed that the services to be rendered by the Sub-Adviser
pursuant to the provisions of this Agreement are not to be deemed exclusive with
respect to the Sub-Adviser's rendering of services, and the Sub-Adviser shall
therefore be free to render similar or different services to others, provided,
that its ability to render the services described herein shall not be impaired
thereby. The Adviser agrees that the Sub-Adviser may give advice and take action
with respect to any of its other clients which may differ from advice given or
the timing or nature of action taken with respect to the Portfolios and the
Funds so long as it is the Sub-Adviser's policy, to the extent practical, to
allocate investment opportunities to the Portfolios and the Funds over a
reasonable period of time on a fair and equitable basis relative to other
clients. It is understood that the Sub-Adviser shall not have any obligations to
purchase or sell for the Portfolios and the Funds any security which the Sub-
Adviser, its principals, affiliates or employees may purchase or sell for its or
their own account or for the account of any other client if in the Sub-Adviser's
good faith opinion such transaction or investment appears unsuitable,
impractical or undesirable for the Portfolios and the Funds.
6. Furnishing of Information. (a) The Sub-Adviser shall from time to time
furnish to the Adviser detailed statements of the investments and assets of the
Portfolios and the Funds. The Sub-Adviser shall provide any materials reasonably
related to the investment advisory services provided hereunder as may be
reasonably requested in writing by the designated officers of the Adviser, the
Trust, the Portfolios or the Funds or as may be required by any governmental
agency having jurisdiction. The Adviser shall from time to time furnish to the
Sub-Adviser information pertaining to the investment objectives and needs of the
Portfolios and the Funds, and shall make available to the Sub-Adviser such
financial reports, proxy statements, legal and other information in the
possession of or available to the Adviser relating to Portfolio and Fund
investments, as the same may be relevant to the performance by the Sub-Adviser
of its obligations hereunder. The Adviser shall furnish such other information
as the Sub-Adviser may reasonably request.
(b) The Sub-Adviser has reviewed the Trust's registration statement,
as amended and supplemented from time to time, filed with the SEC (the
"Registration Statement") and represents and warrants that, with respect to the
disclosure about the Sub-Adviser or information relating, directly or
indirectly, to the Sub-Adviser, such Registration Statement contains, as of the
date hereof, no untrue statement of any material fact and does not omit any
statement of a material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading. The Sub-
Adviser further represents and warrants that it is a duly registered investment
adviser under the Advisers Act and a duly registered investment adviser in all
states in which the Sub-Adviser is required to be registered. The Sub-Adviser
agrees promptly to provide written notice to the Adviser and the Trust of any
change in ownership of the Sub-
<PAGE>
Adviser or the identity of the primary manager of the Portfolios or the Funds
and any other matter which is disclosed in the Registration Statement and
becomes untrue.
7. Ownership of Records. The Sub-Adviser agrees that all records which it
maintains for the Portfolios and the Funds shall be the property of the
Portfolios and the Funds, and that it shall surrender promptly to the designated
officers of the Portfolios and the Funds any such records upon request. The Sub-
Adviser further agrees to preserve for the period prescribed by the rules and
regulations of the SEC all records as are required to be maintained pursuant to
said rules. The Sub-Adviser agrees that it will maintain all records and
accounts regarding the investment activities of the Portfolios and the Funds in
a confidential manner. Within five (5) business days of a reasonable written
request, all such records and accounts shall be made available to the
accountants or auditors of the Portfolios and the Funds during regular business
hours at the Sub-Adviser's offices.
8. Transaction Procedures. Instructions by the Sub-Adviser to the Custodian
of the Portfolio and Fund assets shall be made in writing sent by first class
mail or, at the option of the Sub-Adviser, shall be made orally and confirmed in
writing as soon as practical thereafter, provided, that all such instructions,
written or oral, shall be issued only by persons designated from time to time by
the Sub-Adviser in a written instrument delivered to the Custodian and the
Trust. Alternatively, the Custodian is authorized to act in accordance with and
shall be entitled to rely on those delivery and/or receipt instructions from the
Eligible Trade Report through the DTC ID system that contain the client bank
account number in the defined "custodian/client account number" field, to the
same extent, as if the information contained in such instructions was given in
written form, signed by the Sub-Adviser. The Sub-Adviser shall instruct all
brokers and dealers executing orders on behalf of the Portfolios and the Funds
to forward to the Custodian and the Trust copies of all confirmations promptly
after execution of transactions. The Sub-Adviser shall not be responsible for
any loss incurred by reason of any act or omission of any broker or dealer or
the Custodian; provided, that the Sub-Adviser will make reasonable efforts to
require that brokers and dealers selected by the Sub-Adviser perform their
obligations with respect to the Portfolios and the Funds; and further provided,
that the foregoing shall not operate as a limitation on or as an exception to
the standard of care articulated in Paragraph 3 above.
9. Allocation of Brokerage. Where the Sub-Adviser places orders for the
execution of portfolio transactions for the Portfolios and the Funds, the Sub-
Adviser's primary consideration will be to obtain the best execution for the
Fund, taking into account the factors specified in the Prospectus and Statement
of Additional Information for the Fund, as amended or supplemented from time to
time. Subject to such policies as the Trustees may determine, and consistent
with Section 28(e) of the Securities Exchange Act of 1934 (the "1934 Act"), the
Sub-Adviser shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker or dealer, acting as agent, for a portfolio
transaction effected at a price in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if the Sub-
Adviser
<PAGE>
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 or dealer, viewed in terms of either that particular transaction or the
Sub-Adviser's (or its affiliates) overall responsibilities with respect to the
Fund and to its other clients as to which it exercises investment discretion.
Sub-Adviser will report to the Adviser any soft dollar arrangements that result
in services to the Trust and/or the Sub-Adviser as may be reasonably requested
by the Trustees.
10. Allocation of Costs and Expenses. The Sub-Adviser shall bear and pay
the costs of rendering its services pursuant to the terms of this Agreement. The
Portfolios and the Funds shall bear and pay for all other expenses of its
operation, including but not limited to, organizational and offering expenses
and expenses incurred in connection with the issuance and registration of
shares; fees of the custodian and transfer agent; costs and expenses of pricing
and calculating the daily net asset value of the shares and of maintaining the
books of account required by the 1940 Act; expenditures in connection with
meetings of shareholders and Trustees, other than those called solely to
accommodate the Sub-Adviser; salaries of officers and fees and expenses of
Trustees or members of any advisory board or committee who are not affiliated
with or interested persons of the Trust, the Adviser or the Sub-Adviser;
salaries of personnel involved in placing orders for the execution of portfolio
transactions; insurance premiums on property or personnel of the Portfolios and
the Funds which inure to their benefit; the cost of preparing and printing
reports, proxy statements and prospectuses of the Trust or other communications
for distribution to its shareholders; legal, auditing, and accounting fees;
trade association dues; the Trust's portion of any Rule 24f-2 fees under the
1940 Act; fees and expenses of registering and maintaining registration of
shares for sale under applicable federal securities laws; and all other charges
and costs associated with the Portfolios' and the Funds' operations, plus any
extraordinary and non-recurring expenses, except as otherwise prescribed herein.
The Portfolios, as shareholders of the underlying Funds, will indirectly bear a
proportionate share of any investment advisory fees and other expenses paid by
the underlying Funds.
11. Advisory Fees. (a) In exchange for the rendering of advice and
services pursuant hereto, the Adviser shall pay to the Sub-Adviser on behalf of
each Fund, and the Sub-Adviser shall accept as full compensation for all
investment advisory services furnished to the Portfolios and the Funds and as
full reimbursement for all expenses assumed by the Sub-Adviser, an advisory fee
as set forth in the Supplements to this Agreement.
(b) The advisory fee shall be accrued daily by the Funds and paid by
the Adviser to the Sub-Adviser monthly in arrears as of the last valuation date.
(c) In the case of termination of this Agreement during any month, the
advisory fee for that month shall be prorated according to the number of
business days during which the Agreement was in effect.
<PAGE>
12. Insurance. Sub-Adviser shall have and maintain Errors and Omissions
liability insurance covering Sub-Adviser's duties under this Agreement, with
limits of $1 million per occurrence and $1 million annual aggregate. Sub-
Adviser shall provide evidence of such coverage at least annually.
13. Compliance with Applicable Law. (a) Nothing contained herein shall be
deemed to require the Adviser, the Portfolios or the Funds to take any action
contrary to (i) the Agreement and Declaration of Trust of the Trust, (ii) the
By-laws of the Trust, (iii) the Registration Statement or (iv) any applicable
statute or regulation. Nothing contained herein shall be deemed to relieve or
deprive the Trustees of their responsibility for and control of the conduct of
the affairs of the Portfolios and the Funds.
(b) The Sub-Adviser agrees that it shall notify the Adviser and the
Trust immediately (i) in the event that the SEC has censured the Sub-Adviser;
placed limitations upon its activities, functions or operations; suspended or
revoked its registration as an investment adviser, or has commenced proceedings
or an investigation that may result in any of these actions, (ii) upon having a
reasonable basis for believing that a Portfolio or a Fund has ceased to qualify
or might not qualify as a regulated investment company under Subchapter M of the
IRC, and (iii) upon having a reasonable basis for believing that a Portfolio or
a Fund has ceased to comply with the diversification provisions of Section
817(h) of the IRC or the regulations thereunder. The Sub-Adviser further agrees
to notify the Adviser and the Trust immediately of any material fact known to
the Sub-Adviser respecting or relating to the Sub-Adviser that is not contained
in the Registration Statement for a Portfolio or a Fund, or any amendment or
supplement thereto, or of any statement contained therein that becomes untrue in
any material respect.
(c) The Adviser agrees that it shall notify the Sub-Adviser
immediately (i) in the event that the SEC has censured the Adviser or the Trust;
placed limitations upon their activities, functions, or operations; suspended or
revoked the Adviser's registration as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions, (ii)
upon having a reasonable basis for believing that a Portfolio or a Fund has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the IRC, and (iii) upon having a reasonable basis for believing
that a Portfolio or a Fund has ceased to comply with the diversification
provisions of Section 817(h) of the IRC or the regulations thereunder.
14. Liability. (a) In the absence of willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Sub-Adviser, the Sub-Adviser shall not be subject to liability to the
Adviser, to the Portfolios or the Funds or to any shareholder of the Portfolios
or the Funds for any act or omission in the course of or in connection with
rendering services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security by the Portfolios or the Funds.
<PAGE>
(b) The Sub-Adviser agrees to indemnify and hold harmless, the
Adviser, any affiliated person within the meaning of Section 2(a)(3) of the 1940
Act ("affiliated person") of the Adviser, and each person, if any, who, within
the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"),
controls ("controlling person") the Adviser (collectively, "Adviser Indemnified
Persons") against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which an Adviser Indemnified Person may
become subject under the 1933 Act, the 1940 Act, the Advisers Act, any other
statute, at common law or otherwise, arising out of the Sub-Adviser's
responsibilities to the Fund which (i) may be based upon any negligence or
willful misconduct by the Sub-Adviser, any of its employees or representatives,
or any affiliate of or any person acting on behalf of the Sub-Adviser (other
than a Sub-Adviser Indemnified Person), or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement covering the shares of the Trust or the Fund, or any
amendment thereof or any supplement thereto, or the omission or alleged omission
to state therein a material fact required to be stated or necessary to make the
statements therein not misleading if such a statement or omission was made in
reliance upon information furnished to the Adviser, the Trust, or any affiliated
person of the Adviser or Trust by the Sub-Adviser or any affiliated person of
the Sub-Adviser (other than a Sub-Adviser Indemnified Person); provided,
however, that in no case is the Sub-Adviser's indemnity in favor of Adviser
Indemnified Persons deemed to protect such persons against any liability to
which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or negligence in the performance of his or her duties or
by reason of reckless disregard of obligations and duties under this Agreement.
(c) The Adviser agrees to indemnify and hold harmless the Sub-Adviser,
any affiliated person of the Sub-Adviser and any controlling person of the Sub-
Adviser (collectively, "Sub-Adviser Indemnified Persons") against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which a Sub-Adviser Indemnified Person may become subject under the
1933 Act, the 1940 Act, the Advisers Act, any other statute, at common law or
otherwise, arising out of the Adviser's responsibilities as adviser of the Fund
which (i) may be based upon any negligence or willful misconduct by the Adviser,
any of its employees or representatives or any affiliate of or person acting on
behalf of the Adviser (other than an Adviser Indemnified Person) or (ii) may be
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement covering shares of the Trust or the
Fund, or any amendment thereof or any supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading if such statement or
omission was made in reliance upon information furnished to the Sub-Adviser, the
Trust or any affiliated person of the Sub-Adviser or Trust by an Adviser or any
affiliated person of the Adviser (other than an Adviser Indemnified Person);
provided, however, that in no case is the Adviser's indemnity in favor of Sub-
Adviser Indemnified Persons deemed to protect such persons against any liability
to which any such person would otherwise be subject by reason of
<PAGE>
willful misfeasance, bad faith, or negligence in the performance of his or her
duties or by reason of reckless disregard of obligations and duties under this
Agreement.
(d) Notwithstanding the foregoing, the Sub-Adviser agrees to reimburse
the Portfolios and the Funds for any and all costs, expenses, and counsel and
Trustees' fees reasonably incurred by the Portfolios and the Funds in connection
with (i) preparation, printing and distribution of proxy statements; (ii)
amendments to their Registration Statement; (iii) the holding of meetings of
shareholders or Trustees; (iv) the conduct of factual investigations; or (v) any
legal or administrative proceedings (including any applications for exemptions
or determinations by the SEC) as a result of action or inaction on the part of
the Sub-Adviser; and where the action or inaction necessitating such
expenditures is (A) directly or indirectly related to any transactions or
proposed transaction in the shares or control of the Sub-Adviser or its
affiliates (or litigation related to any transactions or proposed transaction
involving such shares or control) which shall have been undertaken without the
prior express approval of the Trustees, or (B) within the sole control of the
Sub-Adviser or any of its affiliates or any of their respective officers,
directors, employees or shareholders. So long as this Agreement remains in
effect, the Sub-Adviser shall pay to the Portfolios and the Funds the amount due
for expenses subject to this Subparagraph 17(b) within thirty (30) days after a
bill or statement has been received by the Portfolios and the Funds therefor.
This provision shall not be deemed to be a waiver of any claim which the
Portfolios and the Funds may have or may assert against the Sub-Adviser or
others for costs, expenses, or damages heretofore incurred by the Trust or for
costs, expenses, or damages the Portfolios or the Funds may hereafter incur
which are not reimbursable to it hereunder.
(e) No provision of this Agreement shall be construed to protect any
Trustee or officer of any Portfolio or Fund, or any director or officer of the
Adviser or Sub-Adviser from liability in violation of Sections 17(h) and (i) of
the 1940 Act.
(f) The Sub-Adviser understands that the obligations of this Agreement
are not personally binding upon any shareholder, Trustee, officer, employee or
agent of the Portfolios or Funds, but bind only the Trust's property. The Sub-
Adviser represents that it has notice of the provisions of the Agreement and
Declaration of Trust disclaiming shareholder, Trustee, officer, employee and
agent liability for acts or obligations of the Trust.
15. Term of Agreement. This Agreement shall become effective on the date
hereof and shall continue in effect with respect to any Portfolio or Fund for
two years from such date unless sooner terminated as hereinafter provided, and
shall continue in effect from year to year thereafter so long as such
continuation is approved at least annually with respect to any Portfolio or Fund
by (i) the Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Portfolios and the Funds, and (ii) the vote of a
majority of the Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, with such vote being cast in person at a
meeting called for the purpose of voting on such approval.
<PAGE>
16. Termination. This Agreement may be terminated with respect to any
Portfolio or Fund at any time, without payment of any penalty, (a) by the
Trustees of the Trust or by vote of a majority of the outstanding voting
securities of such Portfolio or Fund, upon sixty (60) days written notice to the
Adviser and the Sub-Adviser, (b) by the Adviser upon sixty (60) days written
notice to the Sub-Adviser and the Trust, or (c) by the Sub-Adviser upon sixty
(60) days written notice to the Adviser and the Trust. This Agreement shall
terminate automatically in the event of any transfer or assignment hereof, as
defined in the 1940 Act. Paragraphs 3(a), 7, 14 and 17 shall survive the
termination of this Agreement.
17. Cooperation. Each party to this Agreement agrees to cooperate with
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC and state
insurance authorities) in connection with any investigation or inquiry relating
to this Agreement or the Trust.
18. Advertising. Sub-Adviser shall not use any sales promotion or other
advertising materials relating to the Trust or the Adviser without the Adviser's
prior written consent.
19. Notices. Unless otherwise specified herein, all notices, instructions
and advice with respect to security transactions or any other matters
contemplated by this Agreement shall be deemed duly given when deposited in the
mail postage prepaid and addressed to the Sub-Adviser at Two Midtown Plaza, 1360
Peachtree Street, Atlanta, GA 30309, Attn: Jerry DeVore, which notice may serve
to confirm a prior oral notice as provided in Paragraph 9 hereof, or to the
Adviser at 400 West Market Street, Louisville, KY 40202, Attn: President, or at
such other address or addresses as shall be specified, in each case, in a notice
similarly given.
20. No Waiver. The waiver by any party of any breach of or default under
any provision or portion of this Agreement shall not operate as or be construed
to be a waiver of any subsequent breach or default.
21. Severability. The provisions of this Agreement shall be considered
severable and if for any reason any provision of this Agreement which is not
essential to the effectuation of the basic purpose of this Agreement is deemed
to be invalid or contrary to any existing or future law, such invalidity shall
not impair the operation of or affect any other provision of this Agreement
which is valid.
22. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
23. Entire Agreement. This Agreement represents the entire understanding
and agreement between the parties hereto with respect to the subject matter
hereof and
<PAGE>
supersedes all prior understandings or agreements between the parties pertaining
to the subject matter hereof, whether oral or written. This Agreement may only
be modified or amended by mutual written agreement of the parties hereto and, as
required, upon approval of a majority of the outstanding voting securities of
the Portfolios and the Funds.
24. Definitions. For purposes of application and operation of the
provisions of this Agreement, the term "majority of the outstanding voting
securities" shall have the meaning as set forth in the 1940 Act.
25. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
26. Representations by Adviser. The Adviser represents and confirms that
the employment and appointment of the Sub-Adviser is authorized and that the
terms hereof do not violate any obligation by which it is bound, or by which the
Sub-Adviser is intended to be bound, whether arising by contract, operation of
law or otherwise. The Adviser further represents that (a) this Agreement has
been duly authorized by appropriate action and when executed and delivered will
be binding upon itself in accordance with its terms, and (b) it will deliver to
the Sub-Adviser such evidence of such authority as the Sub-Adviser may
reasonably require, whether by way of certified resolution or otherwise.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN INVESTMENT ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
-------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
ATTEST: By: /s/ Daniel W. Boone III
-------------------------------------
/s/ Jerry D. DeVore
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT
--------------------------------------------
Between PROVIDIAN INVESTMENT ADVISORS, INC.
and
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
THIS INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT relating to the Capital
Preservation Portfolio (the "Portfolio"), a series of Providian Series Trust
(the "Trust"), is entered into as of this 25th day of March, 1997, by and
between Providian Investment Advisors, Inc. (the "Adviser"), a Delaware
corporation, and Atlanta Capital Management Company, LLC (the "Sub-Adviser"), a
Georgia limited liability company.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Portfolio is a separate investment series of the Trust; and
WHEREAS, the Adviser has entered into an Investment Sub-Advisory Agreement
(the "Agreement") dated as of March 25, 1997, pursuant to which it has appointed
the Sub-Adviser to provide the investment advisory services specified therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Adviser hereby adopts the
Agreement with respect to the Portfolio, and the Sub-Adviser hereby acknowledges
that the Agreement shall pertain to the Portfolio, the terms and conditions of
such Agreement being hereby incorporated herein by reference.
2. The term "Portfolio(s)" as used in the Agreement shall, for purposes of
this Supplement, pertain to the Portfolio.
<PAGE>
3. The Sub-Adviser shall not receive a separate investment advisory fee
from the Adviser for the advisory and asset allocation services it provides on
behalf of the Portfolio pursuant to the Agreement.
4. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Portfolio,
and (ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
5. This Supplement may be terminated with respect to the Portfolio at any
time, without payment of any penalty, (a) by the Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Portfolio, upon
sixty (60) days written notice to the Adviser and the Sub-Adviser, (b) by the
Adviser upon sixty (60) days written notice to the Sub-Adviser and the Trust, or
(c) by the Sub-Adviser upon sixty (60) days written notice to the Adviser and
the Trust. This Agreement shall terminate automatically in the event of any
transfer or assignment hereof, as defined in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN INVESTMENT ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
-------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
ATTEST: By: /s/ Daniel W. Boone III
-------------------------------------
/s/ Jerry D. DeVore
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT
--------------------------------------------
Between PROVIDIAN INVESTMENT ADVISORS, INC.
and
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
THIS INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT relating to the High
Quality Stock Fund and the Fixed Income Fund (together, the "Fund"), each a
series of Providian Series Trust (the "Trust"), is entered into as of this 25th
day of March, 1997, by and between Providian Investment Advisors, Inc. (the
"Adviser"), a Delaware corporation, and Atlanta Capital Management Company, LLC
(the "Sub-Adviser"), a Georgia limited liability company.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Fund is a separate series of the Trust; and
WHEREAS, the Adviser has entered into an Investment Sub-Advisory Agreement
(the "Agreement") dated as of March 25, 1997, pursuant to which it has appointed
the Sub-Adviser to provide the investment advisory services specified therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Adviser hereby adopts the
Agreement with respect to the Fund, and the Sub-Adviser hereby acknowledges that
the Agreement shall pertain to the Fund, the terms and conditions of such
Agreement being hereby incorporated herein by reference.
2. The term "Fund(s)" as used in the Agreement shall, for purposes of this
Supplement, pertain to the Fund.
<PAGE>
3. The Adviser shall pay to the Sub-Adviser on behalf of the Fund an
investment advisory fee for the advisory services provided by the Sub-Adviser
pursuant to the Agreement based on the collective total market value of the
assets of the Funds of the Trust under the Sub-Adviser's management. The fee,
which accrues daily and is paid monthly, is 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.
4. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Fund, and
(ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
5. This Supplement may be terminated with respect to the Fund at any time,
without payment of any penalty, (a) by the Trustees of the Trust or by vote of a
majority of the outstanding voting securities of the Fund, upon sixty (60) days
written notice to the Adviser and the Sub-Adviser, (b) by the Adviser upon sixty
(60) days written notice to the Sub-Adviser and the Trust, or (c) by the Sub-
Adviser upon sixty (60) days written notice to the Adviser and the Trust. This
Agreement shall terminate automatically in the event of any transfer or
assignment hereof, as defined in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN INVESTMENT ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
-------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
ATTEST: By: /s/ Daniel W. Boone III
-------------------------------------
/s/ Jerry D. DeVore
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT
--------------------------------------------
Between PROVIDIAN INVESTMENT ADVISORS, INC.
and
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
THIS INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT relating to the Income
Oriented Portfolio (the "Portfolio"), a series of Providian Series Trust (the
"Trust"), is entered into as of this 25th day of March, 1997, by and between
Providian Investment Advisors, Inc. (the "Adviser"), a Delaware corporation, and
Atlanta Capital Management Company, LLC (the "Sub-Adviser"), a Georgia limited
liability company.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Portfolio is a separate investment series of the Trust; and
WHEREAS, the Adviser has entered into an Investment Sub-Advisory Agreement
(the "Agreement") dated as of March 25, 1997, pursuant to which it has appointed
the Sub-Adviser to provide the investment advisory services specified therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Adviser hereby adopts the
Agreement with respect to the Portfolio, and the Sub-Adviser hereby acknowledges
that the Agreement shall pertain to the Portfolio, the terms and conditions of
such Agreement being hereby incorporated herein by reference.
2. The term "Portfolio(s)" as used in the Agreement shall, for purposes of
this Supplement, pertain to the Portfolio.
<PAGE>
3. The Sub-Adviser shall not receive a separate investment advisory fee
from the Adviser for the advisory and asset allocation services it provides on
behalf of the Portfolio pursuant to the Agreement.
4. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Portfolio,
and (ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
5. This Supplement may be terminated with respect to the Portfolio at any
time, without payment of any penalty, (a) by the Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Portfolio, upon
sixty (60) days written notice to the Adviser and the Sub-Adviser, (b) by the
Adviser upon sixty (60) days written notice to the Sub-Adviser and the Trust, or
(c) by the Sub-Adviser upon sixty (60) days written notice to the Adviser and
the Trust. This Agreement shall terminate automatically in the event of any
transfer or assignment hereof, as defined in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN INVESTMENT ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
-------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
ATTEST: By: /s/ Daniel W. Boone III
-------------------------------------
/s/ Jerry D. DeVore
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT
--------------------------------------------
Between PROVIDIAN INVESTMENT ADVISORS, INC.
and
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
THIS INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT relating to the Growth
and Income Portfolio (the "Portfolio"), a series of Providian Series Trust (the
"Trust"), is entered into as of this 25th day of March, 1997, by and between
Providian Investment Advisors, Inc. (the "Adviser"), a Delaware corporation, and
Atlanta Capital Management Company, LLC (the "Sub-Adviser"), a Georgia limited
liability company.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Portfolio is a separate investment series of the Trust; and
WHEREAS, the Adviser has entered into an Investment Sub-Advisory Agreement
(the "Agreement") dated as of March 25, 1997, pursuant to which it has appointed
the Sub-Adviser to provide the investment advisory services specified therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Adviser hereby adopts the
Agreement with respect to the Portfolio, and the Sub-Adviser hereby acknowledges
that the Agreement shall pertain to the Portfolio, the terms and conditions of
such Agreement being hereby incorporated herein by reference.
2. The term "Portfolio(s)" as used in the Agreement shall, for purposes of
this Supplement, pertain to the Portfolio.
<PAGE>
3. The Sub-Adviser shall not receive a separate investment advisory fee
from the Adviser for the advisory and asset allocation services it provides on
behalf of the Portfolio pursuant to the Agreement.
4. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Portfolio,
and (ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
5. This Supplement may be terminated with respect to the Portfolio at any
time, without payment of any penalty, (a) by the Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Portfolio, upon
sixty (60) days written notice to the Adviser and the Sub-Adviser, (b) by the
Adviser upon sixty (60) days written notice to the Sub-Adviser and the Trust, or
(c) by the Sub-Adviser upon sixty (60) days written notice to the Adviser and
the Trust. This Agreement shall terminate automatically in the event of any
transfer or assignment hereof, as defined in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN INVESTMENT ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
-------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
ATTEST: By: /s/ Daniel W. Boone III
-------------------------------------
/s/ Jerry D. DeVore
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT
--------------------------------------------
Between PROVIDIAN INVESTMENT ADVISORS, INC.
and
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
THIS INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT relating to the Capital
Growth Portfolio (the "Portfolio"), a series of Providian Series Trust (the
"Trust"), is entered into as of this 25th day of March, 1997, by and between
Providian Investment Advisors, Inc. (the "Adviser"), a Delaware corporation, and
Atlanta Capital Management Company, LLC (the "Sub-Adviser"), a Georgia limited
liability company.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Portfolio is a separate investment series of the Trust; and
WHEREAS, the Adviser has entered into an Investment Sub-Advisory Agreement
(the "Agreement") dated as of March 25, 1997, pursuant to which it has appointed
the Sub-Adviser to provide the investment advisory services specified therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Adviser hereby adopts the
Agreement with respect to the Portfolio, and the Sub-Adviser hereby acknowledges
that the Agreement shall pertain to the Portfolio, the terms and conditions of
such Agreement being hereby incorporated herein by reference.
2. The term "Portfolio(s)" as used in the Agreement shall, for purposes of
this Supplement, pertain to the Portfolio.
<PAGE>
3. The Sub-Adviser shall not receive a separate investment advisory fee
from the Adviser for the advisory and asset allocation services it provides on
behalf of the Portfolio pursuant to the Agreement.
4. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Portfolio,
and (ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
5. This Supplement may be terminated with respect to the Portfolio at any
time, without payment of any penalty, (a) by the Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Portfolio, upon
sixty (60) days written notice to the Adviser and the Sub-Adviser, (b) by the
Adviser upon sixty (60) days written notice to the Sub-Adviser and the Trust, or
(c) by the Sub-Adviser upon sixty (60) days written notice to the Adviser and
the Trust. This Agreement shall terminate automatically in the event of any
transfer or assignment hereof, as defined in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN INVESTMENT ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
-------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
ATTEST: By: /s/ Daniel W. Boone III
-------------------------------------
/s/ Jerry D. DeVore
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT
--------------------------------------------
Between PROVIDIAN INVESTMENT ADVISORS, INC.
and
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
THIS INVESTMENT SUB-ADVISORY AGREEMENT SUPPLEMENT relating to the Maximum
Appreciation Portfolio (the "Portfolio"), a series of Providian Series Trust
(the "Trust"), is entered into as of this 25th day of March, 1997, by and
between Providian Investment Advisors, Inc. (the "Adviser"), a Delaware
corporation, and Atlanta Capital Management Company, LLC (the "Sub-Adviser"), a
Georgia limited liability company.
WITNESSETH:
----------
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust consists of such separate series as have been or may be
established and designated by the Trustees from time to time;
WHEREAS, the Portfolio is a separate investment series of the Trust; and
WHEREAS, the Adviser has entered into an Investment Sub-Advisory Agreement
(the "Agreement") dated as of March 25, 1997, pursuant to which it has appointed
the Sub-Adviser to provide the investment advisory services specified therein;
NOW, THEREFORE, the parties hereby take the following actions, subject to
the conditions set forth below:
1. As provided for in the Agreement, the Adviser hereby adopts the
Agreement with respect to the Portfolio, and the Sub-Adviser hereby acknowledges
that the Agreement shall pertain to the Portfolio, the terms and conditions of
such Agreement being hereby incorporated herein by reference.
2. The term "Portfolio(s)" as used in the Agreement shall, for purposes of
this Supplement, pertain to the Portfolio.
<PAGE>
3. The Sub-Adviser shall not receive a separate investment advisory fee
from the Adviser for the advisory and asset allocation services it provides on
behalf of the Portfolio pursuant to the Agreement.
4. This Supplement shall become effective on the date hereof and shall
continue in effect for two years from such date unless sooner terminated as
hereinafter provided, and shall continue in effect from year to year thereafter
so long as such continuation is approved at least annually by (i) the Trustees
or by vote of a majority of the outstanding voting securities of the Portfolio,
and (ii) the vote of a majority of the Trustees who are not parties to this
Supplement or interested persons of any such party, with such vote being cast in
person at a meeting called for the purpose of voting on such approval.
5. This Supplement may be terminated with respect to the Portfolio at any
time, without payment of any penalty, (a) by the Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Portfolio, upon
sixty (60) days written notice to the Adviser and the Sub-Adviser, (b) by the
Adviser upon sixty (60) days written notice to the Sub-Adviser and the Trust, or
(c) by the Sub-Adviser upon sixty (60) days written notice to the Adviser and
the Trust. This Agreement shall terminate automatically in the event of any
transfer or assignment hereof, as defined in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
PROVIDIAN INVESTMENT ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
-------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President and
Chief Financial Officer
ATLANTA CAPITAL MANAGEMENT COMPANY, LLC
ATTEST: By: /s/ Daniel W. Boone III
-------------------------------------
/s/ Jerry D. DeVore
<PAGE>
Exhibit 5(c)
INVESTMENT SUB-ADVISORY AGREEMENT
---------------------------------
Between PROVIDIAN INVESTMENT ADVISORS, INC.
and
BLAIRLOGIE CAPITAL MANAGEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT is entered into as of this 25th
day of March, 1997, by and between Providian Investment Advisors, Inc. (the
"Adviser"), a Delaware corporation, and Blairlogie Capital Management (the
"Sub-Adviser"), a Scottish limited partnership.
WITNESSETH:
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WHEREAS, the Providian Series Trust (the "Trust"), a Massachusetts business
trust, has retained the Adviser to render investment advisory services pursuant
to an Investment Advisory Agreement entered into as of March 25, 1997, and such
agreement authorizes the Adviser to engage sub-advisers to discharge the
Adviser's responsibilities with respect to the investment management of the
Trust, a copy of which agreement has been provided to the Sub-Adviser and is
incorporated by reference herein;
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust currently consists of nine separate series, each having
different investment objectives and policies;
WHEREAS, the Adviser and the Sub-Adviser are each an investment adviser,
registered as such pursuant to the provisions of the Investment Advisers Act of
1940 (the "Advisers Act"), and each is engaged in the business of rendering
investment advice and investment management services as an independent
contractor;
WHEREAS, the Adviser desires to retain the Sub-Adviser to render advice and
services to the Trust in connection with management and operation of its
International Active Fund (the "Fund") pursuant to terms and conditions set
forth herein; and
WHEREAS, the Sub-Adviser desires and has agreed to render such advice and
furnish such services with regard to the Fund pursuant to the terms and
conditions set forth herein;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, conditions and agreements contained herein, and for such
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties, each intending to be legally bound hereby,
mutually agree as follows:
1. Employment. The Adviser hereby employs the Sub-Adviser, and the Sub-
Adviser hereby accepts such employment, to render investment advice and
investment management services with respect to the Fund, subject to the
supervision and direction of the Adviser and the Trust. In the event the Adviser
wishes to retain the Sub-Adviser to render investment advisory services to one
or more additional funds, other than the Fund, the Adviser shall notify the Sub-
Adviser in writing. If the Sub-Adviser is willing to render such services, it
shall notify the Adviser in writing, whereupon such fund shall become a Fund
hereunder and be subject to this Agreement.
2. Sub-Adviser Duties. Subject to the supervision of the Adviser and the
Trust and the investment policies set forth in the Fund's registration
statement, as amended and supplemented from time to time (the "Registration
Statement"), filed with the Securities and Exchange Commission ("SEC"), the Sub-
Adviser shall provide a continuous investment program for the Fund, and
determine the composition of the assets of the Fund, including determination of
the purchase, retention or sale of the securities, cash, and other investments,
including futures contracts and options thereon, for the Fund. The Sub-Adviser
shall provide investment research and analysis, which may consist of
computerized investment methodology, and shall conduct a continuous program of
evaluation, investment, sales, and reinvestment of the Fund's assets by
determining the securities and other investments that shall be purchased,
entered into, sold, closed, or exchanged for the Fund, when these transactions
should be executed, and what portion of the assets of the Fund should be held in
the various securities and other investments in which it may invest, and the
Sub-Adviser is hereby authorized to execute and perform such services on behalf
of the Fund. To the extent permitted by the investment policies of the Fund, the
Sub-Adviser shall make decisions for the Fund as to foreign currency matters and
make determinations as to the retention or disposition of foreign currencies or
securities or other instruments denominated in foreign currencies, or derivative
instruments based upon foreign currencies, including forward foreign currency
contracts and options and futures on foreign currencies and shall execute and
perform the same on behalf of the Fund. In performing these duties, the Sub-
Adviser:
(a) Shall (1) manage the Fund so that it will qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code and (2)
manage the Fund so as to ensure compliance by the Fund with the diversification
requirements of Section 817(h) of the Internal Revenue Code and Regulations
issued thereunder. The Adviser shall notify the Sub-Adviser of any amendments to
Section 817(h) of the Internal Revenue Code and Regulations issued thereunder.
In managing the Fund in accordance with these requirements, the Sub-Adviser
shall be entitled to receive and act upon advice
<PAGE>
of counsel to the Trust, counsel to the Adviser, or counsel to the Sub-Adviser
that is also acceptable to the Adviser.
(b) In managing the Fund, shall conform with (1) the 1940 Act and all
rules and regulations thereunder, and releases and interpretations related
thereto, (2) all other applicable federal and state laws and regulations
pertaining to investment vehicles underlying variable annuity and/or variable
life insurance contracts, (3) any applicable procedures, policies and guidelines
adopted by the Trustees of the Trust (the "Trustees"), (4) the Fund's
objectives, investment policies and investment restrictions as stated in the
Fund's Prospectus and Statement of Additional Information, and (5) the
provisions of the Fund's Registration Statement filed on Form N-1A under the
Securities Act of 1933 (the "1933 Act") and the 1940 Act. Until the Adviser
delivers any supplements or amendments to the Sub-Adviser, the Sub-Adviser shall
be fully protected in relying on the Fund's Registration Statement previously
furnished to the Sub-Adviser by the Adviser.
(c) Is responsible, in connection with its responsibilities under this
Paragraph, for decisions to buy and sell securities and other investments for
the Fund, for broker-dealer and future commissions merchants ("FCM") selection
and for negotiation of commission rates. The Sub-Adviser's primary consideration
in effecting a security or other transaction will be to obtain the best
execution for the Fund, taking into account the factors specified in the
Prospectus and Statement of Additional Information for the Fund, as amended or
supplemented from time to time. Subject to such policies as the Trustees may
determine, and consistent with Section 28(e) of the Securities Exchange Act of
1934 (the "1934 Act"), the Sub-Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer, acting
as agent, for a portfolio transaction effected at a price in excess of the
amount of commission another broker or 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 or dealer, viewed in terms of either that
particular transaction or the Sub-Adviser's (or its affiliates) overall
responsibilities with respect to the Fund and to its other clients as to which
it exercises investment discretion. To the extent consistent with these
standards, and in accordance with Section 11(a) of the 1934 Act and Rule 11a2-
2(T) thereunder, and subject to any other applicable laws and regulations
including Section 17(e) of the 1940 Act, the Sub-Adviser is further authorized
to allocate the orders placed by it on behalf of the Fund to the Sub-Adviser if
it is registered as a broker or dealer with the SEC or as a FCM with the
Commodities Futures Trading Commission ("CFTC"), to any of its affiliates that
are registered as a broker or dealer with the SEC or as a FCM with the CFTC, or
to such brokers and dealers that also provide research or statistical research
and material or other services to the Fund or the Sub-Adviser. Such allocation
shall be in such amounts and proportions as the Sub-Adviser shall determine
consistent with the above standards, and, upon request, the Sub-Adviser shall
report on said allocation to the Adviser and the Trust, indicating the brokers,
dealers or FCMs to which such allocations have been made and
<PAGE>
the basis therefor. Sub-Adviser will report to the Adviser any soft dollar
arrangements that result in services to the Trust and/or the Sub-Adviser as may
be reasonably requested by the Trustees.
(d) May, on occasions when the purchase or sale of a security is
deemed to be in the best interest of the Fund, as well as any other investment
advisory clients, to the extent permitted by applicable laws and regulations,
aggregate the securities to be so sold or purchased with those of its other
clients where such aggregation is not inconsistent with the policies set forth
in the Fund's Registration Statement. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in the
transactions, will be made by the Sub-Adviser in the exercise of its fiduciary
obligations to the Fund and to such other clients in a manner that in its
judgment is fair and equitable.
(e) Shall, in connection with the purchase and sale of securities for
the Fund, together with the Adviser, arrange for the daily transmission to the
Fund's custodian and recordkeeping agent of such confirmation(s), trade tickets,
and other documents and information, including, but not limited to, CUSIP,
Sedol, or other numbers that identify securities to be purchased or sold on
behalf of the Fund, as may be reasonably necessary to enable the custodian and
recordkeeping agent to perform its administrative and recordkeeping
responsibilities with respect to the Fund. With respect to portfolio securities
to be purchased or sold through the Depository Trust Company, the Sub-Adviser
shall arrange for the automatic transmission of the confirmation of such trades
to the Fund's custodian and recordkeeping agent and, if required, to the
Adviser.
(f) Shall assist the custodian and recordkeeping agent for the Fund in
determining or confirming, consistent with the procedures and policies stated in
the Registration Statement for the Fund, the value of any portfolio securities
or other assets of the Fund for which the custodian and recordkeeping agent
seeks assistance from the Sub-Adviser or identifies for review by the Sub-
Adviser.
(g) Shall make available to the Trust and the Adviser promptly upon
request, any of the Fund's investment records and ledgers maintained by the Sub-
Adviser (which shall not include the records and ledgers maintained by the
custodian and recordkeeping agent for the Fund), as are necessary to assist the
Trust and the Adviser in compliance with requirements of the 1940 Act and the
Advisers Act, as well as other applicable laws. The Sub-Adviser shall furnish to
regulatory authorities having the requisite authority any information or reports
in connection with such services which may be requested in order to ascertain
whether the operations of the Fund are being conducted in a manner consistent
with applicable laws and regulations.
(h) Shall regularly report to the Trust on the investment program for
the Fund and the issuers and securities represented in the Fund's portfolio, and
shall furnish the Trust such periodic and special reports as the Trustees and
the Adviser may reasonably request.
<PAGE>
(i) Shall not disclose or use any records or information obtained
pursuant to this Agreement (excluding investment research and investment advice)
in any manner whatsoever except as expressly authorized in this Agreement or in
the ordinary course of business in connection with placing orders for the
purchase and sale of securities, and shall keep confidential any information
obtained pursuant to the Agreement, and disclose such information only if the
Trust has authorized such disclosure, or if such disclosure is required by
applicable federal or state law or regulations or regulatory authorities having
the requisite authority. The Trust and the Adviser shall not disclose or use any
records or information respecting the Sub-Adviser obtained pursuant to this
Agreement in any manner whatsoever except as expressly authorized in this
Agreement, and shall keep confidential any information obtained pursuant to this
Agreement, and disclose such information only as expressly authorized in this
Agreement, if the Trust has authorized such disclosure, or if such disclosure is
required by applicable federal or state law or regulations or regulatory
authorities having the requisite authority.
(j) Shall be responsible for making reasonable inquiries and for
reasonably ensuring that any employee of the Sub-Adviser has not, to the best of
the Sub-Adviser's knowledge:
(i) been convicted, in the last ten (10) years, of any felony or
misdemeanor involving the purchase or sale of any security or arising out of
such person's conduct as an underwriter, broker, dealer, investment adviser,
municipal securities dealer, government securities broker, government securities
dealer, transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesperson, or employee of
any investment company, bank, insurance company, or entity or person required to
be registered under the Commodity Exchange Act; or
(ii) been permanently or temporarily enjoined by reason of any
misconduct, by order, judgment, or decree of any court of competent jurisdiction
from acting as an underwriter, broker, dealer, investment adviser, municipal
securities dealer, government securities broker, government securities dealer,
transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesperson or employee of
any investment company, bank, insurance company, or entity or person required to
be registered under the Commodity Exchange Act or from engaging in or continuing
any conduct or practice in connection with any such activity or in connection
with the purchase or sale of any security.
(k) Shall provide to Adviser and the Trust by April 1 of each calendar
year a copy of the Sub-Adviser's Form ADV as amended and most recently filed
with the SEC and a list of persons who the Sub-Adviser has authorized to give
written and/or oral instructions to Custodians of Fund assets for the Fund.
<PAGE>
3. Best Efforts. The Sub-Adviser hereby agrees to use its best judgment
and efforts in rendering the advice and services with respect to the Fund as
contemplated by this Agreement. The Sub-Adviser further agrees to use its best
efforts in the preparation of reports and information and in the management of
the respective assets of the Fund pursuant to this Agreement. For this purpose
the Sub-Adviser shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as it shall from time
to time determine to be necessary to the performance of its obligations under
this Agreement. Without limiting the generality of the foregoing, the staff and
personnel of the Sub-Adviser shall be deemed to include persons employed or
retained by the Sub-Adviser to furnish statistical, research, and other factual
information, advice regarding economic factors and trends, information with
respect to technical and scientific developments, and such other information,
advice and assistance as the Sub-Adviser may desire and request.
4. Independent Contractor. The Sub-Adviser shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized, have no authority to act for or represent the
Adviser, the Trust or the Fund in any way, or in any way be deemed an agent of
the Adviser, the Trust or the Fund. It is expressly understood and agreed that
the services to be rendered by the Sub-Adviser pursuant to the provisions of
this Agreement are not to be deemed exclusive with respect to the Sub-Adviser's
rendering of services, and the Sub-Adviser shall therefore be free to render
similar or different services to others, provided, that its ability to render
the services described herein shall not be impaired thereby.
5. Disclosure about Sub-Adviser. The Sub-Adviser has reviewed the current
Registration Statement for the Fund filed with the SEC and represents and
warrants that, with respect to the disclosure about the Sub-Adviser or
information relating, directly or indirectly, to the Sub-Adviser, such
Registration Statement contains, as of the date hereof, no untrue statement of
any material fact and does not omit any statement of a material fact which was
required to be stated therein or necessary to make the statements contained
therein not misleading. The Sub-Adviser further represents and warrants that it
is a duly registered investment adviser under the Advisers Act and a duly
registered investment adviser in all states in which the Sub-Adviser is required
to be registered. The Sub-Adviser agrees promptly to provide written notice to
the Adviser and the Trust of any change in ownership of the Sub-Adviser or the
identity of the primary manager of the Fund and any other matter which is
disclosed in the Registration Statement and becomes untrue.
6. Furnishing of Information. The Sub-Adviser shall from time to time
furnish to the Adviser detailed statements of the investments and assets of the
Fund. The Sub-Adviser shall provide any materials reasonably related to the
investment advisory services provided hereunder as may be reasonably requested
in writing by the designated officers of the Adviser, the Trust or the Fund or
as may be required by any governmental agency having jurisdiction. The Adviser
shall from time to time furnish to the Sub-Adviser information pertaining to the
investment objectives and needs of the Fund, and
<PAGE>
shall make available to the Sub-Adviser such financial reports, proxy
statements, legal and other information in the possession of or available to the
Adviser relating to Fund investments, as the same may be relevant to the
performance by the Sub-Adviser of its obligations hereunder. The Adviser shall
furnish such other information as the Sub-Adviser may reasonably request.
7. Books and Records. In compliance with the requirements of Rule 3la-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records which it
maintains for the Fund are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's or the
Adviser's request, although the Sub-Adviser may, at its own expense, make and
retain a copy of such records. The Sub-Adviser further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act the records required to
be maintained by Rule 31a-1 under the 1940 Act and to preserve the records
required by Rule 204-2 under the Advisers Act for the period specified in the
Rule. The Sub-Adviser agrees that it will maintain all records and accounts
regarding the investment activities of the Fund in a confidential manner. Within
five (5) business days of a written request, all such records and accounts shall
be made available to the accountants or auditors of the Fund during regular
business hours at the Sub-Adviser's offices. In the event of termination for any
reason, all records of the Fund shall promptly be returned to the Adviser or the
Trust, free from any claim or retention of rights in such record by the Sub-
Adviser, although the Sub-Adviser may, at its own expense, make and retain a
copy of such records.
8. Tender Offers. The Sub-Adviser hereby agrees that whenever the Sub-
Adviser has determined that the Fund should tender securities pursuant to a
"tender offer solicitation," the Sub-Adviser shall designate an affiliate as the
"tendering dealer," so long as such affiliate is legally permitted to act in
such capacity under the federal securities laws, the rules promulgated
thereunder and the rules of any securities exchange or association of which such
affiliate may be a member. Such affiliated dealer shall not be obligated to make
any additional commitments of capital, expense or personnel beyond that
committed as of the date of this Agreement (other than normal periodic fees or
payments necessary to maintain its corporate existence and its membership in the
National Association of Securities Dealers, Inc.). This Agreement shall not
obligate the Sub-Adviser or such affiliate to (i) act pursuant to the foregoing
requirement under any circumstance in which either might reasonably believe that
liability might be imposed upon it as a result of so acting, or (ii) institute
legal or other proceedings to collect fees which may be considered to be due to
it from others as a result of such a tender, unless the Fund shall enter into an
agreement with the Sub-Adviser or such affiliate to reimburse it for all
expenses connected with attempting to collect such fees (including legal fees
and expenses and that portion of the compensation due to their respective
employees which amount is directly attributable to the time involved in
attempting to collect such fees).
9. Expenses. During the term of this Agreement, the Sub-Adviser shall pay
all expenses incurred by it and its staff and for their activities in connection
with its
<PAGE>
services under this Agreement. The Sub-Adviser shall not be responsible for any
of the following:
(a) Expenses of audits by the Fund's independent public accountants;
(b) Expenses of the Fund's transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(c) Expenses of the Fund's custodial services including recordkeeping
services provided by the custodian;
(d) Expenses of the Fund's recordkeeping services provided by the
recordkeeping agent;
(e) Expenses of obtaining quotations for calculating the value of the
Fund's net assets;
(f) Expenses of obtaining portfolio activity reports for the Fund;
(g) Expenses of maintaining the Trust's tax records;
(h) Salaries and other compensation of any of the Trust's executives
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the Sub-Adviser or its subsidiaries or affiliates (except that
the Adviser, or any of its subsidiaries or affiliates, shall bear the expense
with respect to executive officers and employees, if any, who are officers,
directors, stockholders or employees of the Adviser or of its subsidiaries or
affiliates);
(i) Taxes, if any, levied against the Trust or the Fund;
(j) Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Fund;
(k) Costs, including the interest expenses, of borrowing money;
(l) Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses and reports of the
Trust to its shareholders, the filing of reports with regulatory bodies, the
maintenance of the Trust's or the Fund's existence, and the registration of
shares with federal and state securities or insurance authorities;
(m) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
<PAGE>
(n) Costs of printing "share" stock certificates, if any, representing
shares of the Trust;
(o) Trustees' fees and expenses of Trustees who are not officers,
employees, or Stockholders of the Sub-Adviser or any affiliate thereof (except
that the Adviser shall bear the expense of any trustee who is an officer,
employee, or stockholder of the Adviser or any affiliate thereof);
(p) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance obtained by the Trust;
(q) Association membership dues;
(r) Extraordinary expenses of the Trust as may arise including
expenses incurred in connection with litigation, proceedings and other claims
and the legal obligations of the Trust to indemnify its trustees, officers,
employees, shareholders, distributors, and agents with respect thereto (unless
Sub-Adviser is responsible for such expenses under Paragraph 15 of this
Agreement); and
(s) Organizational and offering expenses and, if applicable,
reimbursement (with interest) of underwriting discounts and commissions.
10. Advisory Fees.
(a) In exchange for the rendering of advice and services pursuant
hereto, the Adviser shall pay to the Sub-Adviser on behalf of the Fund, and the
Sub-Adviser shall accept as full compensation for all investment advisory
services furnished to the Fund and as full reimbursement for all expenses
assumed by the Sub-Adviser, an advisory fee based on the net assets of the Fund.
The fee is equal to 0.65% annually on assets up to $50 million and 0.50%
annually on assets above $50 million.
(b) The advisory fee shall be accrued daily by the Fund and paid by
the Adviser to the Sub-Adviser monthly in arrears as of the last valuation date.
(c) In the case of termination of this Agreement during any month, the
advisory fee for that month shall be prorated according to the number of
business days during which the Agreement was in effect.
(d) The advisory fee payable hereunder shall be reduced to the extent
that an affiliate of the Sub-Adviser has actually received cash payments of
tender offer solicitation fees (less certain costs and expenses incurred in
connection therewith) as referred to in Paragraph 8 hereof.
11. Seed Money. The Adviser agrees that the Sub-Adviser shall be not be
responsible for providing money for the initial capitalization of the Fund.
<PAGE>
12. Compliance. (a) Nothing contained herein shall be deemed to require
the Adviser or the Fund to take any action contrary to (i) the Agreement and
Declaration of Trust of the Trust, (ii) the By-laws of the Trust, (iii) the
Registration Statement or (iv) any applicable statute or regulation.
(b) The Sub-Adviser agrees that it shall notify the Adviser and the
Trust immediately (i) in the event that the SEC has censured the Sub-Adviser;
placed limitations upon its activities, functions or operations; suspended or
revoked its registration as an investment adviser, or has commenced proceedings
or an investigation that may result in any of these actions, (ii) upon having a
reasonable basis for believing that the Fund has ceased to qualify or might not
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code, or (iii) upon having a reasonable basis for believing that the
Fund has ceased to comply with the diversification provisions of Section 817(h)
of the Internal Revenue Code or the regulations thereunder. The Sub-Adviser
further agrees to notify the Adviser and the Trust immediately of any material
fact known to the Sub-Adviser respecting or relating to the Sub-Adviser that is
not contained in the Registration Statement for the Fund, or any amendment or
supplement thereto, or of any statement contained therein that becomes untrue in
any material respect.
(c) The Adviser agrees that it shall notify the Sub-Adviser
immediately (i) in the event that the SEC has censured the Adviser or the Trust;
placed limitations upon their activities, functions, or operations; suspended or
revoked the Adviser's registration as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions, (ii)
upon having a reasonable basis for believing that a Fund has ceased to qualify
or might not qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code, or (iii) upon having a reasonable basis for believing
that the Fund has ceased to comply with the diversification provisions of
Section 817(h) of the Internal Revenue Code or the regulations thereunder.
13. Cooperation. Each party to this Agreement agrees to cooperate with
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC and state
insurance authorities) in connection with any investigation or inquiry relating
to this Agreement or the Trust.
14. Responsibility and Control. Notwithstanding any other provision of
this Agreement, it is understood and agreed that the Trust shall at all times
retain the ultimate responsibility for and control of all functions performed
pursuant to this Agreement and reserves the right to direct, approve or
disapprove any action hereunder taken on its behalf by the Sub-Adviser.
15. Indemnification. (a) The Sub-Adviser agrees to indemnify and hold
harmless, the Adviser, any affiliated person within the meaning of Section
2(a)(3) of
<PAGE>
the 1940 Act ("affiliated person") of the Adviser, and each person, if any, who,
within the meaning of Section 15 of the 1933 Act, controls ("controlling
person") the Adviser (collectively, "Adviser Indemnified Persons") against any
and all losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which an Adviser Indemnified Person may become subject under
the 1933 Act, the 1940 Act, the Advisers Act, any other statute, at common law
or otherwise, arising out of the Sub-Adviser's responsibilities to the Fund
which (i) may be based upon any negligence or willful misconduct by the Sub-
Adviser, any of its employees or representatives, or any affiliate of or any
person acting on behalf of the Sub-Adviser (other than a Sub-Adviser Indemnified
Person), or (ii) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement covering
the shares of the Trust or the Fund, or any amendment thereof or any supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not misleading
if such a statement or omission was made in reliance upon information furnished
to the Adviser, the Trust, or any affiliated person of the Adviser or Trust by
the Sub-Adviser or any affiliated person of the Sub-Adviser (other than a Sub-
Adviser Indemnified Person); provided, however, that in no case is the Sub-
Adviser's indemnity in favor of Adviser Indemnified Persons deemed to protect
such persons against any liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith, or negligence in the
performance of his or her duties or by reason of reckless disregard of
obligations and duties under this Agreement.
(b) The Adviser agrees to indemnify and hold harmless the Sub-Adviser,
any affiliated person of the Sub-Adviser and any controlling person of the Sub-
Adviser (collectively, "Sub-Adviser Indemnified Persons") against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which a Sub-Adviser Indemnified Person may become subject under the
1933 Act, the 1940 Act, the Advisers Act, any other statute, at common law or
otherwise, arising out of the Adviser's responsibilities as adviser of the Fund
which (i) may be based upon any negligence or willful misconduct by the Adviser,
any of its employees or representatives or any affiliate of or person acting on
behalf of the Adviser (other than an Adviser Indemnified Person) or (ii) may be
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement covering shares of the Trust or the
Fund, or any amendment thereof or any supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading if such statement or
omission was made in reliance upon information furnished to the Sub-Adviser, the
Trust or any affiliated person of the Sub-Adviser or Trust by an Adviser or any
affiliated person of the Adviser (other than an Adviser Indemnified Person);
provided, however, that in no case is the Adviser's indemnity in favor of Sub-
Adviser Indemnified Persons deemed to protect such persons against any liability
to which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or negligence in the performance of his or her duties or
by reason of reckless disregard of obligations and duties under this Agreement.
<PAGE>
16. Liability. Except as provided in Paragraph 15 and as may otherwise be
required by the 1940 Act or the rules thereunder or other applicable law, the
Trust and the Adviser agree that the Sub-Adviser, any affiliated person of Sub-
Adviser and any controlling person of the Sub-Adviser shall not be liable for or
subject to any damages, expenses, or losses in connection with any act or
omission connected with or arising out of any services rendered under this
Agreement, except by reason of willful misfeasance, bad faith, or negligence in
the performance of the Sub-Adviser's duties, or by reason of reckless disregard
of the Sub-Adviser's obligations and duties under this Agreement.
17. Limitation of Liability. A copy of the Agreement and Declaration of
Trust for the Trust is on file with the Secretary of the Commonwealth of
Massachusetts. The Agreement and Declaration of Trust has been executed on
behalf of the Trust by a Trustee in his or her capacity as Trustee and not
individually. The obligations of this Agreement shall be binding upon the assets
and property of the Trust and shall not be binding upon any Trustee, officer,
employee, agent or shareholder, whether past, present, or future, of the Trust
individually.
18. Term of Agreement. This Agreement shall become effective on the date
hereof and shall continue in effect for two years from such date unless sooner
terminated as hereinafter provided, and shall continue in effect from year to
year thereafter so long as such continuation is approved at least annually by
(i) the Trustees or by vote of a majority of the outstanding voting securities
of the Fund, and (ii) the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any such party, with such vote being
cast in person at a meeting called for the purpose of voting on such approval.
19. Termination. This Agreement may be terminated without payment of any
penalty (a) by the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, upon sixty (60) days written notice to the Adviser and
the Sub-Adviser, (b) by the Adviser upon sixty (60) days written notice to the
Sub-Adviser and the Trust, or (c) by the Sub-Adviser upon sixty (60) days
written notice to the Adviser and the Trust. This Agreement shall terminate
automatically in the event of any transfer or assignment hereof, as defined in
the 1940 Act. In the event this Agreement is terminated or is not approved in
the manner described above, Paragraphs 2(g), 2(i), 7, 13, 14, 15 and 16 this
Agreement, as well as any applicable provision of this Paragraph, shall remain
in effect.
20. Notices. Unless otherwise specified herein, all notices, instructions
and advice with respect to security transactions or any other matters
contemplated by this Agreement shall be deemed duly given when deposited in the
mail postage prepaid and addressed to the Sub-Adviser at 2874 Johnson Ferry
Road, Suite 200, Marietta, GA 30062, Attn: Darren DeVoreor to the Adviser at 400
West Market Street, Louisville, KY 40202, Attn: President, or at such other
address or addresses as shall be specified, in each case, in a notice similarly
given.
<PAGE>
21. No Waiver. The waiver by any party of any breach of or default under
any provision or portion of this Agreement shall not operate as or be construed
to be a waiver of any subsequent breach or default.
22. Severability. The provisions of this Agreement shall be considered
severable and if for any reason any provision of this Agreement which is not
essential to the effectuation of the basic purpose of this Agreement is deemed
to be invalid or contrary to any existing or future law, such invalidity shall
not impair the operation of or affect any other provision of this Agreement
which is valid.
23. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
24. Entire Agreement. This Agreement represents the entire understanding
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior understandings or agreements between the parties
pertaining to the subject matter hereof, whether oral or written. This Agreement
may only be modified or amended by mutual written agreement of the parties
hereto and, as required, upon approval of a majority of the outstanding voting
securities of the Fund.
25. Definitions. For purposes of application and operation of the
provisions of this Agreement, the term "majority of the outstanding voting
securities" shall have the meaning as set forth in the 1940 Act.
26. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
27. Advertising. Sub-Adviser shall not use any sales promotion or other
advertising materials relating to the Trust or the Adviser without the Adviser's
prior written consent.
28. Insurance. Sub-Adviser shall have and maintain Errors and Omissions
liability insurance covering Sub-Adviser's duties under this Agreement, with
limits of $5,000,000 per occurrence and $5,000,000 annual aggregate. Sub-
Adviser shall also maintain a fidelity bond in an amount and of a nature
reasonably determined by Adviser. Sub-Adviser shall name the Trust and the
Adviser as additional insureds and shall provide evidence of such coverage at
least annually.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sub-Advisory
Agreement to be duly executed and attested by their duly authorized officers on
the day and year first above written.
PROVIDIAN INVESTMENT
ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
------------------------------------
/s/ R. Michael Slaven Frederick C. Kessell, President
and Chief Financial Officer
BLAIRLOGIE CAPITAL
MANAGEMENT
ATTEST:
By: /s/ J. Robert W. Stephens
------------------------------------
/s/ Kate Morrison J. Robert W. Stephens
Chief Financial Officer
<PAGE>
Exhibit 5(d)
INVESTMENT SUB-ADVISORY AGREEMENT
---------------------------------
Between PROVIDIAN INVESTMENT ADVISORS, INC.
and
FEDERATED INVESTMENT COUNSELING
THIS INVESTMENT SUB-ADVISORY AGREEMENT is entered into as of this 25th
day of March, 1997, by and between Providian Investment Advisors, Inc. (the
"Adviser"), a Delaware corporation, and Federated Investment Counseling (the
"Sub-Adviser"), a Delaware business trust.
WITNESSETH:
----------
WHEREAS, the Providian Series Trust (the "Trust"), a Massachusetts business
trust, has retained the Adviser to render investment advisory services pursuant
to an Investment Advisory Agreement entered into as of March 25, 1997, and such
agreement authorizes the Adviser to engage sub-advisers to discharge the
Adviser's responsibilities with respect to the investment management of the
Trust, a copy of which agreement has been provided to the Sub-Adviser and is
incorporated by reference herein;
WHEREAS, the Trust is an open-end management investment company, registered
as such pursuant to the provisions of the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, the Trust currently consists of nine separate series, each having
different investment objectives and policies;
WHEREAS, the Adviser and the Sub-Adviser are each an investment adviser,
registered as such pursuant to the provisions of the Investment Advisers Act of
1940 (the "Advisers Act"), and each is engaged in the business of rendering
investment advice and investment management services as an independent
contractor;
WHEREAS, the Adviser desires to retain the Sub-Adviser to render advice and
services to the Trust in connection with management and operation of its Money
Market Fund (the "Fund") pursuant to terms and conditions set forth herein; and
WHEREAS, the Sub-Adviser desires and has agreed to render such advice and
furnish such services with regard to the Fund pursuant to the terms and
conditions set forth herein;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, conditions and agreements contained herein, and for such
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties, each intending to be legally bound hereby,
mutually agree as follows:
1. Employment. The Adviser hereby employs the Sub-Adviser, and the Sub-
Adviser hereby accepts such employment, to render investment advice and
investment management services with respect to the Fund, subject to the
supervision and direction of the Adviser and the Trust. In the event the
Adviser wishes to retain the Sub-Adviser to render investment advisory services
to one or more additional or funds, other than the Fund, the Adviser shall
notify the Sub-Adviser in writing. If the Sub-Adviser is willing to render such
services, it shall notify the Adviser in writing, whereupon such portfolio or
fund shall become a Fund hereunder and be subject to this Agreement.
2. Sub-Adviser Duties. The Adviser hereby authorizes the Sub-Adviser, in
its discretion and without prior consultation with the Adviser, to buy, sell,
lend and otherwise trade in any stocks, bonds, instruments, financial contracts
and other investment assets ("Securities") on behalf of the Fund. Subject to
the supervision of the Adviser and the Trust, the Sub-Adviser will manage the
investment operations of the Fund and the composition of the Fund's portfolio,
including the purchase, retention and disposition of, and exercise of all rights
pertaining to, the Securities comprising the Fund. The Sub-Adviser may invest
the Fund in such proportions of stocks, bonds, instruments, financial contracts,
cash and other investment assets as the Sub-Adviser shall determine, and may
dispose of Securities without regard to the length of time the Securities have
been held, the resulting rate of portfolio turnover or any tax considerations;
provided, that all investments shall conform with:
(a) the Fund's investment objectives, policies, limitations,
procedures and guidelines set forth in the documents listed on Schedule 1 to
this Agreement;
(b) any additional objectives, policies or guidelines approved by the
Sub-Adviser and adopted by the Adviser or by the Trust;
(c) the provisions of Section 851 of the Internal Revenue Code ("IRC")
applicable to "regulated investment companies";
(d) the diversification requirements specified in Section 817(h) of
the IRC, and the regulations thereunder; and
(e) the provisions of the Investment Company Act of 1940 (the "1940
Act") and the rules and regulations thereunder applicable to the Fund.
<PAGE>
In performing these duties, the Sub-Adviser: (i) Shall not disclose or use any
records or information obtained pursuant to this Agreement (excluding investment
research and investment advice) in any manner whatsoever except as expressly
authorized in this Agreement or in the ordinary course of business in connection
with placing orders for the purchase and sale of securities, and shall keep
confidential any information obtained pursuant to the Agreement, and disclose
such information only if the Trust has authorized such disclosure, or if such
disclosure is required by applicable federal or state law or regulations or
regulatory authorities having the requisite authority. The Trust and the
Adviser shall not disclose or use any records or information respecting the Sub-
Adviser obtained pursuant to this Agreement in any manner whatsoever except as
expressly authorized in this Agreement, and shall keep confidential any
information obtained pursuant to this Agreement, and disclose such information
only as expressly authorized in this Agreement, if the Trust has authorized such
disclosure, or if such disclosure is required by applicable federal or state law
or regulations or regulatory authorities having the requisite authority.
(ii) Shall be responsible for making reasonable inquiries and for
reasonably ensuring that any employee of the Sub-Adviser has not, to the best of
the Sub-Adviser's knowledge:
(1) been convicted, in the last ten (10) years, of any felony or
misdemeanor involving the purchase or sale of any security or arising out of
such person's conduct as an underwriter, broker, dealer, investment adviser,
municipal securities dealer, government securities broker, government securities
dealer, transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesperson, or employee of
any investment company, bank, insurance company, or entity or person required to
be registered under the Commodity Exchange Act; or
(2) been permanently or temporarily enjoined by reason of any
misconduct, by order, judgment, or decree of any court of competent jurisdiction
from acting as an underwriter, broker, dealer, investment adviser, municipal
securities dealer, government securities broker, government securities dealer,
transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesperson or employee of
any investment company, bank, insurance company, or entity or person required to
be registered under the Commodity Exchange Act or from engaging in or continuing
any conduct or practice in connection with any such activity or in connection
with the purchase or sale of any security.
(iii) Shall provide to Adviser and the Trust by April 1 of each
calendar year a copy of the Sub-Adviser's Form ADV as amended and most recently
filed with the Securities and Exchange Commission ("SEC") and a list of persons
who the Sub-Adviser has authorized to give written and/or oral instructions to
custodians of Fund assets for the Fund.
<PAGE>
3. Best Efforts. The Sub-Adviser hereby agrees to use its best judgment
and efforts in rendering the advice and services with respect to the Fund as
contemplated by this Agreement. The Sub-Adviser further agrees to use its best
efforts in the preparation of reports and information and in the management of
the respective assets of the Fund pursuant to this Agreement. For this purpose
the Sub-Adviser shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as it shall from time
to time determine to be necessary to the performance of its obligations under
this Agreement. Without limiting the generality of the foregoing, the staff and
personnel of the Sub-Adviser shall be deemed to include persons employed or
retained by the Sub-Adviser to furnish statistical, research, and other factual
information, advice regarding economic factors and trends, information with
respect to technical and scientific developments, and such other information,
advice and assistance as the Sub-Adviser may desire and request.
4. Independent Contractor. The Sub-Adviser shall, for all purposes
herein, be deemed to be an independent contractor, and shall, unless otherwise
expressly provided and authorized, have no authority to act for or represent the
Adviser, the Trust or the Fund in any way, or in any way be deemed an agent of
the Adviser, the Trust or the Fund. It is expressly understood and agreed that
the services to be rendered by the Sub-Adviser pursuant to the provisions of
this Agreement are not to be deemed exclusive with respect to the Sub-Adviser's
rendering of services, and the Sub-Adviser shall therefore be free to render
similar or different services to others, provided, that its ability to render
the services described herein shall not be impaired thereby.
5. Representations and Warranties.
(a) The Sub-Adviser hereby represents and warrants to the Adviser
that: (i) it is a business trust duly formed and validly existing under the laws
of Delaware, (ii) it is duly authorized to execute and deliver this Agreement
and to perform its obligations hereunder and has taken all necessary action to
authorize such execution, delivery and performance, (iii) it is registered with
the SEC as an investment adviser under the Advisers Act and is registered or
licensed as an investment adviser under the laws of all jurisdictions in which
its activities require it to be so registered or licensed, except where the
failure to be so licensed would not have a material adverse effect on its
business and (iv) it has furnished to the Adviser true and complete copies of
all the documents listed on Schedule 2 to this Agreement.
(b) The Adviser hereby represents and warrants to the Sub-Adviser
that: (i) it is a corporation duly formed and validly existing under the laws of
Delaware, (ii) it is duly authorized to execute and deliver this Agreement and
to perform its obligations hereunder and has taken all necessary action to
authorize such execution, delivery and performance, (iii) it is registered with
the SEC as an investment adviser under the Advisers Act and is registered or
licensed as an investment adviser under the laws of all jurisdictions in which
its activities require it to be so registered or licensed, except where the
failure to be so licensed would not have a material adverse effect on its
<PAGE>
business, and (iv) it has furnished to the Sub-Adviser true and complete copies
of all the documents listed on Schedule 1 to this Agreement.
6. Furnishing of Information.
(a) The Sub-Adviser shall from time to time furnish to the Adviser
detailed statements of the investments and assets of the Fund. The Sub-Adviser
shall provide any materials reasonably related to the investment advisory
services provided hereunder as may be reasonably requested in writing by the
designated officers of the Adviser, the Trust or the Fund or as may be required
by any governmental agency having jurisdiction. The Sub-Adviser will permit the
Adviser to inspect such books and records at all reasonable times during normal
business hours upon reasonable notice. Prior to each meeting of the Trustees of
the Trust (the "Trustees"), the Sub-Adviser will provide the Adviser and the
Trust with reports regarding its management of the Fund during the interim
period, in such form as may be mutually agreed upon by the Sub-Adviser and the
Adviser. The Sub-Adviser will also provide the Adviser with any information
regarding its management of the Fund required for any shareholder report,
amended registration statement or prospectus supplement filed by the Fund with
the SEC.
(b) The Sub-Adviser has reviewed the Trust's registration statement,
as amended and supplemented from time to time, filed with the SEC (the
"Registration Statement") and represents and warrants that, with respect to the
disclosure about the Sub-Adviser or information relating, directly or
indirectly, to the Sub-Adviser, such Registration Statement contains, as of the
date hereof, no untrue statement of any material fact and does not omit any
statement of a material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading. The Sub-
Adviser agrees promptly to provide written notice to the Adviser and the Trust
of any change in ownership of the Sub-Adviser or the identity of the primary
manager of the Fund and any other matter which is disclosed in the Registration
Statement and becomes untrue.
(c) The Adviser shall from time to time furnish to the Sub-Adviser
information pertaining to the investment objectives and needs of the Fund, and
shall make available to the Sub-Adviser such financial reports, proxy
statements, legal and other information in the possession of or available to the
Adviser relating to Fund investments, as the same may be relevant to the
performance by the Sub-Adviser of its obligations hereunder. The Adviser will
promptly notify the Sub-Adviser of any material change in any of the documents
listed on Schedule 1 to this Agreement and will provide the Sub-Adviser with
copies of any such modified document. With respect to material changes to any
of the documents listed on Schedule 1 that affect the Fund, the Adviser will
obtain the Sub-Adviser's prior approval. The Adviser will also provide the Sub-
Adviser with a list, to the best of the Adviser's knowledge, of all affiliated
persons of Adviser (and any affiliated person of such an affiliated person) and
will promptly update the list whenever the Adviser becomes aware of any
additional affiliated persons. The
<PAGE>
Adviser shall furnish such other information as the Sub-Adviser may reasonably
request, including, but not limited to, the monitoring of amortized cost.
7. Ownership of Records. The Sub-Adviser agrees that all records which
it maintains for the Fund shall be the property of the Fund, and that it shall
surrender promptly to the designated officers of the Fund any such records upon
request. The Sub-Adviser further agrees to preserve for the period prescribed
by the rules and regulations of the SEC all records as are required to be
maintained pursuant to said rules. The Sub-Adviser agrees that it will maintain
all records and accounts regarding the investment activities of the Fund in a
confidential manner. Within five (5) business days of a written request, all
such records and accounts shall be made available to the accountants or auditors
of the Fund during regular business hours at the Sub-Adviser's offices.
8. Conditions to Agreement. The Sub-Adviser's and the Adviser's
obligations under this Agreement are subject to the satisfaction of the
following conditions precedent:
(a) Receipt by the Sub-Adviser of a certificate of an officer of the
Fund stating that (i) this Agreement and the Advisory Agreement have been
approved by vote of a majority of the Trustees, who are not interested persons
of the Sub-Adviser or the Adviser, cast in person at a meeting called for the
purpose of voting on such approval, and (ii) this Agreement and the Advisory
Agreement have been approved by vote of a majority of the outstanding voting
securities of the Trust;
(b) Receipt by the Sub-Adviser of certified copies of instructions
from the Fund to its custodian designating the persons specified by the Sub-
Adviser as "Authorized Persons" under the Fund's custody Agreement;
(c) The Fund's execution and delivery of a limited power of attorney
in favor of the Sub-Adviser, in a form mutually agreeable to the Sub-Adviser,
the Adviser and the Trust; and
(d) Any other documents, certificates or other instruments that the
Sub-Adviser or the Adviser may reasonably request from the Fund.
9. Allocation of Transactions and Brokerage.
(a) To the extent consistent with applicable law, the Sub-Adviser may
aggregate purchase or sell orders for the Fund with contemporaneous purchase or
sell order of other clients of the Sub-Adviser or its affiliated persons. In
such event, allocation of the Securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Sub-Adviser in the
manner the Sub-Adviser considers to be the most equitable and consistent with
its and its affiliates' fiduciary obligations to the Fund and to such other
clients. The Adviser hereby acknowledges that such aggregation
<PAGE>
of orders may not result in a more favorable price or lower brokerage
commissions in all instances.
(b) The Sub-Adviser will place purchase and sell orders for the Fund
with or through such banks, brokers, dealers, futures commission merchants or
other firms dealing in Securities ("Brokers") as it determines, which may
include Brokers that are affiliated persons of the Sub-Adviser, provided such
orders are exempt from the provisions of Section 17(a), (d) and (e) of the 1940
Act. The Sub-Adviser will use its best efforts to obtain execution of
transactions for the Fund at prices which are advantageous to the Fund and at
commission rates that are reasonable in relation to the services received. The
Sub-Adviser may, however, select Brokers on the basis that they provide
brokerage, research or other services or products to the Fund and other clients
of the Sub-Adviser and its affiliated persons. In selecting Brokers, the Sub-
Adviser may also consider the reliability, integrity and financial condition of
the Broker, and the size of and difficulty in executing the order.
(c) To the extent consistent with applicable law, and subject to
review by the Trust, the Sub-Adviser may pay a Broker an amount of commission
for effecting a Securities transaction in excess of the amount of commission or
dealer spread another Broker 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 products
and/or services provided by such Broker to the Fund and other clients of the
Sub-Adviser and its affiliated persons. This determination, with respect to
brokerage and research services or products, may be viewed in terms of either
that particular transaction or the overall responsibilities which the Sub-
Adviser and its affiliated persons have with respect to the Fund or their other
clients, and may include services or products that the Sub-Adviser does not use
in managing the Fund. Sub-Adviser will report to the Adviser any soft dollar
arrangements that result in services to the Fund and/or the Sub-Adviser as may
be reasonably requested by the Trustees.
10. Allocation of Costs and Expenses. The Sub-Adviser shall bear and pay
the costs of rendering its services pursuant to the terms of this Agreement.
The Fund shall bear and pay for all other expenses of its operation, including
but not limited to, organizational and offering expenses and expenses incurred
in connection with the issuance and registration of shares; fees of the
custodian and transfer agent; costs and expenses of pricing and calculating the
daily net asset value of the shares and of maintaining the books of account
required by the 1940 Act; expenditures in connection with meetings of
shareholders and Trustees, other than those called solely to accommodate the
Sub-Adviser; salaries of officers and fees and expenses of Trustees or members
of any advisory board or committee who are not affiliated with or interested
persons of the Trust, the Adviser or the Sub-Adviser; salaries of personnel
involved in placing orders for the execution of portfolio transactions;
insurance premiums on property or personnel of the Fund which inure to their
benefit; the cost of preparing and printing reports, proxy statements and
prospectuses of the Trust or other communications for distribution to its
shareholders; legal, auditing, and accounting fees; trade association
<PAGE>
dues; the Trust's portion of any Rule 24f-2 fees under the 1940 Act; fees and
expenses of registering and maintaining registration of shares for sale under
applicable federal securities laws; and all other charges and costs associated
with the Fund's operations, plus any extraordinary and non-recurring expenses,
except as otherwise prescribed herein.
11. Advisory Fees.
(a) In exchange for the rendering of advice and services pursuant
hereto, the Adviser shall pay to the Sub-Adviser on behalf of the Fund, and the
Sub-Adviser shall accept as full compensation for all investment advisory
services furnished to the Fund and as full reimbursement for all expenses
assumed by the Sub-Adviser, an advisory fee based on the average net assets of
the Fund. The fee is equal to 0.25% annually on assets up to $75 million and
0.20% annually on assets above $75 million.
(b) The advisory fee shall be accrued daily by the Funds and paid by
the Adviser to the Sub-Adviser monthly in arrears as of the last valuation date.
(c) In the case of termination of this Agreement during any month, the
advisory fee for that month shall be prorated according to the number of
business days during which the Agreement was in effect.
12. Compliance with Applicable Law. (a) Nothing contained herein shall
be deemed to require the Adviser or the Fund to take any action contrary to (i)
the Agreement and Declaration of Trust of the Trust, ii) the By-laws of the
Trust, (iii) the Registration Statement or (iv) any applicable statute or
regulation. Nothing contained herein shall be deemed to relieve or deprive the
Trustees of their responsibility for and control of the conduct of the affairs
of the Fund.
(b) The Sub-Adviser agrees that it shall notify the Adviser and the
Trust immediately (i) in the event that the SEC has censured the Sub-Adviser;
placed limitations upon its activities, functions or operations; suspended or
revoked its registration as an investment adviser, or has commenced proceedings
or an investigation that may result in any of these actions, (ii) upon having a
reasonable basis for believing that the Fund has ceased to qualify or might not
qualify as a regulated investment company under Subchapter M of the IRC, and
(iii) upon having a reasonable basis for believing that the Fund has ceased to
comply with the diversification provisions of Section 817(h) of the IRC or the
regulations thereunder. The Sub-Adviser further agrees to notify the Adviser and
the Trust immediately of any material fact known to the Sub-Adviser respecting
or relating to the Sub-Adviser that is not contained in the Registration
Statement for the Fund, or any amendment or supplement thereto, or of any
statement contained therein that becomes untrue in any material respect.
(c) The Adviser agrees that it shall notify the Sub-Adviser
immediately (i) in the event that the SEC has censured the Adviser or the Trust;
placed limitations upon their activities, functions, or operations; suspended or
revoked the
<PAGE>
Adviser's registration as an investment adviser; or has commenced proceedings or
an investigation that may result in any of these actions, (ii) upon having a
reasonable basis for believing that the Fund has ceased to qualify or might not
qualify as a regulated investment company under Subchapter M of the IRC, and
(iii) upon having a reasonable basis for believing that the Fund has ceased to
comply with the diversification provisions of Section 817(h) of the IRC or the
regulations thereunder.
13. Liability.
(a) Except as may otherwise be provided by the 1940 Act or the federal
securities laws, in the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Sub-Adviser, the Sub-Adviser or any related persons, any Shareholder,
director, trustee or officer thereof, shall not be subject to liability to the
Adviser, the Fund or to any shareholder of the Fund for any error in judgment or
mistake of law or act or omission in the course of or in connection with
rendering services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security by the Fund.
(b) The Sub-Adviser agrees to indemnify and hold harmless, the
Adviser, any affiliated person within the meaning of Section 2(a)(3) of the 1940
Act ("affiliated person") of the Adviser, and each person, if any, who, within
the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act"),
controls ("controlling person") the Adviser (collectively, "Adviser Indemnified
Persons") against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which an Adviser Indemnified Person may
become subject under the 1933 Act, the 1940 Act, the Advisers Act, any other
statute, at common law or otherwise, arising out of the Sub-Adviser's
responsibilities to the Fund which (i) may be based upon any gross negligence or
willful misconduct by the Sub-Adviser, any of its employees or representatives,
or any affiliate of or any person acting on behalf of the Sub-Adviser (other
than a Sub-Adviser Indemnified Person), or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement covering the shares of the Fund, or any amendment thereof
or any supplement thereto, or the omission or alleged omission to state therein
a material fact required to be stated or necessary to make the statements
therein not misleading if such a statement or omission was made in reliance upon
information furnished to the Adviser, the Trust, or any affiliated person of the
Adviser or Trust by the Sub-Adviser or any affiliated person of the Sub-Adviser
(other than a Sub-Adviser Indemnified Person); provided, however, that in no
case is the Sub-Adviser's indemnity in favor of Adviser Indemnified Persons
deemed to protect such persons against any liability to which any such person
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his or her duties or by reason of reckless
disregard of obligations and duties under this Agreement.
(c) The Adviser agrees to indemnify and hold harmless the Sub-Adviser,
any affiliated person of the Sub-Adviser and any controlling person of the Sub-
Adviser (collectively, "Sub-Adviser Indemnified Persons") against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which a Sub-Adviser Indemnified Person may become subject under the
1933 Act, the 1940 Act,
<PAGE>
the Advisers Act, any other statute, at common law or otherwise, arising out of
the Adviser's responsibilities as adviser of the Fund which (i) may be based
upon any gross negligence or willful misconduct by the Adviser, any of its
employees or representatives or any affiliate of or person acting on behalf of
the Adviser (other than an Adviser Indemnified Person) or (ii) may be based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement covering shares of the Trust or the Fund, or any
amendment thereof or any supplement thereto, or the omission or alleged omission
to state therein a material fact required to be stated or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon information furnished to the Sub-Adviser, the Trust or any
affiliated person of the Sub-Adviser or Trust by an Adviser or any affiliated
person of the Adviser (other than an Adviser Indemnified Person); provided,
however, that in no case is the Adviser's indemnity in favor of Sub-Adviser
Indemnified Persons deemed to protect such persons against any liability to
which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his or her
duties or by reason of reckless disregard of obligations and duties under this
Agreement.
(d) Notwithstanding the foregoing, the Sub-Adviser agrees to reimburse
the Fund for any and all costs, expenses, and counsel and Trustees' fees
reasonably incurred by the Fund in connection with (i) preparation, printing and
distribution of proxy statements, (ii) amendments to its Registration Statement,
(iii) the holding of meetings of shareholders or Trustees, (iv) the conduct of
factual investigations, or (v) any legal or administrative proceedings
(including any applications for exemptions or determinations by the SEC) which
the Fund incur as a result of action or inaction on the part of the Sub-Adviser;
and where the action or inaction necessitating such expenditures is (A) directly
or indirectly related to any transactions or proposed transaction in the shares
or control of the Sub-Adviser (or litigation related to any transactions or
proposed transaction involving such shares or control) which shall have been
undertaken without the prior express approval of the Trustees, or (B) within the
sole control of the Sub-Adviser or any of their respective officers, directors,
employees or shareholders. So long as this Agreement remains in effect, the Sub-
Adviser shall pay to the Fund the amount due for expenses subject to this
Subparagraph 14(b) within thirty (30) days after a bill or statement has been
received by the Fund therefor. This provision shall not be deemed to be a waiver
of any claim which the Fund may have or may assert against the Sub-Adviser or
others for costs, expenses, or damages heretofore incurred by the Trust or for
costs, expenses, or damages the Fund may hereafter incur which are not
reimbursable to it hereunder. The foregoing reimbursement will not be required
with respect to portfolio management and related duties described in this
Agreement, so long as the Sub-Adviser uses its best judgement and efforts in
performing its duties.
(e) No provision of this Agreement shall be construed to protect any
Trustee or officer of the Fund, or any director or officer of the Adviser or
Sub-Adviser from liability in violation of Sections 17(h) and (i) of the 1940
Act.
(f) The Sub-Adviser understands that the obligations of this Agreement
are not personally binding upon any shareholder, Trustee, officer, employee or
agent of the Fund, but bind only the Trust's property. The Sub-Adviser
represents that
<PAGE>
it has notice of the provisions of the Agreement and Declaration of Trust of the
Trust disclaiming shareholder, Trustee, officer, employee and agent liability
for acts or obligations of the Trust.
(g) The Adviser is hereby expressly put on notice of the limitation of
liability as set forth in the Agreement and Declaration of Trust of the Sub-
Adviser and agrees that the obligations assumed by the Sub-Adviser pursuant to
this Agreement will be limited in any case to the Sub-Adviser and its assets and
the Adviser shall not seek satisfaction of any such obligations from the
shareholders of the Sub-Adviser, the trustees of the Sub-Adviser, officers,
employees or agents of the Sub-Adviser, or any of them.
(h) The Adviser hereby acknowledges that the Sub-Adviser is not
responsible for pricing the portfolio securities, and that the Adviser and Sub-
Adviser will rely on the pricing agent chosen by the Trustees for prices of
securities, for any purpose.
14. Term of Agreement. This Agreement shall become effective on the
date hereof and shall continue in effect for two years from such date unless
sooner terminated as hereinafter provided, and shall continue in effect from
year to year thereafter so long as such continuation is approved at least
annually by (i) the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, and (ii) the vote of a majority of the Trustees who are
not parties to this Agreement or interested persons of any such party, with such
vote being cast in person at a meeting called for the purpose of voting on such
approval.
15. Termination. This Agreement may be terminated without payment of
any penalty (a) by the Trustees or by vote of a majority of the outstanding
voting securities of the Fund, upon sixty (60) days written notice to the
Adviser and the Sub-Adviser, (b) by the Adviser upon sixty (60) days written
notice to the Sub-Adviser and the Trust, or (c) by the Sub-Adviser upon sixty
(60) days written notice to the Adviser and the Trust. This Agreement shall
terminate automatically in the event of any transfer or assignment hereof, as
defined in the 1940 Act. Paragraphs 2(i), 7, 13 and 24 shall survive the
termination of this Agreement.
16. Notices. Unless otherwise specified herein, all notices,
instructions and advice with respect to security transactions or any other
matters contemplated by this Agreement shall be deemed duly given when deposited
in the mail postage prepaid and addressed to the Sub-Adviser at Federated
Investors Tower, Pittsburgh, PA 15222-3779, Attn: Subadvisory Account
Administrator, or to the Adviser at 400 West Market Street, Louisville, KY
40202, Attn: President, or at such other address or addresses as shall be
specified, in each case, in a notice similarly given.
17. No Waiver. The waiver by any party of any breach of or default
under any provision or portion of this Agreement shall not operate as or be
construed to be a waiver of any subsequent breach or default.
<PAGE>
18. Severability. The provisions of this Agreement shall be considered
severable and if for any reason any provision of this Agreement which is not
essential to the effectuation of the basic purpose of this Agreement is deemed
to be invalid or contrary to any existing or future law, such invalidity shall
not impair the operation of or affect any other provision of this Agreement
which is valid.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
20. Entire Agreement. This Agreement represents the entire understanding
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior understandings or agreements between the parties
pertaining to the subject matter hereof, whether oral or written. This
Agreement may only be modified or amended by mutual written agreement of the
parties hereto and, as required, upon approval of a majority of the outstanding
voting securities of the Fund.
21. Definitions. For purposes of application and operation of the
provisions of this Agreement, the term "majority of the outstanding voting
securities" shall have the meaning as set forth in the 1940 Act. Any terms
defined in the 1940 Act, and not otherwise defined in this Agreement, are used
with the same meaning in this Agreement.
22. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Kentucky.
23. Insurance. Sub-Adviser shall have and maintain sufficient insurance
covering Sub-Adviser's duties under this Agreement. Sub-Adviser shall name the
Trust and the Adviser as additional insureds and shall provide evidence of such
coverage at least annually.
24. Cooperation. Each party to this Agreement agrees to cooperate with
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC and state
insurance authorities) in connection with any investigation or inquiry relating
to this Agreement or the Trust.
25. Advertising. Sub-Adviser shall not use any sales promotion or other
advertising materials relating to the Trust or the Adviser without the Adviser's
prior written consent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sub-Advisory
Agreement to be duly executed and attested by their duly authorized officers on
the day and year first above written.
PROVIDIAN INVESTMENT
ADVISORS, INC.
ATTEST:
By: /s/ Frederick C. Kessell
/s/ R. Michael Slaven -----------------------------------
Frederick C. Kessell, President and
Chief Financial Officer
FEDERATED INVESTMENT
COUNSELING
ATTEST:
By: /s/ John S. Fisk
/s/ Stephen Snee ----------------------------------
[Title]
<PAGE>
SCHEDULE 1 -- FUND DOCUMENTATION
----------------------------------
1. The Trust's Declaration of Trust and Bylaws.
2. 15 copies of the most current Prospectus and Statement of Additional
Information for the Fund's shares.
3. Information regarding the Custody Agreement between the Trust and Investors
Fiduciary Trust Company, as Custodian for the Portfolio's securities,
including information as to:
the Portfolio's nominee,
the Federal tax identification numbers of the Fund and its nominee,
all routing, bank participant and account numbers and other
information necessary to provide proper instructions for transfer
and delivery of Securities to the Fund's accounts at the Custodian,
the name, address, phone and fax number of the Custodian's employees
responsible for the Fund's accounts, and
the Fund's pricing service and contract persons.
4. All policies, procedures, guidelines and codes adopted by the Trust under
the 1940 Act or any regulation thereunder, including:
Rule 2a-7 (if the Fund holds itself out as a "money market fund"),
Rule 10f-3 (relating to affiliated underwriting syndicates),
Rule 17a-7 (relating to interfund transactions),
Rule 17e-1 (relating to transactions with affiliated Brokers),
Rule 17f-4 (relating to securities held in securities
depositories),and
Rule 17j-1 (relating to a code of ethics).
5. Any SEC exemptive orders applicable to the Fund, and all procedures and
guidelines adopted by the Trust under the terms of such orders.
6. All procedures and guidelines adopted by the Trust or the Adviser
regarding:
Repurchase agreements,
Evaluating the liquidity of securities, include restricted securities,
municipal leases and stripped U.S. government securities,
Segregation of liquid assets in connection with reverse repurchase
agreements, firm commitments, standby commitments, short sales,
options and futures agreements,
Derivative contracts and securities, and
Affiliated bank procedures.
7. Any master agreements that the Trust has entered into on behalf of the
Fund, including:
<PAGE>
Master Repurchase agreements,
Master Futures and Options Agreement,
Master Foreign Exchange Netting Agreements, and
Master Swap Agreement.
8. CFTC Rule 4.5 letter.
9. Schedule of the current year's meetings of the Trustees and the reports
needed by the Trust.
10. Pricing and performance calculation entities and contact persons.
<PAGE>
SCHEDULE 2 -- SUB-ADVISER DOCUMENTATION
-----------------------------------------
1. Parts I and II of the Sub-Adviser's Form ADV most recently filed with the
SEC.
2. All exemptive orders granted by the SEC that will become applicable to the
Fund, and the procedures and guidelines followed by the Sub-Adviser in
accordance therewith.
<PAGE>
EXHIBIT 8
CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT
THIS AGREEMENT made the 25th day of March, 1997, by and between
INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under the laws of
the state of Missouri, having its trust office located at l27 West 10th Street,
Kansas City, Missouri 64105 ("Custodian"), and PROVIDIAN SERIES TRUST, a
business trust organized and existing under the laws of the Commonwealth of
Massachusetts, having its principal office and place of business at 400 West
Market Street, Louisville, Kentucky 40202, Attn: President ("Fund"), on behalf
of the investment portfolios initially listed on Schedule 1 hereto, incorporated
herein by this reference, and such additional investment portfolios as are added
from time to time pursuant to the provisions of Section 10.B hereof (each a
"Portfolio" and collectively the "Portfolios").
WITNESSETH:
WHEREAS, Custodian performs certain investment accounting and recordkeeping
services on a computerized accounting system (the "System") which is suitable
for maintaining certain accounting records of the Portfolios; and
WHEREAS, Fund desires to arrange for the custody of certain assets
belonging to the Portfolios with Custodian; and
WHEREAS, Custodian is willing to accept such appointments on the terms and
conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN AND AGENT. Fund hereby constitutes and appoints
----------------------------------
Custodian as:
A. Custodian of the securities, monies and certain other assets which are
from time to time owned by the Portfolios and which are delivered to
Custodian hereunder; and
B. Agent to perform for the Portfolios certain accounting and
recordkeeping functions relating to portfolio transactions required of a
duly registered investment company under Rule 31a of the Investment Company
Act of 1940, as amended (the "1940 Act") and to calculate the net asset
value of the Portfolios.
2. REPRESENTATIONS AND WARRANTIES.
-------------------------------
A. Fund hereby represents, warrants and acknowledges to Custodian:
1. That it is a business trust duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts, and that
it is registered under the 1940 Act; and
<PAGE>
2. That it has the requisite power and authority under applicable law,
its Declaration of Trust and its Bylaws to enter into this Agreement;
that it has taken all requisite action necessary to appoint Custodian
as custodian and investment accounting and recordkeeping agent for the
Portfolios; that all requisite action has been taken and any necessary
approvals and consents have been obtained for Custodian to serve as
investment accounting and recordkeeping agent of the Portfolios; that
it has all necessary power and authority to act for and on behalf of
the Portfolios as provided for herein; that this Agreement has been
duly executed and delivered by Fund; and that this Agreement
constitutes a legal, valid and binding obligation of Fund, enforceable
in accordance with its terms.
3. That it has determined to its satisfaction that the System is
appropriate and suitable for the Portfolios' needs.
B. Custodian hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in good
standing under the laws of the State of Missouri; and
2. That it has the requisite power and authority under applicable law,
its Charter and its Bylaws to enter into and perform this Agreement;
that this Agreement has been duly executed and delivered by Custodian;
and that this Agreement constitutes a legal, valid and binding
obligation of Custodian, enforceable in accordance with its terms.
3. That it has in force at the date hereof, and shall maintain in
force during the full term of this Agreement, insurance with respect to
the assets in the Portfolios covering such risks and in such amounts as
it maintains with respect to assets held for the accounts of other
clients, and that it shall provide evidence of such insurance to Fund
annually upon Fund's request.
4. Subject to Fund's performance of its duties and responsibilities
hereunder, the services provided by IFTC hereunder comply with the
provisions of the 1940 Act generally applicable to mutual fund custody
and recordkeeping.
3. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
-----------------------------------------
A. Delivery of Assets. Except as permitted by the 1940 Act, Fund will
deliver or cause to be delivered to Custodian on the effective date of this
Agreement, or as soon thereafter as practicable, and from time to time
thereafter, all portfolio securities acquired by the Portfolios and monies
then owned by them or from time to time coming into their possession during
the time this Agreement shall continue in effect. Custodian shall have no
responsibility or liability whatsoever for or on account of securities or
monies not so delivered.
2
<PAGE>
B. Delivery of Accounts and Records Fund shall turn over or cause to be
turned over to Custodian all of each Portfolios' relevant accounts and
records needed by Custodian to fully and properly perform its duties and
responsibilities hereunder. Custodian acknowledges that Fund will
simultaneously herewith enter into an Administration Agreement
("Administration Agreement") with State Street Bank and Trust Company
("State Street"), an affiliate of Custodian, pursuant to which State Street
will serve as administrator to the Fund and provide certain administrative
services described in the Administration Agreement. Custodian shall be
entitled to rely conclusively on the completeness and correctness of the
accounts and records so turned over, and Fund shall indemnify and hold
Custodian harmless of and from any and all expenses, damages and losses
whatsoever arising out of or in connection with any error, omission,
inaccuracy or other deficiency of such accounts and records, except
pursuant to Section 5.A.3 hereof, or in the failure of Fund to provide, or
to provide in a timely manner, any accounts, records or information needed
by the Custodian to perform hereunder except pursuant to Section 5.A.3
hereof; provided that this indemnification shall not apply to expenses,
damages and losses to the extent arising out of or in connection with
Custodian's negligence or willful misconduct.
C. Delivery of Assets to Third Parties. Custodian will receive delivery of
and keep safely the assets of each Portfolio segregated in a separate
account. Custodian will not deliver, assign, pledge or hypothecate any such
assets to any person except as permitted by the provisions of this
Agreement or any agreement executed by it according to the terms of Section
3.P of this Agreement. Upon delivery of any such assets to a subcustodian
pursuant to Section 3.P of this Agreement, Custodian will create and
maintain records identifying those assets which have been delivered to the
subcustodian as belonging to the applicable Portfolio. Custodian is
responsible for the safekeeping of the securities and monies of the
Portfolios only until they have been transmitted to and received by other
persons as permitted under the terms of this Agreement, except for
securities and monies transmitted to subcustodians appointed under Section
3.P of this Agreement, for which Custodian remains responsible to the
extent provided in Section 3.P hereof. Custodian may participate directly
or indirectly through a subcustodian in the Depository Trust Company (DTC),
Treasury/Federal Reserve Book Entry System (Fed System), Participant Trust
Company (PTC) or other depository approved by the Fund (as such entities
are defined at 17 CFR Section 270.17f-4(b)) (each a "Depository" and
collectively the "Depositories").
D. Registration of Securities. The Custodian shall at all times hold
registered securities of the Portfolios in the name of the Custodian, the
Fund, the applicable Portfolio, or a nominee of any of them, unless
specifically directed by instructions to hold such registered securities in
so-called "street name," provided that, in any event, all such securities
and other assets shall be held in an account of the Custodian containing
only assets of the applicable Portfolio, or only assets held by the
Custodian as a fiduciary or custodian for customers, and provided further,
that the records of the Custodian at all times shall indicate the Portfolio
or other customer for which such securities and other assets are held and
the respective interests therein. If, however, the Fund directs the
Custodian to maintain securities in "street name", notwithstanding anything
contained herein to the contrary, the Custodian shall be obligated only to
utilize its best efforts to timely collect income due the Portfolio on such
securities and to notify the Fund of relevant corporate actions including,
without limitation, pendency
3
<PAGE>
of calls, maturities, tender or exchange offers. All securities, and the
ownership thereof by the applicable Portfolio shall at all times be
identifiable on the records of the Custodian. The Fund agrees to hold
Custodian and its nominee harmless for any liability as a shareholder of
record of securities held in custody, except to the extent such liability
arises out of the negligence or willful misconduct of Custodian or its
nominee.
E. Exchange of Securities. Upon receipt of instructions as defined in
Section 4.A of this Agreement, Custodian will exchange, or cause to be
exchanged, portfolio securities held by it for a Portfolio for other
securities or cash issued or paid in connection with any reorganization,
recapitalization, merger, consolidation, split-up of shares, change of par
value, conversion or otherwise, and will deposit any such securities in
accordance with the terms of any reorganization or protective plan. Without
instructions, Custodian is authorized to exchange securities held by it in
temporary form for securities in definitive form, to effect an exchange of
shares when the par value of the share is changed, and, upon receiving
payment therefor, to surrender bonds or other securities held by it at
maturity or when advised of earlier call for redemption, except that
Custodian shall receive instructions prior to surrendering any convertible
security.
F. Purchases of Investments - Other Than Options and Futures. Fund will,
on each business day on which a purchase of securities (other than options
and futures) shall be made by a Portfolio, deliver to Custodian
instructions which shall specify with respect to each such purchase:
1. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the security;
3. The number of shares and the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes and
other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase;
8. The name of the person from whom or the broker or dealer through
whom the purchase was made; and
9. Whether the security is to be received in certificated form or via
a specified Depository.
In accordance with such instructions, Custodian will pay for out of monies held
for the applicable Portfolio, but only insofar as such monies are available for
such purpose, and receive the portfolio securities so purchased by or for such
Portfolio, except that Custodian may in its sole discretion advance funds to the
Portfolio which may result in an overdraft because the monies held by the
Custodian on behalf of the Portfolio are insufficient to pay the total amount
payable upon such purchase. Except as otherwise instructed by Fund, such payment
shall be made by the Custodian only upon receipt of securities: (a) by the
Custodian; (b) by a clearing corporation of a national exchange of which the
Custodian is a member; or (c) by a Depository. Notwithstanding the foregoing,
(i) in the case of a
4
<PAGE>
repurchase agreement, the Custodian may release funds to a Depository prior to
the receipt of advice from the Depository that the securities underlying such
repurchase agreement have been transferred by book-entry into the account
maintained with such Depository by the Custodian, on behalf of its customers,
provided that the Custodian's instructions to the Depository require that the
Depository make payment of such funds only upon transfer by book-entry of the
securities underlying the repurchase agreement in such account; (ii) in the case
of time deposits, call account deposits, currency deposits and other deposits,
foreign exchange transactions, futures contracts or options, the Custodian may
make payment therefor before receipt of an advice or confirmation evidencing
said deposit or entry into such transaction; and (iii) in the case of the
purchase of securities, the settlement of which occurs outside of the United
States of America, the Custodian may make, or cause an Eligible Foreign
Subcustodian appointed pursuant to Section 3.P.3 of this Agreement to make,
payment therefor in accordance with generally accepted local custom and market
practice.
G. Sales and Deliveries of Investments - Other Than Options and Futures. Fund
will, on each business day on which a sale of investment securities (other than
options and futures) of a Portfolio has been made, deliver to Custodian
instructions specifying with respect to each such sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares and principal amount sold, and accrued interest,
if any;
4. The date on which the securities sold were purchased or other
information identifying the securities sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or other
expenses payable in connection with such sale;
8. The total amount to be received by the Portfolio upon such sale; and
9. The name and address of the broker or dealer through whom or person to
whom the sale was made.
In accordance with such instructions, Custodian will deliver or cause to be
delivered the securities thus designated as sold for the account of the
applicable Portfolio as specified in the instructions. Except as otherwise
instructed by Fund, such delivery shall be made upon receipt of: (a) payment
therefor in such form as is satisfactory to the Custodian; (b) credit to the
account of the Custodian with a clearing corporation of a national securities
exchange of which the Custodian is a member; or (c) credit to the account of the
Custodian, on behalf of its customers, with a Depository. Notwithstanding the
foregoing: (i) in the case of securities held in physical form, such securities
shall be delivered in accordance with "street delivery custom" to a broker or
its clearing agent; or (ii) in the case of the sale of securities the settlement
of which occurs outside of the United States of America, the Custodian may make,
or cause an Eligible Foreign Custodian appointed pursuant to Section 3.P.3 of
this Agreement to make, such delivery upon payment therefor in accordance with
generally accepted local custom and market practice.
5
<PAGE>
H. Purchases or Sales of Options and Futures. Fund will, on each business
day on which a purchase or sale of the options and/or futures listed below
shall be made by a Portfolio, deliver to Custodian instructions which shall
specify with respect to each such purchase or sale:
1. If applicable, the name of the Portfolio making such purchase or
sale;
2. In the case of security options:
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring or
closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom the sale
or purchase was made.
3. In the case of options on indices:
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising, expiring or
closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through whom the
sale or purchase was made, or other applicable settlement
instructions.
4. In the case of security index futures contracts:
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition to
instructions, and if not already in the possession of
Custodian, Fund shall deliver a substantially complete and
executed custodial safekeeping account and procedural agreement
which shall be incorporated by reference into this Agreement);
and
6
<PAGE>
f. The name and address of the futures commission merchant through
whom the sale or purchase was made, or other applicable settlement
instructions.
5. In the case of options on index future contracts:
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Securities Pledged or Loaned. Subject to such additional terms and
conditions as Custodian may require:
1. Upon receipt of instructions, Custodian will release or cause to be
released securities held in custody to the designated pledgee by way of
pledge or hypothecation to secure any loan incurred by a Portfolio;
provided, however, that the securities shall be released only upon payment
to Custodian of the monies borrowed, except that in cases where additional
collateral is required to secure a borrowing already made, further
securities may be released or caused to be released for that purpose upon
receipt of instructions. Upon receipt of instructions, Custodian will pay,
but only from funds available for such purpose, any such loan upon
redelivery to it of the securities pledged or hypothecated therefor and
upon surrender of the note or notes evidencing such loan.
2. Upon receipt of instructions, Custodian will release securities held in
custody to the designated borrower; provided, however, that the securities
will be released only upon deposit with Custodian of full cash collateral
as specified in such instructions, and that the applicable Portfolio will
retain the right to any dividends, interest or distribution on such loaned
securities. Upon receipt of instructions and the loaned securities,
Custodian will release the cash collateral to the borrower.
J. Routine Matters. Custodian will, in general, attend to all routine and
mechanical matters in connection with the sale, exchange, substitution,
purchase, transfer, or other dealings with securities or other property of the
Portfolios except as may be otherwise provided in this Agreement or directed
from time to time by the Fund in writing.
K. Deposit Accounts. Custodian will open and maintain one or more special
purpose deposit accounts for each Portfolio in the name of Custodian in such
banks or trust companies as may be designated by it, the Fund or the Portfolio
in writing ("Accounts"), subject only to draft or order by Custodian upon
receipt of instructions. All monies received
7
<PAGE>
by Custodian from or for a Portfolio shall be deposited in said Accounts.
Barring events not in the control of the Custodian such as strikes, lockouts or
labor disputes, riots, war or equipment or transmission failure or damage, fire,
flood, earthquake or other natural disaster, action or inaction of governmental
authority or other causes beyond its control, at 9:00 a.m., Kansas City time, on
the second Business Day after deposit of any check into an Account, Custodian
agrees to make Fed Funds available to the applicable Portfolio in the amount of
the check. Deposits made by Federal Reserve wire will be available to the
applicable Portfolio immediately and ACH wires will be available to the
applicable Portfolio on the next Business Day. Income earned on the portfolio
securities will be credited to the Portfolio based on the schedule attached as
Exhibit A and incorporated herein by reference. The Custodian will be entitled
to reverse any credited amounts where credits have been made and monies are not
finally collected. If monies are collected after such reversal, the Custodian
will credit the Portfolio in that amount. Funds received and held for the
account of different Portfolios shall be maintained in separate Accounts
established for each Portfolio. For purposes of this Agreement, "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading.
L. Income and Other Payments. Custodian will:
1. Collect, claim and receive and deposit for the applicable Portfolio all
income and other payments which become due and payable on or after the
effective date of this Agreement with respect to the securities held by
Custodian, and credit such Portfolio in accordance with the schedule
attached hereto as Exhibit A. If, for any reason, the Portfolio is credited
with income that is not subsequently collected, Custodian may reverse that
credited amount.
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the collection of
bond and note coupons; and
3. Take such other action as may be necessary or proper in connection
with:
a. the collection, receipt and deposit of such income and other
payments, including but not limited to the presentation for payment of:
1. all coupons and other income items requiring presentation; and
2. all other securities which may mature or be called, redeemed,
retired or otherwise become payable and regarding which the
Custodian has actual knowledge, or should reasonably be expected to
have knowledge; and
b. the endorsement for collection, in the name of Fund or a Portfolio,
of all checks, drafts or other negotiable instruments.
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Custodian, however, will not be required to institute suit or take other
extraordinary action to enforce collection except upon receipt of
instructions and upon being indemnified to its satisfaction against the
costs and expenses of such suit or other actions. Custodian will receive,
claim and collect all share dividends, rights and other similar items and
will deal with the same pursuant to instructions. It shall be the
responsibility of Fund to furnish Custodian with the declaration, record
and payment dates and amounts of any dividends or income and any other
special actions required concerning each of the Portfolios' securities when
such information is not readily available from generally accepted
securities industry services or publications.
M. Proxies and Notices. Custodian will promptly deliver or mail or have
delivered or mailed to Fund all proxies properly signed, all notices of
meetings, all proxy statements and other notices, requests or announcements
affecting or relating to securities held by Custodian for a Portfolio and will,
upon receipt of instructions, execute and deliver or cause its nominee to
execute and deliver or mail or have delivered or mailed such proxies or other
authorizations as may be required. Except as provided by this Agreement or
pursuant to instructions hereafter received by Custodian, neither it nor its
nominee will exercise any power inherent in any such securities, including any
power to vote the same, or execute any proxy, power of attorney, or other
similar instrument voting any of such securities, or give any consent, approval
or waiver with respect thereto, or take any other similar action.
N. Disbursements. Custodian will pay or cause to be paid, insofar as funds are
available for the purpose, bills, statements and other obligations of each
Portfolio (including but not limited to obligations in connection with the
conversion, exchange or surrender of securities owned by a Portfolio, interest
charges, dividend disbursements, taxes, management fees, custodian fees, legal
fees, auditors' fees, transfer agents' fees, brokerage commissions, compensation
to personnel, and other operating expenses of such Portfolio) pursuant to
instructions of Fund setting forth the name of the person to whom payment is to
be made, the amount of the payment, and the purpose of the payment.
O. Daily Statement of Accounts. Custodian will, within a reasonable time,
render to Fund a detailed statement of the amounts received or paid and of
securities received or delivered for each Portfolio during each Business Day.
Custodian will, from time to time, upon request by Fund, render a detailed
statement of the securities and monies held for a Portfolio under this
Agreement, and Custodian will maintain such books and records as are necessary
to enable it to do so. Custodian will permit such persons as are authorized by
Fund, including Fund's and the Portfolios' independent public accountants,
reasonable access to such records or will provide reasonable confirmation of the
contents of such records, and if demanded, Custodian will permit federal and
state regulatory agencies to examine the securities, books and records. Upon the
instruction of Fund or as demanded by federal or state regulatory agencies,
Custodian will instruct any subcustodian to permit such persons as are
authorized by Fund, including Fund's and the Portfolios' independent public
accountants, reasonable access to such records or to provide reasonable
confirmation of the contents of such records, and to permit such agencies to
examine the books, records and securities held by such subcustodian.
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P. Appointment of Subcustodians
1. Notwithstanding any other provisions of this Agreement, all or any
of the monies or securities of the Portfolios may be held in
Custodian's own custody or in the custody of State Street Bank and
Trust Company or one or more other banks or trust companies acting as
subcustodians as may be selected by Custodian with Fund's approval,
which shall not be unreasonably withheld, including, but not limited
to, an affiliate of Custodian. Any such subcustodian selected by the
Custodian and approved by Fund must have the qualifications required
for a custodian under the 1940 Act, as amended. Custodian shall be
responsible to the applicable Portfolio for any loss, damage or expense
suffered or incurred by such Portfolio arising out of or resulting from
the actions or omissions of any subcustodians selected and appointed by
Custodian (except subcustodians appointed at the request of Fund and as
provided in Subsections 2 or 3 below) to the same extent Custodian
would be responsible to the Fund under Section 5 of this Agreement if
it committed the act or omission itself.
2. Upon request of the Fund, Custodian shall be willing to contract
with other subcustodians reasonably acceptable to the Custodian for
purposes of (a) effecting third-party repurchase transactions with
banks, brokers, dealers, or other entities through the use of a common
custodian or subcustodian, or (b) providing depository and clearing
agency services with respect to certain variable rate demand note
securities, or (c) for other reasonable purposes specified by Fund;
provided, however, that the Custodian shall be responsible to the Fund
for any loss, damage or expense suffered or incurred by the Fund
arising out of or resulting from the actions or omissions of any such
subcustodian only to the same extent such subcustodian is responsible
to the Custodian. Custodian's contracts with any such subcustodians
appointed at the request of Fund shall be subject to Fund's prior
written consent. Custodian shall be responsible to the Fund for any
loss, damage or expense suffered or incurred by the Fund resulting from
the actions or omissions of any Depository only to the same extent such
Depository is responsible to Custodian.
3. Notwithstanding any other provisions of this Agreement, each
Portfolio's foreign securities (as defined in Rule 17f-5(c)(1) under
the 1940 Act) and each Portfolio's cash or cash equivalents, in amounts
deemed by the Fund to be reasonably necessary to effect such
Portfolio's foreign securities transactions, may be held in the custody
of one or more banks or trust companies acting as subcustodians
("Global Subcustodian"), and thereafter, pursuant to a written contract
or contracts as approved by such Portfolio, may be transferred to
accounts maintained by any such Global Subcustodian with eligible
foreign custodians, as defined in Rule 17f-5(c)(2) ("Eligible Foreign
Custodian"). Custodian shall be responsible to the Fund for any loss,
damage or expense suffered or incurred by the Fund resulting from the
actions or omissions of any Eligible Foreign Custodian only to the same
extent the Eligible Foreign Custodian is liable to the Global
Subcustodian.
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Q. Accounts and Records. Custodian will prepare and maintain, with the
direction and as interpreted by the Fund, Fund's or the Portfolios'
accountants and/or other advisors, in complete, accurate and current form
all accounts and records (i) required to be maintained by each Portfolio
with respect to portfolio transactions under Rule 31a of the 1940 Act, (ii)
required to be maintained as a basis for calculation of the Portfolio's net
asset value, and (iii) as otherwise agreed upon between the parties.
Custodian will preserve said records in the manner and for the periods
prescribed in the 1940 Act or for such longer period as is agreed upon by
the parties. Custodian relies upon Fund to furnish, in writing or its
electronic or digital equivalent, accurate and timely information needed by
Custodian to complete each Portfolio's records and perform daily
calculation of the Portfolio's net asset value. Custodian shall incur no
liability and Fund shall indemnify and hold harmless Custodian from and
against any liability arising from any failure of Fund to furnish such
information in a timely and accurate manner, even if Fund subsequently
provides accurate but untimely information except pursuant to Section 5.A.3
hereof; provided that this indemnification shall not apply to any liability
to the extent arising out of or in connection with Custodian's negligence
or willful misconduct.
R. Accounts and Records Property of Fund. Custodian acknowledges that all
of the accounts and records maintained by Custodian pursuant to this
Agreement are the property of Fund, and will be made available to Fund for
inspection or reproduction within a reasonable period of time, upon demand.
Custodian will assist Fund's independent auditors, or upon approval of
Fund, or upon demand, any regulatory body, in any requested review of
Fund's or a Portfolio's accounts and records but shall be reimbursed by
Fund for all expenses and employee time invested in any such review outside
of routine and normal periodic reviews. Upon receipt from Fund of the
necessary information or instructions, Custodian will supply information
from the books and records it maintains for Fund that Fund needs for tax
returns, questionnaires, periodic reports to shareholders and such other
reports and information requests as Fund and Custodian shall agree upon
from time to time.
S. Adoption of Procedures. Custodian and Fund may from time to time adopt
procedures as they agree upon, and Custodian may conclusively assume that
no procedure approved or directed by Fund, the Portfolios, or their
accountants or other advisors conflicts with or violates any requirements
of its prospectus, Trust Agreement, Bylaws, any applicable law, rule or
regulation, or any order, decree or agreement by which Fund or the
Portfolios may be bound. Fund will be responsible to notify Custodian of
any changes in statutes, regulations, rules, requirements or policies which
might necessitate changes in Custodian's responsibilities or procedures;
provided that Custodian is responsible for ensuring that any Subcustodian
knows and complies with any foreign regulatory requirements of which an
Eligible Foreign Custodian has notified Global Subcustodian in writing,
that necessitate changes in Custodian's responsibilities or procedures.
T. Calculation of Net Asset Value. Custodian will calculate each
Portfolio's net asset value, in accordance with such Portfolio's prospectus
and statement of additional information. Custodian will price the
securities and foreign currency holdings of each Portfolio for which market
quotations are available by the use of outside services designated by Fund
which are normally used and contracted with for this purpose; all other
securities
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and foreign currency holdings will be priced in accordance with Fund's
instructions. Custodian will have no responsibility for the accuracy of the
prices quoted by these outside services or for the information supplied by
Fund, unless supplied by State Street and State Street is responsible
therefor pursuant to the terms of the Administration Agreement, or for
acting upon such instructions.
U. Advances. In the event Custodian or any subcustodian shall, in its
sole discretion, advance cash or securities for any purpose (including but
not limited to securities settlements, purchase or sale of foreign exchange
or foreign exchange contracts and assumed settlement) for the benefit of
any Portfolio, the advance shall be payable by the Fund on demand. Any such
cash advance shall be subject to an overdraft charge at the rate set forth
in the then-current fee schedule from the date advanced until the date
repaid. As security for each such advance, Fund hereby grants Custodian and
such subcustodian a lien on and security interest in all property at any
time held for the account of the applicable Portfolio, including without
limitation all assets acquired with the amount advanced. Should the Fund
fail to promptly repay the advance, the Custodian and such subcustodian
shall be entitled to utilize available cash and to dispose of such
Portfolio's assets pursuant to applicable law to the extent necessary to
obtain reimbursement of the amount advanced and any related overdraft
charges.
V. Exercise of Rights; Tender Offers. Upon receipt of instructions, the
Custodian shall: (i) deliver warrants, puts, calls, rights or similar
securities to the issuer or trustee thereof, or to the agent of such issuer
or trustee, for the purpose of exercise or sale, provided that the new
securities, cash or other assets, if any, are to be delivered to the
Custodian; and (ii) deposit securities upon invitations for tenders
thereof, provided that the consideration for such securities is to be paid
or delivered to the Custodian or the tendered securities are to be returned
to the Custodian.
4. INSTRUCTIONS.
A. The term "instructions", as used herein, means written (including
telecopied or telexed) or oral instructions which Custodian reasonably
believes were given by a designated representative of Fund. Fund shall
deliver to Custodian, prior to delivery of any assets to Custodian and
thereafter from time to time as changes therein are necessary, written
instructions executed by two officers of Fund naming one or more designated
representatives to give instructions in the name and on behalf of Fund and
each Portfolio, which instructions may be received and accepted by
Custodian as conclusive evidence of the authority of any designated
representative to act for Fund or such Portfolio and may be considered to
be in full force and effect (and Custodian will be fully protected in
acting in reliance thereon) until receipt by Custodian of written notice to
the contrary. Unless such written instructions delegating authority to any
person to give instructions specifically limit such authority to specific
matters or require that the approval of anyone else will first have been
obtained, Custodian will be under no obligation to inquire into the right
of such person, acting alone, to give any instructions whatsoever which
Custodian may receive from such person. "Designated representatives" may
include Fund's or a Portfolios employees and agents, including investment
managers and their employees.
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B. No later than the next Business Day immediately following each oral
instruction, Fund will send Custodian written confirmation of such oral
instruction. At Custodian's sole discretion, Custodian may record on tape,
or otherwise, any oral instruction whether given in person or via
telephone, each such recording identifying the date and the time of the
beginning and ending of such oral instruction.
C. If Custodian shall provide Fund direct access to any computerized
recordkeeping and reporting system used hereunder or if Custodian and Fund
shall agree to utilize any electronic system of communication, Fund shall
be fully responsible for any and all consequences of the use or misuse of
the terminal device, passwords, access instructions and other means of
access to such system(s) which are utilized by, assigned to or otherwise
made available to the Fund, except for proper and appropriate use by
authorized persons. Fund agrees to implement and enforce appropriate
security policies and procedures to prevent unauthorized or improper access
to or use of such system(s). Custodian shall be fully protected in acting
hereunder upon any instructions, communications, data or other information
received by Custodian by such means as fully and to the same effect as if
delivered to Custodian by written instrument signed by the requisite
authorized designated representative(s) of Fund. Fund shall indemnify and
hold Custodian harmless from and against any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liability which may be
suffered or incurred by Custodian as a result of the use or misuse, whether
authorized or unauthorized, of any such system(s) by Fund, except for
proper and appropriate use by authorized persons, or by any person who
acquires access to such system(s) through the terminal device, passwords,
access instructions or other means of access to such system(s) which are
utilized by, assigned to or otherwise made available to the Fund, except to
the extent attributable to any negligence or willful misconduct by
Custodian.
5. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall at all times use reasonable care and due diligence and
act in good faith in performing its duties under this Agreement. Custodian
shall not be responsible for, and the Fund shall indemnify and hold
Custodian harmless from and against, any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability which may be
asserted against Custodian, incurred by Custodian or for which Custodian
may be held to be liable, arising out of or attributable to:
1. All actions taken by Custodian pursuant to this Agreement or any
instructions provided to it hereunder, provided that Custodian has
acted in good faith and with due diligence and reasonable care; and
2. The Fund's refusal or failure to comply with the terms of this
Agreement (including without limitation the Fund's failure to pay or
reimburse Custodian under this indemnification provision), the Fund's
negligence or willful misconduct, or the failure of any representation
or warranty of the Fund hereunder to be and remain true and correct in
all respects at all times; provided that this indemnification shall
not apply to any losses, damages, costs, charges, counsel fees,
payments, expenses and
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liability except to the extent arising out of or in connection with
Custodian's or State Street's negligence or willful misconduct.
3. Fund shall not indemnify and hold Custodian harmless from and
against any losses, damages, costs, charges, counsel fees, payments,
expenses or liability which may be asserted against Custodian,
incurred by Custodian or for which Custodian may be held to be liable,
arising out of or attributable to a breach of the Administration
Agreement by State Street.
B. Custodian shall indemnify and hold Fund harmless from and against any
and all losses, damages, costs, charges, counsel fees, payments, expenses
and liability which may be asserted against Fund, incurred by Fund or for
which Fund may be held to be liable, arising out of or attributable to
Custodian's refusal or failure to comply with the terms of this Agreement
(including without limitation Custodian's failure to pay or reimburse Fund
under this indemnification provision), Custodian's negligence or willful
misconduct, or the failure of any representation or warranty of Custodian
hereunder to be and remain true and correct in all respects at all times;
provided that this indemnification shall not apply in any case in which
Fund must indemnify Custodian under the provisions of this Agreement.
C. With Fund's prior approval, Custodian may request and obtain at the
expense of Fund or the applicable Portfolio the advice and opinion of
counsel for Fund or the applicable Portfolio or of its own counsel with
respect to questions or matters of law, and it shall be without liability
to Fund or the Portfolios for any action taken or omitted by it in good
faith, in conformity with such advice or opinion. If Custodian reasonably
believes that it could not prudently act according to the instructions of
the Fund or the Fund's accountants or counsel, it may in its discretion,
with prompt prior notice to the Fund, not act according to such
instructions.
D. Custodian may rely upon the advice and statements of Fund, Fund's
accountants and officers or other authorized individuals, and other persons
believed by it in good faith to be expert in matters upon which they are
consulted, and Custodian shall not be liable for any actions taken, in good
faith, upon such advice and statements.
E. If Fund requests Custodian in any capacity to take any action which
involves the payment of money by Custodian, or which might make it or its
nominee liable for payment of monies or in any other way, Custodian shall
be indemnified and held harmless by Fund or the applicable Portfolio
against any liability on account of such action, except to the extent
arising out of or attributable to Custodian's negligence or willful
misconduct; provided, however, that nothing herein shall obligate Custodian
to take any such action except in its sole discretion.
F. Custodian shall be protected in acting as custodian hereunder upon any
instructions, advice, notice, request, consent, certificate or other
instrument or paper appearing to it to be genuine and to have been properly
executed in accordance with this Agreement. Custodian shall be entitled to
receive upon request as conclusive proof of any fact or matter required to
be ascertained hereunder a certificate signed by an officer or designated
representative of
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Fund or the applicable Portfolio. Fund shall also provide Custodian
instructions with respect to any matter concerning this Agreement
reasonably requested by Custodian.
G. Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for the validity of the issue of any securities
purchased by or for a Portfolio, the legality of the purchase of any
securities or foreign currency positions or evidence of ownership required
by Fund to be received by Custodian, or the propriety of the decision to
purchase or amount paid therefor, or the legality of the sale of any
securities or foreign currency positions by or for any Portfolio, or the
propriety of the amount for which the same are sold.
H. Custodian shall not be liable for, or considered to be Custodian of,
any money represented by any check, draft, wire transfer, clearinghouse
funds, uncollected funds, or instrument for the payment of money to be
received by it on behalf of a Portfolio until Custodian actually receives
such money; provided, however, that it shall advise Fund promptly if it
fails to receive any such money in the ordinary course of business and
shall cooperate with Fund toward the end that such money shall be received.
I. Except as provided in Section 3.P, Custodian shall not be responsible
for loss occasioned by the acts, neglects, defaults or insolvency of any
broker, bank, trust company, or any other person with whom Custodian deals
in the course of performance of its duties hereunder.
J. Custodian shall not be responsible or liable for the failure or delay
in performance of its obligations under this Agreement, or those of any
entity for which it is responsible hereunder, arising out of or caused,
directly or indirectly, by circumstances beyond the affected entity's
reasonable control, including, without limitation: any interruption, loss
or malfunction of any utility, transportation, computer (hardware or
software) or communication service; inability to obtain labor, material,
equipment or transportation, or a delay in mails; governmental or exchange
action, statute, ordinance, rulings, regulations or direction; war, strike,
riot, emergency, civil disturbance, terrorism, vandalism, explosions, labor
disputes, freezes, floods, fires, tornados, acts of God or public enemy,
revolutions, or insurrection.
K. EXCEPT FOR VIOLATIONS OF SECTION 9, IN NO EVENT AND UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE TO ANYONE,
INCLUDING, WITHOUT LIMITATION TO THE OTHER PARTY, FOR CONSEQUENTIAL,
SPECIAL OR PUNITIVE DAMAGES FOR ANY ACT OR FAILURE TO ACT UNDER ANY
PROVISION OF THIS AGREEMENT EVEN IF ADVISED OF THIS POSSIBILITY THEREOF.
6. COMPENSATION. In consideration for its services hereunder as Custodian and
investment accounting and recordkeeping agent, Fund will pay to Custodian such
compensation as shall be set forth in a separate fee schedule to be agreed to by
Fund and Custodian from time to time. A copy of the initial fee schedule is
attached hereto and incorporated herein by reference. Custodian shall also be
entitled to receive, and Fund agrees to pay to Custodian, on demand,
reimbursement for Custodian's cash disbursements and reasonable out-of-pocket
costs and expenses, including
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attorney's fees, incurred by Custodian in connection with the performance of
services in accordance with the terms of this Agreement. Custodian may charge
such compensation against monies held by it for the account of the applicable
Portfolio. Custodian will also be entitled to charge against any monies held by
it for the account of the applicable Portfolio the amount of any loss, damage,
liability, advance, overdraft or expense for which it shall be entitled to
reimbursement from Fund, including but not limited to fees and expenses due to
Custodian for other services provided to the Fund by Custodian; provided that
Custodian shall not be entitled to charge against any monies held by it for the
account of the applicable Portfolio any amounts under indemnification provisions
set forth in this Agreement unless the Fund or the applicable Portfolio has not
paid such amount within 60 days of receiving notice of the amount due.
Custodian will be entitled to reimbursement by the Fund or the applicable
Portfolio for the losses, damages, liabilities, advances, overdrafts and
expenses of subcustodians only to the extent that (i) Custodian would have been
entitled to reimbursement hereunder if it had incurred the same itself directly,
and (ii) Custodian is obligated to reimburse the subcustodian therefor.
7. TERM AND TERMINATION. Either party to this Agreement may terminate the
same by notice in writing, delivered or mailed, postage prepaid, to the other
party hereto and received not less than ninety (90) days prior to the date upon
which such termination will take effect; provided, however, that upon
termination by the Fund of this Agreement prior to two (2) years from the date
hereof, Fund shall pay to Custodian an amount equal to any fees waived by the
Custodian during the first six months hereof unless (i) such termination was for
cause for a material breach by the Custodian; or (ii) such termination was based
on a pattern of non-material defaults caused solely by the Custodian, such as
calculation errors, untimeliness of reports or inaccuracies in reports (any one
of which could be a material default depending on the impact to the Fund), which
defaults the Custodian upon written notice by the Fund was unable or unwilling
to cure within sixty days of receiving such notice and the occurrence of such
defaults caused the Fund in good faith reasonably to believe that the Custodian
was unable to satisfactorily perform its obligations under this Agreement. Upon
termination of this Agreement:
A. Fund will pay Custodian its fees and compensation due hereunder and its
reimbursable disbursements, costs and expenses paid or incurred to such
date in accordance with this Agreement; and
B. Fund shall designate a successor custodian by notice in writing to
Custodian by the termination date. In the event no written order
designating a successor custodian has been delivered to Custodian on or
before the date when such termination becomes effective, then Custodian
may, at its option, deliver the securities, funds and properties of the
Portfolios to a bank or trust company at the selection of Custodian, and
meeting the qualifications for custodian set forth in the 1940 Act and
having not less that Two Million Dollars ($2,000,000) aggregate capital,
surplus and undivided profits, as shown by its last published report, or
apply to a court of competent jurisdiction for the appointment of a
successor custodian or other proper relief, or take any other lawful action
under the circumstances; provided, however, that Fund shall reimburse
Custodian for its actual and reasonable costs and expenses, including
reasonable attorney's fees, incurred in connection therewith; and
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C. Custodian will, upon payment of all sums due to Custodian from Fund
hereunder or otherwise, deliver to the successor custodian so specified or
appointed, or as specified by the court, at Custodian's office, all
securities then held by Custodian hereunder, duly endorsed and in form for
transfer, and all funds and other properties of the Portfolios deposited
with or held by Custodian hereunder, and Custodian will co-operate in
effecting changes in book-entries at all Depositories. In the event that
all sums due to or to which Custodian is entitled from Fund hereunder or
otherwise have not been paid, Custodian shall have the right to retain
custody of sufficient funds and other properties to reimburse it for such
sums in accordance with the provisions of Section 6 hereof. Upon delivery
to a successor custodian or as specified by the court, Custodian will have
no further obligations or liabilities under this Agreement, except for any
liabilities that arise out of Custodian's performance under this Agreement
prior to its termination. Thereafter such successor will be the successor
custodian under this Agreement and will be entitled to reasonable
compensation for its services. In the event that securities, funds and
other properties remain in the possession of the Custodian after the date
of termination hereof owing to failure of the Fund to appoint a successor
custodian, the Custodian shall be entitled to compensation as provided in
the then-current fee schedule hereunder for its services during such period
as the Custodian retains possession of such securities, funds and other
properties, and the provisions of this Agreement relating to the duties and
obligations of the Custodian shall remain in full force and effect.
D. Notwithstanding any other provision of this Agreement, either party may
terminate this Agreement for cause on not less than thirty days' prior
written notice to the defaulting party, unless the defaulting party has
cured such cause within thirty days of receiving such notice, for any
material breach by the defaulting party of any representation, warranty,
covenant or obligation hereunder. Notwithstanding any other provision of
this Agreement, Fund may terminate this Agreement by written notice to
Custodian if Fund determines that Custodian or State Street has suffered a
material adverse change in its business, operations, or financial condition
since the date of this Agreement.
8. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at the address given above, or at such other address as Fund may have
designated to Custodian in writing, will be deemed to have been properly given
to Fund hereunder; and notices, requests, instructions and other writings
addressed to Custodian at its offices at 127 West 10th Street, Kansas City,
Missouri 64105, Attention: Custody Department and Investment Accounting
Department, or to such other address as it may have designated to Fund in
writing, will be deemed to have been properly given to Custodian hereunder.
9. CONFIDENTIALITY.
A. Fund shall preserve the confidentiality of the System and the tapes,
books, reference manuals, instructions, records, programs, documentation
and information of, and other materials relevant to, the System and the
business of Custodian ("Confidential Information"). Fund agrees that it
will not voluntarily disclose any such Confidential Information to any
other person other than its own employees who reasonably have a need to
know such information pursuant to this Agreement. Fund shall return all
such Confidential Information to Custodian upon termination or expiration
of this Agreement.
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B. Fund has been informed that the System is licensed for use by Custodian
from a third party ("Licensor"), and Fund acknowledges that Custodian and
Licensor have proprietary rights in and to the System and all other
Custodian or Licensor programs, code, techniques, know-how, data bases,
supporting documentation, data formats, and procedures, including without
limitation any changes or modifications made at the request or expense or
both of Fund (collectively, the "Protected Information"). Fund acknowledges
that the Protected Information constitutes confidential material and trade
secrets of Custodian and Licensor.
Fund shall preserve the confidentiality of the Protected Information, and
Fund hereby acknowledges that any unauthorized use, misuse, disclosure or
taking of Protected Information, residing or existing internal or external
to a computer, computer system, or computer network, or the knowing and
unauthorized accessing or causing to be accessed of any computer, computer
system, or computer network, may be subject to civil liabilities and
criminal penalties under applicable law. Fund shall so inform employees and
agents who have access to the Protected Information or to any computer
equipment capable of accessing the same. Licensor is intended to be and
shall be a third party beneficiary of the Fund's obligations and
undertakings contained in this paragraph.
C. Except as required by any applicable law, rule, regulation, regulatory
authority, order or decree by which Custodian is bound, Custodian agrees
that it will not voluntarily disclose any non-public information regarding
Fund except as required in the performance of Custodian's obligations
hereunder, as permitted hereunder or with Fund's prior written consent.
10. MULTIPLE PORTFOLIOS.
A. Each Portfolio shall be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to relate
solely to the particular Portfolio to which such transaction relates. Under
no circumstances shall the rights, obligations or remedies with respect to
a particular Portfolio constitute a right, obligation or remedy applicable
to any other Portfolio. The use of this single document to memorialize the
separate agreement of each Portfolio is understood to be for clerical
convenience only and shall not constitute any basis for joining the
Portfolios for any reason.
B. Additional Portfolios may be added to this Agreement, provided that
Custodian consents to such addition. Rates or charges for each additional
Portfolio shall be as agreed upon by Custodian and Fund in writing.
11. LIMITATION OF LIABILITY. Notice is hereby given that a copy of Fund's
Declaration of Trust and all amendments thereto is on file with the
Commonwealth of Massachusetts; that this Agreement has been executed on
behalf of Fund by the undersigned duly authorized representative of Fund in
his/her capacity as such and not individually; and that the obligations of
this Agreement shall only be binding upon the assets and property of Fund
and shall not be binding upon any trustee, officer or shareholder of Fund
individually.
18
<PAGE>
12. MISCELLANEOUS.
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of the
State of Missouri, without reference to the choice of laws principles
thereof.
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 7C and Section 9 hereof are
intended to and shall continue after and survive the expiration,
termination or cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by
each party hereto.
E. The failure of either party to insist upon the performance of any
terms or conditions of this Agreement or to enforce any rights resulting
from any breach of any of the terms or conditions of this Agreement,
including the payment of damages, shall not be construed as a continuing or
permanent waiver of any such terms, conditions, rights or privileges, but
the same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred. No waiver, release or discharge of any
party's rights hereunder shall be effective unless contained in a written
instrument signed by the party sought to be charged.
F. The captions in the Agreement are included for convenience of
reference only, and in no way define or limit any of the provisions hereof
or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
H. If any provision of this Agreement shall be determined to be invalid
or unenforceable, the remaining provisions of this Agreement shall not be
affected thereby, and every provision of this Agreement shall remain in
full force and effect and shall remain enforceable to the fullest extent
permitted by applicable law.
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party, except that the Custodian may
assign this Agreement to a party controlling, controlled by or under common
control with the Custodian.
J. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and between Custodian
and Fund or any Portfolio.
19
<PAGE>
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto and
any actions taken or omitted by either party hereunder shall not affect any
rights or obligations of the other party hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST PROVIDIAN SERIES TRUST
COMPANY
By: /s/ Allen R. Strain By: /s/ Kris A. Robbins
---------------------------- -----------------------
Title: Executive Vice President Title: President
------------------------- -------------------
20
<PAGE>
SCHEDULE 1
----------
High Quality Stock Fund
Fixed Income Fund
International Active Fund
Money Market Fund
Capital Preservation Portfolio
Income Oriented Portfolio
Growth and Income Portfolio
Capital Growth Portfolio
Maximum Appreciation Portfolio
21
<PAGE>
EXHIBIT A
- ---------
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
TRANSACTION DTC PHYSICAL FED
----------- --- -------- ---
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
---- ----------- ---------- ----------- ---------- ----------- ----------
========================================================================================================================
Calls Puts As Received C or F* As Received C or F*
- ------------------------------------------------------------------------------------------------------------------------
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
- ------------------------------------------------------------------------------------------------------------------------
Tender Reorgs. As Received C As Received C N/A
- ------------------------------------------------------------------------------------------------------------------------
Dividends Paydate C Paydate C N/A
- ------------------------------------------------------------------------------------------------------------------------
Floating Rate Int. Paydate C Paydate C N/A
- ------------------------------------------------------------------------------------------------------------------------
Floating Rate Int. N/A As Rate Received C N/A
(No Rate)
- ------------------------------------------------------------------------------------------------------------------------
Mtg. Backed P&I Paydate C Paydate + 1 Bus. C Paydate F
Day
- ------------------------------------------------------------------------------------------------------------------------
Fixed Rate Int. Paydate C Paydate C Paydate F
- ------------------------------------------------------------------------------------------------------------------------
Euroclear N/A C Paydate C
========================================================================================================================
</TABLE>
Legend
- ------
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
22
<PAGE>
ADMINISTRATION AGREEMENT
Agreement dated as of March 25, 1997 by and between State Street Bank
and Trust Company, a Massachusetts trust company (the "Administrator"), and
Providian Series Trust (the "Fund").
WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund desires to retain the Administrator to furnish
certain administrative services to the Fund, and the Administrator is willing to
furnish such services, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Appointment of Administrator
The Fund hereby appoints the Administrator to act as administrator
with respect to the Fund for purposes of providing certain administrative
services for the period and on the terms set forth in this Agreement. The
Administrator accepts such appointment and agrees to render the services stated
herein.
The Fund will initially consist of the portfolio(s) and/or class(es)
of shares (each an "Investment Fund") listed in Schedule A to this Agreement and
incorporated herein by reference. In the event that the Fund establishes one or
more additional Investment Funds with respect to which it wishes to retain the
Administrator to act as administrator hereunder, the Fund shall notify the
Administrator in writing. Upon written acceptance by the Administrator, such
Investment Fund shall become subject to the provisions of this Agreement to the
same extent as the existing Investment Funds, except to the extent that such
provisions (including those relating to the compensation and expenses payable by
the Fund and its Investment Funds) may be modified with respect to each
additional Investment Fund in writing by the Fund and the Administrator at the
time of the addition of the Investment Fund.
2. Delivery of Documents
The Fund will promptly deliver to the Administrator copies of each of
the following documents and all future amendments and supplements, if any:
a. The Fund's charter document and by-laws;
b. The Fund's currently effective registration statement under the
Securities Act of 1933, as amended (the "1933 Act"), and the 1940
Act and the Fund's Prospectus(es) and Statement(s) of Additional
Information relating to all Investment Funds and all amendments
and supplements thereto as in effect from time to time;
<PAGE>
c. Certified copies of the resolutions of the Board of Trustees of
the Fund (the "Board") authorizing (1) the Fund to enter into
this Agreement and (2) certain individuals on behalf of the Fund
to (a) give instructions to the Administrator pursuant to this
Agreement and (b) sign checks and pay expenses;
d. A copy of the investment advisory agreement between the Fund and
its investment adviser and copies of any investment subadvisory
agreements between the Fund's adviser and any subadvisers;
e. A copy of the participation agreement(s) between the Fund and the
insurance company separate account(s) investing in the Fund; and
f. Such other certificates, documents or opinions which the
Administrator may, in its reasonable discretion, deem necessary
or appropriate in the proper performance of its duties.
3. Representation and Warranties of the Administrator
The Administrator represents and warrants to the Fund that:
a. It is a Massachusetts trust company, duly organized, existing and
in good standing under the laws of The Commonwealth of
Massachusetts;
b. It has the corporate power and authority to carry on its business
in The Commonwealth of Massachusetts;
c. All requisite corporate proceedings have been taken to authorize
it to enter into and perform this Agreement;
d. No legal or administrative proceedings have been instituted or
threatened which would impair the Administrator's ability to
perform its duties and obligations under this Agreement; and
e. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or
obligation of the Administrator or any law or regulation
applicable to it.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Administrator that:
a. It is a business trust, duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts;
b. It has the corporate power and authority under applicable laws
and by its charter and by-laws to enter into and perform this
Agreement;
2
<PAGE>
c. All requisite proceedings have been taken to authorize it to
enter into and perform this Agreement;
d. It is an investment company properly registered under the 1940
Act;
e. A registration statement under the 1933 Act and the 1940 Act has
been filed and will be effective. The Fund also warrants to the
Administrator that all necessary filings under the securities
laws of the states in which the Fund offers or sells its shares
will have been made and will be current during the term of this
Agreement;
f. All shareholders of the Fund will be "qualified investors" as
that term is defined under Regulation 1.817-5(f)(3) of the
Internal Revenue Code of 1986, as amended ("IRC");
g. No legal or administrative proceedings have been instituted or
threatened which would impair the Fund's ability to perform its
duties and obligations under this Agreement;
h. Its entrance into this Agreement shall not cause a material
breach or be in material conflict with any other agreement or
obligation of the Fund or any law or regulation applicable to it;
and
i. As of the close of business on the date of this Agreement, the
Fund is authorized to issue an unlimited amount of shares of
beneficial interest.
5. Administration Services
The Administrator shall provide the following services, in each case,
subject to the control, supervision and direction of the Fund and the review and
comment by the Fund's auditors and legal counsel and in accordance with
procedures which may be established from time to time between the Fund and the
Administrator:
a. Oversee the determination and publication of the Fund's net asset
value in accordance with the Fund's policy as adopted from time
to time by the Board and as may be set forth in the Fund's
prospectus and statement of additional information;
b. Oversee the maintenance by the Fund's custodian of certain books
and records of the Fund as required under Rule 31a-1(b) of the
1940 Act;
c. Prepare for review by the Fund's independent accountants and
filing by the Fund's treasurer: the Fund's Federal tax return on
Form 1120-RIC and related schedules; the Fund's state and local
income tax returns and franchise tax returns, where applicable;
and the Fund's Federal excise tax return on Form 8613;
3
<PAGE>
d. Prepare and file U.S. Treasury Form 1099 MISC;
e. Consult with the Fund's Treasurer regarding tax policies;
f. Coordinate all communications and data collection with regard to
annual audits by Fund's independent accountants.
g. Prepare Fund's annual budget; analyze expenses and accruals; and
review calculation of, submit for approval by Fund's officers and
arrange for payment of the Fund's expenses;
h. Prepare for review and approval by officers of the Fund financial
information for the Fund's semi-annual and annual reports, proxy
statements and other communications required or otherwise to be
sent to Fund shareholders, and arrange for the printing and
dissemination of such reports and communications to shareholders;
i. Prepare for review by an officer of and legal counsel for the
Fund the Fund's periodic financial reports required to be filed
with the Securities and Exchange Commission ("SEC") on Form N-SAR
and financial information required by Form N-1A and such other
reports, forms or filings as may be mutually agreed upon;
j. Prepare reports relating to the business and affairs of the Fund
as may be mutually agreed upon and not otherwise prepared by the
Fund's investment adviser, custodian, legal counsel or independent
accountants;
k. Make such reports and recommendations to the Board concerning the
performance of the independent accountants as the Board may
reasonably request;
l. Make such reports and recommendations to the Board concerning the
performance and fees of the Fund's custodian and transfer and
dividend disbursing agent ("Transfer Agent") as the Board may
reasonably request or deems appropriate;
m. Oversee and review calculations of fees paid to the Fund's
investment adviser, subadvisers, custodian and Transfer Agent;
n. Consult with the Fund's officers, independent accountant, legal
counsel, custodian and Transfer Agent in establishing the
accounting policies of the Fund;
o. Review implementation of any dividend reinvestment programs
authorized by the Board;
4
<PAGE>
p. Respond to, or refer to the Fund's officers or Transfer Agent,
shareholder inquiries relating to the Fund;
q. Monitor investment and fund operating compliance and provide
summary reports to assist the Fund's investment adviser in
ensuring compliance with: appropriate GAAP/Tax treatment; IRC
Section 851 mandatory requirements for qualification as a
regulated investment company (i.e., asset diversification tests,
qualifying income tests, 50% foreign securities test, if
applicable and 50% tax-exempt tests, if applicable); 1940 Act
requirements including asset diversification tests, collateral
requirements and if applicable, Rule 2a-7 requirements; and
certain Fund prospectus investment limitations, as may be mutually
agreed upon;
r. Compute and recommend distribution amount necessary to satisfy the
requirements of IRC Section 852 and 4982;
s. Prepare such management reports and Board of Trustees materials as
may be mutually agreed upon (e.g., unaudited financial statements,
portfolio holdings expense ratio analysis, distribution summaries
and if applicable, mark-to market reporting);
t. Review and provide assistance on shareholder communications;
u. Maintain general corporate calendar;
v. Maintain copies of the Fund's charter and by-laws;
w. File annual and simi-annual shareholder reports with the
appropriate regulatory agencies; review text of "President's
letters" to shareholders and "Management's Discussion of Fund
Performance" (which shall also be subject to review by the Fund's
legal counsel);
x. Organize, attend and prepare minutes of shareholder meetings;
y. Provide consultation on regulatory matters relating to portfolio
management, Fund operations and any potential changes in the
Fund's investment policies, operations or structure; act as
liaison to legal counsel to the Fund and, where applicable, to
legal counsel to the Fund's independent Board members;
z. Maintain continuing awareness of significant emerging regulatory
and legislative developments which may affect the Fund, update
the Board and the investment adviser on those developments and
provide related planning assistance where requested or
appropriate;
aa. Develop or assist in developing guidelines and procedures to
improve overall compliance by the Fund and its various agents;
5
<PAGE>
bb. Counsel and assist the Fund in the handling of routine regulatory
examinations and work closely with Fund's legal counsel in
response to any non-routine regulatory matters;
Subject to review and comment by the Fund's legal counsel:
cc. Prepare and file with the SEC amendments to the Fund's
registration statement, including updating the Prospectus and
Statement of Additional Information, where applicable;
dd. Prepare and file with the SEC proxy statements; provide
consultation on proxy solicitation matters;
ee. Prepare agenda and background materials for Board meetings,
attend Board meetings, prepare minutes and follow-up on matters
raised at Board meetings; and
ff. Prepare and file with the SEC Rule 24f-2 notices, and
gg. Assist in the evaluation and obtaining of fidelity bond and
trustees and officers errors and omissions liability insurance
coverage.
The Administrator shall provide the office facilities and the personnel required
by it to perform the services contemplated herein.
6. Fees; Expenses; Expense Reimbursement
The Administrator shall receive from the Fund such compensation for
the Administrator's services provided pursuant to this Agreement as may be
agreed to from time to time in a written fee schedule approved by the parties
and initially set forth in Schedule B to this Agreement. The fees are accrued
daily and billed monthly and shall be due and payable within 45 days of receipt
of the invoice. Upon the termination of this Agreement before the end of any
month, the fee for the part of the month before such termination shall be
prorated according to the proportion which such part bears to the full monthly
period and shall be payable upon the date of termination of this Agreement. In
addition, the Fund shall reimburse the Administrator for its out-of-pocket costs
incurred in connection with this Agreement.
The Fund agrees promptly to reimburse the Administrator for any
equipment and supplies specially ordered by or for the Fund through the
Administrator and for any other expenses not contemplated by this Agreement that
the Administrator may incur on the Fund's behalf at the Fund's request or with
the Fund's consent.
The Fund will bear all expenses that are incurred in its operation and
not specifically assumed by the Administrator. Expenses to be borne by the
Fund, include, but are not limited to: organizational expenses; cost of
services of independent accountants and outside legal and tax counsel engaged by
the Fund (including such counsel's review of the Fund's registration statement,
proxy materials, federal and state tax qualification as a regulated investment
company and other reports and
6
<PAGE>
materials prepared by the Administrator under this Agreement); cost of any
services contracted for by the Fund directly from parties other than the
Administrator; cost of trading operations and brokerage fees, commissions and
transfer taxes in connection with the purchase and sale of securities for the
Fund; investment advisory fees; taxes, insurance premiums and other fees and
expenses applicable to its operation; costs incidental to any meetings of
shareholders including, but not limited to, legal and accounting fees, proxy
filing fees and the costs of preparation (excluding preparation by the
Administrator as provided in Section 5y, above but including cost of preparation
for filing by EDGAR), printing and mailing of any proxy materials; costs
incidental to Board meetings, including fees and expenses of Board members; the
salary and expenses of any officer, trustee or employee of the Fund; costs
incidental to the preparation (excluding preparation by the Administrator of
financial information as provided in Section 5e above), printing and
distribution of the Fund's shareholder reports; cost of typesetting and printing
of prospectuses; cost of preparation (except as provided in Sections 5c and 5y,
above) and filing of the Fund's tax returns, and Form N-SAR, and cost of
preparation (excluding preparation by the Administrator as provided in Section
5f, above but including cost of preparation for filing by EDGAR) and filing of
Form N-1A, and all notices, registrations and amendments associated with
applicable federal and state tax and securities laws; all applicable
registration fees and filing fees required under federal and state securities
laws; fidelity bond and directors' and officers' liability insurance; and cost
of independent pricing services used in computing the Fund's net asset value.
The Administrator is authorized to retain the services of service providers
as the Administrator may deem desirable to assist it in performing its duties
under this Agreement; provided, however, that the compensation of such person or
persons shall be paid by the Administrator and that the Administrator shall be
as fully responsible to the Fund for the acts and omissions of any such service
providers as it is for its own acts and omissions; and further provided that the
Administrator shall notify the Fund of the retention of such service providers.
7. Instructions and Advice
With respect to any matter arising in connection with the services to
be performed by the Administrator under this Agreement, the Administrator at any
time: (i) may apply to any officer of the Fund for instructions; (ii) with the
Fund's consent and at the Fund's expense, may consult with counsel (which may be
counsel for the Fund or counsel approved by the Fund) or with the independent
accountants for the Fund; or (iii) at its own expense, may consult with counsel
of its own choosing. The Administrator shall not be liable, and shall be
indemnified by the Fund, for any action taken or omitted by it in good faith in
reliance upon any such instructions or advice or upon any paper or document
received in accordance with the terms of this Agreement and believed by the
Administrator to be genuine and to have been signed by the proper person or
persons. The Administrator shall not be held to have notice of any change of
authority of any person until receipt of written notice thereof from the Fund.
Nothing in this paragraph shall be construed as imposing upon the Administrator
any obligation to seek such instructions or advice, or to act in accordance with
such advice when received.
8. Limitation of Liability and Indemnification
The Administrator shall be responsible for the performance of only
such duties as are set forth in this Agreement and, except as otherwise provided
under Section 6, shall have no responsibility for the actions or activities of
any other party, including other service providers. The Administrator shall
7
<PAGE>
have no liability for any error of judgement or mistake of law or for any loss
or damage resulting from the performance or nonperformance of its duties
hereunder unless caused by or resulting from the negligence or willful
misconduct of the Administrator, its officers or employees. The Administrator
shall not be liable for any special, indirect, incidental, or consequential
damages of any kind whatsoever (including, without limitation, attorneys' fees)
under any provision of this Agreement or for any such damages arising out of any
act or failure to act hereunder. In any event, the Administrator's liability
under this Agreement shall be limited to the greater of its total annual
compensation earned and fees paid hereunder during the preceding two years or
$500,000 for any liability or loss suffered by the Fund including, but not
limited to, any liability relating to qualification of the Fund as a regulated
investment company or any liability relating to the Fund's compliance with any
federal or state tax or securities statute, regulation or ruling.
The Administrator shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its control,
including without limitation, work stoppage, power or other mechanical failure,
computer virus, natural disaster, governmental action or communication
disruption.
The Fund shall indemnify and hold the Administrator harmless from all
loss, cost, damage and expense, including reasonable fees and expenses for
counsel, incurred by the Administrator resulting from any claim, demand, action
or suit in connection with the Administrator's acceptance of this Agreement, the
performance of its duties hereunder, or as a result of acting upon any
instructions reasonably believed by it to have been duly authorized by the Fund,
provided that this indemnification shall not apply to any losses, costs, damages
and expenses, including reasonable fees and expenses for counsel, arising out of
or resulting from the Administrator's negligence or willful misconduct.
The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability subject to the indemnification provided above. In the
event the Fund elects to assume the defense of any such suit and retain counsel,
the Administrator or any of its affiliated persons, named as defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) the Fund shall have specifically
authorized the retaining of such counsel or (ii) the Administrator shall have
determined in good faith that the retention of such counsel is required as a
result of a conflict of interest.
The indemnification contained herein shall survive the termination of
this Agreement.
9. Confidentiality
The Administrator agrees that, except as otherwise required by law or
in connection with any required disclosure to a banking or other regulatory
authority, it will keep confidential all records and information in its
possession relating to the Fund or its shareholders or shareholder accounts and
will not disclose the same to any person except at the request or with the
written consent of the Fund. This obligation shall survive the termination of
this Agreement with respect to any non-public information received by the
Administrator during the period that the Agreement was in effect.
8
<PAGE>
10. Compliance with Governmental Rules and Regulations; Records
Without derogating the responsibilities of the Administrator under
this Agreement, the Fund assumes full responsibility for complying with all
securities, tax, commodities and other laws, rules and regulations applicable to
it.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Administrator agrees that all records which it maintains for the Fund shall
at all times remain the property of the Fund, shall be readily accessible during
normal business hours, and shall be promptly surrendered upon the termination of
the Agreement or otherwise on written request. The Administrator further agrees
that all records which it maintains for the Fund pursuant to Rule 31a-1 under
the 1940 Act will be preserved for the periods prescribed by Rule 31a-2 under
the 1940 Act unless any such records are earlier surrendered as provided above.
Records shall be surrendered in usable machine-readable form.
11. Services Not Exclusive
The services of the Administrator to the Fund are not to be deemed
exclusive, and the Administrator shall be free to render similar services to
others. The Administrator shall be deemed to be an independent contractor and
shall, unless otherwise expressly provided herein or authorized by the Fund from
time to time, have no authority to act or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
12. Term, Termination and Amendment
(a) This Agreement shall become effective on the date the Fund first
accepts money for investment.
(b) Either party may terminate this Agreement: (1) at any time by
prior written notice to the other party given not less than ninety days prior to
the date upon which such termination will take effect; (2) for cause on not less
than thirty days' prior written notice to the defaulting party, unless the
defaulting party has cured such cause within thirty days of receiving such
notice, for any material breach by the defaulting party of any representation,
warranty, covenant or obligation hereunder; or (3) immediately by written notice
to the other party if such party reasonably determines that such other party has
suffered a material adverse change in its business, operations or financial
condition.
(c) Notwithstanding any other provision of this Agreement, upon
termination by the Fund of this Agreement prior to two years from the effective
date of this Agreement, the Fund shall pay to the Administrator an amount equal
to any fees waived by the Administrator under this Agreement unless: (1) such
termination was for cause for a material breach by the Administrator as provided
above in Section 12(b)(2); or (2) such termination was based on a pattern of
non-material defaults caused solely by the Administrator, such as calculation
errors, untimeliness of reports or inaccuracies in reports (any one of which
could be a material default depending on the impact to the Fund), which defaults
the Administrator upon written notice by the Fund was unable or unwilling to
cure within sixty days of receiving such notice and the occurrence of such
defaults caused the Fund in good faith reasonably to believe that the
Administrator was unable to satisfactorily perform its obligations under this
Agreement.
(d) Termination of this Agreement with respect to any given
Investment Fund shall in no way affect the continued validity of this Agreement
with respect to any other Investment Fund.
(e) Upon termination of this Agreement, the Fund shall pay to the
Administrator such compensation and any reimbursable expenses as may be due
under the terms hereof as of the date of such termination, including reasonable
out-of-pocket expenses associated with such termination.
(f) This Agreement may be modified or amended from time to time by
mutual written agreement of the parties.
13. Notices
Any notice or other communication authorized or required by this
Agreement to be given to either party shall be in writing and deemed to have
been given when delivered in person or by confirmed facsimile, or posted by
certified mail, return receipt requested, to the following address (or such
other address as a party may specify by written notice to the other): if to the
Fund: Providian Series Trust, 400 West Market Street, Louisville, Kentucky
40202, Attn: President, fax: (502) 560-4397; if to the Administrator: State
Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, Massachusetts
02171, Attn: Sharon Baker Morin, Vice President and Counsel, fax: (617) 985-
2497.
14. Non-Assignability
This Agreement shall not be assigned by either party hereto without
the prior consent in writing of the other party, except that the Administrator
may assign this Agreement to a successor of all or a substantial portion of its
business, which is a party controlling, controlled by or under common control
with the Administrator.
15. Successors
This Agreement shall be binding on and shall inure to the benefit of
the Fund and the Administrator and their respective successors and permitted
assigns.
16. Entire Agreement
This Agreement contains the entire understanding between the parties
hereto with respect to the subject matter hereof and supersedes all previous
representations, warranties or commitments regarding the services to be
performed hereunder whether oral or in writing.
17. Waiver
The failure of a party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver nor shall it
deprive such party of the right thereafter to insist upon strict adherence to
that term or any term of this Agreement. Any waiver must be in writing signed by
the waiving party.
9
<PAGE>
18. Severability
If any provision of this Agreement is invalid or unenforceable, the
balance of the Agreement shall remain in effect, and if any provision is
inapplicable to any person or circumstance it shall nevertheless remain
applicable to all other persons and circumstances.
19. Governing Law
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
20. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm, micro-
card, miniature photographic or other similar process. The parties hereto each
agree that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the original
is in existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
21. LIMITATION OF LIABILITY
Notice is hereby given that a copy of the Fund's Declaration of Trust
and all amendments thereto is on file with The Commonwealth of Massachusetts,
that this Agreement has been executed on behalf of the Fund by the undersigned
duly authorized representative of the Fund in his/her capacity as such and not
individually, and that the obligations of this Agreement shall only be binding
upon the assets and property of the Fund and shall not be binding upon any
trustee, officer or shareholder of the Fund individually.
22. MULTIPLE PORTFOLIOS
Each Investment Fund shall be regarded for all purposes hereunder as a
separate party apart from each other Investment Fund. Unless the context
otherwise requires, with respect to every transaction covered by this Agreement,
every reference herein to the Fund shall be deemed to relate solely to the
particular Investment Fund to which such transaction relates. Under no
circumstances shall the rights, obligations or remedies with respect to a
particular Investment Fund constitute a right, obligation or remedy applicable
to any other Investment Fund. The use of this single document to memorialize
the separate agreement of each Investment Fund is understood to be for clerical
convenience only and shall not constitute any basis for joining the Investment
Funds for any reason.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date first written above.
PROVIDIAN SERIES TRUST
By: /s/ Kris A. Robbins
-------------------------------
Name: Kris A. Robbins
-----------------------------
Title: President
----------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
-------------------------------
Name: Ronald E. Logue
-----------------------------
Title: Executive Vice President
----------------------------
11
<PAGE>
ADMINISTRATION AGREEMENT
PROVIDIAN SERIES TRUST
SCHEDULE A
Listing of Investment Funds
High Quality Stock Fund
Fixed Income Fund
International Active Fund
Money Market Fund
Capital Preservation Portfolio
Income Oriented Portfolio
Growth and Income Portfolio
Capital Growth Portfolio
Maximum Appreciation Portfolio
12
<PAGE>
ADMINISTRATION AGREEMENT
PROVIDIAN SERIES TRUST
SCHEDULE B
Fees and Expenses
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Capital Preservation Portfolio
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 14,011
<INVESTMENTS-AT-VALUE> 14,107
<RECEIVABLES> 3,011
<ASSETS-OTHER> 4,406
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,524
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,385
<TOTAL-LIABILITIES> 7,385
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,945
<SHARES-COMMON-STOCK> 1,372
<SHARES-COMMON-PRIOR> 347
<ACCUMULATED-NII-CURRENT> 75
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 23
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 96
<NET-ASSETS> 14,139
<DIVIDEND-INCOME> 75
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 23
<APPREC-INCREASE-CURRENT> 96
<NET-CHANGE-FROM-OPS> 119
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,668
<NUMBER-OF-SHARES-REDEEMED> (296)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 194
<ACCUMULATED-NII-PRIOR> 4
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,452
<AVERAGE-NET-ASSETS> 7,114
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Income Oriented Portfolio
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 261
<INVESTMENTS-AT-VALUE> 265
<RECEIVABLES> 5,913
<ASSETS-OTHER> 1,479
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,657
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,392
<TOTAL-LIABILITIES> 7,392
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 261
<SHARES-COMMON-STOCK> 25
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4
<NET-ASSETS> 265
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 4
<NET-CHANGE-FROM-OPS> 4
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,450
<AVERAGE-NET-ASSETS> 114
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.66
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.66
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> Growth & Income Portfolio
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 61,707
<INVESTMENTS-AT-VALUE> 64,259
<RECEIVABLES> 2,169
<ASSETS-OTHER> 4,702
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,130
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6,849
<TOTAL-LIABILITIES> 6,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,653
<SHARES-COMMON-STOCK> 5,951
<SHARES-COMMON-PRIOR> 2,582
<ACCUMULATED-NII-CURRENT> 63
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,552
<NET-ASSETS> 64,281
<DIVIDEND-INCOME> 63
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 63
<REALIZED-GAINS-CURRENT> 13
<APPREC-INCREASE-CURRENT> 2,552
<NET-CHANGE-FROM-OPS> 2,628
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,975
<NUMBER-OF-SHARES-REDEEMED> (24)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,628
<ACCUMULATED-NII-PRIOR> 7
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,958
<AVERAGE-NET-ASSETS> 32,510
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 0.79
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.80
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> Capital Growth Portfolio
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 100,065
<INVESTMENTS-AT-VALUE> 104,008
<RECEIVABLES> 2,780
<ASSETS-OTHER> 4,591
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 111,379
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,371
<TOTAL-LIABILITIES> 7,371
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,065
<SHARES-COMMON-STOCK> 9,422
<SHARES-COMMON-PRIOR> 1,277
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,943
<NET-ASSETS> 104,008
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 3,943
<NET-CHANGE-FROM-OPS> 3,943
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,422
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,943
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,450
<AVERAGE-NET-ASSETS> 43,302
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 1.04
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.04
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> Maximum Appreciation Portfolio
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 84,127
<INVESTMENTS-AT-VALUE> 88,169
<RECEIVABLES> 2,642
<ASSETS-OTHER> 4,724
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,535
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,362
<TOTAL-LIABILITIES> 7,362
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,120
<SHARES-COMMON-STOCK> 7,829
<SHARES-COMMON-PRIOR> 1,545
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,042
<NET-ASSETS> 88,173
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 11
<APPREC-INCREASE-CURRENT> 4,042
<NET-CHANGE-FROM-OPS> 4,053
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,869
<NUMBER-OF-SHARES-REDEEMED> (40)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,053
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 11
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,450
<AVERAGE-NET-ASSETS> 33,169
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 1.26
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.26
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> High Quality Stock Fund
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 10,265,305
<INVESTMENTS-AT-VALUE> 11,608,398
<RECEIVABLES> 14,844
<ASSETS-OTHER> 1,449
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,624,691
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,223
<TOTAL-LIABILITIES> 18,223
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,068,591
<SHARES-COMMON-STOCK> 1,006,465
<SHARES-COMMON-PRIOR> 1,003,022
<ACCUMULATED-NII-CURRENT> 61,387
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 133,397
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,343,093
<NET-ASSETS> 11,606,468
<DIVIDEND-INCOME> 58,471
<INTEREST-INCOME> 41,380
<OTHER-INCOME> 0
<EXPENSES-NET> 38,464
<NET-INVESTMENT-INCOME> 61,387
<REALIZED-GAINS-CURRENT> 133,397
<APPREC-INCREASE-CURRENT> 1,343,093
<NET-CHANGE-FROM-OPS> 1,537,877
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,014,079
<NUMBER-OF-SHARES-REDEEMED> (7,614)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,537,877
<ACCUMULATED-NII-PRIOR> 34,050
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 27,779
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42,617
<AVERAGE-NET-ASSETS> 10,774,597
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 1.47
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.53
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> Fixed Income Fund
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 5,151,712
<INVESTMENTS-AT-VALUE> 5,223,774
<RECEIVABLES> 38,185
<ASSETS-OTHER> 1,010
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,262,969
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,797
<TOTAL-LIABILITIES> 12,797
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,056,780
<SHARES-COMMON-STOCK> 505,561
<SHARES-COMMON-PRIOR> 501,538
<ACCUMULATED-NII-CURRENT> 105,019
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,311
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 72,062
<NET-ASSETS> 5,250,172
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 123,342
<OTHER-INCOME> 0
<EXPENSES-NET> 18,323
<NET-INVESTMENT-INCOME> 105,019
<REALIZED-GAINS-CURRENT> 16,311
<APPREC-INCREASE-CURRENT> 72,062
<NET-CHANGE-FROM-OPS> 193,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 505,718
<NUMBER-OF-SHARES-REDEEMED> (157)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 193,392
<ACCUMULATED-NII-PRIOR> 37,866
<ACCUMULATED-GAINS-PRIOR> 10,312
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 13,233
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 25,743
<AVERAGE-NET-ASSETS> 5,127,206
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 0.17
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> International Active Fund
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 9,929,426
<INVESTMENTS-AT-VALUE> 10,297,397
<RECEIVABLES> 389,826
<ASSETS-OTHER> 46,615
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,733,838
<PAYABLE-FOR-SECURITIES> 461,707
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,685
<TOTAL-LIABILITIES> 485,392
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,038,017
<SHARES-COMMON-STOCK> 1,003,714
<SHARES-COMMON-PRIOR> 1,000,757
<ACCUMULATED-NII-CURRENT> 74,363
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (231,634)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 367,700
<NET-ASSETS> 10,248,446
<DIVIDEND-INCOME> 113,909
<INTEREST-INCOME> 19,655
<OTHER-INCOME> (12,453)
<EXPENSES-NET> 46,748
<NET-INVESTMENT-INCOME> 74,363
<REALIZED-GAINS-CURRENT> (231,634)
<APPREC-INCREASE-CURRENT> 367,700
<NET-CHANGE-FROM-OPS> 210,429
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,003,724
<NUMBER-OF-SHARES-REDEEMED> (10)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 210,429
<ACCUMULATED-NII-PRIOR> 48,770
<ACCUMULATED-GAINS-PRIOR> 20,787
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 36,585
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 55,821
<AVERAGE-NET-ASSETS> 10,234,186
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 0.14
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.21
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 09
<NAME> Money Market Fund
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 2,065,190
<INVESTMENTS-AT-VALUE> 2,065,190
<RECEIVABLES> 6,478
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,071,668
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,854
<TOTAL-LIABILITIES> 9,854
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,061,814
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<ACCUMULATED-NET-GAINS> 0
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<NET-ASSETS> 2,061,814
<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
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<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 40,113
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,060,124
<NUMBER-OF-SHARES-REDEEMED> (43,423)
<SHARES-REINVESTED> 40,113
<NET-CHANGE-IN-ASSETS> 40,113
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,225
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 14,635
<AVERAGE-NET-ASSETS> 2,030,056
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
