As filed with the Securities and Exchange Commission on March 25, 1997
Registration No.
File No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X/
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/ / Pre-Effective Amendment No.
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/ / Post-Effective Amendment No.
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X/
ACT OF 1940
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/ / Amendment No.
(Check appropriate box or boxes)
MENTOR VARIABLE INVESTMENT PORTFOLIOS
(Exact name of registrant as specified in charter)
901 East Byrd Street
Richmond, Virginia 23219
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code (804) 782-3647
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PAUL F. COSTELLO, President
901 East Byrd Street
Richmond, Virginia 23219
(Name and address of agent for service)
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Copy to:
TIMOTHY W. DIGGINS, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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Approximate date of proposed public offering: As soon as practicable
after the effective date.
Pursuant to Rule 24f-2(a) under the Investment Company Act of 1940, the
Registrant hereby declares that an indefinite number or amount of its shares of
beneficial interest is being registered under the Securities Act of 1933.
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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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MENTOR VARIABLE INVESTMENT PORTFOLIOS
CROSS REFERENCE SHEET
(as required by Rule 404(c))
Part A
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N-1A Item No.
Location
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1. Cover Page..................................................... Cover Page
2. Synopsis....................................................... Cover Page
3. Condensed Financial Information................................ Not Applicable
4. General Description of Registrant.............................. Cover Page; The Trust;
Investment Objectives and
Policies; Other Investment
Practices; How a Portfolio's
Performance is Calculated;
General information
5. Management of the Fund......................................... Investment Objectives and
Policies; Management; General;
Financial Information
5A. Management's Discussion
of Fund Performance.......................................... Not Applicable
6. Capital Stock and Other
Securities................................................... How a Portfolio Values its Shares;
Sales and Redemption;
Distribution Plan; Distributions
and Taxes
7. Purchase of Securities Being
Offered...................................................... Sales and Redemption;
Distribution Plan
8. Redemption or Repurchase....................................... Sales and Redemption; Exchange
Privilege
9. Pending Legal Proceedings...................................... Not Applicable
</TABLE>
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Part B
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<CAPTION>
N-1A Item No. Location
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10. Cover Page.................................................... Cover Page
11. Table of Contents............................................. Cover Page
12. General Information and History............................... Introduction; Shareholder Liability
13. Investment Objectives and
Policies.................................................... Investment Restrictions; Certain
Investment Practices
14. Management of the Fund........................................ Management of the Trust
15. Control Persons and Principal
Holders of Securities....................................... Management of the Trust;
Principal Holders of Securities
16. Investment Advisory and Other
Services.................................................... Management of the Trust;
Investment Advisory Services;
Administrative Services;
Distribution; Custodian:
Accountants; Members of
Investment Management Teams
17. Brokerage Allocation.......................................... Investment Advisory Services;
Brokerage Transactions
18. Capital Stock and Other
Securities.................................................. Determining Net Asset Value;
Redemptions in Kind; Taxes
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. How to Buy Shares; Distribution;
Determining Net Asset Value;
Redemption in Kind
20. Tax Status.................................................... Taxes
21. Underwriters.................................................. Management of the Trust;
Distribution
22. Calculations of Yield Quotations
of Money Market Funds....................................... Performance Information
23. Financial Statements.......................................... Financial Statements
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Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
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PROSPECTUS June , 1997
MENTOR VARIABLE INVESTMENT PORTFOLIOS
Mentor Variable Investment Portfolios (the "Trust") offers shares of
beneficial interest in five separate investment portfolios (collectively, the
"Portfolios") for purchase by separate accounts of insurance companies. The
Portfolios, which have different investment objectives and policies, offered by
this Prospectus are: Mentor VIP Balanced Portfolio, Mentor VIP Capital Growth
Portfolio, Mentor VIP Perpetual Global Portfolio, Mentor VIP Growth Portfolio,
and Mentor VIP Strategy Portfolio. The Balanced Portfolio may use "leverage" --
that is, it may borrow money to purchase additional portfolio securities, which
involves special risks. See "Other Investment Practices -- Leverage" on page 9.
This prospectus sets forth concisely what you should know before
investing in the Trust and should be read in conjunction with the prospectus for
the separate account of the variable annuity or variable life insurance product
that accompanies this Prospectus. Please read it carefully and keep it for
future reference. Investors can find more detailed information about the Trust
in the June __, 1997 Statement of Additional Information, as amended from time
to time. For a free copy of the Statement of Additional Information, call Mentor
Distributors, LLC at 1-800-382-0016. The Statement of Additional Information has
been filed with the Securities and Exchange Commission and is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE PORTFOLIOS ARE PRESENTLY AVAILABLE AND ARE BEING MARKETED
EXCLUSIVELY AS A POOLED FUNDING VEHICLE FOR VARIABLE ANNUITY CONTRACT AND
VARIABLE LIFE INSURANCE POLICY SEPARATE ACCOUNTS OF VARIOUS PARTICIPATING
INSURANCE COMPANIES.
June __, 1997
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The Trust
The Trust is an open-end investment company designed to serve as a
funding vehicle for insurance separate accounts associated with variable annuity
contracts and variable life insurance policies. You should consult the
prospectus issued by your insurance company for more information about a
separate account. The Trust assumes no responsibility for any such prospectus.
Shares of the Trust are offered to these separate accounts through Mentor
Distributors, LLC ("Mentor Distributors"), the principal underwriter for the
Trust. The Trust is offering by this Prospectus five separate investment
Portfolios with different investment objectives, policies and risks.
Investment Objectives and Polices
Each Portfolio of the Trust has its own investment objective which it
pursues through its investment policies as described below. The particular
objectives and policies of the Portfolios can be expected to affect the return
of each Portfolio and the degree of market and financial risk to which each
Portfolio is subject. For more information about the investment strategies
employed by the Portfolios, see "Other Investment Practices". The investment
objective and policies of each Portfolio may, unless otherwise specifically
stated, be changed by the Trustees without a vote of shareholders. None of the
Portfolios is intended to be a complete investment program, and there is no
assurance that any Portfolio will achieve its objective.
Any percentage limitation on a Portfolio's investments will apply only
at the time of investment; a Portfolio would not be considered to have violated
any such limitation unless an excess or deficiency occurs or exists as a result
of an investment. In addition, a Portfolio will not necessarily dispose of a
security when its rating is reduced below any applicable minimum rating,
although the investment adviser or sub-adviser of the Portfolio will monitor the
investment to determine whether continued investment in the security will assist
in meeting the Portfolio's investment objective.
Additional Portfolios with differing investment objectives and policies
may be created from time to time for use as funding vehicles for insurance
company separate accounts or for other insurance products. In addition, the
Trustees may, subject to any necessary regulatory approvals, eliminate any
Portfolio or divide any Portfolio into two or more classes of shares with such
special or relative rights and privileges as the Trustees may determine.
o Mentor VIP Balanced Portfolio (the "Balanced Portfolio") Investment
adviser: Mentor Investment Advisors, LLC
The Balanced Portfolio's investment objective is to seek capital growth
and current income. The Portfolio invests in a diversified portfolio of equity
and fixed-income securities which Mentor Advisors believes will produce both
capital growth and current income.
The Portfolio may invest in almost any type of security. The
Portfolio's securities will include some securities selected primarily to
provide for growth in value, others selected for current income, and other for
stability of principal.
Mentor Advisors will adjust the proportions of the Portfolio's assets
invested in the different types of securities in order to adjust to changing
market conditions. For example, under certain market conditions, Mentor Advisors
may judge that most of the Portfolio's assets should be invested in equity
securities, and that only a relatively small portion of the Portfolio's assets
should be invested in fixed-income securities. At other times, Mentor Advisors
may invest most of the Portfolio's assets in fixed-income securities, with a
corresponding reduction in the portion of the Portfolio's assets invested in
equity securities. Under normal circumstances, the Portfolio will invest at
least 25% of its assets in fixed-income securities and 25% of its assets in
equity securities.
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The Portfolio will invest in debt securities and preferred stocks of
investment grade, and the Portfolio will seek under normal market conditions to
maintain a portfolio of securities with a dollar-weighted average rating of A or
better. A security will be considered to be of "investment grade" if, at the
time of investment by the Portfolio, it is rated at least Baa3 by Moody's or
BBB- by S&P or the equivalent by another nationally recognized rating
organization or, if unrated, determined by Mentor Advisors to be of comparable
quality. Securities rated Baa or BBB lack outstanding investment characteristics
and have speculative characteristics and are subject to greater credit and
market risks than higher-rated securities. See the Statement of Additional
Information for descriptions of securities ratings assigned by Moody's and S&P.
At times Mentor Advisors may decide that conditions in the securities
markets make pursuing the Portfolio's basic investment strategy inconsistent
with the best interests of its shareholders. At such times, Mentor Advisors may
temporarily use alternative investment strategies primarily designed to reduce
fluctuations in the value of the Portfolio's assets. In implementing these
"defensive" strategies, the Portfolio would be permitted to hold all or any
portion of its assets in high quality fixed-income securities, cash, or money
market instruments. It is impossible to predict when, or for how long, the
Portfolio will use these alternative strategies.
o Mentor VIP Capital Growth Portfolio (the "Capital Growth
Portfolio")
Investment adviser: Mentor Investment Advisors, LLC
The investment objective of the Capital Growth Portfolio is to provide
long-term appreciation of capital. The Portfolio may invest in a wide variety of
securities which Mentor Advisors believes offers the potential for capital
appreciation over both the intermediate and long term. The Portfolio does not
invest for current income.
The Portfolio invests primarily in common stocks of companies believed
by Mentor Advisors to have the potential for capital appreciation. The Portfolio
may invest without limit in preferred stocks, investment-grade bonds,
convertible preferred stocks, convertible debentures and any other class or type
of security Mentor Advisors believes offers the potential for capital
appreciation. In selecting investments, Mentor Advisors will attempt to identify
securities it believes will provide capital appreciation over the intermediate
or long term due to changes in the financial condition of issuers, changes in
financial conditions generally, or other factors. The Portfolio also may invest
in fixed-income securities, and cash or money market investments, for temporary
defensive purposes.
o Mentor VIP Perpetual Global Portfolio (the "Global Portfolio")
Investment adviser: Mentor Perpetual Advisors, LLC
The investment objective of the Global Portfolio is to seek long-term
growth of capital through a diversified portfolio of marketable securities made
up primarily of equity securities, including common stocks, preferred stocks,
securities convertible into common stocks, and warrants. The Portfolio may also
invest in debt securities and other fixed-income securities of private or
governmental issuers (including zero-coupon securities) which Mentor Perpetual
believes to be consistent with the Portfolio's objective.
It is expected that the Portfolio's investments will normally be spread
broadly around the world, although (except as described in the next sentence)
there is no limit on the amount of the Portfolio's assets that may be invested
in any single country. Under normal circumstances, the Portfolio will invest at
least 65% of the value of its total assets in securities of at least three
countries, one of which may be the United States. The Portfolio may invest all
of its assets in securities of issuers located outside the United States, and
for temporary defensive purposes may at times invest all of its assets in
securities of U.S. issuers. To the extent that the Portfolio invests a
substantial portion of its assets in securities of issuers located in a single
country, it will be more susceptible to adverse economic, business, political,
or regulatory conditions in or affecting that country than if it were to invest
in a geographically more diverse portfolio. The Portfolio may invest in
closed-end investment companies holding
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foreign securities. The Portfolio also may hold a portion of its assets in cash
or cash equivalents, including foreign and domestic money market instruments.
It is likely that, at times, a substantial portion of the Portfolio's
assets will be invested in securities of issuers in emerging markets, including
under-developed and developing nations. Investments in emerging markets are
subject to the same risks applicable to foreign investments generally although
those risks may be increased due to conditions in such markets. For example, the
securities markets and legal systems in emerging markets may only be in a
developmental stage and may provide few, or none, of the advantages or
protections of markets or legal systems available in more developed countries.
Although many of the securities in which the Portfolio may invest are traded on
securities exchanges, the may trade in limited volume, and the exchanges may not
provide all of the conveniences or protections provided by securities exchanges
in more developed markets. The Portfolio may also invest a substantial portion
of its assets in securities traded in the over-the-counter markets and not on
any exchange, which may affect the liquidity of the investment and expose the
Portfolio to the credit risk of its counterparties in trading those investments.
See "Other Investment Practices -- Foreign securities."
Mentor Perpetual may seek investment opportunities in securities of
large, widely traded companies as well as securities of small, less well known
companies. Small companies may present greater opportunities for investment
return, but may also involve greater risk. They may have limited product lines,
markets, or financial resources, or may depend on a limited management group.
Their securities may trade less frequently and in limited volume. As a result
the prices of these securities may fluctuate more than prices of securities of
larger, more established companies.
Except as described below, debt and fixed-income securities in which
the Portfolio may invest will be investment grade securities or those of
equivalent quality as determined by Mentor Perpetual. The Portfolio may invest
up to 5% of its total assets in debt securities rated Baa or below by Moody's
Investors Service, Inc. ("Moody's"), or BBB or below by Standard and Poor's
("S&P"), or deemed by Mentor Perpetual to be of comparable quality, and may
invest in securities rated as low as C by Moody's or D by S&P). Securities rated
Baa or BBB or lower lack outstanding investment characteristics and have
speculative characteristics and are subject to greater credit and market risks
than higher-rated securities. Securities rated below investment grade are
commonly referred to as "junk bonds" and are predominately speculative.
Securities rated D may be in default with respect to payment of principal or
interest. A description of securities ratings is contained in the Appendix to
this Prospectus.
o Mentor VIP Growth Portfolio (the "Growth Portfolio")
Investment adviser: Mentor Investment Advisors, LLC
The Growth Portfolio's investment objective is long-term capital
growth. Although the Portfolio may receive current income from dividends,
interest, and other sources, income is only an incidental consideration.
The Portfolio attempts to achieve long-term capital growth by investing
in a diversified portfolio of securities. Under normal circumstances at least
75% of the Portfolio's assets will be invested in common stocks of companies
domiciled or located in the United States. Although the Portfolio may invest in
companies of any size, the Portfolio invests principally in common stocks of
small to mid-sized companies. The Portfolio invests in companies that, in the
opinion of Mentor Advisors, have demonstrated earnings, asset values, or growth
potential not yet reflected in their market price. A key indication of such
undervaluation considered by Mentor Advisors is earnings growth which is above
average compared to the S&P 500 Index. Other important factors in selecting
investments include a strong balance sheet and product leadership in niche
markets. Mentor Advisors believes that such investments may offer better than
average potential for long-term capital growth.
Small and mid-size companies may present greater opportunities for
capital growth than do larger companies because of high potential earnings
growth, but may also involve greater risk. They may have limited
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product lines, market or financial resources, or may depend on a limited
management group. Their securities may trade less frequently and in limited
volume, and only in the over-the-counter market or on a regional securities
exchange. As a result, these securities may change in value more than those of
larger, more established companies.
o Mentor VIP Strategy Portfolio (the "Strategy Portfolio")
Investment adviser: Mentor Investment Advisors, LLC
The Strategy Portfolio's investment objective is to seek high total
return on its investments. In seeking to achieve this objective, Mentor Advisors
actively allocates the Portfolio's assets among the major asset categories of
equity securities, fixed-income securities, and money market instruments. The
Portfolio will normally invest some portion of its assets in each asset
category, but may invest without limit in any asset category. Total return
consists of current income (including dividends, interest, and, in the case of
discounted instruments, discount accruals) and capital appreciation (including
realized and unrealized capital gains and losses).
Mentor Advisors believes that the Portfolio has the potential to
achieve above-average investment returns at comparatively lower risk by actively
allocating its resources among the equity, debt, and money market sectors of the
market as opposed to relying solely on just one market sector. For example,
Mentor Advisors may at times believe that the equity market holds a higher
potential for total return than the debt market and that a relatively large
portion of the Portfolio's assets should be allocated to the equity market
sector. The reverse would be true at times when Mentor Advisors believes that
the potential for total return in the bond market is greater than that in the
equity market. Mentor Advisors might also allocate the Portfolio's investments
to short-term bonds and money market instruments in order to earn current return
and to reduce the potential adverse effect of declines in the bond and equity
markets. After determining the portions of the Portfolio's assets to be invested
in the various market sectors, Mentor Advisors attempts to select the securities
of companies within those sectors offering among other things, the ability of
Mentor Advisors to assess correctly the effects of economic and market trends on
different sectors of the market. The Portfolio's investments may include both
securities of U.S. issuers and securities traded principally in foreign markets.
The Portfolio may invest without limit in foreign securities. See "Other
Investment Practices -- Foreign Securities" for a description of risks
associated with investments in such securities.
Within the equity sector, Mentor Advisors actively allocates the
Portfolio's assets to those industries and issuers it expects to benefit from
major market trends or which it otherwise believes offer the potential for
above-average total return. The Portfolio may purchase equity securities
(including convertible debt obligations and convertible preferred stock) sold on
the New York, American, and other U.S. or foreign stock exchanges and in the
over-the-counter market.
Within the fixed-income sector, Mentor Advisors seeks to maximize the
return on its investments by adjusting maturities and coupon rates as well as by
exploiting yield differentials among different types of investment-grade
securities. The Portfolio may invest in debt securities of any maturity,
preferred stocks, and other fixed-income instruments, including, for example,
U.S. Government securities and corporate debt securities (including zero-coupon
securities). A substantial portion of the Portfolio's investments in the
fixed-income sector may be in mortgage-backed securities, including
collateralized mortgage obligations ("CMOs") and certain other stripped
mortgage-backed securities, which have certain special risks. See "Other
Investment Practices -Mortgage-backed securities; other asset-backed securities"
and "--Other mortgage-related securities" for a description of these risks. The
Portfolio will only invest in debt securities which are rated at the time of
purchase Baa or better by Moody's or BBB or better by S&P or, if unrated, are
deemed by Mentor Advisors to be of comparable quality. While bonds rated Baa or
BBB are considered to be of investment grade, they have speculative
characteristics as well. A description of securities ratings is contained in the
Appendix to this Prospectus.
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The money market portion of the Portfolio will contain short-term
fixed-income securities issued by private and governmental institutions. Such
securities may include, for example, U.S. Government securities; bank
obligations; Eurodollar certificates of deposit issued by foreign branches of
domestic banks; obligations of savings institutions; fully insured certificates
of deposit; and commercial paper rated within the two highest grades by S&P or
the highest grade by Moody's or, if not rated, issued by a company having an
outstanding debt issue rated at least Aa by Moody's or AA by S&P.
Other Investment Practices
Each of the Portfolios (except as noted below) may engage in the other
investment practices described below. See the Statement of Additional
Information for a more detailed description of these practices and certain risks
they may involve.
Mortgage-backed securities; other asset-backed securities. The Strategy
Portfolio and Balanced Portfolio may invest in mortgage-backed certificates and
other securities representing ownership interests in mortgage pools, including
CMOs. Interest and principal payments on the mortgages underlying
mortgage-backed securities are passed through to the holders of the
mortgage-backed securities. Mortgage-backed securities currently offer yields
higher than those available from many other types of fixed-income securities but
because of their prepayment aspects, their price volatility and yield
characteristics will change based on changes in prepayment rates. As a result,
mortgage-backed securities are less effective than other securities as a means
of "locking in" long-term interest rates. Generally, prepayment rates increase
if interest rates fall and decrease if interest rates rise. For many types of
mortgage-backed securities, this can result in unfavorable changes in price and
yield characteristics in response to changes in interest rates and other market
conditions. For example, as a result of their prepayment aspects,
mortgage-backed securities have less potential for capital appreciation during
periods of declining interest rates than other fixed-income securities of
comparable maturities, although such obligations may have a comparable risk of
decline in market value during periods of rising interest rates.
Mortgage-backed securities have yield and maturity characteristics that
are dependent upon the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities may include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing, or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed securities,
especially during periods of declining interest rates. Similarly, during periods
of rising interest rates, a reduction in the rate of prepayments may
significantly lengthen the effective durations of such securities.
The Strategy Portfolio and Balanced Portfolio may invest in stripped
mortgage-backed securities. Stripped mortgage-backed securities are usually
structured with two classes that receive different portions of the interest and
principal distributions on a pool of mortgage assets. The Strategy Portfolio may
invest in both the interest-only -- or "IO" -- class and the principal-only --
or "PO" -- class. The yield to maturity and price of an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on the Portfolio's net asset value. This would
typically be the case in an environment of falling interest rates. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Portfolio may under some circumstances fail to fully recoup its
initial investment in these securities. Conversely, POs tend to increase in
value if prepayments are greater than anticipated and decline if prepayments are
slower than anticipated. The secondary market for stripped mortgage-backed
securities may be more volatile and less liquid than that for other
mortgage-backed securities, potentially limiting the Portfolio's ability to buy
or sell those securities at any particular time.
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Certain mortgage-backed securities held by the Strategy Portfolio and
Balanced Portfolio may permit the issuer at its option to "call," or redeem, its
securities. If an issuer were to redeem securities held by a Portfolio during a
time of declining interest rates, the Portfolio may not be able to reinvest the
proceeds in securities providing the same investment return as the securities
redeemed.
The Strategy Portfolio and Balanced Portfolio also may invest in
securities representing interests in other types of financial assets, such as
automobile-finance receivables or credit-card receivables. Such securities may
or may not be secured by the receivables themselves or may be unsecured
obligations of their issuers. The ability of an issuer of asset-backed
securities to enforce its security interest in the underlying assets may be
limited. For example, the laws of certain states may prevent or restrict
repossession of collateral from a debtor.
Mortgage-backed securities and other asset-backed securities are
"derivative" securities and present certain special risks. The Portfolios may
invest in a wide variety of such securities, including mortgage-backed and other
asset-backed securities that will pay principal or interest only under certain
circumstances, or in amounts that may increase or decrease substantially
depending on changes in interest rates or other market factors. Such securities
may experience extreme price volatility in response to changes in interest rates
or other market factors; this may be especially true in the case of securities
where the amounts of principal or interest paid, or the timing of such payments,
varies widely depending on prevailing interest rates.
A Portfolio's investment adviser may not be able to obtain current
market quotations for certain mortgage-backed or asset-backed securities at all
times, or to obtain market quotations believed by it to reflect the values of
such securities accurately. In such cases, it may be necessary to estimate the
value of such a security using quotations provided by pricing services or
securities dealers making a market in such securities, or based on other
comparable securities or other bench-mark securities or interest rates.
Mortgage-backed and other assetbacked securities in which a Portfolio may invest
may be highly illiquid, and a Portfolio may not be able to sell such securities
at a particular time or at the value it has placed on such securities.
In calculating the value and duration of mortgage-backed or other
asset-backed securities, a Portfolio's investment adviser will be required to
estimate the extent to which the values of the securities are likely to change
in response to changes in interest rates or other market conditions, and the
rate at which prepayments on the underlying mortgages or other assets are likely
to occur under different scenarios. There can be no assurance that a Portfolio's
investment adviser will be able to predict the amount of principal or interest
to be paid on any security under different rate or market conditions or that its
predictions will be accurate, nor can there be any assurance that a Portfolio
will recover the entire amount of the principal paid by it to purchase any such
securities.
Zero-coupon bonds. Each of the Global, Balanced, and Strategy
Portfolios may at times invest in so-called "zero-coupon" bonds. Zero-coupon
bonds are issued as a significant discount from face value and pay interest only
at maturity rather than at intervals during the life of the security. Because
zero-coupon bonds do not pay current interest, their value is subject to greater
fluctuation in response to changes in market interest rates than bonds that pay
interest currently. Zero-coupon bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds that pay interest currently. Even though
such bonds do not pay current interest in cash, a Portfolio is nonetheless
required for federal income tax purposes to accrue interest income on such
investments and to distribute such amounts at least annually to shareholders.
Thus, a Portfolio could be required at times to liquidate other investments in
order to satisfy this distribution requirement.
Premium securities. The Portfolios may at times invest in securities
bearing coupon rates higher than prevailing market rates. Such "premium"
securities are typically purchased at prices greater than the principal amount
payable on maturity. Although a Portfolio generally amortizes the amount of any
such premium into income, the Portfolio may recognize a capital loss if such
premium securities are called or sold prior to maturity
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and the call or sale price is less than the purchase price. Additionally, a
Portfolio may recognize a capital loss if it holds such securities to maturity.
Options and futures. Each of the Portfolios may buy and sell put and
call options on securities it owns or plans to purchase to hedge against changes
in net asset value or to realize a greater current return. In addition, through
the purchase and sale of futures contracts and related options, each of the
Portfolios may at times seek to hedge against fluctuations in net asset value.
In addition, to the extent consistent with applicable law, the Portfolios may
buy and sell futures contracts and related options to increase investment
return.
Each of the Portfolios may buy and sell index futures contracts ("index
futures") and options on index futures and indices for hedging purposes (or may
purchase warrants whose value is based on the value from time to time of one or
more foreign securities indices). An "index futures" contract is a contract to
buy or sell units of a particular bond or stock index at an agreed price on a
specified future date. Depending on the change in value of the index between the
time when a Portfolio enters into and terminates an index futures or option
transaction, the Portfolio realizes a gain or loss. The Portfolios may also, to
the extent consistent with applicable law, buy and sell index futures and
options to increase investment return.
The Strategy Portfolio may also buy and sell options and futures
contracts (including index options and futures contracts) to implement changes
in its asset allocations among various market sectors, pending the sale of its
existing investments and reinvestments in new securities.
Risks related to options and futures strategies. Options and futures
transactions involve costs and may result in losses. Certain risks arise because
of the possibility of imperfect correlations between movements in the prices of
futures and options and movements in the prices of the underlying security or
index or of the securities held by a Portfolio that are the subject of a hedge.
The successful use by a Portfolio of the strategies described above further
depends on the ability of its investment adviser to forecast market movements
correctly. Other risks arise from a Portfolio's potential inability to close out
futures or options positions. Although a Portfolio will enter into options or
futures transactions only if its investment adviser believes that a liquid
secondary market exists for such option or futures contract, there can be no
assurance that a Portfolio will be able to effect closing transactions at any
particular time or at an acceptable price. Transactions in options and futures
contracts involve brokerage costs and may require a Portfolio to segregate
assets to cover its outstanding positions. For more information, see the
Statement of Additional Information. Federal tax considerations may also limit a
Portfolio's ability to engage in options and futures transactions.
Each Portfolio's options and futures transactions will generally be
conducted on recognized exchanges. However, a Portfolio may purchase and sell
options in transactions in the over-the-counter markets. A Portfolio's ability
to terminate options in the over-the-counter markets may be more limited than
for exchange-traded options and may also involve the risk that securities
dealers participating in such transactions would be unable to meet their
obligations to the Portfolio. A Portfolio will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are not appropriate and when, in the opinion of its investment adviser, the
pricing mechanism and liquidity of the over-the-counter markets are satisfactory
and the participants are responsible parties likely to meet their contractual
obligations.
Securities loans, repurchase agreements, and forward commitments. Each
Portfolio may lend portfolio securities and may enter into repurchase agreements
with banks, broker/dealers, and other recognized financial institutions. The
Strategy Portfolio and Balanced Portfolio may enter into each type of
transaction on up to 25% of its assets, and each of the other Portfolios may
enter into each type of transaction on up to one-third of its assets. These
transactions must be fully collateralized at all times, but involve some risk to
a Portfolio if the other party should default on its obligations and the
Portfolio is delayed or prevented from recovering the collateral. Each Portfolio
also may enter into forward commitments, in which a Portfolio buys securities
for future delivery. These transactions may increase overall investment exposure
and may result in losses.
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Leverage. The Balanced Portfolio may borrow money to invest in
additional portfolio securities to see current income. This technique, known as
"leverage," increases the Portfolio's market exposure and risk. When the
Portfolio has borrowed money for leverage and its investments increase or
decrease in value, the Portfolio's net asset value will normally increase or
decrease more than if it had not borrowed money for this purpose. The interest
that the Portfolio must pay on borrowed money will reduce its net investment
income, and may also either offset any potential capital gains or increase any
losses. The Portfolio currently intends to use leverage in order to adjust the
dollar-weighted average duration of its portfolio, and the Portfolio will not
always borrow money for investment. The extent to which the Portfolio will
borrow money, and the amount it may borrow, depend on market conditions and
interest rates. Successful use of leverage depends on Mentor Advisors's ability
to predict market movements correctly. The amount of leverage that can exist at
any one time will not exceed 33-1/3% of the value of the Portfolio's total
assets (less all liabilities of the Portfolio other than the leverage).
Dollar roll transactions. In order to enhance portfolio returns and
manage prepayment risks, the Capital Growth, Global, and Balanced Portfolios may
engage in dollar roll transactions with respect to mortgage-related securities
issued by GNMA, FNMA, and FHLMC. In a dollar roll transaction, a Portfolio sells
a mortgage-related security to a financial institution, such as a bank or
broker/dealer, and simultaneously agrees to repurchase a substantially similar
(i.e., same type, coupon, and maturity) security from the institution at a later
date at an agreed upon price. The mortgage-related securities that are
repurchased will bear the same interest rate as those sold, but generally will
be collateralized by different pools of mortgages with different prepayment
histories. Dollar roll transactions may increase overall investment exposure and
may result in losses.
Reverse repurchase agreements. Each Portfolio, other than the Growth
and Strategy Portfolios, may enter into "reverse" repurchase agreements on up to
one-third of its assets. "Reverse" repurchase agreements generally involve the
sale by a Portfolio of securities held by it and an agreement to repurchase the
securities at an agreed-upon price, date, and interest payment. Reverse
repurchase agreements may be viewed as secured borrowings, and involve risks of
leverage and the risk that the other party should default on its obligations and
the Portfolio is delayed or prevented from recovering the collateral.
Foreign securities. Each Portfolio other than the Growth Portfolio may
invest in securities principally traded in foreign markets. The Capital Growth
and Balanced Portfolios will limit such investments to 15% of their total
assets. (Those percentage limitations do not apply to American Depository
Receipts, Global Depository Receipts, and other U.S. dollar-denominated
securities of issuers located outside the United States.) Since foreign
securities are normally denominated and traded in foreign currencies, the values
of a Portfolio's assets may be affected favorably or unfavorably by changes in
currency exchange rates and by exchange control regulations. There may be less
information publicly available about a foreign company than about a U.S.
company, and foreign companies are not generally subject to accounting,
auditing, and financial reporting standards and practices comparable to those in
the United States. The securities of some foreign companies are less liquid and
at times more volatile than securities of comparable U.S. companies. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. Foreign settlement procedures and trade regulations may involve
certain risks (such as delay in payment or delivery of securities or in the
recovery of a Portfolio's assets held abroad) and expenses not present in the
settlement of domestic investments.
In addition, there may be a possibility of nationalization or
expropriation of assets, imposition of currency exchange controls, confiscatory
taxation, political or financial instability, and diplomatic developments which
could affect the value of a Portfolio's investments in certain foreign
countries. Legal remedies available to investors in certain foreign countries
may be more limited than those available with respect to investments in the
United States or in other foreign countries. The laws of some foreign countries
may limit a Portfolio's ability to invest in securities of certain issuers
located in those foreign countries. Special tax considerations apply to foreign
securities. A Portfolio may buy or sell foreign currencies and options and
futures contracts on foreign currencies for hedging purposes in connection with
its foreign investments as described more fully below.
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A Portfolio may invest in American Depository Receipts ("ADRs") and
Global Depository Receipts ("GDRs"), which represent interests in foreign
securities held by a bank, trust company, or other organization. Investments in
ADRs and GDRs are subject to many of the same risks of investing in foreign
securities generally.
The risks described above are typically increased to the extent that a
Portfolio invests in securities traded in underdeveloped and developing nations,
which are sometimes referred to as "emerging markets."
Foreign currency exchange transactions. Each Portfolio that may invest
in foreign securities may engage in foreign currency exchange transactions to
protect against uncertainty in the level of future currency exchange rates. A
Portfolio may engage in foreign currency exchange transactions in connection
with the purchase and sale of portfolio securities ("transaction hedging") and
to protect against changes in the value of specific portfolio positions
("position hedging").
A Portfolio also may engage in transaction hedging to protect against a
change in foreign currency exchange rates between the date on which a Portfolio
contracts to purchase or sell a security and the settlement date, or to "lock
in" the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. A Portfolio may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with transaction hedging.
A Portfolio may also enter into contracts to purchase or sell foreign
currencies at a future date ("forward contracts") and may purchase and sell
foreign currency futures contracts, for hedging and not for speculation. A
foreign currency forward contract is a negotiated agreement to exchange currency
at a future time at a rate or rates that may be higher or lower than the spot
rate. Foreign currency futures contracts are standardized exchange-traded
contracts and have margin requirements. For transaction hedging purposes, a
Portfolio may also purchase and sell call and put options on foreign currency
futures contracts and on foreign currencies.
A Portfolio may engage in position hedging to protect against a decline
in value relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in value of a currency in
which securities the Portfolio intends to buy are denominated). For position
hedging purposes, a Portfolio may purchase or sell foreign currency futures
contracts and foreign currency forward contracts, and may purchase and sell put
and call options on foreign currency futures contracts and on foreign
currencies. In connection with position hedging, a Portfolio may also purchase
or sell foreign currencies on a spot basis.
Although there is no limit to the amount of a Portfolio's assets that
may be invested in foreign currency exchange and foreign currency forward
contacts, a Portfolio will only enter into such transactions to the extent
necessary to effect the hedging transactions described above.
Interest rate transactions. In order to attempt to protect the value of
its portfolio from interest rate fluctuations and to adjust the interest rate
sensitivity of its portfolio, the Balanced Portfolio and Global Portfolio may
enter into interest rate swaps and other interest rate transactions, such as
interest rate caps, floors, and collars. Interest rate swaps involve the
exchange by the Portfolio with another party of different types of interest rate
streams (e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal). The purchase of an interest
rate cap entitles the purchaser to receive payments on a notional principal
amount from the party selling the cap to the extent that a specified index
exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling the floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values. The Portfolio intends to use these interest rate transactions
as a hedge and not as a speculative investment. The Portfolio's ability to
engage in certain interest rate transactions may be limited by tax
considerations. The use of interest rate swaps and other interest rate
transactions is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
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securities transactions. If the Portfolio's investment adviser is incorrect in
its forecasts of market values, interest rates, or other applicable factors, the
investment performance of the Portfolio would be less favorable than it would
have been if this investment technique were not used.
Indexed securities. The Global Portfolio may invest in indexed
securities, the values of which are linked to currencies, interest rates,
commodities, indices, or other financial indicators. Investment in indexed
securities involves certain risks. In addition to the credit risk of the
securities issuer and normal risks of price changes in response to changes in
interest rates, the principal amount of indexed securities may decrease as a
result of changes in the value of the reference instruments. Also, in the case
of certain indexed securities where the interest rate is linked to a reference
instrument, the interest rate may be reduced to zero and any further declines in
the value of the security may then reduce the principal amount payable on
maturity. Further, indexed securities may be more volatile than the reference
instruments underlying indexed securities.
General. As indicated above, the Portfolios are generally managed in
styles similar to other open-end investment companies which are managed by
Mentor Advisors or Mentor Perpetual and whose shares are generally offered to
the public. These other Mentor portfolios may, however, employ different
investment practices and may invest in securities different from those in which
their counterpart Portfolios invest, and consequently will not have identical
portfolios or experience identical investment results.
Portfolio turnover. The length of time a Portfolio has held a
particular security is not generally a consideration in investment decisions. A
change in the securities held by a Portfolio is known as "portfolio turnover."
As a result of each Portfolio's investment policies, under certain market
conditions its portfolio turnover rate may be higher than that of other mutual
funds. Portfolio turnover generally involves some expense to a Portfolio,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable gains. While it is impossible
to predict portfolio turnover for any Portfolio, the respective investment
advisers expect that turnover rates for each of the Portfolios will not exceed
the following amounts: Balanced Portfolio -- 150%; Capital Growth Portfolio --
150%; Global Portfolio -- 200%; Growth Portfolio -- 150%; Strategy Portfolio --
200%.
Management
The Trustees of the Trust are responsible for generally overseeing the
conduct of its business. Mentor Investment Advisors, LLC is the investment
adviser to each of the Portfolios other than the Global Portfolio. Mentor
Perpetual Advisors, LLC is the investment adviser to the Global Portfolio. Each
of the investment advisers is located at 901 East Byrd Street, Richmond,
Virginia.
Mentor Advisors is a wholly-owned subsidiary of Mentor Investment
Group, LLC ("Mentor Investment Group"), which in turn is a subsidiary of Wheat
First Butcher Singer, Inc. Wheat First Butcher Singer, through other
subsidiaries, also engages in securities brokerage, investment banking, and
related businesses. EVEREN Capital Corporation has a 20% ownership in Mentor
Investment Group and may acquire additional ownership based principally on the
amount of Mentor Investment Group's revenues derived from assets attributable to
clients of EVEREN Securities, Inc. and its affiliates. Mentor Advisors and its
affiliates have over $10 billion in assets under management.
Mentor Perpetual, an investment advisory firm organized in 1995, is
owned equally by Perpetual plc, a diversified financial services holding
company, and Mentor Advisors. The Perpetual organization currently serves as
investment adviser for assets of more than $6 billion. Its clients include 28
unit investment trusts and other public investment pools for over 150 clients,
including private individuals, charities, pension plans, and life assurance
companies.
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Mentor Advisors and Mentor Perpetual together serve as investment
adviser to twenty-seven separate investment portfolios in the Mentor Family of
Funds, including those offered by this Prospectus. All investment decisions made
for the Portfolios by Mentor Advisors and Mentor Perpetual are made by
investment management teams at those firms.
Each of the Portfolios (other than the Global Portfolio) pays
management fees to Mentor Advisors monthly at the following annual rates
(expressed as a percentage of the applicable Portfolio's average daily net
assets): Balanced Portfolio -- 0.75%; Capital Growth Portfolio -- 0.80%; Growth
Portfolio -- 0.70%; and Strategy Portfolio -- 0.85%. The Global Portfolio pays
management fees to Mentor Perpetual monthly at the following annual rates
(expressed as a percentage of the Portfolio's average daily net assets): 1.10%
on assets up to $75 million and 1.00% on assets in excess of $75 million. The
advisory fees paid by the Capital Growth, Global, Growth, and Balanced
Portfolios are higher than those paid by many other mutual funds. An investment
adviser may from time to time voluntarily waive some or all of its investment
advisory fees and may terminate any such voluntary waiver at any time in its
sole discretion.
Subject to the general oversight of the Trustees, each Portfolio's
investment adviser manages the relevant Portfolio's investments in accordance
with the stated policies of the Portfolio. Each makes investment decisions for a
Portfolio and places the purchase and sale orders for the Portfolio's portfolio
transactions. In addition, each pays the salaries of all officers and employees
who are employed by both it and the Trust. The Trust pays all expenses not
assumed by an investment adviser, including, among other things, Trustees' fees,
auditing, accounting, legal, custodial, investor servicing, and reporting
expenses.
In selecting broker-dealers, an investment adviser may consider
research and brokerage services furnished to it and its affiliates. Subject to
seeking the best overall terms available, a Portfolio's investment adviser may
consider sales of the Portfolios (and, if permitted by law, of the other funds
in the Mentor family) as a factor in the selection of broker-dealers.
Administrative Services. Mentor Investment Group, LLC, located at 901
East Byrd Street, Richmond, Virginia 23219, provides each Portfolio with certain
administrative personnel and services necessary to operate the Portfolio, such
as bookkeeping and accounting services. Mentor Investment Group provides these
services to each Portfolio at an annual rate of 0.10% of the Portfolio's average
net assets.
How a Portfolio Values its Shares
The Trust calculates the net asset value of a share of a Portfolio by
dividing the total value of its assets, less liabilities, by the number of its
shares outstanding. Shares are valued as of the close of regular trading on the
New York Stock Exchange each day the Exchange is open. Portfolio securities for
which market quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are stated at
amortized cost, which approximates market value. All other securities and assets
are valued at their fair values.
Securities quoted in foreign currencies are translated into U.S.
dollars at the current exchange rates or at such other rates as may be used in
accordance with procedures of the Trust. As a result, fluctuations in the values
of such currencies in relation to the U.S. dollar will affect the net asset
value of a Portfolio's shares even though there has not been any change in the
values of such securities as quoted in such foreign currencies.
Sales and Redemption
The Trust has an underwriting agreement relating to the Portfolios with
Mentor Distributors, LLC, located at 901 East Byrd Street, Richmond, Virginia
23219. Mentor Distributors offers shares of each Portfolio
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continuously to separate accounts of various participating insurance companies.
Mentor Distributors is not obligated to sell any specific amount of shares.
Separate accounts of participating insurance companies place orders to
purchase and redeem shares of each 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 and variable life
insurance policies. Orders received by the Trust or its agent are effected on
days on which the New York Stock Exchange is open for trading.
Shares of the Portfolios are sold or redeemed at the net asset value
per share next determined after receipt of a purchase or redemption request in
good order. Orders for purchases or sales of shares of a Portfolio must be
received by Mentor Distributors before the close of regular trading on the New
York Stock Exchange in order to receive that day's net asset value. No fee is
charged to a separate account when it redeems Portfolio shares.
Payment for redemptions will be made within seven days after receipt of
a redemption request in good order. Under unusual circumstances, the Trust may
suspend redemptions or postpone payment for up to seven days or longer, as
permitted by federal securities law.
Please check with your insurance company to determine the Portfolios
available under your variable annuity contract or variable life insurance
policy. Certain Portfolios may not be available in your state due to various
insurance regulations. Inclusion in this Prospectus of a Portfolio that is not
available in your state is not to be considered a solicitation. This Prospectus
should be read in conjunction with the prospectus of the separate account of the
specific insurance product which accompanies this Prospectus.
Distribution Plan
Each of the Portfolios has adopted a Distribution Plan under Rule 12b-1
with respect to its shares providing for payments by the Portfolio to Mentor
Distributors from the assets attributable to the Portfolio's shares at the
annual rate of 0.25% of the Portfolio's average net assets. The Trustees may
reduce the amount of payments or suspend the Distribution Plan for such periods
as they may determine.
Payments under the Distribution Plan are intended to compensate Mentor
Distributors for services provided and expenses incurred by it as principal
underwriter of the Portfolios' shares, including for payments to participating
insurance companies to cover various costs incurred or paid by any such
insurance company in connection with the selling of Portfolio shares. Depending
on the participating insurance company's corporate structure and applicable law,
Mentor Distributors may remit payments to a participating insurance company's
affiliates. The schedules of such fees and the basis upon which such fees will
be paid will be determined from time to time by Mentor Distributors. Mentor
Distributors may suspend or modify such payments. Such payments are also subject
to the continuation of the Distribution Plan, the terms of any agreements
between dealers and Mentor Distributors, and any applicable limits imposed by
the National Association of Securities Dealers, Inc. Mentor Distributors may, at
its expense, provide promotional incentives to dealers that sell variable
insurance products.
Exchange Privilege
A shareholder may exchange shares of any Portfolio for shares of the
same class of any other Portfolio of the Trust on the basis of their respective
net asset values. Exchanges may not be made into Portfolios not offered by your
variable annuity contract or variable life policy.
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The exchange privilege is not intended as a vehicle for short-term
trading. Excessive exchange activity may interfere with portfolio management and
have an adverse effect on separate accounts. In order to limit excessive
exchange activity and in other circumstances where Mentor Distributors or the
Trustees believe doing so would be in the best interests of a Portfolio, the
Trust reserves the right to revise or terminate the exchange privilege, limit
the amount or number of exchanges, or reject any exchange. Your insurance
company would be notified of any such action to the extent required by law.
Consult Mentor Distributors before requesting an exchange by calling
1-800-382-0016. See the Statement of Additional Information to find out more
about the exchange privilege.
Distributions and Taxes
Dividends, if any, are declared daily and paid quarterly for the
Balanced Portfolio and annually for the Capital Growth, Global, Growth, and
Strategy Portfolios. Each Portfolio will distribute its net capital gain, if
any, at least annually. All dividends and distributions of net capital gain will
be invested in additional shares of the same class of a Portfolio unless an
election is made on behalf of a separate account to receive some or all
distributions in cash.
Each Portfolio intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements that are
necessary for it to be relieved of federal taxes on income and gains it
distributes to separate accounts. For information concerning federal income tax
consequences for the holders of variable annuity contracts and variable life
insurance policies, contract and policy owners should consult the prospectus of
the applicable separate account.
Internal Revenue Service regulations applicable to variable annuity and
variable life insurance separate accounts generally require that portfolios that
serve as the funding vehicles solely for such separate accounts invest no more
than 55% of the value of their assets in one investment, 70% in two investments,
80% in three investments, and 90% in four investments. Alternatively, a
Portfolio will be treated as meeting these requirements for any quarter of its
taxable year if, as of the close of such quarter, the Portfolio meets the
diversification requirements applicable to regulated investment companies (see
"Taxes" in the Statement of Additional Information) and no more than 55% of the
value of its total assets consists of cash and cash items (including
receivables), U.S. government securities and securities of other regulated
investment companies. Each of the Portfolios intends to comply with these
requirements.
Portfolio investments in foreign securities may be subject to
withholding taxes at the source on dividend or interest payments. In that case,
a Portfolio's yield on those securities would be decreased.
Portfolio transactions in foreign currencies and hedging activities
will likely produce a difference between book income and taxable income. This
difference may cause a portion of a Portfolio's income distributions to
constitute a return of capital for tax purposes or require a Portfolio to make
distributions exceeding book income to qualify as a regulated investment company
for tax purposes.
General
Mentor Variable Investment Trust is a Massachusetts business trust
organized on March 20, 1997. A copy of the Agreement and Declaration of Trust,
which is governed by Massachusetts law, is on file with the Secretary of State
of the Commonwealth of Massachusetts.
The Trust is an open-end management investment company with an
unlimited number of authorized shares of beneficial interest. Shares of the
Trust may, without shareholder approval, be divided into two or more series of
shares representing separate investment portfolios. Any such series of shares
may be further divided without shareholder approval into two or more classes of
shares having such preferences and special or relative
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rights and privileges as the Trustees determine. The Trust's shares are
currently divided into five series, each representing a separate investment
Portfolio which is being offered through separate accounts of participating
insurance companies. Each share has one vote, with fractional shares voting
proportionally. Shares of each series will vote together as a single series
except when required by law or determined by the Trustees. Shares of each
Portfolio are freely transferable, are entitled to dividends as declared by the
Trustees, and, if the Portfolio were liquidated, would receive the net assets of
that Portfolio. The Trust may suspend the sale of shares at any time and may
refuse any order to purchase shares. Although neither the Trust nor any
Portfolio is required to hold annual meetings of shareholders, shareholders have
the right to call a meeting to elect or remove Trustees, or to take other
actions as provided in the Agreement and Declaration of Trust.
Shares of the Portfolios may only be purchased by an insurance company
separate account. For matters requiring shareholder approval, you may be able to
instruct the insurance company separate account how to vote the Portfolio shares
attributable to your contract or policy. See the section relating to voting
rights of your insurance product prospectus for more information.
Expenses incurred in the operation of a Portfolio or otherwise
allocated to a Portfolio, including but not limited to taxes, interest,
brokerage fees, and commissions, fees to Trustees who are not officers,
directors, stockholders, or employees of Wheat First Butcher Singer and its
subsidiaries, SEC fees and related expenses, state Blue Sky qualification fees,
charges of the custodian and transfer and dividend disbursing agents, outside
auditing, accounting, and legal services, certain investor servicing fees and
expenses, charges for the printing of prospectuses and statements of additional
information for regulatory purposes or for distribution to shareholders, certain
shareholder report charges and charges relating to corporate matters, are borne
by the Portfolio.
None of the Portfolios currently foresees any disadvantages to contract
or policy owners arising out of the fact that it offers its shares to separate
accounts of various insurance companies to serve as the investment medium for
their variable products. Nevertheless, the Trustees intend to monitor events in
order to identify any material irreconcilable conflicts which may possibly
arise, and to determine what action, if any, should be taken in response to such
conflicts. If such a conflict were to occur, one or more insurance companies'
separate accounts might be required to withdraw their investments in one or more
Portfolios and shares of another Portfolio may be substituted. This might force
a Portfolio to sell portfolio securities at disadvantageous prices. In addition,
the Trustees may refuse to sell shares of any Portfolio to any separate account
or may suspend or terminate the offering of shares of any Portfolio if such
action is required by law or regulatory authority or is in the best interests of
the shareholders of the Portfolio.
Should any conflict between variable annuity contract and variable life
insurance policy owners arise which would require that a substantial amount of
net assets be withdrawn from the Trust, orderly portfolio management could be
disrupted to the potential detriment of such contract and policy owners.
Performance Information
Yield and total return data may from time to time be included in
advertisements about the Portfolios. A Portfolio's "yield" is calculated by
dividing the Portfolio's annualized net investment income per share during a
recent 30-day period by the maximum public offering price per share on the last
day of that period. "Total return" for the one-, five-, and ten-year periods (or
for the life of a Portfolio, if shorter) through the most recent calendar
quarter represents the average annual compounded rate of return on an investment
of $1,000 in such Portfolio. Total return may also be presented for other
periods. Quotations of yield or total return for a period when an expense
limitation was in effect will be greater than if the limitation had not been in
effect. A Portfolio's performance may be compared to various indices. See the
Statement of Additional Information for more information. Information may be
presented in advertisements about a Portfolio describing the background and
professional experience of the Portfolio's investment adviser, sub-adviser, or
any of their personnel.
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All data are based on a Portfolio's past investment results and do not
predict future performance. Investment performance, which will vary, is based on
many factors, including market conditions, the composition of a Portfolio, and a
Portfolio's operating expenses. Investment performance also often reflects the
risks associated with a Portfolio's investment objective and policies. These
factors should be considered when comparing a Portfolio's investment results to
those of other mutual funds and other investment vehicles.
Performance information presented for the Portfolios should not be
compared directly with performance information of other insurance products
without taking into account insurance-related charges and expenses payable with
respect to those insurance products. Insurance related charges and expenses are
not reflected in the Portfolios' performance information. As a result of such
insurance-related charges and expenses, an investor's return under the insurance
product would be lower.
Financial Information
It is expected that owners of the variable annuity contracts and
variable life insurance policies who have contract or policy values allocated to
the Portfolios will receive an unaudited semi-annual financial statement and an
audited annual financial statement for such Portfolios. These reports show the
investments owned by each Portfolio and provide other relevant information about
the Portfolios.
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APPENDIX
Securities Ratings
The following rating services describe rated securities as follows:
Moody's Investors Service, Inc.
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-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as uppermedium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility of impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking, or may be characteristically unreliable over any great
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 very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
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 earning any
real investment standing.
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Notes
MIG 1/VMIG 1 -- This 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 refinancing.
MIG 2/VMIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Commercial Paper
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often 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.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Standard & Poor's
Bonds
AAA -- Debt rated 'AAA' has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higherrated issues only in small degree.
A -- Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB -- Debt rated 'BBB' is 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 or repay principal for
debt in this category than in higher-rated categories.
BB-B-CCC-CC-C -- Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the
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obligation. BB indicates the lowest degree of speculation and 'C' the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB -- Debt rated 'BB' has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.
B -- Debt rated 'B' has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
CCC -- Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The 'CCC' rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.
CC -- The rating 'CC' typically is applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC-' rating.
C -- The rating 'C' typically is applied to debt subordinated to senior debt
which is assigned an actual or implied 'CCC-' debt rating. The 'C-' rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
D -- Bonds rated 'D' are in payment default. The 'D' rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The 'D'
rating also will be used on the filing of a bankruptcy petition if debt service
payments are jeopardized.
Notes
SP-1 -- Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus sign (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
SP-3 -- Speculative capacity to pay principal and interest.
Commercial Paper
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.
A-3 -- Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
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MENTOR VARIABLE INVESTMENT PORTFOLIOS
STATEMENT OF ADDITIONAL INFORMATION
June , 1997
This Statement of Additional Information is not a prospectus and should
only be read in conjunction with the applicable prospectus of the Trust dated
June __, 1997. A copy of the applicable prospectus can be obtained upon request
from Mentor Distributors, LLC, the Trust's distributor, at 901 East Byrd Street,
Richmond, Virginia 23219 (1-800-382-0016).
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INTRODUCTION..........................................................2
INVESTMENT RESTRICTIONS...............................................2
CERTAIN INVESTMENT PRACTICES .........................................4
MANAGEMENT OF THE TRUST..............................................25
PRINCIPAL HOLDERS OF SECURITIES......................................26
INVESTMENT ADVISORY SERVICES.........................................26
ADMINISTRATIVE SERVICES..............................................28
BROKERAGE TRANSACTIONS...............................................29
HOW TO BUY SHARES....................................................31
DISTRIBUTION.........................................................31
DETERMINING NET ASSET VALUE..........................................32
REDEMPTIONS IN KIND..................................................34
TAXES................................................................34
INDEPENDENT ACCOUNTANTS..............................................37
CUSTODIAN............................................................37
PERFORMANCE INFORMATION..............................................37
MEMBERS OF INVESTMENT MANAGEMENT TEAMS...............................44
SHAREHOLDER LIABILITY................................................47
FINANCIAL STATEMENT..................................................47
</TABLE>
<PAGE>
INTRODUCTION
Mentor Variable Investment Portfolios (the "Trust") is an open-end
series investment company. The Trust is a Massachusetts business trust organized
on March __, 1997. The Trust consists of the following five portfolios
(collectively, the "Portfolios" and each individually, the "Portfolio"): Mentor
VIP Balanced Portfolio (the "Balanced Portfolio"); Mentor VIP Capital Growth
Portfolio (the "Capital Growth Portfolio"); Mentor VIP Growth Portfolio (the
"Growth Portfolio"); Mentor VIP Perpetual Global Portfolio (the "Global
Portfolio"); and Mentor VIP Strategy Portfolio (the "Strategy Portfolio"). Each
Portfolio has one class of shares of beneficial interest.
INVESTMENT RESTRICTIONS
With respect to the investment restrictions described below, all
percentage limitations on investments will apply at the time of investment and
shall not be considered violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment. Except for the investment
restrictions listed below as fundamental or to the extent designated as such in
the prospectus in respect of a Portfolio, the other investment policies
described in this Statement or in a Portfolio's prospectus are not fundamental
and may be changed by approval of the Trustees.
As fundamental investment restrictions, which may not be changed as to
any Portfolio without a vote of a majority of the outstanding voting securities
of that Portfolio, the Trust may not and will not take any of the following
actions with respect to that Portfolio:
(1) Borrow more than 33 1/3% of the value of its total
assets less all liabilities and indebtedness (other than such
borrowings) not represented by senior securities.
(2) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(3) Purchase or sell real estate, although it may purchase
securities of issuers which deal in real estate, securities which are
secured by interests in real estate, and securities which represent
interests in real estate, and it may acquire and dispose of real estate
or
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interests in real estate acquired through the exercise of its rights as
a holder of debt obligations secured by real estate or interests
therein.
(4) Purchase or sell commodities or commodity contracts, except that
it may purchase and sell financial futures contracts and options and
may enter into foreign exchange contracts and other financial
transactions not involving the direct purchase or sale of physical
commodities.
(5) Make loans, except by purchase of debt obligations in which the
Portfolio may invest consistent with its investment policies, by
entering into repurchase agreements, or by lending its portfolio
securities.
(6) With respect to 75% of its total assets, invest in the
securities of any issuer if, immediately after such investment, more
than 5% of the total assets of the Portfolio (taken at current value)
would be invested in the securities of such issuer; provided that this
limitation does not apply to obligations issued or guaranteed as to
interest or principal by the U.S. government or its agencies or
instrumentalities.
(7) With respect to 75% of its total assets, acquire more than 10%
of the outstanding voting securities of any issuer.
(8) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities) if, as a result of such
purchase, more than 25% of the Portfolio's total assets would be
invested in any one industry.
(9) Issue any class of securities which is senior to the Portfolio's
shares of beneficial interest, to the extent prohibited by the
Investment Company Act of 1940, as amended.
The Investment Company Act of 1940 provides that a "vote of a majority
of the outstanding voting securities" of a Portfolio or the Trust means the
affirmative vote of the lesser of (1) more than 50% of the outstanding shares of
a Portfolio or the Trust, as the case may be, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares are represented
at the meeting in person or by proxy.
It is contrary to each Portfolio's present policy, which may be changed
without shareholder approval, to:
(1) Invest in (a) securities which are not readily marketable, (b)
securities restricted as to resale (excluding securities determined by the
Trustees of the Trust (or the person designated by the Trustees of the Trust to
make such determinations) to be readily marketable), and (c) repurchase
agreements maturing in more than seven days, if, as a result, more than 15% of
the Portfolio's net assets (taken at current value) would be invested in
securities described in (a), (b) and (c) above.
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All percentage limitations on investments (other than pursuant to
non-fundamental restriction (1)) will apply at the time of the making of an
investment and shall not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment.
CERTAIN INVESTMENT PRACTICES
Set forth below is information concerning certain investment practices
in which one or more of the Portfolios may engage, and certain of the risks they
may entail. Certain of the investment practices may not be available to a
Portfolio. See the prospectus relating to a particular Portfolio for a
description of the investment practices generally applicable to that Portfolio.
For purposes of this section, a Portfolio's investment adviser is referred to as
an "Adviser".
Options
A Portfolio may purchase and sell put and call options on its portfolio
securities to enhance investment performance or to protect against changes in
market prices.
Covered call options. A Portfolio may write covered call options on its
securities to realize a greater current return through the receipt of premiums
than it would realize on its securities alone. Such option transactions may also
be used as a limited form of hedging against a decline in the price of
securities owned by the Portfolio.
A call option gives the holder the right to purchase, and obligates the
writer to sell, a security at the exercise price at any time before the
expiration date. A call option is "covered" if the writer, at all times while
obligated as a writer, either owns the underlying securities (or comparable
securities satisfying the cover requirements of the securities exchanges), or
has the right to acquire such securities through immediate conversion of
securities.
In return for the premium received when it writes a covered call
option, a Portfolio gives up some or all of the opportunity to profit from an
increase in the market price of the securities covering the call option during
the life of the option. The Portfolio retains the risk of loss should the price
of such securities decline. If the option expires unexercised, the Portfolio
realizes a gain equal to the premium, which may be offset by a decline in price
of the underlying security. If the option is exercised, the Portfolio realizes a
gain or loss equal to the difference between the Portfolio's cost for the
underlying security and the proceeds of sale (exercise price minus commissions)
plus the amount of the premium.
A Portfolio may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. A Portfolio may enter
into closing purchase transactions in order to free itself to sell the
underlying security or to write another call on the security, realize a profit
on a previously written call option, or protect a security from being called in
an unexpected
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market rise. Any profits from a closing purchase transaction may be offset by a
decline in the value of the underlying security. Conversely, because increases
in the market price of a call option will generally reflect increases in the
market price of the underlying security, any loss resulting from a closing
purchase transaction is likely to be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Portfolio.
Covered put options. A Portfolio may write covered put options in order
to enhance its current return. Such options transactions may also be used as a
limited form of hedging against an increase in the price of securities that the
Portfolio plans to purchase. A put option gives the holder the right to sell,
and obligates the writer to buy, a security at the exercise price at any time
before the expiration date. A put option is "covered" if the writer segregates
cash and high-grade short-term debt obligations or other permissible collateral
equal to the price to be paid if the option is exercised.
In addition to the receipt of premiums and the potential gains from
terminating such options in closing purchase transactions, a Portfolio also
receives interest on the cash and debt securities maintained to cover the
exercise price of the option. By writing a put option, the Portfolio assumes the
risk that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss unless the security later appreciates in value.
A Portfolio may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may be
partially or entirely offset by the premium received on the terminated option.
Purchasing put and call options. A Portfolio may also purchase put
options to protect portfolio holdings against a decline in market value. This
protection lasts for the life of the put option because the Portfolio, as a
holder of the option, may sell the underlying security at the exercise price
regardless of any decline in its market price. In order for a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction costs
that the Portfolio must pay. These costs will reduce any profit the Portfolio
might have realized had it sold the underlying security instead of buying the
put option.
A Portfolio may purchase call options to hedge against an increase in
the price of securities that the Portfolio wants ultimately to buy. Such hedge
protection is provided during the life of the call option since the Portfolio,
as holder of the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. These costs will reduce any profit the Portfolio
might have realized had it bought the underlying security at the time it
purchased the call option.
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Options on foreign securities. A Portfolio may purchase and sell
options on foreign securities if in the opinion of its Adviser the investment
characteristics of such options, including the risks of investing in such
options, are consistent with the Portfolio's investment objectives. It is
expected that risks related to such options will not differ materially from
risks related to options on U.S. securities. However, position limits and other
rules of foreign exchanges may differ from those in the U.S. In addition,
options markets in some countries, many of which are relatively new, may be less
liquid than comparable markets in the U.S.
Risks involved in the sale of options. Options transactions involve
certain risks, including the risks that a Portfolio's Adviser will not forecast
interest rate or market movements correctly, that a Portfolio may be unable at
times to close out such positions, or that hedging transactions may not
accomplish their purpose because of imperfect market correlations. The
successful use of these strategies depends on the ability of a Portfolio's
Adviser to forecast market and interest rate movements correctly.
An exchange-listed option may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Portfolio may be forced to continue to hold,
or to purchase at a fixed price, a security on which it has sold an option at a
time when its Adviser believes it is inadvisable to do so.
Higher than anticipated trading activity or order flow or other
unforeseen events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict the
Portfolio's use of options. The exchanges have established limitations on the
maximum number of calls and puts of each class that may be held or written by an
investor or group of investors acting in concert. It is possible that the
Portfolio and other clients of the Portfolio's Adviser may be considered such a
group. These position limits may restrict the Portfolio's ability to purchase or
sell options on particular securities.
Options which are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that reason,
it may be more difficult to close out unlisted options than listed options.
Furthermore, unlisted options are not subject to the protection afforded
purchasers of listed options by The Options Clearing Corporation.
Government regulations, particularly the requirements for qualification
as a "regulated investment company" under the Internal Revenue Code, may also
restrict the Portfolio's use of options.
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Futures Contracts
In order to hedge against the effects of adverse market changes a
Portfolio that may invest in debt securities may buy and sell futures contracts
on debt securities of the type in which the Portfolio may invest and on indexes
of debt securities. In addition, a Portfolio that may invest in equity
securities may purchase and sell stock index futures to hedge against changes in
stock market prices. A Portfolio may also, to the extent permitted by applicable
law, buy and sell futures contracts and options on futures contracts to increase
its current return. All such futures and related options will, as may be
required by applicable law, be traded on exchanges that are licensed and
regulated by the Commodity Futures Trading Commission (the "CFTC").
Futures on Debt Securities and Related Options. A futures contract on a
debt security is a binding contractual commitment which, if held to maturity,
will result in an obligation to make or accept delivery, during a particular
month, of securities having a standardized face value and rate of return. By
purchasing futures on debt securities -- assuming a "long" position -- a
Portfolio will legally obligate itself to accept the future delivery of the
underlying security and pay the agreed price. By selling futures on debt
securities -- assuming a "short" position -- it will legally obligate itself to
make the future delivery of the security against payment of the agreed price.
Open futures positions on debt securities will be valued at the most recent
settlement price, unless that price does not, in the judgment of persons acting
at the direction of the Trustees as to the valuation of a Portfolio's assets,
reflect the fair value of the contract, in which case the positions will be
valued by the Trustees or such persons.
Positions taken in the futures markets are not normally held to
maturity, but are instead liquidated through offsetting transactions that may
result in a profit or a loss. While futures positions taken by a Portfolio will
usually be liquidated in this manner, a Portfolio may instead make or take
delivery of the underlying securities whenever it appears economically
advantageous to do so. A clearing corporation associated with the exchange on
which futures are traded assumes responsibility for such closing transactions
and guarantees that a Portfolio's sale and purchase obligations under closed-out
positions will be performed at the termination of the contract.
Hedging by use of futures on debt securities seeks to establish with
more certainty than would otherwise be possible the effective rate of return on
securities. A Portfolio may, for example, take a "short" position in the futures
market by selling contracts for the future delivery of debt securities held by
the Portfolio (or securities having characteristics similar to those held by the
Portfolio) in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of the Portfolio's securities. When hedging of
this character is successful, any depreciation in the value of securities may
substantially be offset by appreciation in the value of the futures position.
On other occasions, the Portfolio may take a "long" position by
purchasing futures on debt securities. This would be done, for example, when the
Portfolio expects to purchase particular
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securities when it has the necessary cash, but expects the rate of return
available in the securities markets at that time to be less favorable than rates
currently available in the futures markets. If the anticipated rise in the price
of the securities should occur (with its concomitant reduction in yield), the
increased cost to the Portfolio of purchasing the securities may be offset, at
least to some extent, by the rise in the value of the futures position taken in
anticipation of the subsequent purchase.
Successful use by a Portfolio of futures contracts on debt securities
is subject to its Adviser's ability to predict correctly movements in the
direction of interest rates and other factors affecting markets for debt
securities. For example, if a Portfolio has hedged against the possibility of an
increase in interest rates which would adversely affect the market prices of
debt securities held by it and the prices of such securities increase instead
the Portfolio will lose part or all of the benefit of the increased value of its
securities which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Portfolio has
insufficient cash, it may have to sell securities to meet daily margin
maintenance requirements. The Portfolio may have to sell securities at a time
when it may be disadvantageous to do so.
A Portfolio may purchase and write put and call options on certain debt
futures contracts, as they become available. Such options are similar to options
on securities except that options on futures contracts give the purchaser the
right, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. As with options on securities, 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. A
Portfolio will be required to deposit initial margin and maintenance margin with
respect to put and call options on futures contracts written by it pursuant to
brokers' requirements, and, in addition, net option premiums received will be
included as initial margin deposits. See "Margin Payments" below. Compared to
the purchase or sale of futures contracts, the purchase of call or put options
on futures contracts involves less potential risk to a Portfolio because the
maximum amount at risk is the premium paid for the options plus transactions
costs. However, there may be circumstances when the purchase of call or put
options on a futures contract would result in a loss to a Portfolio when the
purchase or sale of the futures contracts would not, such as when there is no
movement in the prices of debt securities. The writing of a put or call option
on a futures contract involves risks similar to those risks relating to the
purchase or sale of futures contracts.
Index Futures Contracts and Options. A Portfolio may invest in debt
index futures contracts and stock index futures contracts, and in related
options. A debt index futures contract is a contract to buy or sell units of a
specified debt index at a specified future date at a price agreed upon when the
contract is made. A unit is the current value of the index. (Debt index futures
in which the Portfolios are presently expected to invest are not now available,
although
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such futures contracts are expected to become available in the future.) A stock
index futures contract is a contract to buy or sell units of a stock index at a
specified future date at a price agreed upon when the contract is made. A unit
is the current value of the stock index.
For example, the Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock Exchange.
The S&P 100 Index assigns relative weightings to the common stocks included in
the Index, and the Index fluctuates with changes in the market values of those
common stocks. In the case of the S&P 100 Index, contracts are to buy or sell
100 units. Thus, if the value of the S&P 100 Index were $180, one contract would
be worth $18,000 (100 units x $180). The stock index futures contract specifies
that no delivery of the actual stocks making up the index will take place.
Instead, settlement in cash must occur upon the termination of the contract,
with the settlement being the difference between the contract price and the
actual level of the stock index at the expiration of the contract. For example,
if a Portfolio enters into a futures contract to buy 100 units of the S&P 100
Index at a specified future date at a contract price of $180 and the S&P 100
Index is at $184 on that future date, the Portfolio will gain $400 (100 units x
gain of $4). If the Portfolio enters into a futures contract to sell 100 units
of the stock index at a specified future date at a contract price of $180 and
the S&P 100 Index is at $182 on that future date, the Portfolio will lose $200
(100 units x loss of $2).
A Portfolio may purchase or sell futures contracts with respect to any
securities indexes. Positions in index futures may be closed out only on an
exchange or board of trade which provides a secondary market for such futures.
In order to hedge a Portfolio's investments successfully using futures
contracts and related options, a Portfolio must invest in futures contracts with
respect to indexes or sub-indexes the movements of which will, in its judgment,
have a significant correlation with movements in the prices of the Portfolio's
securities.
Options on stock index futures. Options on index futures contracts are
similar to options on securities except that options on index futures contracts
give the purchaser the right, in return for the premium paid, to assume a
position in an index futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified exercise price at
any time during the period of the option. Upon exercise of the option, the
holder would assume the underlying futures position and would receive a
variation margin payment of cash or securities approximating the increase in the
value of the holder's option position. If an option is exercised on the last
trading day prior to the expiration date of the option, the settlement will be
made entirely in cash based on the difference between the exercise price of the
option and the closing level of the index on which the futures contract is based
on the expiration date. Purchasers of options who fail to exercise their options
prior to the exercise date suffer a loss of the premium paid.
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Options on Indices. As an alternative to purchasing and selling call
and put options on index futures contracts, each of the Portfolios which may
purchase and sell index futures contracts may purchase and sell call and put
options on the underlying indexes themselves to the extent that such options are
traded on national securities exchanges. Index options are similar to options on
individual securities in that the purchaser of an index option acquires the
right to buy (in the case of a call) or sell (in the case of a put), and the
writer undertakes the obligation to sell or buy (as the case may be), units of
an index at a stated exercise price during the term of the option. Instead of
giving the right to take or make actual delivery of securities, the holder of an
index option has the right to receive a cash "exercise settlement amount". This
amount is equal to the amount by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
a fixed "index multiplier".
A Portfolio may purchase or sell options on stock indices in order to
close out its outstanding positions in options on stock indices which it has
purchased. A Portfolio may also allow such options to expire unexercised.
Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to a Portfolio
because the maximum amount at risk is the premium paid for the options plus
transactions costs. The writing of a put or call option on an index involves
risks similar to those risks relating to the purchase or sale of index futures
contracts.
Margin Payments. When a Portfolio purchases or sells a futures
contract, it is required to deposit with its custodian an amount of cash, U.S.
Treasury bills, or other permissible collateral equal to a small percentage of
the amount of the futures contract. This amount is known as "initial margin".
The nature of initial margin is different from that of margin in security
transactions in that it does not involve borrowing money to finance
transactions. Rather, initial margin is similar to a performance bond or good
faith deposit that is returned to a Portfolio upon termination of the contract,
assuming a Portfolio satisfies its contractual obligations.
Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market". These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when a Portfolio sells a futures contract and the price of the
underlying security rises above the delivery price, the Portfolio's position
declines in value. The Portfolio then pays the broker a variation margin payment
equal to the difference between the delivery price of the futures contract and
the market price of the securities underlying the futures contract. Conversely,
if the price of the underlying security falls below the delivery price of the
contract, the Portfolio's futures position increases in value. The broker then
must make a variation margin payment equal to the difference between the
delivery price of the futures contract and the market price of the securities
underlying the futures contract.
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When a Portfolio terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Portfolio, and the Portfolio realizes a loss or a gain. Such closing
transactions involve additional commission costs.
Special Risks of Transactions in Futures Contracts and Related Options
Liquidity risks. Positions in futures contracts may be closed out only
on an exchange or board of trade which provides a secondary market for such
futures. Although the Portfolio intends to purchase or sell futures only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange or
board of trade will exist for any particular contract or at any particular time.
If there is not a liquid secondary market at a particular time, it may not be
possible to close a futures position at such time and, in the event of adverse
price movements, a Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event financial futures are used
to hedge portfolio securities, such securities will not generally be sold until
the financial futures can be terminated. In such circumstances, an increase in
the price of the portfolio securities, if any, may partially or completely
offset losses on the financial futures.
In addition to the risks that apply to all options transactions, there
are several special risks relating to options on futures contracts. The ability
to establish and close out positions in such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
such a market will develop. Although a Portfolio generally will purchase only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. In the event no such market exists
for particular options, it might not be possible to effect closing transactions
in such options with the result that a Portfolio would have to exercise the
options in order to realize any profit.
Hedging risks. There are several risks in connection with the use by a
Portfolio of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying securities or
index or movements in the prices of a Portfolio's securities which are the
subject of a hedge. A Portfolio's Adviser will, however, attempt to reduce this
risk by purchasing and selling, to the extent possible, futures contracts and
related options on securities and indexes the movements of which will, in its
judgment, correlate closely with movements in the prices of the underlying
securities or index and the securities sought to be hedged.
Successful use of futures contracts and options by a Portfolio for
hedging purposes is also subject to its Adviser's ability to predict correctly
movements in the direction of the market. It is possible that, where a Portfolio
has purchased puts on futures contracts to hedge its portfolio against a decline
in the market, the securities or index on which the puts are purchased may
increase in value and the value of securities held in the portfolio may decline.
If this occurred, the Portfolio would lose money on the puts and also experience
a decline in value in its portfolio
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securities. In addition, the prices of futures, for a number of reasons, may not
correlate perfectly with movements in the underlying securities or index due to
certain market distortions. First, all participants in the futures market are
subject to margin deposit requirements. Such requirements may cause investors to
close futures contracts through offsetting transactions which could distort the
normal relationship between the underlying security or index and futures
markets. Second, the margin requirements in the futures markets are less onerous
than margin requirements in the securities markets in general, and as a result
the futures markets may attract more speculators than the securities markets do.
Increased participation by speculators in the futures markets may also cause
temporary price distortions. Due to the possibility of price distortion, even a
correct forecast of general market trends by a Portfolio's Adviser may still not
result in a successful hedging transaction over a short time period.
Other Risks. Portfolios will incur brokerage fees in connection with
their futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks, those
transactions themselves entail certain other risks. Thus, while a Portfolio may
benefit from the use of futures and related options, unanticipated changes in
interest rates or stock price movements may result in a poorer overall
performance for the Portfolio than if it had not entered into any futures
contracts or options transactions. Moreover, in the event of an imperfect
correlation between the futures position and the portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Portfolio may be exposed to risk of loss.
Forward Commitments
A Portfolio may enter into contracts to purchase securities for a fixed
price at a future date beyond customary settlement time ("forward commitments")
if the Portfolio holds, and maintains until the settlement date in a segregated
account, cash or high-grade debt obligations in an amount sufficient to meet the
purchase price, or if the Portfolio enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in the value of the Portfolio's other assets.
Where such purchases are made through dealers, the Portfolios rely on the dealer
to consummate the sale. The dealer's failure to do so may result in the loss to
the Portfolio of an advantageous yield or price. Although a Portfolio will
generally enter into forward commitments with the intention of acquiring
securities for its portfolio or for delivery pursuant to options contracts it
has entered into, a Portfolio may dispose of a commitment prior to settlement if
its Adviser deems it appropriate to do so. A Portfolio may realize short-term
profits or losses upon the sale of forward commitments.
Repurchase Agreements
A Portfolio may enter into repurchase agreements. A repurchase
agreement is a contract under which the Portfolio acquires a security subject to
the obligation of the seller to
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repurchase and the Portfolio to resell such security at a fixed time and price
(representing the Portfolio's cost plus interest). It is the Trust's present
intention to enter into repurchase agreements only with member banks of the
Federal Reserve System and securities dealers meeting certain criteria as to
creditworthiness and financial condition established by the Trustees of the
Trust and only with respect to obligations of the U.S. government or its
agencies or instrumentalities or other high quality short term debt obligations.
Repurchase agreements may also be viewed as loans made by a Portfolio which are
collateralized by the securities subject to repurchase. A Portfolio's Adviser
will monitor such transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. If the seller defaults, a
Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, if the
seller should be involved in bankruptcy or insolvency proceedings, a Portfolio
may incur delay and costs in selling the underlying security or may suffer a
loss of principal and interest if a Portfolio is treated as an unsecured
creditor and required to return the underlying collateral to the seller's
estate.
Loans of Portfolio Securities
A Portfolio may lend its portfolio securities, provided: (1) the loan
is secured continuously by collateral consisting of U.S. Government securities,
cash, or cash equivalents adjusted daily to have market value at least equal to
the current market value of the securities loaned; (2) the Portfolio may at any
time call the loan and regain the securities loaned; (3) a Portfolio will
receive any interest or dividends paid on the loaned securities; and (4) the
aggregate market value of securities loaned will not at any time exceed
one-third (or such other limit as the Trustee may establish) of the total assets
of the Portfolio. In addition, it is anticipated that a Portfolio may share with
the borrower some of the income received on the collateral for the loan or that
it will be paid a premium for the loan. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible delay in
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Although voting rights or rights to consent with
respect to the loaned securities pass to the borrower, a Portfolio retains the
right to call the loans at any time on reasonable notice, and it will do so in
order that the securities may be voted by a Portfolio if the holders of such
securities are asked to vote upon or consent to matters materially affecting the
investment. A Portfolio will not lend portfolio securities to borrowers
affiliated with the Portfolio.
Collateralized mortgage obligations; other mortgage-related securities
Collateralized mortgage obligations or "CMOs" are debt obligations or
pass-through certificates collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by certificates
issued by the Government National Mortgage Association, ("GNMA"), the Federal
National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage
Corporation ("FHLMC"), but they also may be collateralized
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by whole loans or private pass-through certificates (such collateral
collectively hereinafter referred to as "Mortgage Assets"). CMOs may be issued
by agencies or instrumentalities of the U.S. Government, or by private
originators of, or investors in, mortgage loans.
In a CMO, a series of bonds or certificates is generally issued in
multiple classes. Each class of CMOs is issued at a specific fixed or floating
rate coupon and has a stated maturity or final distribution date. Principal
prepayments on the mortgage assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on most classes of the CMOs on a monthly, quarterly,
or semi-annual basis. The principal of and interest on the mortgage assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
In a CMO, payments of principal, including any principal prepayments, on the
mortgage assets are applied to the classes of the series in a pre-determined
sequence.
Foreign Securities
A Portfolio may invest in foreign securities and in certificates of
deposit issued by United States branches of foreign banks and foreign branches
of United States banks.
Investments in foreign securities may involve considerations different
from investments in domestic securities. There may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions and custodian
fees are generally higher than in the United States. Investments in foreign
securities can involve other risks different from those affecting U.S.
investments, including local political or economic developments, expropriation
or nationalization of assets and imposition of withholding taxes on dividend or
interest payments. It may be more difficult to obtain and enforce a judgment
against a foreign issuer. In addition, foreign investments may be affected
favorably or unfavorably by changes in currency exchange rates or exchange
control regulations. A Portfolio may incur costs in connection with conversion
between currencies.
In determining whether to invest in securities of foreign issuers, the
Adviser of a Portfolio seeking current income will consider the likely impact of
foreign taxes on the net yield available to the Portfolio and its shareholders.
Income received by a Portfolio from sources within foreign countries may be
reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. It is impossible to determine the effective rate of
foreign tax in advance since the amount of a Portfolio's assets to be invested
in various countries is not known, and tax laws and their interpretations may
change from time to time and may change without advance notice. Any such taxes
paid by a Portfolio will reduce its net income available for distribution to
shareholders.
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Foreign Currency Transactions
Except as otherwise described in the relevant Prospectus, a Portfolio
may engage without limit in currency exchange transactions, including foreign
currency forward and futures contracts, to protect against uncertainty in the
level of future foreign currency exchange rates. In addition, a Portfolio may
purchase and sell call and put options on foreign currency futures contracts and
on foreign currencies for hedging purposes.
A Portfolio may engage in both "transaction hedging" and "position
hedging". When a Portfolio engages in transaction hedging, it enters into
foreign currency transactions with respect to specific receivables or payables
of the Portfolio generally arising in connection with the purchase or sale of
its securities. A Portfolio will engage in transaction hedging when it desires
to "lock in" the U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest payment in a
foreign currency. By transaction hedging a Portfolio will attempt to protect
against a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
A Portfolio may purchase or sell a foreign currency on a spot (or cash)
basis at the prevailing spot rate in connection with transaction hedging. A
Portfolio may also enter into contracts to purchase or sell foreign currencies
at a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.
For transaction hedging purposes, a Portfolio may purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives a Portfolio the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives a Portfolio the
right to sell a currency at an exercise price until the expiration of the
option. A call option on a futures contract gives a Portfolio the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives a Portfolio the right to purchase a
currency at the exercise price until the expiration of the option. A Portfolio
will engage in over-the-counter transactions only when appropriate
exchange-traded transactions are unavailable and when, in the opinion of its
Adviser, the pricing mechanism and liquidity are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations.
When a Portfolio engages in position hedging, it enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by the Portfolio are denominated or
are quoted in their principle trading markets or an increase in the value of
currency for securities which a Portfolio expects to purchase. In connection
with position hedging, a Portfolio may purchase put or call options
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on foreign currency and foreign currency futures contracts and buy or sell
forward contracts and foreign currency futures contracts. A Portfolio may also
purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio 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 values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of a
Portfolio's securities at the expiration or maturity of a forward or futures
contract. Accordingly, it may be necessary for a Portfolio to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency a Portfolio is obligated to deliver and if a
decision is made to sell the security or securities 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 or
securities of a Portfolio if the market value of such security or securities
exceeds the amount of foreign currency the Portfolio is obligated to deliver.
To offset some of the costs to a Portfolio of hedging against
fluctuations in currency exchange rates, the Portfolio may write covered call
options on those currencies.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can achieve
at some future point in time. Additionally, although these techniques 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 from the increase in
the value of such currency.
Currency Forward and Futures Contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
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. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the CFTC, such as the New York Mercantile Exchange.
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Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Portfolio may
either accept or make delivery of the currency specified in the contract, or at
or prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.
Positions in foreign currency futures contracts and related options may
be closed out only on an exchange or board of trade which provides a secondary
market in such contracts or options. Although a Portfolio will normally purchase
or sell foreign currency futures contracts and related options only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a secondary market on an exchange or board of trade will
exist for any particular contract or option or at any particular time. In such
event, it may not be possible to close a futures or related option position and,
in the event of adverse price movements, a Portfolio would continue to be
required to make daily cash payments of variation margin on its futures
positions.
Foreign Currency Options. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when a Portfolio's Adviser believes that a liquid secondary market exists for
such options. There can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors which influence exchange rates
and investments generally.
The value of a foreign currency option is dependent upon the value of
the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
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There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.
Settlement Procedures. Settlement procedures relating to investments in
foreign securities and to foreign currency exchange transactions may be more
complex than settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not present in
domestic investments. For example, settlement of transactions involving foreign
securities or foreign currency may occur within a foreign country, and the
Portfolio may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or foreign
restrictions or regulations, and may be required to pay any fees, taxes or
charges associated with such delivery. Such investments may also involve the
risk that an entity involved in the settlement may not meet its obligations.
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to a Portfolio
at one rate, while offering a lesser rate of exchange should a Portfolio desire
to resell that currency to the dealer.
Zero-Coupon Securities
Zero-coupon securities in which a Portfolio may invest are debt
obligations which are generally issued at a discount and payable in full at
maturity, and which do not provide for current payments of interest prior to
maturity. Zero-coupon securities usually trade at a deep discount from their
face or par value and are subject to greater market value fluctuations from
changing interest rates than debt obligations of comparable maturities which
make current distributions of interest. As a result, the net asset value of
shares of a Portfolio investing in zero-coupon securities may fluctuate over a
greater range than shares of other mutual funds investing in securities making
current distributions of interest and having similar maturities.
Zero-coupon securities may include U.S. Treasury bills issued directly
by the U.S. Treasury or other short-term debt obligations, and longer-term bonds
or notes and their unmatured interest coupons which have been separated by their
holder, typically a custodian bank or investment brokerage firm. A number of
securities firms and banks have stripped the interest coupons from the
underlying principal (the "corpus") of U.S. Treasury securities and
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resold them in custodial receipt programs with a number of different names,
including Treasury Income Growth Receipts ("TIGRS") and Certificates of Accrual
on Treasuries ("CATS"). The underlying U.S. Treasury bonds and notes themselves
are held in book-entry form at the Federal Reserve Bank or, in the case of
bearer securities (i.e., unregistered securities which are owned ostensibly by
the bearer or holder thereof), in trust on behalf of the owners thereof.
In addition, the Treasury has facilitated transfers of ownership of
zero-coupon securities by accounting separately for the beneficial ownership of
particular interest coupons and corpus payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under the
STRIPS program, a Portfolio will be able to have its beneficial ownership of
U.S. Treasury zero-coupon securities recorded directly in the book-entry
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities.
When debt obligations have been stripped of their unmatured interest
coupons by the holder, the stripped coupons are sold separately. The principal
or corpus is sold at a deep discount because the buyer receives only the right
to receive a future fixed payment on the security and does not receive any
rights to periodic cash interest payments. Once stripped or separated, the
corpus and coupons may be sold separately. Typically, the coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. Purchasers of stripped obligations acquire, in effect,
discount obligations that are economically identical to the zero-coupon
securities issued directly by the obligor.
When-Issued and Delayed Delivery Transactions
The Portfolios may engage in when-issued and delayed delivery
transactions. These transactions are arrangements in which a Portfolio purchases
securities with payment and delivery scheduled for a future time. A Portfolio
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring securities consistent with its investment objective and policies, not
for investment leverage, but a Portfolio may sell such securities prior to
settlement date if such a sale is considered to be advisable. No income accrues
to a Portfolio on securities in connection with such transactions prior to the
date the Portfolio actually takes delivery of securities. In when-issued and
delayed delivery transactions, a Portfolio relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause a
Portfolio to miss a price or yield considered to be advantageous.
These transactions are made to secure what is considered to be an
advantageous price or yield for a Portfolio. Settlement dates may be a month or
more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices. No fees or other
expenses, other than normal transaction costs, are incurred.
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However, liquid assets of a Portfolio sufficient to make payment for the
securities to be purchased are segregated at the trade date. These securities
are marked to market daily and are maintained until the transaction is settled.
Bank Instruments
A Portfolio may invest in the instruments of banks and savings and
loans whose deposits are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, both of which are administered by the Federal
Deposit Insurance Corporation ("FDIC"), such as certificates of deposit, demand
and time deposits, savings shares, and bankers' acceptances. However, the
above-mentioned instruments are not necessarily guaranteed by those
organizations. In addition to domestic bank obligations, such as certificates of
deposit, demand and time deposits, savings shares, and bankers' acceptances, a
Portfolio may invest in: Eurodollar Certificates of Deposit ("ECDs") issued by
foreign branches of U.S. or foreign banks; Eurodollar Time Deposits ("ETDs"),
which are U.S. dollar-denominated deposits in foreign branches of U.S. or
foreign banks; Canadian Time Deposits, which are U.S. dollar-denominated
deposits issued by branches of major Canadian banks located in the U.S.; and
Yankee Certificates of Deposit ("Yankee CDS"), which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and held in the
U.S.
Dollar Rolls and Reverse Repurchase Agreements
A Portfolio may enter into dollar rolls, in which the Portfolio sells
securities and simultaneously contracts to repurchase substantially similar
securities on a specified future date. In the case of dollar rolls involving
mortgage-related securities, the mortgage-related securities that are purchased
typically will be of the same type and will have the same or similar interest
rate and maturity as those sold, but will be supported by different pools of
mortgages. The Portfolio forgoes principal and interest paid during the roll
period on the securities sold in a dollar roll, but it is compensated by the
difference between the current sales price and the price for the future purchase
as well as by any interest earned on the proceeds of the securities sold. A
Portfolio could also be compensated through the receipt of fee income.
A Portfolio may also enter into reverse repurchase agreements in which
the Portfolio sells securities and agrees to repurchase them at a mutually
agreed date and price. Generally, the effect of such a transaction is that the
Portfolio can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the cost of
otherwise obtaining the cash.
Dollar rolls and reverse repurchase agreements may be viewed as a
borrowing by the Portfolio, secured by the security which is the subject of the
agreement. In addition to the
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general risks involved in leveraging, dollar rolls and reverse repurchase
agreements involve the risk that, in the event of the bankruptcy or insolvency
of the Portfolio's counterparty, the Portfolio would be unable to recover the
security which is the subject of the agreement, the amount of cash or other
property transferred by the counterparty to the Portfolio under the agreement
prior to such insolvency or bankruptcy is less than the value of the security
subject to the agreement, or the Portfolio may be delayed or prevented, due to
such insolvency or bankruptcy, from using such cash or property or may be
required to return it to the counterparty or its trustee or receiver.
Convertible Securities
A Portfolio may invest in convertible securities. Convertible
securities are fixed income securities which may be exchanged or converted into
a predetermined number of the issuer's underlying common stock at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for a
variety of investment strategies.
A Portfolio will exchange or convert the convertible securities held in
its portfolio into shares of the underlying common stock when, in its Adviser's
opinion, the investment characteristics of the underlying common shares will
assist the Portfolio in achieving its investment objectives. Otherwise, the
Portfolio may hold or trade convertible securities. In selecting convertible
securities for the Portfolio, the Portfolio's Adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument and the
investment potential of the underlying equity security for capital appreciation.
In evaluating these matters with respect to a particular convertible security,
the Portfolio's Adviser considers numerous factors, including the economic and
political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the
issuer's management capability and practices.
Warrants
A Portfolio may invest in warrants. Warrants are basically options to
purchase common stock at a specific price (usually at a premium above the market
value of the optioned common stock at issuance) valid for a specific period of
time. Warrants may have a life ranging from less than a year to twenty years or
may be perpetual. However, most warrants have expiration dates after which they
are worthless. In addition, if the market price of the common stock does not
exceed the warrant's exercise price during the life of the warrant, the warrant
will expire as worthless. Warrants have no voting rights, pay no dividends, and
have no rights with respect to the assets of the corporation issuing them. The
percentage increase
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or decrease in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common
stock. Warrants acquired in units or attached to securities may be deemed to be
without value for purposes of a Portfolio's policy.
Swaps, Caps, Floors and Collars
A Portfolio may enter into interest rate, currency and index swaps and
the purchase or sale of related caps, floors and collars. A Portfolio expects to
enter into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Portfolio anticipates purchasing at a
later date. A Portfolio would use these transactions as hedges and not as
speculative investments and would not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Portfolio may be obligated to pay. Interest rate swaps involve the exchange by a
Portfolio with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
A Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. A Portfolio will not enter into
any swap, cap, floor or collar transaction unless, at the time of entering into
such transaction, the unsecured long-term debt of the counterparty, combined
with any credit enhancements, is rated at least A by S&P or Moody's or has an
equivalent rating from another nationally recognized securities rating
organization or is determined to be of equivalent credit quality by the
Portfolio's Adviser. If there is a default by the counterparty, a Portfolio may
have contractual remedies pursuant to the agreements related to the transaction.
As a result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation has not
yet been fully developed and, accordingly, they are less liquid than swaps.
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Lower-rated Securities
A Portfolio may invest in lower-rated fixed-income securities (commonly
known as "junk bonds") to the extent described in the relevant Prospectus. The
lower ratings of certain securities held by a Portfolio reflect a greater
possibility that adverse changes in the financial condition of the issuer or in
general economic conditions, or both, or an unanticipated rise in interest
rates, may impair the ability of the issuer to make payments of interest and
principal. The inability (or perceived inability) of issuers to make timely
payment of interest and principal would likely make the values of securities
held by a Portfolio more volatile and could limit the Portfolio's ability to
sell its securities at prices approximating the values the Portfolio had placed
on such securities. In the absence of a liquid trading market for securities
held by it, a Portfolio may be unable at times to establish the fair value of
such securities. The rating assigned to a security by Moody's Investors Service,
Inc. or Standard & Poor's (or by any other nationally recognized securities
rating organization) does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the security.
Like those of other fixed-income securities, the values of lower-rated
securities fluctuate in response to changes in interest rates. Thus, a decrease
in interest rates will generally result in an increase in the value of the
Portfolio's assets. Conversely, during periods of rising interest rates, the
value of the Portfolio's assets will generally decline. In addition, the values
of such securities are also affected by changes in general economic conditions
and business conditions affecting the specific industries of their issuers.
Changes by recognized rating services in their ratings of any fixed-income
security and in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments. Changes in the value
of portfolio securities generally will not affect cash income derived from such
securities, but will affect the Portfolio's net asset value. A Portfolio will
not necessarily dispose of a security when its rating is reduced below its
rating at the time of purchase, although its Adviser will monitor the investment
to determine whether its retention will assist in meeting the Portfolio's
investment objective.
The amount of information about the financial condition of an issuer of
tax exempt securities may not be as extensive as that which is made available by
corporations whose securities are publicly traded. Therefore, to the extent a
Portfolio invests in tax exempt securities in the lower rating categories, the
achievement of the Portfolio's goals is more dependent on its Adviser's
investment analysis than would be the case if the Portfolio were investing in
securities in the higher rating categories.
Indexed Securities
A Portfolio may invest in indexed securities, the values of which are
linked to currencies, interest rates, commodities, indices or other financial
indicators ("reference instruments"). Most indexed securities have maturities of
three years or less.
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Indexed securities differ from other types of debt securities in which
a Portfolio may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, a Portfolio may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the
Portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Portfolio's securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Portfolio's securities denominated in linked
currencies. For example, if a Portfolio's Adviser considers that the Austrian
schilling is linked to the German deutschmark (the "Dmark"), the Portfolio holds
securities denominated in schillings and the Adviser believes that the value of
schillings will decline against the U.S. dollar, the Adviser may enter into a
contract to sell D-marks and buy dollars.
Eurodollar Instruments
A Portfolio may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to the London Interbank Offered Rate ("LIBOR"), although
foreign currency-denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings. A
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Portfolio might use Eurodollar futures contracts and options thereon to hedge
against changes in LIBOR, to which many interest rate swaps and fixed-income
instruments are linked.
Segregation of Assets
A Portfolio may at times segregate assets in respect of certain
transactions in which the Portfolio enters into a commitment to pay money or
deliver securities at some future date (such as futures contracts or reverse
repurchase agreements, to the extent not used for leverage). Any such segregated
account will be maintained by the Trust's custodian and may contain cash, U.S.
government securities, liquid high grade debt obligations, or other appropriate
assets.
MANAGEMENT OF THE TRUST
Officers and Trustee
The officers and Trustee of the Trust are listed below, along with
their addresses, principal occupations, and present positions, including any
positions held with affiliated persons or Mentor Distributors, LLC.
<TABLE>
<CAPTION>
Positions with
Name and Address the Trust Principal Occupations During Past Five Years
<S> <C>
Daniel J. Ludeman* Chairman and Trustee Chairman and Chief Executive Officer, Mentor
901 East Byrd Street Investment Group, LLC; Director, Wheat, First
Richmond, Virginia 23219 Securities, Inc.; Managing Director, Wheat First Butcher
Singer, Inc.; Director, Mentor Income Fund, Inc. and
America's Utility Fund, Inc.; Chairman and Trustee,
Cash Resource Trust, Mentor Funds, and Mentor
Institutional Trust.
Paul F. Costello President Managing Director, Wheat First Butcher Singer, Inc. and
901 East Byrd Street Mentor Investment Group, LLC; President, Cash Resource
Richmond, Virginia 23219 Trust, Mentor Income Fund, Inc., Mentor Funds, and
Mentor Institutional Trust; Managing Director, Mentor
Investment Advisors, LLC; Executive Vice President and
Chief Administrative Officer, America's Utility Fund, Inc.;
Director, Mentor Perpetual Advisors, LLC and Mentor Trust Company;
formerly, President, Mentor Series Trust; Director, President and
Chief Executive Officer, First Variable Life Insurance Company;
President and Chief Financial Officer, Variable Investors Series
Trust; President and Treasurer, Atlantic Capital & Research, Inc.;
Vice President and Treasurer, Variable Stock Fund, Inc., Monarch
Investment Series Trust, and GEICO Tax Advantage Series Trust;
Vice President, Monarch Life Insurance Company, GEICO Investment
Services Company, Inc.,
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Monarch Investment Services Company, Inc., and
Springfield Life Insurance Company.
Terry L. Perkins Treasurer Senior Vice President, Mentor Investment Group, LLC;
901 East Byrd Street Treasurer, Cash Resource Trust, Mentor Income Fund,
Richmond, Virginia 23219 Inc., Mentor Institutional Trust, Mentor Funds, and
America's Utility Fund; formerly, Treasurer and
Comptroller, Ryland Capital Management, Inc.
Michael Wade Assistant Treasurer Vice President, Mentor Investment Group, LLC; Assistant
901 East Byrd Street Treasurer, Cash Resource Trust, Mentor Income Fund, Inc.,
Richmond, Virginia 23219 Mentor Institutional Trust, Mentor Funds, and America's
Utility Fund; formerly, Senior Accountant, Wheat First
Butcher Singer, Inc.; Audit Senior, BDO Seidman.
John M. Ivan 901 Clerk Managing Director, Director of Compliance, Senior Vice President,
East Byrd Street and Assistant General Counsel, Wheat, First Securities, Inc.; Clerk,
Richmond, Virginia 23219 Cash Resource Trust, Mentor Institutional Trust; Secretary, Mentor Funds.
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
[Additional Trustees to be supplied by amendment.]
Trustees' Compensation
The Trustees do not receive pension or retirement benefits from the
Trust.
The Trust's Declaration of Trust provides that the Trustees will be
liable for their willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
PRINCIPAL HOLDERS OF SECURITIES
At the time of filing of the Registration Statement of which this
Statement of Additional Information is a part, no Portfolio had any shares
outstanding.
INVESTMENT ADVISORY SERVICES
Mentor Investment Advisors, LLC ("Mentor Advisors") serves as
investment adviser to each Portfolio other than the Global Portfolio. Mentor
Perpetual Advisors, LLC ("Mentor Perpetual") serves as investment adviser to the
Global Portfolio.
Mentor Advisors is a wholly-owned subsidiary of Mentor Investment
Group, LLC, ("Mentor Investment Group") which is a subsidiary of Wheat First
Butcher Singer, Inc. ("WFBS"). Mentor Perpetual is owned equally by Mentor
Advisors and Perpetual plc, a diversified financial services holding company.
EVEREN Capital Corporation has a 20% ownership in Mentor Investment Group and
may acquire additional ownership based principally
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on the amount of Mentor Investment Group's revenues derived from assets
attributable to clients of EVEREN Securities, Inc. and its affiliates.
Subject to the general oversight of the Trustees, each investment
adviser manages the applicable Portfolio in accordance with the stated policies
of that Portfolio and of the Trust. Each makes investment decisions for the
Portfolio and places the purchase and sale orders for portfolio transactions.
The investment advisers bear all their expenses in connection with the
performance of their services (except as may be approved from time to time by
the Trustees) and pay the salaries of all officers and employees who are
employed by them and the Trust.
Each Portfolio's investment adviser provides the Trust with investment
officers who are authorized to execute purchases and sales of securities.
Investment decisions for the Trust and for the other investment advisory clients
of the investment advisers and their affiliates are made with a view to
achieving their respective investment objectives. Investment decisions are the
product of many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also sometimes
happens that two or more clients simultaneously purchase or sell the same
security, in which event each day's transactions in such security are, insofar
as possible, averaged as to price and allocated between such clients in a manner
which in the investment adviser's opinion is equitable to each and in accordance
with the amount being purchased or sold by each. There may be circumstances when
purchases or sales of securities for one or more clients will have an adverse
effect on other clients. In the case of short-term investments, the Treasury
area of Mentor Investment Group handles purchases and sales under guidelines
approved by investment officers of the Trust. Each investment adviser employs
professional staffs of portfolio managers who draw upon a variety of resources
for research information for the Trust.
Expenses incurred in the operation of a Portfolio or otherwise
allocated to a Portfolio, including but not limited to taxes, interest,
brokerage fees and commissions, compensation paid under a Portfolio's 12b-1
plan, fees to Trustees who are not officers, directors, stockholders, or
employees of Wheat, First Securities, Inc. and its subsidiaries, SEC fees and
related expenses, state Blue Sky qualification fees, charges of the custodian
and transfer and dividend disbursing agents, outside auditing, accounting, and
legal services, charges for the printing of prospectuses and statements of
additional information for regulatory purposes or for distribution, and certain
costs incurred by Mentor Investment Group in responding to shareholder inquiries
as approved by the Trustees from time to time, to shareholders, certain
shareholder report charges and charges relating to corporate matters are borne
by the Portfolio.
Under the applicable Management Contract with the Trust in respect of
each Portfolio, subject to such policies as the Trustees may determine, Mentor
Advisors or Mentor Perpetual, as the case may be, at its expense, furnishes
continuously an investment program for the Portfolio
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and makes investment decisions on behalf of the Portfolio. Subject to the
control of the Trustees, Mentor Advisors or Mentor Perpetual, as the case may
be, also manages, supervises and conducts the other affairs and business of the
Portfolio, furnishes office space and equipment, provides bookkeeping and
clerical services (including determination of the Portfolio's net asset value,
but excluding shareholder accounting services) and places all orders for the
purchase and sale of the Portfolio's portfolio securities. Mentor Advisors or
Mentor Perpetual, as the case may be, may place portfolio transactions with
broker-dealers which furnish Mentor Advisors or Mentor Perpetual, without cost
to it, certain research, statistical and quotation services of value to Mentor
Advisors or Mentor Perpetual and their affiliates in advising the Portfolio and
other clients. In so doing, Mentor Advisors or Mentor Perpetual may cause a
Portfolio to pay greater brokerage commissions than it might otherwise pay.
Each Management Contract provides that Mentor Advisors or Mentor
Perpetual, as the case may be, shall not be subject to any liability to a
Portfolio or to any shareholder of a Portfolio for any act or omission in the
course of or connected with rendering services to a Portfolio in the absence of
its willful misfeasance, bad faith, gross negligence, or reckless disregard of
its duties.
Each of the Management Contracts is subject to annual approval by (i)
the Trustees or (ii) vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the affected Portfolio, provided that in either
event the continuance is also approved by a majority of the Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust or the investment
adviser in question, by vote cast in person at a meeting called for the purpose
of voting on such approval. The Management Contracts are terminable without
penalty, on not more than sixty days' notice and not less than thirty days'
notice, by the Trustees, by vote of the holders of a majority of the affected
Portfolio's shares, or by the applicable investment adviser. Each terminates
automatically in the event of its assignment (as defined in the 1940 Act).
ADMINISTRATIVE SERVICES
Mentor Investment Group, LLC serves as administrator to each of the
Portfolios pursuant to an Administration Agreement.
Pursuant to the Administration Agreement, Mentor Investment Group
provides continuous business management services to the Portfolios and, subject
to the general oversight of the Trustees, manages all of the business and
affairs of the Portfolios subject to the provisions of the Trust's Declaration
of Trust, By-laws and the 1940 Act, and other policies and instructions the
Trustees may from time to time establish. Mentor Investment Group pays the
compensation of all officers and executive employees of the Trust (except those
employed by or serving at the request of an investment adviser or sub-adviser)
and makes available to the Trust the services of its directors, officers, and
employees as elected by the Trustees or officers of the Trust. In addition,
Mentor Investment Group provides all clerical services relating to the
Portfolios' business. As compensation for its services, Mentor Investment Group
receives a fee from each Portfolio calculated daily at the annual rate of .10%
of a Portfolio's average daily net assets.
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The Administration Agreement must be approved at least annually with
respect to each Portfolio by a vote of a majority of the Trustees who are not
interested persons of Mentor Investment Group or the Trust. The Agreement may be
terminated at any time without penalty on 30 days notice by Mentor Investment
Group, or immediately in respect of any Portfolio upon notice by the Trustees or
by vote of a majority of the outstanding voting securities of that Portfolio.
The Agreement terminates automatically in the event of any assignment (as
defined in the 1940 Act).
BROKERAGE TRANSACTIONS
Transactions on U.S. stock exchanges, commodities markets, and futures
markets and other agency transactions involve the payment by a Portfolio of
negotiated brokerage commissions. Such commissions vary among different brokers.
A particular broker may charge different commissions according to such factors
as the difficulty and size of the transaction. Transactions in foreign
investments often involve the payment of fixed brokerage commissions, which may
be higher than those in the United States. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Trust usually includes an undisclosed dealer commission or
mark-up. In underwritten offerings, the price paid by the Trust includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
It is anticipated that most purchases and sales of securities by funds investing
primarily in certain fixed-income securities will be with the issuer or with
underwriters of or dealers in those securities, acting as principal.
Accordingly, those funds would not ordinarily pay significant brokerage
commissions with respect to securities transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive brokerage and research services (as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that
execute portfolio transactions for the clients of such advisers and from third
parties with which such broker-dealers have arrangements. Consistent with this
practice, each investment adviser may receive brokerage and research services
and other similar services from many broker-dealers with which such investment
adviser places a Portfolio's portfolio transactions and from third parties with
which these broker-dealers have arrangements. These services include such
matters as general economic and market reviews, industry and company reviews,
evaluations of investments, recommendations as to the purchase and sale of
investments, newspapers, magazines, pricing services, quotation services, news
services and personal computers utilized by the investment adviser's managers
and analysts. Where the services referred to above are not used exclusively by
the investment adviser for research purposes, the investment adviser, based upon
its own allocations of expected use, bears that portion of the cost of these
services which directly relates to its non-research use. Some of these services
are of value to the investment adviser and its affiliates in advising various of
its clients (including the Portfolios), although not all of these services are
necessarily useful and of value in managing all or any of the Portfolios. The
management fee paid by a Portfolio is not reduced
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because its investment adviser or any of its affiliates receive these services
even though the investment adviser might otherwise be required to purchase some
of these services for cash.
A Portfolio's investment adviser places all orders for the purchase and
sale of portfolio investments for the Portfolio and buys and sells investments
for the Portfolio through a substantial number of brokers and dealers. The
investment adviser seeks the best overall terms available for the Portfolio,
except to the extent the investment adviser may be permitted to pay higher
brokerage commissions as described below. In doing so, the investment adviser,
having in mind the Portfolio's best interests, considers all factors it deems
relevant, including, by way of illustration, price, the size of the transaction,
the nature of the market for the security or other investment, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions.
As permitted by Section 28(e) of the 1934 Act, and by the relevant
advisory agreement, a Portfolio's investment adviser may cause the Portfolio to
pay a broker-dealer which provides "brokerage and research services" (as defined
in the 1934 Act) to that adviser an amount of disclosed commission for effecting
securities transactions on stock exchanges and other transactions for the
Portfolio on an agency basis in excess of the commission which another
broker-dealer would have charged for effecting that transaction. An investment
adviser's authority to cause a Portfolio to pay any such greater commissions is
also subject to such policies as the Trustees may adopt from time to time. It is
the position of the staff of the Securities and Exchange Commission that Section
28(e) does not apply to the payment of such greater commissions in "principal"
transactions. Accordingly, each investment adviser will use its best efforts to
obtain the best overall terms available with respect to such transactions, as
described above.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to such other policies as the Trustees
may determine, an investment adviser may consider sales of shares of a Portfolio
(and, if permitted by law, of the other funds in the Mentor family) as a factor
in the selection of broker-dealers to execute portfolio transactions for a
Portfolio.
The Trustees have determined that portfolio transactions for the Trust
may be effected through Wheat, First Securities, Inc. ("Wheat"), and EVEREN
Securities, Inc. ("EVEREN"), broker-dealers affiliated with Mentor Advisors and
Mentor Perpetual. The Trustees have adopted certain policies incorporating the
standards of Rule 17e-l issued by the SEC under the 1940 Act which requires,
among other things, that the commissions paid to Wheat and EVEREN must be
reasonable and fair compared to the commissions, fees, or other remuneration
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. Wheat and EVEREN will not
participate in brokerage commissions given by a Portfolio to other brokers or
dealers. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
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executions may be obtained elsewhere. A Portfolio will in no event effect
principal transactions with Wheat and EVEREN in over-the-counter securities in
which Wheat or EVEREN makes a market.
Under rules adopted by the SEC, Wheat and EVEREN may not execute
transactions for a Portfolio on the floor of any national securities exchange,
but may effect transactions for a Portfolio by transmitting orders for execution
and arranging for the performance of this function by members of the exchange
not associated with them. Wheat and EVEREN will be required to pay fees charged
to those persons performing the floor brokerage elements out of the brokerage
compensation they receive from a Portfolio. The Trust has been advised by Wheat
that on most transactions, the floor brokerage generally constitutes from 5% and
10% of the total commissions paid.
HOW TO BUY SHARES
Except under certain circumstances described in the Trust's or an
individual Portfolio's prospectus, shares of the Portfolios are sold at their
net asset value on days the New York Stock Exchange is open for business. The
procedure for purchasing shares of the Portfolios is explained in the relevant
prospectus under the section entitled "Sales and Redemptions".
DISTRIBUTION
Mentor Distributors, LLC is the principal underwriter of shares of the
Trust, which are continuously offered, and shares of the other continuously
offered funds in the Mentor family. Mentor Distributors is not obligated to sell
any specific amount of shares of the Trust and will purchase shares for resale
only against orders for shares.
The Trust, on behalf of each Portfolio, has adopted a Distribution Plan
and Agreement pursuant to Rule 12b-1 under the 1940 Act (each, a "Plan"). The
purpose of each Plan is to permit each Portfolio to compensate Mentor
Distributors and participating insurance companies for services provided and
expenses incurred by it in promoting the sale of shares of the Portfolio,
reducing redemptions, or maintaining or improving services provided to
shareholders and separate account holders. Each Plan provides for payments by
each Portfolio to Mentor Distributors at the annual rate of up to 0.25% of a
Portfolio's average daily net assets, subject to the authority of the Trustees
to reduce the amount of payments or to suspend a Plan as to any Portfolio or
such periods as they may determine. Mentor Distributors may remit some or all of
such payments to participating insurance companies which offer shares of the
relevant Portfolio. Subject to these limitations, the amount of such payments
and the specific purposes for which they are made shall be determined by the
Trustees.
Continuance of a Plan is subject to annual approval by a vote of the
Trustees, including a majority of the Trustees who are not interested persons of
the Trust, and have no direct or indirect financial interest in the operation of
a Plan and related agreements (the "Qualified Trustees"), cast in person at a
meeting called for that purpose. All material amendments to a Plan must be
likewise approved by the Trustees and the Qualified Trustees.
A Plan may not be amended in order to increase materially the costs
which a Portfolio may bear for distribution pursuant to the Plan without also
being approved by a majority of the outstanding voting securities of that
Portfolio. Each Plan terminates automatically in the event of its assignment and
may be terminated as to any Portfolio without penalty, at any time, by a vote
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of a majority of the outstanding voting securities of the affected Portfolio or
by a vote of a majority of the Qualified Trustees.
DETERMINING NET ASSET VALUE
The Trust determines the net asset value per share of each Portfolio
once each day the New York Exchange (the "Exchange") is open as of the close of
regular trading on the Exchange. Currently, the Exchange is closed Saturdays,
Sundays and the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and Christmas.
Securities for which market quotations are readily available are valued
at prices which, in the opinion of a Portfolio's investment adviser, most nearly
represent the market values of such securities. Currently, such prices are
determined using the last reported sale price or, if no sales are reported (as
in the case of some securities traded over-the-counter), the last reported bid
price, except that certain U.S. Government securities are stated at the mean
between the last reported bid and asked prices. Short-term investments having
remaining maturities of 60 days or less are stated at amortized cost, which
approximates market value. All other securities and assets are valued at their
fair value following procedures approved by the Trustees. Liabilities are
deducted from the total, and the resulting amount is divided by the number of
shares of the class outstanding.
Reliable market quotations are not considered to be readily available
for long-term corporate bonds and notes, certain preferred stocks, tax-exempt
securities, or certain foreign securities. These investments are stated at fair
value on the basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal, institutionalsize trading units
of such securities using methods based on market transactions for comparable
securities and various relationships between securities which are generally
recognized by institutional traders.
If any securities held by a Portfolio are restricted as to resale, the
Portfolio's investment adviser determines their fair values. The fair value of
such securities is generally determined as the amount which a Portfolio could
reasonably expect to realize from an orderly disposition of such securities over
a reasonable period of time. The valuation procedures applied in any specific
instance are likely to vary from case to case. However, consideration is
generally given to the financial position of the issuer and other fundamental
analytical data relating to the investment and
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to the nature of the restrictions on disposition of the securities (including
any registration expenses that might be borne by the Portfolio in connection
with such disposition). In addition, specific factors are also generally
considered, such as the cost of the investment, the market value of any
unrestricted securities of the same class (both at the time of purchase and at
the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
In the case of certain fixed-income securities, including certain less
common mortgage-backed securities, market quotations are not readily available
to the Portfolios on a daily basis, and pricing services may not provide price
quotations. In such cases, the Portfolio's investment adviser is typically able
to obtain dealer quotations for each of the securities on at least a weekly
basis. On any day when it is not practicable for the investment adviser to
obtain an actual dealer quotation for a security, the investment adviser may
reprice the securities based on changes in the value of a U.S. Treasury security
of comparable duration. When the next dealer quotation is obtained, the
investment adviser compares the dealer quote against the price obtained by it
using its U.S. Treasury-spread calculation, and makes any necessary adjustments
to its calculation methodology. The investment adviser attempts to obtain dealer
quotes for each security at least weekly, and on any day when there has been an
unusual occurrence affecting the securities which, in the investment adviser's
view, makes pricing the securities on the basis of U.S. Treasuries unlikely to
provide a fair value of the securities.
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the close of the
Exchange. The values of these securities used in determining the net asset value
of a Portfolio's shares are computed as of such times. Also, because of the
amount of time required to collect and process trading information as to large
numbers of securities issues, the values of certain securities (such as
convertible bonds, U.S. Government securities, and tax-exempt securities) are
determined based on market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange. Occasionally, events
affecting the value of such securities may occur between such times and the
close of the Exchange which will not be reflected in the computation of a
Portfolio's net asset value. If events materially affecting the value of such
securities occur during such period, then these securities will be valued at
their fair value following procedures approved by the Trustees.
Trading in securities on European and Far Eastern securities exchanges
and over-the-counter markets is normally completed well before the close of
business on each business day in New York (i.e., a day on which the Exchange is
open). In addition, European or Far Eastern securities trading generally or in a
particular country or countries may not take place on all business days in New
York. Furthermore, trading takes place in Japanese markets on certain Saturdays
and in various foreign markets on days which are not business days in New York
and on which a Portfolio's net asset value is not calculated. A Portfolio
calculates net asset value per share, and therefore effects sales, redemptions
and repurchases of its shares, as of the close of the Exchange once on each day
on which the Exchange is open. Such calculation does not take place
contemporaneously with the determination of the prices of the majority of the
portfolio securities
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used in such calculation. If events materially affecting the value of such
securities occur between the time when their price is determined and the time
when a Portfolio's net asset value is calculated, such securities will be valued
at fair value as determined in good faith by procedures approved as required by
the Trustees.
REDEMPTIONS IN KIND
Although each Portfolio intends to redeem shares in cash, it reserves
the right under certain circumstances to pay the redemption price in whole or in
part by a distribution of securities from its investment portfolio. Redemptions
in kind will be made in conformity with applicable SEC rules, taking such
securities at the same value employed in determining net asset value and
selecting the securities in a manner that the Trustees determine to be fair and
equitable. The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940, under which a Portfolio is obligated to redeem shares for
any one shareholder in cash only up to the lesser of $250,000 or 1% of the
respective class's net asset value during any 90-day period.
TAXES
Each Portfolio intends to qualify each year and elect to be taxed as a
regulated investment company under Subchapter M of the United States Internal
Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Portfolio will not be subject to federal income
tax on any of its net investment income or net realized capital gains that are
distributed to shareholders. A Portfolio will not under present law be subject
to any excise or income taxes in Massachusetts.
In order to qualify as a "regulated investment company," a Portfolio
must, among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other dispositions of stock, securities, or foreign currencies, and
other income (including but not limited to gains from options, futures, or
forward contracts) derived with respect to its business of investing in such
stock, securities, or currencies; (b) derive less than 30% of its gross income
from the sale or other disposition of certain assets (including stock or
securities and certain options, futures contracts, forward contracts, and
foreign currencies) held less than three months; (c) distribute with respect to
each taxable year at least 90% of the sum of its taxable net investment income,
its net tax-exempt income, and the excess, if any, of net short-term capital
gains over net long-term capital losses for such year; and (d) diversify its
holdings so that, at the close of each quarter of its taxable year, (i) at least
50% of the market value of its total assets consists of cash and cash items,
U.S. Government Securities, securities of other regulated investment companies,
and other securities limited generally with respect to any one issuer to not
more than 5% of the value of its total assets and not more than 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 (other than those of the U.S.
Government or other
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regulated investment companies) of any issuer or of two or more issuers which
the Portfolio controls and which are engaged in the same, similar, or related
trades or businesses. In order to receive the favorable tax treatment accorded
regulated investment companies and their shareholders, moreover, a Portfolio
must in general distribute at least 90% of its interest, dividends, net
short-term capital gain, and certain other income each year.
If a Portfolio failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Portfolio would be
subject to tax on its taxable income at corporate rates, and all distributions
from earnings and profits, including any distributions of net tax-exempt income
and net long-term capital gains, would be taxable to shareholders as ordinary
income. In addition, a Portfolio could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial distributions
before requalifying as a regulated investment company that is accorded special
tax treatment.
If a Portfolio fails to distribute in a calendar year substantially all
of its ordinary income for such year and substantially all of its capital gain
net income for the one-year period ending October 31 (or later if the Portfolio
is permitted so to elect and so elects), plus any retained amount from the prior
year, the Portfolio will be subject to a 4% excise tax on the undistributed
amounts. A Portfolio is exempt from this distribution requirement and excise tax
if at all times during the calendar year each shareholder in the Portfolio was
"a segregated asset account of a life insurance company held in connection with
variable contracts."
Hedging transactions. If a Portfolio engages in transactions, including
hedging transactions in options, futures contracts, and straddles, or other
similar transactions, it will be subject to special tax rules (including
mark-to-market, straddle, wash sale, and short sale rules), the effect of which
may be to accelerate income to the Portfolio, defer losses to the Portfolio,
cause adjustments in the holding periods of the Portfolio's securities, or
convert short-term capital losses into long-term capital losses. These rules
could therefore affect the amount, timing and character of distributions to
shareholders. A Portfolio will endeavor to make any available elections
pertaining to such transactions in a manner believed to be in the best interests
of the Portfolio.
Under the 30% of gross income test described above, a Portfolio will be
restricted in selling assets held or considered under Code rules to have been
held for less than three months, and in engaging in certain hedging transactions
(including hedging transactions in options and futures) that in some
circumstances could cause certain Portfolio assets to be treated as held for
less than three months.
Certain of a Portfolio's hedging activities (including its
transactions, if any, in foreign currencies or foreign currency-denominated
instruments) are likely to produce a difference between its book income and its
taxable income. If a Portfolio's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as a dividend to the extent
of the Portfolio's remaining earnings and profits (including earnings and
profits arising from tax-exempt
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income), and thereafter as a return of capital or as gain from the sale or
exchange of a capital asset, as the case may be. If a Portfolio's book income is
less than its taxable income, the Portfolio could be required to make
distributions exceeding book income to qualify as a regulated investment company
that is accorded special tax treatment.
Return of capital distributions. If a Portfolio makes a distribution to
you in excess of its current and accumulated "earnings and profits" in any
taxable year, the excess distribution will be treated as a return of capital to
the extent of your tax basis in your shares, and thereafter as capital gain. A
return of capital is not taxable, but it reduces your tax basis in your shares,
thus reducing any loss or increasing any gain on a subsequent taxable
disposition by you or your shares.
Securities issued or purchased at a discount. A Portfolio's investment
in securities issued at a discount and certain other obligations will (and
investments in securities purchased at a discount may) require the Portfolio to
accrue and distribute income not yet received. In order to generate sufficient
cash to make the requisite distributions, a Portfolio may be required to sell
securities in its portfolio that it otherwise would have continued to hold.
Foreign currency-denominated securities and related hedging
transactions. A Portfolio's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency options,
futures contracts, and forward contacts (and similar instruments) may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
With respect to investment income and gains received by a Portfolio
from sources outside the United States, such income and gains may be subject to
foreign taxes which are withheld at the source. The effective rate of foreign
taxes to which a Portfolio will be subject depends on the specific countries in
which its assets will be invested and the extent of the assets invested in each
such country and therefore cannot be determined in advance.
Foreign securities. Investment by a Portfolio in certain "passive
foreign investment companies" could subject the Portfolio to a U.S. federal
income tax or other charge on the proceeds from the sale of its investment in
such a company; however, this tax can be avoided by making an election to mark
to market such investments annually or to treat the passive foreign investment
company as a "qualified electing fund."
A "passive foreign investment company" is any foreign corporation: (i)
75 percent or more of the income of which for the taxable year is passive
income, or (ii) the average percentage of the assets of which (generally by
value, but by adjusted tax basis in certain cases) that produce or are held for
the production of passive income is at least 50 percent. Generally, passive
income for this purpose means dividends, interest (including income equivalent
to interest), royalties, rents, annuities, the excess of gains over losses from
certain property transactions and commodities transactions, and foreign currency
gains. Passive income for this purpose does not
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include rents and royalties received by the foreign corporation from active
business and certain income received from related persons.
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This discussion of federal income tax treatment of the Trust and its
shareholders is based on the law as of the date of this Statement of Additional
Information.
INDEPENDENT ACCOUNTANTS
are the Trust's independent accountants, providing
audit services, tax return review and other tax consulting services and
assistance and consultation in connection with the review of various Securities
and Exchange Commission filings.
CUSTODIAN
Investors Fiduciary Trust Company, located at 127 West 10th Street,
Kansas City, Missouri, is the custodian of each Portfolio, except that State
Street Bank & Trust Company, P.O. Box 8602, Boston, Massachusetts serves as
custodian to the Global Portfolio and as the foreign custodian to each of the
other Portfolios in respect of foreign assets. A custodian's responsibilities
include generally safeguarding and controlling a Portfolio's cash and
securities, handling the receipt and delivery of securities, and collecting
interest and dividends on a Portfolio's investments.
PERFORMANCE INFORMATION
Total return for the one-, five-, and ten-year periods for each class
of shares (or for the life of a class, if shorter) is determined by calculating
the actual dollar amount of investment return on a $1,000 investment in a
Portfolio at the beginning of the period, and then calculating the annual
compounded rate of return which would produce that amount. Total return for a
period of one year is equal to the actual return of the Portfolio during that
period. Total return calculations assume reinvestment of all Portfolio
distributions at net asset value on their respective reinvestment dates. Total
return also may be presented for other periods.
A Portfolio's yield is presented for a specified thirty-day period (the
"base period"). Yield is based on the amount determined by (i) calculating the
aggregate amount of dividends and interest earned by the Portfolio during the
base period less expenses accrued for that period, and (ii) dividing that amount
by the product of (A) the average daily number of shares of the Portfolio
outstanding during the base period and entitled to receive dividends and (B) the
net asset value per share on the last day of the base period. The result is
annualized on a compounding basis to determine the yield. For this calculation,
interest earned on debt obligations held by a Portfolio is generally calculated
using the yield to maturity (or first expected call date) of such obligations
based on their market values (or, in the case of receivables-backed securities
such as GNMA's, based on costs). Dividends on equity securities are accrued
daily at their stated dividend rates.
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All data are based on past performance and do not predict future results.
At times, a Portfolio's investment adviser may reduce its compensation
or assume expenses of the Portfolio in order to reduce the Portfolio's expenses.
Any such fee reduction or assumption of expenses would increase a Portfolio's
yield and total return during the period of the fee reduction or assumption of
expenses.
The performance of shares of each Portfolio depends upon such variables
as: portfolio quality; average portfolio maturity; type of instruments in which
the particular Portfolio is invested; changes in the expenses of a particular
Portfolio; and various other factors.
The performance of each Portfolio's shares fluctuates on a daily basis
largely because net earnings and net asset value per share fluctuate daily. Both
net earnings and net asset value per share are factors in the computation of
yield and total return for each class of shares of the Portfolios.
Performance information presented for the Portfolios should not be
compared directly with performance information of other insurance products
without taking into account insurance-related charges and expenses payable under
their variable annuity contracts. These charges and expenses are not reflected
in the Portfolio's performance and would reduce an investor's return under the
annuity contract.
Independent statistical agencies measure a Portfolio's investment
performance and publish comparative information showing how a Portfolio, and
other investment companies, performed in specified time periods. Agencies whose
reports are commonly used for such comparisons are set forth below. From time to
time, a Portfolio may distribute these comparisons to its shareholders or to
potential investors. The agencies listed below measure performance based on
their own criteria rather than on the standardized performance measures
described in the preceding section.
Lipper Analytical Services, Inc., ranks funds in various fund
categories by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specified period of
time. From time to time, a Portfolio will quote its Lipper ranking in
advertising and sales literature.
Morningstar, Inc. distributes mutual fund ratings twice a month. The
ratings are divided into five groups: highest, above average, neutral, below
average, and lowest. They represent a Portfolio's historical risk/reward ratio
relative to other funds with similar objectives. The performance factor is a
weighted-average assessment of the Portfolio's 3-year, 5-year, and 10-year total
return performance (if available) reflecting deduction of expenses and sales
charges. Performance is adjusted using quantitative techniques to reflect the
risk profile of the Portfolio. The ratings are derived from a purely
quantitative system that does not utilize the subjective
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criteria customarily employed by rating agencies such as Standard & Poor's
Corporation and Moody's Investor Service, Inc.
Weisenberger's Management Results publishes mutual fund rankings and is
distributed monthly. The rankings are based entirely on total return calculated
by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and
10-year performance. Mutual funds are ranked in general categories (e.g.,
international bond, international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of sales charges or fees.
A Portfolio's shares also may be compared to the following indices:
Dow Jones Industrial Average ("DJIA") is an unmanaged index
representing share prices of major industrial corporations, public utilities,
and transportation companies. Produced by Dow Jones & Company, it is cited as a
principal indicator of market conditions.
Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and financial and
public utility companies, can be used to compare to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the
Standard & Poor's listed on its index. Taxes due on any of these distributions
are not included, nor are brokerage or other fees calculated, in the Standard &
Poor's figures.
Consumer Price Index is generally considered to be a measure of
inflation.
CDA Mutual Fund Growth Index is a weighted performance average of other
mutual funds with growth of capital objectives.
Lipper Growth Fund Index is an average of the net asset-valuated total
returns for the top 30 growth funds tracked by Lipper Analytical Services, Inc.,
an independent mutual fund rating service.
Shearson Lehman Government/Corporate (total) Index is comprised of
approximately 5,000 issues, which include non-convertible bonds publicly issued
by the U.S. government or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly issued, fixed-rate,
non-convertible domestic bonds of companies in industry, public utilities and
finance. The average maturity of these bonds approximates nine years. Tracked by
Shearson Lehman Brothers Inc., the index calculates total returns for one month,
three month, twelve month and ten year periods and year-to-date.
Shearson Lehman Government Index is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes
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and bonds with a minimum outstanding principal of $1 million and a minimum
maturity of one year are included.
Russell Growth 1000 (Russell 1000 Index) is a broadly diversified index
consisting of approximately 1,000 common stocks of companies with market values
between $20 million and $300 million that can be used to compare the total
returns of funds whose portfolios are invested primarily in growth common
stocks.
Shearson Lehman Aggregate Bond Index is a total return index measuring
both the capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Shearson Lehman Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index, and Yankee Bond Index. These indices include:
U.S. Treasury obligations, including bonds and notes; U.S. agency obligations,
including those of the Federal Farm Credit Bank, Federal Land Bank, and the Bank
for Cooperatives; foreign obligations; and U.S. investment-grade corporate debt
and mortgage-backed obligations. All corporate debt included in the Aggregate
Bond Index has a minimum S&P rating of BBB, a minimum Moody's rating of Baa, or
a minimum Fitch rating of BBB.
Salomon Brothers Mortgage-Backed Securities Index-15 Years includes the
average of all 15-year mortgage securities, which include Federal Home Loan
Mortgage Corporation (Freddie Mac), Federal National Mortgage Association
(Fannie Mae), and Government National Mortgage Association (Ginnie Mae).
Shearson Lehman Municipal Bond Index is a total return performance
benchmark for the long-term, investment-grade tax-exempt bond market. Returns
and attributes for the Index are calculated semi-monthly using approximately
21,000 municipal bonds, which are priced by Muller Data Corporation.
From time to time, certain of the Portfolios that invest in foreign
securities may advertise the performance of both classes of their shares
compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following: Morgan
Stanley Capital International World Index, The Morgan Stanley Capital
International EAFE (Europe, Australia, Far East) index, J.P. Morgan Global
Traded Bond Index, Salomon Brothers World Government Bond Index, and the
Standard & Poor's 500 Composite Stock Price Index (S&P 500). A Portfolio also
may compare its performance to the performance of unmanaged stock and bond
indices, including the total returns of foreign government bond markets in
various countries. All index returns are translated into U.S. dollars. The total
return calculation for these unmanaged indices may assume the reinvestment of
dividends and any distributions, if applicable, may include withholding taxes,
and generally do not reflect deductions for administrative and management costs.
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Investors may use such indices or reporting services in addition to the
Trust or an individual Portfolio's prospectus to obtain a more complete view of
a particular Portfolio's performance before investing. Of course, when comparing
a Portfolio's performance to any index, conditions such as composition of the
index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing portfolios using reporting
services, or total return and yield, investors should take into consideration
any relevant differences in portfolios, such as permitted portfolio compositions
and methods used to value portfolio securities and compute net asset value.
Advertisements and other sales literature for a Portfolio may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in a
Portfolio based on monthly reinvestment of dividends over a specified period of
time.
From time to time the Portfolios may advertise their performance, using
charts, graphs, and descriptions, compared to federally insured bank products,
including certificates of deposit and time deposits, and to monthly market funds
using the Lipper Analytical Service money market instruments average.
Advertisements may quote performance information which does not reflect
the effect of the sales load.
Independent publications may also evaluate a Portfolio's performance.
Certain of those publications are listed below, at the request of Mentor
Distributors, which bears full responsibility for their use and the descriptions
appearing below. From time to time any or all of the Portfolios may distribute
evaluations by or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of information provided
by these publications.
Business Week publishes mutual fund rankings in its Investment Figures
of the Week column. The rankings are based on 4-week and 52-week total return
reflecting changes in net asset value and the reinvestment of all distributions.
They do not reflect deduction of any sales charges. Funds are not categorized;
they compete in a large universe of over 2,000 funds. The source for rankings is
data generated by Morningstar, Inc.
Investor's Business Daily publishes mutual fund rankings on a daily
basis. The rankings are depicted as the top 25 funds in a given category. The
categories are based loosely on the type of fund, e.g., growth funds, balanced
funds, U.S. government funds, GNMA funds, growth and income funds, corporate
bond funds, etc. Performance periods for sector equity funds can vary from 4
weeks to 39 weeks; performance periods for other fund groups vary from 1 year to
3 years. Total return performance reflects changes in net asset value and
reinvestment of dividends and capital gains. The rankings are based strictly on
total return. They do not reflect deduction of any sales charges Performance
grades are conferred from A+ to E. An A+ rating means that
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the fund has performed within the top 5% of a general universe of over 2000
funds; an A rating denotes the top 10%; an A- is given to the top 15%, etc.
Barron's periodically publishes mutual fund rankings. The rankings are
based on total return performance provided by Lipper Analytical Services. The
Lipper total return data reflects changes in net asset value and reinvestment of
distributions, but does not reflect deduction of any sales charges. The
performance periods vary from short-term intervals (current quarter or
year-to-date, for example) to long-term periods (five-year or ten-year
performance, for example). Barron's classifies the funds using the Lipper mutual
fund categories, such as Capital Appreciation Funds, Growth Funds, U.S.
Government Funds, Equity Income Funds, Global Funds, etc. Occasionally, Barron's
modifies the Lipper information by ranking the funds in asset classes. "Large
funds" may be those with assets in excess of $25 million; "small funds" may be
those with less than $25 million in assets.
The Wall Street Journal publishes its Mutual Fund Scorecard on a daily
basis. Each Scorecard is a ranking of the top-15 funds in a given Lipper
Analytical Services category. Lipper provides the rankings based on its total
return data reflecting changes in net asset value and reinvestment of
distributions and not reflecting any sales charges. The Scorecard portrays 4-
week, year-to-date, one-year and 5-year performance; however, the ranking is
based on the one-year results. The rankings for any given category appear
approximately once per month.
Fortune magazine periodically publishes mutual fund rankings that have
been compiled for the magazine by Morningstar, Inc. Funds are placed in stock or
bond fund categories (for example, aggressive growth stock funds, growth stock
funds, small company stock funds, junk bond funds, Treasury bond funds etc.),
with the top-10 stock funds and the top-5 bond funds appearing in the rankings.
The rankings are based on 3-year annualized total return reflecting changes in
net asset value and reinvestment of distributions and not reflecting sales
charges. Performance is adjusted using quantitative techniques to reflect the
risk profile of the fund.
Money magazine periodically publishes mutual fund rankings on a
database of funds tracked for performance by Lipper Analytical Services. The
funds are placed in 23 stock or bond fund categories and analyzed for five-year
risk adjusted return. Total return reflects changes in net asset value and
reinvestment of all dividends and capital gains distributions and does not
reflect deduction of any sales charges. Grades are conferred (from A to E): the
top 20% in each category receive an A, the next 20% a B, etc. To be ranked, a
fund must be at least one year old, accept a minimum investment of $25,000 or
less and have had assets of at least $25 million as of a given date.
Financial World publishes its monthly Independent Appraisals of Mutual
Funds, a survey of approximately 1000 mutual funds. Funds are categorized as to
type, e.g., balanced funds, corporate bond funds, global bond funds, growth and
income funds, U.S. government bond funds, etc. To compete, funds must be over
one year old, have over $1 million in assets, require a maximum of $10,000
initial investment, and should be available in at least 10 states in the United
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States. The funds receive a composite past performance rating, which weighs the
intermediate and long-term past performance of each fund versus its category, as
well as taking into account its risk, reward to risk, and fees. An A+ rated fund
is one of the best, while a D- rated fund is one of the worst. The source for
Financial World rating is Schabacker investment management in Rockville,
Maryland.
Forbes magazine periodically publishes mutual fund ratings based on
performance over at least two bull and bear market cycles. The funds are
categorized by type, including stock and balanced funds, taxable bond funds,
municipal bond funds, etc. Data sources include Lipper Analytical Services and
CDA Investment Technologies. The ratings are based strictly on performance at
net asset value over the given cycles. Funds performing in the top 5% receive an
A+ rating; the top 15% receive an A rating; and so on until the bottom 5%
receive an F rating. Each fund exhibits two ratings, one for performance in "up"
markets and another for performance in "down" markets.
Kiplinger's Personal Finance Magazine (formerly Changing Times),
periodically publishes rankings of mutual funds based on one-, three- and
five-year total return performance reflecting changes in net asset value and
reinvestment of dividends and capital gains and not reflecting deduction of any
sales charges. Funds are ranked by tenths: a rank of 1 means that a fund was
among the highest 10% in total return for the period; a rank of 10 denotes the
bottom 10%. Funds compete in categories of similar funds -- aggressive growth
funds, growth and income funds, sector funds, corporate bond funds, global
governmental bond funds, mortgage-backed securities funds, etc. Kiplinger's also
provides a risk-adjusted grade in both rising and falling markets. Funds are
graded against others with the same objective. The average weekly total return
over two years is calculated. Performance is adjusted using quantitative
techniques to reflect the risk profile of the fund.
U.S. News and World Report periodically publishes mutual fund rankings
based on an overall performance index (OPI) devised by Kanon Bloch Carre & Co.,
a Boston research firm. Over 2000 funds are tracked and divided into 10 equity,
taxable bond and tax-free bond categories. Funds compete within the 10 groups
and three broad categories. The OPI is a number from 0-100 that measures the
relative performance of funds at least three years old over the last 1, 3, 5 and
10 years and the last six bear markets. Total return reflects changes in net
asset value and the reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales charges. Results for
the longer periods receive the most weight.
The 100 Best Mutual Funds You Can Buy authored by Gordon K. Williamson.
The author's list of funds is divided into 12 equity and bond fund categories,
and the 100 funds are determined by applying four criteria. First, equity funds
whose current management teams have been in place for less than five years are
eliminated. (The standard for bond funds is three years.) Second, the author
excludes any fund that ranks in the bottom 20 percent of its category's risk
level. Risk is determined by analyzing how many months over the past three years
the fund has underperformed a bank CD or a U.S. Treasury bill. Third, a fund
must have demonstrated strong
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results for current three-year and five-year performance. Fourth, the fund must
either possess, in Mr. Williamson's judgment, "excellent" risk-adjusted return
or "superior" return with low levels of risk. Each of the 100 funds is ranked in
five categories: total return, risk/volatility, management, current income and
expenses. The rankings follow a five-point system: zero designates "poor"; one
point means "fair"; two points denote "good"; three points qualify as a "very
good"; four points rank as "superior"; and five points mean "excellent."
MEMBERS OF INVESTMENT MANAGEMENT TEAMS
The following persons are investment personnel of the Portfolios'
investment advisers, as indicated.
Mentor Investment Advisors, LLC
Large Capitalization Quality Equity Growth
John G. Davenport, CFA -- Managing Director, Chief Investment Officer
Mr. Davenport has twelve years of investment management experience. He joined
the Mentor organization after heading equity research for Lowe, Brockenbrough,
Tierney, & Tattersall. He earned his undergraduate business degree from the
University of Richmond and his graduate degree in business from the University
of Virginia.
P. Barton Peters, CFA
Mr. Peters has sixteen years of investment management experience and joined the
Mentor organization after the sale of his company, Parata Analytics Research, to
Commonwealth Investment Counsel, the predecessor to Mentor Advisors. He has an
undergraduate degree from the College of William and Mary and a masters degree
in finance and quantitative sciences from Virginia Commonwealth University.
Richard H. Skeppstrom II -- Vice President, Portfolio Manager
Mr. Skeppstrom has six years of investment management experience. He has earned
both his undergraduate degree and masters of business administration from the
University of Virginia.
Richard L. Rice -- Vice President, Research Analyst
Mr. Rice has twenty-three years' experience in the securities industry. Prior
to joining the Mentor organization in 1993, he was a partner in the equity
management software firm, Parata Analytics Research, which was acquired by the
Mentor organization. His previous responsibilities include director of Research
for Signet Asset Management, Senior Research Analyst for Capitoline Investment
Services, and research positions at Atlanta Corp. and Southwest Banking.
Active Fixed-Income
P. Michael Jones, CFA -- Managing Director, Chief Investment Officer
-44-
<PAGE>
Mr. Jones has eleven years of investment management experience. Mr. Jones is
responsible for the design and implementation of the fixed-income group's
proprietary analytical system. He earned his undergraduate degree from the
College of William and Mary.
Steven C. Henderson -- Associate Vice President, Portfolio Manager
Mr. Henderson has seven years of investment management experience. He has an
undergraduate degree from the University of Richmond and a masters in business
administration from George Washington University.
Stephen R. McClelland -- Vice President, Portfolio Manager
Mr. McClelland has six years of investment management experience, all of which
have been at Commonwealth. He is a Certified Public Accountant and received his
undergraduate degree in accounting from Iowa State University and his graduate
business degree from Virginia Commonwealth University.
Keith Wantling
Mr. Wantling has five years of experience. Mr. Wantling performs analysis and
screening for credit sensitive private label mortgage-backed securities and
directs the firm's portfolio analysis effort. He holds his undergraduate degree
in accounting information systems from Virginia Polytechnic Institute.
Small-to-Medium Capitalization Equity Growth
Theodore W. Price, CFA -- Managing Director, Chief Investment Officer
Mr. Price has over thirty years of investment management experience, with over
twenty-three years' tenure at Charter Asset Management, the predecessor to
Mentor Advisors. He has managed Mentor Growth Portfolio since its inception. He
earned both his undergraduate degree and masters of business administration from
the University of Virginia.
Linda A. Ziglar, CFA -- Portfolio Manager
Ms. Ziglar has seventeen years of investment management experience. Ms. Ziglar
joined Charter from Federated Investors, where she managed $300 million in
equity assets. She holds an undergraduate degree from Randolph-Macon Woman's
College where she graduated summa cum laude. She also holds a graduate degree
in business administration from the University of Pittsburgh.
Jeffrey S. Drummond, CFA -- Vice President, Portfolio Manager
Mr. Drummond has eight years of investment management experience. Mr. Drummond
began his career as a portfolio analyst in the Investment Strategy Department at
Wheat First Butcher Singer, where he shared responsibility for directing $100
million in assets following the Strategic Sectors Portfolio. He received his
undergraduate degree in finance from the University of Richmond, where he
graduated cum laude.
-45-
<PAGE>
Edward Rick IV
Mr. Rick has two years of investment management experience. He received his
undergraduate degree in finance from the University of Richmond, where he
graduated cum laude.
Tactical Asset Allocation
Don R. Hays -- Chief Investment Officer
Mr. Hays has over twenty-seven years of investment experience and is Director of
Investment Strategy for Wheat First Butcher Singer, Inc., a position he has held
since 1984. Mr. Hays began his career as an engineer with the Von Braun
rocket-development team in 1968. He is regarded as one of the country's leading
investment strategists and his market outlook is quoted regularly in the Wall
Street Journal, Investor's Business Daily, USA Today, and other major media. He
has been a guest on the PBS series Wall $treet Week with Louis Rukeyser and is
regularly featured by Dow Jones, Reuters and Bloomberg News Services.
Asa W. Graves VII, CFA -- Portfolio Manager
Mr. Graves has five years of investment management experience and works closely
with Mr. Hays to develop the analytical framework used in managing the Strategy
Portfolio. He earned his undergraduate degree from the University of Richmond.
William P. Ryder -- Research Analyst
Mr. Ryder joined Wheat First Butcher Singer in 1991 as a member of its
Investment Strategy Group, working as a research analyst on its growth and
growth and income model portfolios. In 1995 he became part of the team
responsible for managing the Mentor Strategy Portfolio. In that capacity he
focuses primarily on conducting economic analysis, industry group studies, and
asset allocation modeling. Mr. Ryder attended Virginia Commonwealth University
and has five years' investment experience.
Mentor Perpetual Advisors, LLC
Scott McGlashan -- Far East Specialist, Portfolio Manager Mr. McGlashan has
nineteen years of investment management experience, twelve years specializing in
the Far East, and ten years' tenure in the Perpetual organization. He has earned
degrees from Yale University and Cambridge University.
Robert Yerbury -- American Specialist, Portfolio Manager
Mr. Yerbury has twenty-four years of investment management experience, with over
twenty years experience in North American stock markets, and has been part of
the Perpetual team for twelve years. He received his undergraduate degree in
mathematics from Cambridge University.
Stephen Whittaker -- United Kingdom Specialist, Portfolio Manager
-46-
<PAGE>
Mr. Whittaker has sixteen years of investment management experience. Prior to
his employment at Perpetual, Mr. Whittaker was responsible for a wide range of
UK equity funds for the Save & Prosper Group. He earned a law degree from
Manchester University.
Margaret Roddan -- European Specialist, Portfolio Manager
Ms. Roddan has eleven years of investment management experience. Ms. Roddan
joined the Perpetual organization from Mercury Asset Management, where she
shared responsibility for managing more than $750 million in continental
European equity holdings. She is a graduate of the Investment Management
Programme at the London Business School, studied Finance at City University, and
holds an undergraduate degree in economic history from Bristol University.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims shareholder liability
for acts or obligations of the Trust and requires that notice of such disclaimer
be given in each agreement, obligation, or instrument entered into or executed
by the Trust or the Trustees. The Agreement and Declaration of Trust provides
for indemnification out of a Portfolio's property for all loss and expense of
any shareholder held personally liable for the obligations of a Portfolio. Thus
the risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which the Portfolio would be unable to
meet its obligations.
FINANCIAL STATEMENT
[To be supplied by amendment]
-47-
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements and Supporting Schedules:
(1) Financial Statements:
Statement of Assets and Liabilities(2)
Independent Auditors Report(2)
(2) Supporting Schedules:
Not applicable
<TABLE>
<CAPTION>
(b) Exhibits
<S> <C>
(1) Agreement and Declaration of Trust(1)
(2) Bylaws(1)
(3) Inapplicable
(4) (A) Portions of Agreement and Declaration of Trust Relating to
Shareholders' Rights(1)
(B) Portions of Bylaws Relating to Shareholders' Rights(1)
(5) (A) Form of Management Contract(2)
(6) Form of Distribution Agreement(2)
(7) Inapplicable
(8) Form of Custody Agreement(2)
(9) (A) Form of Transfer Agency Agreement(2)
(10) Opinion and Consent of Ropes & Gray(2)
(11) Consent of Independent Auditors(2)
(12) Inapplicable
(13) Initial Capital Agreement(2)
(14) Inapplicable
(15) (A) Form of Distribution Plan and Agreement (Balanced Portfolio) (2)
(B) Form of Distribution Plan and Agreement (Capital Growth Portfolio)(2)
(C) Form of Distribution Plan and Agreement (Perpetual Global Portfolio)(2)
(D) Form of Distribution Plan and Agreement (Growth Portfolio)(2)
(E) Form of Distribution Plan and Agreement (Strategy Portfolio)(2)
(16) Not applicable
(17) Not applicable
</TABLE>
- -----------------
(1) Filed herewith.
(2) To be filed by pre-effective amendment.
-1-
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
Item 26. Number of Record Holders of Securities
As of the time of the filing of this registration statement, none of
the Portfolios had any shares outstanding.
Item 27. Indemnification
Article VIII of the Registrant's Agreement and Declaration of Trust
provides as follows:
Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil, criminal, administrative or investigative, and any
appeal therefrom, before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as a party or
otherwise or with which such Covered Person may be or may have been threatened,
while in office or thereafter, by reason of being or having been such a Covered
Person except with respect to any matter as to which such Covered Person shall
have been finally adjudicated in any such action, suit or other proceeding (a)
not to have acted in good faith in the reasonable belief that such Covered
Person's action was in the best interest of the Trust or (b) to be liable to the
Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
Expenses, including counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), may be paid from time to time by the Trust in advance of
the final disposition of any such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to repay amounts so paid to
the Trust if it is ultimately determined that indemnification of such expenses
is not authorized under this Article, provided, however, that (a) such Covered
Person shall have provided appropriate security for such undertaking, (b) the
Trust shall be insured against losses arising from any such advance payments, or
(c) either a majority of the disinterested Trustees acting on the matter
(provided that a majority of the disinterested Trustees then in office act on
the matter), or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as opposed to a full
trial-type inquiry) that there is reason to believe that such Covered Person
ultimately will be entitled to indemnification.
-2-
<PAGE>
Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an adjudication by a
court, or by any other body before which the proceeding was brought, that such
Covered Person either (a) did not act in good faith in the reasonable belief
that his or her action was in the best interest of the Trust or (b) is liable to
the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office, indemnification shall be provided if (a) approved as in the best
interest of the Trust, after notice that it involves such indemnification, by at
least a majority of the disinterested Trustees acting on the matter (provided
that a majority of the disinterested Trustees then in office act on the matter)
upon a determination, based upon a review of readily available facts (as opposed
to a full trial-type inquiry) that such Covered Person acted in good faith in
the reasonable belief that his or her action was in the best interest of the
Trust and is not liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) to the effect that
such Covered Person appears to have acted in good faith in the reasonable belief
that his or her action was in the best interest of the Trust and that such
indemnification would not protect such Covered Person against any liability to
the Trust to which he or she would otherwise be subject by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Any approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to any Covered Person in accordance
with this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in the best
interests of the Trust or to have been liable to the Trust or its Shareholders
by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office.
Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which any Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators and a "disinterested Trustee"
is a Trustee who is not an "interested person" of the Trust as defined in
Section 2(a)(19) of the 1940 Act (or who has been exempted from being an
"interested person" by any rule, regulation or order of the Securities and
Exchange Commission) and against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust, other than
Trustees or officers, and other persons may be entitled by contract or otherwise
under law, nor the power of the Trust to purchase and maintain liability
insurance on behalf of any such person.
-3-
<PAGE>
Section 4. In case any Shareholder or former Shareholder shall be held
to be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representative or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.
---------------------------
Reference is made to the Distribution Agreement, to be filed as an
amendment to this Registration Statement, which contains provisions for the
indemnification by Mentor Distributors, LLC of the Registrant and Trustees and
officers and controlling persons of the Registrant under certain circumstances.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
Trustee, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) The following is additional information with respect to the
directors and officers of Mentor Investment Advisors, LLC:
The business and other connections of each director, officer, or partner
of Mentor Investment Advisors, LLC in which such director, officer, or partner
is or has been, at any time during the past two fiscal years, engaged for his
own account or in the capacity of director, officer, employee, partner, or
trustee are set forth in the following table.
<TABLE>
<CAPTION>
Other Substantial
Position with the Business, Profession,
Name Investment Adviser Vocation or Employment*
- ------ ------------------- --------------------------
<S> <C>
John G. Davenport Managing Director None
R. Preston Nuttall Managing Director Formerly, Senior Vice
President, Capitoline
Investment Services
-4-
<PAGE>
Paul F. Costello Managing Director Managing Director, Wheat
First Butcher Singer, Inc.
and Mentor Investment
Group, LLC; President,
Mentor Funds, Mentor
Income Fund, Inc., Cash
Resource Trust, and
Mentor Institutional Trust;
Executive Vice President
and Chief Administrative
Officer, America's Utility
Fund, Inc.; Director,
Mentor Perpetual
Advisors, LLC and Mentor
Trust Company
Theodore W. Price Managing Director Formerly, President,
Charter Asset
Management, Inc.
P. Michael Jones Managing Director Formerly, Managing
Director, Commonwealth
Investment Counsel, Inc.
Thomas L. Souders Treasurer Managing Director and
Chief Financial Officer,
Wheat, First Securities,
Inc.; formerly, Manager of
Internal Audit, Heilig-
Myers; formerly, Manager,
Peat Marwick & Mitchell
& Company
Robert P. Wilson Assistant Treasurer Assistant Treasurer,
Mentor Distributors, LLC
John M. Ivan Secretary Managing Director, Senior
Vice President and
Assistant General Counsel,
Wheat, First Securities,
Inc.; Managing Director
and Assistant Secretary,
Wheat First Butcher
Singer, Inc.; Clerk, Cash
Resource Trust, and
Mentor Institutional Trust;
Secretary, Mentor Funds
-5-
<PAGE>
Howard T. Macrae, Jr. Assistant Secretary Assistant Secretary,
Mentor Distributors, LLC
</TABLE>
(b) The following is additional information with respect to the
directors and officers of Mentor Perpetual Advisors, LLC ("Mentor Perpetual"):
The business and other connections of each director, officer, or
partner of Mentor Perpetual in which such director, officer, or partner is or
has been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner, or trustee
are set forth in the following table.
<TABLE>
<CAPTION>
Other Substantial
Position with the Business, Profession,
Name Investment Adviser Vocation or Employment*
- ------ ------------------- --------------------------
<S> <C>
Scott A. McGlashan President Director, Perpetual
Portfolio Management
Limited
Martyn Arbib Director Chairman, Perpetual
Portfolio Management
Limited
Roger C. Cormick Director Deputy Chairman -
Marketing, Perpetual
Portfolio Management
Limited
Paul F. Costello Director Managing Director, Wheat
First Butcher Singer, Inc.;
Mentor Investment Group,
Inc.; President, Cash
Resource Trust, Mentor
Income Fund, Inc., The
Mentor Funds, and Mentor
Institutional Trust.
Daniel J. Ludeman Director Chairman and Chief
Executive Officer, Mentor
Investment Group;
Director, Wheat First
Securities, Inc.; Managing
Director, Wheat First
Butcher Singer, Inc.
-6-
<PAGE>
David S. Mossop Director Director, Perpetual
Portfolio Management
Limited
Richard J. Rossi Director Managing Director,
Mentor Investment Group,
LLC
</TABLE>
The address of each of the above-named entities (other than Capitoline
Investment Services and Perpetual Portfolio Management Limited) is 901 East Byrd
Street, Richmond, VA 23219. The address of Capitoline Investment Services is 919
East Main Street, Richmond, VA 23219. The address of Perpetual Portfolio
Management Limited is 48 Hart Street, Henley-on-Thames, Oxfordshire, England
RG92A2.
Item 29. Principal Underwriters
(a) Mentor Distributors, LLC acts as the principal underwriter for the
Trust.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices with
Business Address Underwriter Registrant
- ---------------------- --------------------------- ---------------------------
<S> <C>
Peter J. Quinn, Jr. President and Director None
901 East Byrd Street
Richmond, VA 23219
Paul F. Costello Senior Vice President President
901 East Byrd Street
Richmond, VA 23219
Thomas L. Souders Treasurer None
901 East Byrd Street
Richmond, VA 23219
John M. Harris Secretary None
901 East Byrd Street
Richmond, VA 23219
John M. Ivan Assistant Secretary Clerk
901 East Byrd Street
Richmond, VA 23219
</TABLE>
-7-
<PAGE>
Item 30. Location of Accounts and Records
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules promulgated thereunder are Registrant's Clerk, John M.
Ivan; Registrant's investment adviser, Mentor Investment Advisors LLC, and
Registrant's transfer agent and custodian, ______________________________. The
address of the Clerk and Mentor Advisors is 901 East Byrd Street, Richmond,
Virginia 23219. The address of the transfer agent and custodian is
____________________________________.
Item 31. Management Services
None.
Item 32. Undertakings
(a) The Registrant undertakes to file a post-effective amendment
within four to six months from the effective date of this
Registration Statement for the purpose of providing unaudited
financial statements in respect of the Portfolios.
(b) The Registrant undertakes, if requested to do so by the
holders of at least 10% of the Registrant's outstanding shares
of beneficial interest, to call a meeting of shareholders for
the purpose of voting upon the question of removal of a
Trustee or Trustees and to assist in communications with other
shareholders as required by Section 16(c) of the Investment
Company Act of 1940.
(c) The Registrant undertakes to furnish to each person to whom a
prospectus of the Registrant is delivered a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
NOTICE
A copy of the Agreement and Declaration of Trust of the Trust is on
file with the Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not individually
and that the obligations of or arising out of this instrument are not binding
upon any of the Trustees, officers, or shareholders individually but are binding
only upon the assets and property of the Registrant.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on behalf of the undersigned, thereunto duly authorized,
in the City of Richmond, and the Commonwealth of Virginia, on this 25th day of
March, 1997.
MENTOR VARIABLE
INVESTMENT PORTFOLIOS
By:/s/ Paul F. Costello
-------------------------
Title: 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 indicated on the 25th day of March, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- --------
<S> <C>
/s/ Daniel J. Ludeman Chairman; Trustee
-------------------------
Daniel J. Ludeman
/s/ Paul F. Costello President; Principal Executive
- --------------------- Officer
Paul F. Costello
/s/ Terry L. Perkins Treasurer; Principal Financial
- --------------------- Officer; Principal Accounting Officer
Terry L. Perkins
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ------------ -------- ---------
(1) Agreement and Declaration of
Trust
(2) Bylaws
(4) (A) Portions of Agreement and
Declaration of Trust Relating to
Shareholders Rights
(B) Portions of By-Laws Relating to
Shareholders' Rights
Exhibit 1
MENTOR VARIABLE INVESTMENT PORTFOLIOS
AGREEMENT AND DECLARATION OF TRUST
This AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts,
this 20th day of March, 1997 by the Trustee hereunder and by the holders of
shares of beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustee has agreed to manage all property coming into his
hands as trustee of a Massachusetts voluntary association with transferable
shares in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustee hereby declares that he will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustee hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the benefit of the holders from time to time
of Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name
Section 1. This Trust shall be known as "Mentor Variable Investment
Portfolios", and the Trustees shall conduct the business of the Trust under that
name or any other name as they may from time to time determine.
Definitions
Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust established
by this Agreement and Declaration of Trust, as amended from time to
time;
(b) "Trustees" refers to the Trustees of the Trust named herein or
elected in accordance with Article IV;
-1-
<PAGE>
(c) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be
divided from time to time or, if more than one series or class of
Shares is authorized by the Trustees, the equal proportionate
transferable units into which each series or class of Shares shall be
divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Principal Underwriter" and "Majority Shareholder
Vote" (the 67% or 50% requirement of the third sentence of Section
2(a)(42) of the 1940 Act, whichever may be applicable) shall have the
meanings given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time;
(i) The term "series" or "series of Shares" refers to the one or more
separate investment portfolios of the Trust into which the assets and
liabilities of the Trust may be divided and the Shares of the Trust
representing the beneficial interest of Shareholders in such respective
portfolios; and
(j) The term "class" or "class of Shares" refers to the division of
Shares representing any series into two or more classes as provided in
Article III, Section 1 hereof.
ARTICLE II
Purpose of the Trust
The purpose of the Trust is to provide investors a managed investment
primarily in securities, debt instruments and other instruments and rights of a
financial character.
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in one or more
series as the Trustees may, without Shareholder approval, authorize. Each series
shall be preferred over all other series in respect of the assets allocated to
that series within the meaning of the 1940 Act and
-2-
<PAGE>
shall represent a separate investment portfolio of the Trust. The beneficial
interest in each series shall at all times be divided into Shares, without par
value, each of which shall, except as provided in the following sentence,
represent an equal proportionate interest in the series with each other Share of
the same series, none having priority or preference over another. The Trustees
may, without Shareholder approval, divide the Shares of any series into two or
more classes, Shares of each such class having such preferences and special or
relative rights and privileges (including conversion rights, if any) as the
Trustees may determine and as shall be set forth in the By-Laws. The number of
Shares authorized shall be unlimited. The Trustees may from time to time divide
or combine the Shares of any series or class into a greater or lesser number
without thereby changing the proportionate beneficial interests in the series or
class.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books of
the Trust or a transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to who are
the Shareholders of each series and class and as to the number of Shares of each
series and class held from time to time by each Shareholder.
Investment in the Trust
Section 3. The Trustees may accept investments in the Trust from such
persons and on such terms and for such consideration, which may consist of cash
or tangible or intangible property or a combination thereof, as they or the
By-Laws from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares
of each series, together with all income, earnings, profits, and proceeds
thereof, including any proceeds derived from the sale, exchange or liquidation
thereof, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to the
series of Shares with respect to which the same were received by the Trust for
all purposes, subject only to the rights of creditors, and shall be so handled
upon the books of account of the Trust and are herein referred to as "assets of"
such series.
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust.
-3-
<PAGE>
Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal property giving only
the rights provided in this Declaration of Trust or the By-Laws. Every
Shareholder by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms of this Declaration of Trust and the
By-Laws and to have become a party thereto. The death of a Shareholder during
the continuance of the Trust shall not operate to terminate the same nor entitle
the representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust shall have any power to bind personally any Shareholder, nor except
as specifically provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.
ARTICLE IV
The Trustees
Election; Removal
Section 1. A Trustee may be elected either by the Trustees or by the
Shareholders. The number of Trustees shall be fixed from time to time by the
Trustees and, at or after the sale of Shares pursuant to a public offering,
there shall be not less than three Trustees. Each Trustee elected by the
Trustees or the Shareholders shall serve until he or she retires, resigns, is
removed or dies or until the next meeting of Shareholders called for the purpose
of electing Trustees and until the election and qualification of his or her
successor. At any meeting called for the purpose, a Trustee may be removed by
vote of the holders of two-thirds of the outstanding Shares. The initial
Trustee, who shall serve until the first meeting of Shareholders at which
Trustees are elected and until his successor is elected and qualified, or until
he sooner dies, resigns or is removed, shall be Joseph T. Turo, Jr. and such
other persons as the Trustee or Trustees then in office shall, prior to any sale
of Shares pursuant to a public offering, appoint. By vote of a majority of the
Trustees then in office, the Trustees may remove a Trustee with or without
cause.
Effect of Death, Resignation, etc. of a Trustee
Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
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Powers
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt ByLaws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that such By-Laws do not reserve that
right to the Shareholders; they may fill vacancies in or add to their number,
and may elect and remove such officers and appoint and terminate such agents as
they consider appropriate; they may appoint from their own number, and
terminate, any one or more committees consisting of two or more Trustees,
including an executive committee which may, when the Trustees are not in
session, exercise some or all of the power and authority of the Trustees as the
Trustees may determine; they may employ one or more custodians of the assets of
the Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities, retain a transfer agent or a Shareholder servicing
agent, or both, provide for the distribution of Shares by the Trust, through one
or more principal underwriters or otherwise, set record dates for the
determination of Shareholders with respect to various matters, and in general
delegate such authority as they consider desirable to any officer of the Trust,
to any committee of the Trustees, and to any agent or employee of the Trust or
to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write
options on and lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such
power and discretion with relation to securities or property as the
Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities or other assets;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in
the name of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depository or a nominee or nominees or otherwise;
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(f) Subject to the provisions of Article III, Section 3, to allocate
assets, liabilities, income and expenses of the Trust to a particular
series of Shares or to apportion the same among two or more series,
provided that any liabilities or expenses incurred by or arising in
connection with a particular series of Shares shall be payable solely
out of the assets of that series; and to the extent necessary or
appropriate to give effect to the preferences and special or relative
rights and privileges of any classes of Shares, to allocate assets,
liabilities, income and expenses of a series to a particular class of
Shares of that series or to apportion the same among two or more
classes of Shares of that series;
(g) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of
which is or was held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer,
and to pay calls or subscriptions with respect to any security held in
the Trust;
(h) To join with other security holders in acting through a committee,
depository, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such
committee, depository or trustee, and to delegate to them such power
and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation
of such committee, depository or trustee as the Trustees shall deem
proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust on any matter in controversy, including but not
limited to claims for taxes;
(j) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(k) To borrow funds, securities or other assets;
(l) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship,
or otherwise assume liability for payment thereof; and to mortgage and
pledge the Trust property or any part thereof to secure any of or all
of such obligations or obligations incurred pursuant to subparagraph
(k) hereof;
(m) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of
the business, including, without limitation, insurance policies
insuring the assets of the Trust and payment of distributions and
principal on its portfolio investments, and insurance policies insuring
the Shareholders, Trustees, officers, employees, agents, investment
advisers or managers, principal underwriters, or independent
contractors of the Trust individually
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against all claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or by reason
of any action alleged to have been taken or omitted by any such person
as Shareholder, Trustee, officer, employee, agent, investment adviser
or manager, principal underwriter, or independent contractor, including
any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify
such person against such liability; and
(n) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts as a
means of providing such retirement and other benefits, for any or all
of the Trustees, officers, employees and agents of the Trust.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. Except as otherwise
provided herein or from time to time in the By-Laws, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
the Trustees (a quorum being present), within or without Massachusetts,
including any meeting held by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office.
Payment of Expenses by Trust
Section 4. The Trustees are authorized to pay or to cause to be paid
out of the assets of the Trust all expenses, fees, charges, taxes, and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, investment adviser or manager, principal underwriter,
auditor, counsel, custodian, transfer agent, Shareholder servicing agent, and
such other agents or independent contractors and such other expenses and charges
as the Trustees may deem necessary or proper to incur, provided, however, that
all expenses, fees, charges, taxes and liabilities incurred by or arising in
connection with a particular series of Shares shall be payable solely out of the
assets of that series.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of each series of Shares and of
the Trust shall at all times be considered as vested in the Trustees.
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Advisory, Management and Distribution
Section 6. Subject to a favorable Majority Shareholder Vote, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services with any corporation, trust,
association or other organization (the "Manager"), every such contract to comply
with such requirements and restrictions as may be set forth in the ByLaws; and
any such contract may contain such other terms interpretive of or in addition to
said requirements and restrictions as the Trustees may determine, including,
without limitation, authority to determine from time to time what investments
shall be purchased, held, sold or exchanged and what portion, if any, of the
assets of the Trust shall be held uninvested and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time, contract
with the Manager or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with such requirements
and restrictions as may be set forth in the By-Laws; and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for
any parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's
contract, or transfer, Shareholder servicing or other agency contract
may have been or may hereafter be made, or that any organization, or
any parent or affiliate thereof, is a Shareholder or has an interest in
the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
agency contract may have been or may hereafter be made also has an
advisory or management contract, or transfer, Shareholder servicing or
other agency contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or
interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
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ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. Subject to the voting powers of one or more classes of
Shares as set forth elsewhere in this Declaration of Trust or in the Bylaws, the
Shareholders shall have power to vote only (i) for the election of Trustees as
provided in Article IV, Section 1, (ii) for the removal of Trustees as provided
in Article IV, Section 1, (iii) with respect to any Manager as provided in
Article IV, Section 6, (iv) with respect to any termination of this Trust to the
extent and as provided in Article IX, Section 4, (v) with respect to any
amendment of this Declaration of Trust to the extent and as provided in Article
IX, Section 7, (vi) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class action
on behalf of the Trust or the Shareholders, and (vii) with respect to such
additional matters relating to the Trust as may be required by this Declaration
of Trust, the Bylaws or any registration of the Trust with the Securities and
Exchange Commission (or any successor agency) or any state, or as the Trustees
may consider necessary or desirable. Each whole Share outstanding on the record
date established in accordance with the By-Laws shall be entitled to one vote as
to any matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote. Notwithstanding any other provision
of this Declaration of Trust, on any matter submitted to a vote of Shareholders,
all Shares of the Trust then entitled to vote shall, except as otherwise
provided in the By-Laws, be voted in the aggregate as a single class without
regard to series or classes of Shares, except (1) when required by the 1940 Act
or when the Trustees shall have determined that the matter affects one or more
series or classes materially differently, Shares shall be voted by individual
series or class; and (2) when the Trustees have determined that the matter
affects only the interests of one or more series or classes, then only
Shareholders of such series or classes shall be entitled to vote thereon. There
shall be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy. A proxy with respect to
Shares held in the name of two or more persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. The placing of a shareholder's name on a proxy
pursuant to telephone or electronically transmitted instructions obtained
pursuant to procedures reasonably designed to verify that such instructions have
been authorized by such shareholder shall constitute execution of such proxy by
or on behalf of such shareholder in writing. At all meetings of Shareholders,
unless inspectors of election have been appointed, all questions relating to the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by
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the chairman of the meeting. Unless otherwise specified in a proxy, the proxy
shall apply to all Shares of each series of the Trust owned by the Shareholder.
Until Shares of any series or class are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or the By-Laws to be taken by Shareholders as to such
series or class.
Voting Power and Meetings
Section 2. Meetings of Shareholders of any or all series or classes may
be called by the Trustees from time to time for the purpose of taking action
upon any matter requiring the vote or authority of the Shareholders of such
series or classes as herein provided or upon any other matter deemed by the
Trustees to be necessary or desirable. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees by mailing
such notice at least seven days before such meeting, postage prepaid, stating
the time, place and purpose of the meeting, to each Shareholder entitled to vote
at such meeting at the Shareholder's address as it appears on the records of the
Trust. If the Trustees shall fail to call or give notice of any meeting of
Shareholders for a period of 30 days after written application by Shareholders
holding at least 10% of the then outstanding Shares of all series and classes
entitled to vote at such meeting requesting a meeting to be called for a purpose
requiring action by the Shareholders as provided herein or in the By-Laws, then
Shareholders holding at least 10% of the then outstanding Shares of all series
and classes entitled to vote at such meeting may call and give notice of such
meeting, and thereupon the meeting shall be held in the manner provided for
herein in case of call thereof by the Trustees. Notice of a meeting need not be
given to any Shareholder if a written waiver of notice, executed by him or her
before or after the meeting, is filed with the records of the meeting, or to any
Shareholder who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her.
Quorum and Required Vote
Section 3. Thirty percent of Shares entitled to vote on a particular
matter shall be a quorum for the transaction of business on that matter at a
Shareholders' meeting, except that where any provision of law or of this
Declaration of Trust or the By-Laws requires that holders of any series or class
shall vote as an individual series or class, then thirty percent of the
aggregate number of Shares of that series or class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that series
or class. Any lesser number shall be sufficient for adjournments. Any adjourned
session or sessions may be held, within a reasonable time after the date set for
the original meeting, without the necessity of further notice. Except when a
larger vote is required by any provision of law or of this Declaration of Trust
or the By-Laws, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, provided that where any provision of law or of
this Declaration of Trust or the By-Laws requires that the holders of any series
or class shall vote as an individual series or class then a majority of the
Shares of that series or class voted on the matter (or a plurality with
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respect to the election of a Trustee) shall decide that matter insofar as that
series or class is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a
meeting if a majority of Shareholders entitled to vote on the matter (or such
larger proportion thereof as shall be required by any express provision of this
Declaration of Trust or the By-Laws) consent to the action in writing and such
written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
Additional Provisions
Section 5. The By-Laws may include further provisions in respect of
Shareholders' votes and meetings and related matters.
ARTICLE VI
Distributions, Redemptions and Repurchases
Distributions
Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each series out of the assets of
such series such amounts as the Trustees may determine. Any such distribution to
the Shareholders of a particular series shall be made to said Shareholders pro
rata in proportion to the number of Shares of such series held by each of them,
except to the extent otherwise required or permitted by the preferences and
special or relative rights and privileges of any classes of Shares of that
Series, and any distribution to the Shareholders of a particular class of Shares
shall be made to such Shareholders pro rata in proportion to the number of
Shares of such class held by each of them. Such distributions shall be made in
cash, Shares or other property, or a combination thereof, as determined by the
Trustees. Any such distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with the By-Laws.
Redemptions and Repurchases
Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the By-Laws, less
any redemption charge fixed by the Trustees. Payment for said Shares shall be
made by the Trust to the Shareholder
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within seven days after the date on which the request is made. The obligation
set forth in this Section 2 is subject to the provision that in the event that
any time the New York Stock Exchange is closed for other than customary weekends
or holidays, or, if permitted by rules of the Securities and Exchange
Commission, during periods when trading on the Exchange is restricted or during
any emergency which makes it impractical for the Trust to dispose of its
investments or to determine fairly the value of its net assets, or during any
other period permitted by order of the Securities and Exchange Commission for
the protection of investors, such obligation may be suspended or postponed by
the Trustees. The Trust may also purchase or repurchase Shares, in accordance
with such other methods, upon such other terms and subject to such other
conditions as the Trustees may from time to time authorize, at a price not
exceeding the net asset value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.
Redemption at the Option of the Trust
Section 3. The Trust shall have the right at its option and at any time
to redeem Shares of any Shareholder at the net asset value thereof as determined
in accordance with the By-Laws: (i) if at such time such Shareholder owns fewer
Shares than, or Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees; or (ii) to the extent that
such Shareholder owns Shares of a particular series of Shares equal to or in
excess of a percentage of the outstanding Shares of that series determined from
time to time by the Trustees; or (iii) to the extent that such Shareholder owns
Shares of the Trust representing a percentage equal to or in excess of such
percentage of the aggregate number of outstanding Shares of the Trust or the
aggregate net asset value of the Trust determined from time to time by the
Trustees.
Payment in Kind
Section 4. Subject to any generally applicable limitation imposed by
the Trustees, any payment on redemption of Shares may, if authorized by the
Trustees, be made wholly or partly in kind, instead of in cash. Such payment in
kind shall be made by distributing securities or other property constituting, in
the opinion of the Trustees, a fair representation of the various types of
securities and other property then held by the series of Shares being redeemed
(but not necessarily involving a portion of each of the series' holdings) and
taken at their value used in determining the net asset value of the Shares in
respect of which payment is made.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Compensation
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent
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the employment of any Trustee for advisory, management, legal, accounting,
investment banking or other services and payment for the same by the Trust.
Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, manager or
principal underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he or she would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
Indemnification
Trustees, Officers, etc.
Section 1. The Trust shall indemnify each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil, criminal, administrative or investigative, and any
appeal therefrom, before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as a party or
otherwise or with which such Covered Person may be or may have been threatened,
while in office or thereafter, by reason of being or having been such a Covered
Person except with respect to any matter as to which such Covered Person shall
have been finally adjudicated in any such action, suit or other proceeding (a)
not to have acted in good faith in the reasonable belief that such Covered
Person's action was in the best interest of the Trust or (b) to be liable to the
Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
Expenses, including counsel fees so incurred by any such Covered Person
(but excluding amounts paid in satisfaction of judgments, in compromise or as
fines or penalties), may be paid from time to time by the Trust in advance of
the final disposition of any such action, suit or
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proceeding upon receipt of an undertaking by or on behalf of such Covered Person
to repay amounts so paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this Article, provided,
however, that (a) such Covered Person shall have provided appropriate security
for such undertaking, (b) the Trust shall be insured against losses arising from
any such advance payments, or (c) either a majority of the disinterested
Trustees acting on the matter (provided that a majority of the disinterested
Trustees then in office act on the matter), or independent legal counsel in a
written opinion, shall have determined, based upon a review of readily available
facts (as opposed to a full trial-type inquiry) that there is reason to believe
that such Covered Person ultimately will be entitled to indemnification.
Compromise Payment
Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an adjudication by a
court, or by any other body before which the proceeding was brought, that such
Covered Person either (a) did not act in good faith in the reasonable belief
that his or her action was in the best interest of the Trust or (b) is liable to
the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office, indemnification shall be provided if (a) approved as in the best
interest of the Trust, after notice that it involves such indemnification, by at
least a majority of the disinterested Trustees acting on the matter (provided
that a majority of the disinterested Trustees then in office act on the matter)
upon a determination, based upon a review of readily available facts (as opposed
to a full trial-type inquiry) that such Covered Person acted in good faith in
the reasonable belief that his or her action was in the best interest of the
Trust and is not liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) to the effect that
such Covered Person appears to have acted in good faith in the reasonable belief
that his or her action was in the best interest of the Trust and that such
indemnification would not protect such Covered Person against any liability to
the Trust to which he or she would otherwise be subject by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Any approval pursuant to this Section shall not prevent the recovery
from any Covered Person of any amount paid to any Covered Person in accordance
with this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in the best
interests of the Trust or to have been liable to the Trust or its Shareholders
by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office.
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Indemnification Not Exclusive
Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which any Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators and a "disinterested Trustee"
is a Trustee who is not an "interested person" of the Trust as defined in
Section 2(a)(19) of the 1940 Act (or who has been exempted from being an
"interested person" by any rule, regulation or order of the Securities and
Exchange Commission) and against whom none of such actions, suits or other
proceedings or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this Article shall
affect any rights to indemnification to which personnel of the Trust, other than
Trustees or officers, and other persons may be entitled by contract or otherwise
under law, nor the power of the Trust to purchase and maintain liability
insurance on behalf of any such person.
Shareholders
Section 4. In case any Shareholder or former Shareholder shall be held
to be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representative or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.
ARTICLE IX
Miscellaneous
Trustees, Shareholders, etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or having
any claim against the Trust or a particular series of Shares shall look only to
the assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim, and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officer or officers shall give notice that
this Declaration of Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustee or Trustees or as
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officer or officers and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust, and may contain such
further recital as he or she or they may deem appropriate, but the omission
thereof shall not operate to bind any Trustee or Trustees or officer or officers
or Shareholder or Shareholders individually.
Trustee's Good Faith Action, Expert Advice, No Bond or Surety
Section 2. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
Section 3. No person dealing with the Trustees shall be bound to make
any inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
Duration and Termination of Trust
Section 4. Unless terminated as provided herein, the Trust shall
continue without limitation of time. The Trust may be terminated at any time by
vote of Shareholders holding at least two-thirds of the Shares of each series
entitled to vote (provided, however, that if such termination is recommended by
two-thirds of the total number of Trustees then in office, the vote of a
majority of the Shares of each series entitled to vote shall be sufficient
authorization) or by the Trustees by written notice to the Shareholders. Any
series of Shares may be terminated at any time by vote of Shareholders holding
at least two-thirds of the Shares of such series entitled to vote (provided,
however, that if such termination is recommended by two-thirds of the total
number of Trustees then in office, the vote of a majority of the Shares of such
series entitled to vote shall be sufficient authorization) or by the Trustees by
written notice to the Shareholders of such series. Upon termination of the Trust
or of any one or more series of Shares, after paying or otherwise providing for
all charges, taxes, expenses and liabilities, whether due or accrued or
anticipated, of the Trust or of the particular series as may be determined by
the Trustees, the Trust shall in accordance with such procedures as the Trustees
consider appropriate reduce the remaining assets to distributable form in cash
or shares or other property, or any combination thereof, and distribute the
proceeds to the Shareholders of the series involved, ratably according to the
number of Shares of such series held by the several Shareholders of such series
on the date of termination, except to the extent otherwise required
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<PAGE>
or permitted by the preferences and special or relative rights and privileges of
any classes of Shares of that series, provided that any distribution to the
Shareholders of a particular class of Shares shall be made to such Shareholders
pro rata in proportion to the number of Shares of such class held by each of
them.
Filing and Copies, References, Headings
Section 6. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of State of The
Commonwealth of Massachusetts and with the Clerk of the City of Boston, as well
as any other governmental office where such filing may from time to time be
required. Anyone dealing with the Trust may rely on a certificate by an officer
of the Trust as to whether or not any such amendments have been made and as to
any matters in connection with the Trust hereunder, and, with the same effect as
if it were the original, may rely on a copy certified by an officer of the Trust
to be a copy of this instrument or of any such amendments. In this instrument
and in any such amendment, references to this instrument and all expressions
like "herein", "hereof" and "hereunder" shall be deemed to refer to this
instrument as amended or affected by any such amendments. Headings are placed
herein for convenience of reference only and shall not be taken as a part hereof
or control or affect the meaning, construction or effect of this instrument.
This instrument may be executed in any number of counterparts each of which
shall be deemed an original.
Applicable Law
Section 7. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust and, without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Amendments
Section 8. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which in the determination of the Trustees shall
affect the holders of one or more series or classes of Shares but not the
holders of all outstanding series and classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each series
and class affected and no vote of Shareholders of a series or class not affected
shall be required. Amendments having the purpose of changing the name of the
Trust or of supplying any omission, curing any ambiguity or curing, correcting,
or supplementing any defective or inconsistent provision contained herein shall
not require authorization by Shareholder vote.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
in the City of Boston, Massachusetts for himself and his assigns, as of the day
and year first above written.
---------------------------
Joseph T. Turo, Jr.
One International Place
Boston, Massachusetts 02110
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston,
Then personally appeared the above named Joseph T. Turo, Jr. and
acknowledged the foregoing instrument to be his free act and deed, before me,
---------------------------
Notary Public
My Commission Expires:
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<PAGE>
Registered Agent
- -------------------
CT Corporation System
2 Oliver Street
Boston, MA 02109
Trust Address
- --------------
Suite 3700
One International Place
Boston, Massachusetts 02110
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Exhibit 2
BY-LAWS
OF
MENTOR VARIABLE INVESTMENT PORTFOLIOS
ARTICLE 1
Agreement and Declaration of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject
to the Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of the Massachusetts business trust established by
Mentor Variable Investment Portfolios (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust
shall be located in Richmond, Virginia.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held
without call or notice at such places and at such times as the Trustees may from
time to time determine, provided that notice of the first regular meeting
following any such determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held at
any time and at any place designated in the call of the meeting when called by
the Chairman of the Trustees, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Clerk or
an Assistant Clerk or by the officer or the Trustees calling the meeting.
2.3 Notice of Special Meetings. It shall be sufficient notice to a
Trustee of a special meeting to send notice by mail at least forty-eight hours
or by telegram at least twenty-four hours before the meeting addressed to the
Trustee at his or her usual or last known business or residence address or to
give notice to him or her in person or by telephone at least twenty-four hours
before the meeting. Notice of a special meeting need not be given to any Trustee
if a written waiver of notice, executed by him or her before or after the
meeting, is filed with the records of the meeting, or to any Trustee who attends
the meeting without protesting prior thereto or at its commencement the lack of
notice to him or her. Neither notice of a meeting nor a waiver of a notice need
specify the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees
then in office shall constitute a quorum. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
<PAGE>
quorum is present, and the meeting may be held as adjourned without further
notice.
2.5 Notice of Certain Actions by Consent. If in accordance with the
provisions of the Declaration of Trust any action is taken by the Trustees by
written consent of less than all of the Trustees, then prompt notice of any such
action shall be furnished to each Trustee who did not execute such written
consent, provided that the effectiveness of such action shall not be impaired by
any delay or failure to furnish such notice.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a
Chairman of the Trustees, a President, a Treasurer, a Clerk and such other
officers, if any, as the Trustees from time to time may in their discretion
elect. The Trust may also have such agents as the Trustees from time to time may
in their discretion appoint. The Chairman of the Trustees and the President
shall be a Trustee and may but need not be a shareholder; and any other officer
may but need not be a Trustee or a shareholder. Any two or more offices may be
held by the same person. A Trustee may but need not be a shareholder.
3.2 Election. The Chairman of the Trustees, the President, the
Treasurer and the Clerk shall be elected by the Trustees upon the occurrence of
any vacancy in any such office. Other officers, if any, may be elected or
appointed by the Trustees at any time. Vacancies in any such other office may be
filled at any time.
3.3 Tenure. The Chairman of the Trustees, the President, the Treasurer
and the Clerk shall hold office in each case until he or she dies, resigns, is
removed or becomes disqualified. Each other officer shall hold office and each
agent shall retain authority at the pleasure of the Trustees.
3.4 Powers. Subject to the other provisions of these By-Laws, each
officer shall have, in addition to the duties and powers herein and in the
Declaration of Trust set forth, such duties and powers as are commonly incident
to the office occupied by him or her as if the Trust were organized as a
Massachusetts business corporation and such other duties and powers as the
Trustees may from time to time designate.
3.5 Chairman; President. Unless the Trustees otherwise provide, the
Chairman of the Trustees or, if there is none or in the absence of the Chairman
of the Trustees, the President shall preside at all meetings of the shareholders
and of the Trustees. Unless the Trustees otherwise provide, the President shall
be the chief executive officer.
3.6 Treasurer. Unless the Trustees shall provide otherwise, the
Treasurer shall be the chief financial and accounting officer of the Trust, and
shall, subject to the provisions of the
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<PAGE>
Declaration of Trust and to any arrangement made by the Trustees with a
custodian, investment adviser or manager, or transfer, shareholder servicing or
similar agent, be in charge of the valuable papers, books of account and
accounting records of the Trust, and shall have such other duties and powers as
may be designated from time to time by the Trustees or by the President.
The chief accounting officer of the Trust shall be elected by the Trustees and
shall have tenure as provided in Paragraph 3.3 of these By-Laws.
3.7 Clerk. The Clerk shall record all proceedings of the shareholders
and the Trustees in books to be kept therefor, which books or a copy thereof
shall be kept at the principal office of the Trust. In the absence of the Clerk
from any meeting of the shareholders or Trustees, an Assistant Clerk, or if
there be none or if he or she is absent, a temporary Clerk chosen at such
meeting shall record the proceedings thereof in the aforesaid books.
3.8 Resignations and Removals. Any Trustee or officer may resign at any
time by written instrument signed by him or her and delivered to the Chairman of
the Trustees, the President or the Clerk or to a meeting of the Trustees. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time. The Trustees may remove any officer elected by them with or
without cause. Except to the extent expressly provided in a written agreement
with the Trust, no Trustee or officer resigning and no officer removed shall
have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.
ARTICLE 4
Committees
4.1 Quorum; Voting. A majority of the members of any Committee of the
Trustees shall constitute a quorum for the transaction of business, and any
action of such a Committee may be taken at a meeting by a vote of a majority of
the members present (a quorum being present) or evidenced by one or more
writings signed by such a majority. Members of a Committee may participate in a
meeting of such Committee by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time
and in the manner required by the Declaration of Trust or any applicable law.
Officers and Committees shall render such additional reports as they may deem
desirable or as may from time to time be required by the Trustees.
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<PAGE>
ARTICLE 6
Fiscal Year
6.1 General. Except as from time to time otherwise provided by the
Trustees, the initial fiscal year of the Trust shall end on such date as is
determined in advance or in arrears by the Treasurer, and subsequent fiscal
years shall end on such date in subsequent years.
ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die
with the word "Massachusetts", together with the name of the Trust and the year
of its organization cut or engraved thereon but, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and its absence
shall not impair the validity of, any document, instrument or other paper
executed and delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
contracts, notes and other obligations made by the Trustees shall be signed by
the President, Vice Chairman, a Vice President or the Treasurer and need not
bear the seal of the Trust.
ARTICLE 9
Issuance of Shares and Share Certificates
9.1 Sale of Shares. Except as otherwise determined by the Trustees, the
Trust will issue and sell for cash or securities from time to time full and
fractional shares of its shares of beneficial interest, such shares to be issued
and sold at a price of not less than the par value per share, if any, and not
less than the net asset value per share, if any, as from time to time determined
in accordance with the Declaration of Trust and these By-Laws and, in the case
of fractional shares, at a proportionate reduction in such price. In the case of
shares sold for securities, such securities shall be valued in accordance with
the provisions for determining the value of the assets of the Trust as stated in
the Declaration of Trust and these By-Laws. The officers of the Trust are
severally authorized to take all such actions as may be necessary or desirable
to carry out this Paragraph 9.1.
9.2 Share Certificates. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
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<PAGE>
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled to a certificate
stating the number of shares owned by him or her, in such form as shall be
prescribed from time to time by the Trustees. Such certificate shall be signed
by the President or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimile if the certificate is signed by a
transfer agent or by a registrar. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall cease to be such
officer before such certificate is issued, it may be issued by the Trust with
the same effect as if he or she were such officer at the time of its issue.
9.3 Loss of Certificates. The transfer agent of the Trust, with the
approval of any two officers of the Trust, is authorized to issue and
countersign replacement certificates for the shares of the Trust which have been
lost, stolen or destroyed upon (i) receipt of an affidavit or affidavits of loss
or non-receipt and of an indemnity agreement executed by the registered holder
or his or her legal representative and supported by an open penalty surety bond,
said agreement and said bond in all cases to be in form and content satisfactory
to and approved by the President or the Treasurer, or (ii) receipt of such other
documents as may be approved by the Trustees.
9.4 Issuance of New Certificate to Pledgee. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall express on its face that it is
held as collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder and entitled to vote
thereon.
9.5 Discontinuance of Issuance of Certificates. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of share certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the ownership
of shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
10.1 Certain Definitions. When used herein the following words shall
have the following meanings: "Distributor" shall mean any one or more
corporations, firms or associations which have distributor's or principal
underwriter's contracts in effect with the Trust. "Manager" shall mean any
corporation, firm or association which may at the time have an advisory or
management contract with the Trust.
10.2 Limitations on Dealings with Officers or Trustees. The Trust will
not lend any of its assets to the Distributor or Manager or to any officer or
director of the Distributor or Manager or any officer or Trustee of the Trust,
and shall not permit any officer or Trustee of the Trust or any officer or
director of the Distributor or Manager to deal for or on behalf of the Trust
with himself or herself as principal or agent, or with any partnership,
association or
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<PAGE>
corporation in which he or she has a financial interest; provided that the
foregoing provisions shall not prevent (a) officers and Trustees of the Trust or
officers and directors of the Distributor or Manager from buying, holding or
selling shares in the Trust or from being partners, officers or directors of or
otherwise financially interested in the Distributor or the Manager; (b)
purchases or sales of securities or other property if such transaction is
permitted by or is exempt or exempted from the provisions of the Investment
Company Act of 1940 or any Rule or Regulation thereunder, all as amended from
time to time, and if such transaction does not involve any commission or profit
to any security dealer who is, or one or more of whose partners, shareholders,
officers or directors is, an officer or Trustee of the Trust or an officer or
director of the Distributor or Manager; (c) employment of legal counsel,
registrar, transfer agent, shareholder servicing agent, dividend disbursing
agent, or custodian who is, or has a partner, shareholder, officer or director
who is, an officer or Trustee of the Trust or an officer or director of the
Distributor or Manager; and (d) sharing statistical, research, legal, and
management expenses and office hire and expenses with any other investment
company in which an officer or Trustee of the Trust or an officer or director of
the Distributor or Manager is an officer or director or otherwise financially
interested.
10.3 Securities and Cash of the Trust to be held by Custodian Subject
to Certain Terms and Conditions.
(a) All securities and cash owned by the Trust shall be held
by or deposited with one or more banks or trust companies having
(according to its last published report) not less than $5,000,000
aggregate capital, surplus and undivided profits (any such bank or
trust company being hereby designated as "Custodian"), provided such a
Custodian can be found ready and willing to act; subject to such rules,
regulations, and orders, if any, as the Securities and Exchange
Commission may adopt, the Trust may, or may permit any Custodian to,
deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities pursuant to which all
securities of any particular class or series of any issue deposited
within the system may be transferred or pledged by bookkeeping entry,
without physical delivery. The Custodian may appoint, subject to the
approval of the Trustees, one or more subcustodians.
(b) The Trust shall enter into a written contract with each
Custodian regarding the powers, duties, and compensation of such
Custodian with respect to the cash and securities of the Trust held by
such Custodian. Said contract and all amendments thereto shall be
approved by the Trustees.
(c) The Trust shall upon the resignation or inability to serve
of any Custodian or upon change of any Custodian:
(i) in case of such resignation or inability to
serve, use its best efforts to obtain a successor Custodian;
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<PAGE>
(ii) require that the cash and securities owned by
the Trust be delivered directly to the successor Custodian;
and
(iii) in the event that no successor Custodian can be
found, submit to the shareholders, before permitting delivery
of the cash and securities owned by the Trust otherwise than
to a successor Custodian, the question whether the Trust shall
be liquidated or shall function without a Custodian.
10.4 Reports to Shareholders. The Trust shall send to each shareholder
of record at least semi-annually a statement of the condition of the Trust and
of the results of its operations, containing all information required by
applicable laws or regulations.
10.5 Determination of Net Asset Value Per Share. Net asset value per
share of the Trust (or, if the Trust has more than one series of shares, of each
series of the Trust) shall mean: (i) the value of all the assets of such series;
(ii) less total liabilities of such series; (iii) divided by the number of
shares of such series outstanding, in each case at the time of each
determination. Except as otherwise determined by the Trustees, the net asset
value per share of the Trust (or of each series) shall be determined no less
frequently than once daily, Monday through Friday, on days on which the New York
Stock Exchange is open for trading, at such time or times that the Trustees set
at least annually.
In valuing the portfolio investments of the Trust (or of any series),
securities for which market quotations are readily available shall be valued at
prices which, in the opinion of the Trustees or the person designated by the
Trustees to make the determination, most nearly represent the market value of
such securities, and other securities and assets shall be valued at their fair
value as determined by or pursuant to the direction of the Trustees, which in
the case of debt obligations, commercial paper, and repurchase agreements may,
but need not, be on the basis of yields for securities of comparable maturity,
quality, and type, or on the basis of amortized cost. Expenses and liabilities
of the Trust shall be accrued each day. Liabilities may include such reserves
for taxes, estimated accrued expenses, and contingencies as the Trustees or
their designates may in their sole discretion deem fair and reasonable under the
circumstances. No accruals shall be made in respect of taxes on unrealized
appreciation of securities owned unless the Trustees shall otherwise determine.
ARTICLE 11
Shareholders
11.1 Meetings. A meeting of the shareholders shall be called by the
Clerk whenever ordered by the Trustees, the Chairman of the Trustees or
requested in writing by the holder or holders of at least one-tenth of the
outstanding shares entitled to vote at such meeting. If the Clerk, when so
ordered or requested, refuses or neglects for more than two days to call such
meeting, the Trustees, Chairman of the Trustees or the shareholders so
requesting may, in the
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<PAGE>
name of the Clerk, call the meeting by giving notice thereof in the manner
required when notice is given by the Clerk.
11.2 Access to Shareholder List. Shareholders of record may apply to
the Trustees for assistance in communicating with other shareholders for the
purpose of calling a meeting in order to vote upon the question of removal of a
Trustee. When ten or more shareholders of record who have been such for a least
six months preceding the date of application and who hold in the aggregate
shares having a net asset value of at least $25,000 so apply, the Trustees shall
within five business days either:
(i) afford to such applicants access to a list of names and
addresses of all shareholders as recorded on the books of the
Trust; or
(ii) inform such applicants of the approximate number of
shareholders of record and the approximate cost of mailing
material to them, and, within a reasonable time thereafter,
mail, at the applicants' expense, materials submitted by the
applicants, to all such shareholders of record. The Trustees
shall not be obligated to mail materials which they believe to
be misleading or in violation of applicable law.
11.3 Record Dates. For the purpose of determining the shareholders of
any series or class of shares of the Trust who are entitled to vote or act at
any meeting or any adjournment thereof, or who are entitled to receive payment
of any dividend or of any other distribution, the Trustees may from time to time
fix a time, which shall be not more than 90 days before the date of any meeting
of shareholders or more than 60 days before the date of payment of any dividend
or of any other distribution, as the record date for determining the
shareholders of such series or class having the right to notice of and to vote
at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only shareholders of record on such
record date shall have such right notwithstanding any transfer of shares on the
books of the Trust after the record date; or without fixing such record date the
Trustees may for any such purposes close the register or transfer books for all
or part of such period.
11.4 Proxies. The placing of a shareholder's name on a proxy pursuant
to telephone or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized by such shareholder shall constitute execution of such proxy by or on
behalf of such shareholder.
ARTICLE 12
Amendments to the By-Laws
12.1 General. Except as otherwise expressly stated herein, these
By-Laws may be amended or repealed, in whole or in part, by a majority of the
Trustees then in office at any meeting of the Trustees, or by one or more
writings signed by such a majority.
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Exhibit 4(A)
Portions of the Agreement and Declaration of
Trust Relating to Shareholders' Rights
**********
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in one or more
series as the Trustees may, without Shareholder approval, authorize. Each series
shall be preferred over all other series in respect of the assets allocated to
that series within the meaning of the 1940 Act and shall represent a separate
investment portfolio of the Trust. The beneficial interest in each series shall
at all times be divided into Shares, without par value, each of which shall,
except as provided in the following sentence, represent an equal proportionate
interest in the series with each other Share of the same series, none having
priority or preference over another. The Trustees may, without Shareholder
approval, divide the Shares of any series into two or more classes, Shares of
each such class having such preferences and special or relative rights and
privileges (including conversion rights, if any) as the Trustees may determine
and as shall be set forth in the By-Laws. The number of Shares authorized shall
be unlimited. The Trustees may from time to time divide or combine the Shares of
any series or class into a greater or lesser number without thereby changing the
proportionate beneficial interests in the series or class.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books of
the Trust or a transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent, as the case may be, shall be conclusive as to who are
the Shareholders of each series and class and as to the number of Shares of each
series and class held from time to time by each Shareholder.
**********
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust.
<PAGE>
Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal property giving only
the rights provided in this Declaration of Trust or the By-Laws. Every
Shareholder by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms of this Declaration of Trust and the
By-Laws and to have become a party thereto. The death of a Shareholder during
the continuance of the Trust shall not operate to terminate the same nor entitle
the representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or agent
of the Trust shall have any power to bind personally any Shareholder, nor except
as specifically provided herein to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder may
at any time personally agree to pay.
ARTICLE IV
The Trustees
Election; Removal
Section 1. A Trustee may be elected either by the Trustees or by the
Shareholders. The number of Trustees shall be fixed from time to time by the
Trustees and, at or after the sale of Shares pursuant to a public offering,
there shall be not less than three Trustees. Each Trustee elected by the
Trustees or the Shareholders shall serve until he or she retires, resigns, is
removed or dies or until the next meeting of Shareholders called for the purpose
of electing Trustees and until the election and qualification of his or her
successor. At any meeting called for the purpose, a Trustee may be removed by
vote of the holders of two-thirds of the outstanding Shares. The initial
Trustee, who shall serve until the first meeting of Shareholders at which
Trustees are elected and until his successor is elected and qualified, or until
he sooner dies, resigns or is removed, shall be Joseph T. Turo, Jr. and such
other persons as the Trustee or Trustees then in office shall, prior to any sale
of Shares pursuant to a public offering, appoint. By vote of a majority of the
Trustees then in office, the Trustees may remove a Trustee with or without
cause.
**********
Advisory, Management and Distribution
Section 6. Subject to a favorable Majority Shareholder Vote, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management
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<PAGE>
services with any corporation, trust, association or other organization (the
"Manager"), every such contract to comply with such requirements and
restrictions as may be set forth in the ByLaws; and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine, including, without limitation,
authority to determine from time to time what investments shall be purchased,
held, sold or exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's investments. The
Trustees may also, at any time and from time to time, contract with the Manager
or any other corporation, trust, association or other organization, appointing
it exclusive or nonexclusive distributor or principal underwriter for the
Shares, every such contract to comply with such requirements and restrictions as
may be set forth in the By-Laws; and any such contract may contain such other
terms interpretive of or in addition to said requirements and restrictions as
the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association, or other organization, or of or for
any parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's
contract, or transfer, Shareholder servicing or other agency contract
may have been or may hereafter be made, or that any organization, or
any parent or affiliate thereof, is a Shareholder or has an interest in
the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing or other
agency contract may have been or may hereafter be made also has an
advisory or management contract, or transfer, Shareholder servicing or
other agency contract with one or more other corporations, trusts,
associations, or other organizations, or has other business or
interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. Subject to the voting powers of one or more classes of
Shares as set forth elsewhere in this Declaration of Trust or in the Bylaws, the
Shareholders shall have power to vote only (i) for the election of Trustees as
provided in Article IV, Section 1, (ii) for the
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removal of Trustees as provided in Article IV, Section 1, (iii) with respect to
any Manager as provided in Article IV, Section 6, (iv) with respect to any
termination of this Trust to the extent and as provided in Article IX, Section
4, (v) with respect to any amendment of this Declaration of Trust to the extent
and as provided in Article IX, Section 7, (vi) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
and (vii) with respect to such additional matters relating to the Trust as may
be required by this Declaration of Trust, the Bylaws or any registration of the
Trust with the Securities and Exchange Commission (or any successor agency) or
any state, or as the Trustees may consider necessary or desirable. Each whole
Share outstanding on the record date established in accordance with the By-Laws
shall be entitled to one vote as to any matter on which it is entitled to vote
and each fractional Share shall be entitled to a proportionate fractional vote.
Notwithstanding any other provision of this Declaration of Trust, on any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall, except as otherwise provided in the By-Laws, be voted in the
aggregate as a single class without regard to series or classes of Shares,
except (1) when required by the 1940 Act or when the Trustees shall have
determined that the matter affects one or more series or classes materially
differently, Shares shall be voted by individual series or class; and (2) when
the Trustees have determined that the matter affects only the interests of one
or more series or classes, then only Shareholders of such series or classes
shall be entitled to vote thereon. There shall be no cumulative voting in the
election of Trustees.
Shares may be voted in person or by proxy. A proxy with respect to
Shares held in the name of two or more persons shall be valid if executed by any
one of them unless at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. The placing of a shareholder's name on a proxy
pursuant to telephone or electronically transmitted instructions obtained
pursuant to procedures reasonably designed to verify that such instructions have
been authorized by such shareholder shall constitute execution of such proxy by
or on behalf of such shareholder in writing. At all meetings of Shareholders,
unless inspectors of election have been appointed, all questions relating to the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the chairman of the meeting. Unless
otherwise specified in a proxy, the proxy shall apply to all Shares of each
series of the Trust owned by the Shareholder.
Until Shares of any series or class are issued, the Trustees may
exercise all rights of Shareholders and may take any action required by law,
this Declaration of Trust or the By-Laws to be taken by Shareholders as to such
series or class.
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<PAGE>
Voting Power and Meetings
Section 2. Meetings of Shareholders of any or all series or classes may
be called by the Trustees from time to time for the purpose of taking action
upon any matter requiring the vote or authority of the Shareholders of such
series or classes as herein provided or upon any other matter deemed by the
Trustees to be necessary or desirable. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees by mailing
such notice at least seven days before such meeting, postage prepaid, stating
the time, place and purpose of the meeting, to each Shareholder entitled to vote
at such meeting at the Shareholder's address as it appears on the records of the
Trust. If the Trustees shall fail to call or give notice of any meeting of
Shareholders for a period of 30 days after written application by Shareholders
holding at least 10% of the then outstanding Shares of all series and classes
entitled to vote at such meeting requesting a meeting to be called for a purpose
requiring action by the Shareholders as provided herein or in the By-Laws, then
Shareholders holding at least 10% of the then outstanding Shares of all series
and classes entitled to vote at such meeting may call and give notice of such
meeting, and thereupon the meeting shall be held in the manner provided for
herein in case of call thereof by the Trustees. Notice of a meeting need not be
given to any Shareholder if a written waiver of notice, executed by him or her
before or after the meeting, is filed with the records of the meeting, or to any
Shareholder who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her.
Quorum and Required Vote
Section 3. Thirty percent of Shares entitled to vote on a particular
matter shall be a quorum for the transaction of business on that matter at a
Shareholders' meeting, except that where any provision of law or of this
Declaration of Trust or the By-Laws requires that holders of any series or class
shall vote as an individual series or class, then thirty percent of the
aggregate number of Shares of that series or class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that series
or class. Any lesser number shall be sufficient for adjournments. Any adjourned
session or sessions may be held, within a reasonable time after the date set for
the original meeting, without the necessity of further notice. Except when a
larger vote is required by any provision of law or of this Declaration of Trust
or the By-Laws, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, provided that where any provision of law or of
this Declaration of Trust or the By-Laws requires that the holders of any series
or class shall vote as an individual series or class then a majority of the
Shares of that series or class voted on the matter (or a plurality with respect
to the election of a Trustee) shall decide that matter insofar as that series or
class is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without a
meeting if a majority of Shareholders entitled to vote on the matter (or such
larger proportion thereof as
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shall be required by any express provision of this Declaration of Trust or the
By-Laws) consent to the action in writing and such written consents are filed
with the records of the meetings of Shareholders. Such consent shall be treated
for all purposes as a vote taken at a meeting of Shareholders.
Additional Provisions
Section 5. The By-Laws may include further provisions in respect of
Shareholders' votes and meetings and related matters.
ARTICLE VI
Distributions, Redemptions and Repurchases
Distributions
Section 1. The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each series out of the assets of
such series such amounts as the Trustees may determine. Any such distribution to
the Shareholders of a particular series shall be made to said Shareholders pro
rata in proportion to the number of Shares of such series held by each of them,
except to the extent otherwise required or permitted by the preferences and
special or relative rights and privileges of any classes of Shares of that
Series, and any distribution to the Shareholders of a particular class of Shares
shall be made to such Shareholders pro rata in proportion to the number of
Shares of such class held by each of them. Such distributions shall be made in
cash, Shares or other property, or a combination thereof, as determined by the
Trustees. Any such distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with the By-Laws.
Redemptions and Repurchases
Section 2. The Trust shall purchase such Shares as are offered by any
Shareholder for redemption, upon the presentation of any certificate for the
Shares to be purchased, a proper instrument of transfer and a request directed
to the Trust or a person designated by the Trust that the Trust purchase such
Shares, or in accordance with such other procedures for redemption as the
Trustees may from time to time authorize; and the Trust will pay therefor the
net asset value thereof, as next determined in accordance with the By-Laws, less
any redemption charge fixed by the Trustees. Payment for said Shares shall be
made by the Trust to the Shareholder within seven days after the date on which
the request is made. The obligation set forth in this Section 2 is subject to
the provision that in the event that any time the New York Stock Exchange is
closed for other than customary weekends or holidays, or, if permitted by rules
of the Securities and Exchange Commission, during periods when trading on the
Exchange is restricted or during any emergency which makes it impractical for
the Trust to dispose of its investments or to determine fairly the value of its
net assets, or during any other period permitted by order of the Securities and
Exchange Commission for the protection of investors,
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<PAGE>
such obligation may be suspended or postponed by the Trustees. The Trust may
also purchase or repurchase Shares, in accordance with such other methods, upon
such other terms and subject to such other conditions as the Trustees may from
time to time authorize, at a price not exceeding the net asset value of such
Shares in effect when the purchase or repurchase or any contract to purchase or
repurchase is made.
**********
ARTICLE VIII
Indemnification
**********
Shareholders
Section 4. In case any Shareholder or former Shareholder shall be held
to be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representative or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.
ARTICLE IX
Miscellaneous
Trustees, Shareholders, etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or having
any claim against the Trust or a particular series of Shares shall look only to
the assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim, and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made
or issued by the Trustees or by any officer or officers shall give notice that
this Declaration of Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustee or Trustees or as
officer or officers and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust, and may contain such
further recital as he or she or they may deem
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appropriate, but the omission thereof shall not operate to bind any Trustee or
Trustees or officer or officers or Shareholder or Shareholders individually.
**********
Duration and Termination of Trust
Section 4. Unless terminated as provided herein, the Trust shall
continue without limitation of time. The Trust may be terminated at any time by
vote of Shareholders holding at least two-thirds of the Shares of each series
entitled to vote (provided, however, that if such termination is recommended by
two-thirds of the total number of Trustees then in office, the vote of a
majority of the Shares of each series entitled to vote shall be sufficient
authorization) or by the Trustees by written notice to the Shareholders. Any
series of Shares may be terminated at any time by vote of Shareholders holding
at least two-thirds of the Shares of such series entitled to vote (provided,
however, that if such termination is recommended by two-thirds of the total
number of Trustees then in office, the vote of a majority of the Shares of such
series entitled to vote shall be sufficient authorization) or by the Trustees by
written notice to the Shareholders of such series. Upon termination of the Trust
or of any one or more series of Shares, after paying or otherwise providing for
all charges, taxes, expenses and liabilities, whether due or accrued or
anticipated, of the Trust or of the particular series as may be determined by
the Trustees, the Trust shall in accordance with such procedures as the Trustees
consider appropriate reduce the remaining assets to distributable form in cash
or shares or other property, or any combination thereof, and distribute the
proceeds to the Shareholders of the series involved, ratably according to the
number of Shares of such series held by the several Shareholders of such series
on the date of termination, except to the extent otherwise required or permitted
by the preferences and special or relative rights and privileges of any classes
of Shares of that series, provided that any distribution to the Shareholders of
a particular class of Shares shall be made to such Shareholders pro rata in
proportion to the number of Shares of such class held by each of them.
**********
Amendments
Section 8. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which in the determination of the Trustees shall
affect the holders of one or more series or classes of Shares but not the
holders of all outstanding series and classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each series
and class affected and no vote of Shareholders of a series or class not affected
shall be required. Amendments having the purpose of changing the name of the
Trust or of supplying any omission, curing any ambiguity or curing, correcting,
or supplementing any defective or inconsistent provision contained herein shall
not require authorization by Shareholder vote.
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Exhibit 4(B)
Portions of the By-Laws Relating to Shareholders' Rights
**********
ARTICLE 9
Issuance of Shares and Share Certificates
9.1 Sale of Shares. Except as otherwise determined by the Trustees, the
Trust will issue and sell for cash or securities from time to time full and
fractional shares of its shares of beneficial interest, such shares to be issued
and sold at a price of not less than the par value per share, if any, and not
less than the net asset value per share, if any, as from time to time determined
in accordance with the Declaration of Trust and these By-Laws and, in the case
of fractional shares, at a proportionate reduction in such price. In the case of
shares sold for securities, such securities shall be valued in accordance with
the provisions for determining the value of the assets of the Trust as stated in
the Declaration of Trust and these By-Laws. The officers of the Trust are
severally authorized to take all such actions as may be necessary or desirable
to carry out this Paragraph 9.1.
9.2 Share Certificates. In lieu of issuing certificates for shares, the
Trustees or the transfer agent may either issue receipts therefor or may keep
accounts upon the books of the Trust for the record holders of such shares, who
shall in either case be deemed, for all purposes hereunder, to be the holders of
certificates for such shares as if they had accepted such certificates and shall
be held to have expressly assented and agreed to the terms hereof.
The Trustees may at any time authorize the issuance of share
certificates. In that event, each shareholder shall be entitled to a certificate
stating the number of shares owned by him or her, in such form as shall be
prescribed from time to time by the Trustees. Such certificate shall be signed
by the President or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimile if the certificate is signed by a
transfer agent or by a registrar. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall cease to be such
officer before such certificate is issued, it may be issued by the Trust with
the same effect as if he or she were such officer at the time of its issue.
9.3 Loss of Certificates. The transfer agent of the Trust, with the
approval of any two officers of the Trust, is authorized to issue and
countersign replacement certificates for the shares of the Trust which have been
lost, stolen or destroyed upon (i) receipt of an affidavit or affidavits of loss
or non-receipt and of an indemnity agreement executed by the registered holder
or his or her legal representative and supported by an open penalty surety bond,
said agreement and said bond in all cases to be in form and content satisfactory
to and approved by
<PAGE>
the President or the Treasurer, or (ii) receipt of such other documents as may
be approved by the Trustees.
9.4 Issuance of New Certificate to Pledgee. A pledgee of shares
transferred as collateral security shall be entitled to a new certificate if the
instrument of transfer substantially describes the debt or duty that is intended
to be secured thereby. Such new certificate shall express on its face that it is
held as collateral security, and the name of the pledgor shall be stated
thereon, who alone shall be liable as a shareholder and entitled to vote
thereon.
9.5 Discontinuance of Issuance of Certificates. The Trustees may at any
time discontinue the issuance of share certificates and may, by written notice
to each shareholder, require the surrender of share certificates to the Trust
for cancellation. Such surrender and cancellation shall not affect the ownership
of shares in the Trust.
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
**********
10.4 Reports to Shareholders. The Trust shall send to each shareholder
of record at least semi-annually a statement of the condition of the Trust and
of the results of its operations, containing all information required by
applicable laws or regulations.
10.5 Determination of Net Asset Value Per Share. Net asset value per
share of the Trust (or, if the Trust has more than one series of shares, of each
series of the Trust) shall mean: (i) the value of all the assets of such series;
(ii) less total liabilities of such series; (iii) divided by the number of
shares of such series outstanding, in each case at the time of each
determination. Except as otherwise determined by the Trustees, the net asset
value per share of the Trust (or of each series) shall be determined no less
frequently than once daily, Monday through Friday, on days on which the New York
Stock Exchange is open for trading, at such time or times that the Trustees set
at least annually.
In valuing the portfolio investments of the Trust (or of any series),
securities for which market quotations are readily available shall be valued at
prices which, in the opinion of the Trustees or the person designated by the
Trustees to make the determination, most nearly represent the market value of
such securities, and other securities and assets shall be valued at their fair
value as determined by or pursuant to the direction of the Trustees, which in
the case of debt obligations, commercial paper, and repurchase agreements may,
but need not, be on the basis of yields for securities of comparable maturity,
quality, and type, or on the basis of amortized cost. Expenses and liabilities
of the Trust shall be accrued each day. Liabilities may include such reserves
for taxes, estimated accrued expenses, and contingencies as the Trustees or
their designates may in their sole discretion deem fair and reasonable under the
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circumstances. No accruals shall be made in respect of taxes on unrealized
appreciation of securities owned unless the Trustees shall otherwise determine.
ARTICLE 11
Shareholders
11.1 Meetings. A meeting of the shareholders shall be called by the
Clerk whenever ordered by the Trustees, the Chairman of the Trustees or
requested in writing by the holder or holders of at least one-tenth of the
outstanding shares entitled to vote at such meeting. If the Clerk, when so
ordered or requested, refuses or neglects for more than two days to call such
meeting, the Trustees, Chairman of the Trustees or the shareholders so
requesting may, in the name of the Clerk, call the meeting by giving notice
thereof in the manner required when notice is given by the Clerk.
11.2 Access to Shareholder List. Shareholders of record may apply to
the Trustees for assistance in communicating with other shareholders for the
purpose of calling a meeting in order to vote upon the question of removal of a
Trustee. When ten or more shareholders of record who have been such for a least
six months preceding the date of application and who hold in the aggregate
shares having a net asset value of at least $25,000 so apply, the Trustees shall
within five business days either:
(i) afford to such applicants access to a list of names and
addresses of all shareholders as recorded on the books of the
Trust; or
(ii) inform such applicants of the approximate number of
shareholders of record and the approximate cost of mailing
material to them, and, within a reasonable time thereafter,
mail, at the applicants' expense, materials submitted by the
applicants, to all such shareholders of record. The Trustees
shall not be obligated to mail materials which they believe to
be misleading or in violation of applicable law.
11.3 Record Dates. For the purpose of determining the shareholders of
any series or class of shares of the Trust who are entitled to vote or act at
any meeting or any adjournment thereof, or who are entitled to receive payment
of any dividend or of any other distribution, the Trustees may from time to time
fix a time, which shall be not more than 90 days before the date of any meeting
of shareholders or more than 60 days before the date of payment of any dividend
or of any other distribution, as the record date for determining the
shareholders of such series or class having the right to notice of and to vote
at such meeting and any adjournment thereof or the right to receive such
dividend or distribution, and in such case only shareholders of record on such
record date shall have such right notwithstanding any transfer of shares on the
books of the Trust after the record date; or without fixing such record date the
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Trustees may for any such purposes close the register or transfer books for all
or part of such period.
11.4 Proxies. The placing of a shareholder's name on a proxy pursuant
to telephone or electronically transmitted instructions obtained pursuant to
procedures reasonably designed to verify that such instructions have been
authorized by such shareholder shall constitute execution of such proxy by or on
behalf of such shareholder.
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