<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 1997
FILE NOS. 33-20899
811-08041
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
AMENDMENT NO. 1
ATLAS INSURANCE TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
794 DAVIS STREET
SAN LEANDRO, CALIFORNIA 94577
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 297-7444
LARRY E. LACASSE
794 DAVIS STREET
SAN LEANDRO, CALIFORNIA 94577
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
MICHAEL GLAZER, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
------------
The Registrant hereby elects to register an indefinite number of shares of
beneficial interest pursuant to Rule 24f-2 under the Investment Company Act of
1940, as amended.
------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable following effective date.
------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus) and
Part B (Statement of Additional Information)
of Registration Statement of Information Required by Form N-4
-------------------------------------------------------------
PART A
------
<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
<S> <C> <C>
1. Cover Page............................... Cover Page
2. Definitions.............................. Definitions
3. Synopsis................................. Summary; Historical
Performance Data
4. Condensed Financial Information.......... Condensed Financial Information;
................................... Financial Statements
5. General Description of Registrant,
Depositor and Portfolio Companies
(a) Depositor.......................... PFL Life Insurance Company
(b) Registrant......................... The Atlas Portfolio Builder
Accounts
(c) Portfolio Company.................. The Mutual Fund Account
(d) Fund Prospectus.................... Underlying Funds
(e) Voting Rights...................... Voting Rights
6. Deductions and Expenses
(a) General............................ Charges and Deductions
(b) Sales Load %....................... Surrender Charge
(c) Special Purchase Plan.............. N/A
(d) Commissions........................ Distribution of the Policies
(e) Expenses - Registrant.............. N/A
(f) Fund Expenses...................... Other Expenses including
................................... Investment
................................... Advisory Fees
(g) Organizational Expenses............ N/A
7. Policies
(a) Persons with Rights................ The Policy; Election of Payment
................................... Option; Annuity Payments; Annuity
................................... Commencement Date; Voting Rights
(b) (i) Allocation of Premium
Payments...................... Allocation of Premium Payments
(ii) Transfers..................... Transfers
(iii)Exchanges..................... N/A
(c) Changes............................ The Policy; Amendments; Annuity
................................... Payment Options; Premium
................................... Payments; Possible changes in
................................... taxation; Addition, Deletion, or
................................... Substitution of Investments
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(d) Inquiries.......................... Summary
8. Annuity Period.......................... Annuity Payment Options;
................................... Annuity Commencement Date
9. Death Benefit........................... Death Benefit
10. Purchases and Contract Value
(a) Purchases.......................... Policy Application and Issuance
................................... of Policies; Premium Payments
(b) Valuation.......................... Policy Value; The Mutual Fund
................................... Policy Value
(c) Daily Calculation.................. The Mutual Fund Policy Value
(d) Underwriter........................ Distribution of the Policies
11. Redemptions
(a) By Owners.......................... Surrenders
By Annuitant....................... N/A
(b) Texas ORP.......................... Restrictions Under the Texas
................................... Optional Retirement Program
(c) Check Delay........................ Payment Not Honored by Bank
(d) Lapse.............................. N/A
(e) Free Look.......................... Summary
12. Taxes................................... Certain Federal Income Tax
................................... Consequences
13. Legal Proceedings....................... Legal Proceedings
14. Table of Contents for the
Statement of
Additional Information.................. Statement of Additional
Information
PART B
------
<CAPTION>
Item of Form N-4 Statement of Additional
- ---------------- Information Caption
-------------------
<S> <C> <C>
15. Cover Page.............................. Cover Page
16. Table of Contents....................... Table of Contents
17. General Information
and History............................. (Prospectus) PFL Life Insurance
................................... Company
18. Services
(a) Fees and Expenses
of Registrant...................... N/A
(b) Management Policies................ N/A
(c) Custodian.......................... Custody of Assets
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Independent
Auditors........................... Independent Auditors
(d) Assets of Registrant............... Custody of Assets
(e) Affiliated Person.................. N/A
(f) Principal Underwriter.............. Distribution of the Policies
19. Purchase of Securities
Being Offered........................... Distribution of the Policies
Offering Sales Load..................... N/A
20. Underwriters............................ Distribution of the Policies;
................................... (also Prospectus)
21. Calculation of Performance
Data.................................... Historical Performance Data
22. Annuity Payments........................ (Prospectus) Annuity Payment
Options
23. Financial Statements.................... Financial Statements
PART C -- OTHER INFORMATION
---------------------------
<CAPTION>
Item of Form N-4 Part C Caption
- ---------------- --------------
<S> <C> <C>
24. Financial Statements
and Exhibits
(a) Financial Statements............... Financial Statements
(b) Exhibits........................... Exhibits
25. Directors and Officers of
the Depositor........................... Directors and Officers of the
Depositor
26. Persons Controlled By or Under
Common Control with the
Depositor or Registrant................. Persons Controlled By or Under
Common........................................ Control with the Depositor or
Registrant
27. Number of Contractowners................ Number of Contractowners
28. Indemnification......................... Indemnification
29. Principal Underwriters.................. Principal Underwriters
30. Location of Accounts
and Records............................. Location of Accounts and Records
31. Management Services..................... Management Services
32. Undertakings............................ Undertakings
Signature Page.......................... Signature Page
</TABLE>
<PAGE>
PART A
ATLAS INSURANCE TRUST
---------------------------
PROSPECTUS
---------------------------
<PAGE>
ATLAS ANNUITIES
ATLAS INSURANCE TRUST
794 DAVIS STREET
SAN LEANDRO, CA 94577
1-800-933-ATLAS (1-800-933-2852)
ATLAS INSURANCE TRUST
Atlas Insurance Trust (the "Trust") is an open-end, management investment
company, or mutual fund, offering a choice of investment portfolios or funds to
investors through the purchase of the Atlas Portfolio Builder variable annuity
contracts issued by PFL Life Insurance Company ("PFL Life"). The Trust
currently consists of one investment portfolio, the Atlas Balanced Growth
Portfolio (the "Portfolio"). The Portfolio invests in up to eight underlying
Atlas Funds representing different combinations of equity, fixed income, and
money market securities and reflecting varying degrees of investment risk and
potential reward.
Please read this Prospectus dated , 1997 before investing and keep it
for future reference. It provides important information about the Trust and the
Portfolio and will help you decide whether the Portfolio is appropriate for
you. A Statement of Additional Information (the "SAI") further describing the
Trust and the Portfolio, dated , 1997 was filed with the Securities and
Exchange Commission and is incorporated into this Prospectus by reference. A
copy of a current SAI is available without charge by calling or writing the
Trust.
The Atlas Portfolio Builder variable annuity contracts are described in a
separate prospectus issued by PFL Life which should be read in conjunction with
this prospectus.
ATLAS SECURITIES, INC. (DBA ATLAS FUNDS DISTRIBUTORS, INC. IN ARIZONA), THE
DISTRIBUTOR OF THE TRUST'S SHARES, IS NOT A SAVINGS AND LOAN ASSOCIATION OR A
BANK. TRUST SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF A SAVINGS AND LOAN
ASSOCIATION OR A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL ENTITY INCLUDING THE SECURITIES INVESTOR
PROTECTION CORPORATION. TRUST SHARES ARE NOT INSURED OR GUARANTEED BY ANY
PRIVATE INSURANCE COMPANY. THE VALUE OF SHARES OF THE PORTFOLIO WILL VARY IN
RESPONSE TO MARKET CONDITIONS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-1-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PORTFOLIO AT A GLANCE..................................................... 3
WHAT IS THE PORTFOLIO'S INVESTMENT OBJECTIVE AND STRATEGIES?.............. 4
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?............................... 7
WHAT ARE THE OBJECTIVES AND CHARACTERISTICS OF THE UNDERLYING ATLAS
FUNDS?................................................................... 8
WHAT ARE THE PORTFOLIO'S INVESTMENT LIMITATIONS?.......................... 10
WHAT COMPANIES ARE AFFILIATED WITH THE TRUST?............................. 10
HOW IS THE PORTFOLIO ADMINISTERED?........................................ 10
WHAT IS THE TRUST'S CAPITAL STRUCTURE?.................................... 11
HOW IS THE PORTFOLIO'S NET ASSET VALUE DETERMINED?........................ 11
HOW ARE THE PORTFOLIO'S SHARES PURCHASED AND REDEEMED?.................... 11
HOW DOES THE PORTFOLIO HANDLE DIVIDENDS AND TAXES?........................ 11
APPENDIX I--WHAT ARE THE UNDERLYING ATLAS FUNDS' INVESTMENT POLICIES AND
PRACTICES?............................................................... 13
APPENDIX II--DESCRIPTION OF RATINGS....................................... 19
</TABLE>
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<PAGE>
PORTFOLIO AT A GLANCE
INVESTMENT OBJECTIVE
The ATLAS BALANCED GROWTH PORTFOLIO seeks long-term growth of capital, and
moderate current income. The Portfolio is designed to provide broad one-stop
diversification among equity, fixed income, and money market securities. The
Portfolio is suitable for investors seeking a reasonable level of stock-market
exposure, but who are not comfortable taking the substantial market risk of a
more aggressive investment program. Of course there can be no assurance that
the Portfolio's investment objective will be achieved.
STRATEGY
The Portfolio diversifies its assets within set limits among eight
underlying Atlas Funds. Allocation decisions reflect Atlas Advisers, Inc.'s
("Advisers") outlook for the economy, financial markets, and the relative
valuations of the underlying Atlas Funds.
The Portfolio's strategy of investing in other mutual funds results in
greater expenses than you would incur if you invested in the underlying Atlas
Funds directly. However, the underlying Atlas Funds are not available through
the purchase of variable annuity contracts.
RISK CONSIDERATIONS
Like most mutual funds, an investment in the Portfolio involves risk,
principally stock market risk and interest rate risk. STOCK MARKET RISK is the
possibility that stock prices in general will decline over short or extended
periods. Stock markets tend to be cyclical with periods when stock prices
generally rise or fall. The Portfolio also will have varying exposure to
foreign stock markets, which are generally thought to be riskier than domestic
markets. INTEREST RATE RISK is the possibility that bond prices will decline
over short or long periods due primarily to changes in market interest rates.
The ATLAS BALANCED GROWTH PORTFOLIO will have greatest exposure to stock
market risk because of its significant investment in those Atlas Funds that
focus on equity securities. It will have lower exposure to interest rate risk
because of the smaller investment exposure it will have in those Atlas Funds
that focus on or make a significant investment in fixed income securities.
Investors in the Portfolio should be prepared for share price volatility and
the possibility of losing money. Before investing, you should carefully
consider the risks explained in more detail in "What are some of the
Portfolio's potential risks?"
INVESTMENT MANAGER/ADMINISTRATOR:
Advisers, a Golden West Financial Corporation subsidiary and an affiliate of
World Savings and Loan Association ("World"), was organized solely to manage
Atlas mutual fund investments and began its operations on January 10, 1990.
Advisers has retained professionals with substantial fund experience. Advisers
has day-to-day responsibility for administering the Portfolio's operations and
for developing and executing the Portfolio's investment program.
HOW TO INVEST:
Call 1-800-933-ATLAS (1-800-933-2852) and speak to an Atlas Investment
Representative or meet with one in person at most World branches. Just call 1-
800-933-ATLAS for more information on this Person-to-Person program or to make
an appointment. You can also pick up Atlas Annuities literature at any World
branch. The Portfolio is currently offered exclusively by Atlas Securities,
Inc. (the "Distributor").
When you purchase an Atlas Portfolio Builder variable annuity contract, you
may allocate all or a portion of your premium payments to the Portfolio as an
investment option under such contract.
-3-
<PAGE>
The Atlas Portfolio Builder, in turn, places orders to purchase and redeem
shares of the Portfolio based on the amount of premium payments to be invested
and surrender and transfer requests to be effected on that date.
WHAT IS THE PORTFOLIO'S INVESTMENT OBJECTIVE AND STRATEGIES?
The investment objective of the Atlas Balanced Growth Portfolio is to seek
long-term growth of capital with moderate current income. In pursuit of its
objective, the Portfolio will allocate its assets among a group of the
following eight diversified underlying Atlas Funds: Atlas U.S. Treasury Money
(the "Money Fund"), Atlas U.S. Government and Mortgage Securities (the
"Government Fund"), Atlas Strategic Income (the "Strategic Income Fund"), the
Atlas Balanced (the "Balanced Fund"), Atlas Growth and Income (the "Growth and
Income Fund"), Atlas Strategic Growth (the "Strategic Growth Fund"), Atlas
Global Growth (the "Global Growth Fund"), and Atlas Emerging Growth (the
"Emerging Growth Fund"). The Government and Strategic Income Funds will be
referred to herein as the "Atlas Bond Funds", and the Balanced, Growth and
Income, Strategic Growth, Global Growth, and Emerging Growth will be referred
to as the "Atlas Stock Funds". The Portfolio will diversify within set limits
based on Advisers' outlook for the economy, financial markets, and relative
market valuation of each underlying fund. The amounts allocated to each
underlying Atlas Fund will vary within the ranges specified below.
<TABLE>
<CAPTION>
INVESTMENT RANGE
FOR THE
ATLAS FUND PORTFOLIO
---------- ----------------
<S> <C>
Money Fund.................................................... 0-25%
Government Fund............................................... 0-25%
Strategic Income Fund......................................... 0-25%
Balanced Fund................................................. 10-40%
Growth and Income Fund........................................ 10-40%
Strategic Growth Fund......................................... 10-40%
Global Growth Fund............................................ 10-40%
Emerging Growth Fund.......................................... 10-40%
</TABLE>
ASSET ALLOCATION FRAMEWORK
Asset allocation amongst equity, fixed income, and cash and money market
securities is the most critical investment decision an investor makes.
Determining the investments to make to implement an asset allocation strategy
can be an arduous and time-consuming process. The Portfolio provides investors
with an easy way to achieve broad diversification among asset classes with a
single investment.
In order to achieve its investment objective, the Portfolio allocates its
assets among the underlying Atlas Funds, reflecting varying degrees of
potential investment risk and reward. Under normal market conditions, the
ATLAS BALANCED GROWTH PORTFOLIO expects to allocate its assets through its
varying investment in the eight underlying Atlas Funds so as to maintain an
allocation of approximately 40-75% Stock Funds, 10-30% Bond Funds, and 0-20%
Money Funds and cash.
It is important to understand that, because each of the underlying Atlas
Stock Funds may invest a varying portion of its assets in fixed income
securites, and because each of the underlying Atlas Funds may invest a varying
portion of assets in money market securites, allocations to underlying Atlas
Funds do not necessarily correspond with a percentage investment in a
particular type of security by an underlying Atlas Fund. For example, a 50%
allocation of the Portfolio's assets to the Atlas Stock Funds would result in
less than 50% of the Portfolio's assets exposed to market risk.
-4-
<PAGE>
WHAT ARE SOME OF THE PORTFOLIO'S POTENTIAL RISKS?
The Portfolio's share price will fluctuate with changing market conditions
as the share prices of the underlying Atlas Funds rise or fall. The risks are
generally the same as with other mutual funds:
. Market risk: the market value of equity securities (which constitute the
primary investment of the Portfolio) will fluctuate with changing market
and economic conditions.
. Interest rate risk: the market value of fixed income securities can be
expected to vary inversely in response to changes in interest rates.
. Credit risk: the possibility exists that individual debt securities held
by the underlying Atlas Funds could default or have their credit ratings
downgraded, potentially reducing such fund's share price and income
level. This risk is even greater with high-yield ("junk") bonds, whose
issuers are more vulnerable to business setbacks and to economic changes,
such as a recession, that might impair their ability to make timely
interest and principal payments.
. Prepayment risk: with mortgage-backed securities, there is a chance that,
when interest rates are falling, homeowners will accelerate principal
payments on mortgages and the underlying Atlas Fund will be forced to
reinvest prepayments in lower yielding securities. Also prepayments can
result in losses to investors in mortgage securities that were originally
purchased at a price above par.
. Currency risk: the risk that weak foreign currencies versus the U.S.
dollar could result in losses for U.S. investors in foreign securities.
A significant portion of the total assets of the Portfolio may also be
exposed to the risks of foreign investing, including currency risk, as
previously defined. The economies, markets, and political structures of some
countries in which certain of the underlying Atlas Funds can invest, such as
underdeveloped or emerging market countries, do not compare favorably with the
U.S. and other mature economies in terms of wealth and stability. Therefore,
investments in these countries will be riskier and more subject to erratic and
abrupt price movements.
-5-
<PAGE>
WHAT ARE SOME OF THE PORTFOLIO'S POTENTIAL REWARDS?
The Portfolio offers a professionally managed allocation of assets among a
broad range of underlying Atlas Funds. By investing in a variety of underlying
Atlas Funds, the Portfolio's performance could benefit from the diversified
returns of many types of securities.
The Portfolio invests in Atlas Funds holding domestic and foreign stocks,
small-, mid- and large-cap stocks, and growth and value stocks. To a lesser
extent, the Portfolio can invest in Atlas Funds holding high-quality domestic
and foreign corporate and government bonds, high-yield bonds and convertible
securities. The diversified nature of the Portfolio's investments should
cushion declines in falling markets, especially when the bond and stock
markets move in opposite directions, or when U.S. and foreign markets are not
closely correlated.
The theory of diversification holds that investors can reduce their overall
risk by spreading assets among a variety of investments. Each type of
investment follows a cycle of its own and responds differently to changes in
the economy and the marketplace. A decline in one investment can be balanced
by returns in other investments that are stable or rising. Therefore, a major
benefit of the Portfolio is the potential for attractive long-term returns
with reduced volatility.
HOW CAN I DECIDE WHETHER THE PORTFOLIO IS RIGHT FOR ME?
If you seek broad diversification in a single investment and a reasonable
level of stock-market exposure in an effort to achieve long-term capital
appreciation, the ATLAS BALANCED GROWTH PORTFOLIO could be an appropriate part
of your overall investment strategy. The Portfolio is suitable for investors
who are not willing to take the substantial market risks of a more aggressive
investment program, but can accept the possibility of share price declines.
If you have any questions or wish to schedule an appointment with an Atlas
Investment Representative to learn more about the Portfolio, just call 1-800-
933-ATLAS (1-800-933-2852) for assistance.
-6-
<PAGE>
WHAT ARE THE PORTFOLIO'S FEES AND EXPENSES?
The Portfolio pays Advisers a fee for investment management and
administrative services for facilitating and overseeing all aspects of its
operations and establishing and implementing its investment program. Such fee
is at an annual rate of 0.25% of the Portfolio's average daily net assets.
Like other mutual funds, the Portfolio is responsible for its own operating
expenses in addition to Advisers' fee including, but not limited to: transfer
agent, custodian, legal, and auditing fees and expenses; compensation of
Trustees who are not interested persons of Advisers; taxes, if any; costs and
expenses of calculating its daily net asset value, accounting, bookkeeping,
and recordkeeping required under the 1940 Act; insurance premiums; trade
association dues; fees and expenses of registering and maintaining
registration of its shares for sale under federal and applicable state
securities laws; all costs associated with shareholders' meetings and the
preparation and dissemination of proxy materials which are appropriately
allocable to the Portfolio; printing and mailing prospectuses, statements of
additional information, and reports to existing shareholders; and other
expenses relating to the Portfolio's operations. ADVISERS HAS AGREED TO REDUCE
ITS FEE AND ASSUME EXPENSES OF THE PORTFOLIO TO THE EXTENT NECESSARY TO LIMIT
THE PORTFOLIO'S TOTAL DIRECT OPERATING EXPENSES TO 0.50% THROUGH AT LEAST
APRIL 30, 1998.
The Portfolio will also indirectly bear its pro rata share of fees and
expenses incurred by the underlying Atlas Funds and the investment return of
the Portfolio will be net of the expenses of the underlying Atlas Funds. The
following chart provides the expense ratios for each of the underlying Atlas
Funds in which the Portfolio will invest (based on information as of December
31, 1996). Where applicable, expense ratios are restated to reflect current
fees that are expected to be in effect during the Portfolio's first year of
operations.
<TABLE>
<CAPTION>
EXPENSE
UNDERLYING ATLAS FUND RATIO
--------------------- -------
<S> <C>
Money Fund.............................................................. 0.52%
Government Fund......................................................... 1.03%
Strategic Income Fund................................................... 0.75%
Balanced Fund .......................................................... 1.27%
Growth and Income Fund ................................................. 1.16%
Strategic Growth Fund .................................................. 1.31%
Global Growth Fund ..................................................... 1.72%
Emerging Growth Fund ................................................... 1.50%
</TABLE>
Based on the foregoing, the range of the average weighted expense ratio for
the Portfolio is expected to be 1.11% to 1.31%. A range is provided since the
average assets of the Portfolio invested in each of the underlying Atlas Funds
will fluctuate.
-7-
<PAGE>
WHAT ARE THE OBJECTIVES AND CHARACTERISTICS OF THE UNDERLYING ATLAS FUNDS?
The objectives and major characteristics of the underlying Atlas Funds are as
follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
U.S. TREASURY AND MORTGAGE STRATEGIC
MONEY FUND(1) SECURITIES FUND INCOME FUND
------------- ----------------- ------------
<S> <C> <C> <C>
Investment Strategy and Risk Seeks yield Seeks liquidity Seeks high
Consideration combined with and higher pre- current
maximum tax yield than income. In
safety, short-term addition to
liquidity, investments may interest
and provide. Subject rate and
preservation to interest rate prepayment
of principal and prepayment risk,
through a risk subject to
stable share the special
price risks
involved
with foreign
investing,
use of
derivatives
and high-
yield,
lower-rated
securities.
Investment Objectives(2) A high level A high level of A high level
of current current income of current
income consistent with income
consistent prudent consistent
with maximum investment with prudent
safety, management and risk
liquidity and preservation of management
stability of capital and
principal, preservation
exempt from of capital
state income
tax in most
states
Portfolio Securities(3) Short-term Intermediate and U.S.
obligations long-term U.S. Government
directly Government securities,
issued by the obligations and debt
U.S. Treasury mortgage related securities
securities issued of foreign
by U.S. governments
Government and
agencies or companies,
instrumentalities and lower-
or private rated, high-
issuers yield debt
securities
of U.S.
companies
Quality of Debt Securities(4) Highest Quality--three Full Range--
Quality-- highest rating All rating
supported by quality grades, quality
the full such as Moody's grades, such
faith and (Aaa, Aa, A) or as Moody's
credit of the S&P (AAA, AA, A); (Aaa, Aa, A,
U.S. primarily highest Baa, Ba, B,
Government quality Caa, Ca, C,
D) or S&P
(AAA, AA, A,
BBB, BB, B,
CCC, CC, C,
D)
</TABLE>
- --------
(1) There can be no assurance that a stable net asset value will always be
achieved.
(2) These investment objectives are fundamental and cannot be changed without
shareholder approval.
(3) Please read Appendix I for a more detailed description of securities and
strategies.
-8-
<PAGE>
<TABLE>
<CAPTION>
BALANCED GROWTH AND STRATEGIC GLOBAL EMERGING
FUND INCOME FUND GROWTH FUND GROWTH FUND GROWTH FUND
- ------------ ------------ ------------- ---------------------------------
<S> <C> <C> <C> <C>
Seeks a Seeks growth Seeks growth Seeks growth of Seeks growth of
balance of of capital, of capital capital only. capital only.
capital with some only. Subject Subject to Subject to
growth and current to market market risk and market risk and
high current income. risk. the special the special
income. Subject to risks involved risks involved
Subject to market risk. with substantial with investing
market risk foreign in small
and interest investing. companies.
rate risk.
Long-term Long-term Long-term Long-term Long-term
capital capital capital capital growth, capital growth,
growth and a growth and growth, without without
high level some current without consideration of consideration of
of current income consideration current income, current income,
income consistent of current consistent with consistent with
consistent with prudent income, prudent prudent
with prudent investment consistent investment investment
investment management with prudent management management
management investment
and management
preservation
of capital
Common and Common and Common and Common and Common and
preferred preferred preferred preferred stocks preferred
stocks, stocks and stocks and and convertible stocks,
convertible convertible convertible securities of convertible
securities securities securities U.S. and foreign securities,
and bonds selected selected companies rights, warrants
primarily solely for and options of
for their their "growth-type"
appreciation appreciation companies with
potential potential emphasis on
and, in many small or
instances, emerging growth
for their companies.
dividend
paying
ability
Investment Grade--four highest rating Full Range--All rating quality
quality grades such as Moody's (Aaa, grades, such as Moody's (Aaa,
Aa, A, Baa) or S&P (AAA, AA, A, BBB) Aa, A, Baa, Ba, B, Caa, Ca, C, D)
or S&P (AAA,
AA, A, BBB, BB, B, CCC, CC,
C, D)
</TABLE>
(4) Based on ratings of nationally recognized credit rating agencies such as
Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P") or, if not rated, of comparable quality in the opinion
of the Adviser, or Subadviser if applicable. Applies only to debt
securities. Rating agencies do not rate equity securities. Please read the
Appendix II for a more detailed description of quality standards.
-9-
<PAGE>
WHAT ARE THE PORTFOLIO'S INVESTMENT LIMITATIONS?
The Portfolio operates under the following limitations:
DIVERSIFICATION. The Portfolio is a "nondiversified" investment company for
purposes of the 1940 Act because it invests in the securities of a limited
number of mutual funds. However, the underlying Atlas Funds themselves are
diversified investment companies. The Portfolio intends to qualify as a
diversified investment company for the purposes of Subchapter M of the
Internal Revenue Code.
FUNDAMENTAL INVESTMENT POLICIES. As a matter of fundamental policy, the
Portfolio will not: (i) invest more than 25% of its total assets in any one
industry, except for investment companies which are members of the Atlas
family of funds; and (ii) borrow money, except temporarily to facilitate
redemption requests, in amounts exceeding 30% of the Portfolio's total assets
valued at market.
OTHER RESTRICTIONS. As a matter of operating policy the Portfolio will limit
its investment in illiquid assets, such as restricted securities or repurchase
agreements and time deposits with more than seven days to maturity, to no more
than 10% of total assets. Additional investment restrictions are described in
the Trust's Statement of Additional Information.
WHAT COMPANIES ARE AFFILIATED WITH THE TRUST?
Atlas Insurance Trust (the "Trust") was organized by Golden West Financial
Corporation ("Golden West Financial"). Golden West Financial is a New York
Stock Exchange listed savings and loan holding company, headquartered in
Oakland, California, with assets at December 31, 1996 in excess of $37
billion. The Trust has engaged Atlas Advisers, Inc. ("Advisers") and Atlas
Securities, Inc. (the "Distributor"), two wholly owned subsidiaries of Golden
West Financial, to provide investment advice and distribution services to the
Portfolio. Advisers and the Distributor provide similar services to the Atlas
Funds.
Advisers is a registered investment adviser. Advisers has overall
responsibility for the investment advisory and administrative services
provided to the Portfolio, including formulating the Portfolio's investment
policies, analyzing market conditions, providing portfolio management services
to the Portfolio, and monitoring and evaluating services provided to the
Portfolio by others.
The Distributor is a broker-dealer registered with the Securities and
Exchange Commission ("SEC") and maintains membership with the National
Association of Securities Dealers. It is the principal underwriter and sole
distributor of the Trust's shares. Advisers and the Distributor have
contracted with World Savings and Loan Association ("World Savings" or
"World"), Golden West Financial's principal operating subsidiary, for certain
services and facilities to be used in the conduct of mutual fund operations.
The Distributor has established Atlas Investment Centers in Arizona,
California, Colorado, Florida, Kansas, New Jersey and Texas branches of World
Savings, a federally chartered institution with branches in 7 states, as
of December 31, 1996. NEITHER THE TRUST, THE ATLAS FUNDS, ADVISERS, NOR THE
DISTRIBUTOR IS A SAVINGS AND LOAN ASSOCIATION OR A BANK, AND THE PORTFOLIO'S
SHARES ARE NOT INSURED OR GUARANTEED BY ANY GOVERNMENT OR PRIVATE INSURANCE
COMPANY.
HOW IS THE PORTFOLIO ADMINISTERED?
The Board of Trustees supervises the business activities of the Trust, which
include the hiring and supervision of professionals to administer the
Portfolio, approval of contracts, election of officers, and approval of
auditor selection and reports. The Trustees bring to the Portfolio extensive
experience in investments, financial services management, economics, and
accounting. Their primary responsibility in overseeing the Portfolio is to
serve the investors' best interests. You will find information about each
Trustee's background in the SAI.
ADVISERS provides portfolio management services to the Portfolio, the Atlas
U.S. Treasury Money Fund and the Atlas U.S. Government and Mortgage Securities
Fund and, with respect to the
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other underlying Atlas Funds, supervises the provision of similar services by
OppenheimerFunds, Inc. (the "Subadviser") located at Two World Trade Center,
New York, New York 10048. Advisers is responsible for providing or overseeing
all aspects of the Portfolio's day-to-day operations and implementing the
Portfolio's investment programs. Advisers has retained investment
professionals with substantial experience in managing institutional and
individual investments.
THE DISTRIBUTOR. The shares of the Portfolio are distributed by Atlas
Securities, Inc. (the "Distributor"), which serves as the principal
underwriter of the Portfolio's shares.
WHAT IS THE TRUST'S CAPITAL STRUCTURE?
The Trust was organized as a business trust under the laws of Delaware on
October 23, 1996. The Trust may issue an unlimited number of shares of
beneficial interest all having no par value. Since the Trust may offer
multiple investment Portfolios, it is known as a "series company." Shares of a
Portfolio have equal noncumulative voting rights and equal rights with respect
to dividends, assets and liquidation of such Portfolio. Shares are fully paid
and nonassessable when issued, and have no preemptive or conversion rights.
The Trust is not required to hold annual shareholders' meetings and does not
intend to do so. However, it will hold special meetings as required or deemed
desirable for such purposes as electing trustees, changing fundamental
policies or approving an investment advisory contract. If shares of more than
one Portfolio are outstanding, shareholders will vote by Portfolio and not in
the aggregate except when voting in the aggregate is required under the 1940
Act, such as for the election of trustees. The Board of Trustees may authorize
the issuance of additional Portfolios if deemed desirable, each with its own
investment objective, policies and restrictions.
HOW IS THE PORTFOLIO'S NET ASSET VALUE DETERMINED?
The net asset value per share for the Portfolio is determined as of the
regular close of the New York Stock Exchange (generally 4:00 p.m. Eastern
time) on each day that the Exchange is open for trading. The net asset value
per share is determined by dividing the total market value of the Portfolio's
investments and other assets, less any liabilities, by the total number of
outstanding shares of the Portfolio. This determination is made by appraising
the Portfolio's underlying investments (i.e., the underlying Atlas Funds) at
the price of each such Fund determined at the close of the Exchange.
HOW ARE THE PORTFOLIO'S SHARES PURCHASED AND REDEEMED?
PFL Life places orders to purchase and redeem shares of the Portfolio based
on, among other things, the amount of premium payments to be invested and
surrender and transfer requests to be effected on that day pursuant to
variable annuity contracts. The shares of the Portfolio are purchased and
redeemed at the net asset value of the Portfolio's shares as computed on the
business day (a day that the Exchange is open for trading) immediately
preceding the receipt of an order in proper form.
Although it is not expected to do so, the Trust may, from time to time,
temporarily suspend the offering of shares of the Portfolio. During the period
of such suspension, shareholders of the Portfolio are normally permitted to
continue to purchase additional shares and to have dividends reinvested.
No fee is charged shareholders when they purchase or redeem Portfolio
shares.
HOW DOES THE PORTFOLIO HANDLE DIVIDENDS AND TAXES?
DIVIDENDS. The Trust normally follows the practice of declaring and
distributing substantially all the net investment income and any net short-
term and long-term capital gains of the Portfolio at least annually.
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TAXES. Under the current Internal Revenue Code ("Code"), PFL Life is taxed
as a life insurance company and the operation of its separate account is taxed
as part of its total operations. Under current interpretations of existing
federal income tax law, investment income and capital gains of separate
accounts are not subject to federal income tax to the extent applied to
increase the values of variable annuity contracts. Tax consequences to
variable annuity contract holders are described in the separate prospectus
issued by PFL Life.
The Portfolio intends to qualify as a regulated investment company under
subchapter M of the Code. As a result, with respect to any fiscal year in
which the Portfolio distributes all its net investment income and net realized
capital gains, the Portfolio will not be subject to federal income tax.
Subchapter M includes other requirements relating to the diversification of
investments. Subchapter M's diversification requirements are in addition to
diversification requirements under Section 817(h) of the Code and the 1940
Act. Each applicable law's diversification requirement could require the sale
of assets of the Portfolio, which could have an adverse impact on the net
asset value of the Portfolio.
Because the Trust is established as an investment medium for variable
annuity contracts, Section 817(h) of the Code imposes additional
diversification requirements on the Portfolio. These requirements generally
are that as of the end of each quarter or within 30 days thereafter, no more
than 55% of the value of the total assets of the Portfolio may be represented
by any one investment; no more than 70% by any two investments; no more than
80% by any three investments; and no more than 90% by any four investments.
For these purposes, each underlying Atlas Fund is treated as a single
investment.
The preceding is a brief summary of certain of the relevant tax
considerations. The Statement of Additional Information includes a more
detailed discussion. This discussion is not intended, even as supplemented by
the State of Additional Information, as a complete explanation or a substitute
for careful tax planning and consultation with individual tax advisers.
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APPENDIX I--
WHAT ARE THE UNDERLYINGATLAS FUNDS' INVESTMENT POLICIES AND PRACTICES?
In pursuing their investment objectives and strategies, each of the
underlying Atlas Funds is permitted to engage in a wide range of investment
policies. Certain of these policies are described in the following paragraphs
and further information about the underlying Atlas Funds is contained in the
Statement of Additional Information as well as the prospectus of such Funds.
Because the Portfolio invests in the underlying Atlas Funds, shareholders of
the Portfolio will be affected by these investment policies in direct
proportion to the amount of assets the Portfolio allocates to the underlying
Funds pursuing such policies.
The ATLAS U.S. TREASURY MONEY FUND maximizes safety by investing in debt
securities issued by the U.S. Treasury. These securities, the only securities
in which this Fund will invest, are guaranteed as to principal and interest by
the full faith and credit of the U.S. Government and are of the highest
possible credit quality. Though such securities involve little risk of loss of
principal, if held to maturity, like any debt obligation they are subject to
variations in market value due to fluctuations in interest rates. The Money
Fund reduces this market risk by investing only in securities maturing in 13
months or less and by maintaining an average weighted maturity of 90 days or
less.
The ATLAS U.S. GOVERNMENT AND MORTGAGE SECURITIES FUND will, under normal
market conditions, invest at least 80% of its assets in U.S. Government
securities, mortgage securities, and in repurchase agreements collateralized
by mortgage securities. U.S. Government securities are issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, and include mortgage-
backed securities issued by the Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA") and Federal Home Loan
Mortgage Corporation ("FHLMC") (please see the Appendix). At least 50% of this
Fund's assets will be invested in U.S. Government securities (including GNMA
government securities, and FNMA and FHLMC government agency mortgage
securities) and at least 25% of its assets will be invested in mortgage
securities (including U.S. Government and government agency mortgage
securities, and privately issued mortgage related and mortgage-backed
securities).
The ATLAS STRATEGIC INCOME FUND will, under normal market conditions, invest
in each of three market sectors: (1) U.S. Government securities, (2) debt
securities of foreign governments and companies, and (3) lower-rated, high-
yield debt securities of U.S. companies. From time to time the amounts the
Fund invests in each sector will be adjusted.
By investing in all three sectors, this Fund seeks to reduce the volatility
of fluctuations in its net asset value per share, because the overall
securities price and interest rate movements in each of the different sectors
are not necessarily correlated with each other. Changes in one sector may be
offset by changes in another sector that moves in a different direction.
Therefore, this strategy may help reduce some of the risks from negative
market movements and interest rate changes in any one sector. However, the
Fund may invest up to 100% of its assets in any one sector if its Subadviser
believes that in doing so the Fund can achieve its objective without undue
risk to the Fund's assets.
When investing this Fund's assets, the Subadviser considers many factors,
including general economic conditions in the U.S. and abroad, prevailing
interest rates, and the relative yields of U.S. and foreign securities. While
the Fund may seek to earn income by writing covered call options, market price
movements may make it disadvantageous to do so. The Fund may also try to hedge
against losses by using hedging strategies described below. When market
conditions are unstable, the Fund may invest substantial amounts of its assets
in money market instruments for defensive purposes. These strategies are
described in greater detail in the Statement of Additional Information.
The ATLAS BALANCED FUND will, under normal market conditions, invest
primarily in a combination of income-producing equity securities (defined as
common stocks, preferred stocks,
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and securities having the investment characteristics of common stock, such as
securities convertible into common stock). To achieve its additional objective
of conserving principal while seeking moderate capital appreciation, the Fund
will invest in securities of the type described above thought by the Fund's
Subadviser to provide opportunities for growth without undue risk. The
proportion of this Fund's assets invested in the particular types of
securities described above will vary from time to time, with emphasis on
income producing equity securities but with at least 25% of assets invested in
fixed income senior debt.
The ATLAS GROWTH AND INCOME FUND will, under normal market conditions,
invest at least 65% of its assets in equity securities (as previously defined)
expected to grow at a rate that outperforms the general market over the long-
term. Many of these securities will pay dividends. Companies will be evaluated
by the Fund's Subadviser based on a variety of factors including: quality of
management, undervalued assets, or higher projected earnings growth relative
to recognized market benchmark indicators such as the Standard & Poor's 500
composite index of companies.
The ATLAS STRATEGIC GROWTH FUND will, under normal market conditions, invest
primarily in equity securities (as previously defined) considered by the
Fund's Subadviser to have better-than-expected earnings prospects and below-
normal valuations. Current income is not a consideration in selecting
portfolio securities.
The ATLAS GLOBAL GROWTH FUND will, under normal market conditions, invest
primarily in equity securities (as previously defined) of corporations of
growth-oriented companies that are traded in markets of at least three
different countries (which may include the United States). These securities
tend to be issued by companies that may be developing new products or
services, or expanding into new markets for their products. The Fund may
invest in securities of smaller, less well-known companies as well as those of
large, well-known companies. Current income is not a consideration in
selecting portfolio securities.
The Fund's Subadviser currently employs an investment strategy in selecting
foreign and domestic securities that considers the effects of worldwide trends
on the growth of various business sectors. These trends or "global themes"
currently include telecommunications expansion, emerging consumer markets,
infra-structure development, natural resource use and development, corporate
restructuring, capital market development in foreign countries, health care
expansion, and global integration. These trends, which may affect the growth
of companies having business in these sectors, may suggest opportunities for
investing the Fund's assets. The Subadviser does not invest a fixed or
specific amount of the Fund's assets in any one sector, and these themes or
this approach may change over time.
The Fund may also seek to take advantage of changes in the business cycle by
investing in companies that are sensitive to those changes as well as in
"special situations" the Subadviser believes present opportunities for capital
growth. For example, when a country's economy is expanding, companies in the
financial services and consumer products industries may be in a position to
benefit from changes in the business cycle and may present long-term growth
opportunities.
The ATLAS EMERGING GROWTH FUND will, under normal market conditions, invest
primarily in equity securities (as previously defined) of growth-type issuers
with market capitalization less than $1 billion, including emerging growth
companies. The Fund's Subadviser considers growth-type issuers to be those
companies whose goods or services have relatively favorable long-term
prospects for increasing demand, or companies that develop new products,
services, or markets and normally retain in a relatively large part of their
earnings for research, development and investment in capital assets. It is
expected that a substantial portion of the Fund's assets will be invested in
over-the-counter securities, which will often be smaller, less well-known
companies. Emerging growth companies in which the Fund may invest are
typically beyond their initial start-up periods but have not yet reached a
state of established growth or maturity. The rate of growth of such companies
at times may be dramatic. However, investments of this type generally involve
greater risk than is customarily associated with large, more seasoned
companies. Current income will not be a consideration in selecting portfolio
securities.
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Each Stock Fund may seek investment opportunities among securities of
smaller, less well known ("unseasoned") companies as well as securities of
large, well known companies. Each Stock Fund may also invest in investment
grade bonds and notes issued by U.S. and foreign governments and corporations,
and money market securities.
Each of the Stock Funds may invest in corporate and taxable government debt
securities and money market instruments. As a temporary defensive strategy,
each Stock Fund may also invest up to 100% of its assets in debt securities or
money market instruments when market conditions make pursuing the Fund's basic
investment strategy inconsistent with the best interests of its shareholders.
WHAT ARE THE UNDERLYING ATLAS FUNDS INVESTMENT PRACTICES?
LENDING OF PORTFOLIO SECURITIES. Like other mutual funds, the underlying
Atlas Funds may lend securities to broker-dealers, other institutions, or
other persons to earn additional income. The principal risk is the potential
insolvency of the broker-dealer or other borrower. In this event, the
underlying Atlas Funds could experience delays in recovering its securities
and possibly capital losses.
FOREIGN SECURITIES. The Portfolio will invest in certain underlying Atlas
Funds that invest all or a portion of their assets in foreign securities.
These investments in foreign securities, include nondollar-denominated
securities traded outside of the U.S. and dollar-denominated securities of
foreign issuers. Such investments increase the Portfolio's diversification and
may enhance return, but they also involve some special risks such as exposure
to potentially adverse local political and economic developments;
nationalization and exchange controls; potentially lower liquidity and higher
volatility; possible problems arising from accounting, disclosure, settlement,
and regulatory practices that differ from U.S. standards; and the chance that
fluctuations in foreign exchange rates will decrease the investment's value
(favorable changes can increase its value). To the extent the underlying Atlas
Funds invest in developing countries, these risks are increased.
DERIVATIVE INVESTMENTS. The Strategic Income and Emerging Growth Funds can
invest in a number of different kinds of "derivative investments." These Funds
may use some types of derivatives for hedging purposes, and may invest in
others because they offer the potential for increased income and principal
value. In general, a "derivative investment" is a specially-designed
investment whose performance is linked to the performance of another
investment or security, such as an option, future, index or currency.
Derivative investments include exchange-traded options and futures contracts
which the other underlying Atlas Funds may also utilize.
One risk of investing in derivative investments is that the company issuing
the instrument might not pay the amount due on the maturity of the instrument.
There is also the risk that the underlying investment or security might not
perform the way the Subadviser expected it to perform. The performance of
derivative investments may also be influenced by interest rate changes in the
U.S. and abroad. All of these risks can mean that the Fund will realize less
income than expected from its investments, which will affect that Fund's share
price. Certain derivative investments held by a Fund may trade in the over-
the-counter markets and may be illiquid. If that is the case, the Fund's
investment in them will be limited. A description of additional derivative
investments in which the Strategic Income and Emerging Growth Funds may invest
is contained in the Statement of Additional Information.
OPTIONS AND FUTURES STRATEGIES. The underlying Atlas Funds, other than the
Treasury Money Fund, may engage in options on securities, options on futures
and futures contract strategies to hedge their investments against changes in
interest rates, securities prices and foreign currencies, to manage cash flow,
to attempt to enhance income, or as a temporary substitute for purchases or
sales of actual securities. They will not engage in such transactions for
speculation. Their ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations and there can be no
assurance that any of these strategies will succeed.
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The underlying Atlas Funds may purchase, sell, or write call and put options
and futures contracts on securities, financial indices, and foreign
currencies. The underlying Atlas Funds may also enter into foreign currency
exchange contracts to hedge specific transactions or portfolio positions
against changes in currency exchange rates. These strategies involve risks and
transaction costs to which the Funds would otherwise not be subject. If the
Adviser's or a Subadviser's prediction of the direction of market movements in
the underlying instruments or indices is inaccurate, the Fund involved may be
left in a worse position than if such strategies were not used.
A more thorough description of these investment practices and their
associated risks is contained in the current Statement of Additional
Information. The underlying Atlas Funds will not use leverage in futures,
options on futures and options on securities transactions, and are not
commodity pools. When required by SEC guidelines, each Fund will maintain a
segregated account with the Custodian with sufficient cash, U.S. Government
securities or other highly liquid, high grade securities to cover its
potential futures and options obligations.
REVERSE REPURCHASE AND DOLLAR REVERSE REPURCHASE AGREEMENTS. May be entered
into by the underlying Atlas Funds. A reverse repurchase agreement is the sale
of a security by a Fund and its agreement to repurchase the security at a
specified time and price. In addition, the Government and Strategic Income
Funds may enter into similar transactions, known as dollar reverse repurchase
agreements, with respect to mortgage-backed securities. Dollar reverse
repurchase agreements differ from reverse repurchase agreements only with
respect to the securities repurchased by a Fund, which are substantially
similar but not identical to the securities the Fund sold. Each underlying
Fund will maintain in a segregated account with the Custodian cash, U.S.
Government securities or other appropriate liquid, securities in an amount
sufficient to cover its obligations under these agreements with broker-dealers
(but no collateral is required on such agreements with banks). Under the 1940
Act, these agreements are considered borrowings by a Fund. Accordingly, each
underlying Fund will limit its investments in such agreements, together with
any bank borrowings, to no more than one-third of each underlying Fund's total
assets. Reverse repurchase and dollar reverse repurchase agreements create
leverage, which is speculative, and increase a Fund's investment risk. If the
income and gains on securities purchased with the proceeds of these agreements
exceed the costs of the agreements, an underlying Fund's earnings or net asset
value will increase faster than otherwise would be the case; conversely if the
income and gains fail to exceed the costs, earnings or net asset value would
decline faster than otherwise would be the case.
REVERSE DOLLAR REVERSE REPURCHASE AGREEMENTS. May be engaged in by the
Government and Strategic Income Funds. These Funds may purchase mortgage-
backed securities together with an agreement to sell similar securities at a
future date. Such reverse dollar reverse repurchase agreements are subject to
the same risks and restrictions as repurchase agreements. Cash, U.S.
Government securities or other liquid securities will be segregated to meet
these obligations when due. The Funds will not engage in these transactions in
an amount that exceeds one-third of each of their assets.
SPECIAL RISKS OF LOWER-RATED SECURITIES. In seeking high current income, the
Atlas Strategic Income Fund may invest in higher-yielding, lower-rated debt
securities. There is no restriction on the amount of that Fund's assets that
could be invested in these types of securities. The Atlas Global Growth and
[Small Company] Funds may also invest in lower-rated securities, but to a much
more limited extent. Lower-rated debt securities are those rated below
"investment grade," such as debt securities that have a rating lower than
"Baa" by Moody's Investors Services, Inc. "Moody's") or "BBB" by Standard &
Poor's Corporation ("S&P"). These securities may be rated as low as "C" or "D"
or may be in default at the time of purchase.
High yield, lower-grade securities, whether rated or unrated, have
speculative characteristics. Lower-grade securities have special risks that
make them riskier investments than investment grade securities. They may be
subject to greater market fluctuations and risk of loss of income and
principal than lower yielding, investment grade securities. There may be less
of a market for them and therefore they may be harder to sell at an acceptable
price. There is a relatively greater possibility that the issuer's earnings
may be insufficient to make the payments of interest due on the bonds. The
issuer's low creditworthiness may increase the potential for its insolvency.
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These risks mean that the Funds may not achieve the expected income from
lower-grade securities, and that the Funds' net asset value per share may be
affected by declines in value of these securities.
MORTGAGE-BACKED SECURITIES. The Government Fund and the Strategic Income
Fund may invest substantially in mortgage-backed securities issued by GNMA,
FNMA, and FHLMC and privately issued mortgage related bonds and mortgage-
backed securities. Mortgage-backed securities are backed by a pool of mortgage
loans and provide a monthly payment of principal and interest, which is passed
through as payments are made on the underlying mortgages. Additional payments
may be made from unscheduled repayments of principal due to refinancing, sale
or foreclosure of the underlying property.
If interest rates decline, these prepayments tend to increase due to
refinancing of mortgages. Therefore, the average life, or effective maturity
of mortgage-backed securities is normally shorter than the typical 30-year
maturity of the underlying mortgages. Since the prepayment rate varies with
market conditions, it is not possible to accurately anticipate what the
average maturity of the portfolio will be. The yield of the Funds will be
affected by reinvestment of prepayments at higher or lower rates than the
original investment. Also, to the extent the Funds purchase mortgage
securities at a premium, prepayments will result in some loss to the extent of
the premium. Like other debt securities, mortgage related securities' values,
including government related mortgage securities, fluctuate inversely in
response to interest rates.
Prompt payment of principal and interest on GNMA certificates is backed by
the full faith and credit of the United States. FNMA guaranteed pass-through
certificates and FHLMC participation certificates are supported by the credit
of the issuing agency. The U.S. Government is not legally obligated to provide
financial support to FNMA and FHLMC, but may do so in its discretion. As with
any debt obligation, the value of U.S. Government and mortgage securities will
fluctuate with changes in interest rates or market perceptions of the
creditworthiness of the issuer. Additional description of mortgage-backed
securities is contained in the Statement of Additional Information.
HOW ARE THE INVESTMENTS OF THE UNDERLYING ATLAS FUNDS MANAGED?
Advisers provides portfolio management services to the Atlas U.S. Treasury
Money Fund and the Atlas U.S. Government and Mortgage Securities Fund, and
supervises the provision of similar services to the other underlying Atlas
Funds by OppenheimerFunds, Inc., (the "Subadviser").
Roberta A. Conger, Group Senior Vice President and Treasurer of World
Savings, and Tim Stare, Vice President of World Savings, are the persons
primarily responsible for the day-to-day management of the portfolios of the
Government Fund and the Money Fund. Ms. Conger has more than 26 years
experience as a trader and portfolio manager of fixed-income securities,
including the last 12 years involved in managing the investments of Golden
West Financial's over $2 billion portfolio of mortgage-backed and mortgage-
related securities, money market instruments, bonds, other debt obligations,
and U.S. Government securities. Mr. Stare has over 20 years experience as a
trader and portfolio manager of fixed-income securities, including the last
six years managing the investment portfolios for World Savings and Golden West
Financial.
The Subadviser is owned by Oppenheimer Acquisition Corp., a holding company
owned in part by senior management of the Subadviser and ultimately controlled
by Massachusetts Mutual Life Insurance Company, a mutual life insurance
company which also advises pension plans and investment companies. As of
December 31, 1996, the Subadviser and its affiliates advised U.S. investment
companies with aggregate assets in excess of $62 billion, of which
approximately $29 billion was invested in equity funds.
Arthur P. Steinmetz and David P. Negri have been the individuals primarily
responsible for the day-to-day management of the Atlas Strategic Income Fund
since that Fund's inception of operations on May 20, 1996. During the past
five years, Mr. Steinmetz, a Senior Vice President and Portfolio Manager of
the Subadviser, and Mr. Negri, a Vice President and Portfolio Manager of the
Subadviser have each served as officers and portfolio managers of various
funds managed by the Subadviser.
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John P. Doney, Vice President and Portfolio Manager of the Stock Funds'
Subadviser, has been the person primarily responsible for the day-to-day
management of the Atlas Balanced Fund since the Fund's inception of operations
on October 1, 1993. During the past five years, Mr. Doney has served as
portfolio manager of various funds managed by the Subadviser.
The Portfolio Managers of the Atlas Growth and Income Fund are Bruce
Bartlett and Diane L. Sobin. They have been the persons principally
responsible for the day-to-day management of that Fund since July 5, 1995.
During the past five years, Mr. Bartlett, a Vice President and Portfolio
Manager of the Subadviser, was previously a Vice President and Senior
Portfolio Manager with First of America Investment Corporation. During the
past five years, Ms. Sobin, a Vice President and Portfolio Manager of the
Subadviser, was previously a Vice President and Senior Portfolio Manager with
Dean Witter InterCapital, Inc.
Robert C. Doll, Jr., Executive Vice President, Director of Equity
Investments, and Portfolio Manager of the Subadviser, has been the person
primarily responsible for the day-to-day management of the Atlas Strategic
Growth Fund since the Fund's inception of operations on October 1, 1993.
During the past five years, Mr. Doll has served as officer and portfolio
manager of various funds managed by the Subadviser.
William L. Wilby has been the person primarily responsible for the day-to-
day management of the Atlas Global Growth Fund since that Fund's inception of
operations on April 15, 1996. During the past five years, Mr. Wilby, a Senior
Vice President and Portfolio Manager of the Subadviser, has served as an
officer and portfolio manager for other funds managed by the Subadviser, prior
to which he was an international investment strategist at Brown Brothers,
Harriman & Co. and a Managing Director and Portfolio Manager at AIG Global
Investors.
Jay W. Tracey, III, Vice President and Portfolio Manager of the Subadviser,
has been the person primarily responsible for the day-to-day management of the
Atlas Emerging Growth Fund since that Fund's inception of operations on April
30, 1997. During the past five years, Mr. Tracey has served as an officer and
portfolio manager for other funds managed by the Subadviser. Mr. Tracey also
served as a managing director of Buckingham Capital Management. Prior to
joining the Subadviser, Mr. Tracey was a Senior Vice President of Founders
Asset Management Inc., prior to which he was a securities analyst and
portfolio manager for Berger Associates, Inc.
The Subadviser may be removed by Advisers at any time, in which event,
Advisers would directly manage the Fund or another Subadviser would be engaged
for that purpose.
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APPENDIX II:
DESCRIPTION OF RATINGS
In general, the ratings of Moody's Investors Services, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"), and the other nationally recognized
statistical rating organizations, represent the opinions of these agencies as
to the quality of securities which they rate. It should be emphasized,
however, that such ratings are relative and subjective and are not absolute
standards of quality. Consequently, debt securities with the same maturity,
coupon and rating may have different yields, while debt securities of the same
maturity and coupon with different ratings may have the same yield. These
ratings will be used by the Funds as initial criteria for the selection of
portfolio securities, but the Funds will also rely upon the independent advice
of the Adviser and their respective Subadvisers (if any) to evaluate potential
investments. The Appendix to this Statement of Additional Information contains
further information concerning the ratings of Moody's and S&P and their
significance. Subsequent to its purchase by a Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither event will require sale of such securities by
the Fund, but the Adviser will consider such event in its determination of
whether the Fund should continue to hold the securities. To the extent that
the rating given by Moody's or S&P for securities may change as a result of
changes in such organizations or their rating systems, the Funds will attempt
to use comparable ratings as standards for its investments in accordance with
the investment policies contained in this Prospectus and in the Statement of
Additional Information.
MOODY'S INVESTORS SERVICE, INC. describes its ratings for debt securities as
follows:
BONDS--
AAA. Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge'. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are not likely to
impair the fundamentally strong position of such issues.
AA. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater magnitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A. Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
BAA. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be overly moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
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<PAGE>
CAA. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
CA. Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
NOTES AND VARIABLE RATE OBLIGATIONS--
MIG 1/VMIG 1. The MIG 1 (or VMIG 1 for an issue with a variable rate demand
feature) designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad-
based access to the market for refinancings.
MIG 2/VMIG 2. The MIG 2 (or VMIG 1 for an issue with a variable rate demand
feature) designation denotes high quality. Margins of protection are ample
although not as large as in the preceding group.
COMMERCIAL PAPER--
PRIME-1. Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following
characteristics:
--Leading market positions in well established industries.
--High rates of return on funds employed.
--Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
--Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
--Well established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2. Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while appropriate, may
be more affected by external conditions. Ample alternate liquidity is
maintained.
STANDARD & POOR'S CORPORATION describes its ratings for debt securities as
follows:
BONDS--
AAA. Bonds which are rated AAA have the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is extremely strong.
AA. Bonds which are rated AA have a very strong capacity to pay interest and
repay principal and differ from the higher rated issues only in small degree.
A. Bonds which are rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB. Bonds which are rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
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<PAGE>
BB, B, CCC AND CC. Bonds which are rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C AND D. The rating C is reserved for income bonds on which no interest is
being paid. Bonds rated D are in default and payment of interest and/or
repayment of principal is in arrears.
NOTES--
SP-1. The SP-1 rating denotes a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2. The SP-2 rating denotes a satisfactory capacity to pay principal and
interest.
COMMERCIAL PAPER--
A-1. The A-1 designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined
to possess overwhelming safety characteristics are denoted with a plus (+)
designation.
A-2. The A-2 designation indicates a capacity for timely payment on issues
so designated is strong; however, the relative degree of safety is not as high
as for issues designated A-1.
-21-
<PAGE>
PART B
ATLAS INSURANCE TRUST
-------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
-------------------------------------
<PAGE>
ATLAS INSURANCE TRUST
794 DAVIS STREET
SAN LEANDRO, CALIFORNIA 94577
1-800-933-ATLAS (1-800-933-2852)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("Statement"), which may be amended
from time to time, concerning Atlas Insurance Trust (the "Trust") is not a
Prospectus for the Trust. This Statement supplements the Prospectus dated
, 1997 and investors should read it in conjunction with that Prospectus.
A copy of the Prospectus, which may be amended from time to time, is available
without charge by writing or calling the Trust at the address or telephone
number printed above.
The date of this Statement of Additional Information is , 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Certain Securities and Investment Policies.................. B-3
Fundamental Investment Restrictions........................................ B-26
Portfolio Turnover......................................................... B-28
Management of the Trust.................................................... B-30
Investment Management and Other Services................................... B-32
Execution of Portfolio Transactions........................................ B-33
Determination of Net Asset Value........................................... B-33
Taxes...................................................................... B-37
Additional Information..................................................... B-38
Investment Results......................................................... B-38
Financial Statements....................................................... B-41
Appendix--Industry Classifications......................................... B-42
</TABLE>
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<PAGE>
DESCRIPTION OF CERTAIN SECURITIES AND INVESTMENT POLICIES
The investment objectives and policies of the Atlas Balanced Growth
Portfolio and the underlying Atlas Funds are described in the Prospectus.
Supplemental information about those policies is set forth below. As set forth
in the Prospectus, the Portfolio invests in the underlying Atlas Funds. As a
result, shareholders of the Portfolio will be affected by the policies of such
funds in direct proportion to the amount of assets the Portfolio allocates to
the Funds pursuing such policies. Certain capitalized terms used in this
Statement are defined in the Prospectus.
Investment Risks.
The various risks associated with an investment in the Portfolio are
described in the Prospectus. Like other mutual funds that invest primarily in
equity securities, an investment in the Portfolio involves stock market risk
and to a lesser extent and interest rate risk. Specific risks encountered by
the underlying Atlas Funds are described in the following paragraphs.
With the exception of U.S. Government Securities, the debt securities the
Atlas Strategic Income Fund invests in will have one or more types of
investment risk: credit risk, interest rate risk or foreign exchange risk.
Credit risk relates to the ability of the issuer to meet interest or principal
payments or both as they become due. Generally, higher yielding bonds are
subject to credit risk to a greater extent than higher quality bonds. Interest
rate risk refers to the fluctuations in value of debt securities resulting
solely from the inverse relationship between price and yield of outstanding
debt securities. An increase in prevailing interest rates will generally
reduce the market value of debt securities, and a decline in interest rates
will tend to increase their value. In addition, debt securities with longer
maturities, which tend to produce higher yields, are subject to potentially
greater capital appreciation and depreciation than obligations with shorter
maturities. Fluctuations in the market value of debt securities subsequent to
their acquisition will not affect the interest payable on those securities,
and thus the cash income from such securities, but will be reflected in the
valuations of these securities used to compute the Fund's net asset values.
Foreign exchange rate risk refers to the change in value of the currency in
which a foreign security the Fund holds is denominated against the U.S.
dollar.
Special Risks--High Yield Securities. As stated in the Prospectus, the
corporate debt securities, in which the Atlas Strategic Income Fund will
principally invest may be in the lower rating categories. The Fund may invest
in securities rated as low as "C" by Moody's or "D" by Standard & Poor's. The
Fund's Subadviser will not rely solely on the ratings assigned by rating
services and may invest, without limitation in unrated securities which offer,
in the opinion of the Subadviser, comparable yields and risks as those rated
securities in which the Fund may invest.
Risks of high yield securities may include: (i) limited liquidity and
secondary market support, (ii) substantial market price volatility resulting
from changes in prevailing interest rates, (iii) subordination to the prior
claims of banks and other senior lenders, (iv) the operation of mandatory
sinking fund or call/redemption provisions during periods of declining
interest rates that could cause the Fund to be able to reinvest premature
redemption proceeds only in lower yielding portfolio securities, (v) the
possibility that earnings of the issuer may be insufficient to meet its debt
service, and (vi) the issuer's low creditworthiness and potential for
insolvency during periods of rising interest rates and economic downturn. As a
result of the limited liquidity of high yield securities, their prices have at
times experienced significant and rapid decline when a substantial number of
holders decided to sell. A decline is also likely in the high yield bond
market during an economic downturn. An economic downturn or an increase in
interest rates could severely disrupt the market for high yield bonds and
adversely affect the value of outstanding bonds and the ability of the issuers
to repay principal and interest.
Repurchase Agreements.
Each underlying Atlas Fund, except the U.S. Treasury Money Fund, may engage
in repurchase agreement transactions on portfolio securities with member banks
of the Federal Reserve System or
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<PAGE>
with certain dealers listed on the Federal Reserve Bank of New York's list of
reporting dealers. Under the terms of a typical repurchase agreement, a Fund
would acquire an underlying debt obligation for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed upon price and
time, thereby determining the yield during the Funds' holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the underlying
securities will be monitored by the Adviser or by a Fund's Subadviser to
ensure that it at least equals at all times the total amount of the repurchase
obligation, including interest.
A Fund bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Fund is delayed or
prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying
securities during the period while the Fund seeks to assert these rights. The
Adviser, or the Subadviser if applicable, acting under the supervision of the
Board of Directors of the Atlas Funds, reviews, on an ongoing basis, the
creditworthiness and the values of the collateral of those banks and dealers
with which a Fund enters into repurchase agreements to evaluate potential
risks.
A repurchase agreement is considered to be a loan collateralized by the
underlying securities under the 1940 Act.
Mortgage-Backed Securities.
As noted in the Prospectus, the Government Fund and the Strategic Income
Fund may invest in mortgage-backed securities, including privately issued
mortgage related bonds and mortgage-backed securities.
Privately issued mortgage related bonds and mortgage-backed securities are
issued by financial institutions such as commercial banks, thrift
institutions, mortgage bankers and securities broker-dealers. Mortgage related
bonds are general obligation, fixed-income securities collateralized by
mortgages. These securities include collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs") as authorized
under the Internal Revenue Code. CMOs are a type of bond secured by an
underlying pool of mortgages or mortgage pass-through certificates that are
structured to direct payments on underlying collateral to different series or
classes of the obligations. CMOs may be issued by a U.S. Government agency
such as FHLMC and collateralized by U.S. Government or government agency
mortgage securities, or by private issuers and collateralized by U.S.
Government and/or government agency mortgage securities or by privately issued
mortgage securities.
The U.S. Government and the Strategic Income Funds may invest in other
mortgage related debt obligations secured by mortgages on commercial or
residential properties and may purchase securities known as "strips." Strips
are securities from which the unmatured interest coupons have been "stripped"
from the principal portion and sold separately. The Funds may invest in the
principal portion or in the interest coupons of U.S. Government and mortgage
securities or in receipts or certificates representing interests in stripped
securities or interest coupons. The principal portion of a stripped security
pays no interest to its holder during its life, and its value consists of the
difference between its face value at maturity and its acquisition price.
Mortgage-backed securities strips are subject to increased volatility in price
due to interest rate changes, the risk that the security will be less liquid
during demand or supply imbalances, and the risk that, due to unscheduled
prepayments, the maturity date will be shorter than anticipated and
reinvestment of the proceeds may only be possible at a lower yield.
When-Issued and Delayed Delivery Transactions.
In order to secure yields or prices deemed advantageous at the time, all
underlying Atlas Funds may purchase or sell securities on a "when-issued" or
"delayed delivery" basis. The Funds will not enter into such a transaction for
the purpose of leverage. In such transactions delivery of the securities
occurs beyond the normal settlement periods (generally within two months but
not more than 120 days), but no payment or delivery is made by, and no
interest accrues to, the Fund prior to
-B-4-
<PAGE>
the actual delivery or payment by the other party to the transaction. To the
extent that assets of a Fund are not invested prior to the settlement of a
purchase of securities, the Fund will earn no income; however, it is intended
that each Fund will be fully invested to the extent practicable. While when-
issued or delayed delivery securities may be sold prior to the settlement
date, a Fund will purchase such securities for the purpose of actually
acquiring them unless a sale appears desirable for investment reasons.
At the time an underlying Atlas Fund makes the commitment to purchase a
security on a when-issued or delayed delivery basis, it will record the
transaction and reflect the value of the security in determining its net asset
value. The Funds do not believe that the net asset value or income of their
portfolios will be adversely affected by their purchase of securities on a
when-issued or delayed delivery basis.
Due to fluctuations in the value of securities purchased on a when-issued or
delayed delivery basis, the yields obtained on such securities may be higher
or lower than the yields available in the market on the dates when the
investments are actually delivered to the buyers. Similarly, the sale of
securities on a firm commitment basis can involve the risk that the prices
available in the market when delivery is made may actually be higher than
those obtained in the transaction itself.
When an underlying Atlas Fund engages in when-issued or delayed
transactions, it relies on the buyer or seller, as the case may be, to
consummate the transaction. Failure of the buyer or seller to do so may result
in the Fund losing the opportunity to obtain a price and yield considered to
be advantageous. A Fund will establish a segregated account consisting of
cash, U.S. Government Securities or other high-grade debt obligations in an
amount equal to the amount of its when-issued or firm commitment obligation.
Such segregated securities either will mature or, if necessary, be sold on or
before the settlement date.
When-issued transactions and forward commitments allow a Fund a technique to
use against anticipated changes in interest rates and prices. For instance, in
periods of rising interest rates and falling prices, a Fund might sell
securities in its portfolio on a forward commitment basis to attempt to limit
its exposure to anticipated falling prices. In periods of falling interest
rates and rising prices, a Fund might sell portfolio securities and purchase
the same or similar securities on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields.
Dollar Reverse Repurchase and Reverse Dollar Reverse Repurchase Agreements.
The Atlas U.S. Government and Mortgage Securities Fund and the Atlas
Strategic Income Fund may engage in dollar reverse repurchase and reverse
dollar reverse repurchase agreements with respect to mortgage-backed
securities. These agreements involve the purchase or sale by the Fund of
securities that are substantially similar to those sold or purchased by the
Fund upon the initiation of the transaction, as the case may be. For this
purpose, "substantially similar" means that the securities are issued by the
same U.S. Government agency or instrumentality, have the same original term to
maturity, and have the same original rate of interest, but may be backed by
different pools of mortgage obligations. Dollar reverse repurchase agreements
are subject to the same risks and restrictions as described in the Prospectus
with respect to reverse repurchase agreements. Reverse dollar reverse
repurchase agreements are subject to the same risks and restrictions as
described in "Repurchase Agreements" above with respect to repurchase
agreements.
Options on Securities, Indices and Currencies (all Underlying Atlas Funds,
except the Atlas U.S. Treasury Money Fund, are eligible to use the following
options).
1. PURCHASING PUT AND CALL OPTIONS ON SECURITIES.
By purchasing a put option, a Fund obtains the right (but not the
obligation) to sell the option's underlying security to the writer of the
option at a fixed strike price. The option may give the Fund the right to sell
only on the option's expiration date, or may be exercisable at any time up to
and including that date. In return for this right, the Fund pays the writer
the current market price for the option (known as an option premium).
-B-5-
<PAGE>
A Fund may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. If the option is allowed to
expire, the Fund will lose the entire premium it paid. If the Fund exercises
the option, it completes the sale of the underlying security at the strike
price. The Fund may also terminate a put option position by effecting a
"closing transaction" (i.e. selling an option of the same series as the option
previously purchased) in the secondary market at its current price, if a
liquid secondary market exists.
Put options may be used by a Fund to hedge against losses on sales of
securities. If securities prices fall, the value of the put option would be
expected to rise and offset all or a portion of the Fund's resulting losses in
its securities holdings. However, option premiums tend to decrease over time
as the expiration date nears. Therefore, because of the cost of the option
premium and transaction costs, the Fund would expect to suffer a loss in the
put option if prices do not decline sufficiently to offset the deterioration
in the value of the option premium. At the same time, because the maximum the
Fund has at risk is option premium, purchasing put options offers potential
profit from an increase in the value of the securities hedged.
A Fund may also purchase options whether or not it holds such securities in
its portfolio. Buying a put option on an investment it does not own permits a
Fund either to resell the put or buy the underlying investment and sell it at
the exercise price. The resale price of the put will vary inversely with the
price of the underlying investment. If the market price of the underlying
investment is above the exercise price and as a result the put is not
exercised, the put will become worthless on its expiration date. In the event
of a decline in the securities market, the Fund could exercise or sell the put
at a profit to attempt to offset some or all of its loss on its portfolio
securities.
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying security at the option's strike
price. By purchasing a call option, a Fund would attempt to participate in
potential price increases of the underlying security, but with risk limited to
the cost of the option if securities prices fell. At the same time, the Fund
can expect to suffer a loss if security prices do not rise sufficiently to
offset the cost of the option. The value of debt securities underlying calls
purchased by the Atlas Strategic Income Fund will not exceed the value of the
portion of the Fund's portfolio invested in cash or cash equivalents (i.e.,
securities with maturities of less than one year).
2. WRITING PUT AND CALL OPTIONS ON SECURITIES.
When a Fund writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Fund assumes the obligation to pay the strike price for the option's
underlying security if the other party to the option chooses to exercise it.
As long as the obligation of the Fund as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through whom such option was
sold, requiring the Fund to take delivery of the underlying security against
payment of the exercise price. The Fund has no control over when it may be
required to purchase the underlying security, since it may be assigned an
exercise notice at any time prior to the termination of its obligation as the
writer of the put. Prior to exercise, the Fund may seek to terminate its
position in a put option by effecting a closing purchase transaction with
respect to the option in the secondary market (i.e. buying an option of the
same series as the option previously written) at its current price. If the
secondary market is not liquid for an option the Fund has written, however,
the Fund must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes, and must continue to set aside
assets to cover its obligation.
A Fund may write a put option as an alternative to purchasing a security. If
the security's price rises, the Fund would expect the put to lapse unexercised
and to profit from a written put option, although its gain would be limited to
the amount of the premium it received. If the security's price remains the
same over time, it is likely that the Fund will also profit, because it should
be able to close out the option at a lower price. If the security's price
falls, the Fund would expect to suffer a loss. If the put is exercised, the
Fund must fulfill its obligation to purchase the underlying investment at the
exercise price, which will usually exceed the market value of the investment
at
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<PAGE>
that time. This loss should be less than the loss the Fund would have
experienced from purchasing the underlying security directly (assuming the
secondary market for the put option and the underlying security are equally
liquid) because the premium received for writing the option should mitigate
the effect of the price decline.
Writing a call option obligates a Fund to sell or deliver the option's
underlying security, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing covered call options generally is a
profitable strategy if prices remain the same or fall. Through receipt of the
option premium, the Fund would seek to mitigate the effects of a price
decline. At the same time, the Fund would give up some ability to participate
in security price increases when writing call options.
3. SECURITIES INDEX OPTION TRANSACTIONS.
A Fund may buy or sell a securities index option at a fixed price. No
securities actually change hands in these transactions. Instead, changes in
the underlying index's value are settled in cash. The cash settlement amounts
are based on the difference between the index's current value and the value
contemplated by the contract. Most securities index options are based on
broad-based indices reflecting the prices of a broad variety of securities,
such as the Standard & Poor's 500 Composite Stock Price Index. Some index
options are based on narrower industry averages or market segments.
The Trust expects that an underlying Atlas Fund's options transaction will
normally involve broad-based indices, though it is not limited to these
indices. Since the value of index options depends primarily on the value of
their underlying indexes, the performance of broad-based indices will
generally reflect broad changes in securities prices. A Fund, however, can
invest in many different types of securities, including securities that are
not included in the underlying indices of the options available to the Fund.
In addition, a Fund's investments may be more or less heavily weighted in
securities of particular types of issuers, or securities of issuers in
particular industries, than the indexes underlying its index options
positions. Therefore, while a Fund's index options should provide exposure to
changes in value of its portfolio securities (or protection against declines
in their value in the case of hedging transactions), it is likely that the
price changes of the Fund's index options positions will not match the price
changes of the Fund's other investments.
4. COMBINED OPTION POSITIONS.
A Fund may purchase and write options in combination to adjust the risk and
return characteristics of the overall position. For example, a Fund may
purchase a put option and write a call option on the same underlying security,
in order to construct a combined position with risk and return characteristics
similar to those of selling a futures contract. Another possible combined
position would involve writing a call option at one strike price and buying a
call option at a lower price, in order to reduce the risk of the written call
option in the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction costs and
may be more difficult to open and close than single options transactions.
Combined option positions will be subject to the same overall percentage
limitation as other option strategies.
5. RISKS OF TRANSACTIONS IN OPTIONS.
An option position may be closed out only on an exchange or market which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market will exist at any particular time for
options purchased or written by a Fund. For some options no secondary market
on an exchange may exist at all. In such event, it might not be possible to
effect closing transactions in particular options, with the result that a Fund
would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities acquired through the exercise
of call options or upon the purchase of underlying securities for the exercise
of put options. If a Fund as a covered call option writer is unable to effect
a closing purchase transaction in a secondary market, it will not be able to
sell the underlying security until the option expires or the Fund delivered
the underlying security upon exercise.
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<PAGE>
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volumes; or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in the
class or series of options) would cease to exist, although outstanding options
on that exchange that had been issued by a clearing corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain of the
facilities of any of the clearing corporations inadequate, and thereby result
in the institution by an exchange of special procedures which may interfere
with the timely execution of customers' orders.
In addition, options on indices are subject to certain risks that are not
present with other options. Because the value of an index option depends upon
movements in the level of the index rather than the price of a particular
instrument, whether a Fund will realize a gain or loss on the purchase or sale
of an option on an index depends upon movements in the level of prices in the
market generally or in an industry or market segment rather than movements in
the price of a particular instrument. In addition, index prices may be
distorted or interrupted if trading of certain instruments included in the
index is interrupted. If this occurred, a Fund would not be able to close out
options which had been purchased or written by it and, if restrictions on
exercise were imposed, may be unable to exercise an option being held, which
could result in substantial losses to a Fund. However, it is the Funds' policy
to purchase or write options only on indices which include a sufficient number
of securities so that the likelihood of a trading halt in the index is
minimized.
The Funds may buy and sell over-the-counter puts and calls on securities and
as well as listed options. Unlike listed option positions, positions in over-
the-counter options may be closed out only with the other party to the options
transaction. Such options transactions are subject to the additional risks
that a Fund may be unable to close out a transaction with the other party when
it wishes to do so, and that the other party to the transaction may default
without the protection against default afforded by exchange clearing
corporations with respect to listed options. The eligible Funds will enter
into unlisted option transactions only with securities dealers which the
Adviser or the Subadviser believes to be of high credit standing and to
maintain a liquid market for such options. Under certain conditions, the
premiums a Fund pays for unlisted options and the value of securities used to
cover such options written by the Fund are considered to be invested in
illiquid assets for purposes of the investment restriction applicable to
illiquid investments.
Futures Contracts and Options on Futures Contracts.
All underlying Atlas Funds, except the U.S. Treasury Money Fund, are
eligible to use the following transactions:
1. INTEREST RATE FUTURES TRANSACTIONS.
The underlying Atlas Funds may purchase or sell interest rate futures
contracts in hedging transactions. When a Fund purchases a futures contract,
it agrees to purchase the underlying instrument at a specified future date and
price. When a Fund sells a futures contract, it agrees to sell the underlying
instrument at a specified future date and price.
No consideration is paid or received by a Fund upon the purchase or sale of
a futures contract. Initially, a Fund will be required to deposit with the
broker an amount of cash or cash equivalents equal to approximately 5% of the
contract amount (this amount is subject to change by the board of trade on
which the contract is traded and members of such board of trade may charge a
higher amount). This amount is known as "initial margin" and is returned to a
Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied by the Fund.
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Subsequent payments, known as "variation margin," to and from the Fund or
the broker, as the case may be, must be made daily as the price of securities
underlying the futures contract fluctuates, making the long and short
positions in the futures contract more or less valuable. These daily payments
to account for valuation changes are a process known as "marking-to-market."
If a Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do
so. The party that has a gain may be entitled to receive all or a part of this
amount. At any time prior to the expiration of a futures contract, a Fund may
elect to close the position by taking an opposite position, which will operate
to terminate the Fund's existing position in the contract.
Initial and variation margin payments are similar to good faith deposits or
performance bonds, unlike margin extended by a securities broker, and do not
constitute purchasing securities on margin for purposes of the Fund's
investment limitation. In the event of the bankruptcy of a futures commission
merchant ("FCM") that holds margin on behalf of the Fund, the Fund may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers. The Adviser, or Subadviser if
applicable, will attempt to minimize this risk by careful monitoring of the
creditworthiness of the FCMs with which the Fund does business.
The purpose of the acquisition or sale of a futures contract by an
underlying Fund is to protect that Fund from fluctuations in rates on
securities without actually buying or selling the securities. The value of
portfolio securities will exceed the value of the futures contracts sold by
the Fund, and an increase in the value of the futures contracts could only
mitigate--but not totally offset--the decline in the value of the portfolio.
Interest rate futures contracts are currently traded on the Chicago Board of
Trade and the International Monetary Market of the Chicago Mercantile Exchange
(CME) and the New York Futures Exchange. Among the securities on which
interest rate futures contracts are currently based are long-term U.S.
Treasury bonds, U.S. Treasury notes, GNMA pass-through securities, three-month
U.S. Treasury bills, municipal bond futures and ninety-day commercial paper.
2. SECURITIES INDEX FUTURES CONTRACTS.
When a Fund purchases a securities index futures contract, it agrees to
purchase the underlying index at a specified future date and price. When a
Fund sells a securities index futures contract, it agrees to sell the
underlying index at a specified future date and price.
The majority of index futures are closed out by entering into an offsetting
purchase or sale transaction in the same contract on the exchange where they
are traded, rather than being held for the life of the contract. Futures
contracts are closed out at their current prices, which may result in a gain
or loss. If a Fund holds an index futures contract until the delivery date, it
will pay or receive a cash settlement amount based on the difference between
the index's closing price and the settlement price agreed upon when the
contract was initiated.
A Fund may purchase securities index futures contracts in an attempt to
remain fully invested in the securities market. For example, if a Fund had
cash and short-term securities on hand that it wished to invest in common
stocks, but at the same time it wished to maintain a highly liquid position in
order to be prepared to meet redemption requests or other obligations, it
could purchase a stock index futures contract in order to participate in
changes in stock prices. A Fund may also purchase futures contracts as an
alternative to purchasing actual securities. For example, if a Fund intended
to purchase stocks but had not yet done so, it could purchase a stock index
futures contract in order to lock in current stock prices while deciding on
particular investments. This strategy is sometimes known as an anticipatory
hedge. In these strategies the Fund would use futures contracts to attempt to
achieve an overall return similar to the return from the stocks included in
the underlying index, while taking advantage of potentially greater liquidity
that futures contracts may offer. Although the Fund would hold cash and liquid
debt securities in a segregated account with a value sufficient to cover its
open futures obligations, the segregated assets would be available to the Fund
immediately upon closing out the futures position, while settlement of
securities transactions can take several days.
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When a Fund wishes to sell securities, it may sell securities index futures
contracts to hedge against securities market declines until the sale can be
completed. For example, if a Fund anticipated a decline in common stock prices
at a time when it anticipated selling common stocks, it could sell a futures
index contract in order to lock in current market prices. If stock prices
subsequently fell, the futures contract's value would be expected to rise and
offset all or a portion of the anticipated loss in the common stocks the Fund
had hedged in anticipation of selling them. The success of this type of
strategy depends to a great extent on the degree of correlation between the
index futures contract and the securities hedged. Of course, if prices
subsequently rose, the futures contract's value could be expected to fall and
offset all or a portion of the benefit to the Fund.
3. OPTIONS ON FUTURES CONTRACTS.
An option on a futures contract is an agreement to buy or sell the futures
contract. Exercise of the option results in ownership of a position in the
futures contract. Options on futures contracts may be purchased and sold by a
Fund in the same manner as options on securities. Options on futures contracts
may also be written by a Fund in the same manner as securities options, except
that the writer must make margin payments to a futures commission merchant
("FCM") as described above with respect to futures contracts. The holder or
writer of an option may terminate his position by selling or purchasing an
option of the same series. There is no guarantee that such closing
transactions can be effected.
4. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS ON FUTURES.
There are risks in connection with the use of futures contracts as a hedging
device. Successful use of futures contracts by a Fund is subject to the
ability of the Adviser, or Subadviser if applicable, to forecast movements in
the direction of interest rates. These forecasts may involve skills and
techniques that may be different from those involved in the management of the
Funds. In addition, even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected trends in interest rates.
As noted above, price changes of the Fund's futures and options on futures
positions may not be well correlated with price changes of its other
investments because of differences between the underlying indices and the
types of securities the Fund invests in. For example, if the Fund sold a
broad-based index futures contract to hedge against a stock market decline
while the Fund completed a sale of specific securities in its portfolio, it is
possible that the price of the securities could move differently from the
broad market average represented by the index futures contract, resulting in
an imperfect hedge and potentially in losses to the Fund.
Index futures prices can also diverge from the prices of their underlying
indexes, even if the underlying instruments match the Fund's investments well.
Futures prices are affected by such factors as current and anticipated short-
term interest rates, changes in volatility of the underlying index, and the
time remaining until expiration of the contract, which may not affect security
prices the same way. Imperfect correlation between the Fund's investments and
its futures positions may also result from differing levels of demand in the
futures markets and the securities markets, from structural differences in how
futures and securities are traded, or from imposition of daily price
fluctuation limits for futures contracts. The Fund may purchase or sell
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in historical volatility between the futures contract and the
securities, although this may not be successful in all cases. If price changes
in the Fund's futures positions are poorly correlated with its other
investments, its futures positions may fail to produce anticipated gains or
result in losses that are not offset by the gains in the Fund's other
investments.
Because futures contracts are generally settled within a day from the date
they are closed out, compared with a settlement period of up to seven days for
some types of securities, the futures markets can provide liquidity superior
to that of the securities markets in many cases. Nevertheless, there is no
assurance a liquid secondary market will exist for any particular futures
contract at any particular time. In addition, futures exchanges may establish
daily price fluctuation limits for futures
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contracts, and may halt trading if a contract's price moves upward or downward
more than the limit in a given day. On volatile trading days when the price
fluctuation limit is reached, it may be impossible for the Fund to enter into
new positions or close out existing positions. Trading in index futures can
also be halted if trading in the underlying index stocks is halted. If the
secondary market for a futures contract is not liquid because of price
fluctuation limits or otherwise, it could prevent prompt liquidation of
unfavorable futures positions, and potentially could require the Fund to
continue to hold a futures position until the delivery date, regardless of
potential losses. If the Fund must continue to hold a futures position, its
access to other assets held to cover the position could also be impaired.
Options on futures are subject to risks similar to those described above
with respect to futures contracts, including the risk of imperfect correlation
between the option and a Fund's other investments and the risk that there
might not be a liquid secondary market for the option. In the case of options
on futures contracts, there is also a risk of imperfect correlation between
the option and the underlying futures contract. Options on futures are also
subject to the risks of an illiquid secondary market, particularly in
strategies involving writing options which the Fund cannot terminate by
exercise. In general, options with strike prices close to their underlying
securities' current value will have the highest trading volume, while options
with strike prices further away may be less liquid. The liquidity of options
on futures may also be affected if exchanges impose trading halts,
particularly when markets are volatile.
5. LIMITATIONS ON TRANSACTIONS IN FUTURES AND OPTIONS ON FUTURES.
Pursuant to Section 4.5 of the regulations under the Commodity Exchange Act,
the eligible underlying Atlas Funds are subject to the following limitations
in order that they not be deemed a "commodity pool operator":
(a) The Funds will use futures contracts and related options solely for
bona fide hedging purposes within the meaning of Commodity Futures Trading
Commission regulations; provided that a Fund may hold long positions in
futures contracts and related options that do not fall within the
definition of bona fide hedging transactions in an amount not in excess of
the limitation in paragraph (b); and
(b) The Funds will not enter into any futures contract or option on a
futures contract if, as a result, the sum of initial margin deposits on
futures contracts and related options and premiums paid for options on
futures contracts a Fund has purchased, after taking into account
unrealized profits and losses on such contracts, would exceed 5% of the
Fund's total assets.
In addition, the Funds do not intend to enter into futures contracts or
options on a futures contract that are not traded on exchanges or boards of
trade.
These limitations on the underlying Atlas Funds' investments in futures
contracts and options, and the underlying Funds' policies regarding futures
contracts and options discussed elsewhere in this Statement of Additional
Information, are not fundamental policies and may be changed as permitted by
the appropriate regulatory agencies.
Various exchanges and regulatory authorities have undertaken reviews of
options and futures trading in light of market volatility. Among the possible
actions that have been presented are proposals to adopt new or more stringent
daily price fluctuation limits for futures or options transactions, and
proposals to increase the margin requirements for various types of strategies.
It is impossible to predict what actions, if any, will result from these
reviews at this time.
Asset Coverage for Futures and Options Positions.
An underlying Atlas Fund eligible to participate in futures and options will
not use leverage in its options and futures strategies. In the case of
strategies entered into as a hedge, the Fund will hold securities or other
options or futures positions whose values are expected to offset its
obligations under the hedge strategies. A Fund will not enter into an option
or futures position that
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<PAGE>
exposes the Fund to an obligation to another party unless it owns either (i)
an offsetting position in securities or other options or futures contracts or
(ii) cash, receivables and other liquid securities with a value sufficient to
cover its potential obligations.
An underlying Atlas Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to coverage of options and
futures strategies by mutual funds and, if the guidelines so require, will set
aside cash and liquid securities in a segregated account with its custodian
bank in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures or option strategy is open, unless they are replaced
with similar securities. As a result, there is a possibility that segregation
of a large percentage of the Fund's assets could impede portfolio management
or the Fund's ability to meet redemption requests or other current
obligations.
Other Derivative Investments.
As noted in the Prospectus, a "derivative investment" is an investment whose
performance is limited to the performance of another investment or security. In
addition to options and futures contracts described above, the Strategic Income
and Emerging Growth Funds can invest in different kinds of "derivative
investments." One type of derivative the Atlas Strategic Income and Emerging
Growth Funds may invest in is an "index-linked" note. On the maturity of this
type of debt security, payment is made based on the performance of an underlying
index, rather than based on a set principal amount for a typical note. Another
derivative investment the Funds may invest in is a currency-indexed security.
These are typically short-term or intermediate-term debt securities. Their value
at maturity or the interest rates at which they pay income are determined by the
change in value of the U.S. dollar against one or more foreign currencies or an
index. In some cases, these securities may pay an amount at maturity based on a
multiple of the amount of the relative currency movements. This variety of index
security offers the potential for greater income but at a greater risk of loss.
Other derivative investments the Atlas Strategic Income and Emerging Growth
Funds may invest in include "debt exchangeable for common stock" of an issuer
or "equity-linked debt securities" of an issuer. At maturity, such debt
security is exchanged for common stock of the issuer or is payable in an
amount based on the price of the issuer's common stock at the time of
maturity. In either case there is a risk that the amount payable at maturity
will be less than the principal amount of the debt (because the price of the
issuer's common stock is not as high as was expected).
Interest Rate Swaps.
The Atlas U.S. Government and Mortgage Securities Fund and the Atlas
Strategic Income Fund may engage in interest rate swaps. As indicated in the
Prospectus, an interest rate swap is a contract between two entities
("counterparties") to exchange interest payments (of the same currency)
between the parties. In the most common interest rate swap structure, one
counterparty agrees to make floating rate payments to the other counterparty,
which in turn makes fixed rate payments to the first counterparty. Interest
payments are determined by applying the respective interest rates to an agreed
upon amount, referred to as the "notional principal amount." In many such
transactions, the floating rate payments are tied to the London Interbank
Offered Rate ("LIBOR"), which is the offered rate for short-term eurodollar
deposits between major international banks. As there is no exchange of
principal amounts, an interest rate swap is not an investment or a borrowing.
Swap Options.
The Atlas U.S. Government and Mortgage Securities Fund and the Atlas
Strategic Income Fund may invest in swap options. A swap option is a contract
that gives a counterparty the right (but not the obligation) to enter into a
new swap agreement or to shorten, extend, cancel or otherwise change an
existing swap agreement, at some designated future time on specified terms. It
is different from a forward swap, which is a commitment to enter into a swap
that starts at some future date with specified rates. A swap option may be
structured European-style (exercisable on the pre-specified date) or American-
style (exercisable during a designated period). The buyer of the right to pay
fixed rate payments pursuant to a swap option is said to own a put. The buyer
of the right to receive fixed rate payments pursuant to a swap option is said
to own a call.
-B-12-(1)
<PAGE>
Caps and Floors.
The Atlas U.S. Government and Mortgage Securities Fund and the Atlas
Strategic Income Fund may also purchase or sell interest rate caps and floors.
An interest rate cap is a right to receive periodic cash payments over the
life of the cap equal to the difference between any higher actual level of
interest rates in the future and a specified strike (or "cap") level. The cap
buyer purchases protection for a floating rate move above the strike. An
interest rate floor is the right to receive periodic cash payments over the
life of the floor equal to the difference between any lower actual level of
interest rates in the future and a specified strike (or "floor") level. The
floor buyer purchases protection for a floating rate move below the strike.
The strikes are typically based on the three-month LIBOR (although other
indices are available) and are measured quarterly.
Risks Associated with Swaps.
The risks associated with interest rate swaps and interest rate caps and
floors are similar to those described previously with respect to over-the-
counter options. In connection with such transactions, the underlying Atlas
Fund involved relies on the other party to the transaction to perform its
obligations pursuant to the underlying agreement. If there were a default by
the other party to the transaction, the underlying Atlas Fund would have
contractual remedies pursuant to the agreement, but could incur delays in
obtaining the expected benefit of the transaction or loss of such benefit. In
the event of insolvency of the other party, the Fund might be unable to obtain
its expected benefit. In addition, while a Fund will seek to enter into such
transactions only with parties which are capable of entering into closing
transactions with the Fund, there can be no assurance that a Fund will be able
to close out such a transaction with the other party, or obtain an offsetting
position with any other party, at any time prior to the end of the term of the
underlying agreement. This may impair a Fund's ability to enter into other
transactions at a time when doing so might be advantageous.
Foreign Securities.
Each underlying Atlas Fund (other than the U.S. Treasury Money Fund and the
U.S. Government and Mortgage Securities Fund) may invest varying amounts of
its assets in foreign securities which offer potential benefits not available
from investing solely in securities of domestic issuers, such as the
opportunity to invest in the securities of foreign issuers that appear to
offer growth potential, or to invest in foreign countries with economic
policies or business cycles different from those of the U.S., or to reduce
fluctuations in portfolio value by investing in securities in foreign stock
markets that do not move in a manner parallel to U.S. markets. In buying
foreign securities, each Fund may convert U.S. dollars into foreign currency,
but only in connection with currency futures and forward contracts and to
effect securities transactions on foreign securities exchanges and not to hold
such currency as an investment.
Because an underlying Fund may purchase securities denominated in foreign
currencies, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Fund's assets and its
income available for distribution. In addition, although a portion of a Fund's
investment income may be received or realized in foreign currencies, the Fund
will be required to compute and distribute its income in U.S. dollars, and
absorb the cost of currency fluctuations. Subsequent foreign currency losses
may result in a Fund having previously distributed more income in a particular
period than was available from investment income, which could result in a
return of capital to shareholders. A Fund's portfolio of foreign securities
may include those of a number of foreign countries or, depending upon market
conditions, those of a single country.
Investing in foreign securities involves special additional risks and
considerations not typically associated with investing in domestic securities
of issuers traded in the U.S.: reduction of income by foreign taxes;
fluctuation in value of foreign portfolio investments due to changes in
currency rates and control regulations (e.g., currency blockage); transaction
charges for currency exchange; lack of public information about foreign
issuers; lack of uniform accounting, auditing and financial reporting
standards comparable to those applicable to U.S. issuers; less volume on
foreign exchanges than on U.S. exchanges; greater volatility and less
liquidity on foreign markets than in
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<PAGE>
the U.S.; less regulation of foreign issuers, stock exchange and brokers than
in the U.S.; greater difficulties in commencing lawsuits against foreign
issuers; higher brokerage commission rates and custodial costs than in the
U.S.; increased risks of delays in settlement of portfolio transactions or
loss of certificates of portfolio securities; possibilities in some countries
of expropriation or nationalization of assets, confiscatory taxation,
political, financial or social instability or adverse diplomatic developments;
and differences between the U.S. economy and foreign economies. In the past,
U.S. Government policies have discouraged certain investments abroad by U.S.
investors, through taxation or other restrictions, and it is possible that
such restrictions may be re-imposed.
The underlying Atlas Funds may invest in foreign securities that impose
restrictions on transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than foreign securities of the same class that
are not subject to such restrictions. Each Fund accordingly treats these
foreign securities as subject to the 10% overall limitation on investment in
illiquid securities.
Debt Securities of Foreign Governments and Companies.
As stated in the Prospectus, the Atlas Strategic Income Fund may invest in
debt obligations and other securities (which may be denominated in U.S.
dollars or non-U.S. currencies) issued or guaranteed by foreign corporations,
certain "supranational entities" (described below) and foreign governments or
their agencies or instrumentalities, and in debt obligations and other
securities issued by U.S. corporations denominated in non-U.S. currencies. The
types of foreign debt obligations and other securities in which the Fund may
invest are the same types of debt obligations identified under "Debt
Securities of U.S. Companies," below.
The percentage of the Strategic Income Fund's assets that will be allocated
to foreign securities will vary depending on the relative yields of foreign
and U.S. securities, the economies of foreign countries, the condition of such
countries' financial markets, the interest rate climate of such countries and
the relationship of such countries' currency to the U.S. dollar. These factors
are judged on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments
status, and economic policies) as well as technical and political data.
The Strategic Income Fund may invest in U.S. dollar-denominated foreign
securities referred to as "Brady Bonds." These are debt obligations of foreign
entities that may be fixed-rate par bonds or floating-rate discount bonds and
are generally collateralized in full as to principal due at maturity by U.S.
Treasury zero coupon obligations that have the same maturity as the Brady
Bonds. However, the Fund may also invest in uncollateralized Brady Bonds.
Brady Bonds are generally viewed as having three or four valuation components:
(i) any collateralized repayment of principal at final maturity; (ii) the
collateralized interest payments; (iii) the uncollateralized interest
payments; and (iv) any uncollateralized repayment of principal at maturity
(these uncollateralized amounts constitute what is referred to as the
"residual risk" of such bonds). In the event of a default with respect to
collateralized Brady Bonds as a result of which the payment obligations of the
issuer are accelerated, the zero coupon U.S. Treasury securities held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the
defaulted Brady Bonds, which will continue to be outstanding, at which time
the face amount of the collateral will equal the principal payments which
would have then been due on the Brady Bonds in the normal course. In addition,
in light of the residual risk of Brady Bonds and, among other factors, the
history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, investments in Brady Bonds
are to be viewed as speculative.
The obligations of foreign governmental entities may or may not be supported
by the full faith and credit of a foreign government. Obligations of
"supranational entities" include those of international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and of international banking institutions and
related government agencies. Examples include the International Bank for
Reconstruction and Development (the "World
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<PAGE>
Bank"), the European Coal and Steel Community, the Asian Development Bank and
the Inter-American Development Bank. The governmental members, or
"stockholders," usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional
capital contributions if the supranational entity is unable to repay its
borrowings. Each supranational entity's lending activities are limited to a
percentage of its total capital (including "callable capital" contributed by
members at the entity's call), reserves and net income. There is no assurance
that foreign governments will be able or willing to honor their commitments.
Foreign Currency Exchange Transactions.
Since investments in companies whose principal business activities are
located outside of the United States will frequently involve currencies of
foreign countries, and since a portion of the assets of each underlying Atlas
Fund (other than the U.S. Treasury Money Fund and the U.S. Government and
Mortgage Securities Fund) may temporarily be held in bank deposits in foreign
currencies during the completion of investment programs, the value of the
assets of a Fund as measured in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations. Although each Fund values its assets daily in terms of U.S.
dollars, it does not intend to convert its holdings of foreign currencies into
U.S. dollars on a daily basis. A Fund may conduct its foreign currency
exchange transactions on a spot (i.e. cash) basis at the spot rate prevailing
in the foreign currency exchange market or through entering into contracts to
purchase or sell foreign currencies at a future date (i.e., a "forward foreign
currency" contract or "forward" contract). It will convert currency on a spot
basis from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The underlying Funds do not intend to speculate in
foreign currency exchange rates or forward contracts.
A forward contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract, agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted
directly between currency traders, usually large commercial banks, and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
When an underlying Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, it may desire to "lock in" the
U.S. dollar price of the security. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign
currency involved in the underlying security transaction, the Fund will be
able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
When the Adviser, or a Fund's Subadviser, believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
U.S. dollars, the amount of foreign currency approximating the value of some
or all of a Fund's securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-term
hedging strategy is highly uncertain. A Fund will not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation
of the contracts would obligate such Fund to deliver an amount of foreign
currency in excess of the value of the Fund's securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated in the longer term
investment decisions made with regard to overall diversification strategies.
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However, the Company believes that it is important to have the flexibility to
enter into such forward contracts when it determines that the best interests
of a Fund will be served.
A Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount
of the foreign currency.
If a Fund retains the security and engages in an offsetting transaction, the
Fund will incur a gain or loss to the extent that there has been movement in
forward contract prices. If a Fund engages in an offsetting transaction, it
may subsequently enter into a new forward contract to sell the foreign
currency. Should forward prices decline during the period between a Fund
entering into a forward contract for the sale of the foreign currency and the
date it enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent the price of the currency
it has agreed to sell exceeds the price of the currency it has agreed to
purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
It is impossible to forecast with precision the market value of securities
at the expiration of the contract. Accordingly, it may be necessary for a Fund
to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision
is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the security if its market value exceeds
the amount of foreign currency the Fund is obligated to deliver.
Each underlying Atlas Fund may also enter into a forward contract to sell a
foreign currency denominated in a currency other than that in which the
underlying security is denominated. This is done in the expectation that there
is a greater correlation between the foreign currency of the forward contract
and the foreign currency of the underlying investment than between the U.S.
dollar and the foreign currency of the underlying investment. This technique
is referred to as "cross hedging." The success of cross hedging is dependent
on many factors, including the ability of the Subadviser to correctly identify
and monitor the correlation between foreign currencies and the U.S. dollar. To
the extent that the correlation is not identical, the Fund may experience
losses or gains on both the underlying security and the cross currency hedge.
Each underlying Atlas Fund's dealings in forward foreign currency contracts
will be limited to the transactions described herein. Of course, a Fund is not
required to enter into such transactions with regard to its foreign currency
denominated securities and will not do so unless deemed appropriate by the
Adviser or Subadviser. It also should be realized that this method of
protecting the value of the Fund's securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which one can achieve at
some future point in time. Additionally, although such contracts tend to
minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result should the
value of such currency increase.
The cost to a Fund of engaging in forward contracts varies with factors such
as the currencies involved, the length of the contract period and the market
conditions then prevailing. Because forward contracts are usually entered into
on a principal basis, no fees or commissions are involved. Because such
contracts are not traded on an exchange, the Fund must evaluate the credit and
performance risk of each particular counterparty under a forward contract.
Loans of Portfolio Securities.
Each underlying Atlas Fund may lend its portfolio securities, subject to the
restrictions stated in the Prospectus, to attempt to increase a Fund's income
to distribute to shareholders or for
-B-16-
<PAGE>
liquidity purposes. Under applicable regulatory requirements (which are
subject to change), the loan collateral must, on each business day, at least
equal the market value of the loaned securities and must consist of cash, bank
letters of credit or U.S. Government securities. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by
the Fund if the demand meets the terms of the letter. The Fund receives an
amount equal to the dividends or interest on loaned securities and also
receives one or more of (a) negotiated loan fees, (b) interest on securities
used as collateral or (c) interest on short-term debt securities purchased
with such loan collateral; either type of interest may be shared with the
borrower. The Fund may also pay reasonable finder's, custodian and
administrative fees and will not lend its portfolio securities to any officer,
director, employee or affiliate of the Atlas Funds, the Adviser or the
Subadviser. The terms of each Fund's loans must meet applicable tests under
the Internal Revenue Code and permit the Fund to reacquire loaned securities
on five business days' notice or in time to vote on any important matter.
Borrowing.
From time to time, the Atlas Global Growth Fund, Atlas Strategic Income
Fund, the Atlas Strategic Growth Fund and the Atlas Emerging Growth Fund may
each increase its ownership of securities by borrowing from banks on an
unsecured basis and investing the borrowed funds, subject to the restrictions
stated in the Prospectus. Any such borrowing will be made only from banks, and
pursuant to the requirements of the 1940 Act, will be made only to the extent
that the value of the Fund's assets, less its liabilities other than
borrowings, is equal to at least 300% of all borrowings including the proposed
borrowing. If the value of the Fund's assets so computed should fail to meet
the 300% asset coverage requirement, the Fund is required within three days to
reduce its bank debt to the extent necessary to meet such requirements and may
have to sell a portion of its investments at a time when independent
investment judgment would not dictate such sale. Interest on money borrowed is
an expense the Fund would not otherwise incur, so that it may have little or
no net investment income during periods of substantial borrowings. Borrowing
for investment increases both investment opportunity and risk. Since
substantially all of a Fund's assets fluctuate in value whereas borrowing
obligations are fixed, when the Fund has outstanding borrowings, its net asset
value per share will tend to increase and decrease more when its portfolio
assets fluctuate in value than would otherwise be the case.
Illiquid and Restricted Securities.
The expenses of registration of restricted securities that are illiquid
(excluding securities that may be resold by a Fund pursuant to Rule 144A as
explained in the Prospectus) may be negotiated by a Fund at the time such
securities are purchased by the Fund. When such registration is required
before such securities may be sold, a considerable period may elapse between a
decision to sell the securities and the time when the Fund would be permitted
to sell them. Thus, the Fund would bear the risks of any downward price
fluctuation during that period. A Stock Fund also may acquire securities
through private placements. Such securities may have contractual restrictions
on their resale, which might prevent their resale by the Fund at a time when
such sale would be desirable and might lower the amount realizable upon the
sale of such securities.
Zero Coupon Securities.
The underlying Atlas Funds (other than the U.S. Treasury Money Fund) may
invest in zero coupon securities issued by the U.S. Treasury or by
corporations. Zero coupon Treasury securities are: (i) U.S. Treasury notes and
bonds which have been stripped of their unmatured interest coupons and
receipts; or (ii) certificates representing interests in such stripped debt
obligations or coupons. Corporate and municipal zero coupon securities are:
(i) notes or debentures that do not pay current interest and are issued at
substantial discounts from par value, or (ii) notes or debenture that pay no
current interest until a stated date one or more years in the future, after
which the issuer is obligated to pay interest until maturity, usually at a
higher rate than if interest were payable from the date of issuance. Such zero
coupon securities, in addition to being subject to the risks identified below
are subject to the risk of the issuer's failure to pay interest and repay
principal in accordance with the terms of the obligation.
-B-17-
<PAGE>
Because a zero coupon security pays no interest to its holder during its
life or for a substantial period of time, it usually trades at a deep discount
from its face or par value and will be subject to a greater fluctuations in
market value in response to changing interest rates than debt obligations of
comparable maturities which make current distributions of interest. Because a
Fund accrues taxable income from these securities without receiving cash, such
Fund may be required to sell portfolio securities in order to pay a dividend
depending upon the proportion of shareholders who elect to receive dividends
in cash rather than reinvesting dividends in additional shares of the Fund. A
Fund might also sell portfolio securities to maintain portfolio liquidity. In
either case, cash distributed or held by a Fund and not reinvested in Fund
shares will hinder the Fund in seeking current income.
Debt Securities of U.S. Companies.
The Atlas Strategic Income Fund's investments in fixed-income securities
issued by domestic companies and other issuers may include debt obligations
(bonds, debentures, notes, mortgage-backed and asset-backed securities and
CMOs) together with preferred stocks.
The risks attendant to investing in high-yielding, lower-rated bonds are
described above. If a sinking fund or callable bond held by the Fund is
selling at a premium (or discount) and the issuer exercises the call or makes
a mandatory sinking fund payment, the Fund would realize a loss (or gain) in
market value; the income from the reinvestment of the proceeds would be
determined by current market conditions, and investment of that income may
occur at times when rates are generally lower than those on the called bond.
Preferred Stocks.
The underlying Atlas Stock Funds may invest in preferred stocks. Preferred
stock, unlike common stock, offers a stated dividend rate payable from the
corporation's earnings. Such preferred stock dividends may be cumulative or
non-cumulative, participating, or auction rate. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive, causing the price
of preferred stocks to decline. Preferred stock may have mandatory sinking
fund provisions, as well as call/redemption provisions prior to maturity, a
negative feature when interest rates decline. Dividends on some preferred
stock may be "cumulative," requiring all or a portion of prior unpaid
dividends to be paid. Preferred stock also generally has a preference over
common stock on the distribution of a corporation's assets in the event of
liquidation of the corporation, and may be "participating," which means that
it may be entitled to a dividend exceeding the stated dividend in certain
cases. The rights of preferred stocks on distribution of a corporation's
assets in the event of a liquidation are generally subordinate to the rights
associated with a corporation's debt securities.
Participation Interests.
The Atlas Strategic Income Fund may invest in participation interests,
subject to the limitation, described in "Illiquid and Restricted Securities"
in the Prospectus, on investments by the Fund in illiquid investments.
Participation interests represent an undivided interest in or assignment of a
loan made by the issuing financial institution. No more than 5% of the Fund's
net assets can be invested in participation interests of the same issuing
bank. Participation interests are primarily dependent upon the financial
strength of the borrowing corporation, which is obligated to make payments of
principal and interest on the loan, and there is a risk that such borrowers
may have difficulty making payments. Such borrowers may have senior securities
as low as "C" by Moody's or "D" by Standard & Poor's. In the event the
borrower fails to pay scheduled interest or principal payments, the Fund could
experience a reduction in its income and might experience a decline in the net
asset value of its shares. In the event of a failure by the financial
institution to perform its obligation in connection with the participation
agreement, the Fund might incur certain costs and delays in realizing payment
or may suffer a loss of principal and/or interest. The Fund's Subadviser has
set certain creditworthiness standards for issuers of loan participation and
monitors their creditworthiness. These same standards apply to participation
interests in loans to foreign companies.
-B-18-
<PAGE>
Asset-Backed Securities.
These securities, issued by trusts and special purpose corporations, are
backed by pools of assets, primarily automobile and credit-card receivables
and home equity loans, which pass through the payments on the underlying
obligations to the security holders (less servicing fees paid to the
originator or fees for any credit enhancement). The value of an asset-backed
security is affected by changes in the market's perception of the asset
backing the security, the creditworthiness of the servicing agent for the loan
pool, the originator of the loans, or the financial institution providing any
credit enhancement, and is also affected if any credit enhancement has been
exhausted. Payments of principal and interest passed through to holders of
asset-backed securities are typically supported by some form of credit
enhancement, such as a letter of credit, surety bond, limited guarantee by
another entity or having a priority to certain of the borrower's other
securities. The degree of credit enhancement varies, and generally applies to
only a fraction of the asset-backed security's par value until exhausted. If
the credit enhancement of an asset-backed security held by the Fund has been
exhausted, and if any required payments of principal and interest are not made
with respect to the underlying loans, the Fund may experience losses or delays
in receiving payment. The risks of investing in asset-backed securities are
ultimately dependent upon payment of consumer loans by the individual
borrowers. As a purchaser of an asset-backed security, the Fund would
generally have no recourse to the entity that originated the loans in the
event of default by a borrower. The underlying loans are subject to
prepayments, which shorten the weighted average life of asset-backed
securities and may lower their return, in the same manner as described above
for prepayments of a pool of mortgage loans and underlying mortgage-backed
securities. However, asset-backed securities do not have the benefit of the
same security interest in the underlying collateral as do mortgage-backed
securities.
Short Sales Against-the-Box.
In such short sales, while the short position is open, the underlying Atlas
Stock Funds must own an equal amount of such securities, or by virtue of
ownership of securities have the right, without payment of further
consideration, to obtain an equal amount of the securities sold short. Short
sales against-the-box may be made to defer, for Federal income tax purposes,
recognition of gain or loss on the sale of securities "in the box" until the
short position is closed out.
Floating Rate and Variable Rate Obligations and Participation Interests.
The underlying Atlas Funds may purchase floating rate and variable rate
obligations, including participation interests therein. Floating rate or
variable rate obligations provide that the rate of interest is set as a
specific percentage of a designated base rate (such as the prime rate at a
major commercial bank) or is reset on a regular basis by a bank or investment
banking firm to a market rate. At specified times, the owner can demand
payment of the obligation at par plus accrued interest. Variable rate
obligations provide for a specified periodic adjustment in the interest rate,
while floating rate obligations have an interest rate which changes whenever
there is a change in the external interest rate.
Frequently banks provide letters of credit or other credit support or
liquidity arrangements to secure these obligations. The quality of the
underlying creditor or of the bank, as the case may be, must, as determined by
the Investment Adviser, be equivalent to the quality standard prescribed for
the Funds. The maturity of floating and variable rate obligations is equal to
the period during which a particular rate is in effect, or, if longer, the
period required to demand payment of the obligation.
The Funds may invest in participation interests purchased from banks in
floating rate or variable rate obligations owned by banks. A participation
interest gives the purchaser an undivided interest in the obligation in the
proportion that the Fund's participation interest bears to the total principal
amount of the obligation, and provides a demand repayment feature. Each
participation is backed by an irrevocable letter of credit or guarantee of a
bank (which may be the bank issuing the participation interest or another
bank). A Fund holding a participation interest has the right to sell the
instrument back to the issuing bank or draw on the letter of credit on demand
for all or any part of the Fund's participation interest in the underlying
obligation, plus accrued interest.
-B-19-
<PAGE>
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Portfolio has adopted the following fundamental investment policies and
investment restrictions in addition to the policies and restrictions discussed
in the Prospectus. The policies and restrictions listed below cannot be
changed without approval by the holders of a "majority of the outstanding
voting securities" of the Portfolio (which is defined in the Investment
Company Act of 1940 ["1940 Act"]) to mean the lesser of (i) 67% or more of the
outstanding voting securities of the Portfolio present at a meeting, if the
holders of more than 50% of the outstanding voting securities are present in
person or by proxy, or (ii) more than 50% of the outstanding voting
securities. These restrictions provide that the Portfolio may not:
(1) Purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, or
investments in the underlying Atlas Funds or other registered investment
companies) if with respect to 75% of the Portfolio's assets, as a result,
more than 5% of the value of such assets of the Portfolio would be invested
in the securities of any one issuer or the Portfolio's ownership would be
more than 10% of the outstanding voting securities of such issuer.
(2) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase
and as a result thereof, the value of the Portfolio's investments in that
industry would exceed 25% of the current value of the Portfolio's total
assets, provided that there is no limitation with respect to investments in
(i) other investment companies; (ii) obligations of the United States
Government, its agencies or instrumentalities; and (iii) the obligations of
domestic banks. For purposes of this policy, the Portfolio has adopted the
industry classification set forth in the Appendix to this Statement of
Additional Information which may be amended from time to time without
shareholder approval.
(3) Invest in companies for the purpose of exercising control or
management.
(4) Purchase or sell real estate or real estate limited partnership
interests; provided that the Portfolio may invest in an underlying Atlas
Fund that invests in readily marketable securities secured by real estate
or interests therein or issued by companies that invest in real estate or
interests therein.
(5) Purchase or sell commodities or commodities contracts or interests in
oil, gas or other mineral exploration or development programs, provided,
however, that the Portfolio may invest in an underlying Atlas Fund that may
purchase and sell interest rate futures contracts and related options, and
may purchase and sell stock index futures contracts and related options and
purchase or sell forward foreign currency contracts.
(6) Mortgage, pledge or in any other manner transfer as security for any
indebtedness, any of its assets; provided that this restriction shall not
apply to the transfer of securities in connection with a permissible
borrowing. For purposes of this restriction, (a) the deposit of assets in
escrow or a segregated account in connection with the writing of covered
put or call options, the purchase of securities on a when-issued or
delayed-delivery basis, or the undertaking of another investment technique
utilizing a cover or segregated account arrangement by an underlying Atlas
Fund, and (b) collateral arrangements with respect to (i) the purchase and
sale of options on securities and options on indexes and (ii) initial or
variation margin for futures contracts by an underlying Atlas Fund will not
be deemed to be pledges of the Portfolio's assets.
(7) Purchase securities on margin or effect short sales, except that the
Portfolio may invest in an underlying Atlas Fund that may obtain such
short-term credits as may be necessary for the clearance of purchases or
sales of securities, and may make margin payments in connection with
futures contracts and related options and the underlying Atlas Stock Funds
may effect short sales against-the-box.
(8) Engage in the business of underwriting securities issued by others,
except to the extent that it may be deemed to be an underwriter, under the
federal securities laws, in connection with the disposition of the
Portfolio's securities.
-B-20-
<PAGE>
(9) Make loans to any person or firm; provided, however, that the
acquisition for investment of a portion of an issue of publicly distributed
bonds, debentures, notes or other evidences of indebtedness of any
corporation or government shall not be construed to be the making of a
loan; and provided further that a Portfolio may enter into repurchase
agreements and may make loans of portfolio securities.
(10) Purchase from or sell portfolio securities to its officers,
directors or other "interested persons" (as defined in the 1940 Act) (other
than otherwise unaffiliated brokers and the underlying Atlas Funds) of the
Portfolio or of the Trust.
(11) Borrow money, except from banks for temporary or emergency purposes
not in excess of 33 1/3% of the value of the Portfolio's total assets. The
Portfolio will not purchase securities if such borrowings are outstanding
in excess of 5% of the value of the Portfolio's total assets. In the event
that the asset coverage for the Portfolio's borrowings falls below 300%,
the Portfolio will reduce, within three days (excluding Sundays and
holidays), the amount of its borrowings in order to provide for 300% asset
coverage.
If a percentage restriction on investment or utilization of assets in a
fundamental policy or restriction is adhered to at the time an investment is
made, a later change in percentage ownership of a security or kind of
securities resulting from changing market values will not be considered a
violation of Portfolio investment policies or restrictions.
PORTFOLIO TURNOVER
For reporting purposes, the Portfolio calculates its portfolio turnover rate
by dividing the lesser of purchases or sales of portfolio securities for the
fiscal year by the monthly average of the value of the portfolio securities
owned by the Portfolio during the fiscal year. In determining portfolio
turnover, the Portfolio excludes all securities whose maturities at the time
of acquisition were one year or less. A 100% portfolio turnover rate would
occur, for example, if all of the securities in the Portfolio (other than
short-term money market securities) were replaced once during the fiscal year.
The Portfolio's turnover is expected to be less than 100%. The Portfolio
will purchase or sell securities to: (i) accommodate purchases and sales of
the Portfolio's shares; (ii) change the percentages of the Portfolio's assets
invested in each of the underlying Atlas Funds in response to market
conditions; (iii) maintain or modify the allocation of the Portfolio's assets
among the underlying Atlas Funds within the percentage limits described in the
Prospectus.
-B-21-
<PAGE>
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The Trustees and officers of Atlas Insurance Trust (the "Trust"), their
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
POSITIONS PRINCIPAL OCCUPATIONS
NAME AND ADDRESS HELD AND BUSINESS EXPERIENCE
---------------- -------------- ---------------------------------
<S> <C> <C>
Marion O. Sandler(1)(4)....... Trustee, Chairman of the Board and Chief
1901 Harrison Street President and Executive Officer of Atlas As-
Oakland, CA 94612 Chief sets, Inc. ("Atlas Funds"), Exec-
Executive utive Officer World Savings and
Officer Loan Association ("World Sav-
ings"), and Golden West Financial
Corporation ("GWFC"). President
and Chief Executive Officer of
Atlas Advisers, Inc. ("Adviser")
and Atlas Securities, Inc. ("Dis-
tributor")
Barbara A. Bond(2)(3)(4)...... Trustee Director of the Atlas Funds, Cer-
Hood and Strong tified Public Accountant/Tax
101 California Street Partner of Hood and Strong
San Francisco, CA 94111
Russell W. Kettell(1)(4)...... Trustee Director of the Atlas Funds,
1901 Harrison Street President of GWFC and Senior Ex-
Oakland, CA 94612 ecutive Vice President of World
Savings
Daniel L. Rubinfeld(2)(3)(4).. Trustee Director of the Atlas Funds, Pro-
School of Law, Boalt Hall fessor of Law and Economics at
University of California the University of California,
Berkeley, CA 94720 Berkeley
David J. Teece(2)(3)(4)....... Trustee Director of the Atlas Funds, Pro-
University of California fessor of Business Administration
IMIO #1930 at the University of California
Haas School of Business S-402 Berkeley
Berkeley, CA 94720
Julius Louis Helvey(1)........ Group Senior
1901 Harrison Street Vice President
Oakland, CA 94612 and Chief Group Senior Vice President of
Financial World Savings, GWFC, Atlas Funds,
Officer Adviser and Distributor
Larry E. LaCasse(1)........... Group Senior 1992 to present--Group Senior
794 Davis Street Vice President Vice President of Atlas Funds,
San Leandro, CA 94577 and Chief Adviser and Distributor; 1988 to
Operating Present--Chief Operating Officer
Officer of the Adviser and the Distribu-
tor; 1988-1991 Senior Vice Presi-
dent of the Adviser and the Dis-
tributor; 1988--Vice President of
American Capital Services, Inc.;
1986 to 1988--Vice President of
American Capital Marketing, Inc.;
1984 to 1986--Vice President of
Corporate Development at Finan-
cial Network Investments Corp.
Edward L. Bisgaard(1)......... Vice 1989 to present--Vice President,
794 Davis Street President, Chief Accounting Officer and
San Leandro, CA 94577 Chief Treasurer of Atlas Fund's, Ad-
Accounting viser and Distributor; 1988 to
Officer and 1989--Chief Financial Officer of
Treasurer Dunham & Greer Investment Coun-
sel; 1986 to 1988--General Part-
ner of R&R Tire and Auto Service
Center; 1979 to 1986--Vice Presi-
dent and Manager of Fund Opera-
tions at Capital Research & Man-
agement Company
</TABLE>
-B-22-
<PAGE>
<TABLE>
<CAPTION>
POSITIONS PRINCIPAL OCCUPATIONS
NAME AND ADDRESS HELD AND BUSINESS EXPERIENCE
---------------- -------------- -----------------------
<S> <C> <C>
Steven J. Gray(1)............. Vice 1992 to present--Vice President,
794 Davis Street President, Chief Legal Counsel and Secretary
San Leandro, CA 94577 Chief Legal of Atlas Funds, Adviser and Dis-
Counsel and tributor; 1989 to 1992--Associate
Secretary Attorney, Investment Management
Group at the law firms of Gaston
& Snow (1989-1990), Thelen,
Marrin, Johnson & Bridges (1990-
1992), and Heller, Ehrman, White
& McAuliffe (1992); 1986 to
1989--Attorney for Federal Home
Loan Bank Board; 1985 to 1986--
Senior Attorney and Vice Presi-
dent C.R.I., Inc.; 1982 to 1985--
Attorney, United States Securi-
ties and Exchange
Commission
</TABLE>
- --------
(1) Trustee or officer who is an "interested person" of the Company due to his
affiliation with the Company's investment manager.
(2) Member of the Contracts Committee.
(3) Member of the Audit Committee.
(4) Member of the Executive Committee.
As of August 1, 1997, Golden West Financial Corporation, 1901 Harrison
Street, Oakland, CA 94612, a Delaware corporation and sole shareholder of the
Adviser and Distributor, owned beneficially and of record an aggregate of 100%
of the outstanding shares of the Atlas Balanced Growth Portfolio. As of that
date, officers and trustees as a group owned less than 1% of the shares of the
Portfolio.
The following table sets forth the aggregate compensation contemplated to be
paid by the Atlas Funds and the Trust for the Trust's first fiscal year ending
December 31, 1997 to the Directors of the Atlas Funds that are not affiliated
with the Investment Adviser (the same persons serve as the unaffiliated
Trustees of the Trust) and the aggregate compensation paid to such
Directors/Trustees for service on the Atlas Funds' Board and that of all other
funds in the "company complex", (including the Trust) as defined in Schedule
14A under the Securities Exchange Act of 1934:
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS ESTIMATED COMPANY AND
AGGREGATE ACCRUED AS ANNUAL COMPANY
COMPENSATION PART OF BENEFITS COMPLEX
FROM COMPANY COMPANY UPON PAID TO
NAME COMPLEX EXPENSES RETIREMENT DIRECTORS
---- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Barbara A. Bond.............. $14,000 None N/A $14,000(16)*
Daniel L. Rubinfeld.......... 13,700 None N/A 13,700(16)*
David J. Teece............... 13,400 None N/A 13,400(16)*
Marion O. Sandler............ None None N/A None
Russell W. Kettell........... None None N/A None
</TABLE>
- --------
* Indicates total number of funds in company complex.
-B-23-
<PAGE>
INVESTMENT MANAGEMENT AND OTHER SERVICES
Atlas Advisers, Inc. ("Advisers"), serves as the investment manager to the
Trust pursuant to an Investment Management Agreement dated August , 1997
(the "Management Agreement"), which was last approved by the Board of
Trustees, including a majority of the trustees who are not "interested
persons" (as defined in the 1940 Act) of the Trust, at a meeting held on
February 14, 1997.
The Management Agreement with respect to the Portfolio is for an initial
term of two years and may be renewed from year to year afterwards, provided
that any such renewal has been specifically approved at least annually by (i)
the majority (as defined in the 1940 Act) of the outstanding voting securities
of the Portfolio, or (ii) the vote of a majority of trustees who are not
parties to the Management Agreement or "interested persons" (as defined in the
1940 Act) of any such party, cast in person, at a meeting called for the
purpose of voting on such approval. The Management Agreement also provides
that either party thereto has the right with respect to any Portfolio to
terminate it without penalty, upon 60 days written notice to the other party,
and that the Management Agreement automatically terminates in the event of its
assignment (as defined in the 1940 Act).
The directors and officers of the Advisers are: Marion O. Sandler (Director,
President and Chief Executive Officer), James T. Judd (Director), Dirk S.
Adams (Director), Julius Louis Helvey (Group Senior Vice President and Chief
Financial Officer), Larry E. LaCasse (Group Senior Vice President and Chief
Operating Officer), Edward L. Bisgaard (Vice President, Chief Accounting
Officer and Treasurer), Steven J. Gray (Vice President, Chief Legal Counsel
and Secretary).
Principal Underwriting Agreement.
As described in the Prospectus, the Trust has adopted a Principal
Underwriting Agreement with Atlas Securities, Inc. (the "Distributor"), which
serves as the sole underwriter and distributor of the Portfolio's shares.
EXECUTION OF PORTFOLIO TRANSACTIONS
The investment transactions of the Portfolio are expected to consist
exclusively of purchase and redemptions of shares of the underlying Atlas
Funds. Such purchases and redemptions will be effected directly with the
underlying Funds transfer agent, at the then current net asset values of the
underlying Funds, without the use of broker-dealers. Accordingly, the
Portfolio does not anticipate incurring any brokerage commissions.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Portfolio's shares is calculated once
daily by the Trust as of the close of regular trading (normally 4:00 p.m., New
York time) each business day the New York Stock Exchange ("NYSE") is open for
unrestricted trading. The NYSE is currently scheduled to be closed on New
Year's Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving and Christmas Day, and on the preceding Friday or
subsequent Monday when one of these holidays falls on a Saturday or Sunday.
The Portfolio's net asset value will be determined with reference to the net
assets values of the underlying Atlas Funds and the percentage the Portfolio's
assets allocated to each underlying Atlas Fund. The following information
pertains to the determination of net asset values for the underlying Atlas
Funds.
-B-24-
<PAGE>
Bond Funds:
1. The underlying Atlas Funds value portfolio securities including U.S.
Treasury obligations, and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, certificates of deposit issued
by banks or savings and loan associations, commercial paper, corporate short-
term notes and other short term investments with original or remaining
maturities in excess of 60 days at the mean of representative quoted bid and
asked prices for such securities or, if such prices are not available, for
securities of comparable maturity, quality and type. In circumstances where
the Investment Manager deems it appropriate to do so, prices obtained for the
day of valuation from a bond pricing service will be used. The underlying Fund
amortizes to maturity all securities with 60 days or less to maturity based on
their cost to a Fund if acquired within 60 days of maturity or, if already
held by a Fund on the 60th day, based on the value determined on the 61st day.
2. The underlying Atlas Funds value long-term fixed-income obligations at
the mean of representative quoted bid or asked prices for such securities or,
if such prices are not available, at prices for securities of comparable
maturity, quality and type. In circumstances where the Investment Manager
deems it appropriate to do so, prices obtained for the day of valuation from a
bond pricing service will be used.
3. The underlying Atlas Funds deem the maturities of variable or floating
rate instruments, or instruments which a Fund has the right to sell at par to
the issuer or dealer, to be the time remaining until the next interest rate
adjustment date or until they can be resold or redeemed at par.
4. Where market quotations are not readily available, the underlying Atlas
Funds value securities (including restricted securities which are subject to
limitations as to their sale) at fair value pursuant to methods approved by
the Atlas Funds Board of Directors.
5. The fair value of any other assets is added to the value of securities,
as described above to arrive at total assets.
6. Each Fund's liabilities, including proper accruals of taxes and other
expense items, are deducted from total assets and a net asset figure is
obtained.
7. The net asset figure obtained as described above is then divided by the
total number of shares outstanding (excluding treasury shares), and the
result, rounded to the nearer cent, is the net asset value per share.
Money Market Fund:
It is Atlas Funds' policy to use its best efforts to maintain a constant per
share price for the U.S. Treasury "Money Fund" equal to $1.00.
The portfolio instruments of the Money Fund are valued on the basis of
amortized cost. This involves valuing an instrument at its cost initially and,
thereafter, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which the value, as determined by amortized cost,
is higher or lower than the price a Fund would receive if it sold the
instrument.
The valuation of the Money Fund's portfolio instruments based upon their
amortized cost and simultaneous maintenance of each Fund's per share net asset
value at $1.00 are permitted by Rule 2a-7 under the 1940 Act.
Under this rule, the Money Fund must maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of one year or less, and invest only in securities
determined by the Board of Directors, and as required by the rule, to be of
high quality with minimal credit risks. High quality is defined as the top two
quality rating grades as
-B-25-
<PAGE>
rated by any two national statistical rating organizations ("NRSRO"), or by
one NRSRO if rated by only one, or if not rated by an NRSRO, of comparable
quality as determined by the Subadviser. The U.S. Treasury Money Fund invests
only in securities guaranteed by the full faith and credit of the U.S.
Government, that is, of the highest quality. In accordance with the rule the
Board of Directors has established procedures designed to stabilize, to the
extent reasonably practicable, each Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures include review of
each Fund's portfolio holdings by the Board of Directors, at such intervals as
they may deem appropriate, to determine whether the net asset value of a Fund
calculated by using available market quotations or market equivalents deviates
from $1.00 per share based on amortized cost. The rule also provides that the
extent of any deviation between a Fund's net asset value based upon available
market quotations or market equivalents and $1.00 per share net asset value
based on amortized cost must be examined by the Directors. In the event the
Board of Directors determines that a deviation exists which may result in
material dilution or is otherwise unfair to investors or existing
shareholders, they must cause a Fund to take such corrective action as they
regard as necessary and appropriate, including: selling portfolio instruments
prior to maturity to realize capital gains or losses or to shorten average
portfolio maturity; withholding dividends or paying distributions from capital
or capital gains; redeeming shares in kind; or establishing a net asset value
per share by using available market quotations.
The Stock Funds:
The underlying Atlas Stock Funds value their portfolio securities listed or
traded on an exchange, at their last sales price on the exchange where the
security is principally traded. Lacking any sales on a particular day, the
security is valued at the mean between the closing bid and asked prices on
that day. Each security traded in the over-the-counter market (but not
including securities reported on the NASDAQ National Market System) is valued
at the mean between the last bid and asked prices, based upon quotes furnished
by market makers for such securities. Each security reported on the NASDAQ
National Market System is valued at the last sales price on the valuation
date. These procedures need not be used to determine the value of debt
securities owned by the Fund if, in the opinion of the Board of Directors some
other method (e.g. the mean between closing over-the-counter bid and asked
prices in the case of debt instruments traded on an exchange) would more
accurately reflect their fair value. A security which is listed or traded on
more than one exchange is valued at the quotation of the exchange determined
by the Board of Directors to be the primary market for such security. Short-
term obligations are valued at amortized cost, which constitutes fair value as
determined by the Board. All other securities and other assets of the Fund are
appraised at their fair value as determined in good faith under consistently
applied procedures established by and under the general supervision of the
Board.
For purposes of determining the net asset value per share of each underlying
Stock Fund, all assets and liabilities initially expressed in foreign
currencies are converted into U.S. dollars at the mean between the bid and
offer prices of such currencies against U.S. dollars last quoted by any major
bank and any changes in the value of forward contracts are included in the
determination of net asset value.
REDEMPTIONS IN KIND
It is possible that unusual conditions may arise in the future which would,
in the opinion of the Board of Trustees of the Trust, make it undesirable for
the Portfolio to pay for all redemptions in cash. In such cases, the Board may
authorize payment to be made in portfolio securities or other property of the
Portfolio. The Trust would value securities delivered in payment of
redemptions at the same value assigned to such securities in computing the net
asset value per share. If the Trust so elects, however, it must pay in cash
all redemptions with respect to any shareholder during any 90-day period in an
amount equal to the lesser of (i) $250,000 or (ii) 1% of the net asset value
of a Portfolio at the beginning of such period.
-B-26-
<PAGE>
TAXES
The Portfolio intends to meet all the requirements and to elect the tax
status of a "regulated investment company" under the provisions of Subchapter
M of the Internal Revenue Code of 1986 (the "Code"). Each of the underlying
Atlas Fund have so qualified in the past and intend to continue to so qualify.
If the Portfolio distributes within specified times at least 90% of its
taxable and tax-exempt net investment income, it will be taxed only on that
portion, if any, which it retains.
To so qualify under Subchapter M, the Portfolio must derive at least 90% of
its gross income from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of stock or securities or
foreign currencies, or other income derived with respect to its business of
investing in stock, securities or currencies. To qualify, the Portfolio must
also (a) derive less than 30% of its gross income (irrespective of losses)
from the sale or other disposition of stock or securities held less than three
months, and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Portfolio's assets is
represented by cash, cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, limited, in
respect of any one issuer, to an amount not greater than 5% of the Portfolio's
assets and 10% of the outstanding voting securities of such issuer, and (ii)
not more than 25% of the value of its assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies) or in two or more issuers which the
Portfolio controls and which are engaged in the same or similar trades or
businesses or related trades or businesses. The requirements for qualification
may cause a Portfolio to restrict the extent of its short-term trading or its
transactions in options or futures contracts.
Even though the Portfolio qualifies as a "regulated investment company," it
may be subject to certain federal excise taxes unless the Portfolio meets
certain additional distribution requirements. Under the Code, a nondeductible
excise tax of 4% is imposed on the excess of a regulated investment company's
"required distribution" for the calendar year ending within the regulated
investment company's taxable year over the "distributed amount" for such
calendar year. The term "required distribution" means the sum of (i) 98% of
ordinary income (generally net investment income) for the calendar year, (ii)
98% of capital gain net income (both long-term and short-term) for the one-
year period ending on October 31 (as though the one-year period ending on
October 31 were the regulated investment company's taxable year), and (iii)
the sum of any untaxed, undistributed taxable net investment income and net
capital gains of the regulated investment company for prior periods. The term
"distributed amount" generally means the sum of (i) ordinary income and
capital gain net income actually distributed by a Portfolio in the current
year and (ii) any amount on which a Portfolio pays income tax for the year.
The Portfolio intends to continue to meet these distribution requirements to
avoid the excise tax liability.
ADDITIONAL INFORMATION
Independent Auditors.
The Trust Board of Trustees has appointed Deloitte & Touche LLP as the
Company's independent auditors for the fiscal year ending December 31, 1997.
Deloitte & Touche LLP will conduct the annual audit of the Trust, and will
assist in the preparation of the Portfolio's federal and state income tax
returns and consult with the Trust as to matters of accounting and federal and
state income taxation.
Legal Opinions.
The validity of the shares offered by the Prospectus has been passed upon by
Paul, Hastings, Janofsky & Walker LLP located at 555 South Flower Street, Los
Angeles, California 90071. Paul, Hastings, Janofsky & Walker LLP also acts as
legal counsel for the Trust's Adviser and Distributor.
-B-27-
<PAGE>
INVESTMENT RESULTS
The Trust may from time to time quote or otherwise use total return
information for the Portfolio in advertisements, sales literature or in
reports furnished to current or prospective shareholders.
The average annual compound rate of return is computed by using the value at
the end of the period ("EV") of a hypothetical initial investment of $1,000
("P") over a period of years ("n") according to the following formula as
required by the Securities and Exchange Commission:
P (1+T)n = EV
The formula assumes reinvestment of all dividends and distributions at net
asset value on the reinvestment date determined by the Board and a complete
redemption at the end of any period illustrated. The Portfolio will calculate
total return for one, five and ten-year periods after such a period has
elapsed. In addition, the Portfolio may provide lifetime average total return
figures.
In addition to average annual returns, the Portfolio may quote unaveraged or
cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns
may be quoted as a percentage or as a dollar amount, and may be calculated for
a single investment, a series of investments, and/or a series of redemptions,
over any time period. Total returns may be broken down into their components
of income and capital (including capital gains and changes in share price) in
order to illustrate the relationship of these factors and their contributions
to total return. Total returns, may be quoted numerically or in a table,
graph, or similar illustration. Performance information may be compared to the
record of the Standard & Poor's Daily Stock Price Index of 500 Common Stocks
(S&P 500), the Dow Jones Industrial Average (DJIA), the cost of living
(measured by the Consumer Price Index, or CPI), and other widely recognized
benchmark indicators over the same period. Tabular comparisons, hypothetical
examples and explanatory illustrations may be used from recognized sources
such as Ibbotson Associates, Inc.'s "Stocks, Bonds and Inflation", which
instead of comparing actual Portfolio performance, demonstrate performance of
stocks, bonds, indices, averages, government or other securities, and other
recognized benchmark economic and market indicators such as the rate of
inflation. The Portfolio may have the ability to invest in securities not
included in the S&P, DJIA or other indices and its investment portfolio may or
may not be similar in composition to the indices. These indices and averages
are based on the prices of unmanaged groups of stocks, and, unlike fund total
returns, their returns do not include the effect of paying brokerage
commissions and other costs of investing.
Comparisons.
The Trust may, from time to time, compare specific features of the Portfolio
to those available from comparable mutual funds. Advertisements or sales
literature of the Trust may compare the results of an investment in the
Portfolio with averages, rankings and indices, including, but not limited to
the following:
(1) Average of Savings Accounts, which is a measure of all kinds of
savings deposits, including longer-term certificates (based on figures
supplied by the U.S. League of Savings Institutions). Savings accounts
offer a guaranteed rate of return on principal, but no opportunity for
capital growth. During a portion of the averaging period, the maximum rates
paid on some savings deposits were fixed by law.
(2) The Consumer Price Index, which is a measure of the average change in
prices over time in a fixed market basket of goods and services (e.g.,
food, clothing, shelter, and fuels, transportation fares, charges for
doctors' and dentists' services, prescription medicines, and other goods
and services that people buy for day-to-day living).
(3) Lipper Analytical Services, Inc., which ranks mutual funds by overall
performance, investment objectives and assets, and publishes averages on
broad based categories of mutual funds and indexes of cumulative total
returns for various periods.
-B-28-
<PAGE>
The performance of the Portfolio's shares may be compared to those of other
mutual funds having similar objectives, expressed as an average or as a rating
or ranking prepared by IBC/Donoghue Organization, Wiesenberger Investment
Company Service, Lipper Analytical Services, Inc., CDA Investment
Technologies, other recognized independent services which monitor the
performance of mutual funds or other economic or market indicators from
published sources such as Ibbotson Associates, Inc.'s "Stocks, Bonds, Bills
and Inflation". Similar comparisons may be made with respect to various
benchmark securities, indices and averages which illustrate general market or
economic performance. These comparisons may be illustrated by means of tables
or of bar, pie, or mountain charts or other type of graphic illustration,
numerically, or by means of hypothetical examples and illustrations from
recognized sources. Performance will be calculated by relating net asset value
per share at the beginning of a period, assuming reinvestment of all gains,
distributions and dividends paid during the period, to the net asset value at
the end of the period.
Indices, averages and rankings prepared by the research departments of such
financial organizations as Salomon Brothers, Inc., Merrill Lynch, Pierce,
Fenner & Smith, Inc., Bear Stearns & Co., Inc., Ibbotson Associates and other
similar providers of financial research data, may be used, as well as
information provided by the Board of Governors of the Federal Reserve System.
Performance rankings, ratings, averages, indices and excerpts of comments,
descriptions and other references or reviews of the Portfolios, their
investment managers, policies, strategies, rankings, or other comparisons
appearing in magazines, newspapers, investment newsletters, and other
periodicals, including Money Magazine, Forbes, Fortune, Business Week, Wall
Street Journal, New York Times, Los Angeles Times, Dallas Morning News,
Barrons, Investors Daily, Mutual Fund Values, Facts, Changing Times, Ibbotson
Associates, and others may also be used.
FINANCIAL STATEMENTS
The following audited financial statement reflects the initial capital of
the Trust as of July 30, 1997.
-B-29-
<PAGE>
ATLAS INSURANCE TRUST
Statement of Assets and Liabilities
as of July 30, 1997 and
Independent Auditors' Report
B-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Atlas Insurance Trust:
We have audited the accompanying statement of assets and liabilities of Atlas
Insurance Trust (the "Trust") as of July 30, 1997. These financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in all
material respects, the financial position of the Trust as of July 30, 1997 in
conformity with generally accepted accounting principles.
July 30, 1997
B-31
<PAGE>
ATLAS INSURANCE TRUST
Statement of Assets and Liabilities
July 30, 1997
<TABLE>
<CAPTION>
Atlas Balanced
Growth Portfolio
<S> <C>
ASSETS
Cash $100,000
Deferred Organization Expenses 30,000
--------
Total Assets 130,000
--------
LIABILITIES
Organizational Expenses Payable 30,000
--------
Total Liabilities 30,000
--------
NET ASSETS
Equivalent of $10.00 per share
on 10,000 shares of befeficial
interest issued and outstanding $100,000
========
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION PRICE
PER SHARE $10.00
========
</TABLE>
The accompanying notes are an integral
part of these financial statements
B-32
<PAGE>
ATLAS INSURANCE TRUST
Notes to Statement of Assets and Liabilities
July 30, 1997
1. ORGANIZATION
Atlas Insurance Trust (the "Trust") is an open-end, management investment
company, or mutual fund, offering a choice of investment portfolios or funds to
investors through the purchase of the Atlas Portfolio Builder variable annuity
contracts issued by PFL Life Insurance Company ("PFL Life"). The Trust currently
consists of one investment portfolio, the Atlas Balanced Growth Portfolio (the
"Portfolio"). The Portfolio invests in up to eight underlying Atlas Funds
representing different combinations of equity, fixed income, and money market
securities and reflecting varying degrees of investment risk and potential
reward.
The Trust was organized as a Deleware business trust on October 23, 1996. Prior
to July 30, 1997 the Trust had no operations other than its organization. On
July 30, 1997, the Portfolio sold 10,000 shares at net asset value (the "Initial
Shares") to Golden West Financial Corporation.
The costs of organizing the Trust will be paid by Atlas Advisers and reimbursed
by the Fund at the time of the initial offering. The organization costs will be
deferred and amortized on a straight-line basis over a period of sixty months
from the commencement of investing operations. If any of the Initial Shares are
redeemed before the end of the amortization, the proceeds of the redemption will
be reduced by the pro rata share of the unamortized organization costs.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements. Actual results could differ from those estimates.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
The Trust has an Investment Mangement Agreement with Atlas Advisers, Inc., under
which Atlas Advisers manages the investments of the Trust. For its services,
Atlas Advisers receives a fee from each Portfolio at an annual percentage of
0.25% the average daily net assets of each Portfolio.
The Trust has an underwriting agreement with Atlas Securities, Inc., under
which Atlas Securities serves as the distributor and principal underwriter
of the Porfolio's shares.
Atlas Advisers and Atlas Securities are wholly-owned subsidiaries of Golden West
Financial Corporation.
B-33
<PAGE>
APPENDIX
INDUSTRY CLASSIFICATIONS
Aerospace/Defense Food
Air Transportation Gas Utilities*
Auto Parts Distribution Gold
Automotive Health Care/Drugs
Bank Holding Companies Health Care/Supplies &
Banks Services
Beverages Homebuilders/Real Estate
Broadcasting Hotel/Gaming
Broker-Dealers Industrial Services
Building Materials Insurance
Cable Television Leasing & Factoring
Chemicals Leisure
Commercial Finance Manufacturing
Computer Hardware Metals/Mining
Computer Software Nondurable Household Goods
Conglomerates Oil--Integrated
Consumer Finance Paper
Containers Publishing/Printing
Convenience Stores Railroads
Department Stores Restaurants
Diversified Financial Savings & Loans
Diversified Media Shipping
Drug Stores Special Purpose Financial
Drug Wholesalers Specialty Retailing
Durable Household Goods Steel
Education Supermarkets
Electric Utilities Telecommunications--
Electrical Equipment Technology
Electronics Telephone--Utility
Energy Services & Textile/Apparel
Producers Tobacco
Entertainment/Film Toys
Environmental Trucking
- --------
* For purposes of the Portfolio's investment policy not to concentrate in
securities of issuers in the same industry, gas utilities and gas
transmission utilities each will be considered a separate industry.
-B-34-
<PAGE>
PART C
ATLAS INSURANCE TRUST
-------------------------------------
OTHER INFORMATION
-------------------------------------
<PAGE>
ATLAS INSURANCE TRUST
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements--included in Part B:
Statement of Assets and Liabilities as of July 30, 1997
Note to Statement of Assets and Liabilities
Report of Independent Auditor
(b) Exhibits--as required by Part C:
<TABLE>
<C> <S>
1. A. Certificate of Trust
B. Agreement and Declaration of Trust*
2. Bylaws for the Registrant.*
3. Not Applicable.
4. Not Applicable.
5. Form of Investment Management Agreement between Atlas Advisers, Inc.
and Registrant.*
6. Form of Principal Underwriting Agreement between Atlas Securities,
Inc. and Registrant.*
7. Not Applicable.
8. Form of Custodian Agreement between Investors Bank and Trust Company
and Registrant.
9. A. Form of Transfer Agency Agreement.
B. Form of Participation Agreement between PFL Life Insurance Company
and Registrant.
C. Form of Administrative Services Agreement
10. Opinion and Consent of Counsel.
11. Consent of Independent Auditors.
12. Not Applicable.
13. Letter of Understanding Relating to Initial Shares.
14. Not Applicable.
15. Not Applicable.
16. Not Applicable
25. Power of Attorney
</TABLE>
- --------
*Previously filed with initial Registration Statement on January 31, 1997.
-C-1-
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Listed below are the direct or indirect wholly-owned subsidiaries of Golden
West Financial Corporation.
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
---- -------------
<S> <C>
World Savings and Loan Association................................ *
World Savings Bank, FSB........................................... **
World Savings Bank, SSB........................................... Texas
Atlas Securities, Inc............................................. California
Atlas Advisers, Inc............................................... California
1901 Corporation.................................................. California
Commerce Invest Company of Shawnee, Inc........................... Kansas
World Mortgage Company............................................ Colorado
Golden West Savings Association Service, Co....................... California
First S&L Shares, Inc............................................. Colorado
</TABLE>
- --------
* Federally chartered savings and loan association.
** Federally chartered savings bank.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF JULY 30, 1997
-------------- ------------------------
<S> <C>
Shares of Beneficial Interest..........................
Atlas Balanced Growth Portfolio........................ 1
</TABLE>
-C-2-
<PAGE>
ITEM 27. INDEMNIFICATION
Article V of Registrant's Declaration of Trust, filed herewith as Exhibit 1,
provides for the indemnification of Registrant's trustees, officers, employees
and agents against liabilities incurred by them in connection with the defense
or disposition of any action or proceeding in which they may be involved or
with which they may be threatened, while in office or thereafter, by reason of
being or having been in such office, except with respect to matters as to
which it has been determined that they acted with willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in said Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Series of expenses
incurred or paid by a Trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such Trustee, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issues.
Registrant has obtained from a major insurance carrier a trustees's and
officers' liability policy covering certain types of errors and omissions. To
the extent permitted by the 1940 Act and Delaware law, the non-interested
Trustees may also be indemnified by the Trust with respect to errors and
omissions.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A. Investment Adviser--Atlas Advisers, Inc.
See the material following the captions "What Companies are affiliated with
the Portfolio?" appearing as a portion of Part A hereof, and "Management of
the Trust" and "Investment Management and Other Services" appearing as a
portion of Part B hereof.
-C-3-
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter also acts as the principal
underwriter for Atlas Assets, Inc., 794 Davis Street, San Leandro, California
94577.
(b) Directors and officers of Atlas Securities, Inc., principal underwriter
of the Registrant:
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
PLACE OF BUSINESS UNDERWRITER REGISTRANT
------------------ ------------- -------------
<S> <C> <C>
Marion O. Sandler....... Chairman, President Chairman, President and Chief
1901 Harrison Street and Chief Executive Executive Officer
Oakland, CA 94612 Officer
James T. Judd........... Director N/A
1901 Harrison Street
Oakland, CA 94612
Dirk S. Adams........... Director N/A
1901 Harrison Street
Oakland, CA 94612
Julius Louis Helvey..... Group Senior Vice Group Senior Vice President and
1901 Harrison Street President and Chief Chief Financial Officer
Oakland, CA 94612 Financial Officer
Larry E. LaCasse........ Group Senior Vice Group Senior Vice President and
794 Davis Street President and Chief Chief Operating Officer
San Leandro, CA 94577 Operating Officer
Edward L. Bisgaard...... Vice President, Chief Vice President, Chief Accounting
794 Davis Street Accounting Officer Officer and Treasurer
San Leandro, CA 94577 and Treasurer
W. Lawrence Key ........ Senior Vice N/A
794 Davis Street President-- National
San Leandro, CA 94577 Sales Manager
Steven J. Gray.......... Vice President, Chief Vice President, Chief Legal
794 Davis Street Legal Counsel and Counsel and Secretary
San Leandro, CA 94577 Secretary
</TABLE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other records required by Rules 31a-1 and 31a-2 under
the Investment Company Act of 1940, as amended, are maintained and held in the
offices of the Trust Custodian, Investors Bank and Trust Company, 200
Clarendon Street, 16th Floor, Boston, MA 02116.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes to file a post-effective amendment
including financial statements which need not be certified, within four to six
months from the effective date of Registrant's 1933 Act Registration
Statement.
(b) The Registrant undertakes to furnish copies of its latest annual report
and semi-annual report, upon request and without charge, to every person to
whom a prospectus is delivered.
-C-4-
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT HAS DULY
CAUSED THIS PRE-EFFECTIVE AMENDMENT NO. 1 TO ITS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THERETO DULY AUTHORIZED, IN THE CITY
OF SAN LEANDRO, AND THE STATE OF CALIFORNIA, ON THE 30TH DAY OF JULY, 1997.
Atlas Insurance Trust (Registrant)
By: /s/ Marion O. Sandler *
----------------------------------
MARION O. SANDLERCHAIRMAN, CHIEF
EXECUTIVE OFFICER AND PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE
/s/ Marion O. Sandler * Chief Executive Officer, July 30, 1997
- ------------------------- President, and Chairman
MARION O. SANDLER
Chief Financial Officer July 30, 1997
/s/ Julius Louis Helvey * and Group Senior Vice
President
- -------------------------
JULIUS LOUIS HELVEY
/s/ Edward L. Bisgaard * Chief Accounting Officer, July 30, 1997
- ------------------------- Treasurer and Vice
President
EDWARD L. BISGAARD
* By: /s/ Larry E. LaCasse
-------------------------
Lary E. LaCasse
Attorney-in-Fact
Pursuant to Power of Attorney
filed herewith
-C-5-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
------- ----
<C> <S>
1A Certificate of Trust
8 Form of Custodian Agreement
9A Form of Transfer Agency Agreement
9B Form of Participation Agreement
9C Form of Administrative Services Agreement
10 Opinion and Consent of Counsel
11 Consent of Independent Auditors
13 Letter of Understanding Relating to Initial Shares
25 Power of Attorney
</TABLE>
-C-6-
<PAGE>
EXHIBIT 1.A
CERTIFICATE OF TRUST
OF ATLAS INSURANCE TRUST
The undersigned, constituting the sole member of the Board of Trustees of
ATLAS INSURANCE TRUST (the "Trust"), in order to form a Delaware business trust
pursuant to Section 3810 of the Delaware Business Trust Act, does hereby certify
the following:
1. The name of the Delaware business trust is ATLAS INSURANCE TRUST.
2. Prior to the issuance of beneficial interests, the Trust will become a
registered investment company under the Investment Company Act of 1940, as
amended.
3. Notice is hereby given that pursuant to Section 3804 of the Delaware
Business Trust Act, the debts, liabilities, obligations, and expenses incurred,
contracted for or otherwise existing with respect to a particular series of the
Trust shall be enforceable against the assets of such series only and not
against the assets of the Trust generally.
4. The registered office of the Trust in Delaware is Corporation Trust
Center, 1209 Orange Street, County of New Castle, Wilmington, Delaware 19801.
5. The registered agent for service of process on the Trust is The
Corporation Trust Company.
6. This Certificate of Trust shall be effective the date it is filed with
the Office of the Delaware Secretary of State.
IN WITNESS WHEREOF, the undersigned Trustee of Atlas Insurance Trust, a
Delaware Business Trust, has executed this certificate as of the 22nd day of
October, 1996.
/s/ Steven Gray
- ---------------
Trustee
Steven Gray
- ---------------
Print Name
<PAGE>
EXHIBIT 8
CUSTODIAN AGREEMENT
BETWEEN
ATLAS INSURANCE TRUST
AND
INVESTORS BANK & TRUST COMPANY
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TABLE OF CONTENTS
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1. Bank Appointed Custodian......................................1
2. Definitions...................................................1
2.1 Authorized Person...................................1
2.2 Board...............................................1
2.3 Security............................................1
2.4 Portfolio Security..................................1
2.5 Officers' Certificate...............................1
2.6 Book-Entry System...................................2
2.7 Depository..........................................2
2.8 Proper Instructions.................................2
3. Separate Accounts.............................................2
4. Certification as to Authorized Persons........................2
5. Custody of Cash...............................................3
5.1 Purchase of Securities..............................3
5.2 Redemptions.........................................3
5.3 Distributions and Expenses of Fund..................3
5.4 Payment in Respect of Securities....................3
5.5 Repayment of Loans..................................3
5.6 Repayment of Cash...................................3
5.7 Foreign Exchange Transactions.......................4
5.8 Other Authorized Payments...........................4
5.9 Termination.........................................4
6. Securities....................................................4
6.1 Segregation and Registration........................4
6.2 Voting and Proxies..................................5
6.3 Corporate Action....................................5
6.4 Book-Entry System...................................6
6.5 Use of a Depository.................................6
6.6 Use of Book-Entry System for Commercial Paper.......7
6.7 Use of Immobilization Programs......................8
6.8 Eurodollar CDs......................................8
6.9 Options and Futures Transactions....................8
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter......................8
(b) Puts, Calls, and Futures Traded
on Commodities Exchanges........................9
6.10 Segregated Account..................................9
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6.11 Interest Bearing Call or Time Deposits...............10
6.12 Transfer of Securities...............................10
7. Redemptions.................................................12
8. Merger, Dissolution, etc. of Fund...........................12
9. Actions of Bank Without Prior Authorization.................12
10. Collection and Defaults.....................................13
11. Maintenance of Records and Accounting Services..............13
12. Fund Evaluation and Yield Calculation.......................13
12.1 Fund Evaluation......................................13
12.2 Yield Calculation....................................14
13. Additional Services.........................................15
14. Duties of the Bank..........................................15
14.1 Performance of Duties and
Standard of Care.....................................15
14.2 Agents and Subcustodians with Respect to Property
of the Fund Held in the United States................15
14.3 Duties of the Bank with Respect to Property
Held Outside of the United States....................16
14.4 Insurance............................................18
14.5 Fees and Expenses of Bank............................18
14.6 Advances by Bank....................................18
15. Limitation of Liability.....................................19
16. Termination.................................................20
17. Confidentiality.............................................21
18. Notices.....................................................21
19. Amendments..................................................21
20. Parties.....................................................21
21. Governing Law...............................................22
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22. Counterparts................................................. 22
23. Entire Agreement............................................. 22
24. Limitation of Liability...................................... 22
</TABLE>
APPENDICES
Appendix A .......................... Fee Schedule
Appendix B .......................... Additional Services
4
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this ___ day of ___________, 1997, between ATLAS
INSURANCE TRUST, a business trust organized under the laws of the state of
Delaware (the "Fund"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust
company (the "Bank").
The Fund, an open-end management investment company desires to place and
maintain all of its portfolio securities and cash in the custody of the Bank.
The Bank has at least the minimum qualifications required by Section 17(f)(1) of
the Investment Company Act of 1940 (the "1940 Act") to act as custodian of the
portfolio securities and cash of the Fund, and has indicated its willingness to
so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
------------------------
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on Appendix A
----------
hereto.
2. Definitions. Whenever used herein, the terms listed below will have
-----------
the following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
-----------------
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of
-----
Trustees of the Fund, as the case may be.
2.3 Security. The term security as used herein will have the same
--------
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security owned
------------------
by the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
---------------------
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
<PAGE>
2.6 Book-Entry System. Book-Entry System shall mean the Federal Reserve-
-----------------
Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
----------
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.8 Proper Instructions. Proper Instructions shall mean (i) instructions
-------------------
regarding the purchase or sale of Portfolio Securities, and payments and
deliveries in connection therewith, given by an Authorized Person, such
instructions to be given in such form and manner as the Bank and the Fund shall
agree upon from time to time, and (ii) instructions (which may be continuing
instructions) regarding other matters signed or initialed by an Authorized
Person. Oral instructions will be considered Proper Instructions if the Bank
reasonably believes them to have been given by an Authorized Person. The Fund
shall cause all oral instructions to be promptly confirmed in writing. The Bank
shall act upon and comply with any subsequent Proper Instruction which modifies
a prior instruction and the sole obligation of the Bank with respect to any
follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt by the Bank of an Officers' Certificate as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include communication
effected directly between electro-mechanical or electronic devices provided that
the Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or portfolio,
-----------------
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this
Agreement to any actions to be taken by the Fund shall be deemed to refer to the
Fund acting on behalf of one or more of its series, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
portfolio securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable series, any duty or obligation of the Bank
hereunder to the Fund shall be deemed to refer to duties and obligations with
respect to such individual series and any obligation or liability of the Fund
hereunder shall be binding only with respect to such individual series, and
shall be discharged only out of the assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant
--------------------------------------
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund will sign a new or amended certification setting forth the
change and the new, additional or omitted names or signatures. The Bank will be
entitled to rely and act upon any
2
<PAGE>
Officers' Certificate given to it by the Fund which has been signed by
Authorized Persons named in the most recent certification received by the Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
---------------
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed funds,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Fund into a separate savings deposit account
upon which the Bank reserves the right to require seven (7) days notice prior to
withdrawal of cash from such an account. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the
----------------------
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the repurchase
-----------
or redemption of common shares of the Fund offered for repurchase or redemption
in accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account
----------------------------------
of the Fund of dividends or other distributions to shareholders as may from time
to time be declared by the Board, interest, taxes, management or supervisory
fees, distribution fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as provided hereunder,
fees of any transfer agent, fees for legal, accounting, and auditing services,
or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with
--------------------------------
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund, but,
------------------
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
3
<PAGE>
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the
-----------------
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
-----------------------------
(a) For payments in connection with foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements")which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of the
-------------------------
Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination: Upon the termination of this Agreement as hereinafter
-----------
set forth pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
----------
6.1 Segregation and Registration. Except as otherwise provided herein,
----------------------------
and except for securities to be delivered to any subcustodian appointed pursuant
to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and hold
pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
4
<PAGE>
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
------------------
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an issuer
----------------
of any Portfolio Security has taken or intends to take a corporate action (a
"Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Fund via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action within twenty-four (24) hours of receipt of such materials by
the Bank.
(a) The Bank shall act upon a required Response only after receipt by
the Bank of Proper Instructions from the Fund no later than 5:00 p.m. on the
date specified as the Response Deadline and only if the Bank (or its agent or
subcustodian hereunder) has actual possession of all necessary Securities,
consents and other materials no later than 5:00 p.m. on the date specified as
the Response Deadline.
(b) The Bank shall have no duty to act upon a required Response if
Proper Instructions relating to such Response and all necessary Securities,
consents and other materials are not received by and in the possession of the
Bank no later than 5:00 p.m. on the date specified as the Response Deadline.
Notwithstanding, the Bank may, in its sole discretion, use its best efforts to
act upon a Response for which Proper Instructions and/or necessary Securities,
consents or other materials are received by the Bank after 5:00 p.m. on the date
specified as the Response Deadline, it being acknowledged and agreed by the
parties that any undertaking by the Bank to use its best efforts in such
circumstances shall in no way create any duty upon the Bank to complete such
Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a Corporate Action
requiring a Response and the Bank has received no other notice of such Corporate
Action, the Response Deadline shall be 48 hours prior to the Response expiration
time set by the depository processing such Corporate Action.
(d) Section 14.3(g) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a Selected Foreign Sub-
Custodian.
5
<PAGE>
6.4 Book-Entry System. Provided (i) the Bank has received a certified
-----------------
copy of a resolution of the Board specifically approving deposits of Fund assets
in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to the
Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for the
account of the Fund or shall pay cash collateral against the return of Portfolio
Securities loaned by the Fund upon (i) receipt of advice from the Book-Entry
System that such Securities have been transferred to the Account, and (ii) the
making of an entry on the records of the Bank (or its agent) to reflect such
payment and transfer for the account of the Fund. The Bank (or its agent) shall
transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral against the
delivery of securities loaned by the Fund has been transferred to the Account;
and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the Fund. Copies
of all advice from the Book-Entry System of transfers of securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send the
Fund a confirmation, as defined by Rule 17f-4 of the 1940 Act, of any transfers
to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report obtained
by the Bank or its agent on the Book-Entry System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Book-Entry System;
6.5 Use of a Depository. Provided (i) the Bank has received a certified
-------------------
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange, release,
lend, deliver and otherwise deal with Portfolio Securities including stock
dividends, rights and other items of like
6
<PAGE>
nature, and to receive and remit to the Bank on behalf of the Fund all income
and other payments thereon and to take all steps necessary and proper in
connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of
any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through the
clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities, delivery of the Securities
will be made only against payment therefor or, in the event Portfolio Securities
are loaned, delivery of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Proxy materials received by a Depository with respect to
Portfolio Securities deposited with such Depository are forwarded immediately to
the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank confirmation
of any purchase or sale of Portfolio Securities and of the appropriate book
entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the Bank
---------------------------------------------
has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a book-
entry agreement (the "Issuers"). In maintaining procedures for Book-Entry Paper,
the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund in an
account of the Bank that includes only assets held by it for customers;
7
<PAGE>
(b) The records of the Bank with respect to the Fund's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, commercial paper
belonging to the Fund which is included in the Book-Entry System and shall at
all times during the regular business hours of the Bank be open for inspection
by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the account
of the Fund upon contemporaneous (i) receipt of advice from the Issuer that such
sale of Book-Entry Paper has been effected, and (ii) the making of an entry on
the records of the Bank to reflect such payment and transfer for the account of
the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon the
maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund; and
(e) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper as the Fund may
reasonably request from time to time.
6.7 Use of Immobilization Programs. Provided (i) the Bank has received a
------------------------------
certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii)
for each year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs
--------------
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Portfolio Securities are identified on the books of the Bank as belonging
to the Fund and that the books of the Bank identify the European Branch holding
such Portfolio Securities. Notwithstanding any other provision of this Agreement
to the contrary, except as stated in the first sentence of this subsection 6.8,
the Bank shall be under no other duty with respect to such Eurodollar CDs
belonging to the Fund.
6.9 Options and Futures Transactions.
--------------------------------
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or Over-
the-Counter.
(i) The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by the Fund regarding escrow
or other arrangements (i) in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions among the Bank, any broker-
dealer registered with the National Association of Securities Dealers, Inc. (the
"NASD"), and, if necessary, the Fund, relating to the compliance with the rules
of the Options Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank
8
<PAGE>
shall have no responsibility for the legality of any put or call purchased or
sold on behalf of the Fund, the propriety of any such purchase or sale, or the
adequacy of any collateral delivered to a broker in connection with an option or
deposited to or withdrawn from a Segregated Account (as defined in subsection
6.10 below). The Bank specifically, but not by way of limitation, shall not be
under any duty or obligation to: (i) periodically check or notify the Fund that
the amount of such collateral held by a broker or held in a Segregated Account
is sufficient to protect such broker or the Fund against any loss; (ii) effect
the return of any collateral delivered to a broker; or (iii) advise the Fund
that any option it holds, has or is about to expire. Such duties or obligations
shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement entered into upon the receipt of Proper Instructions
among the Fund, the Bank and a Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund.
(ii) The responsibilities of the Bank as to futures, puts and
calls traded on commodities exchanges, any Futures Commission Merchant account
and the Segregated Account shall be limited as set forth in subparagraph (a)(2)
of this Section 6.8 as if such subparagraph referred to Futures Commission
Merchants rather than brokers, and Futures and puts and calls thereon instead of
options.
6.10 Segregated Account. The Bank shall upon receipt of Proper
------------------
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any agreement among
the Fund, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(iii) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities
9
<PAGE>
and Exchange Commission relating to the maintenance of Segregated Accounts by
registered investment companies;
(v) for other proper corporate purposes, but only, in the
case of this clause (a)(v), upon receipt of, in addition to Proper Instructions,
a certified copy of a resolution of the Board, or of the executive committee of
the Board signed by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such Segregated
Account and declaring such purposes to be proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) or (a)(ii) above, in
accordance with the provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or
(a)(iv) above, for sale or delivery to meet the Fund's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward commitment
or when-issued agreements for the purchase of portfolio securities or reverse
repurchase agreements are sold to other parties or the Fund's obligations
thereunder are met from assets of the Fund other than those in the Segregated
Account;
(v) for delivery upon settlement of a forward commitment or
when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(v) above,
in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt
--------------------------------------
of Proper Instructions relating to the purchase by the Fund of interest-bearing
fixed-term and call deposits, transfer cash, by wire or otherwise, in such
amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Fund and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Fund.
6.12 Transfer of Securities. The Bank will transfer, exchange, deliver or
----------------------
release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section only upon receipt of Proper
Instructions. The Proper Instructions shall state that such transfer, exchange
or delivery is for a purpose permitted under the terms of this Section 6.11, and
shall specify the applicable subsection, or describe the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable
10
<PAGE>
subsection. After receipt of such Proper Instructions, the Bank will transfer,
exchange, deliver or release Portfolio Securities only in the following
circumstances:
(a) Upon sales of Portfolio Securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full, or
against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided,
however, that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their terms
into other securities;
(d) For the purpose of redeeming in-kind shares of the Fund upon
authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or retired or
otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio Securities
held by the Bank in order to collateralize loans made to the Fund by any bank,
including the Bank; provided, however, that such Portfolio Securities will be
released only upon payment to the Bank for the account of the Fund of the moneys
borrowed, provided further, however, that in cases where additional collateral
is required to secure a borrowing already made, and such fact is made to appear
in the Proper Instructions, Portfolio Securities may be released for that
purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) for the purpose of releasing certificates representing Portfolio
Securities, against contemporaneous receipt by the Bank of the fair market value
of such security, as set forth in the Proper Instructions received by the Bank
before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to a
bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided
11
<PAGE>
herein, of adequate collateral as agreed upon from time to time by the Fund and
the Bank, and upon receipt of payment in connection with any repurchase
agreement relating to such securities entered into by the Fund;
(j) for other authorized transactions of the Fund or for other proper
corporate purposes; provided that before making such transfer, the Bank will
also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
-----------
Bank in connection with redemptions and repurchases by the Fund of outstanding
common shares, the Bank will rely on notification by the Fund's transfer agent
of receipt of a request for redemption and certificates, if issued, in proper
form for redemption before such payment is made. Payment shall be made in
accordance with the Articles of Incorporation or Declaration of Trust and By-
laws of the Fund (the "Articles"), from assets available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
---------------------------------
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the Portfolio Securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate and the
Bank shall be released from any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
-------------------------------------------
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio Securities held
thereunder;
9.2 Present for payment all coupons and other income items held by it for
the account of the Fund which call for payment upon presentation and hold the
cash received by it upon such payment for the account of the Fund;
12
<PAGE>
9.3 Receive and hold for the account of the Fund all securities received
as a distribution on Portfolio Securities as a result of a stock dividend, share
split-up, reorganization, recapitalization, merger, consolidation, readjustment,
distribution of rights and similar securities issued with respect to any
Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
------------------------
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal.
11. Maintenance of Records and Accounting Services. The Bank will
----------------------------------------------
maintain records with respect to transactions for which the Bank is responsible
pursuant to the terms and conditions of this Agreement, and in compliance with
the applicable rules and regulations of the 1940 Act. The books and records of
the Bank pertaining to its actions under this Agreement and reports by the Bank
or its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act.
The Bank shall perform fund accounting and shall keep the books of account
and render statements or copies from time to time as reasonably requested by the
Treasurer or any executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation and Yield Calculation
-------------------------------------
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
---------------
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of the Fund, such determination to be made in accordance with the
provisions of the Articles and By-laws
13
<PAGE>
of the Fund and the Prospectus and Statement of Additional Information relating
to the Fund, as they may from time to time be amended, and any applicable
resolutions of the Board at the time in force and applicable; and promptly to
notify the Fund, the proper exchange and the NASD or such other persons as the
Fund may request of the results of such computation and determination. In
computing the net asset value hereunder, the Bank may rely in good faith upon
information furnished to it by any Authorized Person in respect of (i) the
manner of accrual of the liabilities of the Fund and in respect of liabilities
of the Fund not appearing on its books of account kept by the Bank, (ii)
reserves, if any, authorized by the Board or that no such reserves have been
authorized, (iii) the source of the quotations to be used in computing the net
asset value, (iv) the value to be assigned to any security for which no price
quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and the Bank
shall not be responsible for any loss occasioned by such reliance or for any
good faith reliance on any quotations received from a source pursuant to (iii)
above.
12.2. Yield Calculation. The Bank will compute the performance results
------------------
of the Fund (the "Yield Calculation") in accordance with the provisions of
Release No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for the Fund for the
stated periods of time as shall be mutually agreed upon, and communicate in a
timely manner the result of such computation to the Fund.
(b) In performing the Yield Calculation, the Bank will derive the
items of data necessary for the computation from the records it generates and
maintains for the Fund pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Fund, any of the Fund's designated agents or any of the Fund's designated
third party providers.
(c) At the request of the Bank, the Fund shall provide, and the Bank
shall be entitled to rely on, written standards and guidelines to be followed by
the Bank in interpreting and applying the computation methods set forth in the
Releases or any Subsequent Staff Positions as they specifically apply to the
Fund. In the event that the computation methods in the Releases or the
Subsequent Staff Positions or the application to the Fund of a standard or
guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or otherwise or
as to any other element of the computation which is pertinent to the Fund, the
Fund or its designated agent shall have the full responsibility for making the
determination of how the security or payment is to be treated for purposes of
the computation and how the computation is to be made and shall inform the Bank
thereof on a timely basis. The Bank shall have no responsibility to make
independent determinations with respect to any item which is covered by this
Section, and shall not be responsible for its computations made in accordance
with such determinations so long as such computations are mathematically
correct.
(d) The Fund shall keep the Bank informed of all publicly available
information and of any non-public advice, or information obtained by the Fund
from its independent auditors or by its personnel or the personnel of its
investment adviser, or Subsequent Staff Positions related to the computations to
be undertaken by the Bank pursuant to this Agreement and the Bank shall not be
deemed
14
<PAGE>
to have knowledge of such information (except as contained in the Releases)
unless it has been furnished to the Bank in writing.
13. Additional Services. The Bank shall perform the additional services
-------------------
or delete previously included services for the Fund as are set forth on Appendix
--------
B hereto. Appendix B may be amended from time to time upon agreement of the
- - ----------
parties to include further additional services to be provided by the Bank to the
Fund, at which time the fees set forth in Appendix A shall be appropriately
----------
increased or decreased.
14. Duties of the Bank.
------------------
14.1 Performance of Duties and Standard of Care. In performing its
------------------------------------------
duties hereunder and any other duties listed on any Schedule hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities purchased by
or for the Fund, the legality of the purchases thereof or the propriety of the
price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for the
Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the Fund
or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the Fund or
the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or the
legality of the distribution of any Portfolio Securities as payment in kind of
such dividend; and
(f) any property or moneys of the Fund unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Fund Held
------------------------------------------------------------------
in the United States. The Bank may employ agents in the performance of its
- --------------------
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians,
provided that any such subcustodian meets at least the minimum qualifications
required by Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's
assets with respect to property of the Fund held in the United
15
<PAGE>
States. The Bank shall have no liability to the Fund or any other person by
reason of any act or omission of any subcustodian and the Fund shall indemnify
the Bank and hold it harmless from and against any and all actions, suits and
claims, arising directly or indirectly out of the performance of any
subcustodian. Upon request of the Bank, the Fund shall assume the entire defense
of any action, suit, or claim subject to the foregoing indemnity. The Fund shall
pay all fees and expenses of any subcustodian.
14.3 Duties of the Bank with Respect to Property of the Fund Held Outside
--------------------------------------------------------------------
of the United States.
- --------------------
(a) Appointment of Foreign Sub-Custodians. The Fund hereby authorizes
-------------------------------------
and instructs the Bank to employ as sub-custodians for the Fund's Portfolio
Securities and other assets maintained outside the United States the foreign
banking institutions and foreign securities depositories designated on the
Schedule attached hereto (each, a "Selected Foreign Sub-Custodian"). Upon
receipt of Proper Instructions, together with a certified resolution of the
Fund's Board of Trustees, the Bank and the Fund may agree to designate
additional foreign banking institutions and foreign securities depositories to
act as Selected Foreign Sub-Custodians hereunder. Upon receipt of Proper
Instructions, the Fund may instruct the Bank to cease the employment of any one
or more such Selected Foreign Sub-Custodians for maintaining custody of the
Fund's assets, and the Bank shall so cease to employ such sub-custodian as soon
as alternate custodial arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be
-------------------------------
agreed upon in writing by the Bank and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign Sub-
Custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be agreed upon in writing by the Bank and the Fund, the Fund authorizes the
deposit in Euro-clear, the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Portfolio Securities eligible for deposit therein and the use of Euro-
clear in connection with settlements of purchases and sales of securities and
deliveries and returns of securities, until notified to the contrary pursuant to
subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its books
-------------------------
as belonging to the Fund the Foreign Portfolio Securities held by each Selected
Foreign Sub-Custodian. Each agreement pursuant to which the Bank employs a
foreign banking institution shall require that such institution establish a
custody account for the Bank and hold in that account Foreign Portfolio
Securities and other assets of the Fund, and, in the event that such institution
deposits Foreign Portfolio Securities in a foreign securities depository, that
it shall identify on its books as belonging to the Bank the securities so
deposited.
(d) Agreements with Foreign Banking Institutions. Each of the
--------------------------------------------
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub-Custodian Agreement") shall be substantially in the
form provided to the Fund and shall provide that: (a) the Fund's assets will
not be subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or agent,
except a claim of payment for their safe custody or administration (including,
without limitation, any fees or taxes payable upon transfers or reregistration
of securities); (b) beneficial ownership of the Fund's assets will be freely
transferable without the payment of money or value other than for custody or
administration (including, without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (c) adequate records will be
maintained identifying the assets as belonging to the Bank; (d) officers of or
auditors employed
16
<PAGE>
by, or other representatives of the Bank, including to the extent permitted
under applicable law, the independent public accountants for the Fund, will be
given access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Bank; and (e) assets of the
Fund held by the Selected Foreign Sub-Custodian will be subject only to the
instructions of the Bank or its agents.
(e) Access of Independent Accountants of the Fund. Upon request of
---------------------------------------------
the Fund, the Bank will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-Custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from time to
---------------
time, as mutually agreed upon, statements in respect of the securities and other
assets of the Fund held by Selected Foreign Sub-Custodians, including but not
limited to an identification of entities having possession of the Foreign
Portfolio Securities and other assets of the Fund.
(g) Transactions in Foreign Custody Account. Transactions with
---------------------------------------
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
If at any time any Foreign Portfolio Securities shall be registered in the name
of the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold
any such nominee harmless from any liability by reason of the registration of
such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the account
of the Fund and delivery of Foreign Portfolio Securities maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer.
In connection with any action to be taken with respect to the Foreign
Portfolio Securities held hereunder, including, without limitation, the exercise
of any voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Foreign Sub-Custodian, and shall promptly forward to the applicable Foreign Sub-
Custodian any instructions, forms or certifications with respect to such Rights,
and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further
duty or obligation with respect to such Rights, including, without limitation,
the determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
(h) Liability of Selected Foreign Sub-Custodians. Each Foreign Sub-
--------------------------------------------
Custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in
17
<PAGE>
the performance of its duties and to indemnify, and hold harmless, the Bank and
each Fund from and against certain losses, damages, costs, expenses, liabilities
or claims arising out of or in connection with the institution's performance of
such obligations, all as set forth in the applicable Foreign Sub-Custodian
Agreement. The Fund acknowledges that the Bank, as a participant in Euro-clear,
is subject to the Terms and Conditions Governing the Euro-Clear System, a copy
of which has been made available to the Fund. The Fund acknowledges that
pursuant to such Terms and Conditions, Morgan Guaranty Brussels shall have the
sole right to exercise or assert any and all rights or claims in respect of
actions or omissions of, or the bankruptcy or insolvency of, any other
depository, clearance system or custodian utilized by Euro-clear in connection
with the Fund's securities and other assets.
(i) Monitoring Responsibilities. The Bank shall furnish annually to
---------------------------
the Fund information concerning the Selected Foreign Sub-Custodians employed
hereunder for use by the Fund in evaluating such Selected Foreign Sub-Custodians
to ensure compliance with the requirements of Rule 17f-5 of the Act. In
addition, the Bank will promptly inform the Fund in the event that the Bank is
notified by a Selected Foreign Sub-Custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below US$200
million (or the equivalent thereof) or that its shareholders' equity has
declined below US$200 million (in each case computed in accordance with
generally accepted U.S. accounting principles) or any other capital adequacy
test applicable to it by exemptive order, or if the Bank has actual knowledge of
any material loss of the assets of the Fund held by a Foreign Sub-Custodian.
(j) Tax Law. The Bank shall have no responsibility or liability for
-------
any obligations now or hereafter imposed on the Fund or the Bank as custodian of
the Fund by the tax laws of any jurisdiction, and it shall be the responsibility
of the Fund to notify the Bank of the obligations imposed on the Fund or the
Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction,
including responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. The sole
responsibility of the Bank and Selected Foreign Sub-custodian with regard to
such tax law shall be to use reasonable efforts to assist the Fund with respect
to any claim for exemption or refund under the tax law of jurisdictions for
which the Fund has provided such information.
14.4 Insurance. The Bank shall use the same care with respect to the
---------
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5. Fees and Expenses of the Bank. The Fund will pay or reimburse the
-----------------------------
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement.
14.6 Advances by the Bank. The Bank may, in its sole discretion, advance
--------------------
funds on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such payments
by the Fund. Should such a payment or payments, with advanced funds, result in
an overdraft (due to insufficiencies of the Fund's account with the Bank, or for
any other reason) this Agreement deems any such overdraft or related
indebtedness a loan made by the
18
<PAGE>
Bank to the Fund payable on demand. Such overdraft shall bear interest at the
current rate charged by the Bank for such loans unless the Fund shall provide
the Bank with agreed upon compensating balances. The Fund agrees that the Bank
shall have a continuing lien and security interest to the extent of any
overdraft or indebtedness, in and to any property at any time held by it for the
Fund's benefit or in which the Fund has an interest and which is then in the
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon, against any balance of account standing to the credit of
the Fund on the Bank's books.
15. Limitation of Liability.
-----------------------
15.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the negligence, willful
misfeasance or bad faith of the Bank or any Indemnified Party. Without limiting
the foregoing, neither the Bank nor the Indemnified Parties shall be liable for,
and the Bank and the Indemnified Parties shall be indemnified against, any Claim
arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party in good
faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by the Bank to
genuine;
(b) Any act or omission of any subcustodian selected by or at the
direction of the Fund;
(c) Any act or omission of a Selected Foreign Sub-Custodian for to the
extent which such Selected Foreign Sub-Custodian is not liable to the Bank;
(d) Any Corporate Action requiring a Response for which the Bank has
not received Proper Instructions or obtained actual possession of all necessary
Securities, consents or other materials by 5:00 p.m. on the date specified as
the Response Deadline;
(e) Any act or omission of any European Branch of a U.S. banking
institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(f) Information relied on in good faith by the Bank and supplied by
any Authorized Person in connection with the calculation of (i) the net asset
value and public offering price of the shares of capital stock of the Fund or
(ii) the Yield Calculation; or
(g) Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers (hardware or software) and
computer facilities, the unavailability of energy sources and other similar
happenings or events.
19
<PAGE>
15.2 Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
16. Termination.
-----------
16.1 This Agreement may be terminated at any time without penalty upon
sixty days written notice delivered by either party to the other by means of
registered mail, and upon the expiration of such sixty days this Agreement will
terminate; provided , however, that the effective date of such termination may
be postponed to a date not more than ninety days from the date of delivery of
such notice (i) by the Bank in order to prepare for the transfer by the Bank of
all of the assets of the Company held hereunder, and (ii) by the Company in
order to give the Company an opportunity to make suitable arrangements for a
successor custodian. At any time after the termination of this Agreement, the
Company will, at its request, have access to the records of the Bank related to
the performance of its duties as custodian. Notwithstanding the foregoing, this
Agreement may not be terminated prior to November 1, 1998 except for cause after
written notice and a reasonable opportunity to cure.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (16.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board. Thereafter, the Bank
shall be released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund may,
upon written request, have reasonable access to the records of the Bank relating
to its performance of its duties as custodian.
20
<PAGE>
17. Confidentiality. Both parties hereto agree than any non-public
---------------
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or
-------
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
Atlas Insurance Trust
794 Davis Street
San Leandro, CA 94577
Attention: Steven J. Gray
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, 16th Floor
Boston, Massachusetts 02116
Attention: Andrew M. Nesvet
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate
in writing.
19. Amendments. This Agreement may not be altered or amended, except by
----------
an instrument in writing, executed by both parties.
20. Parties. This Agreement will be binding upon and shall inure to the
-------
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
-------------
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
23. Entire Agreement. This Agreement, together with its Appendices,
----------------
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an
21
<PAGE>
acceptance of any conflicting terms or provisions of any other instrument and
terminates and supersedes any and all prior agreements and undertakings between
the parties relating to the subject matter herein.
24. Limitation of Liability. The Bank agrees that the obligations
-----------------------
assumed by the Fund hereunder shall be limited in all cases to the assets of the
Fund and that the Bank shall not seek satisfaction of any such obligation from
the officers, agents, employees, trustees, or shareholders of the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
ATLAS INSURANCE TRUST
By:
----------------------------
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:
-----------------------------
Name:
Title:
23
<PAGE>
Atlas Insurance Trust
Custodian Agreement
Appendix B
Additional Services
-------------------
None
24
<PAGE>
EXHIBIT 9A
TRANSFER AGENCY AND SERVICE AGREEMENT
between
ATLAS INSURANCE TRUST
and
STATE STREET BANK AND TRUST COMPANY
1C-Domestic Trust/Series
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Terms of Appointment; Duties of the Bank.................... 1
2. Fees and Expenses........................................... 3
3. Representations and Warranties of the Bank.................. 4
4. Representations and Warranties of the Fund.................. 4
5. Wire Transfer Operating Guidelines.......................... 5
6. Data Access and Proprietary Information..................... 6
7. Indemnification............................................. 8
8. Standard of Care............................................ 9
9. Covenants of the Fund and the Bank.......................... 9
10. Termination of Agreement.................................... 10
11. Additional Funds............................................ 10
12. Assignment.................................................. 10
13. Amendment................................................... 11
14. Massachusetts Law to Apply.................................. 11
15. Force Majeure............................................... 11
16. Consequential Damages....................................... 11
17. Merger of Agreement......................................... 11
18. Limitations of Liability of the Trustees
or Shareholders............................................. 11
19. Counterparts................................................ 11
20. Reproduction of Documents................................... 12
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
-------------------------------------
AGREEMENT made as of the day of , 1997, by and between ATLAS INSURANCE
TRUST, a Delaware business trust, having its principal office and place of
business at 794 Davis Street, San Leandro, California 94577 ("Fund"), and STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust company having its
principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in one series, the Atlas
Balanced Growth Portfolio (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 11, being herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
----------------------------------------
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund,
on behalf of the Portfolios, hereby employs and appoints the Bank to act
as, and the Bank agrees to act as its transfer agent for the Fund's
authorized and issued shares of its beneficial interest, no par value,
("Shares"), dividend disbursing agent, custodian of certain retirement
plans and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of each of the respective
Portfolios of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable Portfolio,
including without limitation any periodic investment plan or periodic
withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof
to the Custodian of
1
<PAGE>
the Fund authorized pursuant to the Declaration of Trust of
the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriate manner such monies
as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such shares or
to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i)
perform the customary services of a transfer agent, dividend
disbursing agent, custodian of certain retirement plans and,
2
<PAGE>
as relevant, agent in connection with accumulation, open-account or
similar plans (including without limitation any periodic investment
plan or periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident
alien accounts, preparing and filing U.S. Treasury Department Forms
1099 and other appropriate forms required with respect to dividends
and distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of account
to Shareholders for all purchases and redemptions of Shares and
other confirmable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and providing
Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each
State.
(c) In addition, the Fund shall (i) identify to the Bank in writing
those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment
of transactions subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only
a portion of these services and the Fund or its agent may perform
these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. Fees and Expenses
-----------------
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and
advances identified under Section 2.2 below may be changed from time to
time subject to mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage,
forms, telephone, microfilm, microfiche, mailing and tabulating proxies,
records storage, or advances incurred by the Bank for the items set out in
the fee schedule attached hereto. In addition, any other expenses
incurred by the Bank at the request or with the consent of the Fund, will
be reimbursed by the Fund on behalf of the applicable Portfolio.
3
<PAGE>
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies,
Fund reports and other mailings to all shareholder accounts shall be
advanced to the Bank by the Fund at least seven (7) days prior to the
mailing date of such materials.
3. Representations and Warranties of the Bank
------------------------------------------
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
------------------------------------------
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of the State of Delaware.
4.2 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and By-
Laws have been taken to authorize it to enter into and perform this
Agreement.
4.4 It is an open-end and diversified management investment company registered
under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of the Fund being
offered for sale.
4
<PAGE>
5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform Commercial
------------------------------------------------------------------------
Code
----
5.1 The Bank is authorized to promptly debit the appropriate Fund
account(s) upon the receipt of a payment order in compliance with
the selected security procedure (the "Security Procedure") chosen
for funds transfer and in the amount of money that the Bank has been
instructed to transfer. The Bank shall execute payment orders in
compliance with the Security Procedure and with the Fund
instructions on the execution date provided that such payment order
is received by the customary deadline for processing such a request,
unless the payment order specifies a later time. All payment orders
and communications received after this the customary deadline will
be deemed to have been received the next business day.
5.2 The Fund acknowledges that the Security Procedure it has designated
on the Fund Selection Form was selected by the Fund from security
procedures offered by the Bank. The Fund shall restrict access to
confidential information relating to the Security Procedure to
authorized persons as communicated to the Bank in writing. The Fund
must notify the Bank immediately if it has reason to believe
unauthorized persons may have obtained access to such information or
of any change in the Fund's authorized personnel. The Bank shall
verify the authenticity of all Fund instructions according to the
Security Procedure.
5.3 The Bank shall process all payment orders on the basis of the
account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the
account number, the account number shall take precedence and govern.
5.4 The Bank reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the
collected balance in the account to be charged at the time of the
Bank's receipt of such payment order; (b) if initiating such payment
order would cause the Bank, in the Bank's sole judgement, to exceed
any volume, aggregate dollar, network, time, credit or similar
limits which are applicable to the Bank; or (c) if the Bank, in good
faith, is unable to satisfy itself that the transaction has been
properly authorized.
5.5 The Bank shall use reasonable efforts to act on all authorized
requests to cancel or amend payment orders received in compliance
with the Security Procedure provided that such requests are received
in a timely manner affording the Bank reasonable opportunity to act.
However, the Bank assumes no liability if the request for amendment
or cancellation cannot be satisfied.
5.6 The Bank shall assume no responsibility for failure to detect any
erroneous payment order provided that the Bank complies with the
payment order instructions as received and the Bank complies with
the Security Procedure. The Security Procedure is established for
the purpose of authenticating payment
5
<PAGE>
orders only and not for the detection of errors in payment orders.
5.7 The Bank shall assume no responsibility for lost interest with
respect to the refundable amount of any unauthorized payment order,
unless the Bank is notified of the unauthorized payment order within
thirty (30) days of notification by the Bank of the acceptance of
such payment order. In no event (including failure to execute a
payment order) shall the Bank be liable for special, indirect or
consequential damages, even if advised of the possibility of such
damages.
5.8 When the Fund initiates or receives Automated Clearing House credit
and debit entries pursuant to these guidelines and the rules of the
National Automated Clearing House Association and the New England
Clearing House Association, the Bank will act as an Originating
Depository Financial Institution and/or receiving depository
Financial Institution, as the case may be, with respect to such
entries. Credits given by the Bank with respect to an ACH credit
entry are provisional until the Bank receives final settlement for
such entry from the Federal Reserve Bank. If the Bank does not
receive such final settlement, the Fund agrees that the Bank shall
receive a refund of the amount credited to the Fund in connection
with such entry, and the party making payment to the Fund via such
entry shall not be deemed to have paid the amount of the entry.
5.9 Confirmation of Bank's execution of payment orders shall ordinarily
be provided within twenty four (24) hours notice of which may be
delivered through the Bank's proprietary information systems, or by
facsimile or call-back. Fund must report any objections to the
execution of an order within thirty (30) days.
6. Data Access and Proprietary Information
---------------------------------------
6.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank
on data bases under the control and ownership of the Bank or other third
party ("Data Access Services") constitute copyrighted, trade secret, or
other proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to
treat all Proprietary Information as proprietary to the Bank and further
agrees that it shall not divulge any Proprietary Information to any person
or organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be designated
in writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary
6
<PAGE>
Information, and if such access is inadvertently obtained, to inform
in a timely manner of such fact and dispose of such information in
accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder from
being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 6. The obligations of this Section shall
survive any earlier termination of this Agreement.
6.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make no
claim against the Bank arising out of the contents of such third-party
data, including, but not limited to, the accuracy thereof. DATA ACCESS
SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN
CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE
BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6.3 If the transactions available to the Fund include the ability to originate
electronic instructions to the Bank in order to (i) effect the transfer or
movement of cash or Shares or (ii) transmit Shareholder information or
other information, then in such event the Bank shall be entitled to rely
on the validity and authenticity of such instruction without undertaking
any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by the Bank from time to
time.
7. Indemnification
---------------
7.1 The Bank shall not be responsible for, and the Fund shall on behalf of the
applicable Portfolio indemnify and hold the Bank harmless from and
against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
7
<PAGE>
(a) All actions of the Bank or its agents or subcontractors required to
be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct
which arise out of the breach of any representation or warranty of
the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors
of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have
been prepared, maintained or performed by the Fund or any other
person or firm on behalf of the Fund including but not limited to
any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be
registered or in violation of any stop order or other determination
or ruling by any federal or any state agency with respect to the
offer or sale of such Shares, provided that all actions taken by the
Bank were in good faith and without negligence or willful
misconduct.
(f) The negotiations and processing of checks made payable to
prospective or existing Shareholders tendered to the Bank for the
purchase of Shares, such checks are commonly known as "third party
checks."
7.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the Bank
under this Agreement, and the Bank and its agents or subcontractors shall
not be liable and shall be indemnified by the Fund on behalf of the
applicable Portfolio for any action taken or omitted by it in reliance
upon such instructions or upon the opinion of such counsel. The Bank, its
agents and subcontractors shall be protected and indemnified in acting
upon any paper or document, reasonably believed to be genuine and to have
been signed by the proper person or persons, or upon any instruction,
information, data, records or documents provided the Bank or its agents or
subcontractors by machine readable input, telex, CRT data entry or other
similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and subcontractors shall also
be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of
the officers of the Fund, and the proper countersignature of any former
transfer agent or former registrar, or of a co-transfer agent or co-
registrar.
7.3 In order that the indemnification provisions contained in this Section 7
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the
8
<PAGE>
Bank shall promptly notify the Fund of such assertion, and shall keep the
Fund advised with respect to all developments concerning such claim. The
Fund shall have the option to participate with the Bank in the defense of
such claim or to defend against said claim in its own name or in the name
of the Bank. The Bank shall in no case confess any claim or make any
compromise in any case in which the Fund may be required to indemnify the
Bank except with the Fund's prior written consent.
8. Standard of Care
----------------
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to ensure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
9. Covenants of the Fund and the Bank
----------------------------------
9.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
9.2 The Bank hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for
the preparation or use, and for keeping account of, such certificates,
forms and devices.
9.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Fund Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the
Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules,
and will be surrendered promptly to the Fund on and in accordance with its
request.
9.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any
other person, except as may be required by law.
9.5 In case of any requests or demands for the inspection of the Shareholder
records of the
9
<PAGE>
Fund, the Bank will endeavor to notify the Fund and to secure instructions
from an authorized officer of the Fund as to such inspection. The Bank
reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by its counsel that it may be held liable
for the failure to exhibit the Shareholder records to such person.
10. Termination of Agreement
------------------------
10.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
10.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s). Additionally,
the Bank reserves the right to charge for any other reasonable expenses
associated with such termination.
11. Additional Portfolios
---------------------
In the event that the Fund establishes one or more series of Shares in
addition to Atlas Balanced Growth Portfolio with respect to which it
desires to have the Bank render services as transfer agent under the terms
hereof, it shall so notify the Bank in writing, and if the Bank agrees in
writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
12. Assignment
----------
12.1 Except as provided in Section 12.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
12.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
12.3 The Bank may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services, Inc.,
a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(2) of the Securities Exchange
Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary
duly registered as a transfer agent pursuant to Section 17A(c)(2) or (iii)
a BFDS affiliate; provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any subcontractor as
it is for its own acts and omissions.
13. Amendment
---------
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board of
Trustees of the Fund.
10
<PAGE>
14. Massachusetts Law to Apply
--------------------------
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of
Massachusetts.
15. Force Majeure
-------------
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
16. Consequential Damages
---------------------
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
17. Merger of Agreement
-------------------
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
18. Limitations of Liability of the Trustees and Shareholders
---------------------------------------------------------
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees or Shareholders individually but
are binding only upon the assets and property of the Fund.
19. Counterparts
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
11
<PAGE>
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 shall likewise
be admissible in evidence.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
ATLAS INSURANCE TRUST
BY:___________________
ATTEST:
- -------------------------
STATE STREET BANK AND TRUST COMPANY
BY:________________________
Executive Vice President
ATTEST:
- --------------------------
13
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES/*/
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C>
1. Receives orders for the purchase X X
of Shares.
2. Issue Shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X X
4. Effect transactions 1-3 above X X
directly with broker-dealers.
5. Pay over monies to redeeming X
Shareholders.
6. Effect transfers of Shares. X
7. Prepare and transmit dividends X
and distributions.
8. Maintain records of account. X
9. Maintain and keep a current and
accurate control book for each
issue of securities.
10. Mail proxies. X
11. Withhold taxes on U.S. resident X
and non-resident alien accounts.
12. Prepare and file U.S. Treasury X
Department forms.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C>
13. Provide Shareholder account X X
information.
14. Blue sky reporting. X
</TABLE>
* Such services are more fully described in Section 1.2 (a), (b) and (c) of the
Agreement.
ATLAS INSURANCE TRUST
BY:_______________________
ATTEST:
__________________________
STATE STREET BANK AND TRUST COMPANY
BY:_____________________________
Executive Vice President
ATTEST:
__________________________
15
<PAGE>
EXHIBIT 9B
PARTICIPATION AGREEMENT
Among
ATLAS INSURANCE TRUST,
ATLAS SECURITIES, INC.
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the _________ day of
______________, 1997 by and among PFL LIFE INSURANCE COMPANY, (hereinafter the
"Company"), an Iowa corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the ATLAS INSURANCE TRUST, a business trust organized under the
laws of Delaware (hereinafter the "Trust") and ATLAS SECURITIES, INC.
(hereinafter the "Underwriter"), a California corporation.
WHEREAS, the Trust engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by PFL Life
Insurance Company; and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940 (the "1940 Act") and its shares
are registered under the Securities Act of 1933, as amended (the "1933 Act");
and
WHEREAS, ATLAS ADVISERS, INC. (the "Adviser") is duly registered as an
investment adviser under the federal Investment Advisers Act of 1940 (the
"Advisers Act") and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended,
<PAGE>
(hereinafter the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Trust and the Underwriter agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Underwriter agrees to sell to the Company those shares of the
Trust which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Trust or its designee of the
order for the shares of the Trust. For purposes of this Section 1.1, the
Company shall be the designee of the Trust for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Trust;
provided that the Trust receives notice of such order by 9:00 a.m. central time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.2. The Trust agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the Securities and Exchange Commission and the Trust shall
use reasonable efforts to calculate such net asset value on each day which the
New York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Trust (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Trust and the Underwriter agree that shares of the Trust will be
sold only to the Company and its separate accounts or (subject to the other
terms of this Agreement) to other life insurance companies that offer variable
annuity and/or variable life insurance contracts to the public and which have
entered into an agreement with the Trust. No shares of any Portfolio will be
sold to the general public.
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Trust held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Trust for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of such
request for redemption on the next following Business Day.
<PAGE>
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Trust shall be made in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this reference,
as such Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Trust, in such other Trusts advised by the Adviser as may be mutually agreed to
in writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Trust if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Trust; or (b) the Company
gives the Trust and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Trust and Underwriter prior to their signing this Agreement (a list
of such funds appearing on Schedule C to this Agreement); or (d) the Trust or
Underwriter consents to the use of such other investment company.
1.6. The Company shall pay for Trust shares on the next Business Day after
an order to purchase Trust shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Trust of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Trust.
1.7. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Trust will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Trust shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Trust's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.9. The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 5:30 p.m. central time)
and shall use its best efforts to make such net asset value per share available
by 5:00 p.m. central time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply
<PAGE>
in all material respects with state insurance suitability requirements. The
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under Section 508A.1 of the Iowa Insurance Code and has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
2.2. The Trust represents and warrants that Trust shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Delaware and all
applicable federal and state securities laws and that the Trust is and shall
remain registered under the 1940 Act. The Trust shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Trust
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Trust or
the Underwriter.
2.3. The Trust represents that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment or annuity insurance contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Trust and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Trust currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Trust undertakes to
have a board of trustees, a majority of whom are not interested persons of the
Trust, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6. The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Trust represents that the Trust's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
state of Delaware and the Trust and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the state of Iowa to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Trust shares
in accordance with the laws of the State of Delaware and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
<PAGE>
2.8. The Trust represents that it is lawfully organized and validly
existing under the laws of Delaware and that it does and will comply in all
material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that the Adviser shall perform its obligations for the
Trust in compliance in all material respects with the laws of the State of
California and any applicable state and federal securities laws.
2.10. The Trust and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Trust are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Trust are covered by a blanket fidelity
bond or similar coverage for the benefit of the Trust, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Trust and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter shall provide the Company with as many printed copies
of the Trust's current prospectus and Statement of Additional Information as the
Company may reasonably request. If requested by the Company in lieu thereof,
the Trust shall provide camera-ready film containing the Trust's prospectus and
Statement of Additional Information, and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or Statement of Additional Information for the Trust is amended
during the year) to have the prospectus for the Contracts and the Trust's
prospectus printed together in one document, and to have the Statement of
Additional Information for the Trust and the Statement of Additional Information
for the Contracts printed together in one document. Alternatively, the Company
may print the Trust's prospectus and/or its Statement of Additional Information
in combination with other fund companies' prospectuses and statements of
additional information. Except as provided in the following three sentences, all
expenses of printing and distributing Trust prospectuses and Statements of
Additional Information shall be the expense of the Company. For prospectuses
and Statements of Additional Information provided by the Company to its existing
owners of Contracts in order to update disclosure annually as required by the
1933 Act and/or the 1940 Act, the cost of printing shall be borne by the Trust.
If the Company chooses to receive camera-ready film in lieu of receiving printed
copies of the Trust's prospectus, the Trust will reimburse the Company in an
amount equal to the product of A and B where A is the number of such
prospectuses distributed to owners of the Contracts, and B is the
<PAGE>
Trust's per unit cost of typesetting and printing the Trust's prospectus. The
same procedures shall be followed with respect to the Trust's Statement of
Additional Information.
The Company agrees to provide the Trust or its designee with such
information as may be reasonably requested by the Trust to assure that the
Trust's expenses do not include the cost of printing any prospectuses or
Statements of Additional Information other than those actually distributed to
existing owners of the Contracts.
3.2. The Trust's prospectus shall state that the Statement of Additional
Information for the Trust is available from the Underwriter or the Company (or
in the Trust's discretion, the Prospectus shall state that such Statement is
available from the Trust).
3.3. The Trust, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Trust shares in accordance with instructions received from
Contract owners; and
(iii) vote Trust shares for which no instructions have been received in a
particular separate account in the same proportion as Trust shares of such
portfolio for which instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Trust
shares held in any segregated asset account in its own right, to the extent
permitted by law. The Company shall be responsible for assuring that each of
its separate accounts participating in the Trust calculates voting privileges in
a manner consistent with the standards set forth on Schedule B attached hereto
and incorporated herein by this reference.
3.5. The Trust will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Trust will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Trust
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Trust will act
in accordance with the Securities and Exchange Commission's interpretation of
the requirements of Section 16(a) with respect to periodic elections of trustees
and with whatever rules the Commission may promulgate with respect thereto.
<PAGE>
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Trust or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Trust shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Trust,
or in sales literature or other promotional material approved by the Trust or
its designee or by the Underwriter, except with the permission of the Trust or
the Underwriter or the designee of either.
4.3. The Trust, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or its separate
account(s), is named at least fifteen Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within fifteen Business Days after receipt of such material.
4.4. The Trust and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Trust will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Trust or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Trust at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Trust or any affiliate of the Trust: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display,
<PAGE>
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Trust or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Trust.
5.2. All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Trust, in
accordance with applicable state laws prior to their sale. The Trust shall bear
the expenses for the cost of registration and qualification of the Trust's
shares, preparation and filing of the Trust's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Trust's shares.
5.3. The Company shall bear the expenses of distributing the Trust's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Trust will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the
scope of the foregoing, the Trust will at all times comply with Section 817(h)
of the Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Trust, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Trust so as to achieve compliance within the grace period afforded by Regulation
1.817-5.
<PAGE>
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Trust, if it determines to offer its shares to any other insurance
company, separate account or to a qualified plan shall furnish the Company with
a copy of its application for an order of the Securities and Exchange Commission
under Section 6(c) of the 1940 Act for mixed and shared funding relief, and the
notice of such application and order when issued by the SEC. The Company agrees
to comply with the conditions on which such order is issued, including reporting
any potential or existing conflicts promptly to the Board of Directors of the
Trust ("Board"), and in particular whenever contract owner voting instructions
are disregarded, to the extent such conditions are not materially different from
the conditions of the mixed and shared funding relief that the Company has
agreed to be bound by in similar participation agreements with other fund
providers, and recognizes that it shall be responsible for assisting the Board
in carrying out is responsibilities in connection with such order. The Company
agrees to carry out such responsibilities with a view to the interests of
existing contract owners.
7.2 The Board will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Trust. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.3. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.4. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1), withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Trust, or submitting the question whether such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of the Company) that
votes in favor of such segregation, or offering to the affected contract owners
the option of making such a change; and (2), establishing a new registered
management investment company or managed separate account.
<PAGE>
7.5. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Trust
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Trust shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Trust.
7.6. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Trust shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Trust.
7.7. For purposes of Sections 7.4 through 7.7 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Trust be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Trust
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Underwriter
and the Trust and each trustee of the Board and officers and each person, if
any, who controls the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities
<PAGE>
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration Statement
or prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Trust for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Trust not supplied by the
Company, or persons under its control) or wrongful conduct of the Company or
persons under its control, with respect to the sale or distribution of the
Contracts or Trust Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, or sales
literature of the Trust or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Trust by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Trust, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from
<PAGE>
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the Company
shall be entitled to participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company to such party of the Company's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Trust Shares or the Contracts or the operation of
the Trust.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Trust's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
prospectus or sales literature of the Trust (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter or Trust by
or on behalf of the Company for use in the Registration Statement or prospectus
for the Trust or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Trust shares;
or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the Trust,
Adviser or Underwriter or persons under their control, with respect to the sale
or distribution of the Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
<PAGE>
therein not misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to comply with
the diversification requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Trust
8.3(a). The Trust agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Trust) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise,
<PAGE>
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Trust and:
(i) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement (including
a failure to comply with the diversification requirements specified in Article
VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise out
of or result from any other material breach of this Agreement by the Trust;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Trust, the Underwriter or each Account, whichever is applicable.
8.3(c). The Trust shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Trust of any such claim shall not
relieve the Trust from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Trust will be entitled to participate, at its own
expense, in the defense thereof. The Trust also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Trust to such party of the Trust's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Trust
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Trust.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Delaware.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those
<PAGE>
statutes, rules and regulations as the Securities and Exchange Commission may
grant and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Trust and the
Underwriter with respect to any Portfolio based upon the Company's determination
that shares of such Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Trust and the
Underwriter with respect to any Portfolio in the event any of the Portfolio's
shares are not registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to be issued by the
Company; or
(d) termination by the Company by written notice to the Trust and the
Underwriter with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of the
Code or under any successor or similar provision, or if the Company reasonably
believes that the Trust may fail to so qualify; or
(e) termination by the Company by written notice to the Trust and the
Underwriter with respect to any Portfolio in the event that such Portfolio fails
to meet the diversification requirements specified in Article VI hereof; or
(f) termination by either the Trust or the Underwriter by written
notice to the Company, if either one or both of the Trust or the Underwriter
respectively, shall determine, in their sole judgment reasonably exercised in
good faith, that the Company has suffered a material adverse change in its
business or financial condition or is the subject of material adverse publicity
and such material adverse change or material adverse publicity will have a
material adverse impact upon the business and operations of either the Trust or
the Underwriter, (2) the Trust or the Underwriter shall notify the Company in
writing of such determination and its intent to terminate this Agreement, and
(3) after considering the actions taken by the Company and any other changes in
circumstances since the giving of such notice, such continue to determination of
the Trust or the Underwriter shall apply on the sixtieth (60th) day following
the giving of such notice, which sixtieth day shall be the effective date of
termination; or
(g) termination by the Company by written notice to the Trust and the
Underwriter, if the Company shall determine, in its sole judgment reasonably
exercised in good faith, that either the Trust or the Underwriter has suffered a
material adverse change in its business or financial condition or is the subject
of material adverse publicity and such material adverse change or material
adverse publicity will have a material adverse impact upon the business and
operations of the Company, (2) the Company shall notify the Trust and the
Underwriter in writing of such determination and its intent to terminate the
Agreement, and (3) after considering the actions taken by the Trust and/or the
Underwriter and any other changes in
<PAGE>
circumstances since the giving of such notice, such determination shall continue
to apply on the sixtieth (60th) day following the giving of such notice, which
sixtieth day shall be the effective date of termination; or
(h) termination by the Trust or the Underwriter by written notice to
the Company, if the Company gives the Trust and the Underwriter the written
notice specified in Section 1.5(b) hereof and at the time such notice was given
there was no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section 10.1(h) shall be
effective forty five (45) days after the notice specified in Section 1.5(b) was
given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Trust and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Trust pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Trust, redeem
investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.2 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
10.3 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Trust and the Underwriter
the opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Atlas Insurance Trust
794 Davis Street
San Leandro, CA 94577
Attention: Chief Legal Counsel
If to the Company:
PFL Life Insurance Company
4333 Edgewood Road, N E
Cedar Rapids, Iowa 52499-0001
Attention: Financial Markets Division, Legal Department
If to the Underwriter:
Atlas Securities, Inc.
794 Davis Street
San Leandro, CA 94577
Attention: Chief Legal Counsel
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Trust must look solely to the property
of the Trust for the enforcement of any claims against the Trust as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Trust.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
<PAGE>
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement. The Company
shall promptly notify the Trust and the Underwriter of any change in control of
the Company.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as practical after
the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY:
SEAL PFL LIFE INSURANCE COMPANY
By its authorized officer,
By:__________________________
William L. Busler
Title: President
Date:________________________
TRUST:
SEAL ATLAS INSURANCE TRUST
By its authorized officer,
By:__________________________
Larry E. LaCasse
Title: Group Senior Vice President
Date:______________________
UNDERWRITER:
SEAL ATLAS SECURITIES INC.
By its authorized officer,
By:__________________________
Larry E. LaCasse
Title: Group Senior Vice President
Date:________________________
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
<TABLE>
<CAPTION>
Name of Separate Account Policy Form Numbers Date Established by
of Contracts Funded Board of Directors
<S> <C> <C>
PFL Life Variable Annuity AF430 101 98 1096 February 17, 1997
Account A AS504 107 78 1096
AV337 101 100 397
(may vary by state)
</TABLE>
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Trust by the Underwriter, the Trust and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Trust for the shareholder meeting
to facilitate the establishment of tabulation procedures. At this time the
Underwriter will inform the Company of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contractowner/policyholder (the "Customer") as of
the Record Date. Allowance should be made for account adjustments made after
this date that could affect the status of the Customers' accounts as of the
Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Atlas, as soon as possible, but no later than two weeks
after the Record Date.
3. The Trust's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Trust. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department of
the Underwriter or its affiliate ("Atlas Legal") must approve the Card before it
is printed. Allow approximately 2-4 business days for printing information on
the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. Address
c. Trust or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Trust) (This and related steps
may occur later in the chronological process due to possible uncertainties
relating to the proposals.)
5. During this time, Atlas Legal will develop, produce, and the Trust will pay
for the Notice of Proxy and the Proxy Statement (one document). Printed and
folded notices and statements will be sent to Company for insertion into
envelopes (envelopes and return envelopes are provided and paid for by the
Insurance Company). Contents of envelope sent to Customers by Company will
include:
<PAGE>
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible and
that their vote is important. One copy will be supplied by the Trust.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by Atlas Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Atlas Legal.
7. Package mailed by the Company. The Trust must allow at least a 15-day
solicitation time to the Company as the shareowner. (A 5-week period is
recommended.) Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Sort Cards on arrival by
proposal into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Atlas in the past.
9. Signatures on Card checked against legal name on account registration
printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and is the
signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new Card
and return envelope. The mutilated or illegible Card is disregarded and
considered to be not received for purposes of vote tabulation. Any Cards that
have "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the Cards
as they first arrive into categories depending upon their vote; an estimate of
how the vote is progressing may then be calculated. If the initial estimates
and the actual vote do not coincide, then an internal audit of that vote should
occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Trust receives the tabulations stated in
terms of a percentage and the number of shares.) Atlas Legal must review and
approve tabulation format.
<PAGE>
13. Final tabulation in shares is verbally given by the Company to Atlas Legal
on the morning of the meeting not later than 10:00 a.m. Pacific time. Atlas
Legal may request an earlier deadline if required to calculate the vote in time
for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote. Atlas
Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise necessary
for legal, regulatory, or accounting purposes, Atlas Legal will be permitted
reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE>
SCHEDULE C
OTHER INVESTMENT COMPANIES AND FUNDS
<PAGE>
EXHIBIT 9C
ADMINISTRATIVE SERVICES AGREEMENT
PFL LIFE INSURANCE COMPANY (the "Insurer") and the ATLAS INSURANCE TRUST (the
"Trust") mutually agree to the arrangements set forth in this Agreement (the
"Agreement") dated as of ____________, 1997.
WHEREAS, the Insurer issues variable annuities (the "Policies"); and
WHEREAS, amounts invested in the Policies by policyholders are deposited in
separate accounts of the Insurer which will in turn purchase shares of certain
portfolios of the Trust, each of which is an investment option offered by the
Policies; and
WHEREAS, the Trust expects to derive substantial savings in administrative
expenses by virtue of having separate accounts of the Insurer as shareholders of
record of Trust shares, rather than numerous public shareholders, and having the
Insurer perform certain administrative services for the Trust (which are
identified on Schedule A hereto); and
WHEREAS, neither the Insurer nor any other person has any contractual or other
legal obligation to perform such administrative services for the Trust; and
WHEREAS, the Insurer desires to be compensated for providing such administrative
services to the Trust; and
WHEREAS, the Trust desires that it benefit from the lower administrative
expenses expected to result from the administrative services performed by the
Insurer:
NOW, THEREFORE, the parties agree as follows:
1. ADMINISTRATION EXPENSE PAYMENTS
-------------------------------
(a) The Trust agrees to pay the Insurer an amount as identified and
described on Schedule B hereto.
(b) The Trust shall calculate the payment contemplated by this Section 1
at the end of each fiscal quarter and will make such payment to the
Insurer, without demand or notice by the Insurer, reasonably promptly
thereafter.
2. TERM
----
This Agreement shall remain in full force and effect for a period of one
year from the date hereof and shall be automatically renewed thereafter for
successive one-year periods, unless otherwise terminated in accordance with
Section 4 hereof.
<PAGE>
3. TERMINATION
-----------
(a) This Agreement will be terminated upon mutual agreement of the parties
hereto in writing.
(b) Either party to this Agreement may, by notice to the other party
delivered more than thirty (30) days prior to the expiration of any
one-year term of this Agreement, elect to terminate this Agreement as
of the end of such term.
(c) This Agreement shall automatically terminate upon (i) the termination
of the Participation Agreement between the Insurer and the ATLAS
Insurance Trust, or (ii) the dissolution or bankruptcy of any party
hereto, or in the event that nay party hereto is placed in
receivership or rehabilitation, or in the event that the management of
its affairs is assumed by any governmental, regulatory or judicial
authority.
4. AMENDMENT
---------
This Agreement may be amended only upon mutual agreement of the parties
hereto in writing.
5. NOTICES
-------
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered
(a) to the Trust at 794 Davis Street, San Leandro, California, 94577,
attention: Larry E. LaCasse
(b) to the Insurer, at PFL Life Insurance Company, Financial Markets
Division, 4333 Edgewood Road N.E., Cedar Rapids, Iowa, 52499-0001,
attention: Division General Counsel
6. MISCELLANEOUS
-------------
(a) Successors and Assigns. This Agreement shall be binding upon the
----------------------
parties hereto and their transferees, successors and assigns. The
benefits of and the right to enforce this Agreement shall accrue to
the parties and their transferees, successors and assigns.
(b) Assignment. Neither this Agreement nor any of the rights, obligations
----------
or liabilities of either party hereto shall be assigned without the
written consent of the other party.
<PAGE>
(c) Intended Beneficiaries. Nothing in this Agreement shall be construed
----------------------
to give any person or entity other than the parties hereto any legal
or equitable claim, right or remedy. Rather, this Agreement is
intended to be for the sole and exclusive benefit of the parties
hereto.
(d) Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original but all of which shall together
constitute one and the same instrument.
(e) Applicable Law. This Agreement shall be interpreted, construed, and
--------------
enforced in accordance with the laws of the State of Delaware, without
reference to the conflict of law thereof.
(f) Severability. If any portion of this Agreement shall be found to be
------------
invalid or unenforceable by a court or tribunal or regulatory agency
or competent jurisdiction, the remainder shall not be affected
thereby, but shall have the same force and effect as if the invalid or
unenforceable portion had not been inserted.
(g) Arbitration. Any and all disputes arising under this agreement shall
-----------
be settled by arbitration in the City of Cedar Rapids, Iowa, under the
rules then obtaining of the American Arbitration Association, and
judgment may be entered upon the award in any court of competent
jurisdiction. The determination of the arbitrators shall be final and
binding on all parties. The costs of arbitration shall be equally
borne by the Insurer and Atlas provided, however, that the arbitrators
may assess one party more heavily than the other for these costs upon
a finding that the party did not make a good faith effort to settle
the dispute informally when it first arose.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
PFL LIFE INSURANCE COMPANY ATLAS INSURANCE TRUST, on behalf
of its separate series
By: By:
----------------------- ------------------------------
Name: William L Busler Name:
----------------------- ------------------------------
Title: President Title:
----------------------- ------------------------------
<PAGE>
SCHEDULE A
ADMINISTRATIVE SERVICES FOR THE TRUST
MAINTENANCE OF BOOKS AND RECORDS
. Maintaining an inventory of share purchases to assist transfer agent in
recording issuance of shares.
. Performing miscellaneous account services to assist transfer agent in
recording transfers of shares (via net purchase orders).
. Reconciliation and balancing of the separate account at the Trust level in
the general ledger and reconciliation of cash accounts at general account.
PURCHASE ORDERS
. Determination of net amount of cash flow into Trust.
. Reconciliation and deposit of receipts at Trust and confirmation thereof.
REDEMPTION ORDERS
. Determination of net amount required for redemptions by Trust.
. Notification of Trust of cash required to meet payments.
REPORTS
. Periodic information reporting to the Trust as mutually agreed between the
Insurer and the Trust.
TRUST-RELATED CONTRACT OWNER SERVICES
. Telephonic support for contract owners with respect to inquiries about the
Trust (not including information about performance or related to sales.)
OTHER ADMINISTRATIVE SUPPORT
. Sub-Accounting services.
. Providing other administrative support to the Trust as mutually agreed
between the Insurer and the Trust.
. Relieving the Trust of other usual or incidental administrative services
provided to individual shareholders.
. Preparation of reports to certain third-party reporting services.
<PAGE>
SCHEDULE B
As of _______, 1997, the Administrative Services Agreement dated _______, 1997,
by and between PFL Life Insurance Company and the Atlas Insurance Trust is
applicable to the following portfolios of the Trust:
1. Atlas Balanced Portfolio
The applicable annual fee shall be 25 basis points (0.25%) of the aggregate
investments in portfolios of the Trust by PFL Variable Annuity Account A of the
Insurer related to the Atlas Portfolio Builder Variable Annuity contracts as a
percentage of the average daily net asset value of such investments.
PFL Life Insurance Company
By:
-----------------------------
- ----------------------------- -----------------------------
Date Signed Title:
-----------------------------
Atlas Insurance Trust
By:
-----------------------------
- ---------------------------- -----------------------------
Date Signed Title:
-----------------------------
<PAGE>
EXHIBIT 10
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 West Flower Street
Los Angeles, California 90071
(213) 683-6000
July 30, 1997
Atlas Insurance Trust
794 Davis Street
San Leandro, California 94577
Ladies and Gentlemen:
We have acted as counsel to Atlas Insurance Trust, a Delaware business
trust (the "Trust"), in connection with the issuance of an indefinite number of
shares of beneficial interest ("Shares") in the Atlas Balanced Growth Portfolio
series of the Trust (the "Fund") in a public offering pursuant to a Registration
Statement on Form N-1A (Registration No. 33-20899), as amended, filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Registration Statement").
In our capacity as counsel for the Trust, we have examined the
Certificate of Trust of the Trust dated October 22, 1996, the Declaration of
Trust of the Trust dated January 27, 1997, the bylaws of the Trust, originals or
copies of actions of the Trustees as furnished to us by the Trust, certificates
of public officials, statutes and such other documents, records and certificates
as we have deemed necessary for the purposes of this opinion.
Based upon our examination as aforesaid, we are of the opinion that
the Shares are duly authorized and, when purchased and paid for as described in
the Registration Statement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion of counsel as an
exhibit to the Registration Statement.
Very truly yours,
PAUL, HASTINGS, JANOFSKY & WALKER LLP
<PAGE>
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No. 33-
20899 of Atlas Insurance Trust of our report dated July 30, 1997 appearing in
the Prospectus, which is a part of such Registration Statement.
/s/DELOITTE & TOUCHE LLP
Oakland, California
July 30, 1997
<PAGE>
EXHIBIT 13
Atlas Insurance Trust
794 Davis Street
San Leandro, California 94577
Ladies and Gentlemen:
The undersigned hereby subscribes for the purchase of 10,000 shares of
beneficial interest (the "Shares") of the Atlas Balanced Growth Portfolio (the
"Portfolio"), a separate series of the Atlas Insurance Trust (the "Trust"), at
$10.00 per share for a total investment of $100,000. In connection with said
subscription, the undersigned hereby represents that:
1. There is no present reason to anticipate any change in circumstances or any
other occasion or event which would cause the undersigned to sell or redeem the
Shares shortly after the purchase thereof.
2. There are no agreements or arrangements between the undersigned and the
Trust, or any of its officers, trustees, employees or the investment manager of
the Portfolio, or any affiliated persons thereof with respect to the resale,
future distribution or redemption of the Shares.
3. The sale of the Shares will only be made by redemption to the Portfolio and
not by a transfer to any third party without the consent of the Trust.
4. The undersigned is aware that in issuing and selling these Shares, the
Portfolio and the Trust are relying upon the aforementioned representations.
5. The undersigned is fully aware that the organization expenses of the
Portfolio, including the costs and expenses of registration of the Shares, are
being charged to the operation of the Portfolio over a period of five years. In
the event the undersigned redeems any portion of these Shares prior to the end
of said amortization period, the undersigned will reimburse the Portfolio for
the pro rata share of the unamortized organization expenses (by a reduction of
the redemption proceeds) in the same proportion as the number of Shares being
redeemed bears to the total number of remaining initial Shares acquired by the
undersigned hereunder.
GOLDEN WEST FINANCIAL CORPORATION
1901 Harrison Street
Oakland, California 94612
Dated: July 30, 1997 By: /s/ Marion O. Sandler
-----------------------------
Marion O. Sandler
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
Each of the undersigned Trustees and Officers of ATLAS INSURANCE TRUST (the
"Trust") hereby appoints LARRY E. LACASSE, STEVEN J. GRAY and EDWARD L. BISGAARD
(with full power to each of them to act alone), his attorney-in-fact and agent,
in all capacities, to execute and to file any documents relating to the
Registration Statement on Form N-1A under the Investment Company Act of 1940 and
under the Securities Act of 1933 of the Company, including any and all
amendments thereto, covering the registration and the sale of shares by the
Trust, including all exhibits and any and all documents required to be filed
with respect thereto with any regulatory authority, including applications for
exemptive orders or rulings. Each of the undersigned grants to each of said
attorneys full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes, as he could do if
personally present, thereby ratifying all that said attorneys-in-fact and agents
may lawfully do or cause to be done by virtue hereof.
The undersigned Trustees and Officers hereby execute this Power of Attorney
as of this 14th day of February, 1997.
/s/ Marion O. Sandler /s/ J. L. Helvey
_____________________________ ___________________________
Marion O. Sandler Julius Louis Helvey
Chief Executive Officer, Chief Financial Officer and
President and Chairman Group Senior Vice President
/s/ Edward L. Bisgaard /s/ R. W. Kettell
_____________________________ ___________________________
Edward L. Bisgaard Russell W. Kettell
Chief Accounting Officer, Trustee
Treasurer, and Vice President
/s/ Barbara A. Bond /s/ Daniel L. Rubinfeld
_____________________________ ___________________________
Barbara A. Bond Daniel L. Rubinfeld
Trustee Trustee
/s/ David J. Teece
_____________________________
David J. Teece
Trustee
