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As filed pursuant to Rule 497
Registration No. 333-24349
PROSPECTUS
INTERNATIONAL VIP PORTFOLIO
[HOTCHKIS & WILEY LOGO]
THE INTERNATIONAL VIP PORTFOLIO (THE "FUND") IS ONE OF THE PORTFOLIOS OF
HOTCHKIS AND WILEY VARIABLE TRUST (THE "TRUST"), AN OPEN-END, MANAGEMENT
INVESTMENT COMPANY. THE FUND IS AN INVESTMENT VEHICLE FOR VARIABLE ANNUITY
CONTRACTS AND/OR VARIABLE LIFE INSURANCE CONTRACTS ISSUED BY PARTICIPATING
INSURANCE COMPANIES.
The Fund seeks to provide current income and long-term growth of income,
accompanied by growth of capital. The Fund invests in international equity
securities.
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This Prospectus provides the basic information an investor should know before
investing in the Fund. Please read it and keep it for future reference. A
Statement of Additional Information dated February 1 , 1998, containing
additional information about the Trust and the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference in its
entirety into this Prospectus. Separate accounts of participating insurance
companies may obtain a copy of the Statement of Additional Information without
charge by writing the Trust at 800 West Sixth Street, Fifth Floor, Los Angeles,
California 90017.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT IN THE
FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
SHARES OF THE FUND ARE NOT OFFERED TO THE GENERAL PUBLIC BUT MAY ONLY BE
PURCHASED BY THE SEPARATE ACCOUNTS OF PARTICIPATING INSURANCE COMPANIES FOR THE
PURPOSE OF FUNDING VARIABLE ANNUITY CONTRACTS AND/OR VARIABLE LIFE INSURANCE
CONTRACTS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
There can be no assurance that the investment objective of the Fund will be
achieved.
HOTCHKIS AND WILEY VARIABLE TRUST
800 West 6th Street, Fifth Floor, Los Angeles, California 90017
Investment Advisor: Hotchkis and Wiley
Distributor: Merrill Lynch Funds Distributor, Inc.
FEBRUARY 1, 1998, REVISED MAY 15, 1998
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TABLE OF CONTENTS
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<TABLE>
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INVESTMENT OBJECTIVE AND POLICIES...................... 3
SECURITIES AND TECHNIQUES USED BY THE FUND............. 4
INVESTMENT RISKS....................................... 7
PRINCIPAL INVESTMENT RESTRICTIONS...................... 8
ORGANIZATION AND MANAGEMENT............................ 8
PURCHASE AND REDEMPTION OF SHARES...................... 10
DIVIDENDS AND TAX STATUS............................... 11
NET ASSET VALUE........................................ 12
PERFORMANCE INFORMATION................................ 12
GENERAL INFORMATION.................................... 13
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INVESTMENT OBJECTIVE AND POLICIES
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GENERAL
The Fund's investment objective is a fundamental policy, which cannot be changed
without the approval of a majority of the Fund's outstanding voting securities,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act").
There can be no assurance that its objective will be met. For a discussion of
certain risks associated with investment in the Fund, including the use of
derivatives, see "Investment Risks" on page 7.
HOTCHKIS AND WILEY, a division of the Merrill Lynch Capital Management Group of
Merrill Lynch Asset Management, L.P. (the "Advisor"), acts as investment advisor
to the Fund.
The investment objective of the Fund is to provide current income and long-term
growth of income, accompanied by growth of capital. The Fund will attempt to
achieve its objective by investing at least 65% of its total assets in equity
securities in at least three non-U.S. markets. Ordinarily, the Fund will invest
in equity securities issued by companies located in some or all of the developed
foreign equity markets. These markets generally include 15 markets in Europe as
well as Australia, New Zealand, Japan, Hong Kong, Singapore, Malaysia, Canada
and South Korea. There are risks associated with investment in foreign
securities, as described under "Investment Risks -- Risks of Investing in
Foreign Securities" on page 7.
In selecting investments for the Fund, the Advisor focuses on securities that it
believes have superior values. The Advisor will generally seek equity securities
of companies in each country that have such characteristics as dividend yield
greater than the local market average; earnings yield at least three percentage
points greater than the country's 10-year government bond yield (or low
price-to-earnings ratios relative to the local market), and financial strength.
Under normal market conditions, the Fund will invest at least 80% of its total
assets in income-producing equity securities issued by companies with a record
of earnings and dividends. The remainder of its portfolio may be invested in
securities of companies which pay no dividends or interest, but have potential
for growth unrecognized by the market or changes in business or management that
indicate possible growth. The Fund will not invest in foreign fixed-income
securities with a maturity in excess of one year.
The equity securities that the Fund may purchase consist of common stocks or
securities having characteristics of common stocks, such as convertible
preferred stocks, convertible debt securities or warrants. Any such convertible
securities will be securities of an issuer having an outstanding issue of debt
securities rated at least A by Moody's Investors Service or Standard & Poor's
Ratings Group or, if unrated, be of comparable quality in the opinion of the
Advisor.
For liquidity purposes and pending investment of cash receipts, the Fund may
invest in short-term investment grade debt securities of the U.S. Government,
its agencies and instrumentalities, bank certificates of deposit, bankers'
acceptances, high quality commercial paper, demand notes and repurchase
agreements.
When adverse market or economic conditions indicate to the Advisor that a
temporary defensive strategy is appropriate, the Fund may invest all or part of
its assets in short-term investment grade debt obligations.
The Fund may purchase foreign currency options or enter into forward foreign
currency exchange contracts for the purpose of hedging against the effect that
currency fluctuations will have on the value of Fund assets or liabilities. See
"Securities and Techniques Used by the Fund -- Derivative Instruments" on page
5.
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SECURITIES AND TECHNIQUES USED BY THE FUND
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The following provides a summary of the securities and techniques used by the
Fund. The Statement of Additional Information contains more detailed information
about these investments and the risks associated with them.
FOREIGN SECURITIES
The Fund invests in foreign securities. Foreign economies may differ from the
U.S. economy; individual foreign companies may differ from domestic companies in
the same industry; and foreign currencies may be stronger or weaker than the
U.S. dollar. The Advisor believes that investing abroad will enable the Fund to
take advantage of these differences when they are favorable.
Fixed-income securities that may be purchased by the Fund include debt
obligations issued or guaranteed by foreign governments, their subdivisions,
agencies or instrumentalities, or by supranational entities that have been
constituted by the governments of several countries to promote economic
development, such as The World Bank and The Asian Development Bank. Foreign
investment in certain foreign government debt is restricted or controlled to
varying degrees.
There are risks in investing in foreign securities. See "Investment
Risks -- Risks of Investing in Foreign Securities" on page 7.
CORPORATE AND OTHER OBLIGATIONS
The Fund may invest in investment grade corporate debt securities, variable and
floating rate debt securities and corporate commercial paper. Floating rate
securities normally have a rate of interest which is set as a specific
percentage of a designated base rate, such as the rate on Treasury bonds or
bills or the prime rate at a major commercial bank. The interest rate on
floating rate securities changes periodically when there is a change in the
designated base rate. Variable rate securities provide for a specified periodic
adjustment in the interest rate based on prevailing market rates.
U.S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government securities. U.S. Government securities
include direct obligations issued by the United States Treasury, such as
Treasury bills, certificates of indebtedness, notes, bonds and component parts
of notes or bonds (including the principal of such obligations or the interest
payments scheduled to be paid on such obligations). U.S. Government agencies and
instrumentalities that issue or guarantee securities include, but are not
limited to, the Federal National Mortgage Association ("FNMA"), Government
National Mortgage Association ("GNMA"), Federal Home Loan Banks, Federal
Financing Bank, and Student Loan Marketing Association.
All Treasury securities are backed by the full faith and credit of the United
States. Obligations of U.S. Government agencies and instrumentalities may or may
not be supported by the full faith and credit of the United States. Some, such
as the Federal Home Loan Banks, are backed by the right of the agency or
instrumentality to borrow from the Treasury. Others, such as securities issued
by FNMA, are supported only by the credit of the instrumentality and not by the
Treasury. If the securities are not backed by the full faith and credit of the
United States, the owner of the securities must look principally to the agency
issuing the obligation for repayment and may not be able to assert a claim
against the United States in the event that the agency or instrumentality does
not meet its commitment.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements involving U.S. Government
securities with commercial banks or broker-dealers, whereby the seller of a
security agrees to repurchase the security on an agreed-upon date in the future.
While the Fund intends to be fully "collateralized" as to such agreements, and
the collateral will be marked to market daily, if the person obligated to
repurchase from the Fund defaults, there may be possible delays and expenses in
liquidating the securities
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subject to the repurchase agreement, a decline in their value and loss of
interest.
BORROWING
As a fundamental policy, the Fund may borrow money, but only from banks for
temporary or emergency purposes in amounts not exceeding 10% of the Fund's total
assets. This borrowing may be unsecured. The 1940 Act requires the Fund to
maintain continuous asset coverage (that is, total assets including borrowings,
less liabilities exclusive of borrowings) of 300% of the amount borrowed.
Borrowing subjects the Fund to interest costs which may or may not be recovered
by appreciation of the securities purchased, and can exaggerate the effect on
net asset value of any increase or decrease in the market value of the Fund's
portfolio. This is the speculative factor known as leverage.
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a when-issued or delayed-delivery basis,
generally in connection with an underwriting or other offering. When-issued and
delayed-delivery transactions occur when securities are bought with payment for
and delivery of the securities scheduled to take place at a future time, beyond
normal settlement dates, generally from 15 to 45 days after the transaction. The
price that the Fund is obligated to pay on the settlement date may be different
from the market value on that date. While securities may be sold prior to the
settlement date, the Fund intends to purchase such securities with the purpose
of actually acquiring them, unless a sale would be desirable for investment
reasons. At the time the Fund makes a commitment to purchase a security on a
when-issued basis, it will record the transaction and reflect the value of the
security each day in determining the Fund's net asset value. The Fund will also
segregate with its custodian cash, U.S. Government securities, equity securities
or other liquid, unencumbered assets, marked-to-market daily, equal in value to
its obligations for when-issued securities.
SHORT SALES AGAINST-THE-BOX
The Fund may make short sales of securities (i.e., sales of securities the Fund
does not own) or maintain a short position only if (i) at all times when the
short position is open, the Fund owns an equal amount of such securities or
securities convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount to, the
securities sold short (a short sale "against-the-box") and (ii) not more than
25% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time.
REAL ESTATE INVESTMENT TRUSTS
The Fund may invest in securities of real estate investment trusts or REITs.
Unlike corporations, REITs do not have to pay income taxes if they meet certain
Internal Revenue Code requirements. To qualify, a REIT must distribute at least
95% of its taxable income to its shareholders and receive at least 75% of that
income from rents, mortgages and sales of property. REITs offer investors
greater liquidity and diversification than direct ownership of a handful of
properties, as well as greater income potential than an investment in common
stocks. Like any investment in real estate, though, a REIT's performance depends
on several factors, such as its ability to find tenants for its properties, to
renew leases and to finance property purchases and renovations.
DERIVATIVE INSTRUMENTS
The Fund may utilize certain financial instruments whose performance is derived
from the performance of an underlying asset ("derivatives"). The Fund may
purchase and write call and put options on securities, securities indexes and on
foreign currencies, and enter into futures contracts and use options on futures
contracts. The Fund also may enter into swap agreements with other institutional
investors with respect to foreign currencies, interest rates and securities
indexes. The Fund may use these techniques to hedge against changes in interest
rates, foreign currency exchange rates or securities prices or as part of their
overall investment strategies. The Fund will segregate cash, U.S. Government
securities, equity securities or other liquid, unencumbered assets,
marked-to-market daily (or, as permitted by applicable regulation, enter into
certain offsetting positions), to cover its obligations under
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options, futures contracts and swap agreements to avoid leveraging of the Fund.
See "Investment Risks -- Risks of Using Certain Derivatives" on page 7.
The Fund may buy or sell interest rate futures contracts, options on interest
rate futures contracts and options on debt securities for the purpose of hedging
against changes in the value of securities which the Fund owns or anticipates
purchasing due to anticipated changes in interest rates. The Fund also may
engage in currency exchange transactions by means of buying or selling foreign
currency on a spot basis, entering into forward foreign currency exchange
contracts, and buying and selling foreign currency options, futures and options
on futures. Foreign currency exchange transactions may be entered into for the
purpose of hedging against foreign currency exchange risk arising from the
Fund's investment or anticipated investment in securities denominated in foreign
currencies. The Fund will not enter into futures contracts or options thereon
for non-hedging purposes if, immediately thereafter, the aggregate initial
margin deposits on the Fund's futures positions and premiums paid for options
thereon would exceed 5% of the market value of the Fund's total assets. There is
no other percentage limitation on the Fund's use of options, futures and options
thereon, except for the limitation on foreign currency option contracts
described below.
Also, the Fund may enter into interest rate, index and currency exchange rate
swap agreements for the purpose of attempting to obtain a particular desired
return at a lower cost to the Fund than if the Fund had invested directly in an
instrument that yielded that desired return. In a standard swap agreement, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on a particular predetermined investment or investments. Swap
agreements are subject to the Fund's overall limit that no more than 15% of net
assets may be invested in illiquid securities, and the Fund will not enter into
a swap agreement with any single party if the net amount owed or to be received
under existing contracts with that party would exceed 5% of the Fund's assets.
The Fund may purchase foreign currency options or enter into forward foreign
currency exchange contracts for the purpose of hedging against the effect that
currency fluctuations will have on the value of Fund liabilities, such as known
or expected redemptions or the payment of any declared dividends. The Fund will
not enter into foreign currency option contracts if the premiums on such options
exceed 5% of the Fund's total assets. See "Investment Objectives and Policies --
Derivative Instruments" in the Statement of Additional Information.
STATE INSURANCE REGULATION
The Fund provides an investment vehicle for variable annuity contracts and
variable life insurance policies to be offered by the separate accounts of
participating life insurance companies ("Participating Insurance Companies").
Certain states have regulations concerning concentration of investments and
purchase and sale of futures contracts, among other techniques. If these
regulations are applied to the Fund, the Fund may be limited in its ability to
engage in such techniques and to manage its investments with the flexibility
provided herein. It is the Fund's intention to operate in material compliance
with current insurance laws and regulations, as applied in each jurisdiction in
which contracts or policies of separate accounts of Participating Insurance
Companies are offered.
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INVESTMENT RISKS
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The investment practices described above involve certain risks. The net asset
value of the Fund may increase or decrease for many reasons. These include
changes in the market prices of portfolio securities. This means an investor's
shares may be worth more or less at redemption than at the time of purchase. The
following provides a summary of the more significant risks associated with
investing in the Fund. The Statement of Additional Information contains more
detailed information about these investments and the risks that are associated
with them.
RISKS OF INVESTING IN FOREIGN SECURITIES
Investments in foreign securities involve certain risk considerations not
typically associated with investing in securities of U.S. issuers, including:
(i) currency devaluations and other currency exchange rate fluctuations; (ii)
political uncertainty and instability; (iii) more substantial government
involvement in the economy; (iv) higher rates of inflation; (v) less government
supervision and regulation of the securities markets and participants in those
markets; (vi) controls on foreign investment and limitations on repatriation of
invested capital and on the Fund's ability to exchange local currencies for U.S.
dollars; (vii) greater price volatility; (viii) substantially less liquidity and
significantly smaller capitalization of securities markets; (ix) absence of
uniform accounting and auditing standards; (x) generally higher commission
expenses; (xi) delay in settlement of securities transactions; and (xii) greater
difficulty in enforcing shareholder rights and remedies.
RISKS OF INVESTING IN FIXED-INCOME SECURITIES
Fixed-income securities are subject primarily to interest rate and credit risk.
Interest rate risk is the potential for a decline in bond prices due to rising
interest rates. In general, bond prices vary inversely with interest rates. The
change in bond price depends on several factors, including the bond's maturity
date. In general, bonds with longer maturities are more sensitive to changes in
interest rates than bonds with shorter maturities. Credit risk is the
possibility that a bond issuer will fail to make timely payments of interest or
principal to the Fund.
RISKS OF USING CERTAIN DERIVATIVES
Participation in the options or futures markets involves investment risks and
transaction costs to which the Fund would not be subject absent the use of these
strategies. If the Advisor's predictions of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategies were not
used. Risks inherent in the use of options, futures contracts and options on
futures contracts include: (i) dependence on the Advisor's ability to predict
correctly movements in the direction of interest rates and securities prices;
(ii) imperfect correlation between the price of options and futures contracts
and options thereon and movements in the prices of the securities being hedged;
(iii) the fact that skills needed to use these strategies are different from
those needed to select portfolio securities; (iv) the absence of a liquid
secondary market for any particular instrument at any time; (v) the possible
need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (vi) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell the security at a disadvantageous
time, due to the requirement that the Fund maintain "cover" or segregate
securities in connection with hedging transactions. The loss from investing in
futures transactions is potentially unlimited. There also is no assurance that a
liquid secondary market will exist for futures contracts and options thereon in
which the Fund may invest. See "Investment Objectives and Policies -- Derivative
Instruments" in the Statement of Additional Information.
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PRINCIPAL INVESTMENT RESTRICTIONS
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The Fund is subject to certain investment restrictions which are fundamental
policies. Fundamental policies are those that cannot be changed without the
approval of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting securities. The Fund's investment objective is a fundamental policy.
Among its restrictions, the Fund may not: (i) with respect to 75% of its total
assets, invest more than 5% of its total assets (determined at the time of
investment) in securities of any one issuer (other than U.S. Government
securities); (ii) with respect to 75% of its total assets, purchase more than
10% of the outstanding voting securities of any one issuer; or (iii) invest more
than 25% of its total assets (determined at the time of investment) in one or
more issuers having their principal business activities in a single industry.
Additional information about the Fund's investment restrictions is contained in
the Statement of Additional Information. It is the position of the Securities
and Exchange Commission that open-end investment companies such as the Fund
should not make certain investments if thereafter more than 15% of the value of
their net assets would be invested in illiquid securities. As a matter of
operating policy (though not a fundamental policy), the Fund limits such
investments to no more than 15% of the value of its net assets. The investments
in this 15% limit include: (i) those which are restricted, i.e., those which
cannot freely be sold for legal or contractual reasons; (ii) fixed time deposits
subject to withdrawal penalties (other than overnight deposits); and (iii)
repurchase agreements having a maturity of more than seven days. The 15%
limitation does not include obligations which are payable at principal amount
plus accrued interest within seven days after purchase.
ORGANIZATION AND MANAGEMENT
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ORGANIZATION AND VOTING RIGHTS
The Fund is a diversified series of Hotchkis and Wiley Variable Trust (the
"Trust"), an open-end, management investment company organized as a
Massachusetts business trust on February 4, 1997. The Trust's Board of Trustees
decides on matters of general policy and reviews the activities of the Advisor,
and the Trust's officers conduct and supervise the daily business operations of
the Trust. The Fund is one of four series that have been established. Each
series of shares has separate assets and liabilities. The Board of Trustees may,
at its own discretion, create additional series of shares and classes within
series.
Generally, the Trust will not hold an annual meeting of shareholders unless
required by the 1940 Act. Shareholders have one vote per share owned. Matters
submitted to shareholders of the Fund must be approved by a majority of the
outstanding securities of the Fund. At the request of the holders of at least
10% of the shares, the Trust will hold a meeting to vote on the removal of a
Trustee, which can occur by a vote of a majority of the outstanding shares. Ten
shareholders holding the lesser of $25,000 worth or one percent of the Trust's
shares may advise the Trustees in writing that they wish to communicate with
other shareholders for the purpose of requesting a meeting to remove a Trustee.
The Trustees will then, if requested by the applicants, mail at the applicants'
expense the applicants' communications to all other shareholders.
The rights accompanying Fund shares are legally vested in the separate accounts.
However, in accordance with current law and interpretations thereof,
Participating Insurance Companies will vote shares held in the separate accounts
in a manner consistent with timely voting instructions received from the holders
of variable annuity contracts and variable life insurance policies. Each
Participating Insurance Company will vote Fund shares held in separate accounts
for which no timely instructions are received from the holders of variable
annuity contracts and variable life insurance policies, as
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well as shares it owns, in the same proportion as those shares for which voting
instructions are received. For a further discussion, please refer to the
insurance company's separate account prospectus.
THE INVESTMENT ADVISOR
HOTCHKIS AND WILEY, located at 800 West 6th Street, Los Angeles, California
90017, acts as investment advisor to the Fund and generally administers the
affairs of the Trust. The Advisor is a division of the Merrill Lynch Capital
Management Group of Merrill Lynch Asset Management, L.P., and a separate
business unit of Merrill Lynch & Co., Inc., a financial services holding company
incorporated in Delaware. Subject to the direction and control of the Board of
Trustees, the Advisor supervises and arranges the purchase and sale of
securities held in the portfolio of the Fund.
For its services, the Advisor is paid a fee, computed daily and payable monthly,
at an annual rate of 0.75% of the Fund's average daily net assets. This fee is
higher than that paid by most mutual funds, but does not reflect the
reimbursement of certain of the Fund's expenses as described below.
In addition to the fee payable to the Advisor, the Fund is responsible for its
operating expenses including: (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and expenses of the
Trust's Trustees other than those affiliated with the Advisor; (v) legal and
audit expenses; (vi) fees and expenses of the Fund's custodian and any
subcustodian, shareholder servicing or transfer agent and accounting services
agent; (vii) expenses incident to the issuance of its shares, including issuance
on the payment of, or reinvestment of, dividends; (viii) fees and expenses
incident to the registration under federal or state securities laws of the Trust
or its shares; (ix) expenses of preparing, printing and mailing reports and
notices and proxy material to shareholders of the Trust; (x) all other expenses
incident to holding meetings of the Trust's shareholders; (xi) dues or
assessments of or contributions to the Investment Company Institute or any
successor; and (xii) such non-recurring expenses as may arise, including
litigation affecting the Trust and the legal obligations which the Trust may
have to indemnify its officers and Trustees with respect thereto.
Although not required to do so, the Advisor has agreed to reimburse the Fund to
the extent necessary so that its regular annual operating expenses will not
exceed 1.35% of the Fund's average daily net assets. The Advisor will give
shareholders at least 30 days' notice of any decision to change this
reimbursement policy.
THE DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc., 800 Scudders Mill Road, Plainsboro, New
Jersey 08536, is the Fund's distributor.
THE ADMINISTRATOR
Firstar Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin 53202,
serves as administrator to the Trust pursuant to a Fund Administration Servicing
Agreement.
PORTFOLIO MANAGERS
The portfolio managers have responsibility for the day-to-day management of the
Fund's portfolio. The current portfolio managers of the Fund are Sarah Ketterer,
Harry Hartford and David Chambers. Ms. Ketterer is a managing director of the
Advisor. Prior to joining the Advisor, Ms. Ketterer was with Bankers Trust
Company as an Associate from 1987 to 1990 and a Financial Analyst with Dean
Witter Reynolds from 1983 to 1985. Prior to joining the Advisor, Mr. Hartford
was with the Investment Bank of Ireland as a Senior Manager, International and
Global Equities, from 1985 to 1994. Prior to joining the Advisor, Mr. Chambers
was with Baring Asset Management, Inc. as Senior Vice President, Global Equities
from 1992 to 1995 and Baring Brothers, London, England as Assistant Director,
Corporate Finance from 1990 to 1991. Ms. Ketterer and Messrs. Hartford and
Chambers have served as portfolio managers to the Fund since it commenced
investment operations in March 1998.
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PURCHASE AND REDEMPTION OF SHARES
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Investors may not purchase or redeem shares of the Fund directly, but only
through variable annuity contracts and variable life insurance policies offered
through the separate accounts of Participating Insurance Companies. Investors
should refer to the prospectus of the Participating Insurance Company's separate
account for information on how to purchase a variable annuity contract or
variable life insurance policy, how to select the Fund as an investment option
for the applicable contract or policy and how to redeem monies from the
applicable contract or policy.
The separate accounts of the Participating Insurance Companies place orders to
purchase and redeem shares of the Fund based on, among other things, the amount
of premium payments to be invested and the amount of surrender and transfer
requests (as defined in the prospectus describing the variable annuity contracts
and variable life insurance policies issued by the Participating Insurance
Companies) to be effected on that day pursuant to variable annuity contracts and
variable life insurance policies. Orders received by the Fund are effected on
business days only. Orders for the purchase of shares of the Fund are effected
at the net asset value per share next calculated after an order is received in
proper form by the Fund or its designee so long as payment for the shares is
received by the next business day. Redemptions are effected at the net asset
value per share next calculated after receipt in proper form of a redemption
request by the Fund or its designee. For purposes of the purchase and redemption
of shares of the Fund, the separate account of a Participating Insurance Company
shall be a designee of the Fund for receipt of requests for purchase and
redemption, and receipt by such designee shall constitute receipt by the Fund,
provided that the Fund receives notice of such requests in accordance with
applicable requirements on the next following business day. Separate accounts
must transmit purchase and redemption orders promptly. Payment for redemptions
will be made by the Fund within seven days after the request is received. The
Fund may suspend the right of redemption under certain extraordinary
circumstances in accordance with the rules of the Securities and Exchange
Commission.
The Fund does not assess any sales charges or redemption fees. Mortality and
expense risk fees and other charges may be assessed by Participating Insurance
Companies under the variable annuity contracts or variable life insurance
policies. The Participating Insurance Companies are required to describe these
fees in the prospectuses for the contracts or policies.
Shares of the Fund may be sold to and held by separate accounts that fund
variable annuity and variable life insurance contracts issued by Participating
Insurance Companies. The Fund currently does not foresee any disadvantages to
the holders of variable annuity contracts and variable life insurance policies
of Participating Insurance Companies arising from the fact that interests of the
holders of variable annuity contracts and variable life insurance policies may
differ due to differences of tax treatment or other considerations or due to
conflicts between the Participating Insurance Companies. Nevertheless, the
Trustees will monitor events to seek 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. Should a material irreconcilable
conflict arise between the holders of variable annuity contracts and variable
life insurance policies of Participating Insurance Companies, the Participating
Insurance Companies may be required to withdraw the assets allocable to some or
all of the separate accounts from the Fund. Any such withdrawal could disrupt
orderly portfolio management to the potential detriment of such holders. The
variable annuity contracts and variable life insurance policies are described in
the separate prospectuses issued by the Participating Insurance Companies. The
Fund assumes no responsibility for such prospectuses.
Certain recordkeeping and administrative services that would otherwise be
performed by the transfer agent may be performed by a Participating Insurance
Company for which the Advisor may make payments out of its own resources.
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DIVIDENDS AND TAX STATUS
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The discussion of the federal income taxation of the Fund and its distributions
is for general information only. Purchasers of variable annuity contracts or
variable life insurance policies issued by Participating Insurance Companies
should refer to the prospectuses of those contracts or policies for additional
tax information.
The Fund expects to pay income dividends semi-annually. Distributions from net
realized short-term gains, if any, and distributions from any net capital gains
(i.e., the excess of net long-term capital gains over net short-term capital
losses) realized through October 31st of each year and not previously paid out
will be paid out after that date; the Fund may also pay supplemental
distributions after the end of the Trust's fiscal year. Dividends and
distributions are paid in full and fractional shares of the Fund based on the
net asset value per share at the close of business on the record date, unless
the shareholder requests, in writing to the Trust, payment in cash. The Trust
will notify each shareholder after the close of its fiscal year of both the
dollar amount and the tax status of that year's distributions.
The Fund will be treated as a separate entity for federal tax purposes. The Fund
intends to elect to qualify and remain qualified as a regulated investment
company under Subchapter M of the Internal Revenue Code (the "Code"). If so
qualified, the Fund will not be subject to federal income taxes on its net
investment income and capital gains, if any, realized during any fiscal year
which it distributes to its shareholders provided that at least 90% of its net
investment income earned in the fiscal year is distributed.
A segregated asset account upon which a variable annuity contract or variable
life insurance policy is based must meet certain diversification tests set forth
in the Code and U.S. Treasury regulations. If, as is intended, the Fund meets
these tests and complies with certain other conditions, a segregated asset
account investing solely in shares of the Fund will also be deemed to meet these
diversification requirements. However, a failure of the Fund to qualify as a
regulated investment company or to meet such conditions and to comply with such
tests could cause the owners of variable annuity contracts and variable life
insurance policies based on such accounts to recognize ordinary income each year
in the amount of any net appreciation of such contract or policy during the year
(including the annual costs of life insurance, if any, provided under such
policy).
Provided that the Fund and a segregated asset account investing in the Fund
satisfy the above requirements, any distributions from the Fund will be exempt
from current federal income taxation to the extent that such distributions
accumulate in an individual's variable annuity contract or an individual's
variable life insurance contract.
The Code provides for a dividends-received deduction (the "deduction")
applicable to corporations, including insurance companies. Special provisions
are contained in the Code as to the eligibility of dividends for the deduction.
The basic test under the Code for determining the extent to which the dividends
paid by the Fund are eligible for the deduction is the extent to which the
Fund's income is derived from qualifying dividends received from domestic
corporations. See "Dividends and Tax Status" in the Statement of Additional
Information for additional information about the deduction.
Dividends and interest received by the Fund may be subject to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate these foreign taxes, and foreign
countries generally do not impose taxes on capital gains on investments by
foreign investors. If more than 50% of the value of the Fund's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Fund may elect to enable shareholders of the Fund to receive the benefit of
the foreign tax credit with respect to any foreign income taxes paid by the
Fund.
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NET ASSET VALUE
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The net asset value per share of the Fund is determined on each day that the New
York Stock Exchange is open for trading, as of the close of regular trading on
the New York Stock Exchange (currently 4:00 p.m., Eastern time), except on days
on which no orders to purchase, sell or redeem shares have been received or days
on which changes in the value of the Fund's portfolio securities do not
materially affect the net asset value. The net asset value per share is the
value of the Fund's assets, less its liabilities, divided by the number of
shares of the Fund outstanding. The value of the Fund's portfolio securities is
determined on the basis of the market value of such securities or, if market
quotations are not readily available, at fair value under guidelines established
by the Trustees. Short-term investments maturing in less than 60 days are valued
at amortized cost which the Board has determined to equal fair value. See "Net
Asset Value" in the Statement of Additional Information for further information.
PERFORMANCE INFORMATION
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The Fund's performance may be quoted in advertising, shareholder reports and
other communications in terms of yield or total rate of return. All performance
information is historical and is not intended to indicate future performance.
Yield and total rates of return fluctuate in response to market conditions and
other factors, and the value of an investor's shares when redeemed may be more
or less than their original cost.
The Fund may provide its period and average annualized "total rates of return."
The "total rate of return" refers to the change in the value of an investment in
the Fund over a stated period and reflects any change in net asset value per
share and is compounded to include the value of any shares purchased with any
dividends or capital gains declared during such period. Period total rates of
return may be "annualized." An "annualized" total rate of return assumes that
the period total rate of return is generated over a one-year period.
The Fund may provide annualized "yield" quotations. The "yield" of the Fund
refers to the income generated by an investment in the Fund over a 30-day or
one-month period (which period is stated in any such advertisement or
communication). This income is then annualized; that is, the amount of income
generated by the investment over that period is assumed to be generated each
month over a one-year period and is shown as a percentage of the maximum public
offering price on the last day of that period. A "yield" quotation, unlike a
total rate of return quotation, does not reflect changes in net asset value.
Yields and total returns quoted for the Fund include the effect of deducting the
Fund's expenses, but may not include charges and expenses attributable to a
particular variable annuity contract or variable life insurance policy. Since
shares of the Fund can be purchased only by Participating Insurance Companies, a
prospective purchaser of a variable annuity contract or variable life insurance
policy from a Participating Insurance Company should carefully review the
prospectus of the variable annuity contract or variable life insurance policy he
or she has chosen for information on relevant charges and expenses. Including
these charges in the quotations of the Fund's yield and total return would have
the effect of decreasing performance. Performance information for the Fund must
always be accompanied by, and be reviewed with, performance information for the
insurance product which invests in the Fund. See the Statement of Additional
Information for more information concerning the calculation of yield and total
rate of return quotations for the Fund.
All data included in performance advertisements will reflect past performance
and is not indicative of future results. The investment return and principal
value of an investment in the Fund will fluctuate, and an investor's proceeds
upon redeeming Fund shares may be more or less than the original cost of the
shares.
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GENERAL INFORMATION
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The Declaration of Trust contains an express disclaimer of shareholder liability
for the Trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or its Trustees. The Declaration of Trust provides for indemnification
and reimbursement of expenses out of the Trust's property for any shareholder
held personally liable for its obligations. While Massachusetts law permits a
shareholder of a trust such as this to be held personally liable as a partner
under certain circumstances, the risk of a shareholder incurring financial loss
on account of shareholder liability is highly unlikely and is limited to the
relatively remote circumstances in which the Trust would be unable to meet its
obligations.
Common expenses incurred by the Trust are allocated among the Fund and the other
series of the Trust based upon (i) relative net assets; (ii) as incurred on a
specific identification basis; or (iii) evenly among the Fund and the other
series of the Trust, depending on the nature of the expenditure.
Except for (i) changes which do not adversely affect the rights of Trust
shareholders; (ii) a change in the name of the Trust, or a series or class
thereof; (iii) authorization of a new series or class; (iv) changes to supply
any omission or correct any ambiguous or defective provision; or (v) changes
required by any federal or state or similar regulatory authority or required by
the Code to eliminate or reduce any federal, state or local taxes which may be
payable by the Fund or its shareholders, no amendment may be made to the
Declaration of Trust without the affirmative vote of the holders of at least 67%
of the Trust's outstanding shares at a meeting at which more than 50% of its
outstanding shares are present in person or represented by proxy. The holders of
shares have no preemptive or conversion rights. Shares when issued are fully
paid and non-assessable, except as set forth above.
The Trust's custodian is Firstar Trust Company, 615 East Michigan Street,
Milwaukee, Wisconsin 53202 and its subcustodian for foreign securities is The
Chase Manhattan Bank, N.A., Four Chase MetroTech Center, Brooklyn, New York
11245.
As of the date of this Prospectus, the Advisor owned all of the outstanding
shares of the Fund.
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