As filed with the Securities and Exchange Commission
on October 17, 1997
Registration Nos. 333-32723
811-08321
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 1 [X]
(Check appropriate box or boxes.)
INVESTORS MARK SERIES FUND, INC.
_________________________________________________
(Exact name of registrant as specified in charter)
700 Karnes Boulevard
Kansas City, Missouri 64108
________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (816) 753-8000
David A. Gates, Esq.
700 Karnes Boulevard
Kansas City, Missouri 64108
(Name and Address of Agent For Service)
Copies to:
Raymond A. O'Hara III, Esq. and to David A. Gates, Esq.
Blazzard, Grodd & Hasenauer, P.C. 700 Karnes Boulevard
P.O. Box 5108 Kansas City, MO 64108
Westport, CT 06881 (816) 751-5441
(203) 226-7866
Approximate Date of
Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
Title of Securities Being Registered: Investment Company Shares
==============================================================================
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.
INVESTORS MARK SERIES FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 404 (c))
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<S> <C> <C>
PART A
N-1A
- --------
Item No. Location
- -------- -----------------------------
1. Cover Page Cover Page
2. Synopsis. Summary; Expense Summary
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Investment Objectives and
Policies of the Portfolios;
Common Types of Securities
and Management Practices;
Investment Risks; Investment
Restrictions; General
Information--The Fund
5. Management of the Fund Management of the Fund;
General Information--The
Transfer Agent; General
Information - The Distributor
6. Capital Stock and Other Securities General Information--
Voting Rights; Tax Status,
Dividends and
Distributions
7. Purchase of Securities Being Offered. Purchases and Redemptions;
Net Asset Value
8. Redemption or Repurchase Purchases and Redemptions;
Net Asset Value
9. Pending Legal Proceedings Not Applicable
PART B
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and
History
13. Investment Objectives and Policies Investment Objectives and
Policies; Investment
Restrictions; Description
of Shares
14. Management of the Fund Directors and Officers of
the Fund
15. Control Persons and Principal Holders Directors and Officers of
of Securities the Fund
16. Investment Advisory and Other The Adviser; Sub-Advisers
Services.
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption and Pricing of Purchase and Redemption of
Securities Being Offered Shares; Determination of Net
Asset Value
20. Tax Status Taxes
21. Underwriters Not Applicable
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
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.
PART A
INVESTORS MARK SERIES FUND, INC.
PROSPECTUS DATED NOVEMBER 3, 1997
Investors Mark Series Fund, Inc. (the "Fund") is an open-end management
investment company authorized to issue multiple series of shares, each
representing a diversified portfolio of investments (individually, a
"Portfolio" and collectively, the "Portfolios"). The Fund currently has
authorized ten series.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. The Fund's shares are
offered only to (a) insurance companies ("Participating Insurance Companies")
to fund benefits under their variable annuity contracts ("VA Contracts") and
variable life insurance policies ("VLI Policies") and (b) tax-qualified
pension and retirement plans ("Qualified Plans"), including
participant-directed Qualified Plans which elect to make the Portfolios
available as investment options for Qualified Plan Participants.
Please read this Prospectus carefully and retain it for future reference. This
Prospectus should be read in conjunction with the prospectuses issued by the
Participating Insurance Companies for the VA Contracts and VLI Policies that
accompany this Prospectus or with the Qualified Plan documents or other
informational materials supplied by Qualified Plan sponsors. Additional
information about the Fund and the Portfolios is contained in a Statement of
Additional Information ("SAI") which has been filed with the Securities and
Exchange Commission (the "SEC") and is available to investors without charge
by calling the Fund at 1-888-262-8131. The SAI, as amended from time to time,
bears the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus. The Securities and Exchange Commission
maintains a Web Site (http://www.sec.gov) that contains the SAI, material
incorporated by reference, and other information regarding the Fund.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of the Fund in any jurisdiction in which such
sale, offer to sell, or solicitation may not be lawfully made.
PURCHASERS SHOULD BE AWARE THAT AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE. THE BALANCED PORTFOLIO WILL INVEST UP TO
75% OF ITS ASSETS IN LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS", THAT
ENTAIL GREATER RISKS INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED
SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY
CAUSE THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS
REDEEMED, THE VALUE MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED
BY THE INVESTOR.
LIKE ALL MUTUAL FUNDS, 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 FUND ARE AVAILABLE AND ARE BEING OFFERED EXCLUSIVELY (i) AS A
POOLED FUNDING VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF
VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY CONTRACTS AND (ii) TO
TAX-QUALIFIED PENSION AND RETIREMENT PLANS.
TABLE OF CONTENTS
PAGE
SUMMARY
EXPENSE SUMMARY
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
COMMON TYPES OF SECURITIES AND MANAGEMENT PRACTICES
INVESTMENT RISKS
INVESTMENT RESTRICTIONS
PORTFOLIO TURNOVER
MANAGEMENT OF THE FUND
PERFORMANCE ADVERTISING
PURCHASES AND REDEMPTIONS
NET ASSET VALUE
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
GENERAL INFORMATION
SUMMARY
THE FUND
The Fund is an open-end management investment company which currently offers
shares of nine of its ten Portfolios as follows: the Balanced Portfolio, the
Global Fixed Income Portfolio, the Growth & Income Portfolio, the Intermediate
Fixed Income Portfolio, the Large Cap Value Portfolio, the Large Cap Growth
Portfolio, the Mid Cap Equity Portfolio, the Money Market Portfolio and the
Small Cap Equity Portfolio. Shares of the International Equity Portfolio are
not currently offered for sale. Each of the Portfolios has distinct investment
objectives and policies. See "Investment Objectives and Policies." Additional
Portfolios may be added to the Fund in the future. This Prospectus will be
supplemented or amended to reflect the addition of any new Portfolios.
This summary, which provides basic information about the Portfolios and the
Fund, is qualified in its entirety by reference to the more detailed
information provided elsewhere in this Prospectus and in the SAI.
INVESTMENT ADVISER AND SUB-ADVISERS
Subject to the authority of the Board of Directors of the Fund, Investors Mark
Advisors, LLC (the "Adviser") serves as the Fund's investment adviser and has
responsibility for the overall management of the investment strategies and
policies of the Portfolios. The Adviser has engaged Sub-Advisers for each of
the Portfolios to make investment decisions and place orders. The
Sub-Advisers for the Portfolios are as follows:
<TABLE>
<CAPTION>
Sub-Adviser Name of Portfolio
- --------------------------- -------------------------
<S> <C>
Standish, Ayer & Wood, Inc. Intermediate Fixed Income
Mid Cap Equity
Money Market
Standish International Management Global Fixed Income
Company, L.P.
Stein Roe & Farnham, Incorporated Small Cap Equity
Large Cap Growth
David L. Babson & Co., Inc. Large Cap Value
Lord, Abbett & Co. Growth & Income
Kornitzer Capital Management, Inc. Balanced
BBOI Worldwide LLC International Equity
</TABLE>
For additional information concerning the Adviser and the Sub-Advisers,
including a description of advisory and sub-advisory fees, see "Management of
the Fund."
THE PORTFOLIOS
BALANCED PORTFOLIO. The Portfolio seeks both long-term capital growth and
high current income. Long-term capital growth is intended to be achieved
primarily by the Portfolio's investment in common stocks and secondarily by
the Portfolio's investment in convertible bonds and convertible preferred
stocks. High current income is intended to be achieved by the Portfolio's
investment in corporate bonds, government bonds, convertible bonds, preferred
stocks and convertible preferred stocks. THE PORTFOLIO WILL INVEST UP TO 75%
OF ITS ASSETS IN LOWER RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS," THAT
ENTAIL GREATER RISKS INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER-RATED
SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING.
GLOBAL FIXED INCOME PORTFOLIO. The investment objective of the Portfolio is
to maximize total return while realizing a market level of income consistent
with preserving principal and liquidity. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in fixed income
securities of foreign governments or their political subdivisions and
companies located in countries around the world, including the United States.
GROWTH & INCOME PORTFOLIO. The investment objective of the Portfolio is
long-term growth of capital and income without excessive fluctuation in market
value. The Portfolio will normally invest in common stocks (including
securities convertible into common stocks) of large, seasoned companies in
sound financial condition, which common stocks are expected to show
above-average price appreciation.
INTERMEDIATE FIXED INCOME PORTFOLIO. The investment objective of this
Portfolio is primarily to achieve a high level of current income, consistent
with conserving principal and liquidity, and secondarily to seek capital
appreciation when changes in interest rates or other economic conditions
indicate that capital appreciation may be available without significant risk
to principal. Under normal market conditions, substantially all, and at least
65%, of the Portfolio's total assets will be invested in investment grade
fixed income securities.
INTERNATIONAL EQUITY PORTFOLIO. The investment objective of the Portfolio is
long-term capital appreciation. The Portfolio seeks to achieve this objective
by investing primarily in common stocks of well established companies located
outside the United States. The Portfolio intends to diversify its holdings
among several countries and to have, under normal market conditions, at least
65% of the Portfolio's total assets invested in the securities of companies
located in at least five countries, not including the United States.
LARGE CAP VALUE PORTFOLIO. The Portfolio seeks long-term growth of capital
and income by investing in a diversified portfolio of common stocks which are
considered to be undervalued in relation to earnings, dividends and/or assets.
The Portfolio may be considered "contrarian" in nature in that its investments
will typically include shares of companies that are relatively unpopular and
out-of-favor with general investors.
LARGE CAP GROWTH PORTFOLIO. The Portfolio seeks long-term capital
appreciation. The Portfolio will normally invest at least 65% of its total
assets in common stocks and other equity-type securities that the Portfolio's
Sub-Adviser believes to have long-term appreciation possibilities.
MID CAP EQUITY PORTFOLIO. The investment objective of the Portfolio is to
achieve long-term growth of capital through investment primarily in equity and
equity-related securities of companies which appear to be undervalued. Under
normal circumstances, at least 80% of the Portfolio's total assets will be
invested in equity and equity-related securities.
MONEY MARKET PORTFOLIO. The investment objective of the Portfolio is to
obtain the highest level of current income that is consistent with the
preservation of capital and maintenance of liquidity. The Portfolio will
invest primarily in high-quality, short-term money market instruments. AN
INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT.
SMALL CAP EQUITY PORTFOLIO. The Portfolio seeks long-term capital
appreciation by investing primarily in a diversified portfolio of equity
securities of entrepreneurially managed companies that the Sub-Adviser
believes represent special opportunities. It emphasizes investments in
financially strong small and medium-sized companies, based principally on
appraisal of their management and stock valuations.
The investment objectives, policies and practices of the Portfolios are not
fundamental and may be changed by the Board of Directors without the approval
of a majority of the outstanding shares of each Portfolio. Certain investment
restrictions are fundamental and may not be changed without shareholder
approval. A complete list of investment restrictions, including those
restrictions which cannot be changed without shareholder approval, is
contained in the SAI. There is no assurance that a Portfolio will meet its
stated objective.
INVESTMENT RISKS
Each Portfolio invests in securities that fluctuate in value, and investors
should expect each Portfolio's net asset value per share to fluctuate.
Certain Portfolios may invest in stocks and convertible securities that may be
traded in the over-the-counter market. Some of these securities may not be as
liquid as exchange-listed stocks. In addition, certain Portfolios may invest
in the securities of small capitalization companies which may experience
greater price volatility than investment companies that invest primarily in
more established, larger capitalized companies.
When interest rates decline, the value of an investment portfolio invested in
fixed-income securities can be expected to rise. Conversely, when interest
rates rise, the value of an investment portfolio invested in fixed-income
securities can be expected to decline. In the case of foreign currency
denominated securities, these trends may be offset or amplified by
fluctuations in foreign currencies. Investments by a Portfolio in foreign
securities may be affected by adverse political, diplomatic, and economic
developments, changes in foreign currency exchange rates, taxes or other
assessments imposed on distributions with respect to those investments, and
other factors affecting foreign investments generally. High-yielding
fixed-income securities, which are commonly known as "junk bonds", are subject
to greater market fluctuations and risk of loss of income and principal than
investments in lower yielding fixed-income securities. Certain Portfolios
intend to employ, from time to time, certain investment techniques which are
designed to enhance income or total return or hedge against market or currency
risks but which themselves involve additional risks. These techniques include
options on securities, futures, options on futures, options on indexes,
options on foreign currencies, foreign currency exchange transactions, lending
of securities and when-issued securities and delayed-delivery transactions.
Certain Portfolios may have higher-than-average portfolio turnover which may
result in higher-than-average brokerage commissions and transaction costs.
See "Investment Risks."
PURCHASES AND REDEMPTIONS
Individual investors may not purchase or redeem shares of the Portfolios
directly; shares may be purchased or redeemed only through VA Contracts and
VLI Policies offered by separate accounts of Participating Insurance Companies
or through Qualified Plans, including participant-directed Qualified Plans
which elect to make the Portfolios available as investment options for
Qualified Plan Participants. See "Purchases and Redemptions."
EXPENSE SUMMARY
The purpose of this section is to provide you with information about the
expenses of the various Portfolios.
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SHAREHOLDER TRANSACTION EXPENSES Intermediate Mid Cap Money Global Small Cap Large Cap
Fixed Income Equity Market Fixed Income Equity Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
------------ --------- --------- ------------ --------- ---------
Sales Load Imposed on Purchases None None None None None None
Sales Load Imposed on Reinvested Dividends None None None None None None
Deferred Sales Load None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
</TABLE>
<TABLE>
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SHAREHOLDER TRANSACTION EXPENSES
Large Cap Growth & International
Value Income Balanced Equity
Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- -------------
Sales Load Imposed on Purchases None None None None
Sales Load Imposed on Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees None None None None
Exchange Fees None None None None
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable
expense reimbursements) Intermediate Mid Cap Money Global Small Cap
Fixed Income Equity Market Fixed Income Equity
Portfolio Portfolio Portfolio Portfolio Portfolio
------------- ---------- ---------- ------------- ----------
Advisory Fees .60% .80% .40% .75% .95%
12b-1 Fees None None None None None
Other Expenses (after expense reimbursement) .20% .10% .10% .25% .10%
Total Operating Expenses (after expense reimbursement) .80% .90% .50% 1.00% 1.05%
Estimated Total Operating Expenses
without reimbursement by Adviser 2.04% 1.10% 1.15% 2.04% 1.25%
<S> <C> <C> <C> <C> <C>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable
expense reimbursements) Large Cap Large Cap Growth & International
Growth Value Income Balanced Equity
Portfolio Portfolio Portfolio Portfolio Portfolio
---------- --------- --------- --------- ---------
Advisory Fees .80% .80% .80% .80% --%
12b-1 Fees None None None None None
Other Expenses (after expense reimbursement) .10% .10% .10 .10% --%
Total Operating Expenses (after expense reimbursement) .90% .90% .90% .90% 1.20%
Estimated Total Operating Expenses
without reimbursement by Adviser 1.02% 1.02% 1.10% 1.10% --%
</TABLE>
The Adviser has voluntarily agreed to assume Other Expenses in an amount that
operates to limit Total Operating Expenses of the Portfolios to the
percentages shown above. This expense limitation may be modified or
terminated in the discretion of the Adviser at any time without notice to
shareholders after the expiration of twelve (12) months from the date shares of
the Portfolios are first offered to the public. Total Operating Expenses
include, but are not limited to, expenses such as investment advisory fees,
custodian fees, transfer agent fees, audit fees and legal fees. Such
possible assumptions of Other Expenses by the Adviser are subject to a
possible reimbursement by the Portfolios in future years if such reimbursement
can be achieved within the foregoing annual expense limits. The Sub-
Advisers have voluntarily agreed to waive their fees for a period of time
to assist the Adviser in subsidizing Other Expenses.
EXAMPLE
An investor in a Portfolio would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C> <C>
1 Year 3 Years
------- --------
Intermediate Fixed Income $ 8.33 $ 26.05
Mid Cap Equity $ 9.36 $ 29.25
Money Market $ 5.22 $ 15.36
Global Fixed Income $ 10.39 $ 32.44
Small Cap Equity $ 10.91 $ 34.02
Large Cap Growth $ 9.36 $ 29.25
Large Cap Value $ 9.36 $ 29.25
Growth & Income $ 9.36 $ 29.25
Balanced $ 9.36 $ 29.25
International Equity $ ____ $ ____
</TABLE>
The example is based upon estimated Total Operating Expenses for the
Portfolios, as set forth in the "Annual Operating Expenses" table above and
reflects the expense reimbursement arrangement in effect. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE TABLE DOES NOT REFLECT
ADDITIONAL CHARGES AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER THE VA
CONTRACTS, VLI POLICIES OR QUALIFIED PLANS. SUCH CHARGES AND EXPENSES ARE
DESCRIBED IN THE PROSPECTUS OF THE PARTICIPATING INSURANCE COMPANY SEPARATE
ACCOUNT OR IN THE QUALIFIED PLAN DOCUMENTS OR OTHER INFORMATIONAL MATERIALS
SUPPLIED BY QUALIFIED PLAN SPONSORS. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Portfolios. See "The
Adviser" and "The Sub-Advisers".
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
Each Portfolio of the Fund has a different investment objective or objectives
which it pursues through separate investment policies as described below. The
differences in objectives and policies among 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. An investment in a single Portfolio
should not be considered a complete investment program. The investment
objective(s) and policies of each Portfolio are non-fundamental and may be
changed by the Directors of the Fund without a vote of the shareholders. Such
changes may result in a Portfolio having an investment objective(s) which
differs from that which an investor may have considered at the time of
investment. There is no assurance that any Portfolio will achieve its
objective(s). United States Treasury Regulations applicable to portfolios
that serve as the funding vehicles for variable annuity and variable life
insurance contracts generally require that such portfolios 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. The Portfolios intend
to comply with the requirements of these Regulations.
In order to comply with regulations which may be issued by the U.S. Treasury,
the Fund may be required to limit the availability or change the investment
policies of one or more Portfolios or to take steps to liquidate one or more
Portfolios. The Fund will not change any fundamental investment policy of a
Portfolio without a vote of shareholders of that Portfolio.
Except as otherwise noted herein, if the securities rating of a debt security
held by a Portfolio declines below the minimum rating for securities in which
the Portfolio may invest, the Portfolio will not be required to dispose of the
security, but the Portfolio's Adviser or Sub-Adviser will consider whether
continued investment in the security is consistent with the Portfolio's
investment objective.
In implementing its investment objectives and policies, each Portfolio uses a
variety of instruments, strategies and techniques which are described in more
detail in the Appendix and the SAI. With respect to each Portfolio's
investment policies (except for the Small Cap Equity Portfolio), use of the
term "primarily" means that under normal circumstances, at least 65% of such
Portfolio's assets will be invested as indicated. A description of the
ratings systems used by the following nationally recognized statistical rating
organizations ("NRSROs") is also contained in the SAI: Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P"), Duff &
Phelps, Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch"), Thomson
Bankwatch, Inc., IBCA, Ltd. and IBCA Inc. New instruments, strategies and
techniques, however, are evolving continually and the Fund reserves authority
to invest in or implement them to the extent consistent with the investment
objectives and policies of each Portfolio. If new instruments, strategies or
techniques would involve a material change to the information contained
herein, they will not be purchased or implemented until this Prospectus is
appropriately supplemented.
For a complete description of permissible investments for the Portfolios and
for a discussion of risk factors in connection with such investments, see
"Common Types of Securities and Management Practices" and "Investment Risks."
BALANCED PORTFOLIO
The Balanced Portfolio seeks both long-term capital growth and high current
income. Long-term capital growth is intended to be achieved primarily by the
Portfolio's investment in common stocks and secondarily by the Portfolio's
investment in convertible bonds and convertible preferred stocks. High
current income is intended to be achieved by the Portfolio's investment in
corporate bonds, government bonds, mortgage-backed securities, convertible
bonds, preferred stocks and convertible preferred stocks.
The Portfolio will normally invest in a broad array of securities, diversified
not only in terms of companies and industries, but also in terms of types of
securities. The types of securities include common stocks, preferred stocks,
convertible bonds, convertible preferred stocks, corporate bonds and
government bonds. It is expected that the majority of common stocks purchased
by the Portfolio will be large capitalization companies with most, if not all,
listed on the New York Stock Exchange. Large capitalization stocks are
considered to be those with capitalization in excess of $1 billion.
It is not the Sub-Adviser's intention to make wide use of NASDAQ traded,
smaller capitalization common stocks. Smaller capitalization stocks are
considered to be those with capitalization of less than $1 billion. The
Portfolio may invest up to 75% of its assets in corporate bonds, convertible
bonds, preferred stocks and convertible preferred stocks. The Sub-Adviser
expects that from time-to-time these securities may be rated below investment
grade (BBB) by the major rating agencies. The Sub-Adviser believes this
policy is justified given the Sub-Adviser's view that these securities from
time-to-time offer superior value and the Sub-Adviser's experience and
substantial in-house credit research capabilities with higher yielding
securities.
Securities rated Baa or higher by Moody's or BBB by S&P are classified as
investment grade securities. Although securities rated Baa by Moody's and BBB
by S&P have speculative characteristics, they are considered to be investment
grade. Such securities carry a lower degree of risk than lower rated
securities. (See "Investment Risks--Risk Factors Applicable to High Yielding
High Risk Debt Securities.")
Securities rated below Baa by Moody's or BBB by S&P are commonly known as
"junk bonds" and are considered to be high risk. Yields on such bonds will
fluctuate over time, and achievement of the Portfolio's investment objective
may be more dependent on the Portfolio's own credit analysis than is the case
for higher rated bonds. (See "Investment Risks--Risk Factors Applicable to
High Yielding High Risk Debt Securities.")
The Portfolio may also invest in junk bonds. Up to 20% of the Portfolio's
assets may be invested in debt securities which are rated less than B
or unrated.
The Portfolio will not invest in securities that, at the time of initial
investment, are rated less than B by Moody's or S&P. Securities that are
subsequently downgraded in quality below B may continue to be held by the
Portfolio, and will be sold only if the Sub-Adviser believes it would be
advantageous to do so. In addition, the credit quality of unrated securities
purchased by the Portfolio must be, in the opinion of the Sub-Adviser, at
least equivalent to a B rating by Moody's or S&P.
Securities rated less than Baa by Moody's or BBB by S&P are classified as
non-investment grade securities. Such securities carry a high degree of risk and
are considered speculative by the major credit rating agencies. (See "Investment
Risks--Risk Factors Applicable to High Yielding High Risk Debt Securities.") The
proportion of the Portfolio invested in each type of security is expected to
change over time in accordance with the Sub- Adviser's interpretation of
economic conditions and underlying security values. However, it is expected that
a minimum of 25% of the Portfolio's total assets will always be invested in
fixed income senior securities and that a minimum of 25% of its total assets
will always be invested in equity securities. When, in the Sub-Adviser's
judgment, market conditions warrant substantial temporary investments in
high-quality money market securities, the Portfolio may do so.
The Portfolio is authorized to write (i.e. sell) covered call options on the
securities in which it may invest and to enter into closing purchase
transactions with respect to certain of such options. A covered call option
is an option where the Portfolio in return for a premium gives another party a
right to buy specified securities owned by the Portfolio at a specified future
date and price set at the time of the contract. (See "Investment
Risks--Covered Call Options.")
Covered call options serve as a partial hedge against the price of the
underlying security declining.
Investments in money market securities shall include government securities,
commercial paper, bank certificates of deposit and repurchase agreements
collateralized by government securities. Investment in commercial paper is
restricted to companies in the top two rating categories by Moody's and S&P.
The Portfolio may also invest in issues of the United States treasury or a
United States government agency subject to repurchase agreements. The use of
repurchase agreements by the Portfolio involves certain risks. For a
discussion of these risks, see "Investment Risks--Repurchase Agreements."
GLOBAL FIXED INCOME PORTFOLIO
The Portfolio's investment objective is to maximize total return while
realizing a market level of income consistent with preserving principal and
liquidity.
Under normal market conditions, the Portfolio invests at least 65% of its
total assets in fixed income securities of foreign governments or their
political subdivisions and companies located in countries around the world,
including the United States.
Under normal market conditions, the Portfolio's assets are invested in
securities of issuers located in at least three different countries, one of
which may be the United States. The Portfolio intends, however, to invest in
no fewer than eight foreign countries. The Portfolio may invest a substantial
portion of its assets in one or more of those eight countries. The Portfolio
may also invest up to 10% of its total assets in emerging markets generally
and may invest up to 3% of its total assets in any one emerging market.
The Portfolio will be an actively managed non-diversified portfolio consisting
primarily of fixed income securities denominated in foreign currencies and the
U.S. dollar. In pursuing the Portfolio's investment strategy, the Sub-Adviser
seeks to add value to the Portfolio by selecting undervalued investments,
rather than by varying the average maturity of a Portfolio to reflect interest
rate forecasts. The Sub-Adviser utilizes fundamental credit and sector
valuation techniques to evaluate what it considers to be less efficient
markets and sectors of the fixed income marketplace in an attempt to select
securities with the potential for the highest return. The Sub-Adviser
emphasizes intermediate term economic fundamentals relating to foreign
countries and emerging markets, rather than focusing on day-to-day
fluctuations in a particular currency or in the fixed income markets.
The Portfolio may invest in all types of fixed income securities including
bonds, notes (including structured or hybrid notes), mortgage-backed
securities, asset-backed securities, convertible securities, Eurodollar and
Yankee Dollar instruments, preferred stocks (including convertible preferred
stock), listed and unlisted warrants and money market instruments. These
fixed income securities may be issued by foreign and U.S. corporations or
entities, foreign governments and their political subdivisions, the U.S.
Government, its agencies, authorities, instrumentalities or sponsored
enterprises and supranational entities. Supranational entities include
international organizations designated or supported by governmental entities
to promote economic reconstruction or development, and international banking
institutions and related government agencies.
The Portfolio purchases securities that pay interest on a fixed, variable,
floating, inverse floating, contingent, in-kind or deferred basis. The
Portfolio may enter into repurchase agreements and forward dollar roll
transactions, may purchase zero coupon and deferred payment securities, may
buy securities on a when-issued or delayed delivery basis, may engage in short
sales and may lend portfolio securities. The Portfolio may enter into various
forward foreign currency exchange transactions and foreign currency futures
transactions and utilize over-the-counter ("OTC") options to seek to manage
the Portfolio's foreign currency exposure.
The Portfolio invests primarily in investment grade fixed income securities,
i.e., securities rated at the time of purchase at least Baa by Moody's or BBB
by S&P, Duff, Fitch or IBCA, Ltd., or, if unrated, determined by the
Sub-Adviser to be of comparable credit quality. If a security is rated
differently by two or more rating agencies, the Sub-Adviser uses the highest
rating to compute the Portfolio's credit quality and also to determine its
rating category. In determining whether unrated securities are of equivalent
credit quality, the Sub-Adviser may take into account, but will not rely
entirely on, ratings assigned by foreign rating agencies. If the rating of a
security held by the Portfolio is downgraded below the minimum rating required
for the Portfolio, the Sub-Adviser will determine whether to retain that
security in the Portfolio.
Securities rated within the top three investment grade ratings (i.e., Aaa, Aa,
A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by S&P, Duff, Fitch or IBCA)
are generally regarded as high grade obligations. Securities rated Baa or P-2
by Moody's or BBB, A-2 or Duff-2 by S&P, Duff, Fitch or IBCA are generally
considered medium grade obligations and have some speculative characteristics.
Adverse changes in economic conditions or other circumstances are more likely
to weaken the medium grade issuer's capability to pay interest and repay
principal than is the case for high grade securities. If a non-investment
grade fixed income security presents special opportunities for the Portfolio,
the Portfolio may invest up to 15% of its total assets in securities rated Ba
by Moody's or BB by S&P, Duff, Fitch or IBCA, or, if not rated, judged by the
Sub-Adviser to be of equivalent credit quality. Below investment grade
securities, commonly referred to as "junk bonds," carry a higher degree of
risk than investment grade securities and are considered speculative by the
rating agencies. (See "Investment Risks--Risk Factors Applicable to High
Yielding High Risk Debt Securities.") The Sub-Adviser attempts to select for
the Portfolio those medium grade and non-investment grade fixed income
securities that have the potential for upgrade. The average dollar weighted
credit quality of the Portfolio is expected to be in a range of Aa to A
according to Moody's or AA to A according to S&P, Duff, Fitch or IBCA.
GROWTH & INCOME PORTFOLIO
The investment objective of the Growth & Income Portfolio is long-term growth
of capital and income without excessive fluctuation in market value.
The Fund intends to keep the Portfolio's assets invested in those securities
which are selling at reasonable prices in relation to value and, in doing so,
it may have to forego some opportunities for gains when, in the Fund's
judgment, they carry excessive risk.
The Portfolio will try to anticipate major changes in the economy and select
stocks which it believes will benefit most from these changes.
The Portfolio will normally invest in common stocks (including securities
convertible into common stocks) of large, seasoned companies in sound
financial condition, which common stocks are expected to show above-average
price appreciation. Although the prices of common stocks fluctuate and their
dividends vary, historically, common stocks have appreciated in value and
their dividends have increased when the companies they represent have
prospered and grown.
The Portfolio constantly seeks to balance the opportunity for profit against
the risk of loss. In the past, very few industries have continuously provided
the best investment opportunities. The Portfolio will take a flexible
approach and make adjustments to reflect changes in the opportunity for sound
investments relative to the risks assumed. Therefore, the Portfolio will sell
stocks that are judged to be overpriced and reinvest the proceeds in other
securities which are believed to offer better values.
The Portfolio may write covered call options on securities it owns, may invest
in rights and warrants to purchase securities, may enter into repurchase
agreements and may invest in shares of closed-end investment companies. The
Portfolio may also lend its securities. No more than 5% of the Portfolio's
net assets will be at risk with respect to each of the investment techniques
and policies described in this paragraph. Further, the Portfolio may invest
up to 2% of the value of the Portfolio's net assets in warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange.
The Portfolio will not purchase securities for trading purposes. To create
reserve purchasing power and also for temporary defensive purposes, the
Portfolio may invest in straight bonds and other fixed-income securities.
When the Fund believes that the Portfolio should assume a temporary defensive
position because of unfavorable investment conditions, the Portfolio may
temporarily hold its assets in cash and short-term money market instruments.
INTERMEDIATE FIXED INCOME PORTFOLIO
The Portfolio's investment objective is primarily to achieve a high level of
current income, consistent with conserving principal and liquidity, and
secondarily to seek capital appreciation when changes in interest rates or
other economic conditions indicate that capital appreciation may be available
without significant risk to principal.
Under normal market conditions, substantially all, and at least 65%, of the
Portfolio's assets are invested in investment grade fixed income securities.
The Portfolio may invest up to 20% of its total assets in fixed income
securities of foreign corporations and foreign governments and their political
subdivisions, including securities of issuers located in emerging markets. No
more than 10% of the Portfolio's total assets will be invested in foreign
securities not subject to currency hedging transactions back into U.S.
dollars. The Portfolio may also engage in short selling. See "Common Types
of Securities and Management Practices" and "Investment Risks" for additional
information.
The Portfolio will be an actively managed diversified portfolio consisting
primarily of fixed income securities.
The Sub-Adviser's primary investment management and research focus is at the
security and industry/sector level. The Sub-Adviser seeks to add value to the
Portfolio by selecting undervalued investments, rather than by varying the
average maturity of the Portfolio to reflect interest rate forecasts. The
Sub-Adviser utilizes fundamental credit and sector valuation techniques to
evaluate what it considers to be less efficient markets and sectors of the
fixed income marketplace in an attempt to select securities with the potential
for the highest return.
Fixed income securities in which the Portfolio invests include bonds, notes
(including structured or hybrid notes), mortgage-backed securities,
asset-backed securities, convertible securities, Eurodollar and Yankee Dollar
instruments, preferred stocks and money market instruments. These fixed
income securities may be issued by U.S. and foreign corporations or entities,
U.S. and foreign banks, the U.S. government, its agencies, authorities,
instrumentalities or sponsored enterprises, and foreign governments and their
political subdivisions. The Portfolio purchases securities that pay interest
on a fixed, variable, floating, inverse floating, contingent, in-kind or
deferred basis. The Portfolio may enter into repurchase agreements and
forward dollar roll transactions, may purchase zero coupon and deferred
payment securities and may buy securities on a when-issued or delayed delivery
basis.
The Portfolio invests primarily in investment grade fixed income securities.
Investment grade securities are those that are rated at least Baa by Moody's
or BBB by S&P, Duff or Fitch or, if unrated, determined by the Sub-Adviser to
be of comparable credit quality. Foreign securities in which the Portfolio
invests are rated by IBCA, Ltd., in addition to the above listed ratings
organizations. IBCA uses the same ratings system as does S&P, Duff and Fitch.
If a security is rated differently by two or more rating agencies, the
Sub-Adviser uses the highest rating to compute the Portfolio's credit quality
and also to determine its rating category. In the case of unrated sovereign
and subnational debt of foreign countries, the Sub-Adviser may take into
account, but will not rely entirely on, the ratings assigned to the issuers of
such securities. If the rating of a security held by the Portfolio is
downgraded below the minimum rating required, the Sub-Adviser will determine
whether to retain that security in the Portfolio.
Securities rated Baa or P-2 by Moody's or BBB, A-2 or Duff-2 by S&P, Duff or
Fitch are generally considered medium grade obligations and have some
speculative characteristics. Adverse changes in economic conditions or other
circumstances are more likely to weaken the medium grade issuer's capability
to pay interest and repay principal than is the case for high grade
securities. The Portfolio may invest up to 20% of its total assets in below
investment grade fixed income securities rated Ba by Moody's or BB by S&P,
Duff or Fitch, or, if unrated, determined by the Sub-Adviser to be of
comparable credit quality. Below investment grade securities, commonly
referred to as "junk bonds," carry a higher degree of risk than medium grade
securities and are considered speculative by the rating agencies. (See
"Investment Risks--Risk Factors Applicable to High Yielding High Risk Debt
Securities.") The Sub-Adviser attempts to select for the Portfolio those
medium grade and investment grade fixed income securities that have the
potential for upgrade. The average dollar-weighted credit quality of the
Portfolio's portfolio is expected to be Aa according to Moody's or AA
according to S&P, Duff or Fitch.
The Portfolio generally invests in securities with final maturities, average
lives or interest rate reset frequencies of 15 years or less.
Under normal market conditions, the Portfolio's average dollar-weighted
effective portfolio maturity will vary from five to thirteen years.
INTERNATIONAL EQUITY PORTFOLIO
The investment objective of the Portfolio is long-term capital appreciation.
The Portfolio seeks to achieve this objective by investing primarily in common
stocks of well established companies located outside the United States. A
company will be considered to be located outside the United States if the
principal securities trading market for its equity securities is located
outside the U.S. or it is organized under the laws of, and has a principal
office in, a country other than the U.S. The Portfolio may also invest in
securities other than common stock if the Sub-Adviser believes these are
likely to be the best suited at that time to achieve the Portfolio's
objective. These include equity-related securities (such as preferred stocks
and convertible securities), debt securities issued by foreign governments or
foreign corporations, and U.S. or foreign short-term investments. The
Portfolio may invest in the securities of smaller companies and in the
securities of unseasoned issuers. The Portfolio may also invest in repurchase
agreements, lend its securities, purchase illiquid securities and engage in
various hedging transactions. The Portfolio intends to diversify its holdings
among several countries and to have, under normal market conditions, at least
65% of the Portfolio's total assets invested in the securities of companies
located in at least five countries, not including the United States. Current
income is not an investment objective of the Portfolio and any income produced
will be only of secondary importance as a by-product of the investment
selection process used to achieve the Portfolio's objective.
In selecting its portfolio securities, the Portfolio places primary emphasis
on fundamentally undervalued stocks as determined by a range of
characteristics, including relatively low price-earnings multiples, dividend
yield, consistency of earnings growth and cash flow, financial strength,
realizable asset value and liquidity. Securities of companies with medium to
large market capitalizations usually constitute the majority of the
Portfolio's investments. The Portfolio currently considers medium to large
market capitalizations to be those in excess of $1 billion. Market
capitalization is defined as total current market value of a company's
outstanding common stock. In addition, the Portfolio is presently anticipated
to be weighted largely toward companies located in Western Europe (for
example, the United Kingdom, Germany, France, Italy, Spain, Switzerland, the
Netherlands, Sweden, Ireland and Finland), Australia and the Far East (for
example, Japan, Hong Kong, Singapore, Malaysia, Thailand, Indonesia and the
Philippines). However, the Portfolio is free to invest in companies of any
size and in companies located in other foreign countries, including developing
countries.
The investment approach of the Sub-Adviser is based on "bottom-up" fundamental
analysis of individual companies within a framework of dynamic economic and
business themes that are believed to provide the best opportunities for
effective stock selection. Stock selection decisions are guided by:
- --GLOBAL ECONOMIC AND BUSINESS THEMES. The Sub-Adviser identifies economic
and business themes and trends that have the potential to support the
long-term growth prospects of companies best positioned to take advantage of
them. These themes and trends may transcend political and geographic
boundaries and may be global or regional in nature. Current themes and trends
include, for example, worldwide growth in telecommunications and multimedia,
positive banking environment, rapid economic development in the Pacific Basin,
global healthcare trends and unique consumer franchises.
- --FUNDAMENTAL ANALYSIS. The Sub-Adviser seeks to identify companies that it
believes are best positioned to benefit from the identified themes and trends.
It conducts an extensive "bottom-up" analysis seeking individual quality
companies with stocks that are fundamentally undervalued relative to their
long-term prospective earnings growth rate, their historic valuation levels
and their peer group. This process includes examining financial statements,
evaluating management and products, assessing competitive position and
strengths, as well as analyzing the economic variables affecting the company's
operating environment. This in-depth, fundamental analysis is believed to be
the most important step in identifying stock selections for the Portfolio.
Actual country weightings are a by-product of the bottom-up stock selection
approach. Accordingly, the country in which a company is located is
considered by the Sub-Adviser to be less important than the diversity of its
sources of earnings and earnings growth.
Investors should also be aware that investment in foreign securities carries
additional risks not present when investing in domestic securities. See
"Investment Risks--Foreign Securities" below. The Portfolio is not intended
as a complete or balanced investment vehicle, but rather as an investment for
persons who are in a financial position to assume the risk and share price
volatility associated with foreign investments. As a result, the Portfolio
should be considered as a long-term investment vehicle.
LARGE CAP VALUE PORTFOLIO
The Portfolio's investment objective is to seek long-term growth of capital
and income by investing principally in a diversified portfolio of common
stocks which are considered to be undervalued in relation to earnings,
dividends and/or assets.
The Portfolio intends to invest in stocks of companies which are rated "B-" or
better in investment quality (growth and stability of earnings and dividends)
by S&P and/or "B" or better by Value Line in financial strength. (For a
description of these ratings see "Description of Stock Ratings" in the SAI.)
A stock will be considered to be undervalued if it is currently trading at a
price below which the Sub-Adviser believes it should be trading and therefore
a superior potential investment based on one or more of the following
comparisons:
1. price relative to earnings,
2. price relative to dividends,
3. price relative to assets as measured by book value.
Valuation levels as described above for each security will be compared to a
large universe of stocks as selected by the Sub-Adviser, as well as its own
past history of valuation over several years. The universe will vary from
time to time and may consist of as many as a thousand stocks. The holdings in
the Portfolio will be monitored regularly by the Sub-Adviser to determine that
they continue to be relatively favorable investments. For a discussion of
risk factors involved in investing in undervalued stocks, see "Investment
Risks--Common Stocks."
Investors' attitudes toward different kinds of companies tend to shift back
and forth over time, from enthusiasm to pessimism and back to enthusiasm. The
Portfolio may be considered to be "contrarian" in nature because of its
primary focus on undervalued stocks, and typically its portfolio will consist
of companies whose shares are relatively unpopular and out-of-favor, among
investors generally, at the time of purchase. However, the Portfolio will be
restricted to companies which the Sub-Adviser believes are sound businesses
with good future potential and should, therefore, eventually gain greater
investor favor.
Although individual stocks in the Portfolio may be in any price range because
value as determined by the Sub-Adviser is relative rather than absolute, it is
expected that the average price/earnings ratio of the stocks in the Portfolio
as a whole will be lower than that of the S&P 500, that the average dividend
yield on the investments will be higher than that of the S&P 500, and that the
average price to book value ratio will be lower than that of the S&P 500. It
is also anticipated that some of the companies in the Portfolio may not be
paying current dividends.
Except for necessary reserves including but not limited to reserves held to
cover redemptions and unanticipated expenses, as determined by management, all
assets will be invested in marketable securities composed principally of
common stocks and securities convertible into common stocks. The reserves
will be held in cash or high-quality, short-term debt obligations readily
changeable into cash.
The Sub-Adviser believes, however, that there may be times when the
shareholders' interests are best served by investing temporarily in preferred
stocks, bonds or other defensive issues. It retains the freedom to administer
the Portfolio accordingly when, in its judgment, economic and market
conditions make such a course desirable. Normally, however, the Portfolio
will maintain at least 90% of the Portfolio in common stocks. There are no
restrictions or guidelines regarding the investment of Portfolio assets in
shares listed on an exchange or traded over-the-counter.
The Portfolio may also invest in issues of the United States treasury or a
United States government agency subject to repurchase agreements. The use of
repurchase agreements by the Portfolio involves certain risks. For a
discussion of these risks, see "Investment Risks--Repurchase Agreements."
LARGE CAP GROWTH PORTFOLIO
The investment objective of the Portfolio is long-term capital appreciation.
The Portfolio attempts to achieve its objective by normally investing at least
65% of its total assets in common stocks and other equity-type securities
(such as preferred stocks, securities convertible into or exchangeable for
common stocks, and warrants or rights to purchase common stocks) that, in the
opinion of the Sub-Adviser, have long-term appreciation possibilities.
The Portfolio is designed for long-term investors who desire to participate in
the stock market with more investment risk and volatility than the stock
market in general, but with less investment risk and volatility than
aggressive capital appreciation funds. The Portfolio seeks to reduce risk by
investing in a diversified portfolio, but this does not eliminate risk.
In pursuing its investment objective, the Portfolio may invest in debt
securities of corporate and governmental issuers. Investments in debt
securities are limited to those that are rated within the four highest grades
(generally referred to as "investment grade") assigned by an NRSRO.
Investments in unrated debt securities are limited to those deemed to be of
comparable quality by the Sub-Adviser. Securities in the fourth highest grade
may possess speculative characteristics, and changes in economic conditions
are more likely to affect the issuer's capacity to pay interest and repay
principal. If the rating of a security held by the Portfolio is lost or
reduced below investment grade, the Portfolio is not required to dispose of
the security--the Sub-Adviser will, however, consider that fact in determining
whether the Portfolio should continue to hold the security.
When the Sub-Adviser determines that adverse market or economic conditions
exist and considers a temporary defensive position advisable, the Portfolio
may invest without limitation in high-quality fixed income securities or hold
assets in cash or cash equivalents.
The Portfolio may also invest in convertible securities. The Portfolio may
invest up to 25% of its total assets in foreign securities. The Portfolio may
make loans of its portfolio securities to broker-dealers and banks subject to
certain restrictions described in the SAI. The Portfolio may also invest in
securities purchased on a when-issued or delayed-delivery basis.
Consistent with its investment objective, the Portfolio may invest in a broad
array of financial instruments and securities, including conventional
exchange-traded and non-exchange-traded options, futures contracts, futures
options, securities collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that securitize
assets of various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an underlying
asset or a "benchmark" such as a security index, an interest rate, or a
currency. The Portfolio does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures contracts, and
futures options. (See "Common Types of Securities and Management
Practices--Strategic Transactions.")
The Portfolio may sell short securities the Portfolio owns or has the right to
acquire without further consideration, a technique called selling short
"against the box."
MID CAP EQUITY PORTFOLIO
The Portfolio's investment objective is to achieve long-term growth of capital
through investment primarily in equity and equity-related securities of
companies which appear to be undervalued.
Under normal circumstances, at least 80% of the Portfolio's total assets will
be invested in equity and equity-related securities.
The Portfolio follows a disciplined investment strategy, emphasizing stocks
which the Sub-Adviser believes offer above average potential for capital
growth. The Sub-Adviser intends to use statistical modeling techniques that
utilize stock specific factors (e.g., current price earnings ratios, stability
of earnings growth, forecasted changes in earnings growth, trends in consensus
analysts' estimates, and measures of earnings results relative to
expectations) to identify equity securities that are attractive to purchase as
candidates. Once identified, these securities will be subject to further
fundamental analysis by the Sub-Adviser's professional staff before they are
included in the Portfolio's holdings. Securities selected for inclusion in
the Portfolio's holdings will represent various industries and sectors. The
Sub-Adviser's security selection tends to have a midcap bias, as their
research indicates that the potential returns associated with their approach
are highest in that sector of the market.
The Portfolio will be an actively managed diversified portfolio consisting
primarily of equity and equity-related securities.
The Sub-Adviser seeks to add value to portfolios of securities by finding
companies with improving business momentum whose securities have reasonable
valuations. The Sub-Adviser utilizes both quantitative and fundamental
analysis to find stocks whose estimates of earnings are being revised upwards
but whose valuation does not yet reflect this positive trend.
When the Sub-Adviser believes that foreign markets offer above average growth
potential, the Portfolio may invest without limit in equity and equity-related
securities of foreign issuers that are listed on a United States securities
exchange or traded in the U.S. OTC market. The Portfolio may not invest more
than 10% of its total assets in such securities which are not so listed or
traded.
The equity and equity-related securities in which the Portfolio invests
include exchange-traded and over-the-counter common and preferred stocks but
may also include warrants, rights, convertible securities, depositary
receipts, depositary shares, trust certificates, shares of other investment
companies, limited partnership interests and equity participations. These
equity securities may be issued by U.S. or foreign companies.
The Portfolio may invest in shares of real estate investment trusts ("REITs"),
which are pooled investment vehicles that invest in real estate or real estate
loans or interests.
The Portfolio may invest in debt securities and preferred stocks which are
convertible into, or exchangeable for, common stocks. These securities will
be rated Aaa, Aa or A by Moody's, or AAA, AA, or A by S&P, Duff or Fitch, or,
if unrated, determined by the Sub-Adviser to be of comparable credit quality.
Up to 5% of the Portfolio's total assets invested in convertible debt
securities and preferred stocks may be rated Baa by Moody's or BBB by S&P,
Duff, or Fitch. The Portfolio may enter into repurchase agreements and invest
in restricted and illiquid securities, although it intends to invest in
restricted and illiquid securities on an occasional basis only. The Portfolio
may purchase and sell put and call options, enter into futures contracts on
U.S. equity indices and purchase and sell options on such futures contracts.
MONEY MARKET PORTFOLIO
The investment objective of the Portfolio is to obtain the highest level of
current income which is consistent with the preservation of capital and
maintenance of liquidity.
The Portfolio invests only in: (1) obligations of the United States
Government; (2) obligations issued by agencies or instrumentalities of the
United States Government; (3) instruments that are secured or collateralized
by obligations of the United States Government, its agencies, or its
instrumentalities; (4) short-term obligations of United States banks and
savings and loan associations and companies having assets of more than
$1,000,000,000; (5) instruments fully secured or collateralized by such bank
and savings and loans obligations; (6) dollar denominated short-term
obligations of foreign banks, foreign branches of foreign or U.S. banks
(referred to as "Eurodollars"), and short-term obligations of U.S. branches
and agencies of foreign banks (referred to as "Yankee dollars"); (7)
commercial paper and short-term corporate debt securities rated in one of the
two highest categories for short term debt securities by at least two NRSROs
or one such NRSRO if only one has rated the security (see the SAI for a
description of commercial paper ratings); (8) corporate or other notes
guaranteed by letters of credit from banks in the United States (satisfying
the criteria described in (4), above) or collateralized by United States
Government obligations; and (9) obligations of (i) consumer and commercial
finance companies, (ii) securities brokerage companies, (iii) leasing
companies and (iv) insurance companies. Certain of these obligations may be
variable or floating rate instruments.
The Portfolio will enter into repurchase agreements under which it purchases
securities, subject to agreement by the seller to repurchase the securities at
a higher price on a specified date, with the gain establishing the yield
during the Portfolio's holding period. The Sub-Adviser, under general
policies established by the Fund's Directors, reviews the creditworthiness of
the other party to any repurchase agreement, and will only enter into
repurchase agreements with parties whose credit is deemed satisfactory. If
the seller becomes bankrupt, the Portfolio may experience delays in recovering
its money, fail to recover part or all of its investment, and incur costs in
disposing of the securities used as collateral for the seller's repurchase
obligation.
The Portfolio may also enter into reverse repurchase agreements when the
Sub-Adviser considers them to be advantageous to the Portfolio and only for
temporary liquidity purposes not to exceed 60 days, without renewal or
extension. Reverse repurchase agreements permit the Portfolio to leverage its
investment portfolio by selling securities while agreeing to repurchase them
at an agreed time and price. The bankruptcy of the other party to a reverse
repurchase agreement could cause the Portfolio to experience delays in
recovering its securities. If, in the meantime, the value of the securities
fluctuated, the Portfolio could experience a loss.
The Portfolio will not invest in "firm commitments" or "when
issued"securities.
The Portfolio may only invest in U.S. dollar-denominated instruments that are
determined to present minimal credit risks and that, at the time of
acquisition, are rated in one of the two highest rating categories by at least
two NRSROs or by the only NRSRO that has rated the instrument, or in the case
of unrated instruments, have been determined to be of comparable quality to
either of the above. The Portfolio's investments must also meet the maturity
and diversification requirements applicable to money market funds.
See "Investment Objectives and Policies" in the SAI for information about the
quality of the securities in which the Portfolio may invest and more complete
descriptions of repurchase agreements and other obligations that the Portfolio
may hold.
RISK FACTORS. The principal risks associated with investment in the Portfolio
are the risk of fluctuations in the short-term interest rates, the risks
associated with entering into repurchase agreements described above, and the
risk of default among one or more issuers of securities which comprise the
Portfolio's assets.
SMALL CAP EQUITY PORTFOLIO
The investment objective of the Portfolio is to seek long-term capital
appreciation. The Portfolio invests primarily in a diversified portfolio of
common stocks and other equity-type securities (such as preferred stocks,
securities convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks) of entrepreneurially managed companies that
the Sub-Adviser believes represent special opportunities. The Portfolio
emphasizes investments in financially strong small and medium-sized companies,
based principally on appraisal of their management and stock valuations. The
Sub-Adviser considers "small" and "medium-sized" companies to be those with
market capitalizations of less than $1 billion and $1 to $3 billion,
respectively.
In both its initial and ongoing appraisals of a company's management, the
Sub-Adviser seeks to know both the principal owners and senior management and
to assess their business judgment and strategies through personal visits. The
Sub-Adviser favors companies whose management has an owner/operator,
risk-averse orientation and a demonstrated ability to create wealth for
investors. Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength that enables
management to execute business strategies under difficult conditions. A
company is attractively valued when its stock can be purchased at a meaningful
discount to the value of the underlying business.
The Portfolio is designed for long-term investors who want greater return
potential than is available from the stock market in general, and who are
willing to tolerate the greater investment risk and market volatility
associated with investments in small and medium-sized companies. Although the
Portfolio does not attempt to reduce or limit risk through wide industry
diversification of investment, it usually allocates its investments among a
number of different industries rather than concentrating in a particular
industry or group of industries.
In pursuing its investment objective, the Portfolio may invest in debt
securities of corporate and governmental issuers. Debt securities rated
within the four highest grades by an NRSRO are generally referred to as
"investment grade." The Portfolio may invest up to 35% of its net assets in
debt securities, but does not expect to invest more than 5% of its net assets
in debt securities that are rated below investment grade.
When the Sub-Adviser determines that adverse market or economic conditions
exist and considers a temporary defensive position advisable, the Portfolio
may invest without limitation in high-quality fixed income securities or hold
assets in cash or cash equivalents.
The Portfolio may also invest in convertible securities. The Portfolio may
invest up to 25% of its total assets in foreign securities. The Portfolio may
make loans of its portfolio securities to broker-dealers and banks subject to
certain restrictions described in the SAI. The Portfolio may also invest in
securities purchased on a when-issued or delayed-delivery basis.
Consistent with its investment objective, the Portfolio may invest in a broad
array of financial instruments and securities, including conventional
exchange-traded and non-exchange-traded options, futures contracts, futures
options, securities collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that securitize
assets of various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an underlying
asset or a "benchmark" such as a security index, an interest rate, or a
currency. The Portfolio does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures contracts, and
futures options. (See "Common Types of Securities and Management
Practices--Strategic Transactions.")
The Portfolio may sell short securities the Portfolio owns or has the right to
acquire without further consideration, a technique called selling short
"against the box."
COMMON TYPES OF SECURITIES AND MANAGEMENT PRACTICES
This section describes some of the types of securities a Portfolio may hold
and the various kinds of investment practices that may be used in day-to-day
portfolio management. A Portfolio may invest in the following securities or
engage in the following practices to the extent that such securities and
practices are consistent with the Portfolio's investment objective(s) and
policies described herein. Each Portfolio's investment program is subject to
further restrictions described in the SAI.
COMMON STOCKS. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of the entity's preferred stock and other senior equity.
Common stock usually carries with it the right to vote and frequently an
exclusive right to do so.
SMALL CAPITALIZATION STOCKS. Certain Portfolios may invest in securities of
companies with small or mid-sized market capitalizations. Market
capitalization is defined as the total current market value of a company's
outstanding common stock. Although investments in small capitalization
companies may present greater opportunities for growth, they also involve
greater risks than are customarily associated with investments in larger, more
established companies. The securities of small companies may be subject to
more volatile market movements than securities of larger, more established
companies. Smaller companies may have limited product lines, markets or
financial resources, and they may depend upon a limited or less experienced
management group. The securities of small capitalization companies may be
traded only on the over-the-counter market or on a regional securities
exchange and may not be traded daily or in the volume typical of trading on a
national securities exchange. As a result, the disposition by a Portfolio of
securities in order to meet redemptions or otherwise may require the Portfolio
to sell securities at a discount from market prices, over a longer period of
time or during periods when disposition is not desirable.
UNSEASONED ISSUERS. Certain of the Portfolios may invest in unseasoned
issuers. Unseasoned issuers are companies with a record of less than three
years' continuous operation, even including the operations of any predecessors
and parents. Unseasoned issuers by their nature have only a limited operating
history which can be used for evaluating the company's growth prospects. As a
result, investment decisions for these securities may place a greater emphasis
on current or planned product lines and the reputation and experience of the
company's management and less emphasis on fundamental valuation factors than
would be the case for more mature growth companies. In addition, many
unseasoned issuers may also be small companies and involve the risks and price
volatility associated with smaller companies. The International Equity
Portfolio may invest up to 5% of its total assets in such securities.
WARRANTS. Warrants acquired by a Portfolio entitle it to buy common stock
from the issuer at a specified price and time. Warrants are subject to the
same market risks as stocks, but may be more volatile in price. A Portfolio's
investment in warrants will not entitle it to receive dividends or exercise
voting rights and will become worthless if the warrants cannot be profitably
exercised before their expiration dates.
CONVERTIBLE SECURITIES. Certain Portfolios may invest in convertible
securities consisting of bonds, notes, debentures and preferred stocks.
Convertible debt securities and preferred stock acquired by a Portfolio
entitle the Portfolio to exchange such instruments for common stock of the
issuer at a predetermined rate. By investing in convertible securities, a
Portfolio obtains the right to benefit from the capital appreciation potential
in the underlying stock upon exercise of the conversion right, while earning
higher current income than would be available if the stock were purchased
directly. Convertible securities are subject both to the credit and interest
rate risks associated with debt obligations and to the stock market risk
associated with equity securities. Although convertible securities purchased
by a Portfolio are frequently rated investment grade, certain Portfolios also
may purchase unrated securities or securities rated below investment grade if
the securities meet the Sub-Adviser's other investment criteria. Convertible
securities rated below investment grade:
--Tend to be more sensitive to interest rate and economic changes;
--May be obligations of issuers who are less creditworthy than issuers of
higher quality convertible securities;
--May be more thinly traded due to the fact that such securities are less
well known to investors than either common stock or conventional debt
securities.
As a result, a Sub-Adviser's own investment research and analysis tends to be
more important than other factors in the purchase of such securities.
The International Equity Portfolio will not invest in any security in default
at the time of purchase or in any nonconvertible debt securities rated below
investment grade, and will invest less than 20% of the market value of its
assets at the time of purchase in convertible securities rated below
investment grade. If convertible securities purchased by the International
Equity Portfolio are downgraded following purchase, or if other circumstances
cause 20% or more of the International Equity Portfolio's assets to be
invested in convertible securities rated below investment grade, the Directors
of the Fund, in consultation with the Sub-Adviser, will determine what action,
if any, is appropriate in light of all relevant circumstances.
MORTGAGE-BACKED SECURITIES. Certain Portfolios may invest in privately issued
mortgage-backed securities and mortgage-backed securities issued or guaranteed
by foreign entities or the U.S. Government or any of its agencies,
instrumentalities or sponsored enterprises, including, but not limited to, the
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"). Mortgage-backed securities represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mortgagors can generally prepay interest or
principal on their mortgages whenever they choose. Therefore, mortgage-backed
securities are often subject to more rapid repayment than their stated
maturity date would indicate as a result of principal prepayments on the
underlying loans. This can result in significantly greater price and yield
volatility than is the case with traditional fixed income securities. During
periods of declining interest rates, prepayments can be expected to
accelerate, and thus impair a Portfolio's ability to reinvest the returns of
principal at comparable yields. Conversely, in a rising interest rate
environment, a declining prepayment rate will extend the average life of many
mortgage-backed securities, increase a Portfolio's exposure to rising interest
rates and prevent a Portfolio from taking advantage of such higher yields.
GNMA securities are backed by the full faith and credit of the U.S.
Government, which means that the U.S. Government guarantees that the interest
and principal will be paid when due. FNMA securities and FHLMC securities are
not backed by the full faith and credit of the U.S. Government; however, these
enterprises have the ability to obtain financing from the U.S. Treasury. See
the SAI for additional descriptions of GNMA, FNMA and FHLMC certificates.
Multiple class securities include collateralized mortgage obligations ("CMOs")
and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates. CMOs provide an investor with a specified
interest in the cash flow from a pool of underlying mortgages or other
mortgage-backed securities. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final scheduled distribution
date. In most cases, payments of principal are applied to the CMO classes in
the order of their respective stated maturities, so that no principal payments
will be made on a CMO class until all other classes having an earlier stated
maturity date are paid in full. A REMIC is a CMO that qualifies for special
tax treatment under the Internal Revenue Code of 1986, as amended ("Code"),
and invests in certain mortgages principally secured by interests in real
property and other permitted investments. The Portfolios do not intend to
purchase residual interests in REMICs.
Stripped mortgage-back securities ("SMBS") are derivative multiple class
mortgage-backed securities. SMBS are usually structured with two different
classes; one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience prepayments of principal at a rate
different from what was anticipated, a Portfolio may fail to fully recoup its
initial investment in their securities. Although the market for SMBS is
increasingly liquid, certain SMBS may not be readily marketable and will be
considered illiquid for purposes of each Portfolio's limitation on investments
in illiquid securities. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of
the interest from mortgage loans are generally higher than prevailing market
yields on other mortgage-backed securities because their cash flow patterns
are more volatile and there is a greater risk that the initial investment will
not be fully recouped.
ASSET-BACKED SECURITIES. Certain Portfolios may invest in asset-backed
securities issued by foreign or U.S. entities. The principal and interest
payments on asset-backed securities are collateralized by pools of assets such
as auto loans, credit card receivables, leases, installment contracts and
personal property. Such asset pools are securitized through the use of
special purpose trusts or corporations. Payments or distributions of
principal and interest on asset-backed securities may be guaranteed up to
certain amounts and for a certain time period by a letter of credit or a pool
insurance policy issued by a financial institution; however, privately issued
obligations collateralized by a portfolio of privately issued asset-backed
securities do not involve any government-related guaranty or insurance. Like
mortgage-backed securities, asset-backed securities are subject to more rapid
prepayment of principal than indicated by their stated maturity which may
greatly increase price and yield volatility. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets and there is the possibility that recoveries on
repossessed collateral may not be available to support payments on these
securities.
FOREIGN SECURITIES. Certain Portfolios may invest in securities of foreign
governments and companies. Investments in foreign securities involve certain
risks that are different from the risks of investing in securities of U.S.
issuers. (See "Investment Risks - Foreign Securities" for a discussion of
these risks.) Certain Portfolios may also invest in issuers located in
emerging markets. Investments in emerging markets involve risks in addition
to those generally associated with investments in foreign securities. (See
"Investment Risks - Investing in Emerging Markets".)
The Mid Cap Equity Portfolio may invest without limit in foreign securities
which trade on a U.S. exchange or in the U.S. OTC market, but is limited to
10% of total assets on those foreign securities which are not so listed or
traded. The Mid Cap Equity Portfolio may invest up to 10% of its total assets
in issuers located in emerging markets generally and up to 3% of its total
assets in issuers of any one specific emerging market country.
Other than American Depositary Receipts, foreign debt securities denominated
in U.S. dollars, and securities guaranteed by a U.S. person, each of the Large
Cap Growth and Small Cap Equity Portfolios is limited to investing no more
than 25% of its total assets in foreign securities.
DEPOSITARY RECEIPTS AND DEPOSITARY SHARES. Depositary receipts and depositary
shares are typically issued by a U.S. or foreign bank or trust company and
evidence ownership of underlying securities of a U.S. or foreign issuer.
Unsponsored programs are organized independently and without the cooperation
of the issuer of the underlying securities. As a result, available
information concerning the issuer may not be as current as for sponsored
depositary instruments and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities. Examples of such
investments include, but are not limited to, American Depositary Receipts and
Shares ("ADRs" and "ADSs"), Global Depository Receipts and Shares ("GDRs" and
"GDSs") and European Depository Receipts and Shares ("EDRs" and "EDSs").
EURODOLLAR AND YANKEE DOLLAR INVESTMENTS. Certain Portfolios may invest in
Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds of
foreign corporate and government issuers that pay interest and principal in
U.S. dollars held in banks outside the United States, primarily in Europe.
Yankee Dollars instruments are U.S. dollar denominated bonds typically issued
in the U.S. by foreign governments and their agencies and foreign banks and
corporations. (See "Investment Risks - Foreign Securities.")
SOVEREIGN DEBT OBLIGATIONS. Certain Portfolios may invest in sovereign debt
obligations, which involve special risks that are not present in corporate
debt obligations. The foreign issuer of the sovereign debt or the foreign
governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal or interest when due, and a Portfolio may have
limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt, and the Portfolio's net
asset value, to the extent it invests in such securities, may be more volatile
than prices of debt obligations of U.S. issuers. In the past, certain foreign
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debt.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability
of sufficient foreign exchange, the relative size of the debt service burden,
the sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other
entities to reduce principal and interest arrearages on their debt. The
failure of a sovereign debtor to implement economic reforms, achieve specified
levels of economic performance or repay principal or interest when due may
result in the cancellation of third-party commitments to lend funds to the
sovereign debtor, which may further impair such debtor's ability or
willingness to service its debts.
BRADY BONDS. Brady Bonds are securities created through the exchange of
existing commercial bank loans to public and private entities in certain
emerging markets for new bonds in connection with debt restructurings. In
light of the history of defaults of countries issuing Brady Bonds on their
commercial bank loans, investments in Brady Bonds may be viewed as
speculative. Brady Bonds may be fully or partially collateralized or
uncollateralized, are issued in various currencies (but primarily in U.S.
dollars) and are actively traded in over-the-counter secondary markets.
Incomplete collateralization of interest or principal payment obligations
results in increased credit risk. U.S. dollar-denominated collateralized
Brady Bonds, which may be fixed-rate bonds or floating-rate bonds, are
generally collateralized by U.S. Treasury zero coupon bonds having the same
maturity as the Brady Bonds.
OBLIGATIONS OF SUPRANATIONAL ENTITIES. Certain Portfolios may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of
international banking institutions and related government agencies. Examples
include the International Bank for Reconstruction and Development (the "World
Bank"), the Asian Development Bank and the Inter-American Development Bank.
Each supranational entity's lending activities are limited to a percentage of
its total capital (including "callable capital" contributed by its
governmental members at the entity's call), reserves and net income. There is
no assurance that participating governments will be able or willing to honor
their commitments to make capital contributions to a supranational entity.
RESTRICTED AND ILLIQUID SECURITIES. Certain Portfolios may invest in
restricted and illiquid securities. Restricted securities are securities
which are not readily marketable because they are subject to restrictions on
their resale. Illiquid securities include those that are not readily
marketable, repurchase agreements maturing in more than seven days, time
deposits with a notice or demand period of more than seven days, certain SMBS,
swap transactions, certain over-the-counter options and certain restricted
securities. Based upon continuing review of the trading markets for a
specific restricted security, the security may be determined to be eligible
for resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933 and, therefore, to be liquid. Also, certain illiquid
securities may be determined to be liquid if they are found to satisfy certain
relevant liquidity requirements.
The Board of Directors has adopted guidelines and delegated to the
Adviser the daily function of determining and monitoring the liquidity of
portfolio securities, including restricted and illiquid securities. The Board
of Directors, however, retains oversight and is ultimately responsible for
such determinations. The purchase price and subsequent valuation of illiquid
securities normally reflect a discount, which may be significant, from the
market price of comparable securities for which a liquid market exists.
Each of the Intermediate Fixed Income, Mid Cap Equity, Global Fixed Income ,
International Equity, Small Cap Equity and Large Cap Growth Portfolios may
invest up to 15% of its net assets in illiquid securities. Each of the
Balanced, Large Cap Value and Money Market Portfolios may invest up to 10% of
its net assets in illiquid securities, while the Growth & Income Portfolio may
invest up to 5% of its net assets in illiquid securities.
CORPORATE DEBT OBLIGATIONS. Certain Portfolios may invest in corporate debt
obligations and zero coupon securities issued by financial institutions and
corporations. Corporate debt obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.
BELOW INVESTMENT GRADE SECURITIES. Certain Portfolios may invest their assets
in securities rated below investment grade. Securities rated below Baa by
Moody's or BBB by S&P are commonly known as "junk bonds" and are considered to
be high risk. (See "Investment Risks - Risk Factors Applicable to High
Yielding High Risk Debt Securities.")
ZERO COUPON AND DEFERRED PAYMENT SECURITIES. Certain Portfolios may invest in
zero coupon and deferred payment securities. Zero coupon securities are
securities sold at a discount to par value and on which interest payments are
not made during the life of the security. Upon maturity, the holder is
entitled to receive the par value of the security. A Portfolio is required to
accrue income with respect to these securities prior to the receipt of cash
payments. Because a Portfolio will distribute this accrued income to
shareholders, to the extent that shareholders elect to receive dividends in
cash rather than reinvesting such dividends in additional shares, the
Portfolio will have fewer assets with which to purchase income producing
securities. Deferred payment securities are securities that remain zero
coupon securities until a predetermined date, at which time the stated coupon
rate becomes effective and interest becomes payable at regular intervals.
Zero coupon and deferred payment securities may be subject to greater
fluctuation in value and may have less liquidity in the event of adverse
market conditions than comparably rated securities paying cash interest at
regular interest payment periods.
FORWARD ROLL TRANSACTIONS. To seek to enhance current income, the
Intermediate Fixed Income Portfolio may invest up to 10% of its net assets and
the Global Fixed Income Portfolio may invest up to 5% of its total assets in
forward roll transactions involving mortgage-backed securities. In a forward
roll transaction, a Portfolio sells a mortgage-backed security to a financial
institution, such as a bank or broker-dealer, and simultaneously agrees to
repurchase a similar security from the institution at a later date at an
agreed-upon price. The mortgage-backed 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 than those sold. During the period between the sale and repurchase,
the Portfolio will not be entitled to receive interest and principal payments
on the securities sold. Proceeds of the sale will be invested in short-term
instruments, such as repurchase agreements or other short-term securities, and
the income from these investments, together with any additional fee income
received on the sale and the amount gained by repurchasing the securities in
the future at a lower price, will generate income and gain for the Portfolio
which is intended to exceed the yield on the securities sold. Forward roll
transactions involve the risk that the market value of the securities sold by
the Portfolio may decline below the repurchase price of those securities. At
the time that a Portfolio enters into a forward roll transaction, it will
place cash or liquid assets in a segregated account that is marked to market
daily having a value equal to the repurchase price (including accrued
interest).
LEVERAGE. The use of forward roll transactions involves leverage. Leverage
allows any investment gains made with the additional monies received (in
excess of the costs of the forward roll transaction), to increase the net
asset value of a Portfolio's shares faster than would otherwise be the case.
On the other hand, if the additional monies received are invested in ways that
do not fully recover the costs of such transactions to a Portfolio, the net
asset value of the Portfolio would fall faster than would otherwise be the
case.
STRUCTURED OR HYBRID NOTES. Certain Portfolios may invest in structured or
hybrid notes. The distinguishing feature of a structured or hybrid note is
that the amount of interest and/or principal payable on the note is based on
the performance of a benchmark asset or market other than fixed income
securities or interest rates. Examples of these benchmarks include stock
prices, currency exchange rates and physical commodity prices. Investing in a
structured note allows a Portfolio to gain exposure to the benchmark market
while fixing the maximum loss that it may experience in the event that the
market does not perform as expected. Depending on the terms of the note, a
Portfolio may forego all or part of the interest and principal that would be
payable on a comparable conventional note; the Portfolio's loss cannot exceed
this foregone interest and/or principal. An investment in structured or
hybrid notes involves risks similar to those associated with a direct
investment in the benchmark asset.
TAX-EXEMPT SECURITIES. The Intermediate Fixed Income Portfolio may invest up
to 10% of its total assets in tax-exempt securities if the Sub-Adviser
believes that tax-exempt securities will provide competitive returns.
INVERSE FLOATING RATE SECURITIES. Certain Portfolios may invest in inverse
floating rate securities. The interest rate on an inverse floater resets in
the opposite direction from the market rate of interest to which the inverse
floater is indexed. An inverse floater may be considered to be leveraged to
the extent that its interest rate varies by a magnitude that exceeds the
magnitude of the change in the index rate of interest. The higher the degree
of leverage of an inverse floater, the greater the volatility of its market
value.
REPURCHASE AGREEMENTS. A repurchase agreement involves the sale of securities
to a Portfolio with the concurrent agreement by the seller to repurchase the
securities at the Portfolio's cost plus interest at an agreed rate upon demand
or within a specified time, thereby determining the yield during the
purchaser's period of ownership. The result is a fixed rate of return
insulated from market fluctuations during such period. Under the 1940 Act,
repurchase agreements are considered loans by a Portfolio.
The Portfolios will enter into such repurchase agreements only with United
States banks having assets in excess of $100 million which are members of
the Federal Deposit Insurance Corporation, and with certain securities dealers
who meet the qualifications set from time to time by the Board of Directors.
The term to maturity of a repurchase agreement normally will be no longer
than a few days.
The Intermediate Fixed Income Portfolio, the Mid Cap Equity Portfolio and the
Global Fixed Income Portfolio may invest up to 5%, 10% and 25%, respectively,
of net assets in repurchase agreements. Each of the Small Cap Equity and
Large Cap Growth Portfolios may invest up to 15% of its assets in repurchase
agreements. Certain other Portfolios of the Fund may invest in repurchase
agreements as described elsewhere herein and in the SAI.
STRATEGIC TRANSACTIONS. Certain Portfolios may, but are not required to,
utilize various investment strategies to seek to hedge market risks (such as
interest rates, currency exchange rates and broad or specific fixed income or
equity market movements), to manage the effective maturity or duration of
fixed income securities, or to enhance potential gain. Such strategies are
generally accepted as part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional investors. Techniques
and instruments used by the Portfolios may change over time as new instruments
and strategies are developed or regulatory changes occur.
In the course of pursuing its investment objective, a Portfolio may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, indices and other financial instruments; purchase and sell
financial futures contracts and options thereon; enter into various interest
rate transactions such as swaps, caps, floors or collars; and to the extent a
Portfolio invests in foreign securities, enter into currency transactions such
as forward foreign currency exchange contracts, currency futures contracts,
currency swaps and options on currencies or currency futures (collectively,
all the above are called "Strategic Transactions"). Strategic Transactions
may be used in an attempt to protect against possible changes in the market
value of securities held in or to be purchased for a Portfolio resulting from
securities markets, currency exchange rate or interest rate fluctuations, to
seek to protect a Portfolio's unrealized gains in the value of portfolio
securities, to facilitate the sale of such securities for investment purposes,
to seek to manage the effective maturity or duration of a Portfolio's
portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchasing or selling particular securities. In
addition to the hedging transactions referred to in the preceding sentence,
Strategic Transactions may also be used to enhance potential gain in
circumstances where hedging is not involved.
The ability of a Portfolio to utilize Strategic Transactions successfully will
depend on the Sub-Adviser's ability to predict pertinent market and interest
rate movements, which cannot be assured. Each Portfolio will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. A Portfolio's activities involving Strategic
Transactions may be limited by the requirements of the Internal Revenue Code
of 1986, as amended ("Code"), for qualification as a regulated investment
company.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
a Sub-Adviser's view as to certain market, interest rate or currency movements
is incorrect, the risk that the use of such Strategic Transactions could
result in losses greater than if they had not been used. The writing of put
and call options may result in losses to a Portfolio, force the purchase or
sale, respectively, of portfolio securities at inopportune times or for prices
higher than (in the case of purchases due to the exercise of put options) or
lower than (in the case of sales due to the exercise of call options) current
market values, limit the amount of appreciation a Portfolio can realize on its
investments or cause a Portfolio to hold a security it might otherwise sell.
The use of options and futures transactions entails certain other risks.
Futures markets are highly volatile and the use of futures may increase the
volatility of a Portfolio's net asset value. In particular, the variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of a Portfolio creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Portfolio's position. The writing of options could
significantly increase a Portfolio's portfolio turnover rate and associated
brokerage commissions or spreads. In addition, futures and options markets
may not be liquid in all circumstances and certain over-the-counter options
may have no markets. As a result, in certain markets, a Portfolio might not
be able to close out a transaction without incurring substantial losses.
Losses resulting from the use of Strategic Transactions could reduce net asset
value and the net result may be less favorable than if the Strategic
Transactions had not been utilized. Although the use of futures and options
transactions for hedging and managing effective maturity and duration should
tend to minimize the risk of loss due to a decline in the value of the
position, at the same time, such transactions can limit any potential gain
which might result from an increase in value of such position. The loss
incurred by a Portfolio in writing options on futures and entering into
futures transactions is potentially unlimited.
The use of currency transactions can result in a Portfolio incurring losses as
a result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency.
Each Portfolio will attempt to limit its net loss exposure resulting from
Strategic Transactions entered into for non-hedging purposes. In calculating
each Portfolio's net loss exposure from such Strategic Transactions, an
unrealized gain from a particular Strategic Transaction position would be
netted against an unrealized loss from a related position. See the SAI for
further information regarding the use of Strategic Transactions.
SHORT SALES. Certain Portfolios may engage in short sales and short sales
against the box. In a short sale, a Portfolio sells a security it does not
own in anticipation of a decline in the market value of that security. In a
short sale against the box, a Portfolio either owns or has the right to obtain
at no extra cost the security sold short. The broker holds the proceeds of
the short sale until the settlement date, at which time the Portfolio delivers
the security (or an identical security) to cover the short position. The
Portfolio receives the net proceeds from the short sale. When a Portfolio
enters into a short sale other than against the box, the Portfolio must first
borrow the security to make delivery to the buyer and must place cash or
liquid assets in a segregated account with the Fund's custodian that is marked
to market daily. Short sales other than against the box involve unlimited
exposure to loss. No securities will be sold short if, after giving effect to
any such short sale, the total market value of all securities sold short would
exceed 5% of the value of a Portfolio's net assets.
LENDING PORTFOLIO SECURITIES. Certain Portfolios may lend their portfolio
securities to qualified institutional investors such as brokers, dealers or
other financial organizations. This practice permits a Portfolio to earn
income, which, in turn, can be invested in additional securities to pursue its
investment objective. Loans of securities by a Portfolio will be
collateralized by cash, letters of credit, or securities issued or guaranteed
by the U.S. Government or its agencies. The collateral will equal at least
100% of the current market value of the loaned securities, marked-to-market on
a daily basis. A Portfolio bears a risk of loss in the event that the other
party to a securities lending transaction defaults on its obligations and the
Portfolio is delayed in or prevented from exercising its rights to dispose of
the collateral, including the risk of a possible decline in the value of the
collateral securities during the period in which the Portfolio seeks to assert
these rights, the risk of incurring expenses associated with asserting these
rights, and the risk of losing all or a part of the income from the
transaction.
The International Equity Portfolio will not lend any security if, as a result
of such loan, the aggregate value of securities then on loan would exceed
33-1/3% of the market value of the Portfolio's total assets. The market value
of securities loaned by the Global Fixed Income Portfolio may not exceed 20%
of the value of the Portfolio's total assets, with a 10% limit for any single
borrower. Each Sub-Adviser, under the supervision of the Board of Directors
of the Fund, monitors the creditworthiness of the parties to whom each
Portfolio makes securities loans. (See "Investment Restrictions" in the SAI
for a description of the limitations on lending with respect to the other
Portfolios.)
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Certain Portfolios may invest in
when-issued and delayed delivery securities. Although a Portfolio will
generally purchase securities on a when-issued or delayed delivery basis with
the intention of actually acquiring the securities, a Portfolio may dispose of
these securities prior to settlement, if the Sub-Adviser deems it appropriate
to do so. The payment obligation and interest rate on these securities is
fixed at the time a Portfolio enters into the commitment, but no income will
accrue to the Portfolio until they are delivered and paid for. Unless a
Portfolio has entered into an offsetting agreement to sell the securities,
cash or liquid assets equal to the amount of the Portfolio's commitment must
be segregated and maintained with the Fund's custodian to secure the
Portfolio's obligation and to partially offset the leverage inherent in these
securities. The market value of the securities when they are delivered may be
less than the amount paid by the Portfolio.
The International Equity Portfolio may invest up to 5% of its net assets in
when-issued and delayed delivery securities. The Intermediate Fixed Income
Portfolio may invest up to 15% of its net assets in when-issued and delayed
delivery securities. The Global Fixed Income Portfolio may invest up to 25%
of its total assets in when-issued and delayed delivery securities.
EMERGENCY BORROWING. Certain Portfolios will be permitted to borrow money up
to one-third of the value of the Portfolio's total assets taken at current
value but only from banks as a temporary measure for extraordinary or
emergency purposes. Beyond 5% of a Portfolio's total assets (at current
value), this borrowing may not be used for investment leverage to purchase
securities.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. Certain Portfolios are permitted
to invest in shares of other investment companies. A Portfolio may invest up
to 10% of its total assets in shares of investment companies and up to 5% of
its total assets in any one investment company as long as that investment does
not represent more than 3% of the total voting stock of the acquired
investment company. Investments in the securities of other investment
companies may involve duplication of advisory fees and other expenses.
Because certain emerging markets are closed to investment by foreigners, a
Portfolio may invest in issuers in those markets primarily through
specifically authorized investment funds. In addition, a Portfolio may invest
in investment companies that are designed to replicate the composition and
performance of a particular index. For example, Standard & Poor's Depositary
Receipts ("SPDERS") are exchange-traded shares of a closed-end investment
company designed to replicate the price performance and dividend yield of the
Standard & Poor's 500 Composite Stock Price Index. Another example is World
Equity Benchmark Series ("WEBS") which are exchange traded shares of open-end
investment companies designed to replicate the composition and performance of
publicly traded issuers in particular countries. Investments in index baskets
involve the same risks associated with a direct investment in the types of
securities included in the baskets.
The Growth & Income Portfolio may invest in shares of closed-end investment
companies if bought in primary or secondary offerings with a fee or commission
no greater than the customary broker's commission. Shares of such investment
companies sometimes trade at a discount or premium in relation to their net
asset value.
REITS. Certain of the Portfolios may invest in shares of real estate
investment trusts ("REITs"), which are pooled investment vehicles that invest
in real estate or real estate loans or interests. Investing in REITs involves
risks similar to those associated with investing in equity securities of small
capitalization companies. REITs are dependent upon management skills, are not
diversified, and are subject to risks of project financing, default by
borrowers, self-liquidation, and the possibility of failing to qualify for the
exemption from taxation under the Code.
MONEY MARKET INSTRUMENTS AND SHORT-TERM SECURITIES. Although the Mid Cap
Equity Portfolio intends to stay invested in equity and equity-related
securities to the extent practical in light of its investment objective, the
Portfolio may, under normal market conditions, establish and maintain cash
balances and may purchase money market instruments with maturities of less
than one year and short-term interest-bearing fixed income securities with
maturities of one to three years ("Short-Term Obligations") to maintain
liquidity to meet redemptions.
Money market instruments in which the Mid Cap Equity Portfolio invests will be
rated at the time of purchase P-1 by Moody's or A-1 or Duff-1 by S&P, Duff and
Fitch or, if unrated, determined by the Sub-Adviser to be of comparable
quality. Money market instruments and Short-Term Obligations include
obligations issued or guaranteed by the U.S. Government or any of its agencies
and instrumentalities, U.S. and foreign commercial paper, bank obligations,
repurchase agreements and other debt obligations of U.S. and foreign issuers.
At least 95% of the Mid Cap Equity Portfolio's assets that are invested in
Short-Term Obligations must be invested in obligations rated at the time of
purchase Aaa, Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by S&P,
Duff or Fitch or, if unrated, determined by the Sub-Adviser to be of
comparable credit quality. Up to 5% of the Mid Cap Equity Portfolio's total
assets invested in Short-Term Obligations may be invested in obligations rated
Baa by Moody's or BBB by S&P, Duff or Fitch or, if unrated, determined by the
Sub-Adviser to be of comparable credit quality.
Securities rated within the top three investment grade ratings (i.e., Aaa, Aa,
A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by S&P, Duff or Fitch) are
generally regarded as high grade obligations. Securities rated Baa by Moody's
or BBB by S&P, Duff or Fitch are generally considered medium grade obligations
and have some speculative characteristics. (See "Investment Risks - Risk
Factors Applicable to High Yielding High Risk Debt Securities.")
U.S. GOVERNMENT SECURITIES. Generally, these securities include U.S. Treasury
obligations and obligations issued or guaranteed by U.S. Government agencies,
instrumentalities or sponsored enterprises which are supported by (a) the full
faith and credit of the U.S. Treasury (such as GNMA), (b) the right of the
issuer to borrow from the U.S. Treasury (such as securities of the Student
Loan Marketing Association), (c) the discretionary authority of the U.S.
Government to purchase certain obligations of the issuer (such as FNMA and
FHLMC), or (d) only the credit of the agency. No assurance can be given that
the U.S. Government will provide financial support to U.S. Government
agencies, instrumentalities or sponsored enterprises in the future. U.S.
Government securities also include Treasury receipts, zero coupon bonds,
deferred interest securities and other stripped U.S. Government securities,
where the interest and principal components of stripped U.S. Government
securities are traded independently ("STRIPS").
TEMPORARY DEFENSIVE INVESTMENTS. Each Portfolio may adopt a temporary
defensive position during adverse market conditions by investing without limit
in high quality money market instruments, including short-term U.S. Government
securities, negotiable certificates of deposit, non-negotiable fixed time
deposits, bankers' acceptances, commercial paper, floating-rate notes and
repurchase agreements. To the extent a Portfolio is invested in temporary
defensive instruments, it will not be pursuing its investment objective.
PORTFOLIO DIVERSIFICATION AND CONCENTRATION. The Global Fixed Income
Portfolio is non-diversified which means that it may invest more than 5% of
its total assets in the securities of a single issuer. Investing a
significant amount of the Portfolio's assets in the securities of a small
number of foreign issuers will cause the Portfolio's net asset value to be
more sensitive to events affecting those issuers. The Portfolio will not
concentrate (invest 25% or more of its total assets) in the securities of
issuers in any one industry. For purposes of this limitation, the staff of
the Securities and Exchange Commission considers (a) all supranational
organizations as a group to be a single industry and (b) each foreign
government and its political subdivisions to be a single industry.
INVESTMENT RISKS
FOREIGN SECURITIES
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in U.S. dollar-denominated securities of
domestic issuers. Investments in foreign issuers may be affected by changes
in currency rates, changes in foreign or U.S. laws or restrictions applicable
to such investments and in exchange control regulations (i.e., currency
blockage). A decline in the exchange rate of the currency (i.e., weakening of
the currency against the U.S. dollar) in which a portfolio security is quoted
or denominated relative to the U.S. dollar would reduce the value of the
portfolio security. Commissions may be higher and spreads may be greater on
transactions in foreign securities than those for similar transactions in
domestic markets. In addition, clearance and settlement procedures may be
different in foreign countries and, in certain markets, such procedures have
on occasion been unable to keep pace with the volume of securities
transactions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to U.S. issuers.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
U.S. Most foreign securities markets may have substantially less trading
volume than U.S. securities markets and securities of many foreign issuers are
less liquid and more volatile than securities of comparable U.S. issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets,
political or social instability or diplomatic developments which could affect
investments in those countries.
INVESTING IN EMERGING MARKETS
Certain Portfolios may invest in securities of issuers in emerging markets,
including issuers in Asia, Eastern Europe, Latin and South America, the
Mediterranean, Russia and Africa. Certain Portfolios may also invest in
currencies of such countries and may engage in Strategic Transactions in the
markets of such countries. Investments in securities of issuers in emerging
markets may involve a high degree of risk and many may be considered
speculative. Investments in emerging markets involve risks in addition to
those generally associated with investments in foreign securities. Political
and economic structures in many emerging markets may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristics of more developed countries.
As a result, the risks described above relating to investments in foreign
securities, including the risks of nationalization or expropriation of assets,
may be heightened. In addition, unanticipated political or social
developments may affect the values of a Portfolio's investments and the
availability to the Portfolio of additional investments in such emerging
markets. The small size of the securities markets in certain emerging markets
and the limited volume of trading in securities in those markets may make a
Portfolio's investments in such countries less liquid and more volatile than
investments in countries with more developed securities markets (such as the
U.S., Japan and most Western European countries).
CURRENCY RISKS
The U.S. dollar value of securities denominated in a foreign currency will
vary with changes in currency exchange rates, which can be volatile.
Accordingly, changes in the value of these currencies against the U.S. dollar
will result in corresponding changes in the U.S. dollar value of a Portfolio's
assets quoted in those currencies. Exchange rates are generally affected by
the forces of supply and demand in the international currency markets, the
relative merits of investing in different countries and the intervention or
failure to intervene of U.S. or foreign governments and central banks. Some
countries in emerging markets also may have managed currencies, which do not
float freely against the U.S. dollar and may restrict the free conversion of
their currencies into other currencies. Any devaluations in the currencies in
which a Portfolio's securities are denominated may have a detrimental impact
on the Portfolio's net asset value. A Portfolio may utilize various
investment strategies to seek to minimize the currency risks described above.
These strategies include the use of currency transactions such as currency
forward and futures contracts, cross currency forward and futures contracts,
currency swaps and options and cross currency options on currencies or
currency futures.
DEBT SECURITIES
Investments in debt securities are subject to certain risks including interest
rate risk, default risk and call and extension risk.
INTEREST RATE RISK. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates
increase, the market value of fixed income securities tends to decline. The
volatility of a security's market value will differ depending upon the
security's duration, the issuer and the type of instrument.
DEFAULT RISK/CREDIT RISK. Investments in fixed income securities are subject
to the risk that the issuer of the security could default on its obligations
causing a Portfolio to sustain losses on such investments. A default could
impact both interest and principal payments.
CALL RISK AND EXTENSION RISK. Fixed income securities may be subject to both
call risk and extension risk. Call risk exists when the issuer may exercise a
right to pay principal on an obligation earlier than scheduled which would
cause cash flows to be returned earlier than expected. This typically results
when interest rates have declined and a Portfolio will suffer from having to
reinvest in lower yielding securities. Extension risk exists when the issuer
may exercise a right to pay principal on an obligation later than scheduled
which would cause cash flows to be returned later than expected. This
typically results when interest rates have increased and a Portfolio will
suffer from the inability to invest in higher yield securities.
RISK FACTORS APPLICABLE TO HIGH YIELDING HIGH RISK DEBT SECURITIES
Certain Portfolios may invest in high-yielding, high-risk debt securities.
Lower rated bonds involve a higher degree of credit risk, the risk that the
issuer will not make interest or principal payments when due. In the event of
an unanticipated default, a Portfolio would experience a reduction in its
income, and could expect a decline in the market value of the securities so
affected. More careful analysis of the financial condition of each issuer of
lower grade securities is therefore necessary. During an economic downturn or
substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations, to meet projected
business goals and to obtain additional financing.
The market prices of lower grade securities are generally less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic or political changes or, in the case of corporate issuers,
individual corporate developments. Periods of economic or political
uncertainty and change can be expected to result in volatility of prices of
these securities. Since the last major economic recession, there has been a
substantial increase in the use of high-yield debt securities to fund highly
leveraged corporate acquisitions and restructurings, so past experience with
high-yield securities in a prolonged economic downturn may not provide an
accurate indication of future performance during such periods. Lower rated
securities also may have less liquid markets than higher rated securities, and
their liquidity as well as their value may be adversely affected by adverse
economic conditions. Adverse publicity and investor perceptions, as well as
new or proposed laws, may also have a negative impact on the market for
high-yield/high-risk bonds.
Credit quality of high-yield/high risk securities (so-called "junk bonds") can
change suddenly and unexpectedly and even recently issued credit ratings may
not fully reflect the actual risks posed by a particular high-yield/high-risk
security. For these reasons, it is the Portfolios' policy not to rely
primarily on ratings issued by established credit rating agencies, but to
utilize such ratings in conjunction with each Sub-Adviser's own independent
and ongoing review of credit quality.
COMMON STOCKS
A Portfolio investing in common stocks is subject to market risk. Market risk
is the possibility that stock prices in general will decline over short or
even extended periods of time. Stock markets tend to be cyclical, with
periods when stock prices generally rise and periods when stock prices
generally decline. There is also the risk that a Portfolio's performance
during a specific period may not meet or exceed that of the stock market as a
whole.
COVERED CALL OPTIONS
Certain Portfolios may engage in covered call options as described herein. Up
to 25% of the Balanced Portfolio's total assets may be subject to covered call
options. By writing covered call options, a Portfolio gives up the
opportunity, while the option is in effect, to profit from any price increase
in the underlying security above the option exercise price. In addition, a
Portfolio's ability to sell the underlying security will be limited while the
option is in effect unless the Portfolio effects a closing purchase
transaction. A closing purchase transaction cancels out a Portfolio's
position as the writer of an option by means of an offsetting purchase of an
identical option prior to the expiration of the option it has written.
Upon the termination of a Portfolio's obligation under a covered call option
other than through exercise of the option, the Portfolio will realize a
short-term capital gain or loss. Any gain realized by a Portfolio from the
exercise of an option will be short- or long-term depending on the period for
which the stock was held. The writing of covered call options creates a
straddle that is potentially subject to the straddle rules, which may override
some of the foregoing rules and result in a deferral of some losses for tax
purposes.
REPURCHASE AGREEMENTS
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreement defaults on its obligation to repurchase the
underlying securities at a time when the value of these securities has
declined, a Portfolio may incur a loss upon disposition of them. If the
seller of the agreement becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, disposition of the
underlying securities may be delayed pending court proceedings. Finally, it
is possible that a Portfolio may not be able to perfect its interest in the
underlying securities. While a Portfolio's management acknowledges these
risks, it is expected that they can be controlled through stringent security
selection criteria and careful monitoring procedures.
INVESTMENT RESTRICTIONS
The Portfolios are subject to certain investment restrictions relating to the
investment of assets which are set forth in the SAI. Certain of these
investment restrictions are deemed fundamental and may not be changed without
the approval of the holders of a majority of the outstanding shares of the
Portfolio (which for this purpose and under the 1940 Act means the lesser of
(I) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are present or represented by proxy or (ii) more than 50%
of the outstanding shares).
PORTFOLIO TURNOVER
Although the Portfolios do not purchase securities with a view to rapid
turnover, each Portfolio's Sub-Adviser, in pursuit of each Portfolio's
investment objective, will continuously monitor the Portfolio's investments
and make changes to the Portfolio whenever changes in the markets, industry
trends or the outlook for any portfolio security indicates to them that the
objective could be better achieved by investment in another security,
regardless of portfolio turnover. Portfolio turnover may increase as a result
of large amounts of purchases and redemptions of shares of a Portfolio due to
economic, market or other factors that are not within the control of the
Portfolio's management.
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. It is expected that under normal
market conditions, the annual portfolio turnover rate for each of the
Portfolios will not exceed 100%. High rates of portfolio turnover necessarily
result in correspondingly greater brokerage and portfolio trading costs,
which are paid by the Portfolios. Trading in fixed-income securities does
not generally involve the payment of brokerage commissions, but does involve
indirect transaction costs. In addition, high rates of portfolio turnover
may adversely affect each Portfolio's status as a "regulated investment
company" ("RIC") under Section 851 of the Code.
MANAGEMENT OF THE FUND
The management and affairs of the Fund are supervised by the Board of
Directors under the laws of the State of Maryland. The Directors have
approved agreements under which, as described below, certain companies provide
essential management services to the Fund.
INVESTMENT ADVISER
Investors Mark Advisors, LLC (the "Adviser"), 700 Karnes Boulevard, Kansas
City, Missouri 64108, serves as the investment adviser of each Portfolio and,
as such, provides each Portfolio with professional investment supervision and
management pursuant to an Investment Advisory Agreement dated July 15, 1997.
The Adviser, a Delaware limited liability company, is a wholly-owned
subsidiary of Jones & Babson, Inc. ("Jones & Babson"). Jones & Babson is a
wholly-owned subsidiary of Business Men's Assurance Company of America
("BMA"). Assicurazioni Generali S.p.A., an insurance organization founded in
1831 based in Trieste, Italy, is the ultimate parent of BMA.
The Adviser is newly formed and thus has no previous experience in advising a
mutual fund. However, pursuant to a Services Agreement between the Adviser
and Jones & Babson, personnel of Jones & Babson will provide the Adviser
with experienced professional fund administration and portfolio accounting
for which Jones & Babson will receive from the Adviser, as compensation
for its services, an annual fee, payable monthly, equal to 0.06% of the
average total net assets of the Fund. Jones & Babson, founded in 1960,
serves as the investment manager of numerous other mutual funds.
Under the Investment Advisory Agreement, the Adviser is obligated to formulate
a continuing program for the investment of the assets of each Portfolio of the
Fund in a manner consistent with each Portfolio's investment objectives,
policies and restrictions and to determine from time to time securities to be
purchased, sold, retained or lent by the Fund and implement those decisions.
The Investment Advisory Agreement also provides that the Adviser shall manage
the Fund's business and affairs and shall provide such services required for
effective administration of the Fund as are now provided by employees or other
agents engaged by the Fund. The Investment Advisory Agreement further
provides that the Adviser shall furnish the Fund with office space and
necessary personnel, pay ordinary office expenses, pay all executive salaries
of the Fund and furnish, without expense to the Fund, the services of such
members of its organization as may be duly elected officers or Directors of
the Fund. The Investment Advisory Agreement provides that the Adviser may
retain sub-advisers, at the Adviser's own cost and expense, for the purpose of
making investment recommendations and research information available to the
Fund.
As full compensation for its services under the Investment Advisory Agreement,
the Fund pays the Adviser a monthly fee at the following annual rates shown in
the table below based on the average daily net assets of each Portfolio.
<TABLE>
<CAPTION>
<S> <C>
Advisory Fee
(Annual Rate based on average
daily net assets of each
Portfolio Portfolio)
Intermediate Fixed Income .60%
Mid Cap Equity .80%
Money Market .40%
Global Fixed Income .75%
Small Cap Equity .95%
Large Cap Growth .80%
Large Cap Value .80%
Growth & Income .80%
Balanced .80%
International Equity .__%
</TABLE>
The Adviser may enter into administrative services agreements with
Participating Insurance Companies pursuant to which the Adviser will
compensate such companies for administrative responsibilities relating to the
Fund which are performed by such Participating Insurance Companies.
EXPENSE LIMITATION AGREEMENT
In the interest of limiting expenses of the Portfolios, the Adviser has
entered into an expense limitation agreement with the Fund ("Expense
Limitation Agreement"), with respect to each Portfolio, pursuant to which the
Adviser has agreed to limit the expenses of the Portfolios to the extent
necessary to limit the total annual operating expenses (expressed as a
percentage of each Portfolio's average daily net assets) to not more than
.90% of the average daily net assets of each of the Mid Cap Equity, Large Cap
Growth, Large Cap Value, Growth & Income and Balanced Portfolios; to not more
than .80% of the average daily net assets of the Intermediate Fixed Income
Portfolio; to not more than .50% of the average daily net assets of the Money
Market Portfolio; to not more than 1.00% of the average daily net assets of
the Global Fixed Income Portfolio; to not more than 1.05% of the average daily
net assets of the Small Cap Equity Portfolio; and to not more than 1.20% of
the average daily net assets of the International Equity Portfolio.
This expense limitation may be modified or terminated in the discretion of the
Adviser at any time without notice to shareholders after the expiration of
twelve (12) months from the date shares of the Portfolios are first offered to
the public. Reimbursement by the Portfolios of expenses paid by the
Adviser pursuant to the Expense Limitation Agreement may be made at a
later date when the Portfolios have reached a sufficient asset size to
permit reimbursement to be made without causing the total annual expense
ratio of each Portfolio to exceed the Total Operating Expense percentages
described above.
EXPENSES OF THE FUND
The organizational expenses of the Fund are being amortized on a straight-line
basis over a period of five years (beginning with the commencement of
operations). If any of the initial shares (purchased by Jones & Babson, Inc.,
the Fund's principal underwriter, through its contribution of the initial
"seed money" to the Fund totaling $100,000) are redeemed during the
amortization period by the holder thereof, the redemption proceeds will be
reduced by any unamortized organizational expenses in the same proportion as
the number of initial shares being redeemed bears to the number of initial
shares outstanding at the time of the redemption.
SUB-ADVISERS
In accordance with each Portfolio's investment objective and policies and
under the supervision of the Adviser and the Fund's Board of Directors, each
Sub-Adviser is responsible for the day-to-day investment management of the
Portfolio(s) and for making investment decisions for the Portfolio(s) and
placing orders on behalf of the Portfolio(s) to effect the investment
decisions made as provided in separate Sub-Advisory Agreements among each
Sub-Adviser, the Adviser and the Fund. The following organizations act as
Sub-Advisers to the Portfolios:
STANDISH, AYER & WOOD, INC. ("Standish"), One Financial Center, Boston,
Massachusetts 02111, is the Sub-Adviser for the Intermediate Fixed Income, Mid
Cap Equity and Money Market Portfolios of the Fund. Standish is a
Massachusetts corporation incorporated in 1933 and is a registered investment
adviser under the Investment Advisers Act of 1940. Standish provides fully
discretionary management services and counseling and advisory services to a
broad range of clients throughout the United States and abroad. As of March
31, 1997, Standish managed approximately $31 billion of assets.
The Intermediate Fixed Income Portfolio manager is Caleb F. Aldrich. Mr.
Aldrich also manages the Standish Fixed Income Fund. During the past five
years, Mr. Aldrich has served as a Director and Vice President of Standish.
The Mid Cap Equity Portfolio managers are Ralph S. Tate and David C. Cameron.
Mr. Tate and Mr. Cameron also manage the Equity Portfolio of the Standish,
Ayer & Wood Master Portfolio. During the past five years, Mr. Tate has served
as a Managing Director of Standish (since 1995) and President of Standish
International Management Company, L.P. ("SIMCO") (since 1996) and both Messrs.
Tate and Cameron have served as a Director and Vice President of Standish and
a Director of SIMCO (since 1995 for Mr. Cameron).
The Money Market Portfolio manager is Jennifer A. Pline. Ms. Pline also
manages the Standish Short-Term Asset Reserve Fund. During the past five
years, Ms. Pline has served as a Vice President of Standish.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to
Standish, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to the Intermediate Fixed Income, Mid Cap Equity and
Money Market Portfolios, the following annual fees based on the average daily
net assets of each Portfolio:
<TABLE>
<CAPTION>
<S> <C>
Intermediate Fixed Income Portfolio .20%
Mid Cap Equity Portfolio .35%
Money Market Portfolio .15%
</TABLE>
SIMCO, One Financial Center, Boston, Massachusetts 02111, is the Sub-Adviser
for the Global Fixed Income Portfolio of the Fund. SIMCO is a Delaware
limited partnership organized in 1991 and is a registered investment adviser
under the Investment Advisers Act of 1940. The general partner of the Adviser
is Standish which holds a 99.98% partnership interest. The limited partners,
who each hold a 0.01% interest in SIMCO, are Walter M. Cabot, Sr., a Director
of and Senior Adviser to SIMCO and Standish, and D. Barr Clayson, Chairman and
Vice President of the Board of SIMCO and Managing Director and Vice President
of Standish. Ralph S. Tate, Managing Director of Standish, is President and a
Director of SIMCO. Richard S. Wood, Vice President and a Managing Director of
Standish, is the Executive Vice President of SIMCO. Standish and SIMCO
provide fully discretionary management services and counseling and advisory
services to a broad range of clients throughout the United States and abroad.
The Global Fixed Income Portfolio manager is Richard S. Wood. Mr. Wood also
manages the Standish International Fixed Income Fund and the Standish Global
Fixed Income Portfolio. During the past five years, Mr. Wood has served as a
Vice President and a Managing Director (since 1995) of Standish and Executive
Vice President of SIMCO.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to SIMCO,
as full compensation for services rendered under the Sub-Advisory Agreement
with respect to the Global Fixed Income Portfolio, the following annual fee
based on the average daily net assets of the Portfolio:
<TABLE>
<CAPTION>
<S> <C>
Global Fixed Income Portfolio .35%
</TABLE>
STEIN ROE & FARNHAM INCORPORATED ("Stein Roe"), One South Wacker Drive,
Chicago, Illinois 60606, is the Sub-Adviser for the Large Cap Growth and Small
Cap Equity Portfolios of the Fund. Stein Roe is registered as an investment
adviser under the Investment Advisers Act of 1940. Stein Roe was organized in
1986 to succeed to the business of Stein Roe & Farnham, a partnership that had
advised and managed mutual funds since 1949. Stein Roe is a wholly-owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty Financial"), which
in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance
Company.
The Large Cap Growth Portfolio manager is Erik P. Gustafson. Mr. Gustafson
also manages the Growth Stock Portfolio of SR&F Base Trust and had managed
Stein Roe Growth Stock Fund since 1994. Mr. Gustafson is a senior vice
president and senior portfolio manager with Stein Roe which he joined in 1992.
From 1989 to 1992 he was an attorney with Fowler, White, Burnett, Hurley,
Banick & Strickroot. He holds a B.A. from the University of Virginia (1985)
and M.B.A. and J.D. degrees from Florida State University (1989). Mr.
Gustafson was responsible for managing $877 million in mutual fund net assets
at December 31, 1996. David P. Brady is associate portfolio manager. Mr.
Brady is a vice president of Stein Roe, which he joined in 1993, and was an
equity investment analyst with State Farm Mutual Automobile Insurance Company
from 1986 to 1993.
The Small Cap Equity Portfolio managers are Richard B. Peterson and John S.
McLandsborough. Mr. Peterson and Mr. McLandsborough also manage the Special
Venture Portfolio of SR&F Base Trust. Mr. Peterson had been a co-portfolio
manager of Special Fund since 1991 and of Special Venture Fund since its
inception in 1994. Mr. Peterson is a senior vice president of the
Sub-Adviser. Mr. Peterson, who began his investment career at Stein Roe &
Farnham in 1965 after graduating with a B.A. from Carleton College (1962) and
the Woodrow Wilson School at Princeton University (1964) with a Masters in
Public Administration, rejoined Stein Roe in 1991 after 15 years of equity
research and portfolio management experience with State Farm Investment
Management Corp. As of December 31, 1996, Mr. Peterson was responsible for
co-managing $1.5 billion in mutual fund net assets. Prior to joining Stein
Roe in April 1996, Mr. McLandsborough was an equity research analyst with CS
First Boston from June 1994 until January 1996 and with National City Bank of
Cleveland prior thereto. Mr. McLandsborough, a chartered financial analyst,
earned a bachelor's degree in finance in 1989 from Miami University and a
master's degree in 1992 from Indiana University.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to Stein
Roe, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to the Large Cap Growth and Small Cap Equity
Portfolios, the following annual fees based on the average daily net assets of
each Portfolio:
<TABLE>
<CAPTION>
<S> <C>
Large Cap Growth Portfolio .45%
Small Cap Equity Portfolio .55%
</TABLE>
DAVID L. BABSON & CO. INC. ("Babson"), One Memorial Drive, Cambridge,
Massachusetts 02142-1300, is the Sub-Adviser for the Large Cap Value Portfolio
of the Fund. Babson, a registered investment adviser under the Investment
Advisers Act of 1940, is an indirect subsidiary of Massachusetts Mutual Life
Insurance Company headquartered in Springfield, Massachusetts. Massachusetts
Mutual Life Insurance Company is an insurance organization founded in 1851 and
is considered to be a controlling person of Babson under the 1940 Act.
The Large Cap Value Portfolio manager is Roland W. Whitridge. Mr. Whitridge
also manages the Babson Value Fund and has done so since its inception in
1984. Mr. Whitridge, a Chartered Financial Analyst, joined Babson in 1974,
and has over 30 years of investment management experience.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to
Babson, as full compensation for services rendered with respect to the Large
Cap Value Portfolio, the following annual fees based on the average daily net
assets of the Portfolio:
<TABLE>
<CAPTION>
<S> <C>
Large Cap Value Portfolio .45% of first $40 million
.40% of average daily net
assets over and above
$ 40 million
</TABLE>
LORD, ABBETT & CO. ("Lord Abbett"), The General Motors Building, 767 Fifth
Avenue, New York, New York 10153-0203, is the Sub-Adviser for the Growth &
Income Portfolio of the Fund. Lord Abbett, a registered investment adviser
under the Investment Advisers Act of 1940, has been an investment manager for
over 67 years. As of June 30, 1997, Lord Abbett managed approximately $23
billion in a family of mutual funds and other advisory accounts.
The Growth & Income Portfolio manager is W. Thomas Hudson, Jr. Mr. Hudson has
been employed by Lord Abbett since 1982. Mr. Hudson has been a
portfolio manager since 1989. Mr. Hudson became an Executive Vice President
of Lord Abbett in 1996 and a partner in 1997.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to Lord
Abbett, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to the Growth & Income Portfolio, the following annual
fee based on the average daily net assets of the Portfolio:
<TABLE>
<CAPTION>
<S> <C>
Growth & Income Portfolio .45% of first $40 million
.40% of average daily net
assets over and above
$ 40 million
</TABLE>
KORNITZER CAPITAL MANAGEMENT, INC. ("Kornitzer"), 7715 Shawnee Mission
Parkway, Shawnee Mission, Kansas 66202, is the Sub-Adviser for the Balanced
Portfolio of the Fund. Kornitzer, a registered investment adviser under the
Investment Advisers Act of 1940, is an independent investment counseling firm
founded in 1989. It serves a broad variety of individual, corporate and other
institutional clients by maintaining an extensive research and analytical
staff. Kornitzer is a closely held corporation and has limitations in the
ownership of its stock designed to maintain control in those who are active in
management. Owners of 5% or more of Kornitzer are John C. Kornitzer, Kent W.
Gasaway, Willard R. Lynch, Thomas W. Laming and Susan Stack. Kornitzer
manages over $1.3 billion including the Buffalo family of mutual funds.
The Balanced Portfolio utilizes a team approach to both research and portfolio
management.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to
Kornitzer, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to the Balanced Portfolio, the following annual fee
based on the average daily net assets of the Portfolio:
<TABLE>
<CAPTION>
<S> <C>
Balanced Portfolio .40% of first $40 million
.35% of average daily net assets
over and above $40 million
</TABLE>
BBOI WORLDWIDE LLC ("BBOI Worldwide"), 210 University Boulevard, Denver,
Colorado 80206, is the Sub-Adviser for the International Equity Portfolio of
the Fund. BBOI Worldwide, a registered investment adviser under the
Investment Advisers Act of 1940, is a Delaware limited liability company
formed in 1996. Since BBOI Worldwide was only recently formed, it has only
limited prior experience as in investment adviser. However, BBOI Worldwide is
a joint venture between Berger Associates, Inc. ("Berger Associates") and Bank
of Ireland Asset Management (U.S.) Limited ("BIAM"), which have both been in
the investment advisory business for many years.
Berger Associates and BIAM each own a 50% membership interest in BBOI
Worldwide and each have an equal number of representatives on BBOI Worldwide's
Board of Managers. Berger Associates' role in the joint venture is to provide
administrative services and BIAM's role is to provide international and global
investment management expertise. Agreement of representatives of both Berger
Associates and BIAM is required for all significant management decisions for
BBOI Worldwide.
Since its founding in 1966, Bank of Ireland's investment management group has
become recognized among international and global investment managers, serving
clients in Europe, the United States, Canada, Australia and South Africa.
BIAM is an indirect wholly-owned subsidiary of Bank of Ireland. Bank of
Ireland, founded in 1783, is a publicly traded, diversified financial services
group with business operations worldwide. Bank of Ireland provides investment
management services through a network of related companies, including BIAM
which serves primarily institutional clients in the United States and Canada.
Bank of Ireland and its affiliates managed assets for clients worldwide in
excess of $21 billion as of December 31, 1996.
BBOI Worldwide has delegated day-to-day portfolio management responsibility to
BIAM which manages the investments in the Portfolio and determines what
securities and other investments will be purchased, retained, sold or loaned,
consistent with the investment objective and policies established by the
Directors of the Fund. BIAM serves as investment adviser or sub-adviser to
pension and profit-sharing plans and other institutional investors and mutual
funds. BIAM also acts as sub-adviser for and is responsible for the
day-to-day management of the portfolio in which the assets of the Berger/BIAM
International Fund and the Berger/BIAM International Core Fund are invested.
BIAM's main offices are at 26 Fitzwilliam Place, Dublin 2, Ireland. BIAM
maintains a representative office at 20 Horseneck Lane, Greenwich, CT 06830.
All investment decisions made for the International Equity Portfolio are made
by a team of BIAM investment personnel. No one individual is primarily
responsible for making the day-to-day investment decisions for the Portfolio.
Most of the investment professionals at BIAM have been with BIAM at least 10
years.
Bank of Ireland or its affiliates may have deposit, loan or other commercial
or investment banking relationships with the issuers of securities which may
be purchased by the Portfolio, including outstanding loans to such issuers
which could be repaid in whole or in part with the proceeds of securities
purchased by the Portfolio. Federal law prohibits the Sub-Adviser, in making
investment decisions, from using material non-public information in its
possession or in the possession of any of its affiliates.
Under the terms of the Sub-Advisory Agreement, the Adviser shall pay to BBOI
Worldwide, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to the International Equity Portfolio, the following
annual fee based on the average daily net assets of the Portfolio:
<TABLE>
<CAPTION>
<S> <C>
International Equity Portfolio ___%
</TABLE>
SUB-ADVISORY FEE WAIVERS
The Sub-Advisers have voluntarily agreed to waive their sub-advisory fees for
a period of time to assist the Adviser in subsidizing Other Expenses.
PERFORMANCE ADVERTISING
From time to time, each Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. Yield refers to the annualized income generated by
an investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of each Portfolio refers to the average compounded rate of
return on a hypothetical investment for designated time periods (including but
not limited to the period from which the Portfolio commenced operations
through the specified date), assuming that the entire investment is redeemed
at the end of each period and assuming the reinvestment of all dividend and
capital gain distributions.
Total returns quoted for a Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract or Qualified Plan. Accordingly, the
prospectus of the sponsoring Participating Insurance Company separate account
or Qualified Plan documents or other informational materials supplied by
Qualified Plan sponsors should be carefully reviewed for information on
relevant charges and expenses. Excluding these charges and expenses from
quotations of a Portfolio's performance has the effect of increasing the
performance quoted, and the effect of these charges should be considered when
comparing a Portfolio's performance to that of other mutual funds.
Each Portfolio may periodically compare its performance to that of other
mutual funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals,
broad groups of comparable mutual funds, unmanaged indices which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs and other investment alternatives. Each
Portfolio may quote services such as Morningstar, Inc., a service that ranks
mutual funds on the basis of risk-adjusted performance, and Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. In addition, the International Equity Portfolio
may compare its performance to that of broad-based foreign securities market
indices, such as the Morgan Stanley Capital International EAFE (Europe,
Australia, Asia, Far East) Index and the Dow Jones World Index. Each
Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include
the value of a hypothetical investment in any of the capital markets. Each
Portfolio may also quote financial and business publications and periodicals
as they relate to fund management, investment philosophy, and investment
techniques.
Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data
and cannot be calculated precisely.
PUBLIC FUND PERFORMANCE
The Portfolios are newly organized and do not yet have their own performance
records. However, certain of the Portfolios have the same investment
objectives and follow substantially the same investment strategies as certain
public mutual funds ("public funds") whose shares are currently sold to the
public and managed by the Sub-Advisers.
Set forth below is the historical performance of each of the corresponding
public funds. Investors should not consider the performance data of the public
funds as an indication of the future performance of the Portfolios. The
performance figures shown below reflect the deduction of the historical fees
and expenses paid by the corresponding public funds, and NOT THOSE TO BE PAID
BY THE PORTFOLIOS. The figures also do not reflect the deduction of any
insurance fees or charges which are imposed by the Participating Insurance
Company in connection with its sale of the VA Contracts and VLI Policies nor
do the figures reflect any charges or expenses which may be attributable to
any Qualified Plan. Investors should refer to the separate account
prospectuses describing the VA Contracts and VLI Policies or to the Qualified
Plan documents or other informational materials supplied by Qualified Plan
sponsors for information pertaining to these fees and charges. Any such fees
and charges will have a detrimental effect on the performance of the
Portfolios. Additionally, although it is anticipated that each Portfolio and
its corresponding public fund will hold similar securities, their investment
results are expected to differ. In particular, differences in asset size and
in cash flow resulting from purchases and redemptions of Portfolio shares may
result in different security selections, differences in the relative
weightings of securities or differences in the price paid for particular
portfolio holdings. In addition, there are certain diversification
requirements under Section 817 of the Code which the Portfolios intend to
comply with which are not applicable with respect to public funds. (See
"Internal Revenue Service Requirements.") The results shown reflect the
reinvestment of dividends and distributions, and were calculated in the same
manner that will be used by the Portfolios to calculate their own
performance.
The following tables show average annualized total returns for the time
periods shown for the public funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INTERMEDIATE FIXED INCOME
PORTFOLIO 10 Years or
1 Year * 5 Years * Since Inception *
Corresponding Series of the
Public Fund
Standish, Ayer & Wood
Investment Trust - Standish
Fixed Income Fund 5.48% 7.82% 9.04%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MID CAP EQUITY
PORTFOLIO 10 Years or
1 Year* 5 Years* Since Inception*
Corresponding Series of the
Public Fund
Standish, Ayer & Wood
Investment Trust - Standish
Equity Fund 26.84% 17.31% 19.84%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GLOBAL FIXED INCOME
PORTFOLIO 10 Years or
1 Year* 5 Years* Since Inception*
Corresponding Series of the
Public Fund
Standish, Ayer & Wood
Investment Trust - Standish Global
Fixed Income Fund 13.03% 7.46% N/A
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SMALL CAP EQUITY
PORTFOLIO 10 Years or
1 Year* 5 Years* Since Inception*
Corresponding Series of the
Public Fund
Stein Roe Investment Trust -
Stein Roe Special Venture Fund 17.78% 25.01% N/A
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LARGE CAP GROWTH
PORTFOLIO 10 Years or
1 Year* 5 Years* Since Inception*
Corresponding Series of the
Public Fund
Stein Roe Investment Trust -
Stein Roe Growth Stock Fund 29.74% 17.47% 13.01%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LARGE CAP VALUE
PORTFOLIO 10 Years or
1 Year* 5 Years* Since Inception*
Corresponding Public Fund
Babson Value Fund, Inc. 26.77% 19.61% 13.28%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BALANCED PORTFOLIO
10 Years or
1 Year* 5 Years* Since Inception*
Corresponding Public Fund
Buffalo Balanced Fund, Inc. 19.33% 14.99% N/A
</TABLE>
*Results shown are through the year ended December 31, 1996 for each public fund
shown except for the Stein Roe Funds and the Babson Value Fund, Inc. which are
through the period ended June 30, 1997. The inception dates for each public fund
with less than 10 years of performance history are March 27, 1987 for the
Standish Fixed Income Fund, June 2, 1991 for the Standish Equity Fund, January
3, 1994 for the Standish Global Fixed Income Fund, October 17, 1994 for the
Stein Roe Special Venture Fund and August 12, 1994 for the Buffalo Balanced
Fund, Inc.
CORRESPONDING PORTFOLIO PERFORMANCE
The Growth & Income Portfolio is newly organized and does not yet have its own
performance record. However, this Portfolio has the same investment objective
and follows substantially the same investment strategies as a portfolio
("Corresponding Portfolio") of a mutual fund, managed by one of the
Sub-Advisers whose shares are offered only (i) to life insurance companies for
allocation to certain of their separate accounts established for the purpose
of funding variable annuity contracts and variable life insurance policies and
(ii) to tax-qualified pension and retirement plans.
Set forth below is the historical performance of the Corresponding Portfolio.
Investors should not consider the performance data of the Corresponding
Portfolio as an indication of the future performance of the Portfolio. The
performance figures shown below reflect the deduction of the historical fees
and expenses paid by the Corresponding Portfolio, and not those to be paid by
the Portfolio. The figures also do not reflect the deduction of any insurance
fees or charges which are imposed by the Participating Insurance Company in
connection with its sale of the VA Contracts and VLI Policies nor do the
figures reflect any charges or expenses which may be attributable to any
Qualified Plan. Investors should refer to the separate account prospectuses
describing the VA Contracts and VLI Policies or to the Qualified Plan
documents or other informational materials supplied by Qualified Plan sponsors
for information pertaining to these fees and charges. These fees and charges
will have a detrimental effect on the performance of the Portfolio.
Additionally, although it is anticipated that the Portfolio and its
Corresponding Portfolio will hold similar securities, their investment results
are expected to differ. In particular, differences in asset size and in cash
flow resulting from purchases and redemptions of Portfolio shares may result
in different security selections, differences in the relative weightings of
securities or differences in the price paid for particular portfolio holdings.
The results shown reflect the reinvestment of dividends and distributions, and
were calculated in the same manner that will be used by the Portfolio to
calculate its own performance.
The following table shows average annualized total returns for the time
periods shown for the Corresponding Portfolio.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROWTH & INCOME
PORTFOLIO 10 Years or
1 Year* 5 Years* Since Inception*
Corresponding Portfolio
Lord Abbett Series Fund,
Inc. - Growth & Income
Portfolio 30.20% 18.53% 16.75%
</TABLE>
*Results shown are through the period ended June 30, 1997 for the
Corresponding Portfolio. The inception date for the
Corresponding Portfolio was December 11, 1989.
PURCHASES AND REDEMPTIONS
Individual investors may not purchase or redeem shares of the Portfolios
directly; shares may be purchased or redeemed only through VA Contracts and
VLI Policies offered by separate accounts of Participating Insurance Companies
or through Qualified Plans, including participant-directed Qualified Plans
which elect to make the Portfolios available as investment options for
Qualified Plan participants. Please refer to the prospectus of the sponsoring
Participating Insurance Company separate account or to the Qualified Plan
documents or other informational materials supplied by Qualified Plan sponsors
for instructions on purchasing a VA Contract or VLI Policy and on how to
select the Portfolios as investment options for a VA Contract, VLI Policy or
Qualified Plan.
PURCHASES. All investments in the Portfolios are credited to a
Participating Insurance Company's separate account immediately upon acceptance
of the investments by the Portfolios. Each Participating Insurance Company
receives orders from its contract owners to purchase or redeem shares of each
Portfolio on each day that the Portfolio calculates its net asset value (a
"Business Day"). That night, all orders received by the Participating
Insurance Company prior to the close of regular trading on the New York Stock
Exchange Inc. (the "NYSE") (currently 4:00 p.m., Eastern time) on that
Business Day are aggregated, and the Participating Insurance Company places a
net purchase or redemption order for shares of the Portfolios during the
morning of the next Business Day. These orders are executed at the net asset
value (described below under "Net Asset Value") next computed after receipt of
such order by the Participating Insurance Company.
Qualified Plan participants may invest in shares of the Portfolios through
their Qualified Plans by directing the Qualified Plan trustee to purchase
shares for their account. Participants should contact their Qualified Plan
sponsors for information concerning the appropriate procedure for investing in
the Portfolios. All investments in the Portfolios by Qualified Plans are
credited to the Qualified Plans immediately upon acceptance of the investments
by the Portfolios. All orders received from Qualified Plans are executed at
the net asset value next computed after receipt of such orders by the
Portfolios.
The Portfolios reserve the right to reject any specific purchase order.
Purchase orders may be refused if, in the Adviser's opinion, they are of a
size that would disrupt the management of the Portfolio. A Portfolio may
discontinue sales of its shares if management believes that a substantial
further increase in assets may adversely effect the Portfolio's ability to
achieve its investment objective. In such event, however, it is anticipated
that existing VA Contract owners, VLI Policy owners and Qualified Plan
participants would be permitted to continue to authorize investments in the
Portfolios and to reinvest any dividends or capital gains distributions.
REDEMPTIONS. Shares of a Portfolio may be redeemed on any Business Day.
Redemption orders which are received by a Participating Insurance Company or
Qualified Plan prior to the close of regular trading on the NYSE on any
Business Day and transmitted to the Fund or its specified agent during the
morning of the next Business Day will be processed at the next net asset value
computed after receipt of such order by the Participating Insurance Company or
Qualified Plan. Redemption proceeds will normally be wired to the
Participating Insurance Company or Qualified Plan on the Business Day
following receipt of the redemption order by the Participating Insurance
Company or Qualified Plan, but in no event later than seven days after receipt
of such order.
NET ASSET VALUE
Each Portfolio calculates the net asset value of a share by dividing the total
value of its assets, less liabilities, by the number of shares outstanding.
Shares are valued as of the close of trading on the NYSE (currently 4:00 p.m.,
Eastern time). Portfolio securities listed on an exchange or quoted on a
national market system are valued at the last sales price. Other securities
are quoted at the mean between the most recent bid and asked prices.
Short-term obligations are valued at amortized cost. Securities for which
market quotations are not readily available and other assets held by the Fund,
if any, are valued at their fair value as determined in good faith by the
Board of Directors. See "Determination of Net Asset Value" in the Statement of
Additional Information.
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
TAXES
For a discussion of the tax status of a VA Contract, VLI Policy or Qualified
Plan, refer to the Participating Insurance Company separate account prospectus
or Qualified Plan documents or other informational materials supplied by
Qualified Plan sponsors.
Each Portfolio intends to qualify and elect to be treated as a regulated
investment company that is taxed under the rules of Subchapter M of the Code.
As such, a Portfolio will not be subject to federal income tax on its net
ordinary income and net realized capital gains to the extent such income and
gains are distributed to the separate accounts of Participating Insurance
Companies and Qualified Plans which hold its shares. Because shares of the
Portfolios may be purchased only through VA Contracts, VLI Policies and
Qualified Plans, it is anticipated that any income, dividends or capital gain
distributions from the Portfolios are taxable, if at all, to the Participating
Insurance Companies and Qualified Plans and will be exempt from current
taxation of the VA Contract owner, VLI Policy owner, or Qualified Plan
participant if left to accumulate within the VA Contract, VLI Policy or
Qualified Plan.
INTERNAL REVENUE SERVICE REQUIREMENTS
The Portfolios intend to comply with the diversification requirements
currently imposed by the Internal Revenue Service on separate accounts of
insurance companies as a condition of maintaining the tax-deferred status of
VA Contracts and VLI Policies. See the Statement of Additional Information for
more specific information.
DIVIDENDS AND DISTRIBUTIONS
Each of the Portfolios will declare and distribute dividends from net ordinary
income at least annually and will distribute its net realized capital gains,
if any, at least annually. Distributions of ordinary income and capital gains
will be made in shares of such Portfolios unless an election is made on behalf
of a separate account of a Participating Insurance Company to receive
distributions in cash. Participating Insurance Companies and Qualified Plan
sponsors will be informed at least annually about the amount and character of
distributions from the fund for federal income tax purposes.
GENERAL INFORMATION
THE FUND
The Fund, an open-end management investment company, was incorporated in
Maryland in 1997. All consideration received by the Fund for shares of any
Portfolio and all assets of such Portfolio belong to that Portfolio and are
subject to liabilities related thereto. The Fund reserves the right to create
and issue shares of additional series.
Each Portfolio of the Fund pays its respective expenses relating to its
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of the
Portfolio under federal securities laws, pricing and insurance expenses and
pays additional expenses including litigation and other extraordinary
expenses, brokerage costs, interest charges, taxes and organization expenses.
THE TRANSFER AGENT
Jones & Babson, Inc., Kansas City, Missouri serves as the transfer agent,
dividend disbursing agent and shareholder servicing agent for the Fund under a
transfer agent agreement with the Fund.
From time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
Qualified Plans. These services may include, among other things,
sub-accounting services, answering inquiries relating to the Fund, delivering,
on behalf of the Fund, proxy statements, annual reports, updated Prospectuses,
other communications regarding the Fund, and related services as the Fund or
the beneficial owners may reasonably request.
THE DISTRIBUTOR
Jones & Babson serves as principal underwriter of the Fund. Jones & Babson
receives no compensation for serving in such capacity.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. Shareholders
of each Portfolio will vote separately on matters relating solely to it, such
as approval of advisory agreements and changes in fundamental policies, and
matters affecting some but not all Portfolios of the Fund will be voted on
only by shareholders of the affected Portfolios. Shareholders of all
Portfolios of the Fund will vote together in matters affecting the Fund
generally, such as the election of Directors or selection of accountants. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in
the operation of the Fund and for the election of Directors under certain
circumstances. In addition, a Director may be removed by the remaining
Directors or by shareholders at a special meeting called upon written request
of shareholders owning at least 10% of the outstanding shares of the Fund. In
the event that such a meeting is requested, the Fund will provide appropriate
assistance and information to the shareholders requesting the meeting. Under
current law, a Participating Insurance Company is required to request voting
instructions from VA Contract owners and VLI Policy owners and must vote all
shares held in the separate account in proportion to the voting instructions
received. Qualified Plans may or may not pass through voting rights to
Qualified Plan participants, depending on the terms of the Qualified Plan's
governing documents. For a more complete discussion of voting rights, refer to
the Participating Insurance Company separate account prospectus or the
Qualified Plan documents or other informational materials supplied by
Qualified Plan sponsors.
CONFLICTS OF INTEREST. The Portfolio offers its shares to (i) VA
Contracts and VLI Policies offered through separate accounts of Participating
Insurance Companies which may or may not be affiliated with each other and
(ii) Qualified Plans including Participant-directed Plans which elect to make
the Portfolios available as investment options for Qualified Plan
participants. Due to differences of tax treatment and other considerations,
the interests of VA Contract and VLI Policy owners and Qualified Plan
participants participating in the Portfolios may conflict. The Board will
monitor the Portfolios for any material conflicts that may arise and will
determine what action, if any, should be taken. If a conflict occurs, the
Board may require one or more Participating Insurance Company separate
accounts and/or Qualified Plans to withdraw its investments in the Portfolios.
As a result, the Portfolios may be forced to sell securities at
disadvantageous prices and orderly portfolio management could be disrupted. In
addition, the Board may refuse to sell shares of the Portfolios to any VA
Contract, VLI Policy or Qualified Plan or may suspend or terminate the
offering of shares of the Portfolios if such action is required by law or
regulatory authority or is in the best interests of the shareholders of the
Portfolios.
CODE OF ETHICS
To mitigate the possibility that a Portfolio will be adversely affected by
personal trading of employees, the Fund, the Adviser and the Sub-Advisers have
adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These Codes contain
policies restricting securities trading in personal accounts of the portfolio
managers and others who normally come into possession of information on
portfolio transactions. These Codes comply, in all material respects, with
the recommendations of the Investment Company Institute.
REPORTING
The Fund issues unaudited financial information semi-annually, and audited
financial statements annually for each Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of
record.
COUNSEL AND INDEPENDENT AUDITORS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut, serves as
counsel to the Fund. Ernst & Young, LLP, Kansas City, Missouri, serves
as the independent auditors of the Fund.
CUSTODIANS
UMB Bank, N.A., Kansas City, Missouri, serves as the custodian
for the Small Cap Equity, Large Cap Growth, Large Cap Value, Growth & Income,
Balanced and International Equity Portfolios of the Fund. Investors Fiduciary
Trust Company ("IFTC"), Kansas City, Missouri, serves as the custodian for the
Intermediate Fixed Income, Mid Cap Equity, Money Market and Global Fixed
Income Portfolios of the Fund. UMB Bank, N.A. and IFTC may be referred to
collectively in this Prospectus and in the Statement of Additional Information
as the "Custodian". The Custodian holds cash, securities and other assets of
the Fund as required by the 1940 Act.
IFTC also provides fund accounting services to the Portfolios for which it
serves as Custodian.
MISCELLANEOUS
As of the date of this Prospectus, Jones & Babson, as each Portfolio's initial
shareholder, owned of record or beneficially, all of the outstanding shares of
each Portfolio, and may be deemed to be a controlling person of each Portfolio
for purposes of the 1940 Act.
STATEMENT OF ADDITIONAL INFORMATION
INVESTORS MARK SERIES FUND, INC.
700 KARNES BOULEVARD
KANSAS CITY, MISSOURI 64108
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS BUT SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR INVESTORS MARK SERIES FUND, INC.,
DATED NOVEMBER 3, 1997 (the "PROSPECTUS"). A COPY OF THE PROSPECTUS MAY
BE OBTAINED WITHOUT CHARGE BY CALLING (888) 262-8131, OR WRITING
_________________________________________________________________.
The Prospectus and this SAI omit certain of the information contained in the
registration statement filed with the Securities and Exchange Commission
("SEC"), Washington, D.C. These items may be obtained from the SEC upon payment
of the fee prescribed, or inspected at the SEC's office at no charge. The SEC
maintains a Web Site (http://www.sec.gov) that contains the SAI, material
incorporated by reference, and other information regarding the Fund.
THIS STATEMENT OF ADDITIONAL INFORMATION IS
DATED NOVEMBER 3, 1997
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT RESTRICTIONS
DIRECTORS AND OFFICERS OF THE FUND
COMPENSATION TABLE
THE ADVISER
SUB-ADVISERS
THE DISTRIBUTOR
PERFORMANCE INFORMATION
PURCHASE AND REDEMPTION OF SHARES
DETERMINATION OF NET ASSET VALUE
TAXES
PORTFOLIO TRANSACTIONS
PORTFOLIO TURNOVER
DESCRIPTION OF SHARES
FINANCIAL STATEMENTS
APPENDIX
GENERAL INFORMATION AND HISTORY
Investors Mark Series Fund, Inc. ("Fund") is an open-end management investment
company incorporated in Maryland on June 27, 1997. This SAI relates to all
Portfolios of the Fund. No investment in shares of a Portfolio should be made
without first reading the Prospectus. Capitalized terms not defined herein
are defined in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
This SAI contains additional information concerning certain investment policies,
practices and restrictions of the Fund and is provided for those investors
wishing to have more comprehensive information than that contained in the
Prospectus.
Shares of the Portfolios of the Fund are not available directly to individual
investors but may be offered only to Participating Insurance Companies and
Qualified Plans. Certain Portfolios of the Fund may not be available in
connection with a particular VA Contract, VLI Policy or Qualified Plan or may
not be available in a particular state. Investors should consult the separate
account prospectus of the specific insurance product or the Qualified Plan
documents for information on the availability of the various Portfolios of the
Fund.
Except as described below under "Investment Restrictions", the investment
objectives and policies described in the Prospectus and in this SAI are not
fundamental, and the Directors may change the investment objectives and policies
of a Portfolio without an affirmative vote of shareholders of the Portfolio.
RIGHTS AND WARRANTS
Certain Portfolios may invest in rights and warrants. Rights represent a
privilege offered to holders of record of issued securities to subscribe
(usually on a pro rata basis) for additional securities of the same class, of a
different class, or of a different issuer, as the case may be. Warrants
represent the privilege to purchase securities at a stipulated price and are
usually valid for several years. Rights and warrants generally do not entitle a
holder to dividends or voting rights with respect to the underlying securities
nor do they represent any rights in the assets of the issuing company.
Also, the value of a right or warrant may not necessarily change with the value
of the underlying securities, and rights and warrants cease to have value if
they are not exercised prior to their expiration date.
CONVERTIBLE SECURITIES
By investing in convertible securities, a Portfolio obtains the right to benefit
from the capital appreciation potential in the underlying stock upon exercise of
the conversion right, while earning higher current income than would be
available if the stock were purchased directly. In determining whether to
purchase a convertible, the Sub-Adviser will consider substantially the same
criteria that would be considered in purchasing the underlying stock. While
convertible securities purchased by a Portfolio are frequently rated investment
grade, certain Portfolios may purchase unrated securities or securities rated
below investment grade if the securities meet the Sub-Adviser's other investment
criteria. Convertible securities rated below investment grade (a) tend to be
more sensitive to interest rate and economic changes, (b) may be obligations of
issuers who are less creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such securities being less
well known to investors than either common stock or conventional debt
securities. As a result, the Sub-Adviser's own investment research and analysis
tends to be more important in the purchase of such securities than other
factors.
MORTGAGE-RELATED OBLIGATIONS
Some of the characteristics of mortgage-related obligations and the issuers or
guarantors of such securities are described below.
LIFE OF MORTGAGE-RELATED OBLIGATIONS. The average life of mortgage-related
obligations is likely to be substantially less than the stated maturities of the
mortgages in the mortgage pools underlying such securities. Prepayments or
refinancing of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested long before the
maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary widely, it is not
possible to predict accurately the average life of a particular issue of
mortgage-related obligations. However, with respect to Government National
Mortgage Association ("GNMA") Certificates, statistics published by the FHA are
normally used as an indicator of the expected average life of an issue. The
actual life of a particular issue of GNMA Certificates, however, will depend on
the coupon rate of the financing.
GNMA CERTIFICATES. GNMA was established in 1968 when the Federal National
Mortgage Association ("FNMA") was separated into two organizations, GNMA and
FNMA. GNMA is a wholly-owned government corporation within the Department of
Housing and Urban Development. GNMA developed the first mortgage-backed
pass-through instruments in 1970 for Farmers Home Administration-FHMA-insured,
Federal Housing Administration-FHA-insured and for Veterans Administration-or
VA-guaranteed mortgages ("government mortgages").
GNMA purchases government mortgages and occasionally conventional mortgages to
support the housing market. GNMA is known primarily, however, for its role as
guarantor of pass-through securities collateralized by government mortgages.
Under the GNMA securities guarantee program, government mortgages that are
pooled must be less than one year old by the date GNMA issues its commitment.
Loans in a single pool must be of the same type in terms of interest rate and
maturity. The minimum size of a pool is $1 million for single-family mortgages
and $500,000 for manufactured housing and project loans.
Under the GNMA II program, loans with different interest rates can be included
in a single pool and mortgages originated by more than one lender can be
assembled in a pool. In addition, loans made by a single lender can be packaged
in a custom pool (a pool containing loans with specific characteristics or
requirements).
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal of and interest on securities backed by a pool of mortgages
insured by FHA or FHMA, or guaranteed by VA. The GNMA guarantee is backed by the
full faith and credit of the United States. GNMA is also empowered to borrow
without limitation from the U.S. Treasury if necessary to make any payments
required under its guarantee.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest on GNMA
Certificates is lower than the interest rated paid on the VA-guaranteed,
FHMA-insured or FHA-insured mortgages underlying the Certificates, but only by
the amount of the fees paid to GNMA and the issuer. For the most common type of
mortgage pool, containing single-family dwelling mortgages, GNMA receives an
annual fee of 0.06% of the outstanding principal for providing its guarantee,
and the issuer is paid an annual fee of 0.44% for assembling the mortgage pool
and for passing through monthly payments of interest and principal to GNMA
Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will be
earned on the GNMA Certificates for several reasons. First, GNMA Certificates
may be issued at a premium or discount, rather than at par, and, after issuance,
GNMA Certificates may trade in the secondary market at a premium or discount.
Second, interest is paid monthly, rather than semi-annually as with traditional
bonds. Monthly compounding has the effect of raising the effective yield earned
on GNMA Certificates. Finally, the actual yield of each GNMA Certificate is
influenced by the prepayment experience of the mortgage pool underlying the GNMA
Certificate. If mortgagors prepay their mortgages, the principal returned to
GNMA Certificate holders may be reinvested at higher or lower rates.
MARKET FOR GNMA CERTIFICATES. Since the inception of the GNMA mortgage-backed
securities program in 1970, the amount of GNMA Certificates outstanding has
grown rapidly. The size of the market and the active participation in the
secondary market by securities dealers and many types of investors make the GNMA
Certificates a highly liquid instrument. Prices of GNMA Certificates are readily
available from securities dealers and depend on, among other things, the level
of market rates, the GNMA Certificate's coupon rate and the prepayment
experience of the pools of mortgages backing each GNMA Certificate.
FHLMC PARTICIPATION CERTIFICATES. The Federal Home Loan Mortgage Corporation
("FHLMC") was created by the Emergency Home Finance Act of 1970. It is a private
corporation, initially capitalized by the Federal Home Loan Bank System, charged
with supporting the mortgage lending activities of savings and loan associations
by providing an active secondary market of conventional mortgages. To finance
its mortgage purchases, FHLMC issues FHLMC Participation Certificates and
Collateralized Mortgage Obligations ("CMOs").
Participation Certificates represent an undivided interest in a pool of mortgage
loans. FHLMC purchases whole loans or participations on 30-year and 15-year
fixed-rate mortgages, adjustable-rate mortgages ("ARMs") and home improvement
loans. Under certain programs, it will also purchase FHA and VA mortgages.
Loans pooled for FHLMC must have a minimum coupon rate equal to the
Participation Certificate rate specified at delivery, plus a required spread for
the corporation and a minimum servicing fee, generally 0.375% (37.5 basis
points). The maximum coupon rate on loans is 2% (200 basis points) in excess of
the minimum eligible coupon rate for Participation Certificates. FHLMC requires
a minimum commitment of $1 million in mortgages but imposes no maximum amount.
Negotiated deals require a minimum commitment of $10 million. FHLMC guarantees
timely payment of the interest and the ultimate payment of principal of its
Participation Certificates. This guarantee is backed by reserves set aside to
protect against losses due to default. The FHLMC CMO is divided into varying
maturities with prepayment set specifically for holders of the shorter term
securities. The CMO is designed to respond to investor concerns about early
repayment of mortgages.
FHLMC's CMOs are general obligations, and FHLMC will be required to use its
general funds to make principal and interest payments on CMOs if payments
generated by the underlying pool of mortgages are insufficient to pay principal
and interest on the CMO.
A CMO is a cash-flow bond in which mortgage payments from underlying mortgage
pools pay principal and interest to CMO bondholders. The CMO is structured to
address two major shortcomings associated with traditional pass-through
securities: payment frequency and prepayment risk. Traditional pass-through
securities pay interest and amortized principal on a monthly basis whereas CMOs
normally pay principal and interest semi-annually. In addition, mortgage-backed
securities carry the risk that individual mortgagors in the mortgage pool may
exercise their prepayment privileges, leading to irregular cash flow and
uncertain average lives, durations and yields.
A typical CMO structure contains four tranches, which are generally referred to
as classes A, B, C and Z. Each tranche is identified by its coupon and maturity.
The first three classes are usually current interest-bearing bonds paying
interest on a quarterly or semi-annual basis, while the fourth, Class Z, is an
accrual bond. Amortized principal payments and prepayments from the underlying
mortgage collateral redeem principal of the CMO sequentially; payments from the
mortgages first redeem principal on the Class A bonds. When principal of the
Class A bonds has been redeemed, the payments then redeem principal on the Class
B bonds. This pattern of using principal payments to redeem each bond
sequentially continues until the Class C bonds have been retired. At this point,
Class Z bonds begin paying interest and amortized principal on their accrued
value.
The final tranche of a CMO is usually a deferred interest bond, commonly
referred to as the Z bond. This bond accrues interest at its coupon rate but
does not pay this interest until all previous tranches have been fully retired.
While earlier classes remain outstanding, interest accrued on the Z bond is
compounded and added to the outstanding principal. The deferred interest period
ends when all previous tranches are retired, at which point the Z bond pays
periodic interest and principal until it matures. A Sub-Adviser would purchase a
Z bond for a Portfolio if it expected interest rates to decline.
FNMA SECURITIES. FNMA was created by the National Housing Act of 1938. In 1968,
the agency was separated into two organizations, GNMA to support a secondary
market for government mortgages and FNMA to act as a private corporation
supporting the housing market.
FNMA pools may contain fixed-rate conventional loans on one-to-four-family
properties. Seasoned FHA and VA loans, as well as conventional growing equity
mortgages, are eligible for separate pools. FNMA will consider other types of
loans for securities pooling on a negotiated basis. A single pool may include
mortgages with different loan-to-value ratios and interest rates, though rates
may not vary beyond two percentage points.
PRIVATELY-ISSUED MORTGAGE LOAN POOLS. Savings associations, commercial banks
and investment bankers issue pass-through securities secured by a pool of
mortgages.
Generally, only conventional mortgages on single-family properties are included
in private issues, though seasoned loans and variable rate mortgages are
sometimes included. Private placements allow purchasers to negotiate terms of
transactions. Maximum amounts for individual loans may exceed the loan limit set
for government agency purchases. Pool size may vary, but the minimum is usually
$20 million for public offerings and $10 million for private placements.
Privately-issued mortgage-related obligations do not carry government or
quasi-government guarantees. Rather, mortgage pool insurance generally is used
to insure against credit losses that may occur in the mortgage pool. Pool
insurance protects against credit losses to the extent of the coverage in force.
Each mortgage, regardless of original loan-to-value ratio, is insured to 100% of
principal, interest and other expenses, to a total aggregate loss limit stated
on the policy. The aggregate loss limit of the policy generally is 5% to 7% of
the original aggregate principal of the mortgages included in the pool.
In addition to the insurance coverage to protect against defaults on the
underlying mortgages, mortgage-backed securities can be protected against the
nonperformance or poor performance of servicers. Performance bonding of
obligations such as those of the servicers under the origination, servicing or
other contractual agreement will protect the value of the pool of insured
mortgages and enhance the marketability.
The rating received by a mortgage security will be a major factor in its
marketability. For public issues, a rating is always required, but it may be
optional for private placements depending on the demands of the marketplace and
investors.
Before rating an issue, a rating agency such as S&P or Moody's will consider
several factors, including: the creditworthiness of the issuer; the issuer's
track record as an originator and servicer; the type, terms and characteristics
of the mortgages, as well as loan-to-value ratio and loan amounts; the insurer
and the level of mortgage insurance and hazard insurance provided. Where an
equity reserve account or letter of credit is offered, the rating agency will
also examine the adequacy of the reserve and the strength of the issuer of the
letter of credit.
MATURITY AND DURATION. The effective maturity of an individual portfolio
security in which a Portfolio invests is defined as the period remaining until
the earliest date when the Portfolio can recover the principal amount of such
security through mandatory redemption or prepayment by the issuer, the exercise
by the Portfolio of a put option, demand feature or tender option granted by the
issuer or a third party or the payment of the principal on the stated maturity
date. The effective maturity of variable rate securities is calculated by
reference to their coupon reset dates. Thus, the effective maturity of a
security may be substantially shorter than its final stated maturity.
Unscheduled prepayments of principal have the effect of shortening the effective
maturities of securities in general and mortgage-backed securities in
particular. Prepayment rates are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors and cannot be
predicted with certainty. In general, securities, such as mortgage-backed
securities, may be subject to greater prepayment rates in a declining interest
rate environment. Conversely, in an increasing interest rate environment, the
rate of prepayment may be expected to decrease. A higher than anticipated rate
of unscheduled principal prepayments on securities purchased at a premium or a
lower than anticipated rate of unscheduled payments on securities purchased at a
discount may result in a lower yield (and total return) to a Portfolio than was
anticipated at the time the securities were purchased. A Portfolio's
reinvestment of unscheduled prepayments may be made at rates higher or lower
than the rate payable on such security, thus affecting the return realized by
the Portfolio.
FOREIGN SECURITIES
Foreign securities may be purchased and sold on foreign stock exchanges or in
over-the-counter markets (but persons affiliated with a Portfolio will not act
as principal in such purchases and sales). Foreign stock markets are generally
not as developed or efficient as those in the United States. While growing in
volume, they usually have substantially less volume than the New York Stock
Exchange, and securities of some foreign companies are less liquid and more
volatile than securities of comparable United States companies. Fixed
commissions on foreign stock exchanges are generally higher than negotiated
commissions on United States exchanges, although each Portfolio will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of stock exchanges, brokers
and listed companies abroad than in the United States.
The dividends and interest payable on certain foreign securities may be subject
to foreign withholding taxes and in some cases capital gains from such
securities may also be subject to foreign tax, thus reducing the net amount of
income or gain available for distribution to a Portfolio's shareholders.
Investors should understand that the expense ratio of a Portfolio investing in
foreign securities may be higher than that of investment companies investing
exclusively in domestic securities because of the cost of maintaining the
custody of foreign securities.
With respect to portfolio securities that are issued by foreign issuers or
denominated in foreign currencies, a Portfolio's investment performance is
affected by the strength or weakness of the U.S. dollar against these
currencies. For example, if the dollar falls in value relative to the Japanese
yen, the dollar value of a yen-denominated stock held in the Portfolio will rise
even though the price of the stock remains unchanged. Conversely, if the dollar
rises in value relative to the yen, the dollar value of the yen-denominated
stock will fall. (See "Currency Transactions," below.)
Certain Portfolios may invest in foreign securities which take the form of
sponsored and unsponsored American Depositary Receipts and Shares ("ADRs" and
"ADSs"), Global Depository Receipts and Shares ("GDRs" and "GDSs") and European
Depository Receipts and Shares ("EDRs" and "EDSs") or other similar instruments
representing securities of foreign issuers (together, "Depository Receipts" and
("Depository Shares"). ADRs and ADSs represent the right to receive securities
of foreign issuers deposited in a domestic bank or a correspondent bank. Prices
of ADRs and ADSs are quoted in U.S. dollars and are traded in the United States
on exchanges or over-the-counter and are sponsored and issued by domestic banks.
EDRs and EDSs and GDRs and GDSs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and EDSs and GDRs and GDSs are not necessarily quoted in the
same currency as the underlying security. To the extent that a Portfolio
acquires Depository Receipts or Shares through banks which do not have a
contractual relationship with the foreign issuer of the security underlying the
Depository Receipts or Shares to issue and service such Depository Receipts or
Shares (unsponsored Depository Receipts or Shares), there may be an increased
possibility that the Portfolio would not become aware of and be able to respond
to corporate actions, such as stock splits or rights offerings involving the
foreign issuer, in a timely manner. In addition, certain benefits which may be
associated with the security underlying the Depository Receipt or Share may not
inure to the benefit of the holder of such Depository Receipt or Share. Further,
the lack of information may result in inefficiencies in the valuation of such
instruments. Investment in Depository Receipts or Shares does not eliminate all
the risks inherent in investing in securities of non-U.S. issuers. The market
value of Depository Receipts or Shares is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depository Receipt or Share and the underlying securities are
quoted. However, by investing in Depository Receipts or Shares, such as ADRs or
ADSs, that are quoted in U.S. dollars, a Portfolio will avoid currency risks
during the settlement period for purchases and sales.
As described in the Prospectus, each of the Small Cap Equity and Large Cap
Growth Portfolios may invest up to 25% of its total assets in foreign
securities. For purposes of this limitation, foreign securities do not include
ADRs or securities guaranteed by a United States person. Each of the Small Cap
Equity and Large Cap Growth Portfolios will not invest more than 5% of its net
assets in unsponsored ADRs.
EURODOLLAR CONTRACTS
Certain Portfolios may make investments in Eurodollar contracts. Eurodollar
contracts 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 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.
RESTRICTED, ILLIQUID AND RULE 144A SECURITIES
Each of the Portfolios is authorized to invest in securities which are illiquid
or not readily marketable because they are subject to restrictions on their
resale ("restricted securities") or because, based upon their nature or the
market for such securities, no ready market is available. (The percentage
limitations on such investments are contained in the Prospectus.) Investments in
illiquid securities involve certain risks to the extent that a Portfolio may be
unable to dispose of such a security at the time desired or at a reasonable
price or, in some cases, may be unable to dispose of it at all. In addition, in
order to resell a restricted security, a Portfolio might have to incur the
potentially substantial expense and delay associated with effecting
registration. If securities become illiquid following purchase or other
circumstances cause a Portfolio to exceed its percentage limitation which may be
invested in such securities, the Directors of the Fund, in consultation with the
Adviser and the particular Portfolio's Sub-Adviser, will determine what action,
if any, is appropriate in light of all relevant circumstances.
Certain Portfolios may purchase securities that have been privately placed but
that are eligible for purchase and sale under Rule 144A of the Securities Act of
1933 ("1933 Act"). That Rule permits certain qualified institutional buyers,
such as a Portfolio, to trade in privately placed securities that have not been
registered for sale under the 1933 Act. The Adviser, under the supervision of
the Board of Directors, will consider whether securities purchased under Rule
144A are illiquid and thus subject to a Portfolio's restriction of investing no
more than a certain percentage of its net assets in illiquid securities. A
determination of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, the Adviser will consider the trading
markets for the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and if, as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, a Portfolio's holdings
of illiquid securities would be reviewed to determine what, if any, steps are
required to assure that a Portfolio does not invest more than it is permitted to
in illiquid securities. Investing in Rule 144A securities could have the effect
of increasing the amount of a Portfolio's assets invested in illiquid securities
if qualified institutional buyers are unwilling to purchase such securities.
STRUCTURED OR HYBRID NOTES
Certain Portfolios of the Fund may invest in structured or hybrid notes. It is
expected that not more than 5% of a Portfolio's net assets will be at risk as a
result of such investments. In addition to the risks associated with a direct
investment in the benchmark asset, investments in structured and hybrid notes
involve the risk that the issuer or counterparty to the obligation will fail to
perform its contractual obligations. Certain structured or hybrid notes may also
be leveraged to the extent that the magnitude of any change in the interest rate
or principal payable on the benchmark asset is a multiple of the change in the
reference price. Leverage enhances the price volatility of the security and,
therefore, a Portfolio's net asset value. Further, certain structured or hybrid
notes may be illiquid for purposes of each Portfolio's limitations on
investments in illiquid securities.
MONEY MARKET INSTRUMENTS AND REPURCHASE AGREEMENTS
Money market instruments include short-term U.S. and foreign Government
securities, commercial paper (promissory notes issued by corporations to finance
their short-term credit needs), negotiable certificates of deposit,
non-negotiable fixed time deposits, bankers' acceptances and repurchase
agreements.
UNITED STATES GOVERNMENT SECURITIES. U.S. Government securities include
securities which are direct obligations of the U.S. Government backed by the
full faith and credit of the United States, and securities issued by agencies
and instrumentalities of the U.S. Government, which may be guaranteed by the
U.S. Treasury or supported by the issuer's right to borrow from the U.S.
Treasury or may be backed by the credit of the federal agency or instrumentality
itself. Agencies and instrumentalities of the U.S. Government include, but are
not limited to, Federal Land Banks, the Federal Farm Credit Bank, the Central
Bank for Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan
Banks and the Federal National Mortgage Association.
BANK OBLIGATIONS. Each of the Portfolios may acquire obligations of banks, which
include certificates of deposit, time deposits, and bankers' acceptances.
Certificates of deposits are generally short-term, interest-bearing negotiable
certificates issued by banks or savings and loan associations against funds
deposited in the issuing institution.
Time deposits are funds in a bank or other financial institution for a specified
period of time at a fixed interest rate for which a negotiable certificate is
not received.
A bankers' acceptance is a time draft drawn on a bank which unconditionally
guarantees to pay the draft at its face amount on the maturity date. A bank
customer, which is also liable for the draft, typically uses the funds
represented by the draft to finance the import, export, or storage of goods.
COMMERCIAL PAPER. Commercial paper involves an unsecured obligation that is
usually sold on a discount basis and has a maturity at the time of issuance of
one year or less. With respect to the Money Market Portfolio, such paper, on the
date of investment by the Portfolio, must be rated in the highest category for
short-term debt securities by at least two NRSROs (or by one NRSRO, if only one
NRSRO has rated the security.) The Money Market Portfolio may invest in unrated
commercial paper if the Board of Directors of the Fund determines, in accordance
with the procedures of Rule 2a-7 under the 1940 Act, that the unrated security
is of comparable quality to rated securities.
Investments in commercial paper by the Intermediate Fixed Income and Global
Fixed Income Portfolios will be rated "P-1" by Moody's or "A-1" by S&P, or
Duff-1 by Duff, which are the highest ratings assigned by these NRSROs (even if
rated lower by one or more of the other NRSROs), or which, if not rated or rated
lower by one or more of the NRSROs and not rated by the other NRSRO or NRSROs,
are judged by the Sub-Adviser to be of equivalent quality to the securities so
rated. With respect to the Global Fixed Income Portfolio, in determining whether
securities are of equivalent quality, the Sub-Adviser may take into account, but
will not rely entirely on, ratings assigned by foreign rating agencies.
REPURCHASE AGREEMENTS. A repurchase agreement is an agreement under which a
Portfolio acquires money market instruments (generally U.S. Government
securities) from a commercial bank, broker or dealer, subject to resale to the
seller at an agreed-upon price and date (normally the next business day). The
resale price reflects an agreed-upon interest rate effective for the period the
instruments are held by the Portfolio and is unrelated to the interest rate on
the instruments. The instruments acquired by each Portfolio (including accrued
interest) must have an aggregate market value in excess of the resale price and
will be held by the custodian bank for the Fund until they are repurchased.
WHEN ISSUED AND DELAYED DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS
Certain Portfolios may purchase securities on a when-issued or delayed-delivery
basis. Delivery and payment for securities purchased on a when-issued or delayed
delivery basis will normally take place 15 to 45 days after the date of the
transaction. The payment obligation and interest rate on the securities are
fixed at the time that a Portfolio enters into the commitment, but interest will
not accrue to the Portfolio until delivery of and payment for the securities.
Although a Portfolio will only make commitments to purchase "when-issued" and
"delayed delivery" securities with the intention of actually acquiring the
securities, a Portfolio may sell the securities before the settlement date if
deemed advisable by the Sub-Adviser.
Unless a Portfolio has entered into an offsetting agreement to sell the
securities purchased on a "when-issued" basis, cash or liquid obligations with a
market value equal to the amount of the Portfolio's commitment will be
segregated with the Fund's custodian bank. If the market value of these
securities declines, additional cash or securities will be segregated daily so
that the aggregate market value of the segregated securities equals the amount
of the Portfolio's commitment.
Securities purchased on a "when-issued" and "delayed delivery" basis may have a
market value on delivery which is less than the amount paid by a Portfolio.
Changes in market value may be based upon the public's perception of the
creditworthiness of the issuer or changes in the level of interest rates.
Generally, the value of "when-issued" securities will fluctuate inversely to
changes in interest rates, i.e., they will appreciate in value when interest
rates fall and will decline in value when interest rates rise.
The Global Fixed Income Portfolio may invest up to 25% of its net assets and the
Intermediate Fixed Income Portfolio may invest up to 15% of its net assets in
securities purchased on a "when-issued" or "delayed delivery" basis. The
International Equity Portfolio does not currently intend to purchase or sell
securities on a when-issued or delayed delivery basis if, as a result, more than
5% of its total assets taken at market value at the time of purchase would be
invested in such securities. The Large Cap Growth and Small Cap Equity
Portfolios do not currently intend to have commitments to purchase when-issued
securities in excess of 5% of their net assets.
Certain Portfolios may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which a Portfolio is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
At the time a Portfolio enters into a binding obligation to purchase securities
on a when-issued basis or enters into a reverse repurchase agreement, liquid
assets (cash, U.S. government securities or other "high-grade" debt obligations)
of the Portfolio having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the Portfolio and
held by the custodian throughout the period of the obligation. The use of these
investment strategies may increase net asset value fluctuation.
LENDING OF SECURITIES
Subject to the applicable Investment Restrictions contained herein (see
"Investment Restrictions"), certain Portfolios may lend their securities to
qualified institutional investors who need to borrow securities in order to
complete certain transactions, such as covering short sales, avoiding failures
to deliver securities, or completing arbitrage operations. By lending its
securities, a Portfolio will be attempting to generate income through the
receipt of interest on the loan which, in turn, can be invested in additional
securities to pursue the Portfolio's investment objective. Any gain or loss in
the market price of the securities loaned that might occur during the term of
the loan would be for the account of the Portfolio. A Portfolio may lend its
portfolio securities to qualified brokers, dealers, banks or other financial
institutions, so long as the terms, the structure and the aggregate amount of
such loans are not inconsistent with the 1940 Act, or the Rules and Regulations
or interpretations of the SEC thereunder, which currently require that (a) the
borrower pledge and maintain with the Portfolio collateral consisting of cash,
an irrevocable letter of credit or securities issued or guaranteed by the United
States government having a value at all times not less than 100% of the value of
the securities loaned, (b) the borrower add to such collateral whenever the
price of the securities loaned rises (i.e., the borrower "marks to the market"
on a daily basis), (c) the loan be made subject to termination by the Portfolio
at any time and (d)) the Portfolio receive reasonable interest on the loan,
which interest may include the Portfolio's investing cash collateral in interest
bearing short-term investments, and (e) the Portfolio receive all dividends and
distributions on the loaned securities and any increase in the market value of
the loaned securities.
A Portfolio bears a risk of loss in the event that the other party to a
securities lending transaction defaults on its obligations and the Portfolio is
delayed in or prevented from exercising its rights to dispose of the collateral,
including the risk of a possible decline in the value of the collateral
securities during the period in which the Portfolio seeks to assert these
rights, the risk of incurring expenses associated with asserting these rights
and the risk of losing all or a part of the income from the transaction. Loan
arrangements made by a Portfolio will comply with all other applicable
regulatory requirements, including the rules of the New York Stock Exchange,
which rules presently require the borrower, after notice, to redeliver the
securities within the normal settlement time of three business days. All
relevant facts and circumstances, including creditworthiness of the broker,
dealer or institution, will be considered in making decisions with respect to
the lending of securities, subject to review by the Fund's Directors.
STRATEGIC TRANSACTIONS
Certain Portfolios may, but are not required to, utilize various other
investment strategies as described below to seek to hedge various market risks
(such as interest rates, currency exchange rates, and broad or specific
fixed-income market movements), to manage the effective maturity or duration of
fixed-income securities, or to enhance potential gain. Such strategies are
generally accepted as part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional investors. Techniques and
instruments used by the Portfolios may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing its investment objective, a Portfolio may purchase and
sell (write) exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars; and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all of the above are called "Strategic Transactions" and
are also referred to in the Prospectus and elsewhere herein as "Derivatives").
Strategic Transactions may be used in an attempt to protect against possible
changes in the market value of securities held in or to be purchased for a
Portfolio's portfolio resulting from securities market, interest rate or
currency exchange rate fluctuations, to protect a Portfolio's unrealized gains
in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to manage the effective maturity or duration
of a Portfolio's portfolio, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities. In addition to the hedging transactions referred to in the preceding
sentence, Strategic Transactions may also be used to enhance potential gain in
circumstances where hedging is not involved although a Portfolio will attempt to
limit its net loss exposure resulting from Strategic Transactions entered into
for such purposes. (Transactions such as writing covered call options are
considered to involve hedging for purposes of this limitation.) In calculating
each Portfolio's net loss exposure from such Strategic Transactions, an
unrealized gain from a particular Strategic Transaction position would be netted
against an unrealized loss from a related Strategic Transaction position. For
example, if a Sub-Adviser believes that a Portfolio is underweighted in cyclical
stocks and overweighted in consumer stocks, the Portfolio may buy a cyclical
index call option and sell a cyclical index put option and sell a consumer index
call option and buy a consumer index put option. Under such circumstances, any
unrealized loss in the cyclical position would be netted against any unrealized
gain in the consumer position (and vice versa) for purposes of calculating the
Portfolio's net loss exposure. The ability of a Portfolio to utilize these
Strategic Transactions successfully will depend on the Sub-Adviser's ability to
predict pertinent market movements, which cannot be assured. Each Portfolio will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. A Portfolio's activities involving
Strategic Transactions may be limited by the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code") for qualification as a
regulated investment company.
RISK OF STRATEGIC TRANSACTIONS
The use of Strategic Transactions has associated risks including possible
default by the other party to the transaction, illiquidity and, to the extent a
Sub-Adviser's view as to certain market or interest rate movements is incorrect,
the risk that the use of such Strategic Transactions could result in losses
greater than if they had not been used. The writing of put and call options may
result in losses to a Portfolio, force the purchase or sale, respectively, of
portfolio securities at inopportune times or for prices higher than (in the case
of purchases due to the exercise of put options) or lower than (in the case of
sales due to the exercise of call options) current market values, limit the
amount of appreciation a Portfolio can realize on its investments or cause a
Portfolio to hold a security it might otherwise sell. The use of currency
transactions can result in a Portfolio's incurring losses as a result of a
number of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Portfolio's position. The writing of
options could significantly increase a Portfolio's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have not markets. As a result, in certain markets,
a Portfolio may not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time, in certain
circumstances, they tend to limit any potential gain which might result from an
increase in value of such position. The loss incurred by a Portfolio in writing
options on futures and entering into futures transactions is potentially
unlimited; however, as described above, each Portfolio will attempt to limit its
net loss exposure resulting from Strategic Transactions entered into for
non-hedging purposes. Futures markets are highly volatile and the use of futures
may increase the volatility of a Portfolio's net asset value. Finally, entering
into futures contracts would create a greater ongoing potential financial risk
than would purchases of options where the exposure is limited to the cost of the
initial premium. Losses resulting from the use of Strategic Transactions would
reduce net asset value and the net result may be less favorable than if the
Strategic Transactions had not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural characteristics
and operational mechanics regardless of the underlying instrument on which they
are purchased or sold. Thus, the following general discussion relates to each of
the particular types of options discussed in greater detail below. In addition,
many Strategic Transactions involving options require segregation of each
Portfolio's assets in special accounts, as described below under "Use of
Segregated Accounts."
A put option gives the purchaser of the option, in consideration for the payment
of a premium, the right to sell, and the writer the obligation to buy (if the
option is exercised), the underlying security, commodity, index, currency or
other instrument at the exercise price. For instance, a Portfolio's purchase of
a put option on a security might be designed to protect its holdings in the
underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Portfolio the right to
sell such instrument at the option exercise price. A call option, in
consideration for the payment of a premium, gives the purchaser of the option
the right to buy, and the seller the obligation to sell (if the option is
exercised), the underlying instrument at the exercise price. Certain Portfolios
may purchase a call option on a security, futures contract, index, currency or
other instrument to seek to protect the Portfolio against an increase in the
price of the underlying instrument that it intends to purchase in the future by
fixing the price at which it may purchase such instrument. An American style put
or call option may be exercised at any time during the option period while a
European style put or call option may be exercised only upon expiration or
during a fixed period prior thereto. Certain Portfolios are authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, exchange listed options generally settle by physical
delivery of the underlying security or currency, although in the future cash
settlement may become available. Index options and Eurodollar instruments are
cash settled for the net amounts, if any, by which the option is "in-the-money"
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
A Portfolio's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent, in part, upon the liquidity of
the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. A Portfolio will
generally sell (write) OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Portfolio to require the
Counterparty to sell the option back to the Portfolio at a formula price within
seven days. OTC options purchased by a Portfolio, and portfolio securities
"covering" the amount of a Portfolio's obligation pursuant to an OTC option sold
by it (the cost of the sell-back plus the in-the-money amount, if any) are
subject to each Portfolio's restriction on illiquid securities, unless
determined to be liquid in accordance with procedures adopted by the Boards of
Directors. For OTC options written with "primary dealers" pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount which is considered to be illiquid may be calculated by reference to a
formula price. The Portfolios expect generally to enter into OTC options that
have cash settlement provisions, although they are not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in the OTC option market. As a result, if the Counterparty fails to
make delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of
the transaction. Accordingly, the Sub-Adviser must assess the creditworthiness
of each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. A Portfolio will engage in OTC option transactions
only with U.S. Government securities dealers recognized by the Federal Reserve
Bank of New York as "primary dealers," or broker-dealers, domestic or foreign
banks or other financial institutions which have received, combined with any
credit enhancements, a long-term debt rating of A from S&P or Moody's or an
equivalent rating from any other NRSRO or which issue debt that is determined to
be of equivalent credit quality by the Sub-Adviser.
If a Portfolio sells (writes) a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Portfolio's income. The sale (writing) of put
options can also provide income.
A Portfolio may purchase and sell (write) call options on securities including
U.S. Treasury and agency securities, mortgage-backed and asset-backed
securities, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by a Portfolio must be
"covered" (i.e., the Portfolio must own the securities or the futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. In addition, a Portfolio may cover a
written call option or put option by entering into an offsetting forward
contract and/or by purchasing an offsetting option or any other option which, by
virtue of its exercise price or otherwise, reduces the Portfolio's net exposure
on its written option position. Even though a Portfolio will receive the option
premium to help offset any loss, the Portfolio may incur a loss if the exercise
price is below the market price for the security subject to the call at the time
of exercise. A call sold by a Portfolio also exposes the Portfolio during the
term of the option to possible loss of opportunity to realize appreciation in
the market price of the underlying security or instrument and may require the
Portfolio to hold a security or instrument which it might otherwise have sold.
A Portfolio may purchase and sell (write) put options on securities including
U.S. Treasury and agency securities, mortgage-backed and asset-backed
securities, foreign sovereign debt, corporate debt securities, equity securities
(including convertible securities) and Eurodollar instruments (whether or not it
holds the above securities in its portfolio), and on securities indices,
currencies and futures contracts. A Portfolio will not sell put options if, as a
result, more than 50% of the Portfolio's assets would be required to be
segregated to cover its potential obligations under such put options other than
those with respect to futures and options thereon. In selling put options, there
is a risk that a Portfolio may be required to buy the underlying security at a
price above the market price.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
Certain Portfolios may also purchase and sell (write) call and put options on
securities indices and other financial indices. Options on securities indices
and other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement. For example, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the differential between
the closing price of the index and the exercise price of the option, which also
may be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount upon exercise
of the option. In addition to the methods described above, certain Portfolios
may cover call options on a securities index by owning securities whose price
changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by the Fund's custodian) upon conversion or exchange of other
securities in its portfolio.
GENERAL CHARACTERISTICS OF FUTURES
Certain Portfolios may enter into financial futures contracts or purchase or
sell put and call options on such futures. Futures are generally bought and sold
on the commodities exchanges where they are listed and involve payment of
initial and variation margin as described below. All futures contracts entered
into by a Portfolio are traded on U.S. exchanges or boards of trade that are
licensed and regulated by the Commodity Futures Trading Commission ("CFTC") or
on certain foreign exchanges. The sale of futures contracts creates a firm
obligation by a Portfolio, as seller, to deliver to the buyer the specific type
of financial instrument called for in the contract at a specific future time for
a specified price (or, with respect to index futures and Eurodollar instruments,
the net cash amount). The purchase of futures contracts creates a corresponding
obligation by a Portfolio, as purchaser, to purchase a financial instrument at a
specific time and price. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such position upon exercise of the option.
Each Portfolio's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
regulations of the CFTC relating to exclusions from regulation as a commodity
pool operator. Those regulations currently provide that a Portfolio may use
commodity futures and option positions (i) for bona fide hedging purposes
without regard to the percentage of assets committed to margin and option
premiums, or (ii) for other purposes permitted by the CTFC to the extent that
the aggregate initial margin and option premiums required to establish such
non-hedging positions (net of the amount that the positions were "in the money"
at the time of purchase) do not exceed 5% of the net asset value of the
Portfolio's portfolio, after taking into account unrealized profits and losses
on such positions. Typically, maintaining a futures contract or selling an
option thereon requires a Portfolio to deposit, with its custodian for the
benefit of a futures commission merchant, or directly with the futures
commission merchant, as security for its obligations an amount of cash or other
specified assets (initial margin) which initially is typically 1% to 10% of the
face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
directly with the futures commission merchant thereafter on a daily basis as the
value of the contract fluctuates. The purpose of an option on financial futures
involves payment of a premium for the option without any further obligation on
the part of a Portfolio. If a Portfolio exercises an option on a futures
contract it will be obligated to post initial margin (and potential subsequent
variation margin) for the resulting futures position just as it would for any
position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur. The segregation requirements with respect to futures
contracts and options thereon are described below.
CURRENCY TRANSACTIONS
Portfolios may engage in currency transactions with Counterparties to seek to
hedge the value of portfolio holdings denominated in particular currencies
against fluctuations in relative value or to enhance potential gain. Currency
transactions include currency contracts, exchange listed currency futures,
exchange listed and OTC options on currencies, and currency swaps. A forward
currency contract involves a privately negotiated obligation to purchase or sell
(with delivery generally required) a specific currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. A currency swap is an
agreement to exchange cash flows based on the notional (agreed-upon) difference
among two or more currencies and operates similarly to an interest rate swap,
which is described below. A Portfolio may enter into over-the-counter currency
transactions with Counterparties which have received, combined with any credit
enhancements, a long term debt rating of A by S&P or Moody's, respectively, or
that have an equivalent rating from an NRSRO or (except for OTC currency
options) whose obligations are determined to be of equivalent credit quality by
the Sub-Adviser.
A Portfolio's transactions in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will
generally be limited to hedging involving either specific transactions or
portfolio positions. See "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Portfolio, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
A Portfolio will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
Certain Portfolios may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
in relation to other currencies to which the Portfolio has or in which the
Portfolio expects to have portfolio exposure. For example, a Portfolio may hold
a French government bond and the Sub-Adviser may believe that French francs will
deteriorate against German marks. The Portfolio would sell french francs to
reduce its exposure to that currency and buy German marks. This strategy would
be a hedge against a decline in the value of French francs, although it would
expose the Sub-Adviser to declines in the value of the German mark relative to
the U.S. dollar.
To seek to reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, certain Portfolios may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
a Portfolio's portfolio is exposed is difficult to hedge or to hedge against the
U.S. 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 certain of a Portfolio's portfolio 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 the Sub-Adviser considers that
the Austrian schilling is linked to the German deutschemark (the "D-mark"), and
a portfolio contains securities denominated in schillings and the Sub-Adviser
believes that the value of schillings will decline against the U.S. dollar, the
Sub-Adviser may enter into a contract to sell D-marks and buy dollars. Proxy
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to a
Portfolio if the currency being hedged fluctuates in value to a degree or in a
direction that is not anticipated. Further, there is the risk that the perceived
linkage between various currencies may not be present or may not be present
during the particular time that a Portfolio is engaging in proxy hedging. If a
Portfolio enters into a currency hedging transaction, the Portfolio will comply
with the asset segregation requirements described below.
RISK OF CURRENCY TRANSACTIONS
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Portfolio
if it is unable to deliver or receive currency of funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out options on such positions is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
COMBINED TRANSACTIONS
Certain Portfolios may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions, structured notes and any combination of futures, options, currency
and interest rate transactions ("component transactions") instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Sub-Adviser, it is in the best interests of the Portfolio to do
so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on the Sub-Adviser's judgment that the combined
strategies will reduce risk or otherwise more effectively achieve the desired
portfolio management goal, it is possible that the combination will instead
increase such risks or hinder achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the Strategic Transactions into which certain Portfolios may enter are
interest rate, currency and index swaps and the purchase or sale of related
caps, floors and collars. The Portfolios expect to enter into these transactions
primarily for hedging purposes, including, but not limited to, preserving a
return or spread on a particular investment or portion of its portfolio,
protecting against currency fluctuations, as a duration management technique or
protecting against an increase in the price of securities a Portfolio
anticipates purchasing at a later date. Swaps, caps, floors and collars may also
be used to enhance potential gain in circumstances where hedging is not involved
although, as described above, a Portfolio will attempt to limit its net loss
exposure resulting from swaps, caps, floors and collars and other Strategic
Transactions entered into for such purposes. A Portfolio will not sell interest
rate caps, floors or collars 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 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 rate of 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 an NRSRO or the Counterparty issues debt that is
determined to be of equivalent credit quality by the Sub-Adviser. If there is a
default by the Counterparty, a Portfolio may have contractual remedies pursuant
to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. 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. Swaps, caps, floor and collars
are considered illiquid for purposes of each Portfolio's policy regarding
illiquid securities, unless it is determined, based upon continuing review of
the trading markets for the specific security, that such security is liquid. The
Board of Directors of the Fund will delegate to the Sub-Adviser the daily
function of determining and monitoring the liquidity of swaps, caps, floors and
collars. The Board of Directors of the Fund will, however, retain oversight
focusing on factors such as valuation, liquidity and availability of information
and it is ultimately responsible for such determinations. The staff of the SEC
currently takes the position that swaps, caps, floors and collars are illiquid,
and are subject to each Portfolio's limitation on investing in illiquid
securities.
RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES
When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) lesser availability than in the United States of data on which
to make trading decisions, (ii) delays in a Portfolio's ability to act upon
economic events occurring in foreign markets during non-business hours in
the United States, (iii) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States, (iv)
lower trading volume and liquidity, and (v) other complex foreign political,
legal and economic factors. At the same time, Strategic Transactions may offer
advantages such as trading in instruments that are not currently traded in the
United States or arbitrage possibilities not available in the United States.
USE OF SEGREGATED ACCOUNTS
A Portfolio will hold securities or other instruments whose values are expected
to offset its obligations under the Strategic Transactions. A Portfolio will
cover Strategic Transactions as required by interpretive positions of the staff
of the SEC. A Portfolio will not enter into Strategic Transactions that expose
the Portfolio to an obligation to another party unless it owns either (i) an
offsetting position in securities or other options, futures contracts or other
instruments or (ii) cash, receivables or liquid securities with a value
sufficient to cover its potential obligations. A Portfolio may have to comply
with any applicable regulatory requirements for Strategic Transactions, and if
required, will set aside cash and other assets in a segregated account with the
Fund's custodian bank in the amount prescribed. In that case, the Fund's
custodian would maintain the value of such segregated account equal to the
prescribed amount by adding or removing additional cash or other assets to
account for fluctuations in the value of the account and the Portfolio's
obligations on the underlying Strategic Transactions. Assets held in a
segregated account would not be sold while the Strategic Transaction is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that segregation of a large percentage of a Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
INVESTMENT RESTRICTIONS
FUNDAMENTAL RESTRICTIONS
Each Portfolio has adopted certain investment restrictions which are fundamental
and may not be changed without approval by a majority vote of the Portfolio's
shareholders. Such majority is defined in the 1940 Act as the lesser of (i) 67%
or more of the voting securities of the Portfolio present in person or by proxy
at a meeting, if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities of the Portfolio. If any percentage restriction
described below is adhered to at the time of investment, a subsequent increase
or decrease in the percentage resulting from a change in the value of the
Portfolio's assets will not constitute a violation of the restriction.
BALANCED PORTFOLIO
The Balanced Portfolio may not:
1. Purchase the securities of any one issuer, except the United States
government, if immediately after and as a result of such purchase (a) the value
of the holdings of the Portfolio in the securities of such issuer exceeds 5% of
the value of the Portfolio's total assets, or (b) the Portfolio owns more than
10% of the outstanding voting securities, or any other class of securities, of
such issuer;
2. Engage in the purchase or sale of real estate, commodities or futures
contracts;
3. Underwrite the securities of other issuers;
4. Make loans to any of its officers, directors, or employees, or to its
manager, or general distributor, or officers or directors thereof;
5. Make any loan (the purchase of a security subject to a repurchase
agreement or the purchase of a portion of an issue of publicly distributed
debt securities is not considered the making of a loan);
6. Invest in companies for the purpose of exercising control of management;
7. Purchase securities on margin, or sell securities short, except that the
Portfolio may write covered call options;
8. Purchase shares of other investment companies except in the open market at
ordinary broker's commission or pursuant to a plan of merger or consolidation;
9. Invest in the aggregate more than 5% of the value of its gross assets in the
securities of issuers (other than federal, state, territorial, or local
governments, or corporations, or authorities established thereby), which,
including predecessors, have not had at least three years' continuous
operations;
10. Except for transactions in its shares or other securities through brokerage
practices which are considered normal and generally accepted under circumstances
existing at the time, enter into dealings with its officers or directors, its
manager or underwriter, or their officers or directors, or any organization in
which such persons have a financial interest;
11. Purchase or retain securities of any company in which any Fund officers or
directors, or Portfolio manager, its partner, officer or director beneficially
owns more than 1/2 of 1% of said company's securities, if all such persons
owning more than 1/2 of 1% of such company's securities, own in the aggregate
more than 5% of the outstanding securities of such company;
12. Borrow or pledge its credit under normal circumstances, except up to 10% of
its gross assets (computed at the lower of fair market value or cost)
temporarily for emergency or extraordinary purposes, and not for the purpose of
leveraging its investments, and provided further that any borrowing in excess of
5% of the total assets of the Portfolio shall have asset coverage of at least 3
to 1;
13. Make itself or its assets liable for the indebtedness of others;
14. Invest in securities which are assessable or involve unlimited liability;
or
15. Purchase any securities which would cause 25% or more of the Portfolio's
total assets at the time of such purchase to be invested in any one industry.
GLOBAL FIXED INCOME PORTFOLIO
The Global Fixed Income Portfolio may not:
1. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to debt securities
issued or guaranteed by the United States government or its agencies or
instrumentalities.
2. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed to be an underwriter under the Securities Act of 1933.
3. Purchase real estate or real estate mortgage loans, although the Portfolio
may purchase marketable securities of companies which deal in real estate, real
estate mortgage loans or interests therein.
4. Purchase securities on margin (except that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities).
5. Purchase or sell commodities or commodity contracts except that the Portfolio
may purchase and sell financial futures contracts and options on financial
futures contracts and engage in foreign currency exchange transactions.
6. With respect to at least 50% of its total assets, invest more than 5% in the
securities of any one issuer (other than the U.S. Government, its agencies or
instrumentalities) or acquire more than 10% of the outstanding voting securities
of any issuer.
7. Issue senior securities, borrow money, enter into reverse repurchase
agreements or pledge or mortgage its assets, except that the Portfolio may (a)
borrow from banks as a temporary measure for extraordinary or emergency purposes
(but not investment purposes) in an amount up to 15% of the current value of its
total assets to secure such borrowings, (b) enter into forward roll
transactions, and (c) pledge its assets to an extent not greater than 15% of the
current value of its total assets to secure such borrowings; however, the
Portfolio may not make any additional investments while its outstanding
borrowings exceed 5% of the current value of its total assets.
8. Lend portfolio securities, except that the Portfolio may lend its portfolio
securities with a value up to 20% of its total assets (with a 10% limit for any
borrower), except that the Portfolio may enter into repurchase agreements and
except that the Portfolio may enter into repurchase agreements with respect to
25% of the value of its net assets.
GROWTH & INCOME PORTFOLIO
The Growth & Income Portfolio may not:
1. Sell short securities or buy securities or evidences of interests
therein on margin, although it may obtain short-term credit necessary for the
clearance of purchases of securities;
2. Buy or sell put or call options, although it may buy, hold or sell rights or
warrants, write covered call options and enter into closing purchase
transactions as discussed below;
3. Borrow money which is in excess of one-third of the value of its total assets
taken at market value (including the amount borrowed) and then only from banks
as a temporary measure for extraordinary or emergency purposes (borrowings
beyond 5% of such total assets, may not be used for investment leverage to
purchase securities but solely to meet redemption requests where the liquidation
of the Portfolio's investment is deemed to be inconvenient or disadvantageous);
4. Invest in securities or other assets not readily marketable at the time of
purchase or subject to legal or contractual restrictions on resale except as
described in the Prospectus and SAI;
5. Act as underwriter of securities issued by others, unless it is deemed to
be one in selling a portfolio security requiring registration under the
Securities Act of 1933, such as those described in the Prospectus and SAI;
6. Lend money or securities to any person except that it may enter into
short-term repurchase agreements with sellers of securities it has purchased,
and it may lend its portfolio securities to registered broker-dealers where the
loan is 100% secured by cash or its equivalent as long as it complies with
regulatory requirements and the Fund deems such loans not to expose the
Portfolio to significant risk (investment in repurchase agreements exceeding 7
days and in other illiquid investments is limited to a maximum of 5% of the
Portfolio's assets);
7. Pledge, mortgage or hypothecate its assets; however, this provision does not
apply to permitted borrowing mentioned above or to the grant of escrow receipts
or the entry into other similar escrow arrangements arising out of the writing
of covered call options;
8. Buy or sell real estate including limited partnership interests therein
(except securities of companies, such as real estate investment trusts, that
deal in real estate or interests therein), or oil, gas or other mineral leases,
commodities or commodity contracts in the ordinary course of its business,
except such interests and other property acquired as a result of owning other
securities, though securities will not be purchased in order to acquire any of
these interests;
9. Invest more than 5% of its gross assets, taken at market value at the time of
investment, in companies (including their predecessors) with less than three
years' continuous operation;
10. Buy securities if the purchase would then cause the Portfolio to have more
than (i) 5% of its gross assets, at market value at the time of purchase,
invested in securities of any one issuer, except securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, or (ii) 25% of its
gross assets, at market value at the time of purchase, invested in securities
issued or guaranteed by a foreign government, its agencies or instrumentalities;
11. Buy voting securities if the purchase would then cause the Portfolio to
own more than 10% of the outstanding voting stock of any one issuer;
12. Own securities in a company when any of its officers, directors or security
holders is an officer or director of the Fund or an officer, director or partner
of the Adviser or Sub-Adviser, if after the purchase any of such persons owns
beneficially more than 1/2 of 1% of such securities and such persons together
own more than 5% of such securities;
13. Concentrate its investments in any particular industry, but if deemed
appropriate for attainment of its investment objective, up to 25% of its gross
assets (at market value at the time of investment) may be invested in any one
industry classification used for investment purposes; or
14. Buy securities from or sell them to the Fund's officers, directors, or
employees, or to the Adviser or Sub-Adviser or to their partners, directors and
employees.
INTERMEDIATE FIXED INCOME PORTFOLIO
The Intermediate Fixed Income Portfolio may not:
1. Invest, with respect to at least 75% of its total assets, more than 5% in the
securities of any one issuer (other than the U.S. Government, its agencies or
instrumentalities) or acquire more than 10% of the outstanding voting securities
of any issuer.
2. Issue senior securities, borrow money or securities or pledge or mortgage its
assets, except that the Portfolio may (a) borrow money from banks as a temporary
measure for extraordinary or emergency purposes (but not for investment
purposes) in an amount up to 15% of the current value of its total assets, (b)
enter into forward roll transactions, and (c) pledge its assets to an extent not
greater than 15% of the current value of its total assets to secure such
borrowings; however, the Portfolio may not make any additional investments while
its outstanding bank borrowings exceed 5% of the current value of its total
assets.
3. Lend portfolio securities except that the Portfolio (i) may lend portfolio
securities in accordance with the Portfolio's investment policies up to 33- 1/3%
of the Portfolio's total assets taken at market value, (ii) enter into
repurchase agreements, and (iii) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank certificates of deposit,
bankers' acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities, and except that
the Portfolio may enter into repurchase agreements with respect to 5% of the
value of its net assets.
4. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to U.S. Government
securities, including mortgage pass-through securities (GNMAs).
5. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed to be an underwriter under the Securities Act of 1933.
6. Purchase real estate or real estate mortgage loans, although the Portfolio
may purchase marketable securities of companies which deal in real estate, real
estate mortgage loans or interests therein.
7. Purchase securities on margin (except that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities).
8. Purchase or sell commodities or commodity contracts except that the Portfolio
may purchase and sell financial futures contracts and options on financial
futures contracts and engage in foreign currency exchange transactions.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio may not:
1. With respect to 75% of the Portfolio's total assets, purchase the
securities of any one issuer (except U.S. government securities) if immediately
after and as a result of such purchase (a) the value of the holdings of the
Portfolio in the securities of such issuer exceeds 5% of the value of the
Portfolio's total assets or (b) the Portfolio owns more than 10% of the
outstanding voting securities of such issuer.
2. Invest in any one industry (other than U.S. government securities)
25% or more of the value of its total assets at the time of such investment.
3. Borrow money, except from banks for temporary or emergency purposes
in amounts not to exceed 25% of the Portfolio's total assets (including the
amount borrowed) taken at market value, nor pledge, mortgage or hypothecate its
assets, except to secure permitted indebtedness and then only if such pledging,
mortgaging or hypothecating does not exceed 25% of the Portfolio's total assets
taken at market value. When borrowings exceed 5% of the Portfolio's total
assets, the Portfolio will not purchase portfolio securities.
4. Act as a securities underwriter (except to the extent the Portfolio may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
security), issue senior securities (except to the extent permitted under the
Investment Company Act of 1940), invest in real estate (although it may purchase
shares of a real estate investment trust), or invest in commodities or commodity
contracts except financial futures transactions, futures contracts on securities
and securities indices and options on such futures, forward foreign currency
exchange contracts, forward commitments or securities index put or call options.
5. Make loans, except that the Portfolio may enter into repurchase
agreements and may lend portfolio securities in accordance with the Portfolio's
investment policies. The Portfolio does not, for this purpose, consider the
purchase of all or a portion of an issue of publicly distributed bonds, bank
loan participation agreements, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the purchase is made
upon the original issuance of the securities, to be the making of a loan.
In applying the industry concentration investment restriction (no. 2
above), the Portfolio uses the industry groups designated by the Financial Times
World Index Service.
LARGE CAP VALUE PORTFOLIO
The Large Cap Value Portfolio may not:
1. Purchase the securities of any one issuer, except the United States
government, if immediately after and as a result of such purchase (a) the value
of the holdings of the Portfolio in the securities of such issuer exceeds 5% of
the value of the Portfolio's total assets, or (b) the Portfolio owns more than
10% of the outstanding voting securities, or any other class of securities, of
such issuer;
2. Engage in the purchase or sale of real estate or commodities;
3. Underwrite the securities of other issuers;
4. Make loans to any of its officers, directors, or employees, or to its
manager, or general distributor, or officers or directors thereof;
5. Make any loan (the purchase of a security subject to a repurchase
agreement or the purchase of a portion of an issue of publicly distributed
debt securities is not considered the making of a loan);
6. Invest in companies for the purpose of exercising control of management;
7. Purchase securities on margin, or sell securities short;
8. Purchase shares of other investment companies except in the open market at
ordinary broker's commission or pursuant to a plan of merger or consolidation;
9. Invest in the aggregate more than 5% of the value of its gross assets in the
securities of issuers (other than federal, state, territorial, or local
governments, or corporations, or authorities established thereby), which,
including predecessors, have not had at least three years' continuous
operations;
10. Except for transactions in its shares or other securities through brokerage
practices which are considered normal and generally accepted under circumstances
existing at the time, enter into dealings with its officers or directors, its
manager or underwriter, or their officers or directors, or any organization in
which such persons have a financial interest;
11. Borrow or pledge its credit under normal circumstances, except up to 10% of
its gross assets (computed at the lower of fair market value or cost) for
temporary or emergency purposes, and not for the purpose of leveraging its
investments, and provided further that any borrowing in excess of 5% of the
total assets of the Portfolio shall have asset coverage of at least 3 to 1;
12. Make itself or its assets liable for the indebtedness of others; or
13. Invest in securities which are assessable or involve unlimited liability.
SMALL CAP EQUITY AND LARGE CAP GROWTH PORTFOLIOS
Each of the Small Cap Equity and Large Cap Growth Portfolios may not:
1. With respect to 75% of its total assets, invest more than 5% of its total
assets, taken at market value at the time of a particular purchase, in the
securities of a single issuer, except for securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities or repurchase
agreements for such securities;
2. Acquire more than 10% taken at the time of a particular purchase, of the
outstanding voting securities of any one issuer;
3. Act as an underwriter of securities, except insofar as it may be deemed an
underwriter for purposes of the Securities Act of 1933 on disposition of
securities acquired subject to legal or contractual restrictions on resale;
4. Purchase or sell real estate (although it may purchase securities secured by
real estate or interests therein, or securities issued by companies which invest
in real estate or interests therein), commodities, or commodity contracts,
except that it may enter into (a) futures and options on futures and (b) forward
contracts;
5. Make loans, although it may (a) lend portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans would exceed
33-1/3% of the value of its total assets (taken at market value at the time of
such loans); (b) purchase money market instruments and enter into repurchase
agreements; and (c) acquire publicly-distributed or privately-placed debt
securities;
6. Borrow except that it may (a) borrow for non-leveraging, temporary or
emergency purposes, (b) engage in reverse repurchase agreements and make other
borrowings, provided that the combination of (a) and (b) shall not exceed 33-
1/3% of the value of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by law,
and (c) enter into futures and options transactions; it may borrow from banks
and other persons to the extent permitted by law;
7. Invest in a security if more than 25% of its total assets (taken at market
value at the time of a particular purchase) would be invested in the securities
of issuers in any particular industry, except that this restriction does not
apply to securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities; or
8. Issue any senior security except to the extent permitted under the 1940
Act.
MID CAP EQUITY PORTFOLIO
The Mid Cap Equity Portfolio may not:
1. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to U.S. government
securities.
2. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed to be an underwriter under the Securities Act of 1933.
3. Purchase real estate or real estate mortgage loans.
4. Purchase securities on margin (except that the Portfolio may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities).
5. Purchase or sell commodities or commodity contracts (except futures contracts
and options on such futures contracts and foreign currency exchange
transactions).
6. With respect to at least 75% of its total assets, invest more than 5% in the
securities of any one issuer (other than the U.S. Government, its agencies or
instrumentalities) or acquire more than 10% of the outstanding voting securities
of any issuer.
7. Issue senior securities, borrow money, enter into reverse repurchase
agreements or pledge or mortgage its assets, except that the Portfolio may
borrow from banks in an amount up to 15% of the current value of its total
assets as a temporary measure for extraordinary or emergency purposes (but not
investment purposes), and pledge its assets to an extent not greater than 15% of
the current value of its total assets to secure such borrowings; however, the
Portfolio may not make any additional investments while its outstanding
borrowings exceed 5% of the current value of its total assets.
8. Make loans of portfolio securities, except that the Portfolio may enter into
repurchase agreements and except that the Portfolio may enter into repurchase
agreements with respect to 10% of the value of its net assets.
MONEY MARKET PORTFOLIO
The Money Market Portfolio may not:
1. Invest more than 10% of the value of the total assets of the Portfolio in
securities that are not readily marketable, such as repurchase agreements having
a maturity of more than seven days and securities which are secured by interests
in real estate. This restriction does not apply to obligations issued or
guaranteed by the United States government, its agencies, or instrumentalities;
In determining the liquidity of Rule 144A Securities, which are unregistered
securities offered to qualified institutional buyers, and interest-only and
principal-only fixed mortgage-backed securities (IOs and POs) issued by the
United States government or its agencies and instrumentalities, the Sub-Adviser,
under guidelines established by the Board of Directors of the Fund, will
consider any relevant factors including the frequency of trades, the number of
dealers willing to purchase or sell the security, and the nature of marketplace
trades.
In determining the liquidity of commercial paper issued in transactions not
involving a public offering under Section 4(2) of the Securities Act of 1933, as
amended, the Sub-Adviser, under guidelines established by the Board of Directors
of the Fund, will evaluate relevant factors such as the issuer and the size and
nature of its commercial paper programs, the willingness and ability of the
issuer or dealer to repurchase the paper, and the nature of the clearance and
settlement procedures for the commercial paper.
2. Invest more than 5% of the value of the total assets of the Portfolio in
equity securities that are not readily marketable;
3. Invest in real estate, although it may buy securities of companies which deal
in real estate and securities which are secured by interests in real estate,
including interests in real estate investment trusts;
4. Invest in commodities or commodity contracts, except to the extent
provided in Item 14 below;
5. Purchase securities of other investment companies if, as a result, the
Portfolio would own more than 3% of the total outstanding voting stock of any
one investment company, or more than 5% of the Portfolio's assets would be
invested in any one investment company, or more than 10% of the Portfolio's
assets would be invested in investment company securities. These limitations do
not apply to securities acquired in connection with a merger, consolidation,
acquisition, or reorganization, or by purchase in the open market of securities
of closed-end investment companies where no underwriter or dealer's commission
or profit, other than customary broker's commission, is involved, and so long as
immediately thereafter not more than 10% of such Portfolio's total assets, taken
at market value, would be invested in such securities;
6. Make loans, except by the purchase of debt obligations customarily
distributed privately to institutional investors, and except that the
Portfolio may buy repurchase agreements;
7. As to 75% of the value of the total assets of the Portfolio, invest more than
5% of the value of such assets in securities of any one issuer, except that this
restriction shall not apply to securities issued or guaranteed by the United
States government, its agencies, or instrumentalities;
8. As to 75% of the value of the total assets of the Portfolio, invest in
more than 10% of the outstanding voting securities of any one issuer;
9. Act as an underwriter of securities of other issuers, except to the extent
that it may be deemed to be an underwriter in reselling securities, such as
restricted securities, acquired in private transactions and subsequently
registered under the Securities Act of 1933, as amended;
10. Borrow money, except that the Portfolio may enter into reverse repurchase
agreements with banks and except that, as a temporary measure for extraordinary
or emergency purposes (such as to permit the Portfolio to honor redemption
requests without being required to dispose of investments in an inopportune or
untimely manner) and not for investment purposes, any Portfolio may borrow from
banks up to 5% of its assets taken at cost, provided in each case that the total
borrowings have an asset coverage, based on value, of at least 300%;
11. Issue securities senior to its common stock except to the extent set out
in paragraph 10 above;
12. Sell securities short, or maintain a short position;
13. Buy securities on margin, except that it may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities;
14. Invest in or write puts, call, straddles, or spreads; nor
15. Invest in companies for the purpose of exercising control of management.
NON-FUNDAMENTAL RESTRICTIONS
In addition to the foregoing, and the policies set forth in the Prospectus,
certain Portfolios have adopted additional investment restrictions which may be
amended by the Board of Directors without a vote of shareholders. If any
percentage restriction described below is adhered to at the time of investment,
a subsequent increase or decrease in the percentage resulting from a change in
the value of the Portfolio's assets will not constitute a violation of the
restriction.
GLOBAL FIXED INCOME PORTFOLIO
The Global Fixed Income Portfolio may not:
1. Invest in the securities of an issuer for the purpose of exercising control
or management but it may do so where it is deemed advisable to protect or
enhance the value of an existing investment.
2. Purchase securities of any other investment company except to the extent
permitted by the 1940 Act.
3. Invest more than 25% of its net assets in repurchase agreements.
4. Purchase additional securities if the Portfolio's borrowings exceed 5% of
its net assets.
Purchases of securities of other investment companies permitted under the
restrictions above could cause the Portfolio to pay additional management and
sub-advisory fees and distribution fees.
INTERMEDIATE FIXED INCOME PORTFOLIO
The Intermediate Fixed Income Portfolio may not:
1. Invest in the securities of an issuer for the purpose of exercising control
or management, but it may do so where it is deemed advisable to protect or
enhance the value of an existing investment.
2. Purchase securities of any other investment company except to the extent
permitted by the 1940 Act.
3. Invest more than 15% of its net assets in illiquid securities.
4. Invest more than 5% of its net assets in repurchase agreements.
5. Purchase additional securities if the Portfolio's bank borrowings exceed
5% of its net assets.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio may not:
1. With respect to 100% of the Portfolio's total assets, purchase the
securities of any one issuer (except U.S. government securities) if immediately
after and as a result of such purchase (a) the value of the holdings of the
Portfolio in the securities of such issuer exceeds 5% of the value of the
Portfolio's total assets or (b) the Portfolio owns more than 10% of the
outstanding voting securities of such issuer.
2. Purchase securities of any company which, including its predecessors and
parents, has a record of less than three years' continuous operation, if such
purchase would cause the Portfolio's investments in all such companies taken at
cost to exceed 5% of the value of the Portfolio's total assets.
3. Purchase securities on margin from a broker or dealer, except that the
Portfolio may obtain such short-term credits as may be necessary for the
clearance of transactions, and may not make short sales of securities. This
limitation shall not prohibit or restrict the Portfolio from entering into
futures, forwards and options contracts or from making margin payments and other
deposits in connection therewith.
4. Purchase the securities of any other investment company, except by
purchase in the open market involving no commission or profit to a sponsor or
dealer (other than the customary broker's commission).
5. Invest in companies for the purposes of exercising control of
management.
6. Purchase any security, including any repurchase agreement maturing in
more than seven days, which is not readily marketable, if more than 15% of the
net assets of the Portfolio, taken at market value at the time of purchase,
would be invested in such securities.
7. Enter into any futures, forwards or options, except that only for the
purpose of hedging, the Portfolio may enter into forward foreign currency
exchange contracts with stated contract values of up to the value of the
Portfolio's assets.
8. Purchase or sell securities on a when-issued or delayed delivery basis,
if as a result more than 5% of its net assets taken at market value at the time
of purchase would be invested in such securities.
9. Purchase or sell any interest in an oil, gas or mineral development or
exploration program, including investments in oil, gas or other mineral leases,
rights or royalty contracts (except that the Portfolio may invest in the
securities of issuers engaged in the foregoing activities).
10. Invest more than 5% of its net assets in warrants. Included in that
amount, but not to exceed 2% of net assets, are warrants whose underlying
securities are not traded on principal domestic or foreign exchanges.
Warrants acquired by the Portfolio in units or attached to securities are not
subject to these limits.
SMALL CAP EQUITY AND LARGE CAP GROWTH PORTFOLIOS
Each of the Small Cap Equity and Large Cap Growth Portfolios may not:
1. Invest in any of the following: (i) interests in oil, gas or other mineral
leases or exploration or development programs (except readily marketable
securities, including but not limited to master limited partnership interests,
that may represent indirect interests in oil, gas, or other mineral exploration
or development programs); (ii) puts, calls, straddles, spreads, or any
combination thereof (except that it may enter into transactions in options,
futures, and options on futures); (iii) shares of other open-end investment
companies, except in connection with a merger, consolidation, acquisition, or
reorganization; and (iv) limited partnerships in real estate unless they are
readily marketable;
2. Invest in companies for the purpose of exercising control or management;
3. Purchase more than 3% of the stock of another investment company or purchase
stock of other investment companies equal to more than 5% of its total assets
(valued at time of purchase) in the case of any one other investment company and
10% of such assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to be made in the
open market where no profit to a sponsor or dealer results from the purchase,
other than the customary broker's commission, except for securities acquired as
part of a merger, consolidation or acquisition of assets;
4. Purchase or hold securities of an issuer if 5% of the securities of such
issuer are owned by those officers, or directors of the Fund or of its Adviser,
who each own beneficially more than 1/2 of 1% of the securities of that issuer;
5. Mortgage, pledge, or hypothecate its assets, except as may be necessary in
connection with permitted borrowings or in connection with options, futures,
and options on futures;
6. Invest more than 5% of its net assets (valued at time of purchase) in
warrants, nor more than 2% of its net assets in warrants that are not listed on
the New York or American Stock Exchange;
7. Write an option on a security unless the option is issued by the Options
Clearing Corporation, an exchange, or similar entity;
8. Invest more than 25% of its total assets (valued at time of purchase) in
securities of foreign issuers (other than securities represented by American
Depositary Receipts (ADRs) or securities guaranteed by a U.S. person);
9. Buy or sell an option on a security, a futures contract, or an option on a
futures contract unless the option, the futures contract, or the option on the
futures contract is offered through the facilities of a recognized securities
association or listed on a recognized exchange or similar entity;
10. Purchase a put or call option if the aggregate premiums paid for all put and
call options exceed 20% of its net assets (less the amount by which any such
positions are in-the-money), excluding put and call options purchased as closing
transactions;
11. Purchase securities on margin (except for use of short-term credits as are
necessary for the clearance of transactions), or sell securities short unless
(i) it owns or has the right to obtain securities equivalent in kind and amount
to those sold short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which it expects to receive in a
recapitalization, reorganization, or other exchange for securities it
contemporaneously owns or has the right to obtain and provided that transactions
in options, futures, and options on futures are not treated as short sales;
12. Invest more than 5% of its total assets (taken at market value at the time
of a particular investment) in securities of issuers (other than issuers of
federal agency obligations or securities issued or guaranteed by any foreign
country or asset-backed securities) that, together with any predecessors or
unconditional guarantors, have been in continuous operation for less than three
years ("unseasoned issuers");
13. Invest more than 5% of its total assets (taken at market value at the time
of a particular investment) in restricted securities, other than securities
eligible for resale pursuant to Rule 144A under the Securities Act of 1933;
14. Invest more than 15% of its total assets (taken at market value at the
time of a particular investment) in restricted securities and securities of
unseasoned issuers; or
15. Invest more than 15% of its net assets (taken at market value at the time of
a particular investment) in illiquid securities, including repurchase agreements
maturing in more than seven days.
MID CAP EQUITY PORTFOLIO
The Mid Cap Equity Portfolio may not:
1. Invest in the securities of an issuer for the purpose of exercising control
or management, but it may do so where it is deemed advisable to protect or
enhance the value of an existing investment.
2. Purchase the securities of any other investment company except to the
extent permitted by the 1940 Act.
3. Invest more than 15% of its net assets in securities which are illiquid.
4. Purchase additional securities if the Portfolio's borrowings exceed 5% of
its net assets.
DIRECTORS AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Directors under the
laws of the State of Maryland. The Directors and executive officers of the Fund
and their principal occupations for the last five years are set forth below.
Each may have held other positions with the named companies during that period.
The age of each Director and officer is indicated in the parenthesis.
*LARRY D. ARMEL, President, Principal Executive Officer and Director (55); BMA
Tower, 700 Karnes Boulevard, Kansas City, Missouri 64108. President of the
Adviser; President, Chief Executive Officer and Director, Jones & Babson, Inc.;
President and Director, David L. Babson Growth Fund, Inc., D. L. Babson Money
Market Fund, Inc., D. L. Babson Tax-Free Income Fund, Inc., Babson Enterprise
Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc., Shadow
Stock Fund, Inc., Scout Stock Fund, Inc., Scout Bond Fund, Inc., Scout Money
Market Fund, Inc., Scout Tax-Free Money Market Fund, Inc., Scout Regional Fund,
Inc., Scout WorldWide Fund, Inc., Scout Balanced Fund, Inc., Buffalo Balanced
Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo
USA Global Fund, Inc.; President and Trustee, D. L. Babson Bond Trust; Director,
AFBA Five Star Fund, Inc.
- -----------------
*NORSE N. BLAZZARD, DIRECTOR (60); 4401 W. Tradewinds Avenue, Suite 207,
Lauderdale By the Sea, Florida 33308; Principal, Blazzard, Grodd & Hasenauer,
P.C., Westport, Connecticut (counsel to the Fund); Partner, Paradigm Partners
International (insurance and financial consulting firm).
- -----------------
FRANCIS C. ROOD, DIRECTOR ( ); Retired, 6429 West 92nd Street, Overland Park,
Kansas 66212. Formerly, Group Vice President-Administration, Hallmark Cards,
Inc.; Director, David L. Babson Growth Fund, Inc., D. L. Babson Money Market
Fund, Inc., D. L. Babson Tax-Free Income Fund, Inc., Babson Enterprise Fund,
Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc., Shadow Stock
Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High
Yield Fund, Inc., Buffalo USA Global Fund, Inc.; Trustee of D. L. Babson Bond
Trust.
- -----------------
WILLIAM H. RUSSELL, Director ( ); Financial Consultant, 645 West 67th Street,
Kansas City, Missouri 64113; Director, David L. Babson Growth Fund, Inc., D. L.
Babson Money Market Fund, Inc., D. L. Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc.,
Shadow Stock Fund, Inc., Babson-Stewart Ivory International Fund, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High Yield Fund, Inc.,
Buffalo USA Global Fund, Inc.; Trustee of D. L. Babson Bond Trust.
- -----------------
H. DAVID RYBOLT, Director ( ); Consultant, HDR Associates, P.O. Box 2468,
Shawnee Mission, Kansas 66202; Director, David L. Babson Growth Fund, Inc., D.
L. Babson Money Market Fund, Inc. D. L. Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value
Fund, Inc., Shadow Stock Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity
Fund, Inc., Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc; Trustee
of D. L. Babson Bond Trust.
- ------------------
*ROBERT N. SAWYER, Director and Chairman ( ); BMA Tower, 700 Karnes Boulevard,
Kansas City, Missouri 64108; Senior Vice President and Chief Investment Officer
of Business Men's Assurance Company of America; Director of Jones & Babson, Inc.
- ------------------
JAMES SEWARD, Director (45); President and Chief Executive officer, SLH
Corporation; Executive Vice-President, Seafield Capital Corporation; Director,
SLH Corporation, Lab One, Response Oncology, Concordia Career Colleges and
Seafield Capital Corporation.
- ------------------
P. BRADLEY ADAMS, Principal Financial Officer and Principal Accounting Officer
(37); BMA Tower, 700 Karnes Boulevard, Kansas City, Missouri, 64108; Treasurer
of the Adviser; Vice President, Chief Financial Officer and Treasurer, Jones &
Babson, Inc.; Vice President and Treasurer, David L. Babson Growth Fund, Inc.,
D. L. Babson Money Market Fund, Inc., D. L. Babson Tax-Free Income Fund, Inc.,
Babson Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value
Fund, Inc., Shadow Stock Fund, Inc., D. L. Babson Bond Trust, Scout Stock Fund,
Inc., Scout Bond Fund, Inc., Scout Money Market Fund, Inc., Scout Tax-Free Money
Market Fund, Inc., Scout Regional Fund, Inc., Scout WorldWide Fund, Inc., Scout
Balanced Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc.; Vice President and
Chief Financial Officer, AFBA Five Star Fund, Inc.
- ------------------
MARTIN A. CRAMER, Secretary (47); Secretary of the Adviser; Vice President and
Secretary, Jones & Babson, Inc., David L. Babson Growth Fund, Inc., D. L. Babson
Money Market Fund, Inc., D. L. Babson Tax-Free Income Fund, Inc., Babson
Enterprise Fund, Inc., Babson Enterprise Fund II, Inc., Babson Value Fund, Inc.,
Shadow Stock Fund, Inc., D. L. Babson Bond Trust, Scout Stock Fund, Inc., Scout
Bond Fund, Inc., Scout Money Market Fund, Inc., Scout Tax-Free Money Market
Fund, Inc., Scout Regional Fund, Inc., Scout WorldWide Fund, Inc., Scout
Balanced Fund, Inc., Buffalo Balanced Fund, Inc., Buffalo Equity Fund, Inc.,
Buffalo High Yield Fund, Inc., Buffalo USA Global Fund, Inc.; Secretary and
Assistant Vice President, AFBA Five Star Fund, Inc.
- ------------------
EDWARD S. RITTER, Vice President ( ); BMA Tower, 700 Karnes Boulevard, Kansas
City, Missouri 64108; Vice President of the Adviser; Director of Jones & Babson,
Inc.; Vice President-Corporate Development, Business Men's Assurance Company of
America. ------------------
Each of these Directors may be deemed to be an "interested person" of the Fund
as that term is defined in the 1940 Act.
Each Director of the Fund who is not an "interested person" of the Fund receives
an annual fee of $3,000 and an additional fee of $125 for each Directors'
meeting attended and is reimbursed for expenses incurred in connection with
attending Directors' meetings. Each Director receives a separate fee of $125 for
attendance of any Committee meeting held on a day on which no Board meeting is
held.
Messrs. Rood, Russell, Rybolt and Seward have no financial interest in, nor are
they affiliated with the Fund, the Adviser or Jones & Babson, Inc.
The Audit Committee of the Board of Directors is composed of Messrs. Rood,
Russell, Rybolt and Seward. The Pricing Committee is composed of Messrs. Armel
and Sawyer. The Fund will not hold annual meetings except as required by the
Investment Company Act of 1940 and other applicable laws. The Fund is a Maryland
corporation. Under Maryland law, a special meeting of stockholders of the Fund
must be held if the Fund receives a written request for a meeting from the
stockholders entitled to cast at least 25% of all the votes entitled to be cast
at the meeting. The Fund has undertaken that its Directors will call a meeting
of stockholders if such a meeting is requested in writing by the holders of not
less than 10% of the outstanding shares of the Fund. To the extent required by
the undertaking, the Fund will assist share- holder communications in such
matters.
As each Portfolio's initial shareholder, Jones & Babson, Inc. holds all of the
outstanding shares, both beneficially and of record, of each Portfolio as of the
date of this SAI.
COMPENSATION TABLE
Each Director of the Fund who is not an "interested person" of the Fund is
expected to receive the following compensation during the Fund's first full
fiscal year (January 1, 1998 - December 31, 1998):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued as Part Annual from Registrant
Name of Person, from of Fund Benefits Upon and Fund Complex
Position Registrant* Expenses Retirement Paid to Directors
Larry D. Armel** N/A N/A N/A N/A
Director
Norse N. Blazzard N/A N/A N/A N/A
Director**
Francis C. Rood $3,500 N/A N/A $3,500
Director
William H. Russell $3,500 N/A N/A $3,500
Director
H. David Rybolt $3,500 N/A N/A $3,500
Director
Robert N. Sawyer N/A N/A N/A $3,500
Director**
James Seward $3,500 N/A N/A $3,500
Director
</TABLE>
* Each Portfolio is expected to pay its proportionate share of the total
compensation, based on its total net assets, relative to the total net
assets of the Fund.
** Each of these Directors may be deemed to be an "interested person" of
the Fund, as that term is defined in the 1940 Act, and consequently
will be receiving no compensation from the Fund.
THE ADVISER
The Fund and Investors Mark Advisors, LLC (the "Adviser") have entered into an
Investment Advisory Agreement dated July 15, 1997 (the "Investment Advisory
Agreement"), pursuant to which the Adviser is obligated, among other things, to
formulate a continuing program for the investment of the assets of each
Portfolio of the Fund. The fees to be paid under the Investment Advisory
Agreement are set forth in the Prospectus. The Adviser has agreed to assume
certain operating expenses of the Portfolios as described in the Prospectus.
The Investment Advisory Agreement further provides that the Adviser shall
furnish the Fund with office space and necessary personnel, pay ordinary office
expenses, pay all executive salaries of the Fund and furnish, without expense to
the Fund, the services of such members of its organization as may be duly
elected officers or Directors of the Fund.
Under the Investment Advisory Agreement, the Fund is responsible for all its
other expenses including, but not limited to, the following expenses: legal,
auditing or accounting expenses, Directors' fees and expenses, insurance
premiums, brokers' commissions, taxes and governmental fees, expenses of issue
or redemption of shares, expenses of registering or qualifying shares for sale,
reports and notices to shareholders, and fees and disbursements of custodians,
transfer agents, registrars, shareholder servicing agents and dividend
disbursing agents, and certain expenses with respect to membership fees of
industry associations.
The Investment Advisory Agreement provides that the Adviser may retain
sub-advisers, at Adviser's own cost and expense, for the purpose of making
investment recommendations and research information available to the Fund.
The Investment Advisory Agreement provides that neither the Adviser nor any
director, officer or employee of Adviser will be liable for any loss suffered by
the Fund in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations and duties.
The Investment Advisory Agreement may be terminated without penalty by vote of
the Directors, as to any Portfolio by the shareholders of that Portfolio, or by
Adviser on 60 days written notice. The Investment Advisory Agreement also
terminates without payment of any penalty in the event of its assignment. In
addition, the Investment Advisory Agreement may be amended only by a vote of the
shareholders of the affected Portfolio(s), and provides that it will continue in
effect from year to year, after its initial two-year term, only so long as such
continuance is approved at least annually with respect to each Portfolio by vote
of either the Directors or the shareholders of the Portfolio, and, in either
case, by a majority of the Directors who are not "interested persons" of the
Adviser. In each of the foregoing cases, the vote of the shareholders is the
affirmative vote of a "majority of the outstanding voting securities" as defined
in the 1940 Act.
SUB-ADVISERS
Each of the Sub-Advisers described in the Prospectus serves as Sub-Adviser to
one or more Portfolios of the Fund pursuant to separate written agreements (the
"Sub-Advisory Agreements"). Certain of the services provided by, and the fees
paid to, the Sub-Advisers are described in the Prospectus under "Management of
the Fund - Sub-Advisers."
Subject to the supervision of the Adviser and the Board of Directors of the
Fund, each of the Sub-Advisers invests and reinvests the Portfolios' assets
consistent with each Portfolio's respective investment objectives and policies
pursuant to the terms of the Sub-Advisory Agreements. Each Sub-Advisory
Agreement continues in effect for each Portfolio from year to year after its
initial two-year term so long as its continuation is approved at least annually
by a majority of the Directors of the Fund and by the shareholders of each
Portfolio or the Board of Directors. Each Sub-Advisory Agreement may be
terminated at any time upon 60 days notice by either party, or by a majority
vote of the outstanding shares of a Portfolio with respect to that Portfolio,
and will terminate automatically upon assignment or upon the termination of the
Investment Advisory Agreement. Additional Portfolios may be subject to a
different agreement.
THE DISTRIBUTOR
Jones & Babson, Inc. (the "Distributor") and the Fund are parties to a
distribution agreement (the "Distribution Agreement") dated October ____,
1997 pursuant to which the Distributor serves as principal underwriter for the
Fund. The Distributor will receive no compensation for serving in such capacity.
The Distribution Agreement is renewable annually. The Distribution Agreement
may be terminated by the Distributor, by a majority vote of the Directors who
are not interested persons and have no financial interest in the Distribution
Agreement or by a majority vote of the outstanding securities of the Fund upon
not more than sixty (60) days' written notice by either party or upon assignment
by the Distributor.
PERFORMANCE INFORMATION
From time to time, a Portfolio may advertise yield and/or total return. Such
performance data for a Portfolio should be distinguished from the rate of return
of a corresponding division of a Participating Insurance Company's separate
account, which rate will reflect the deduction of additional insurance charges,
including mortality and expense risk charges, and will therefore be lower. VA
Contract owners and VLI Policy owners should consult their contract and policy
prospectuses, respectively, for further information. Such performance data also
will not reflect any charges or expenses in connection with Qualified Plans.
Accordingly, Qualified Plan documents or other informational materials supplied
by Qualified Plan sponsors should be carefully reviewed for information
concerning relevant charges and expenses. The Portfolio's results also should be
considered relative to the risks associated with its investment objectives and
policies.
COMPUTATION OF YIELD
MONEY MARKET PORTFOLIO. The Portfolio's yield is computed by determining the
percentage net change, excluding capital changes, in the value of an investment
in one share of the Portfolio over the base period, and multiplying the net
change by 365/7 (or approximately 52 weeks). The Portfolio's effective yield
represents a compounding of the yield by adding 1 to the number representing the
percentage change in value of the investment during the base period, raising
that sum to a power equal to 365/7, and subtracting 1 from the result.
OTHER PORTFOLIOS. From time to time, a Portfolio may advertise yield. These
figures will be based on historical earnings and are not intended to indicate
future performance. The yield of a Portfolio refers to the annualized income
generated by an investment in the Portfolio over a specified 30-day period. The
yield is calculated by assuming that the income generated by the investment
during that period generated each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
CALCULATION OF TOTAL RETURN
From time to time, a Portfolio may advertise total return. The total return of a
Portfolio refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including but not limited to, the period
from which the Portfolio commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period. In
particular, total return will be calculated according to the following formula:
P (1 + to)n = ERV, where P = a hypothetical initial payment of $1,000; to =
average annual total return; n = number of years; and ERV = ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the designated
time period as of the end of such period.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past performance
and is not a guarantee of future results.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made on any day on which the New York Stock
Exchange is open for business. Currently, the following holidays are observed by
the Fund: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Shares of each
Portfolio are offered on a continuous basis.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of each Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to suspend sales of shares of a Portfolio for any
period during which the New York Stock Exchange, the Adviser, the
Sub-Adviser(s), the Transfer Agent and/or the Custodian are not open for
business.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined daily as of 4:00
p.m. New York time on each day the New York Stock Exchange is open for trading.
The New York Stock Exchange is normally closed on the following national
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas.
The value of a foreign security is determined in its national currency as of the
close of trading on the foreign exchange on which it is traded or as of 4:00
p.m. New York time, if that is earlier, and that value is then converted into
its U.S. dollar equivalent at the foreign exchange rate in effect at noon, New
York time, on the date the value of the foreign security is determined.
Portfolio securities that are listed on foreign exchanges may trade on days
on which the New York Stock Exchange is closed. As a result, the net asset
values of Portfolios holding foreign securities may be significantly affected
on days on which shareholders have no access to the Portfolios.
The valuation of the Money Market Portfolio's portfolio securities is based upon
their amortized cost, which does not take into account unrealized securities
gains or losses. This method involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any discount
or premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. By using amortized cost valuation, the Fund seeks to
maintain a constant net asset value of $1.00 per share for the Money Market
Portfolio, despite minor shifts in the market value of its portfolio securities.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Money Market Portfolio would receive if it sold the instrument. During
periods of declining interest rates, the quoted yield on shares of the Money
Market Portfolio may tend to be higher than a like computation made by a fund
with identical investments utilizing a method of valuation based on market
prices and estimates of market prices for all of its portfolio instruments.
Thus, if the use of amortized cost by the Portfolio resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Money Market Portfolio would be able to obtain a somewhat higher yield if he or
she purchased shares of the Money Market Portfolio on that day, than would
result from investment in a fund utilizing solely market values, and existing
investors in the Money Market Portfolio would receive less investment income.
The converse would apply on a day when the use of amortized cost by the
Portfolio resulted in a higher aggregate portfolio value. However, as a result
of certain procedures adopted by the Fund, the Fund believes any difference will
normally be minimal.
The net asset value of the shares of each of the Portfolios other than the Money
Market Portfolio is determined by dividing the total assets of the Portfolio,
less all liabilities, by the total number of shares outstanding. Securities
traded on a national securities exchange or quoted on the NASDAQ National Market
System are valued at their last-reported sale price on the principal exchange or
reported by NASDAQ or, if there is no reported sale, and in the case of
over-the-counter securities not included in the NASDAQ National Market System,
at a bid price estimated by a broker or dealer. Debt securities, including
zero-coupon securities, and certain foreign securities will be valued by a
pricing service. Other foreign securities may be valued by the Fund's
Pricing Committee. Securities for which current market quotations are not
readily available and all other assets are valued at fair value as determined
in good faith by the Directors, although the actual calculations may be made by
persons acting pursuant to the direction of the Directors.
If any securities held by a Portfolio are restricted as to resale, their fair
value is generally determined as the amount which the Fund 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 to the nature of the restrictions
on disposition of the securities (including any registration expenses that might
be borne by the Fund 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.
Generally, trading in certain securities (such as foreign securities) is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of these securities used in determining the net
asset value of the Fund'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 and U.S. Government 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 the Fund'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, in the manner described
above.
The proceeds received by each Portfolio for each issue or sale of its shares,
and all income, earnings, profits, and proceeds thereof, subject only to the
rights of creditors, will be specifically allocated to such Portfolio, and
constitute the underlying assets of that Portfolio. The underlying assets of
each Portfolio will be segregated in the Fund's books of account, and will be
charged with the liabilities in respect of such Portfolio and with a share of
the general liabilities of the Fund. Expenses with respect to any two or more
Portfolios may be allocated in proportion to the net asset values of the
respective Portfolios except where allocations of direct expenses can otherwise
be fairly made.
TAXES
The following is only a summary of certain income tax considerations generally
affecting a Portfolio and its shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local income tax liabilities.
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Each Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By maintaining its qualifications as a
RIC, each Portfolio intends to eliminate or reduce to a nominal amount the
federal taxes to which it may be subject.
In order to qualify for treatment as a RIC under the Code, a Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at
the close of each quarter of the Portfolio's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
Government securities, securities of other RICs and other securities,
with such other securities limited, in respect to any one issuer, to an amount
that does not exceed 5% of the value of the Portfolio's assets and that does
not represent more than 10% of the outstanding voting securities of such
issuer; and (iii) at the close of each quarter of the Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer or of two or more issuers which are engaged in the same, similar or
related trades or businesses if the Portfolio owns at least 20% of the voting
power of such issuers.
Notwithstanding the Distribution Requirement described above, which requires
only that a Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that calendar year, plus certain
other amounts.
If a Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net
capital gain without any deductions for amounts distributed to shareholders. In
such an event, all distributions (including capital gains distributions) will be
taxable as ordinary dividends to the extent of that Portfolio's current and
accumulated earnings and profits and such distributions will generally be
eligible for the corporate dividends-received deduction.
SECTION 817 DIVERSIFICATION REQUIREMENTS
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
VA Contracts and VLI Policies (that is, the assets of the Portfolios), which are
in addition to the diversification requirements imposed on the Portfolios by the
1940 Act and Subchapter M. Failure to satisfy those standards would result in
imposition of Federal income tax on a VA Contract or VLI Policy owner with
respect to the increase in the value of the VA Contract or VLI Policy. Section
817(h)(2) provides that a segregated asset account that funds contracts such as
the VA Contracts and VLI Policies is treated as meeting the diversification
standards if, as of the close of each calendar quarter, the assets in the
account meet the diversification requirements for a regulated investment company
and no more than 55% of those assets consist of cash, cash items, U.S.
Government securities and securities of other regulated investment companies.
The Treasury Regulations amplify the diversification standards set forth in
Section 817(h) and provide an alternative to the provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (ii) no more than 70% of such
value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of such
value is represented by any four investments. For purposes of these Regulations
all securities of the same issuer are treated as a single investment, but each
United States government agency or instrumentality shall be treated as a
separate issuer.
Each Portfolio will be managed with the intention of complying with these
diversification requirements. It is possible that, in order to comply with these
requirements, less desirable investment decisions may be made which would affect
the investment performance of a Portfolio.
PORTFOLIO TRANSACTIONS
Transactions on U.S. stock exchanges, commodities markets, futures markets and
other agency transactions involve the payment by the Fund 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 securities
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 Fund usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. It is anticipated
that most purchases and sales of securities by Portfolios investing primarily in
certain fixed-income securities will be with the issuer or with underwriters of
or dealers in those securities, acting as principal. There may be customary
mark-ups on such principal transactions. Accordingly, those Portfolios would not
ordinarily pay significant brokerage commissions with respect to securities
transactions.
It is currently intended that the Sub-Advisers will place all orders for the
purchase and sale of portfolio securities for the Fund and buy and sell
securities for the Fund through a substantial number of brokers and dealers. In
so doing, the Sub-Advisers will use their best efforts to obtain for the Fund
the best price and execution available. In seeking the best price and execution,
the Sub-Advisers, having in mind the Fund's best interests, will consider all
factors they deem relevant, including, by way of illustration, price, the size
of the transaction, the nature of the market for the security, 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. Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking best execution
and such other policies as the Board of Directors may determine, the
Sub-Advisers may also consider sales of Fund shares or VA Contracts and VLI
Policies as a factor in the selection of dealers to execute portfolio
transactions for the Fund.
A Sub-Adviser may place orders for the purchase and sale of exchange-listed
portfolio securities with a broker-dealer that is an affiliate of the
Sub-Adviser where in, the judgment of the Sub-Adviser, such firm will be able to
obtain a price and execution at least as favorable as other qualified brokers.
Pursuant to the rules of the SEC, a broker-dealer that is an affiliate of the
Sub-Adviser or, if it is also a broker-dealer, the Sub-Adviser may receive and
retain compensation for effecting portfolio transactions for a Portfolio on a
national securities exchange of which the broker-dealer is a member if the
transaction is "executed" on the floor of the exchange by another broker which
is not an "associated person" of the affiliated broker-dealer or the Sub-Adviser
and if there is in effect a written contract between the Sub-Adviser and the
Fund expressly permitting the affiliated broker-dealer or Sub-Adviser to receive
and retain such compensation.
SEC rules further require that commissions paid to such an affiliated
broker-dealer or Sub-Adviser by a Portfolio on exchange transactions not exceed
"usual and customary brokerage commissions." The rules define "usual and
customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Board of Directors has adopted procedures for evaluating
the reasonableness of commissions paid to broker-dealers that are affiliated
with the Sub-Advisers or to Sub-Advisers that are broker-dealers and will review
these procedures periodically.
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 (the "1934 Act")) from broker-dealers which execute portfolio
transactions for the clients of such advisers and from third parties with which
such broker-dealers have arrangements. Consistent with this practice, the
Sub-Advisers may receive brokerage and research services and other similar
services from many broker-dealers with which they place the Fund's portfolio
transactions and from third parties with which such broker-dealers have
arrangements. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities, and recommendations as
to the purchase and sale of securities. Some of these services may be of value
to the Sub-Advisers and/or their affiliates in advising various other clients
(including the Fund), although not all of these services are necessarily useful
and of value in managing the Fund. The management fees paid by the Fund are not
reduced because the Sub-Advisers and/or their affiliates may receive such
services.
As permitted by Section 28(e) of the 1934 Act, a Sub-Adviser may cause a
Portfolio to pay a broker-dealer which provides "brokerage and research
services" as defined in the 1934 Act to the Sub-Adviser an amount of disclosed
commission for effecting a securities transaction for the Portfolio in excess of
the commission which another broker-dealer would have charged for effecting that
transaction provided that the Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised. A Sub-Adviser's authority to cause a Portfolio to pay any such
greater commissions is also subject to such policies as the Adviser or the
Directors may adopt from time to time.
INVESTMENT DECISIONS. Investment decisions for the Fund and for the other
investment advisory clients of the Sub-Advisers are made with a view to
achieving their respective investment objectives and after consideration of such
factors as their current holdings, availability of cash for investment, and the
size of their investments generally. Frequently, a particular security may be
bought or sold for only one client or in different amounts and at different
times for more than one but less than all clients. Likewise, a particular
security may be bought for one or more clients when one or more other clients
are selling the security. In addition, purchases or sales of the same security
may be made for two or more clients of the Sub-Adviser on the same day. In such
event, such transactions will be allocated among the clients in a manner
believed by the Sub-Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Sub-Adviser in the interest of
achieving the most favorable net results for the Fund.
PORTFOLIO TURNOVER
The portfolio turnover rate of a Portfolio is defined by the SEC as the ratio of
the lesser of annual sales or purchases to the monthly average value of the
portfolio, excluding from both the numerator and the denominator securities with
maturities at the time of acquisition of one year or less. Under that
definition, the Money Market Portfolio would not calculate portfolio turnover.
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.
DESCRIPTION OF SHARES
The Fund is authorized to issue 500,000,000 shares of each Portfolio and to
create additional portfolios of the Fund. Each share of a Portfolio represents
an equal proportionate interest in that Portfolio with each other share. Shares
are entitled upon liquidation to a pro rata share in the net assets of the
Portfolio available for distribution to shareholders. Shareholders have no
preemptive rights. All consideration received by the Fund for shares of any
Portfolio and all assets in which such consideration is invested would belong to
that Portfolio and would be subject to the liabilities related thereto.
FINANCIAL STATEMENTS
A Statement of Assets and Liabilities of each of the Portfolios as of October
7, 1997, and the report of Ernst & Young LLP, Independent Auditors, with
respect thereto, is set forth below.
The Shareholder and Board of Directors
Investors Mark Series Fund, Inc.
We have audited the accompanying statements of net assets of Investors Mark
Series Fund, Inc. (comprised of the following: Intermediate Fixed Income
Portfolio; Mid Cap Equity Portfolio; Global Fixed Income Portfolio; Small Cap
Equity Portfolio; Large Cap Growth Portfolio; Large Cap Value Portfolio; Growth
and Income Portfolio; Balanced Portfolio and Money Market Portfolio)
(collectively referred to herein as the Fund) as of October 7, 1997. These
statements of net assets are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these statements of net assets based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of net assets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements of net assets. Our procedures
included confirmation of cash as of October 7, 1997 by correspondence with the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statements of net assets presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statements of net assets referred to above present fairly,
in all material respects, the financial position of each of the portfolios of
the Fund at October 7, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Kansas City, Missouri
October 7, 1997
<TABLE>
<CAPTION>
Investors Mark Series Fund, Inc.
Statements of Net Assets
October 7, 1997
INTERMEDIATE GLOBAL SMALL LARGE LARGE GROWTH
FIXED MID CAP FIXED CAP CAP CAP AND
INCOME EQUITY INCOME EQUITY GROWTH VALUE INCOME
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 11,120 $ 11,120 $ 11,120 $ 11,120 $ 11,120 $ 11,120 $ 11,120
-------------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE
TO OUTSTANDING SHARES $ 11,120 $ 11,120 $ 11,120 $ 11,120 $ 11,120 $ 11,120 $ 11,120
=======================================================================================================
Capital shares, $.001 par
value:
Authorized 500,000,000 500,000,000 500,000,000 500,000,000 500,000,000 500,000,000 500,000,000
=======================================================================================================
Outstanding 1,112 1,112 1,112 1,112 1,112 1,112 1,112
=======================================================================================================
Net asset value per share $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
=======================================================================================================
MONEY
BALANCED MARKET
----------------------------
<S> <C> <C>
ASSETS
Cash $ 11,120 $ 11,111
----------------------------
NET ASSETS APPLICABLE
TO OUTSTANDING SHARES $ 11,120 $ 11,111
============================
Capital shares, $.001 par
value:
Authorized 500,000,000 500,000,000
============================
Outstanding 1,112 11,111
============================
Net asset value per share $ 10.00 $ 1.00
============================
</TABLE>
Investors Mark Series Fund, Inc.
Note to Statement of Assets
October 7, 1997
SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Investors Mark Series Fund, Inc. (the Fund) was organized as a Maryland
corporation on June 24, 1997 and is registered under the Investment Company Act
of 1940, as amended, as a diversified, open-end management investment company
with the following series: Intermediate Fixed Income Portfolio; Mid Cap Equity
Portfolio; Global Fixed Income Portfolio; Small Cap Equity Portfolio; Large Cap
Growth Portfolio; Large Cap Value Portfolio; Growth and Income Portfolio;
Balanced Portfolio and Money Market Portfolio. Investors Mark Advisors, LLC (the
Adviser) serves as investment adviser to the Fund and is a wholly-owned
subsidiary of Jones & Babson, Inc. (Jones & Babson). Shares outstanding for each
series on October 7, 1997 were issued to Jones & Babson, the Fund's distributor.
The costs of organization will be paid by the Adviser and Jones & Babson.
Certain officers and directors of the Fund are also officers or directors or
both of Jones & Babson or the Adviser.
INVESTMENT ADVISORY AGREEMENTS AND PAYMENTS TO RELATED PARTIES
The Adviser will charge each portfolio a fee based on an annual percentage of
average net assets. In addition, the Adviser has entered into a subadvisory
agreement with a registered investment adviser (Subadviser) for each of the
portfolios. The Adviser, not the Fund, pays the subadvisory fee to each of the
Subadvisers. Listed below are advisory and subadvisory fees payable as a
percentage of average net assets.
<TABLE>
<CAPTION>
PORTFOLIO ADVISORY FEE SUBADVISORY FEES
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Intermediate Fixed Income .60% .20%
Mid Cap Equity .80% .35%
Global Fixed Income .75% .35%
Small Cap Equity .95% .55%
Large Cap Growth .80% .45%
Large Cap Value .80% .45% of first $40 million and .40% of average daily
net assets over $40 million
Growth and Income .80% .45% of first $40 million and .40% of average daily
net assets over $40 million
Balanced .80% .40% of first $40 million and .35% of average daily
net assets over $40 million
Money Market .40% .15%
</TABLE>
Investors Mark Series Fund, Inc.
Note to Statement of Assets (continued)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Adviser has voluntarily agreed to pay certain operating expenses in an
amount that limits the total operating expenses of the portfolios to an annual
rate of .50% of average net assets for the Money Market Portfolio; .80% of
average net assets for the Intermediate Fixed Income Portfolio; .90% of average
net assets for Mid Cap Equity Portfolio, Large Cap Value Portfolio, Large Cap
Growth Portfolio, Growth and Income Portfolio and Balanced Portfolio; 1.00% of
average net assets for the Global Fixed Income Portfolio and 1.05% of average
net assets for the Small Cap Portfolio. This expense limitation may be modified
or terminated in the discretion of the Adviser at any time without notice to
shareholders after the expiration at 12 months from the date shares of the Fund
are first offered to the public.
APPENDIX
DESCRIPTION OF STOCK RATINGS
Standard & Poor's Earnings and Dividend Rankings for Common Stocks (S&P) Growth
and stability of earnings and dividends are deemed key elements in establishing
Standard & Poor's earnings and dividend rankings for common stocks. Basic scores
are computed for earnings and dividends, then adjusted by a set of predetermined
modifiers for growth, stability within long-term trend, and cyclically. Adjusted
scores for earnings and dividends are then combined to yield a final score. The
final score is measured against a scoring matrix determined by an analysis of
the scores of a large and representative sample of stocks. The rankings are:
A+ Highest
A High
A- Above Average
B+ Average
B Below Average
B- Lower
C Lowest
D In Reorganization
Value Line Ratings of Financial Strength - The financial strength of each of
the companies reviewed by Value Line is rated relative to all the others. The
ratings are:
A++ The very highest relative financial strength
A+ Excellent financial position relative to other companies.
A High grade relative financial strength.
B++ Superior financial health on a relative basis.
B+ Very good relative financial structure.
B Good overall relative financial structure.
C++ Satisfactory finances relative to other companies.
C+ Below-average relative financial position.
C Poorest financial strength relative to other major companies.
The ratings are based upon computer analysis of a number of key variables that
determine: (a) financial leverage, (b) business risk and (c) company size plus
the judgment of their analysts and senior editors regarding factors that cannot
be quantified across-the-board for all stocks. The primary variables that are
indexed and studied include equity coverage of debt, equity coverage of
intangibles, "quick ratio" accounting methods, variability of return, quality of
fixed charge coverage, stock price stability and company size.
DESCRIPTION OF NRSRO RATINGS
DESCRIPTION OF MOODY'S CORPORATE RATINGS
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 fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be 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
attaining any real investment standing.
DESCRIPTION OF S&P CORPORATE RATINGS
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB-B-CCC-CC and C -- Bonds rated BB, B, CCC, CC and C are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB indicates the least degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. A C rating is typically applied to debt
subordinated to senior debt which is assigned an actual or implied CCC rating.
It may also be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
DESCRIPTION OF DUFF & PHELPS CORPORATE RATINGS
AAA - Highest credit quality. The risk factors are negligible being only
slightly more than for risk-free U.S. Treasury debt.
AA - risk is modest but may vary slightly from time to time because of
economic conditions.
A - Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
BBB - Investment grade. Considerable variability in risk during economic
cycles.
BB - Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B - Below investment grade and possessing risk that obligations will not be
met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in quality rating within this category or into a higher or
lower quality rating grade.
SUBSTANTIAL RISK - Well below investment grade securities. May be in
default or have considerable uncertainty as to timely payment of interest,
preferred dividends and/or principal. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions, and/or with
favorable company developments.
DESCRIPTION OF FITCH CORPORATE RATINGS
AAA - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issues is generally rated "[-]+."
A - Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and to repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and to repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB - Bonds considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
B - Bonds considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety.
CCC - Bonds which may have certain identifiable characteristics which, if
not remedied, may lead to the default of either principal or interest payments.
CC - Bonds which are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C - Bonds which are in imminent default in payment of interest or
principal.
DESCRIPTION OF THOMSON BANKWATCH, INC. CORPORATE RATINGS
AAA - Bonds that are rated AAA indicate that the ability to repay principal
and interest on a timely basis is extremely high.
AA - Bonds that are rated AA indicate a very strong ability to repay
principal and interest on a timely basis with limited incremental risk compared
to issues rated in the highest category.
TBW may apply plus ("+") and minus ("-") modifiers in the AAA and AA
categories to indicate where within the respective category the issue is placed.
DESCRIPTION OF IBCA LIMITED AND IBCA INC. CORPORATE RATINGS
AAA - Obligations which are rated AAA are considered to be of the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic, or
financial conditions are unlikely to increase investment risk significantly.
AA - Obligations which are rated AA are considered to be of a very low
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic, or financial
conditions may increase investment risk albeit not very significantly.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by S&P indicates that the degree of safety
regarding timely payments is strong. Those issues determined to possess
extremely strong safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1. An A-3 designation
indicates an adequate capacity for timely payment. Issues with this designation,
however, are more vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations. B issues are regarded as
having only speculative capacity for timely payment. C issues have a doubtful
capacity for payment. D issues are in payment default. The D rating category is
used when interest payments or principal payments are not made on the due date,
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period.
DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or supporting institutions) have a superior ability
for repayment of senior short-term debt obligations. 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 of issuers rated Prime-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained. Issuers rated
Prime-3 (or supporting institutions) have an acceptable ability for repayment of
senior short-term obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection measurements and may
require relatively high financial leverage. Adequate alternate liquidity is
maintained. Issuers rated Not Prime do not fall within any of the Prime rating
categories.
DESCRIPTION OF DUFF'S COMMERCIAL PAPER RATINGS
The rating Duff-1 is the highest commercial paper rating assigned by Duff &
Phelps. Paper rated Duff-1 is regarded as having very high certainty of timely
payment with excellent liquidity factors which are supported by ample asset
protection. Risk factors are minor. Paper rated Duff-2 is regarded as having
good certainty of timely payment, good access to capital markets and sound
liquidity factors and company fundamentals. Risk factors are small.
DESCRIPTION OF FITCH'S COMMERCIAL PAPER RATINGS
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial paper rating assigned by Fitch. Issues rated F-1+ are regarded as
having the strongest degree of assurance for timely payment. The rating F-1
(Very Strong Credit Quality) reflects an assurance of timely payment only
slightly less in degree than the strongest issues. An F-2 rating (Good Credit
Quality) indicates a satisfactory degree of assurance for timely payment, but
the margin of safety is not as great as for issues assigned F-1+ and F-1. Issues
rated F-3 (Fair Credit Quality) have characteristics suggesting that the degree
of assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
DESCRIPTION OF IBCA LIMITED AND IBCA INC. COMMERCIAL PAPER RATINGS
A1 - Short-term obligations rated A1 are supported by the highest capacity
for timely repayment. Where issues possess a particularly strong credit feature,
a rating of A1+ is assigned.
A2 - Short-term obligations rated A2 are supported by a satisfactory
capacity for timely repayment, although such capacity may be susceptible to
adverse changes in business, economic or financial conditions.
DESCRIPTION OF THOMSON BANKWATCH, INC. COMMERCIAL PAPER RATINGS
TBW-1 - Issues rated TBW-1 indicate a very high degree of likelihood that
principal and interest will be paid on a timely basis.
TBW-2 - Issues rated TBW-2 indicate that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
The Financial Statements filed as part of this Registration Statement
are as follows:
Report of Independent Auditors - Ernst & Young LLP*
Statements of Net Assets of each of the Portfolios as of October 7,
1997*
Note to Statement of Assets - October 7, 1997*
*Included in Part B of this Registration Statement
(b) Exhibits:
1 Articles of Incorporation**
2 By-Laws
3 Not Applicable
4 Not Applicable
5(a) Form of Investment Advisory Agreement between the
Registrant and Investors Mark Advisors, LLC
5(b)(i) Form of Sub-Advisory Agreement between the Registrant,
the Adviser and Stein Roe & Farnham, Inc. with respect to the
Small Cap Equity and Large Cap Growth Portfolios
5(b)(ii) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish, Ayer & Wood, Inc. with respect to the
Money Market Portfolio
5(b)(iii) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish, Ayer & Wood, Inc. with respect to the
Intermediate Fixed Income Portfolio
5(b)(iv) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish, Ayer & Wood, Inc. with respect to the
Mid Cap Equity Portfolio
5(b)(v) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish International Management Company, L.P. with
respect to the Global Fixed Income Portfolio
5(b)(vi) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Lord, Abbett & Co. with respect to the Growth &
Income Portfolio
5(b)(vii) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Kornitzer Capital Management, Inc. with respect
to the Balanced Portfolio
5(b)(viii) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and David L. Babson & Co., Inc. with respect to the
Large Cap Value Portfolio
6 Form of Distribution Agreement between the Registrant
and Jones & Babson, Inc.
7 Not Applicable
8(a) Form of Custodian Agreement between the Registrant and
UMB Bank, N.A.
8(b) Form of Custodian Agreement between the Registrant and
Investors Fiduciary Trust Company
9(a) Form of Transfer Agency Agreement between the Registrant
and Jones & Babson, Inc.
9(b) Form of Expense Limitation Agreement between the
Registrant and Investors Mark Advisors, LLC
9(c) Form of Fund Participation Agreement
9(d) Form of Services Agreement between Investors Mark
Advisors, LLC and Jones & Babson, Inc.
10 Opinion of Counsel
11 Consent of Independent Auditors
12 Not Applicable
13(a) Form of Stock Subscription Agreement between the Registrant
and Jones & Babson, Inc.
13(b) Agreement Governing Contribution of Working Capital to the
Fund by Business Men's Assurance Company of America
13(c) Agreement Governing Contribution of Working Capital to the
Fund by Transocean Holding Corporation
13(d) Agreement Governing Contribution of Working Capital to the
Fund by Generali, U.S. Branch
14 Not Applicable
15 Not Applicable
16 Not Applicable
17 Not Applicable
18 Not Applicable
24 Not Applicable
27 Not Applicable
** Incorporated by reference to Registrant's Registration Statement on Form
N-1A (File Nos.333-32723 and 811-08321) as filed electronically on
August 1, 1997.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons that are controlled by or under common control with the
Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Jones & Babson, Inc., as the initial shareholder of each Portfolio of the Fund,
holds all of the outstanding shares of the Fund.
ITEM 27. INDEMNIFICATION
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the 1940 Act. The
By-Laws may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable law. Such
indemnification shall be in addition to any other right or claim to which any
director, officer, employee or agent may otherwise be entitled. The Corporation
may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise or employee benefit plan, against any
liability (including, with respect to employee benefit plans, excise taxes)
asserted against and incurred by such person in any such capacity or arising out
of such person's position, whether or not the Corporation would have had the
power to indemnify against such liability. The rights provided to any person by
this Article 7.4 shall be enforceable against the Corporation by such person who
shall be presumed to have relied upon such rights in serving or continuing to
serve in the capacities indicated herein. No amendment of these Articles of
Incorporation shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment.
The By-Laws of the Registrant include the following:
ARTICLE VI
Indemnification
"The Corporation shall indemnify (a) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by (i) Maryland law now or hereafter in force, including
the advance of expenses under the procedures and to the full extent permitted
by law, and (ii) the Investment Company Act of 1940, as amended, and (b) other
employees and agents to such extent as shall be authorized by the Board of
Directors and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be permitted
by law."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, 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 director, officer or controlling person of the Registrant in the
successful defense of any action, suite or proceeding) is asserted by such
director, 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.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
manner consistent with the provisions of Sections 17(h) and (i) of the
Investment Company Act of 1940, as amended, and Release No. IC-11330 issued
thereunder.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND SUB-
ADVISERS:
Other business, profession, vocation, or employment of a substantial nature
in which each director or principal officer of Investors Mark Advisors, LLC is
or has been, at any time during the last two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or trustee
are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Position with Connection
Adviser Name of Other Company with Other
Company
Larry D. Armel Jones & Babson, Inc. President, Chief
President Executive Officer
and Director
Edward S. Ritter Jones & Babson, Inc. Director
Vice President Business Men's Assurance Vice President -
Company of America Corporate
Development
Martin A. Cramer Jones & Babson, Inc. Vice President and
Secretary Secretary
P. Bradley Adams Jones & Babson, Inc. Vice President,
Treasurer Chief Financial
Officer and
Treasurer
</TABLE>
The principal business address of the Adviser is BMA Tower, 700 Karnes
Boulevard, Kansas City, Missouri 64108.
With respect to information regarding the Sub-Advisers, reference is hereby made
to "Management of the Fund" in the Prospectus. For information as to the
business, profession, vocation or employment of a substantial nature of each of
the officers and directors of the Sub-Advisers, reference is made to the current
Form ADVs of the Sub-Advisers filed under the Investment Advisers Act of 1940,
incorporated herein by reference, the file numbers of which are as follows:
Standish, Ayer & Wood, Inc.
File No. 801-584
Standish International Management Company, L.P.
File No. 801-639338
Stein Roe & Farnham, Incorporated
File No. 801-27653
David L. Babson & Co., Inc.
File No. 801-241
Lord, Abbett & Co.
File No. 801-6997
Kornitzer Capital Management, Inc.
File No. 801-34933
BBOI Worldwide LLC
File No. 801-52264
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or investment
adviser.
Registrant's distributor, Jones & Babson, Inc., acts as distributor for:
David L. Babson Growth Fund, Inc., D. L. Babson Money Market Fund, Inc., D. L.
Babson Tax-Free Income Fund, Inc., Babson Enterprise Fund, Inc., Babson
Enterprise Fund II, Inc., Babson Value Fund, Inc., Shadow Stock Fund, Inc.,
D. L. Babson Bond Trust, Scout Stock Fund, Inc., Scout Bond Fund, Inc., Scout
Money Market Fund, Inc., Scout Tax-Free Money Market Fund, Inc., Scout Regional
Fund, Inc., Scout WorldWide Fund, Inc., Scout Balanced Fund, Inc., Buffalo
Balanced Fund, Inc., Buffalo Equity Fund, Inc., Buffalo High Yield Fund, Inc.,
Buffalo USA Global Fund, Inc. and AFBA Five Star Fund, Inc.
(b) Furnish the information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B.
<TABLE>
<CAPTION>
<S> <C> <C>
Positions and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
Larry D. Armel President, Director and Chief President, Principal
Executive Officer Executive Officer and
Director
P. Bradley Adams Vice President, Chief Financial Principal Financial
Officer and Treasurer Officer and Principal
Accounting Officer
Michael A. Brummel Vice President, Assistant Secretary ----
and Assistant Treasurer
Martin A. Cramer Vice President and Secretary Secretary
John G. Dyer Assistant Secretary and Legal Counsel ----
Constance B. Martin Assistant Vice President ----
Roy M. Moura Vice President ----
Stephen S. Soden Chairman of the Board and Director ----
Giorgio Balzer Director ----
Robert T. Rakich Director ----
Edward S. Ritter Director Vice President
Robert N. Sawyer Director Chairman and Director
Vernon W. Voorhees Director ----
</TABLE>
c. None.
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 include the Registrant's Secretary; the
Registrant's investment adviser, Investors Mark Advisors, LLC; the Registrant's
custodians, UMB Bank, N.A. and Investors Fiduciary Trust Company ("IFTC"), and
the Sub-Advisers. The address of the Secretary and Investors Mark Advisors, LLC
is 700 Karnes Boulevard, Kansas City, Missouri 64108. The address of UMB Bank is
928 Grand Avenue, Kansas City, Missouri 64141. The address of IFTC is 127 West
10th Street, Kansas City, Missouri 64105. The addresses of the Sub-Advisers are
contained in the Prospectus under the heading "Management of the Fund -
Sub-Advisers."
ITEM 31. MANAGEMENT SERVICES:
Other than as set forth in Parts A and B of this Registration Statement, the
Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940 inform the
Board of Directors of their desire to communicate with Shareholders of the Fund,
the Directors will inform such Shareholders as to the approximate number of
Shareholders of record and the approximate costs of mailing or afford said
Shareholders access to a list of Shareholders.
Registrant undertakes to call a meeting of Shareholders for the purpose of
voting upon the question of removal of a Director(s) when requested in writing
to do so by the holders of at least 10% of Registrant's outstanding shares and
in connection with such meetings to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940 relating to Shareholder communications.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to Shareholders,
upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment, including
financial statements which need not be audited, within 4-6 months from the later
of the commencement of operations of the Registrant or the effective date of the
Registrant's 1933 Act Registration Statement.
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant has duly caused this Pre-Effective Amendment No. 1 to its
Registration Statement to be signed on its behalf by the undersigned
thereto duly authorized, in the City of Kansas City, and State of Missouri,
on the 16th day of October, 1997.
INVESTORS MARK SERIES FUND, INC.
---------------------------------------
Registrant
By: /s/LARRY D. ARMEL
-----------------------------------
Larry D. Armel
Director, President and Principal
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly cause this Pre-Effective Amendment No. 1 to its Registration
Statement to be signed below by the following persons in the capacities
and on the dates indicated.
SIGNATURE AND TITLE DATE
/s/LARRY D. ARMEL
- -------------------- Director, President and 10-16-97
Larry D. Armel Principal Executive Officer --------
P. BRADLEY ADAMS*
- -------------------- Principal Financial Officer 10-16-97
P. Bradley Adams and Principal Accounting --------
Officer
NORSE N. BLAZZARD*
- -------------------- Director 10-16-97
Norse N. Blazzard --------
- -------------------- Director
Francis C. Rood --------
WILLIAM H. RUSSELL*
- -------------------- Director 10-16-97
William H. Russell --------
H. DAVID RYBOLT*
- -------------------- Director 10-16-97
H. David Rybolt --------
ROBERT N. SAWYER*
- -------------------- Director 10-16-97
Robert N. Sawyer --------
JAMES SEWARD*
- -------------------- Director 10-16-97
James Seward --------
*By: /s/LARRY D. ARMEL
-----------------------------------
Larry D. Armel, Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Larry D. Armel, Director, President and
Principal Executive Officer of Investors Mark Series Fund, Inc., (the "Fund"), a
Maryland corporation, do hereby appoint Robert N. Sawyer as my attorney and
agent, for me, and in my name as Director, President and Principal Executive
Officer of the Fund on behalf of the Fund or otherwise, with full power to
execute, deliver and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 2 day of October, 1997.
WITNESS:
/s/ RAYMOND A. O' HARA III /s/ LARRY D. ARMEL
- -------------------------- -------------------
Larry D. Armel
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Robert N. Sawyer, a Director of
Investors Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do
hereby appoint Larry D. Armel as my attorney and agent, for me, and in my name
as a Director of the Fund on behalf of the Fund or otherwise, with full power to
execute, deliver and file with the Securities and Exchange Commission all
documents required for registration of a security under the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as amended, and to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 2d day of October, 1997.
WITNESS:
/s/ RAYMOND A. O' HARA III /s/ ROBERT N. SAWYER
- -------------------------- --------------------
Robert N. Sawyer
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, P. Bradley Adams, Principal Financial
Officer and Principal Accounting Officer of Investors Mark Series Fund, Inc.,
(the "Fund"), a Maryland corporation, do hereby appoint Larry D. Armel and
Robert N. Sawyer, each individually, as my attorney and agent, for me, and in my
name as Principal Financial Officer and Principal Accounting Officer of the
Fund, on behalf of the Fund or otherwise, with full power to execute, deliver
and file with the Securities and Exchange Commission all documents required for
registration of a security under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and to do and perform each and every
act that said attorney may deem necessary or advisable to comply with the intent
of the aforesaid Acts.
WITNESS my hand this 2d day of October, 1997.
WITNESS:
/s/ RAYMOND A. O' HARA III /s/ P. BRADLEY ADAMS
- -------------------------- ---------------------
P. Bradley Adams
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Norse N. Blazzard, a Director of
Investors Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do
hereby appoint Larry D. Armel and Robert N. Sawyer, each individually, as my
attorney and agent, for me, and in my name as a Director of the Fund, on behalf
of the Fund or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand this 2d day of October, 1997.
WITNESS:
/s/ RAYMOND A. O' HARA III /s/ NORSE N. BLAZZARD
- -------------------------- ----------------------
Norse N. Blazzard
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, William H. Russell, a Director of
Investors Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do
hereby appoint Larry D. Armel and Robert N. Sawyer, each individually, as my
attorney and agent, for me, and in my name as a Director of the Fund, on behalf
of the Fund or otherwise, with full power to execute, deliver and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand this 2 day of October, 1997.
WITNESS:
/s/ RAYMOND A. O' HARA III /s/ WILLIAM H. RUSSELL
- -------------------------- ----------------------
William H. Russell
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, H. David Rybolt, a Director of Investors
Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do hereby appoint
Larry D. Armel and Robert N. Sawyer, each individually, as my attorney and
agent, for me, and in my name as a Director of the Fund, on behalf of the Fund
or otherwise, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 2nd day of October, 1997.
WITNESS:
/s/ RAYMOND A. O' HARA III /s/ H. DAVID RYBOLT
- -------------------------- -------------------
H. David Rybolt
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, James Seward, a Director of Investors
Mark Series Fund, Inc., (the "Fund"), a Maryland corporation, do hereby appoint
Larry D. Armel and Robert N. Sawyer, each individually, as my attorney and
agent, for me, and in my name as a Director of the Fund, on behalf of the Fund
or otherwise, with full power to execute, deliver and file with the Securities
and Exchange Commission all documents required for registration of a security
under the Securities Act of 1933, as amended, and the Investment Company Act of
1940, as amended, and to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 2 day of October, 1997.
WITNESS:
/s/ RAYMOND A. O' HARA III /s/ JAMES SEWARD
- -------------------------- -------------------
James Seward
EXHIBIT LIST
Exhibit Sequentially
Number Description Numbered Pages
EX-99.B2 By-Laws
EX-99.B5(a) Form of Investment Advisory Agreement between the
Registrant and Investors Mark Advisors, LLC
EX-99.B5(b)(i) Form of Sub-Advisory Agreement between the Registrant,
the Adviser and Stein Roe & Farnham, Inc. with respect to the
Small Cap Equity and Large Cap Growth Portfolios
EX-99.B5(b)(ii) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish, Ayer & Wood, Inc. with respect to the
Money Market Portfolio
EX-99.B5(b)(iii) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish, Ayer & Wood, Inc. with respect to the
Intermediate Fixed Income Portfolio
EX-99.B5(b)(iv) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish, Ayer & Wood, Inc. with respect to the
Mid Cap Equity Portfolio
EX-99.B5(b)(v) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Standish International Management Company, L.P.
with respect to the Global Fixed Income Portfolio
EX-99.B5(b)(vi) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Lord, Abbett & Co. with respect to the Growth &
Income Portfolio
EX-99.B5(b)(vii) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and Kornitzer Capital Management, Inc. with respect
to the Balanced Portfolio
EX-99.B5(b)(viii) Form of Sub-Advisory Agreement between the Registrant, the
Adviser and David L. Babson & Co., Inc. with respect to the
Large Cap Value Portfolio
EX-99.B6 Form of Distribution Agreement between the Registrant
and Jones & Babson, Inc.
EX-99.B8(a) Form of Custodian Agreement between the Registrant and
UMB Bank, N.A.
EX-99.B8(b) Form of Custodian Agreement betwen the Registrant and
Investors Fiduciary Trust Company
EX-99.B9(a) Form of Transfer Agency Agreement between the Registrant
and Jones & Babson, Inc.
EX-99.B9(b) Form of Expense Limitation Agreement between the
Registrant and Investors Mark Advisors, LLC
EX-99.B9(c) Form of Fund Participation Agreement
EX-99.B9(d) Form of Services Agreement between Investors Mark
Advisers, LLC and Jones & Babson, Inc.
EX-99.B10 Opinion of Counsel
EX-99.B11 Consent of Independent Auditors
EX-99.B13(a) Form of Stock Subscription Agreement between the Registrant
and Jones & Babson, Inc.
EX-99.B13(b) Agreement Governing Contribution of Working Capital to the
Fund by Business Men's Assurance Company of America
EX-99.B13(c) Agreement Governing Contribution of Working Capital to the
Fund by Transocean Holding Corporation
EX-99.B13(d) Agreement Governing Contribution of Working Capital to the
Fund by Generali, U.S. Branch
BYLAWS
FOR
INVESTORS MARK SERIES FUND, INC.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation in the
State of Maryland shall be in the City of Baltimore.
SECTION 2. OTHER OFFICES. The Corporation may have such other offices in
such places as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETING. Subject to this Article II, an annual
meeting of stockholders for the election of Directors and the transaction of
such other business as may properly come before the meeting shall be held at
such time and place as the Board of Directors shall select. The Corporation
shall not be required to hold an annual meeting of its stockholders in any year
in which the election of Directors is not required to be acted upon under the
Investment Company Act of 1940.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders may be
called at any time by the President, the Secretary or by a majority of the Board
of Directors and shall be held at such time and place as may be stated in the
notice of the meeting.
Special meetings of the stockholders shall be called by the Secretary
upon receipt of written request of the holders of shares entitled to cast not
less than 10% of the votes entitled to be cast at such meeting, provided that
(1) such request shall state the purposes of such meeting and the matters
proposed to be acted on, and (2) the stockholders requesting such meeting shall
have paid to the Corporation the reasonably estimated cost of preparing and
mailing the notice thereof, which the Secretary shall determine and specify to
such stockholders. No special meeting shall be called upon the request of
stockholders to consider any matter which is substantially the same as a
matter voted upon at any special meeting of the stockholders held during
the preceding 12 months, unless requested by the holders of a majority
of all shares entitled to be voted at such meeting.
SECTION 3. PLACE OF MEETINGS. Meetings of stockholders shall be held at
such place within or without the State of Maryland or abroad as the Board of
Directors may from time to time determine.
SECTION 4. NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of the place,
date and time of the holding of each stockholders' meeting and, if the meeting
is a special meeting, the purpose or purposes of the meeting, shall be given
personally or by mail, not less than ten nor more than ninety days before the
date of such meeting, to each stockholder entitled to vote at such meeting and
to each other stockholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the stockholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting.
SECTION 5. QUORUM; ADJOURNMENT OF MEETINGS. The presence at any
stockholders' meeting, in person or by proxy, of stockholders of one third of
the shares of the stock of the Corporation thereat shall be necessary and
sufficient to constitute a quorum for the transaction of business, except for
any matter which, under applicable statutes or regulatory requirements, requires
approval by a separate vote of one or more classes of stock, in which case the
presence in person or by proxy of stockholders of one third of the shares of
stock of each class required to vote as a class on the matter shall constitute a
quorum. The holders of a majority of shares entitled to vote at the meeting and
present in person or by proxy, whether or not sufficient to constitute a quorum,
or, any officer present entitled to preside or act as Secretary of such meeting,
may adjourn the meeting without determining the date of the new meeting and/or
without further notice to a date not more than 120 days after the original
record date. Any business that might have been transacted at the meeting
originally called may be transacted at any such adjourned meeting at which a
quorum is present.
SECTION 6. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Senior Vice President or a
Vice President, shall act as chairman of the meeting; provided, however, that if
no such officer is present or able to act, a chairman of the meeting shall be
elected at the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
SECTION 7. ORDER OF BUSINESS. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.
SECTION 8. VOTING. Except as otherwise provided by statute or the
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every full share of such stock, with a fractional
vote for any fractional shares, standing in his name on the record of
stockholders of the Corporation as of the record date determined pursuant to
Section 9 of this Article or if such record date shall not have been so fixed,
then at the later of (i) the close of business on the day on which notice of the
meeting is mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
stockholders or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
any corporate action to be taken by vote of the stockholders shall be authorized
by a majority of the total votes validly cast at a meeting of stockholders at
which a quorum is present.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
SECTION 9. FIXING OF RECORD DATE. The Board of Directors may fix a time
not less than 10 nor more than 90 days prior to the date of any meeting of
stockholders or prior to the last day on which the consent or dissent of
stockholders may be effectively expressed for any purpose without a meeting, as
the time as of which stockholders entitled to notice of and to vote at such a
meeting or whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined; and all persons who were
holders of record of voting stock at such time and no other shall be entitled to
notice of and to vote at such meeting or to express their consent or dissent, as
the case may be. If no record date has been fixed, the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the later of the close of business on the day on which
notice of the meeting is mailed or the thirtieth day before the meeting, or, if
notice is waived by all stockholders, at the close of business on the tenth day
next preceding the day on which the meeting is held. The Board of Directors may
fix a record date for determining stockholders entitled to receive payment of a
dividend or an allotment of any rights, but such date shall be not more than 90
days before the date on which such payment or allotment is made. If no record
date has been fixed, the record date for determining stockholders entitled to
receive dividends or an allotment of rights shall be the close of business on
the day on which the resolution of the Board of Directors declaring the dividend
or an allotment of rights is adopted, but the payment or allotment shall not be
made more than 60 days after the date on which the resolution is adopted.
SECTION 10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any meeting of stockholders, or any action which may be
taken at any meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of stockholders' meetings: (i) a unanimous written consent which sets
forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote thereat.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors and all powers of
the Corporation may be exercised by or under authority of the Board of
Directors.
SECTION 2. NUMBER OF DIRECTORS. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of Directors
shall in no event be less than three (3) nor more than fifteen (15); except that
the Corporation shall have at least one (1) Director if there is no stock
outstanding and may have a number of Directors or fewer than three (3)
stockholders. Any vacancy created by an increase in Directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
Directors shall have the effect of removing any Director from office prior to
the expiration of his term unless such Director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be stockholders.
SECTION 3. ELECTION AND TERM OF DIRECTORS. Directors shall be elected
annually, by written ballot at the annual meeting of stockholders or a special
meeting held for that purpose; provided, however, that if no annual meeting of
the stockholders of the Corporation is required to be held in a particular year
pursuant to Section 1 of Article II of these By-Laws, Directors shall be elected
at the next annual meeting held. The term of office of each Director shall be
from the time of his election and qualification until the election of Directors
next succeeding his election and until his successor shall have been elected and
shall have qualified.
SECTION 4. RESIGNATION. A Director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 5. REMOVAL OF DIRECTORS. Any Director of the Corporation may be
removed in accordance with the Articles of Incorporation.
SECTION 6. VACANCIES. If any vacancies shall occur in the Board of
Directors (i) by reason of death, resignation, removal or otherwise, the
remaining Directors shall continue to act, and such vacancies (if not previously
filled by the stockholders) may be filled by a majority of the remaining
Directors, although less than a quorum, or (ii) by reason of an increase in the
authorized number of Directors, such vacancies (if not previously filled by the
stockholders) may be filled only by a majority vote of the entire Board of
Directors.
SECTION 7. PLACE OF MEETING. The Directors may hold their meetings,
have one or more offices, and keep the books of the Corporation, outside the
State of Maryland, and within or without the United States of America, at any
office or offices of the Corporation or at any other place as they may from time
to time by resolution determine, or in the case of meetings, as they may from
time to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
SECTION 8. REGULAR MEETINGS. The Board of Directors from time to time
may provide by resolution for the holding of regular meetings and fix their time
and place as the Board of Directors may determine. Notice of such regular
meetings need not be in writing, provided that notice of any change in the time
or place of such fixed regular meetings shall be communicated promptly to each
Director not present at the meeting at which such change was made in the manner
provided in Section 9 of this Article III for notice of special meetings.
Members of the Board of Directors or any committee designated thereby may
participate in a meeting of such Board or committee by means of a conference
telephone or similar 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.
SECTION 9. SPECIAL MEETING. Special meetings of the Board of Directors
may be held at any time or place and for any purpose when called by the
President, the Secretary or two or more of the Directors. Notice of special
meetings, stating the time and place, shall be communicated to each Director
personally by telephone or transmitted to him by telegraph, telefax, telex,
cable or wireless at least one day before the meeting.
SECTION 10. WAIVER OF NOTICE. No notice of any meeting of the Board of
Directors or a committee of the Board need be given to any Director who is
present at the meeting or who waives notice of such meeting in writing (which
waiver shall be filed with the records of such meeting), either before or after
the time of the meeting.
SECTION 11. QUORUM AND VOTING. At all meetings of the Board of
Directors, the presence of one third of the entire Board of Directors shall
constitute a quorum unless there are only two or three Directors, in which case
two Directors shall constitute a quorum. If there is only one Director, the sole
Director shall constitute a quorum. At any adjourned meeting at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally called.
SECTION 12. ORGANIZATION. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President, or, in his absence
or inability to act, another Director chosen by a majority of the Directors
present, shall act as chairman of the meeting and preside thereat. The Secretary
(or, in his absence or inability to act, any person appointed by the Chairman)
shall act as secretary of the meeting and keep the minutes thereof.
SECTION 13. WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING. Subject
to the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee.
SECTION 14. COMPENSATION. Directors may receive compensation for services
to the Corporation in their capacities as directors or otherwise in such manner
and in such amounts as may be fixed from time to time by the Board.
ARTICLE IV
COMMITTEES
SECTION 1. ORGANIZATION. By resolution adopted by the Board of Directors,
the board may designate one or more committees, including an Executive
Committee, composed of two or more Directors. The Chairman of such committees
shall be elected by the Board of Directors. The Board of Directors shall have
the power at any time to change the members of such committees and to fill
vacancies in the committees. The Board may delegate to these committees any of
its powers, except the power to authorize the issuance of stock, declare a
dividend or distribution on stock, recommend to stockholders any action
requiring stockholder approval, amend these By-Laws, or approve any merger or
share exchange which does not require stockholder approval. If the Board of
Directors has given general authorization for the issuance of stock, a committee
of the Board, in accordance with a general formula or method specified by the
Board by resolution or by adoption of a stock option or other plan, may fix the
terms of stock subject to classification or reclassification and the terms on
which any stock may be issued, including all terms and conditions required or
permitted to be established or authorized by the Board of Directors.
SECTION 2. PROCEEDINGS AND QUORUM. In the absence of an appropriate
resolution of the Board of Directors, each committee may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable. In the event any member of any committee is absent
from any meeting, the members thereof present at the meeting, whether or not
they constitute a quorum, may appoint a member of the Board of Directors to act
in the place of such absent member.
ARTICLE V
OFFICERS, AGENTS AND EMPLOYEES
SECTION 1. GENERAL. The officers of the Corporation shall be a
President, a Secretary and a Treasurer, and may include one or more Executive
Vice Presidents, Vice Presidents, Assistant Secretaries or Assistant Treasurers,
and such other officers as may be appointed in accordance with the provisions of
Section 8 of this Article.
SECTION 2. ELECTION, TENURE AND QUALIFICATIONS. The officers of the
Corporation, except those appointed as provided in Section 8 of this Article V,
shall be elected by the Board of Directors at its first meeting and thereafter
annually at an annual meeting. If any officers are not chosen at any annual
meeting, such officers may be chosen at any subsequent regular or special
meeting of the Board. Except as otherwise provided in this Article V, each
officer chosen by the Board of Directors shall hold office until the next annual
meeting of the Board of Directors and until his successor shall have been
elected and qualified. Any person may hold one or more offices of the
Corporation except the offices of President and Vice President.
SECTION 3. REMOVAL AND RESIGNATION. Whenever in the judgment of the
Board of Directors the best interest of the Corporation will be served thereby,
any officer may be removed from office by the vote of a majority of the members
of the Board of Directors at any regular meeting or at a special meeting called
for such purpose. Any officer may resign his office at any time by delivering a
written resignation to the Board of Directors, the President, the Secretary, or
any Assistant Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
SECTION 4. PRESIDENT. The President shall be the chief executive
officer of the Corporation. Subject to the supervision of the Board of
Directors, he shall have general charge of the business, affairs and property of
the Corporation and general supervision over its officers, employees and agents.
Except as the Board of Directors may otherwise order, he may sign in the name
and on behalf of the Corporation all deeds, bonds, contracts, or agreements. He
shall exercise such other powers and perform such other duties as from time to
time may be assigned to him by the Board of Directors.
SECTION 5. EXECUTIVE VICE PRESIDENT AND VICE PRESIDENT. The Board of
Directors may from time to time elect one or more Executive Vice Presidents who
shall have such powers and perform such duties as from time to time may be
assigned to them by the Board of Directors or the President. At the request or
in the absence or disability of the President, the Executive Vice President (or,
if there are two or more Executive Vice Presidents, then the more senior of such
officers present and able to act) may perform all the duties of the President
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may perform such duties as
the Board of Directors may assign.
SECTION 6. TREASURER AND ASSISTANT TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Corporation and shall have
general charge of the finances and books of account of the Corporation. Except
as otherwise provided by the Board of Directors, he shall have general
supervision of the funds and property of the Corporation and of the performance
by the Custodian of its duties with respect thereto. He shall render to the
Board of Directors, whenever directed by the Board, an account of the financial
condition of the Corporation and of all his transactions as Treasurer. He shall
perform all acts incidental to the Office of Treasurer, subject to the control
of the Board of Directors.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, the Assistant Treasurer (or if there are two or more Assistant
Treasurers, then the more senior of such officers present and able to act) may
perform all of the duties of the Treasurer.
SECTION 7. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
attend to the giving and serving of all notices of the Corporation and shall
record all proceedings of the meetings of the stockholders and Directors in
books to be kept for that purpose. He shall keep in safe custody the seal of the
Corporation, and shall have charge of the records of the Corporation, including
such books and papers as the Board of Directors may direct and such books,
reports, certificates and other documents required by law to be kept, all of
which shall at all reasonable times be open to inspection by any Director. He
shall perform such other duties as appertain to his office or as may be required
by the Board of Directors.
Any Assistant Secretary may perform such duties of the Secretary as the
Secretary of the Board of Directors may assign, and, in the absence of the
Secretary, he may perform all the duties of the Secretary.
SECTION 8. SUBORDINATE OFFICERS. The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable, each of
whom shall have such title, hold office for such period, have such authority and
perform such duties as the Board of Directors may determine. The Board of
Directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
rights, terms of office, authorities and duties.
SECTION 9. REMUNERATION. The salaries or other compensation, if any, of
the officers of the Corporation shall be fixed from time to time by resolution
of the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in accordance
with the provisions of Section 8 of this Article V.
SECTION 10. SURETY BONDS. The Board of Directors may require any officer or
agent of the Corporation to execute a bond (including, without limitation, any
bond required by the Investment Company Act of 1940, as amended, and the rules
and regulations of the Securities and Exchange Commission) to the Corporation in
such sum and with such surety or sureties as the Board of Directors may
determine, conditioned upon the faithful performance of his duties to the
Corporation, including responsibility for negligence and for the accounting of
any of the Corporation's property, funds or securities that may come into his
hands.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify (a) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by (i) Maryland law now or hereafter in force, including
the advance of expenses under the procedures and to the full extent permitted by
law, and (ii) the Investment Company Act of 1940, as amended, and (b) other
employees and agents to such extent as shall be authorized by the Board of
Directors and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board of Directors may take such action as is necessary to
carry out these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be permitted
by law.
ARTICLE VII
CAPITAL STOCK
SECTION 1. STOCK CERTIFICATES. The interest of each stockholder of the
Corporation may be evidenced by certificates for shares of stock in such forms
as the Board of Directors may from time to time prescribe. The certificates
representing shares of stock shall be signed by or in the name of the
Corporation by the President, an Executive Vice President or a Vice President
and countersigned by the Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer. Certificates may be sealed with the actual corporate
seal or a facsimile of it or in any other form. Any or all of the signatures or
the seal on the certificate may be manual or a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate shall be issued, it may be issued by the
Corporation with the same effect as if such officer, transfer agent or registrar
were still in office at the date of issue unless written instructions of the
Corporation to the contrary are delivered to such officer, transfer agent or
registrar.
SECTION 2. STOCK LEDGERS. The stock ledgers of the Corporation,
containing the names and addresses of the stockholders and the number of shares
held by them respectively, shall be kept at the principal office of the
Corporation or, if the Corporation employs a transfer agent, at the office of
the transfer agent of the Corporation.
SECTION 3. TRANSFER OF SHARES. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for such shares properly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require and the payment of all taxes thereon. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive rights of a
person in whose name any share or shares stand on the record of stockholders as
the owner of such share or shares for all purposes, including, without
limitation, the rights to receive dividends or other distributions, and to vote
as such owner, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in any such share or shares on the part of any
other person. The Board may make such additional rules and regulations, not
inconsistent with these By-Laws, as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
from time to time appoint or remove transfer agents and/or registrars of
transfers of shares of stock of the Corporation and it may appoint the same
person as both transfer agent and registrar. Upon any such appointment being
made all certificates representing shares of capital stock thereafter issued
shall be countersigned by one of such transfer agents or by one of such
registrars of transfers or by both and shall not be valid unless so
countersigned. If the same person shall be both transfer agent and registrar,
only one countersignature by such person shall be required.
SECTION 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of any
certificates representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
ARTICLE VIII
SEAL
The seal of the Corporation shall be circular in form and shall bear,
in addition to any other emblem or device approved by the Board of Directors,
the name of the Corporation, the year of its incorporation and the words
"Corporate Seal" and "Maryland". The form of the seal may be altered by the
Board of Directors. Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any other manner reproduced. Any Officer or
Director of the Corporation shall have the authority to affix the corporate seal
of the Corporation to any document requiring the same.
ARTICLE IX
FISCAL YEAR
The fiscal year of the Company shall be determined by resolution of the
Board of Directors.
ARTICLE X
DEPOSITORIES AND CUSTODIAN
SECTION 1. DEPOSITORIES. The funds of the Corporation shall be deposited
with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
SECTION 2. CUSTODIANS. All securities and other investments shall be
deposited in the safe keeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safe keeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
ARTICLE XI
EXECUTION OF INSTRUMENTS
SECTION 1. CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate or as these
By-Laws provide.
SECTION 2. SALE OF TRANSFER OF SECURITIES. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or so transferred or otherwise disposed of subject to any limits
imposed by these By-Laws and pursuant to authorization by the Board and, when so
authorized to be held on behalf of the Corporation or sold, transferred or
otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President, any Executive Vice President, any Vice President
or the Treasurer or pursuant to any procedure approved by the Board of
Directors, subject to applicable law.
ARTICLE XII
INDEPENDENT PUBLIC ACCOUNTANTS
The Corporation shall employ an independent public accountant or a firm
of independent public accountants as its accountants to examine the accounts of
the Corporation and to sign and certify financial statements filed by the
Corporation.
ARTICLE XIII
AMENDMENTS
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders at which a quorum is present or represented, provided that notice
of the proposed amendment, alteration or repeal be contained in the notice of
such special meeting. These By-Laws may also be amended, altered or repealed by
the affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors, except any particular By-Law which is
specified as not subject to alteration or repeal by the Board of Directors,
subject to the requirements of the Investment Company Act of 1940, as amended.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective as of the 15th day of July 1997, between INVESTORS
MARK SERIES FUND, INC., a Maryland corporation (the "Fund"), and INVESTORS MARK
ADVISORS, LLC, a Delaware limited liability company (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company and is registered as such under the Investment Company Act of
1940, as amended (the "Act");
WHEREAS, the Fund is authorized to issue separate series, each of which
offers a separate class of shares of common stock, each having its own
investment objective or objectives, policies and limitations;
WHEREAS, the Fund may currently offer shares in ten series, designated as
the Balanced Portfolio, the Global Fixed Income Portfolio, the Growth & Income
Portfolio, the Intermediate Fixed Income Portfolio, the International Equity
Portfolio, the Large Cap Value Portfolio, the Large Cap Growth Portfolio, the
Mid Cap Equity Portfolio, the Money Market Portfolio and the Small Cap Equity
Portfolio ("Current Series"), and the Fund may offer shares of one or more
additional series in the future;
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940; and
WHEREAS, the Fund desires to retain the Adviser to render investment
management and administrative services to the Fund with respect to each Current
Series as indicated on the signature page in the manner and on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. SERVICES OF THE ADVISER.
1.1 INVESTMENT MANAGEMENT SERVICES. The Adviser shall act as the
investment adviser to the Fund and, as such, shall (i) obtain and evaluate
such information relating to the economy, industries, business, securities
markets and securities as it may deem necessary or useful in discharging
its responsibilities hereunder, (ii) formulate a continuing program for the
investment of the assets of the Fund in a manner consistent with its
investment objectives, policies and restrictions, and (iii) determine from
time to time securities to be purchased, sold, retained or lent by the
Fund, and implement those decisions, including the selection of entities
with or through which such purchases, sales or loans are to be effected;
provided, that the Adviser will place orders pursuant to its investment
determinations either directly with the issuer or with a broker or dealer,
and if with a broker or dealer, (a) will attempt to obtain the best net
price and most favorable execution of its orders, and (b) may nevertheless
in its discretion purchase and sell portfolio securities from and to
brokers and dealers who provide the Adviser with research, analysis, advice
and similar services and pay such brokers and dealers in return a higher
commission or spread than may be charged by other brokers or dealers.
The Fund hereby authorizes any entity or person associated with the Adviser
or any Sub-Adviser retained by Adviser pursuant to Section 7 of this
Agreement, which is a member of a national securities exchange, to effect
any transaction on the exchange for the account of the Fund which is
permitted by Section 11(a) of the Securities Exchange Act of 1934 and Rule
11a2-2(T) thereunder, and the Fund hereby consents to the retention of
compensation for such transactions in accordance with Rule
11a2-2(T)(a)(iv).
The Adviser shall carry out its duties with respect to the Fund's
investments in accordance with applicable law and the investment
objectives, policies and restrictions set forth in the Fund's then-current
Prospectus and Statement of Additional Information, and subject to such
further limitations as the Fund may from time to time impose by written
notice to the Adviser.
1.2 ADMINISTRATIVE SERVICES. The Adviser shall manage the Fund's
business and affairs and shall itself or through persons it causes to be
made available provide such services required for effective administration
of the Fund as are not provided by employees or other agents engaged by the
Fund; provided, that the Adviser shall not have any obligation to provide
under this Agreement, any direct or indirect services to Fund shareholders,
any services related to the distribution of Fund shares, or any other
services which are the subject of a separate agreement or arrangement
between the Fund and the Adviser. Subject to the foregoing, in providing
administrative services hereunder, the Adviser shall:
1.2.1 OFFICE SPACE, EQUIPMENT AND FACILITIES. Furnish without cost
to the Fund, or pay the cost of, such office space, general office
equipment and office facilities as are adequate for the Fund's needs.
1.2.2 PERSONNEL. Provide, without remuneration from or other cost
to the Fund, the services of individuals competent to perform all of
the Fund's executive, administrative and clerical functions which are
not performed by employees or other agents engaged by the Fund or by
the Adviser acting in some other capacity pursuant to a separate
agreement or arrangement with the Fund.
1.2.3 AGENTS. Assist the Fund in selecting and coordinating the
activities of the other agents engaged by the Fund, including the
Fund's shareholder servicing agent, custodian, independent accountants
and legal counsel.
1.2.4 DIRECTORS AND OFFICERS. Authorize and permit the Adviser's
directors, officers and employees who may be elected or appointed as
Directors or officers of the Fund to serve in such capacities, without
remuneration from or other cost to the Fund.
1.2.5 BOOKS AND RECORDS. Assure that all financial, accounting and
other records required to be maintained and preserved by the Fund are
maintained and preserved by it or on its behalf in accordance with
applicable laws and regulations.
1.2.6 REPORTS AND FILINGS. Assist in the preparation of (but not
pay for) all periodic reports by the Fund to its shareholders and all
reports and filings required to maintain the registration and
qualification of the Fund and Fund shares, or to meet other regulatory
or tax requirements applicable to the Fund, under federal and state
securities and tax laws.
1.3 ADDITIONAL SERIES. In the event that the Fund from time to
time designates one or more series in addition to the Current Series
("Additional Series"), it shall notify the Adviser in writing. If the
Adviser is willing to perform services hereunder to the Additional
Series, it shall so notify the Fund in writing. Thereupon, the Fund
and the Adviser shall enter into an Addendum to this Agreement for the
Additional Series and the Additional Series shall be subject to this
Agreement.
2. EXPENSES OF THE FUND.
2.1 EXPENSES TO BE PAID BY ADVISER. The Adviser shall pay or cause to
be paid all salaries, expenses and fees of the officers, Directors and
employees of the Fund who are officers, directors or employees of the
Adviser or its affiliates.
In the event that the Adviser pays or assumes any expenses of the Fund
not required to be paid or assumed by the Adviser under this Agreement, the
Adviser shall not be obligated hereby to pay or assume the same or any
similar expense in the future; provided, that nothing herein contained
shall be deemed to relieve the Adviser of any obligation to the Fund under
any separate agreement or arrangement between the parties.
2.2 EXPENSES TO BE PAID BY THE FUND. The Fund shall bear all expenses
of its operation, except those specifically allocated to the Adviser under
this Agreement or under any separate agreement between the Fund and the
Adviser. Subject to any separate agreement or arrangement between the Fund
and the Adviser, the expenses hereby allocated to the Fund, and not to the
Adviser, include, but are not limited to:
2.1 CUSTODY. All charges of depositories, custodians, and other agents
for the transfer, receipt, safekeeping, and servicing of its cash,
securities, and other property.
2.2 SHAREHOLDER SERVICING. All expenses of maintaining and servicing
shareholder accounts, including but not limited to the charges of any
shareholder servicing agent, dividend disbursing agent or other agent
engaged by the Fund to service shareholder accounts.
2.3 SHAREHOLDER REPORTS. All expenses of preparing, setting in type,
printing and distributing reports and other communications to shareholders.
2.4 PROSPECTUSES. All expenses of preparing, setting in type, printing
and mailing annual or more frequent revisions of the Fund's Prospectus and
Statement of Additional Information and any supplements thereto and of
supplying them to shareholders.
2.5 PRICING AND PORTFOLIO VALUATION. All expenses of computing the
Fund's net asset value per share, including any equipment or services
obtained for the purpose of pricing shares or valuing the Fund's investment
portfolio.
2.6 COMMUNICATIONS. All charges for communication equipment or
services used for communications between the Adviser or the Fund and any
custodian, shareholder servicing agent, portfolio accounting services
agent, or other agent engaged by the Fund.
2.7 LEGAL AND ACCOUNTING FEES. All charges for services and expenses
of the Fund's legal counsel and independent accountants.
2.8 DIRECTORS' FEES AND EXPENSES. All compensation of Directors other
than those affiliated with the Adviser, all expenses incurred in connection
with such unaffiliated Directors' services as Directors, and all other
expenses of meetings of the Directors and committees of the Directors.
2.9 SHAREHOLDER MEETINGS. All expenses incidental to holding meetings
of shareholders, including the printing of notices and proxy materials, and
proxy solicitation therefor.
2.10 FEDERAL REGISTRATION FEES. All fees and expenses of registering
and maintaining the registration of the Fund under the Act and the
registration of the Fund's shares under the Securities Act of 1933 (the
"1933 Act"), including all fees and expenses incurred in connection with
the preparation, setting in type, printing, and filing of any Registration
Statement, Prospectus and Statement of Additional Information under the
1933 Act or the Act, and any amendments or supplements that may be made
from time to time.
2.11 STATE REGISTRATION FEES. All fees and expenses of qualifying and
maintaining the qualification of the Fund and of the Fund's shares for sale
under securities laws of various states or jurisdictions, and of
registration and qualification of the Fund under all other laws applicable
to the Fund or its business activities (including registering the Fund as a
broker-dealer, or any officer of the Fund or any person as agent or
salesman of the Fund in any state).
2.12 BONDING AND INSURANCE. All expenses of bond, liability, and other
insurance coverage required by law or regulation or deemed advisable by the
Directors of the Fund, including, without limitation, such bond, liability
and other insurance expenses that may from time to time be allocated to the
Fund in a manner approved by its Directors.
2.13 BROKERAGE COMMISSIONS. All brokers' commissions and other charges
incident to the purchase, sale or lending of the Fund's portfolio
securities.
2.14 TAXES. All taxes or governmental fees payable by or with respect
to the Fund to federal, state or other governmental agencies, domestic or
foreign, including stamp or other transfer taxes.
2.15 TRADE ASSOCIATION FEES. All fees, dues and other expenses
incurred in connection with the Fund's membership in any trade association
or other investment organization.
2.16 NONRECURRING AND EXTRAORDINARY EXPENSES. Such nonrecurring and
extraordinary expenses as may arise including the costs of actions, suits,
or proceedings to which the Fund is a party and the expenses the Fund may
incur as a result of its legal obligation to provide indemnification to its
officers, Directors and agents.
3. ADVISORY FEE.
3. 1 FEE. As compensation for all services rendered facilities
provided and expenses paid or assumed by the Adviser under this Agreement,
the Fund shall pay the Adviser on the last day of each month, or as
promptly as possible thereafter, a fee calculated at the annual rate of the
average daily net assets during such month of each series of the Fund as
set forth below:
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION PORTFOLIO ANNUAL ADVISORY FEE
(AS A % OF AVERAGE DAILY NET ASSETS)
-------------- --------------------------------------- -----------------------------------------------------
3.1.1 Balanced .80%
3.1.2 Global Fixed Income .75%
3.1.3 Growth & Income .80%
3.1.4 Intermediate Fixed Income .60%
3.1.5 International Equity %
3.1.6 Large Cap Growth .80%
3.1.7 Large Cap Value .80%
3.1.8 Mid Cap Equity .80%
3.1.9 Money Market .40%
3.1.10 Small Cap Equity .95%
</TABLE>
4. RECORDS.
4.1 TAX TREATMENT. The Adviser shall maintain the books and records of
the Fund in such a manner that treats each series as a separate entity for
federal income tax purposes.
4.2 OWNERSHIP. All records required to be maintained and preserved by
the Fund pursuant to the provisions or rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the Act and
maintained and preserved by the Adviser on behalf of the Fund are the
property of the Fund and shall be surrendered by the Adviser promptly on
request by the Fund; provided, that the Adviser may at its own expense make
and retain copies of any such records.
5. REPORTS TO ADVISER.
The Fund shall furnish or otherwise make available to the Adviser such
copies of the Fund's Prospectus, Statement of Additional Information, financial
statements, proxy statements, reports, and other information relating to its
business and affairs as the Adviser may, at any time or from time to time,
reasonably require in order to discharge its obligations under this Agreement.
6. REPORTS TO THE FUND.
The Adviser shall prepare and furnish to the Fund such reports, statistical
data and other information in such form and at such intervals as the Fund may
reasonably request.
7. RETENTION OF SUB-ADVISER(S).
Subject to the Fund's obtaining the initial and periodic approvals required
under Section 15 of the Act, the Adviser may retain one or more sub-advisers, at
the Adviser's own cost and expense, for the purpose of managing the investments
of the assets of one or more Series of the Fund. Retention of one or more
sub-advisers shall in no way reduce the responsibilities or obligations of the
Adviser under this Agreement and the Adviser shall be responsible to the Fund
for all acts or omissions of any sub-adviser in connection with the performance
of the Adviser's duties hereunder.
8. SERVICES TO OTHER CLIENTS.
Nothing herein contained shall limit the freedom of the Adviser or any
affiliated person of the Adviser to render investment management and
administrative services to other investment companies, to act as investment
adviser or investment counselor to other persons, firms or corporations, or to
engage in other business activities.
9. LIMITATION OF LIABILITY OF ADVISER AND ITS PERSONNEL.
Neither the Adviser nor any director, officer or employee of the Adviser
performing services for the Fund at the direction or request of the Adviser in
connection with the Adviser's discharge of its obligations hereunder shall be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with any matter to which this Agreement relates, and the
Adviser shall not be responsible for any action of the Directors of the Fund in
following or declining to follow any advice or recommendation of the Adviser;
PROVIDED, that nothing herein contained shall be construed (i) to protect the
Adviser against any liability to the Fund or its shareholders to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of the Adviser's duties, or by reason of
the Adviser's reckless disregard of its obligations and duties under this
Agreement, or (ii) to protect any director, officer or employee of the Adviser
who is or was a Director or officer of the Fund against any liability of the
Fund or its shareholders to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office with the Fund.
10. INDEMNIFICATION.
The Fund shall indemnify and hold harmless the Adviser, its officers and
directors and each person, if any, who controls the Adviser within the meaning
of Section 15 of the 1933 Act (any and all such persons shall be referred to as
"Indemnified Party"), against any loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damages or expense and reasonable counsel fees incurred in
connection therewith), arising by reason of any matter to which this Investment
Advisory Agreement relates. However, in no case (i) is this indemnity to be
deemed to protect any particular Indemnified Party against any liability to
which such Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of its obligations and duties under this
Investment Advisory Agreement or (ii) is the Fund to be liable under this
indemnity with respect to any claim made against any particular Indemnified
Party unless such Indemnified Party shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Adviser
or such controlling persons.
The Adviser shall indemnify and hold harmless the Fund and each of its
directors and officers and each person if any who controls the Fund within the
meaning of Section 15 of the 1933 Act, against any loss, liability, claim,
damage or expense described in the foregoing indemnity, but only with respect to
the Adviser's willful misfeasance, bad faith or gross negligence in the
performance of its duties under this Investment Advisory Agreement. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Adviser, the Adviser shall
have the rights and duties given to the Fund, and the Fund and each person so
indemnified shall have the rights and duties given to the Adviser by the
provisions of subsections (i) and (ii) of this section.
11. NO PERSONAL LIABILITY OF DIRECTORS OR SHAREHOLDERS.
This Agreement is made by the Fund on behalf of its various Current Series
pursuant to authority granted by the Directors, and the obligations created
hereby are not binding on any of the Directors or shareholders of the Fund
individually, but bind only the property of each Current Series of the Fund.
12. EFFECT OF AGREEMENT.
Nothing herein contained shall be deemed to require the Fund to take any
action contrary to its Declaration of Fund or its By-Laws or any applicable law,
regulation or order to which it is subject or by which it is bound, or to
relieve or deprive the Directors of the Fund of their responsibility for and
control of the conduct of the business and affairs of the Fund.
13. TERM OF AGREEMENT.
The term of this Agreement shall begin on the date first above written, and
unless sooner terminated as hereinafter provided, this Agreement shall remain in
effect through October 31, 1998. Thereafter, this Agreement shall continue in
effect with respect to the Fund from year to year, subject to the termination
provisions and all other terms and conditions hereof; PROVIDED, such continuance
with respect to the Fund is approved at least annually by vote of the holders of
a majority of the outstanding voting securities of the Fund or by the Directors
of the Fund; PROVIDED, that in either event such continuance is also approved
annually either by the vote, cast in person at a meeting called for the purpose
of voting on such approval, of a majority of the Directors of the Fund who are
not parties to this Agreement or interested persons of either party hereto; and
PROVIDED FURTHER that the Adviser shall not have notified the Fund in writing at
least sixty (60) days prior to October 31, 1998, or at least sixty (60) days
prior to October 31st of any year thereafter that it does not desire such
continuation. The Adviser shall furnish to the Fund, promptly upon its request,
such information as may reasonably be necessary to evaluate the terms of this
Agreement or any extension, renewal or amendment thereof.
14. AMENDMENT OR ASSIGNMENT OF AGREEMENT.
Any amendment to this Agreement shall be in writing signed by the parties
hereto; PROVIDED, that no such amendment shall be effective unless authorized on
behalf of the Fund (i) by resolution of the Fund's Directors, including the vote
or written consent of a majority of the Fund's Directors who are not parties to
this Agreement or interested persons of either party hereto, and (ii) by vote of
a majority of the outstanding voting securities of the Fund. This Agreement
shall terminate automatically and immediately in the event of its assignment.
15. TERMINATION OF AGREEMENT.
This Agreement may be terminated at any time by either party hereto,
without the payment of any penalty, upon sixty (60) days' prior written notice
to the other party; PROVIDED, that in the case of termination by the Fund, such
action shall have been authorized (i) by resolution of the Fund's Board of
Directors, including the vote or written consent of Directors of the Fund who
are not parties to this Agreement or interested persons of either party hereto,
or (ii) by vote of a majority of the outstanding voting securities of the Fund.
16. INTERPRETATION AND DEFINITION OF TERMS.
Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the Act
shall be resolved by reference to such term or provision of the Act and to
interpretation thereof, if any, by the United States courts, or, in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission validly issued pursuant to the Act.
Specifically, the terms "vote of a majority of the outstanding voting
securities," "interested persons," "assignment" and "affiliated person," as used
in this Agreement shall have the meanings assigned to them by Section 2(a) of
the Act. In addition, when the effect of a requirement of the Act reflected in
any provision of this Agreement is modified, interpreted or relaxed by a rule,
regulation or order of the Securities and Exchange Commission, whether of
special or of general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
17. CAPTIONS.
The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction.
18. EXECUTION IN COUNTERPARTS.
This Agreement may be executed simultaneously in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective seals to be hereunto affixed, as of the date and year first above
written.
INVESTORS MARK SERIES FUND, INC. for its Balanced, Global
Fixed Income, Growth & Income, Intermediate Fixed Income,
International Equity, Large Cap Growth, Large Cap Value, Mid
Cap Equity, Money Market and Small Cap Equity Portfolios.
By:_____________________________
Director
INVESTORS MARK ADVISORS, LLC
By:_____________________________
Vice President
SUB-ADVISORY AGREEMENT
This Agreement is made between, INVESTORS MARK ADVISOR a limited liability
company, having its principal place of business in Kansas City (hereinafter
referred to as the "Advisor"), STEIN ROE & FARNHAM, Inc., a corporation, having
its principal place of business in Chicago, Illinois (hereinafter referred to as
the "Sub-Advisor") and INVESTORS MARK SERIES FUND, INC., a Maryland corporation
(hereinafter referred to as the "Fund").
WHEREAS, the Fund, an open-end diversified management investment
company, as that term is defined in the Investment Company Act of 1940, as
amended (the "Act"), that is registered as such with the Securities and Exchange
Commission, has appointed Advisor as investment advisor for and to the Small Cap
Portfolio and Large Cap Growth Portfolio, each being a sub-Fund of the Fund
(referred to individually as a "Sub-Fund" and collectively as the "Sub-Funds"),
pursuant to the terms of an investment advisory agreement effective July, 15,
1997, between the Fund and Advisor ("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain
investment management services for the Sub-Funds as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment advisor for the Sub-Funds.
Subject to the oversight and review of Advisor and the Board of
Directors of the Fund, Sub-Advisor shall manage the investment and
reinvestment of the assets of the Sub-Funds. Sub-Advisor will determine
in its discretion, subject to the oversight and review of Advisor, the
investments to be purchased or sold, will provide Advisor with records
concerning its activities which Advisor or the Fund is required to
maintain and will render regular reports to Advisor and to officers and
Directors of the Fund concerning its discharge of the foregoing
responsibilities.
Sub-Advisor, in its supervision of the investments of the Sub-Funds,
will be guided by the Sub-Funds' investment objectives and policies and
the provisions and restrictions contained in the Articles of
Incorporation and Bylaws of the Fund and as set forth in the
Registration Statement and exhibits as may be on file with the
Securities and Exchange Commission, all as communicated by Advisor to
Sub-Advisor. Advisor hereby undertakes to provide Sub-Advisor with
copies of such Articles of Incorporation and Bylaws and Registration
Statement and exhibits as well as any amendments as the same become
available from time to time.
Sub-Advisor shall be deemed to be an independent contractor under this
Agreement and, unless otherwise expressly provided or authorized, shall
have no authority to act for or represent the Fund or any Sub-Fund in
any way or otherwise be deemed an agent of the Fund or any Sub-Fund.
The services furnished by Sub-Advisor hereunder are deemed not to be
exclusive, and nothing in this Agreement shall (i) prevent Sub-Advisor
or any affiliated person (as defined in the Act) of Sub-Advisor from
acting as investment advisor or manager for any other person or
persons, including other management investment companies with
investment objectives and policies the same as or similar to those of
the Sub-Funds, or (ii) limit or restrict Sub-Advisor or any such
affiliated person from buying, selling or trading any securities or
other investments (including any securities or other investments which
the Sub-Funds are eligible to buy) for its or their own accounts or for
the accounts of others for whom it or they may be acting; provided,
however, that Sub-Advisor agrees that it will not undertake any
activities which, in its reasonable judgment, will adversely affect the
performance of its obligations to the Sub-Funds under this Agreement
and provided that all such activities are in conformity with all
applicable provisions of the Fund's Registration Statement.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Funds by Sub-Advisor hereunder, the sub-advisory fees set forth in
Exhibit A attached hereto. During the term of this Agreement,
Sub-Advisor will bear all expenses incurred by it in the performance of
its duties hereunder, other than the cost of securities, commodities
and other investments (including brokerage, commissions and other
charges, if any) purchased for the Sub-Funds.
3. Term. The term of this Agreement shall begin on the date of its
execution and shall remain in effect for two years from that date and
from year to year thereafter, subject to the provisions for termination
and all of the other terms and conditions hereof, if such continuation
is specifically approved at least annually in the manner required by
the Act. This Agreement shall be submitted to the shareholders of the
Fund and each Sub-Fund for approval and shall automatically terminate
if not approved by a majority of the shares of the Sub-Fund.
4. Termination. This Agreement may be terminated at any time without the
payment of any penalty, by the Advisor on sixty (60) days written
notice to the Sub-Advisor, by a majority of the Board of Directors of
the Fund, by a vote of the majority of the outstanding shares of
beneficial interest of any Sub-Fund or by the Sub-Advisor on sixty (60)
days written notice to the Advisor.
This Agreement will terminate automatically in the event of the
termination of the Investment Advisory Agreement.
This Agreement shall automatically terminate in the event of its
assignment. The Sub-Advisor may employ or contract with any other
person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out its
obligations and duties under this Agreement.
5. Sub-Advisor's Representations. Sub-Advisor represents and warrants
that each the Sub-Fund will at all times be invested in such a manner
as to ensure compliance with Section 817(h) of the Internal Revenue
Code of 1986, as amended, and Treasury Regulations, Section 1.817.5,
relating to the diversification requirements for variable annuity
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulation. Sub-Advisor will be
relieved of this obligation and shall be held harmless when direction
from the Advisor or Directors causes non-compliance with Section
817(h) and/or Regulation Section 1.817-5. Sub-Advisor agrees to
provide quarterly reports to Advisor, executed by a duly authorized
officer of Sub-Advisor, within fifteen (15) calendar days of the close
of each calendar quarter certifying as to compliance with said Section
or Regulations. In addition to the quarterly reports, Advisor may
request and Sub-Advisor agrees to provide Section 817 diversification
compliance reports at more frequent intervals, as reasonably requested
by Advisor.
6. Standard of Care and Indemnification. In the performance of its
duties, the Sub Advisor will comply with the stated investment
objectives, policies and restrictions of the Sub-Funds as set forth in
the Prospectus and Statement of Additional Information and will in all
material respects act in accordance with any applicable regulations of
any governmental authority pertaining to its activities hereunder. The
Sub-Advisor shall exercise its best judgment and shall act in good
faith in rendering its services pursuant to this Agreement. The
Sub-Advisor shall not be liable for any error of judgment or for any
loss suffered by the Sub-Funds in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement shall
be deemed to protect or purport to protect the Sub-Advisor against any
liability to the Advisor, the Fund or to the shareholders of the
Sub-Funds to which the Sub-Advisor would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or by reason of the
Sub-Advisor's reckless disregard of its obligations and duties under
this Agreement.
The Advisor shall indemnify and hold harmless the Sub-Advisor, its
officers and directors and each person, if any, who controls the
Sub-Advisor within the meaning of Section 15 of the Securities Act of
1933 ("1933 Act") (any and all such persons shall be referred to as an
"Indemnified Party"), against loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages or expense and reasonable
counsel fees incurred in connection therewith), arising by reason of
any matter to which this Agreement relates.
The Sub-Advisor shall indemnify and hold harmless the Advisor and each
of its directors and officer and each person if any who controls the
Advisor within the meaning of Section 15 of the 1933 Act, against any
loss, liability, claim, damage or expense described in the foregoing
indemnity, but only with respect to the Sub-Advisor's willful
misfeasance, bad faith or gross negligence in the performance of its
duties under the Sub-Advisory Agreement. In case any action shall be
brought against the Advisor or any person so indemnified, in respect of
which indemnity may be sought against Sub-Advisor, the Sub-Advisor
shall have the rights and duties given to the Advisor, and the Advisor
and each person so indemnified shall have the rights and duties given
to the Sub-Advisor by the provisions of subsections (i) and (ii) of
this section.
However, in no case (i) are these indemnifications deemed to protect
any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
under this Agreement or (ii) is the Advisor or Sub-Advisor to be liable
under this indemnity with respect to any claim made against any
particular Indemnified Party unless such Indemnified Party shall have
notified the Advisor or Sub-Advisor in writing within a reasonable time
after the summons or other first legal process giving information of
the nature of the claim shall have been served upon the Advisor or
Sub-Advisor or their controlling persons.
7. Portfolio Transactions Brokerage. Investment decisions for the
Sub-Funds shall be made by Sub-Advisor independently from those for
any other investment companies and accounts advised or managed by
Sub-Advisor. The Sub-Funds and such investment companies and accounts
may, however, invest in the same securities. When a purchase or sale
of the same security is made at substantially the same time on behalf
of a Sub-Fund and/or another investment company or account, the
transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Sub-Advisor believes to be
equitable to the Sub-Fund and such other investment company or
account. In some instances, this investment procedure may adversely
affect the price paid or received by the Sub-Fund or the size of the
position obtained or sold by the Sub-Fund. To the extent permitted by
law, Sub-Advisor may aggregate the securities to be sold or purchased
for the Sub-Funds with those to be sold or purchased for other
investment companies or accounts in order to obtain best execution.
Sub-Advisor shall place all orders for the purchase and sale of
portfolio securities for the accounts of the Sub-Funds with
broker-dealers selected by the Sub-Advisor. In executing portfolio
transactions and selecting broker-dealers, the Sub-Advisor will use its
best efforts to seek best execution on behalf of the Sub-Funds. In
assessing the best execution available for any transaction, the
Sub-Advisor shall consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and
the reasonableness of the commission, if any (all for the specific
transaction and on a continuing basis). In evaluating the best
execution available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Advisor may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Sub-Funds
and/or other accounts over which the Sub-Advisor or an affiliate of the
Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Funds to pay
a broker-dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Sub-Funds
which is in excess of the amount of commission another broker-dealer
would have charged for effecting that transaction if, but only if, the
Sub-Advisor determines in good faith that such commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment
discretion is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that the amendment shall be approved in the
manner required by the Act.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Missouri.
10. Registration as an Investment Advisor. Advisor and Sub-Advisor each
hereby acknowledges that it is registered as an investment advisor
under the Investment Advisors Act of 1940, that it will use its
reasonable best efforts to maintain such registration, and that it will
promptly notify the other if it ceases to be so registered, if its
registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it
should show cause why its registration should not be suspended or
terminated.
Witness the due execution hereof this _____ day of ________________,
1997.
Attest: INVESTORS MARK ADVISOR
__________________________ By:______________________________________
Attest: STEIN ROE & FARNHAM, Inc.,
__________________________ By:______________________________________
Attest: INVESTORS MARK SERIES FUND, INC.
__________________________ By:______________________________________
EXHIBIT A
FEES
Advisor will pay Sub-Advisor, as compensation for the Sub-Advisor's investment
management services provided for each Sub-Fund, the annual fee (denominated in
"basis points" which are one-hundredths of one percent) specified below. This
fee will be: computed daily as shown below; determined in accordance with the
Fund's "price make-up" sheet; payable monthly or at such other interval as may
be agreed to by the parties.
The daily fee will be calculated as follows:
.01*(X/100)
(----------) * ADB
Y
Where:
1. X is 55 for the Small Cap Sub-Fund;
2. X is 45 for the Large Cap Growth Sub-Fund;
3. Y is 365, except in leap years when it is 366; and,
4. ADB is the average daily total net assets of the Sub-Fund.
This compensation will not be due or payable until either:
1. the expiration of 180 days from the date that the first insurance product
is sold that results in funds being deposited in the Fund; or,
2. the Sub-Fund achieves a daily balance of at least $20,000,000.00.
SUB-ADVISORY AGREEMENT
This Agreement is made between, INVESTORS MARK ADVISORS a Delaware
limited liability company, having its principal place of business in Kansas
City, Missouri (hereinafter referred to as the "Advisor"), STANDISH, AYER &
WOOD, INC., a Massachusetts corporation, having its principal place of business
in Boston, Massachusetts (hereinafter referred to as the "Sub-Advisor") and
INVESTORS MARK SERIES FUND, INC., a Maryland corporation (hereinafter referred
to as the "Fund").
WHEREAS, the Fund, an open-end diversified management investment
company, as that term is defined in the Investment Company Act of 1940, as
amended (the "Act"), that is registered as such with the Securities and Exchange
Commission, has appointed Advisor as investment advisor for and to the Money
Market Portfolio, a sub-Fund of the Fund (referred to as the "Sub-Fund"),
pursuant to the terms of an investment advisory agreement effective July, 15,
1997, between the Fund and Advisor ("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain
investment management services for the Sub-Fund as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment advisor for the Sub-Fund. Subject
to the oversight and review of Advisor and the Board of Directors of
the Fund, Sub-Advisor shall manage the investment and reinvestment of
the assets of the Sub-Fund. Sub-Advisor will determine in its
discretion, subject to the general oversight and review of Advisor, the
investments to be purchased or sold, will provide Advisor with records
concerning its activities which Advisor or the Fund is required to
maintain and will render regular reports to Advisor and to officers and
Directors of the Fund concerning its discharge of the foregoing
responsibilities.
Sub-Advisor, in its supervision of the investments of the Sub-Fund,
will be guided by the Sub-Fund's investment objectives and policies and
the provisions and restrictions contained in the Articles of
Incorporation and Bylaws of the Fund and as set forth in the
Registration Statement and exhibits as may be on file with the
Securities and Exchange Commission, all as communicated in writing by
Advisor to Sub-Advisor. Advisor hereby undertakes to provide
Sub-Advisor with copies of such Articles of Incorporation and Bylaws
and Registration Statement and exhibits as well as any amendments as
the same become available from time to time.
Sub-Advisor shall be deemed to be an independent contractor under this
Agreement and, except as expressly provided herein or except as
otherwise authorized, shall have no authority to act for or represent
the Fund or the Sub-Fund in any way or otherwise be deemed an agent of
the Fund or the Sub-Fund.
The services furnished by Sub-Advisor hereunder are deemed not to be
exclusive, and nothing in this Agreement shall (a) prevent Sub-Advisor
or any affiliated person (as defined in the Act) of Sub-Advisor from
acting as investment advisor or manager for any other person or
persons, including other management investment companies with
investment objectives and policies the same as or similar to those of
the Sub-Fund or any other portfolio or series of the Fund, or (b) limit
or restrict Sub-Advisor or any such affiliated person from buying,
selling or trading any securities or other investments (including any
securities or other investments which the Sub-Fund is eligible to buy)
for its or their own accounts or for the accounts of others for whom it
or they may be acting. The Sub-Advisor shall have no responsibility for
custody or safekeeping of assets, voting of proxies or giving consents,
or taking similar actions with respect to any portfolio securities of
the Sub-Fund.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Fund by Sub-Advisor hereunder, the sub-advisory fees set forth in
Exhibit A attached hereto. During the term of this Agreement,
Sub-Advisor will bear all expenses incurred by it in the performance of
its duties hereunder, other than the cost of securities, commodities
and other investments (including brokerage, transfer fees, custodian
fees, underwriting, commissions, interest and other charges, if any)
purchased or sold for the Sub-Fund.
3. Term. The term of this Agreement shall begin on the date of its
execution and shall remain in effect for two years from that date and
from year to year thereafter, subject to the provisions for termination
and all of the other terms and conditions hereof, if such continuation
is specifically approved at least annually in the manner required by
the Act. This Agreement shall be submitted to the shareholders of the
Fund and each Sub-Fund for approval and shall automatically terminate
if not approved by a majority of the shares of the Sub-Fund.
4. Termination. This Agreement may be terminated at any time without the
payment of any penalty: (a) by the Advisor on sixty (60) days written
notice to the Sub-Advisor; (b) by the Fund either by a vote of a
majority of the Board of Directors of the Fund or by a vote of the
majority of the outstanding shares of beneficial interest of the
Sub-Fund, in either case upon sixty (60) days written notice to the
Sub-Advisor; or (c) by the Sub-Advisor on sixty (60) days written
notice to the Advisor.
This Agreement will terminate automatically in the event of the
termination of the Investment Advisory Agreement.
This Agreement shall automatically terminate in the event of its
assignment. The Sub-Advisor may employ or contract with any other
person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out its
obligations and duties under this Agreement.
5. Sub-Advisor's Representations. Sub-Advisor represents and warrants
that each Sub-Fund will at all times be invested in such a manner as
to ensure compliance with Section 817(h) of the Internal Revenue Code
of 1986, as amended, and Treasury Regulations, Section 1.817.5, as
they relate to the diversification requirements for variable annuity
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulation. Sub-Advisor will be
relieved of this obligation and shall be held harmless when direction
from the Advisor or Directors causes non-compliance with the
diversification requirements of Section 817(h) and/or Regulation
Section 1.817-5. Sub-Advisor agrees to provide quarterly reports to
Advisor, executed by a duly authorized officer of Sub-Advisor, within
seven (7) business days of the close of each calendar quarter
certifying as to compliance with said Section or Regulations. In
addition to the quarterly reports, Advisor may request and Sub-Advisor
agrees to provide Section 817 diversification compliance reports at
more frequent intervals, as reasonably requested by Advisor.
6. Standard of Care and Indemnification. In the performance of its
duties, the Sub-Advisor will comply with the stated investment
objectives, policies and restrictions of the Sub-Fund as set forth in
the current Prospectus and Statement of Additional Information
provided to Sub-Advisor and will in all material respects act in
accordance with any applicable regulations of any governmental
authority pertaining to its activities hereunder. The Sub-Advisor
shall exercise its best judgment and shall act in good faith in
rendering its services pursuant to this Agreement. The Sub-Advisor
shall not be liable for any error of judgment or for any loss suffered
by the Sub-Fund in connection with the matters to which this Agreement
relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect the Sub-Advisor against any liability to
the Advisor, the Fund or to the shareholders of the Sub-Fund to which
the Sub-Advisor would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Sub-Advisor's reckless
disregard of its obligations and duties under this Agreement.
The Advisor shall indemnify and hold harmless the Sub-Advisor, its
officers and directors and each person, if any, who controls the
Sub-Advisor within the meaning of Section 15 of the Securities Act of
1933 ("1933 Act") (any and all such persons shall be referred to an
"Indemnified Party"), against loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages or expense and reasonable
counsel fees incurred in connection therewith), arising by reason of
any matter to which this Agreement relates.
The Sub-Advisor shall indemnify and hold harmless the Advisor and each
of its directors and officers and each person if any who controls the
Advisor within the meaning of Section 15 of the 1933 Act, against any
loss, liability, claim, damage or expense described in the foregoing
indemnity, but only with respect to the Sub-Advisor's willful
misfeasance, bad faith or gross negligence in the performance of its
duties under the Sub-Advisory Agreement.
However, in no case: (a) are these indemnifications deemed to protect
any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
under this Agreement; (b) is the Advisor or Sub-Advisor to be liable
under this indemnity with respect to any claim made against any
particular Indemnified Party unless such Indemnified Party shall have
notified the Advisor or Sub-Advisor in writing within a reasonable time
after the summons or other first legal process giving information of
the nature of the claim shall have been served upon the Advisor or
Sub-Advisor or their controlling persons; or, (c) will either party be
obligated to pay any amount in settlement unless that party shall have
consented to such settlement, which consent shall not be unreasonably
withheld.
7. Portfolio Transactions Brokerage. Investment decisions for the
Sub-Fund shall be made by Sub-Advisor independently from those for any
other investment companies and accounts advised or managed by
Sub-Advisor. The Sub-Fund and such investment companies and accounts
may, however, invest in the same securities. When a purchase or sale
of the same security is made at substantially the same time on behalf
of the Sub-Fund and/or another investment company or account, the
transaction may be averaged as to price, and available investments
allocated as to amount, in a manner which Sub-Advisor believes to be
equitable to the Sub-Fund and such other investment company or
account. In some instances, this investment procedure may adversely
affect the price paid or received by the Sub-Fund or the size of the
position obtained or sold by the Sub-Fund. To the extent permitted by
law, Sub-Advisor may aggregate the securities to be sold or purchased
for the Sub-Fund with those to be sold or purchased for other
investment companies or accounts in order to obtain best execution if
and when the sub-Advisor, in its sole discretion believes it
appropriate. The Fund and Advisor recognizes that the Sub-Advisor may
not always be able to take or liquidate investment positions in the
same security at the same time at the same price for all its clients.
The Fund and Advisor also recognize that the Sub-Advisor may at times
cause clients to take positions which differ in the same investment.
Sub-Advisor shall place all orders for the purchase and sale of
portfolio securities for the accounts of the Sub-Fund with
broker-dealers selected by the Sub-Advisor. In executing portfolio
transactions and selecting broker-dealers, the Sub-Advisor will use its
best efforts to seek best execution on behalf of the Sub-Fund. In
assessing the best execution available for any transaction, the
Sub-Advisor shall consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and
the reasonableness of the commission, if any (all for the specific
transaction and on a continuing basis). In evaluating the best
execution available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Advisor may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Sub-Fund
and/or other accounts over which the Sub-Advisor or an affiliate of the
Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Fund to pay
a broker-dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Sub-Fund which
is in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction if, but only if, the
Sub-Advisor determines in good faith that such commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker-dealer viewed either in terms of that
particular transaction or in terms of all of the accounts over which
investment discretion is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that the amendment shall be approved in the
manner required by the Act.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Missouri.
10. Registration as an Investment Advisor. Advisor and Sub-Advisor each
hereby represents and warrants to the other that it is registered as an
investment advisor under the Investment Advisors Act of 1940, that it
will use its reasonable best efforts to maintain such registration, and
that it will promptly notify the other if it ceases to be so
registered, if its registration is suspended for any reason, or if it
is notified by any regulatory organization or court of competent
jurisdiction that it should show cause why its registration should not
be suspended or terminated.
Witness the due execution hereof this _____ day of ________________,
1997.
Attest: INVESTORS MARK ADVISORS, LLC
__________________________ By:______________________________________
Attest: STANDISH, AYER & WOOD, INC.
__________________________ By:______________________________________
Attest: INVESTORS MARK SERIES FUND, INC.
__________________________ By:______________________________________
EXHIBIT A
FEES
Advisor will pay Sub-Advisor, as compensation for the Sub-Advisor's investment
management services provided for the Sub-Fund, the annual fee (denominated in
"basis points" which are one-hundredths of one percent) specified below. This
fee will be: computed daily as shown below; determined in accordance with the
Fund's "price make-up" sheet; and will be payable monthly in arrears within 15
days of the month end.
The daily fee will be calculated as follows:
.01*(X/100)
(----------) * ADB
Y
Where:
1. X is fifteen for the Money Market Sub-Fund;
2. Y is 365, except in leap years when it is 366; and,
3. ADB is the average daily total net assets of the Sub-Fund.
This compensation will not be due or payable until the earlier of:
1. the expiration of 180 days from the date that the first insurance product
is sold that results in funds being deposited in the Fund; or,
2. the Sub-Fund achieves total assets of at least $20,000,000.00.
SUB-ADVISORY AGREEMENT
This Agreement is made between, INVESTORS MARK ADVISORS a Delaware
limited liability company, having its principal place of business in Kansas
City, Missouri (hereinafter referred to as the "Advisor"), STANDISH, AYER &
WOOD, INC., a Massachusetts corporation, having its principal place of business
in Boston, Massachusetts (hereinafter referred to as the "Sub-Advisor") and
INVESTORS MARK SERIES FUND, INC., a Maryland corporation (hereinafter referred
to as the "Fund").
WHEREAS, the Fund, an open-end diversified management investment
company, as that term is defined in the Investment Company Act of 1940, as
amended (the "Act"), that is registered as such with the Securities and Exchange
Commission, has appointed Advisor as investment advisor for and to the
Intermediate Fixed Income Portfolio, a sub-Fund of the Fund (referred to as the
"Sub-Fund"), pursuant to the terms of an investment advisory agreement effective
July, 15, 1997, between the Fund and Advisor ("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain
investment management services for the Sub-Fund as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment advisor for the Sub-Fund. Subject
to the oversight and review of Advisor and the Board of Directors of
the Fund, Sub-Advisor shall manage the investment and reinvestment of
the assets of the Sub-Fund. Sub-Advisor will determine in its
discretion, subject to the general oversight and review of Advisor, the
investments to be purchased or sold, will provide Advisor with records
concerning its activities which Advisor or the Fund is required to
maintain and will render regular reports to Advisor and to officers and
Directors of the Fund concerning its discharge of the foregoing
responsibilities.
Sub-Advisor, in its supervision of the investments of the Sub-Fund,
will be guided by the Sub-Fund's investment objectives and policies and
the provisions and restrictions contained in the Articles of
Incorporation and Bylaws of the Fund and as set forth in the
Registration Statement and exhibits as may be on file with the
Securities and Exchange Commission, all as communicated in writing by
Advisor to Sub-Advisor. Advisor hereby undertakes to provide
Sub-Advisor with copies of such Articles of Incorporation and Bylaws
and Registration Statement and exhibits as well as any amendments as
the same become available from time to time.
Sub-Advisor shall be deemed to be an independent contractor under this
Agreement and, except as expressly provided herein or except as
otherwise authorized, shall have no authority to act for or represent
the Fund or the Sub-Fund in any way or otherwise be deemed an agent of
the Fund or the Sub-Fund.
The services furnished by Sub-Advisor hereunder are deemed not to be
exclusive, and nothing in this Agreement shall (a) prevent Sub-Advisor
or any affiliated person (as defined in the Act) of Sub-Advisor from
acting as investment advisor or manager for any other person or
persons, including other management investment companies with
investment objectives and policies the same as or similar to those of
the Sub-Fund or any other portfolio or series of the Fund, or (b) limit
or restrict Sub-Advisor or any such affiliated person from buying,
selling or trading any securities or other investments (including any
securities or other investments which the Sub-Fund is eligible to buy)
for its or their own accounts or for the accounts of others for whom it
or they may be acting. The Sub-Advisor shall have no responsibility for
custody or safekeeping of assets, voting of proxies or giving consents,
or taking similar actions with respect to any portfolio securities of
the Sub-Fund.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Fund by Sub-Advisor hereunder, the sub-advisory fees set forth in
Exhibit A attached hereto. During the term of this Agreement,
Sub-Advisor will bear all expenses incurred by it in the performance of
its duties hereunder, other than the cost of securities, commodities
and other investments (including brokerage, transfer fees, custodian
fees, underwriting, commissions, interest and other charges, if any)
purchased or sold for the Sub-Fund.
3. Term. The term of this Agreement shall begin on the date of its
execution and shall remain in effect for two years from that date and
from year to year thereafter, subject to the provisions for termination
and all of the other terms and conditions hereof, if such continuation
is specifically approved at least annually in the manner required by
the Act. This Agreement shall be submitted to the shareholders of the
Fund and each Sub-Fund for approval and shall automatically terminate
if not approved by a majority of the shares of the Sub-Fund.
4. Termination. This Agreement may be terminated at any time without the
payment of any penalty: (a) by the Advisor on sixty (60) days written
notice to the Sub-Advisor; (b) by the Fund either by a vote of a
majority of the Board of Directors of the Fund or by a vote of the
majority of the outstanding shares of beneficial interest of the
Sub-Fund, in either case upon sixty (60) days written notice to the
Sub-Advisor; or (c) by the Sub-Advisor on sixty (60) days written
notice to the Advisor.
This Agreement will terminate automatically in the event of the
termination of the Investment Advisory Agreement.
This Agreement shall automatically terminate in the event of its
assignment. The Sub-Advisor may employ or contract with any other
person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out its
obligations and duties under this Agreement.
5. Sub-Advisor's Representations. Sub-Advisor represents and warrants
that each Sub-Fund will at all times be invested in such a manner as
to ensure compliance with Section 817(h) of the Internal Revenue Code
of 1986, as amended, and Treasury Regulations, Section 1.817.5, as
they relate to the diversification requirements for variable annuity
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulation. Sub-Advisor will be
relieved of this obligation and shall be held harmless when direction
from the Advisor or Directors causes non-compliance with the
diversification requirements of Section 817(h) and/or Regulation
Section 1.817-5. Sub-Advisor agrees to provide quarterly reports to
Advisor, executed by a duly authorized officer of Sub-Advisor, within
seven (7) business days of the close of each calendar quarter
certifying as to compliance with said Section or Regulations. In
addition to the quarterly reports, Advisor may request and Sub-Advisor
agrees to provide Section 817 diversification compliance reports at
more frequent intervals, as reasonably requested by Advisor.
6. Standard of Care and Indemnification. In the performance of its
duties, the Sub-Advisor will comply with the stated investment
objectives, policies and restrictions of the Sub-Fund as set forth in
the current Prospectus and Statement of Additional Information
provided to Sub-Advisor and will in all material respects act in
accordance with any applicable regulations of any governmental
authority pertaining to its activities hereunder. The Sub-Advisor
shall exercise its best judgment and shall act in good faith in
rendering its services pursuant to this Agreement. The Sub-Advisor
shall not be liable for any error of judgment or for any loss suffered
by the Sub-Fund in connection with the matters to which this Agreement
relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect the Sub-Advisor against any liability to
the Advisor, the Fund or to the shareholders of the Sub-Fund to which
the Sub-Advisor would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Sub-Advisor's reckless
disregard of its obligations and duties under this Agreement.
The Advisor shall indemnify and hold harmless the Sub-Advisor, its
officers and directors and each person, if any, who controls the
Sub-Advisor within the meaning of Section 15 of the Securities Act of
1933 ("1933 Act") (any and all such persons shall be referred to an
"Indemnified Party"), against loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages or expense and reasonable
counsel fees incurred in connection therewith), arising by reason of
any matter to which this Agreement relates.
The Sub-Advisor shall indemnify and hold harmless the Advisor and each
of its directors and officers and each person if any who controls the
Advisor within the meaning of Section 15 of the 1933 Act, against any
loss, liability, claim, damage or expense described in the foregoing
indemnity, but only with respect to the Sub-Advisor's willful
misfeasance, bad faith or gross negligence in the performance of its
duties under the Sub-Advisory Agreement.
However, in no case: (a) are these indemnifications deemed to protect
any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
under this Agreement; (b) is the Advisor or Sub-Advisor to be liable
under this indemnity with respect to any claim made against any
particular Indemnified Party unless such Indemnified Party shall have
notified the Advisor or Sub-Advisor in writing within a reasonable time
after the summons or other first legal process giving information of
the nature of the claim shall have been served upon the Advisor or
Sub-Advisor or their controlling persons; or, (c) will either party be
obligated to pay any amount in settlement unless that party shall have
consented to such settlement, which consent shall not be unreasonably
withheld.
7. Portfolio Transactions Brokerage. Investment decisions for the
Sub-Fund shall be made by Sub-Advisor independently from those for any
other investment companies and accounts advised or managed by
Sub-Advisor. The Sub-Fund and such investment companies and accounts
may, however, invest in the same securities. When a purchase or sale
of the same security is made at substantially the same time on behalf
of the Sub-Fund and/or another investment company or account, the
transaction may be averaged as to price, and available investments
allocated as to amount, in a manner which Sub-Advisor believes to be
equitable to the Sub-Fund and such other investment company or
account. In some instances, this investment procedure may adversely
affect the price paid or received by the Sub-Fund or the size of the
position obtained or sold by the Sub-Fund. To the extent permitted by
law, Sub-Advisor may aggregate the securities to be sold or purchased
for the Sub-Fund with those to be sold or purchased for other
investment companies or accounts in order to obtain best execution if
and when the sub-Advisor, in its sole discretion believes it
appropriate. The Fund and Advisor recognizes that the Sub-Advisor may
not always be able to take or liquidate investment positions in the
same security at the same time at the same price for all its clients.
The Fund and Advisor also recognize that the Sub-Advisor may at times
cause clients to take positions which differ in the same investment.
Sub-Advisor shall place all orders for the purchase and sale of
portfolio securities for the accounts of the Sub-Fund with
broker-dealers selected by the Sub-Advisor. In executing portfolio
transactions and selecting broker-dealers, the Sub-Advisor will use its
best efforts to seek best execution on behalf of the Sub-Fund. In
assessing the best execution available for any transaction, the
Sub-Advisor shall consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and
the reasonableness of the commission, if any (all for the specific
transaction and on a continuing basis). In evaluating the best
execution available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Advisor may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Sub-Fund
and/or other accounts over which the Sub-Advisor or an affiliate of the
Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Fund to pay
a broker-dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Sub-Fund which
is in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction if, but only if, the
Sub-Advisor determines in good faith that such commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker-dealer viewed either in terms of that
particular transaction or in terms of all of the accounts over which
investment discretion is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that the amendment shall be approved in the
manner required by the Act.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Missouri.
10. Registration as an Investment Advisor. Advisor and Sub-Advisor each
hereby represents and warrants to the other that it is registered as an
investment advisor under the Investment Advisors Act of 1940, that it
will use its reasonable best efforts to maintain such registration, and
that it will promptly notify the other if it ceases to be so
registered, if its registration is suspended for any reason, or if it
is notified by any regulatory organization or court of competent
jurisdiction that it should show cause why its registration should not
be suspended or terminated.
Witness the due execution hereof this _____ day of ________________,
1997.
Attest: INVESTORS MARK ADVISORS, LLC
__________________________ By:______________________________________
Attest: STANDISH, AYER & WOOD, INC.
__________________________ By:______________________________________
Attest: INVESTORS MARK SERIES FUND, INC.
__________________________ By:______________________________________
EXHIBIT A
FEES
Advisor will pay Sub-Advisor, as compensation for the Sub-Advisor's investment
management services provided for the Sub-Fund, the annual fee (denominated in
"basis points" which are one-hundredths of one percent) specified below. This
fee will be: computed daily as shown below; determined in accordance with the
Fund's "price make-up" sheet; and will be payable monthly in arrears within 15
days of the month end.
The daily fee will be calculated as follows:
.01*(X/100)
(----------) * ADB
Y
Where:
1. X is twenty (20) for the Intermediate Fixed Income Sub-Fund;
2. Y is 365, except in leap years when it is 366; and,
3. ADB is the average daily total net assets of the Sub-Fund.
This compensation will not be due or payable until the earlier of:
1. the expiration of 180 days from the date that the first insurance product
is sold that results in funds being deposited in the Fund; or,
2. the Sub-Fund achieves total assets of at least $20,000,000.00.
SUB-ADVISORY AGREEMENT
This Agreement is made between, INVESTORS MARK ADVISORS a Delaware
limited liability company, having its principal place of business in Kansas
City, Missouri (hereinafter referred to as the "Advisor"), STANDISH, AYER &
WOOD, INC., a Massachusetts corporation, having its principal place of business
in Boston, Massachusetts (hereinafter referred to as the "Sub-Advisor") and
INVESTORS MARK SERIES FUND, INC., a Maryland corporation (hereinafter referred
to as the "Fund").
WHEREAS, the Fund, an open-end diversified management investment
company, as that term is defined in the Investment Company Act of 1940, as
amended (the "Act"), that is registered as such with the Securities and Exchange
Commission, has appointed Advisor as investment advisor for and to the Mid Cap
Equity Portfolio, a sub-Fund of the Fund (referred to as the "Sub-Fund"),
pursuant to the terms of an investment advisory agreement effective July, 15,
1997, between the Fund and Advisor ("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain
investment management services for the Sub-Fund as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment advisor for the Sub-Fund. Subject
to the oversight and review of Advisor and the Board of Directors of
the Fund, Sub-Advisor shall manage the investment and reinvestment of
the assets of the Sub-Fund. Sub-Advisor will determine in its
discretion, subject to the general oversight and review of Advisor, the
investments to be purchased or sold, will provide Advisor with records
concerning its activities which Advisor or the Fund is required to
maintain and will render regular reports to Advisor and to officers and
Directors of the Fund concerning its discharge of the foregoing
responsibilities.
Sub-Advisor, in its supervision of the investments of the Sub-Fund,
will be guided by the Sub-Fund's investment objectives and policies and
the provisions and restrictions contained in the Articles of
Incorporation and Bylaws of the Fund and as set forth in the
Registration Statement and exhibits as may be on file with the
Securities and Exchange Commission, all as communicated in writing by
Advisor to Sub-Advisor. Advisor hereby undertakes to provide
Sub-Advisor with copies of such Articles of Incorporation and Bylaws
and Registration Statement and exhibits as well as any amendments as
the same become available from time to time.
Sub-Advisor shall be deemed to be an independent contractor under this
Agreement and, except as expressly provided herein or except as
otherwise authorized, shall have no authority to act for or represent
the Fund or the Sub-Fund in any way or otherwise be deemed an agent of
the Fund or the Sub-Fund.
The services furnished by Sub-Advisor hereunder are deemed not to be
exclusive, and nothing in this Agreement shall (a) prevent Sub-Advisor
or any affiliated person (as defined in the Act) of Sub-Advisor from
acting as investment advisor or manager for any other person or
persons, including other management investment companies with
investment objectives and policies the same as or similar to those of
the Sub-Fund or any other portfolio or series of the Fund, or (b) limit
or restrict Sub-Advisor or any such affiliated person from buying,
selling or trading any securities or other investments (including any
securities or other investments which the Sub-Fund is eligible to buy)
for its or their own accounts or for the accounts of others for whom it
or they may be acting. The Sub-Advisor shall have no responsibility for
custody or safekeeping of assets, voting of proxies or giving consents,
or taking similar actions with respect to any portfolio securities of
the Sub-Fund.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Fund by Sub-Advisor hereunder, the sub-advisory fees set forth in
Exhibit A attached hereto. During the term of this Agreement,
Sub-Advisor will bear all expenses incurred by it in the performance of
its duties hereunder, other than the cost of securities, commodities
and other investments (including brokerage, transfer fees, custodian
fees, underwriting, commissions, interest and other charges, if any)
purchased or sold for the Sub-Fund.
3. Term. The term of this Agreement shall begin on the date of its
execution and shall remain in effect for two years from that date and
from year to year thereafter, subject to the provisions for termination
and all of the other terms and conditions hereof, if such continuation
is specifically approved at least annually in the manner required by
the Act. This Agreement shall be submitted to the shareholders of the
Fund and each Sub-Fund for approval and shall automatically terminate
if not approved by a majority of the shares of the Sub-Fund.
4. Termination. This Agreement may be terminated at any time without the
payment of any penalty: (a) by the Advisor on sixty (60) days written
notice to the Sub-Advisor; (b) by the Fund either by a vote of a
majority of the Board of Directors of the Fund or by a vote of the
majority of the outstanding shares of beneficial interest of the
Sub-Fund, in either case upon sixty (60) days written notice to the
Sub-Advisor; or (c) by the Sub-Advisor on sixty (60) days written
notice to the Advisor.
This Agreement will terminate automatically in the event of the
termination of the Investment Advisory Agreement.
This Agreement shall automatically terminate in the event of its
assignment. The Sub-Advisor may employ or contract with any other
person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out its
obligations and duties under this Agreement.
5. Sub-Advisor's Representations. Sub-Advisor represents and warrants
that each Sub-Fund will at all times be invested in such a manner as
to ensure compliance with Section 817(h) of the Internal Revenue Code
of 1986, as amended, and Treasury Regulations, Section 1.817.5, as
they relate to the diversification requirements for variable annuity
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulation. Sub-Advisor will be
relieved of this obligation and shall be held harmless when direction
from the Advisor or Directors causes non-compliance with the
diversification requirements of Section 817(h) and/or Regulation
Section 1.817-5. Sub-Advisor agrees to provide quarterly reports to
Advisor, executed by a duly authorized officer of Sub-Advisor, within
seven (7) business days of the close of each calendar quarter
certifying as to compliance with said Section or Regulations. In
addition to the quarterly reports, Advisor may request and Sub-Advisor
agrees to provide Section 817 diversification compliance reports at
more frequent intervals, as reasonably requested by Advisor.
6. Standard of Care and Indemnification. In the performance of its
duties, the Sub-Advisor will comply with the stated investment
objectives, policies and restrictions of the Sub-Fund as set forth in
the current Prospectus and Statement of Additional Information
provided to Sub-Advisor and will in all material respects act in
accordance with any applicable regulations of any governmental
authority pertaining to its activities hereunder. The Sub-Advisor
shall exercise its best judgment and shall act in good faith in
rendering its services pursuant to this Agreement. The Sub-Advisor
shall not be liable for any error of judgment or for any loss suffered
by the Sub-Fund in connection with the matters to which this Agreement
relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect the Sub-Advisor against any liability to
the Advisor, the Fund or to the shareholders of the Sub-Fund to which
the Sub-Advisor would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Sub-Advisor's reckless
disregard of its obligations and duties under this Agreement.
The Advisor shall indemnify and hold harmless the Sub-Advisor, its
officers and directors and each person, if any, who controls the
Sub-Advisor within the meaning of Section 15 of the Securities Act of
1933 ("1933 Act") (any and all such persons shall be referred to an
"Indemnified Party"), against loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages or expense and reasonable
counsel fees incurred in connection therewith), arising by reason of
any matter to which this Agreement relates.
The Sub-Advisor shall indemnify and hold harmless the Advisor and each
of its directors and officers and each person if any who controls the
Advisor within the meaning of Section 15 of the 1933 Act, against any
loss, liability, claim, damage or expense described in the foregoing
indemnity, but only with respect to the Sub-Advisor's willful
misfeasance, bad faith or gross negligence in the performance of its
duties under the Sub-Advisory Agreement.
However, in no case: (a) are these indemnifications deemed to protect
any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
under this Agreement; (b) is the Advisor or Sub-Advisor to be liable
under this indemnity with respect to any claim made against any
particular Indemnified Party unless such Indemnified Party shall have
notified the Advisor or Sub-Advisor in writing within a reasonable time
after the summons or other first legal process giving information of
the nature of the claim shall have been served upon the Advisor or
Sub-Advisor or their controlling persons; or, (c) will either party be
obligated to pay any amount in settlement unless that party shall have
consented to such settlement, which consent shall not be unreasonably
withheld.
7. Portfolio Transactions Brokerage. Investment decisions for the
Sub-Fund shall be made by Sub-Advisor independently from those for any
other investment companies and accounts advised or managed by
Sub-Advisor. The Sub-Fund and such investment companies and accounts
may, however, invest in the same securities. When a purchase or sale
of the same security is made at substantially the same time on behalf
of the Sub-Fund and/or another investment company or account, the
transaction may be averaged as to price, and available investments
allocated as to amount, in a manner which Sub-Advisor believes to be
equitable to the Sub-Fund and such other investment company or
account. In some instances, this investment procedure may adversely
affect the price paid or received by the Sub-Fund or the size of the
position obtained or sold by the Sub-Fund. To the extent permitted by
law, Sub-Advisor may aggregate the securities to be sold or purchased
for the Sub-Fund with those to be sold or purchased for other
investment companies or accounts in order to obtain best execution if
and when the sub-Advisor, in its sole discretion believes it
appropriate. The Fund and Advisor recognizes that the Sub-Advisor may
not always be able to take or liquidate investment positions in the
same security at the same time at the same price for all its clients.
The Fund and Advisor also recognize that the Sub-Advisor may at times
cause clients to take positions which differ in the same investment.
Sub-Advisor shall place all orders for the purchase and sale of
portfolio securities for the accounts of the Sub-Fund with
broker-dealers selected by the Sub-Advisor. In executing portfolio
transactions and selecting broker-dealers, the Sub-Advisor will use its
best efforts to seek best execution on behalf of the Sub-Fund. In
assessing the best execution available for any transaction, the
Sub-Advisor shall consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and
the reasonableness of the commission, if any (all for the specific
transaction and on a continuing basis). In evaluating the best
execution available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Advisor may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Sub-Fund
and/or other accounts over which the Sub-Advisor or an affiliate of the
Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Fund to pay
a broker-dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Sub-Fund which
is in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction if, but only if, the
Sub-Advisor determines in good faith that such commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker-dealer viewed either in terms of that
particular transaction or in terms of all of the accounts over which
investment discretion is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that the amendment shall be approved in the
manner required by the Act.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Missouri.
10. Registration as an Investment Advisor. Advisor and Sub-Advisor each
hereby represents and warrants to the other that it is registered as an
investment advisor under the Investment Advisors Act of 1940, that it
will use its reasonable best efforts to maintain such registration, and
that it will promptly notify the other if it ceases to be so
registered, if its registration is suspended for any reason, or if it
is notified by any regulatory organization or court of competent
jurisdiction that it should show cause why its registration should not
be suspended or terminated.
Witness the due execution hereof this _____ day of ________________,
1997.
Attest: INVESTORS MARK ADVISORS, LLC
__________________________ By:______________________________________
Attest: STANDISH, AYER & WOOD, INC.
__________________________ By:______________________________________
Attest: INVESTORS MARK SERIES FUND, INC.
__________________________ By:______________________________________
EXHIBIT A
FEES
Advisor will pay Sub-Advisor, as compensation for the Sub-Advisor's investment
management services provided for the Sub-Fund, the annual fee (denominated in
"basis points" which are one-hundredths of one percent) specified below. This
fee will be: computed daily as shown below; determined in accordance with the
Fund's "price make-up" sheet; and will be payable monthly in arrears within 15
days of the month end.
The daily fee will be calculated as follows:
.01*(X/100)
(----------) * ADB
Y
Where:
1. X is thirty-five (35) for the Mid Cap Equity Sub-Fund;
2. Y is 365, except in leap years when it is 366; and,
3. ADB is the average daily total net assets of the Sub-Fund.
This compensation will not be due or payable until the earlier of:
1. the expiration of 180 days from the date that the first insurance product
is sold that results in funds being deposited in the Fund; or,
2. the Sub-Fund achieves total assets of at least $20,000,000.00.
SUB-ADVISORY AGREEMENT
This Agreement is made between, INVESTORS MARK ADVISORS a Delaware
limited liability company, having its principal place of business in Kansas
City, Missouri (hereinafter referred to as the "Advisor"), STANDISH
INTERNATIONAL MANAGEMENT COMPANY LP, having its principal place of business in
Boston, Massachusetts (hereinafter referred to as the "Sub-Advisor") and
INVESTORS MARK SERIES FUND, INC., a Maryland corporation (hereinafter referred
to as the "Fund").
WHEREAS, the Fund, an open-end diversified management investment
company, as that term is defined in the Investment Company Act of 1940, as
amended (the "Act"), that is registered as such with the Securities and Exchange
Commission, has appointed Advisor as investment advisor for and to the Global
Fixed Income Portfolio, a sub-Fund of the Fund (referred to as the "Sub-Fund"),
pursuant to the terms of an investment advisory agreement effective July, 15,
1997, between the Fund and Advisor ("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain
investment management services for the Sub-Fund as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment advisor for the Sub-Fund. Subject
to the oversight and review of Advisor and the Board of Directors of
the Fund, Sub-Advisor shall manage the investment and reinvestment of
the assets of the Sub-Fund. Sub-Advisor will determine in its
discretion, subject to the general oversight and review of Advisor, the
investments to be purchased or sold, will provide Advisor with records
concerning its activities which Advisor or the Fund is required to
maintain and will render regular reports to Advisor and to officers and
Directors of the Fund concerning its discharge of the foregoing
responsibilities.
Sub-Advisor, in its supervision of the investments of the Sub-Fund,
will be guided by the Sub-Fund's investment objectives and policies and
the provisions and restrictions contained in the Articles of
Incorporation and Bylaws of the Fund and as set forth in the
Registration Statement and exhibits as may be on file with the
Securities and Exchange Commission, all as communicated in writing by
Advisor to Sub-Advisor. Advisor hereby undertakes to provide
Sub-Advisor with copies of such Articles of Incorporation and Bylaws
and Registration Statement and exhibits as well as any amendments as
the same become available from time to time.
Sub-Advisor shall be deemed to be an independent contractor under this
Agreement and, except as expressly provided herein or except as
otherwise authorized, shall have no authority to act for or represent
the Fund or the Sub-Fund in any way or otherwise be deemed an agent of
the Fund or the Sub-Fund.
The services furnished by Sub-Advisor hereunder are deemed not to be
exclusive, and nothing in this Agreement shall (a) prevent Sub-Advisor
or any affiliated person (as defined in the Act) of Sub-Advisor from
acting as investment advisor or manager for any other person or
persons, including other management investment companies with
investment objectives and policies the same as or similar to those of
the Sub-Fund or any other portfolio or series of the Fund, or (b) limit
or restrict Sub-Advisor or any such affiliated person from buying,
selling or trading any securities or other investments (including any
securities or other investments which the Sub-Fund is eligible to buy)
for its or their own accounts or for the accounts of others for whom it
or they may be acting. The Sub-Advisor shall have no responsibility for
custody or safekeeping of assets, voting of proxies or giving consents,
or taking similar actions with respect to any portfolio securities of
the Sub-Fund.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Fund by Sub-Advisor hereunder, the sub-advisory fees set forth in
Exhibit A attached hereto. During the term of this Agreement,
Sub-Advisor will bear all expenses incurred by it in the performance of
its duties hereunder, other than the cost of securities, commodities
and other investments (including brokerage, transfer fees, custodian
fees, underwriting, commissions, interest and other charges, if any)
purchased or sold for the Sub-Fund.
3. Term. The term of this Agreement shall begin on the date of its
execution and shall remain in effect for two years from that date and
from year to year thereafter, subject to the provisions for termination
and all of the other terms and conditions hereof, if such continuation
is specifically approved at least annually in the manner required by
the Act. This Agreement shall be submitted to the shareholders of the
Fund and each Sub-Fund for approval and shall automatically terminate
if not approved by a majority of the shares of the Sub-Fund.
4. Termination. This Agreement may be terminated at any time without the
payment of any penalty: (a) by the Advisor on sixty (60) days written
notice to the Sub-Advisor; (b) by the Fund either by a vote of a
majority of the Board of Directors of the Fund or by a vote of the
majority of the outstanding shares of beneficial interest of the
Sub-Fund, in either case upon sixty (60) days written notice to the
Sub-Advisor; or (c) by the Sub-Advisor on sixty (60) days written
notice to the Advisor.
This Agreement will terminate automatically in the event of the
termination of the Investment Advisory Agreement.
This Agreement shall automatically terminate in the event of its
assignment. The Sub-Advisor may employ or contract with any other
person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out its
obligations and duties under this Agreement.
5. Sub-Advisor's Representations. Sub-Advisor represents and warrants
that each Sub-Fund will at all times be invested in such a manner as
to ensure compliance with Section 817(h) of the Internal Revenue Code
of 1986, as amended, and Treasury Regulations, Section 1.817.5, as
they relate to the diversification requirements for variable annuity
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulation. Sub-Advisor will be
relieved of this obligation and shall be held harmless when direction
from the Advisor or Directors causes non-compliance with the
diversification requirements of Section 817(h) and/or Regulation
Section 1.817-5. Sub-Advisor agrees to provide quarterly reports to
Advisor, executed by a duly authorized officer of Sub-Advisor, within
seven (7) business days of the close of each calendar quarter
certifying as to compliance with said Section or Regulations. In
addition to the quarterly reports, Advisor may request and Sub-Advisor
agrees to provide Section 817 diversification compliance reports at
more frequent intervals, as reasonably requested by Advisor.
6. Standard of Care and Indemnification. In the performance of its
duties, the Sub-Advisor will comply with the stated investment
objectives, policies and restrictions of the Sub-Fund as set forth in
the current Prospectus and Statement of Additional Information
provided to Sub-Advisor and will in all material respects act in
accordance with any applicable regulations of any governmental
authority pertaining to its activities hereunder. The Sub-Advisor
shall exercise its best judgment and shall act in good faith in
rendering its services pursuant to this Agreement. The Sub-Advisor
shall not be liable for any error of judgment or for any loss suffered
by the Sub-Fund in connection with the matters to which this Agreement
relates, provided that nothing in this Agreement shall be deemed to
protect or purport to protect the Sub-Advisor against any liability to
the Advisor, the Fund or to the shareholders of the Sub-Fund to which
the Sub-Advisor would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on its part in the
performance of its duties or by reason of the Sub-Advisor's reckless
disregard of its obligations and duties under this Agreement.
The Advisor shall indemnify and hold harmless the Sub-Advisor, its
officers and directors and each person, if any, who controls the
Sub-Advisor within the meaning of Section 15 of the Securities Act of
1933 ("1933 Act") (any and all such persons shall be referred to an
"Indemnified Party"), against loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages or expense and reasonable
counsel fees incurred in connection therewith), arising by reason of
any matter to which this Agreement relates.
The Sub-Advisor shall indemnify and hold harmless the Advisor and each
of its directors and officers and each person if any who controls the
Advisor within the meaning of Section 15 of the 1933 Act, against any
loss, liability, claim, damage or expense described in the foregoing
indemnity, but only with respect to the Sub-Advisor's willful
misfeasance, bad faith or gross negligence in the performance of its
duties under the Sub-Advisory Agreement.
However, in no case: (a) are these indemnifications deemed to protect
any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
under this Agreement; (b) is the Advisor or Sub-Advisor to be liable
under this indemnity with respect to any claim made against any
particular Indemnified Party unless such Indemnified Party shall have
notified the Advisor or Sub-Advisor in writing within a reasonable time
after the summons or other first legal process giving information of
the nature of the claim shall have been served upon the Advisor or
Sub-Advisor or their controlling persons; or, (c) will either party be
obligated to pay any amount in settlement unless that party shall have
consented to such settlement, which consent shall not be unreasonably
withheld.
7. Portfolio Transactions Brokerage. Investment decisions for the
Sub-Fund shall be made by Sub-Advisor independently from those for any
other investment companies and accounts advised or managed by
Sub-Advisor. The Sub-Fund and such investment companies and accounts
may, however, invest in the same securities. When a purchase or sale
of the same security is made at substantially the same time on behalf
of the Sub-Fund and/or another investment company or account, the
transaction may be averaged as to price, and available investments
allocated as to amount, in a manner which Sub-Advisor believes to be
equitable to the Sub-Fund and such other investment company or
account. In some instances, this investment procedure may adversely
affect the price paid or received by the Sub-Fund or the size of the
position obtained or sold by the Sub-Fund. To the extent permitted by
law, Sub-Advisor may aggregate the securities to be sold or purchased
for the Sub-Fund with those to be sold or purchased for other
investment companies or accounts in order to obtain best execution if
and when the sub-Advisor, in its sole discretion believes it
appropriate. The Fund and Advisor recognizes that the Sub-Advisor may
not always be able to take or liquidate investment positions in the
same security at the same time at the same price for all its clients.
The Fund and Advisor also recognize that the Sub-Advisor may at times
cause clients to take positions which differ in the same investment.
Sub-Advisor shall place all orders for the purchase and sale of
portfolio securities for the accounts of the Sub-Fund with
broker-dealers selected by the Sub-Advisor. In executing portfolio
transactions and selecting broker-dealers, the Sub-Advisor will use its
best efforts to seek best execution on behalf of the Sub-Fund. In
assessing the best execution available for any transaction, the
Sub-Advisor shall consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and
the reasonableness of the commission, if any (all for the specific
transaction and on a continuing basis). In evaluating the best
execution available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Advisor may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Sub-Fund
and/or other accounts over which the Sub-Advisor or an affiliate of the
Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Fund to pay
a broker-dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Sub-Fund which
is in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction if, but only if, the
Sub-Advisor determines in good faith that such commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker-dealer viewed either in terms of that
particular transaction or in terms of all of the accounts over which
investment discretion is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that the amendment shall be approved in the
manner required by the Act.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Missouri.
10. Registration as an Investment Advisor. Advisor and Sub-Advisor each
hereby represents and warrants to the other that it is registered as an
investment advisor under the Investment Advisors Act of 1940, that it
will use its reasonable best efforts to maintain such registration, and
that it will promptly notify the other if it ceases to be so
registered, if its registration is suspended for any reason, or if it
is notified by any regulatory organization or court of competent
jurisdiction that it should show cause why its registration should not
be suspended or terminated.
Witness the due execution hereof this _____ day of ________________,
1997.
Attest: INVESTORS MARK ADVISORS, LLC
__________________________ By:______________________________________
Attest: STANDISH INTERNATIONAL MANAGEMENT COMPANY LP
__________________________ By:______________________________________
Attest INVESTORS MARK SERIES FUND, INC.
__________________________ By:______________________________________
EXHIBIT A
FEES
Advisor will pay Sub-Advisor, as compensation for the Sub-Advisor's investment
management services provided for the Sub-Fund, the annual fee (denominated in
"basis points" which are one-hundredths of one percent) specified below. This
fee will be: computed daily as shown below; determined in accordance with the
Fund's "price make-up" sheet; and will be payable monthly in arrears within 15
days of the month end.
The daily fee will be calculated as follows:
.01*(X/100)
(----------) * ADB
Y
Where:
1. X is thirty-five (35) for the Global Fixed Income Sub-Fund;
2. Y is 365, except in leap years when it is 366; and,
3. ADB is the average daily total net assets of the Sub-Fund.
This compensation will not be due or payable until the earlier of:
1. the expiration of 180 days from the date that the first insurance product
is sold that results in funds being deposited in the Fund; or,
2. the Sub-Fund achieves total assets of at least $20,000,000.00.
SUB-ADVISORY AGREEMENT
This Agreement is made between, INVESTORS MARK ADVISORS a Delaware
limited liability company, having its principal place of business in Kansas
City, Missouri (hereinafter referred to as the "Advisor"), LORD, ABBETT & CO.,
having its principal place of business in New York, New York (hereinafter
referred to as the "Sub-Advisor") and INVESTORS MARK SERIES FUND, INC., a
Maryland corporation (hereinafter referred to as the "Fund").
WHEREAS, the Fund, an open-end diversified management investment
company, as that term is defined in the Investment Company Act of 1940, as
amended (the "Act"), that is registered as such with the Securities and Exchange
Commission, has appointed Advisor as investment advisor for and to the Growth &
Income Portfolio, a sub-Fund of the Fund (referred to as a "Sub-Fund"), pursuant
to the terms of an investment advisory agreement effective as of July 15, 1997,
between the Fund and Advisor ("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain
investment management services for the Sub-Fund as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment advisor for the Sub-Fund. Subject
to the oversight and review of Advisor and the Board of Directors of
the Fund, Sub-Advisor shall manage the investment and reinvestment of
the assets of the Sub-Fund. Sub-Advisor will determine in its
discretion, subject to the oversight and review of Advisor, the
investments to be purchased or sold, will provide Advisor with records
concerning its activities which Advisor or the Fund is required to
maintain and will render regular reports to Advisor and to officers and
Directors of the Fund concerning its discharge of the foregoing
responsibilities.
Sub-Advisor, in its supervision of the investments of the Sub-Fund,
will be guided by the Sub-Fund's investment objectives and policies and
the provisions and restrictions contained in the Articles of
Incorporation and Bylaws of the Fund and as set forth in the
Registration Statement and exhibits as may be on file with the
Securities and Exchange Commission, all as communicated by Advisor to
Sub-Advisor. Advisor hereby undertakes to provide Sub-Advisor with
copies of such Articles of Incorporation and Bylaws and Registration
Statement and exhibits as well as any amendments as the same become
available from time to time.
Sub-Advisor shall be deemed to be an independent contractor under this
Agreement and, unless otherwise expressly provided or authorized, shall
have no authority to act for or represent the Fund or any Sub-Fund in
any way or otherwise be deemed an agent of the Fund or any Sub-Fund.
The services furnished by Sub-Advisor hereunder are deemed not to be
exclusive, and nothing in this Agreement shall: (a) prevent Sub-Advisor
or any affiliated person (as defined in the Act) of Sub-Advisor from
acting as investment advisor or manager for any other person or
persons, including other management investment companies with
investment objectives and policies the same as or similar to those of
the Sub-Fund, or (b) limit or restrict Sub-Advisor or any such
affiliated person from buying, selling or trading any securities or
other investments (including any securities or other investments which
the Sub-Fund are eligible to buy) for its or their own accounts or for
the accounts of others for whom it or they may be acting; provided,
however, that Sub-Advisor agrees that it will not undertake any
activities which, in its reasonable judgment, will adversely affect the
performance of its obligations to the Sub-Fund under this Agreement and
provided that all such activities are in conformity with all applicable
provisions of the Fund's Registration Statement.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Fund by Sub-Advisor hereunder, the sub-advisory fees set forth in
Exhibit A attached hereto. During the term of this Agreement,
Sub-Advisor will bear all expenses incurred by it in the performance of
its duties hereunder, other than the cost of securities, commodities
and other investments (including brokerage fees, transfer fees,
custodian fees, underwriting commissions, interest and other charges,
if any) purchased or sold for the Sub-Fund.
3. Term. The term of this Agreement shall begin on the date of its
execution and shall remain in effect for two years from that date and
from year to year thereafter, subject to the provisions for termination
and all of the other terms and conditions hereof, if such continuation
is specifically approved at least annually in the manner required by
the Act. This Agreement shall be submitted to the shareholders of the
Fund and each Sub-Fund for approval and shall automatically terminate
if not approved by a majority of the shares of the Sub-Fund.
4. Termination. This Agreement may be terminated at any time without the
payment of any penalty: (a) by the Advisor on sixty (60) days written
notice to the Sub-Advisor; (b) by the Fund either by a vote of a
majority of the Board of Directors of the Fund or by a vote of the
majority of the outstanding shares of beneficial interest of the
Sub-Fund; or (c) by the Sub-Advisor on sixty (60) days written notice
to the Advisor.
This Agreement will terminate automatically in the event of the
termination of the Investment Advisory Agreement.
This Agreement shall automatically terminate in the event of its
assignment. The Sub-Advisor may employ or contract with any other
person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out its
obligations and duties under this Agreement.
5. Sub-Advisor's Representations. Sub-Advisor represents and warrants
that each the Sub-Fund will at all times be invested in such a manner
as to ensure compliance with Section 817(h) of the Internal Revenue
Code of 1986, as amended, and Treasury Regulations, Section 1.817.5,
relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulation. Sub-Advisor will be
relieved of this obligation and shall be held harmless when direction
from the Advisor or Directors causes non-compliance with Section
817(h) and/or Regulation Section 1.817-5. Sub-Advisor agrees to
provide quarterly reports to Advisor, executed by a duly authorized
officer of Sub-Advisor, within seven (7) business days of the close of
each calendar quarter certifying as to compliance with said Section or
Regulations. In addition to the quarterly reports, Advisor may request
and Sub-Advisor agrees to provide Section 817 diversification
compliance reports at more frequent intervals, as reasonably requested
by Advisor.
6. Standard of Care and Indemnification. In the performance of its
duties, the Sub Advisor will comply with the stated investment
objectives, policies and restrictions of the Sub-Fund as set forth in
the Prospectus and Statement of Additional Information and will in all
material respects act in accordance with any applicable regulations of
any governmental authority pertaining to its activities hereunder. The
Sub-Advisor shall exercise its best judgment and shall act in good
faith in rendering its services pursuant to this Agreement. The
Sub-Advisor shall not be liable for any error of judgment or for any
loss suffered by the Sub-Fund in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement shall
be deemed to protect or purport to protect the Sub-Advisor against any
liability to the Advisor, the Fund or to the shareholders of the
Sub-Fund to which the Sub-Advisor would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or by reason of the Sub-Advisor's
reckless disregard of its obligations and duties under this Agreement.
The Advisor shall indemnify and hold harmless the Sub-Advisor, its
officers and directors and each person, if any, who controls the
Sub-Advisor within the meaning of Section 15 of the Securities Act of
1933 ("1933 Act") (any and all such persons shall be referred to as an
"Indemnified Party"), against loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages or expense and reasonable
counsel fees incurred in connection therewith), arising by reason of
any matter to which this Agreement relates.
The Sub-Advisor shall indemnify and hold harmless the Advisor and each
of its directors and officer and each person if any who controls the
Advisor within the meaning of Section 15 of the 1933 Act, against any
loss, liability, claim, damage or expense described in the foregoing
indemnity, but only with respect to the Sub-Advisor's willful
misfeasance, bad faith or gross negligence in the performance of its
duties under the Sub-Advisory Agreement.
However, in no case: (a) are these indemnifications deemed to protect
any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
under this Agreement; (b) is the Advisor or Sub-Advisor to be liable
under this indemnity with respect to any claim made against any
particular Indemnified Party unless such Indemnified Party shall have
notified the Advisor or Sub-Advisor in writing within a reasonable time
after the summons or other first legal process giving information of
the nature of the claim shall have been served upon the Advisor or
Sub-Advisor or their controlling persons; or, (c) will either party be
obligated to pay any amount in settlement unless that party shall have
consented to such settlement, which consent shall not be unreasonably
withheld.
7. Portfolio Transactions. Investment decisions for the Sub-Fund shall be
made by Sub-Advisor independently from those for any other investment
companies and accounts advised or managed by Sub-Advisor. The Sub-Fund
and such investment companies and accounts may, however, invest in the
same securities. When a purchase or sale of the same security is made
at substantially the same time on behalf of the Sub-Fund and/or
another investment company or account, the transaction will be
averaged as to price, and available investments allocated as to
amount, in a manner which Sub-Advisor believes to be equitable to the
Sub-Fund and such other investment company or account. In some
instances, this investment procedure may adversely affect the price
paid or received by the Sub-Fund or the size of the position obtained
or sold by the Sub-Fund. To the extent permitted by law, Sub-Advisor
may aggregate the securities to be sold or purchased for the Sub-Fund
with those to be sold or purchased for other investment companies or
accounts in order to obtain best execution.
Sub-Advisor shall place all orders for the purchase and sale of
portfolio securities for the account of the Sub-Fund with
broker-dealers selected by the Sub-Advisor. In executing portfolio
transactions and selecting broker-dealers, the Sub-Advisor will use its
best efforts to seek best execution on behalf of the Sub-Fund. In
assessing the best execution available for any transaction, the
Sub-Advisor shall consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and
the reasonableness of the commission, if any (all for the specific
transaction and on a continuing basis). In evaluating the best
execution available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Advisor may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Sub-Fund
and/or other accounts over which the Sub-Advisor or an affiliate of the
Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Fund to pay
a broker-dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Sub-Fund which
is in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction if, but only if, the
Sub-Advisor determines in good faith that such commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment
discretion is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that the amendment shall be approved in the
manner required by the Act.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Missouri.
10. Registration as an Investment Adviser. Advisor and Sub-Advisor each
hereby acknowledges that it is registered as an investment advisor
under the Investment Advisers Act of 1940, that it will use its
reasonable best efforts to maintain such registration, and that it will
promptly notify the other if it ceases to be so registered, if its
registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it
should show cause why its registration should not be suspended or
terminated.
Witness the due execution hereof this _____ day of ________________,
1997.
Attest: INVESTORS MARK ADVISORS, LLC
__________________________ By:______________________________________
Attest: LORD, ABBETT & CO.
__________________________ By:______________________________________
Attest INVESTORS MARK SERIES FUND, INC
__________________________ By:______________________________________
EXHIBIT A
FEES
Advisor will pay Sub-Advisor, as compensation for the Sub-Advisor's investment
management services provided for the Growth & Income Sub-Fund, the annual fee
(denominated in "basis points" which are one-hundredths of one percent)
specified below. This fee will be: computed daily as specified below; determined
in accordance with the Fund's "price make-up" sheet; payable monthly or at such
other interval as may be agreed to by the parties.
The daily fee will be calculated as follows:
.01*(X/100)
(----------) * ADB
Y
Where:
1. X is 45 for the first $40,000,000 of Growth & Income Sub-Fund average daily
total net assets;
2. X is 40 for Growth & Income Sub-Fund average daily total net assets greater
than $40,000,000;
3. Y is 365, except in leap years when it is 366; and,
4. ADB is the average daily total net assets of the Sub-Fund.
This compensation will not be due or payable until the earlier of:
1. the expiration of 180 days from the date that the first insurance product
is sold that results in funds being deposited in the Fund; or,
2. the Sub-Fund achieves total assets of at least $20,000,000.00.
SUB-ADVISORY AGREEMENT
This Agreement is made between, INVESTORS MARK ADVISORS LLC a Delaware
limited liability company, having its principal place of business in Kansas
City, Missouri (hereinafter referred to as the "Advisor"), KORNITZER CAPITAL
MANAGEMENT Inc., a corporation, having its principal place of business in
Shawnee Mission, Kansas (hereinafter referred to as the "Sub-Advisor") and
INVESTORS MARK SERIES FUND, INC., a Maryland corporation (hereinafter referred
to as the "Fund").
WHEREAS, the Fund, an open-end diversified management investment
company, as that term is defined in the Investment Company Act of 1940, as
amended (the "Act"), that is registered as such with the Securities and Exchange
Commission, has appointed Advisor as investment advisor for and to the Balanced
Portfolio, a sub-Fund of the Fund (referred to individually as a "Sub-Fund",
pursuant to the terms of an investment advisory effective July 15, 1997 between
the Fund and Advisor ("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain
investment management services for the Sub-Fund as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment advisor for the Sub-Fund. Subject
to the oversight and review of Advisor and the Board of Directors of
the Fund, Sub-Advisor shall manage the investment and reinvestment of
the assets of the Sub-Fund. Sub-Advisor will determine in its
discretion, subject to the oversight and review of Advisor, the
investments to be purchased or sold, will provide Advisor with records
concerning its activities which Advisor or the Fund is required to
maintain and will render regular reports to Advisor and to officers and
Directors of the Fund concerning its discharge of the foregoing
responsibilities.
Sub-Advisor, in its supervision of the investments of the Sub-Fund,
will be guided by the Sub-Fund's investment objectives and policies and
the provisions and restrictions contained in the Articles of
Incorporation and Bylaws of the Fund and as set forth in the
Registration Statement and exhibits as may be on file with the
Securities and Exchange Commission, all as communicated by Advisor to
Sub-Advisor. Advisor hereby undertakes to provide Sub-Advisor with
copies of such Articles of Incorporation and Bylaws and Registration
Statement and exhibits as well as any amendments as the same become
available from time to time.
Sub-Advisor shall be deemed to be an independent contractor under this
Agreement and, unless otherwise expressly provided or authorized, shall
have no authority to act for or represent the Fund or any Sub-Fund in
any way or otherwise be deemed an agent of the Fund or any Sub-Fund.
The services furnished by Sub-Advisor hereunder are deemed not to be
exclusive, and nothing in this Agreement shall: (a) prevent Sub-Advisor
or any affiliated person (as defined in the Act) of Sub-Advisor from
acting as investment advisor or manager for any other person or
persons, including other management investment companies with
investment objectives and policies the same as or similar to those of
the Sub-Fund, or (b) limit or restrict Sub-Advisor or any such
affiliated person from buying, selling or trading any securities or
other investments (including any securities or other investments which
the Sub-Fund are eligible to buy) for its or their own accounts or for
the accounts of others for whom it or they may be acting; provided,
however, that Sub-Advisor agrees that it will not undertake any
activities which, in its reasonable judgment, will adversely affect the
performance of its obligations to the Sub-Fund under this Agreement and
provided that all such activities are in conformity with all applicable
provisions of the Fund's Registration Statement.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Fund by Sub-Advisor hereunder, the sub-advisory fees set forth in
Exhibit A attached hereto. During the term of this Agreement,
Sub-Advisor will bear all expenses incurred by it in the performance of
its duties hereunder, other than the cost of securities, commodities
and other investments (including brokerage, commissions and other
charges, if any) purchased for the Sub-Fund.
3. Term. The term of this Agreement shall begin on the date of its
execution and shall remain in effect for two years from that date and
from year to year thereafter, subject to the provisions for termination
and all of the other terms and conditions hereof, if such continuation
is specifically approved at least annually in the manner required by
the Act. This Agreement shall be submitted to the shareholders of the
Fund and each Sub-Fund for approval and shall automatically terminate
if not approved by a majority of the shares of the Sub-Fund.
4. Termination. This Agreement may be terminated at any time without the
payment of any penalty: (a) by the Advisor on sixty (60) days written
notice to the Sub-Advisor; (b) by the Fund either by a vote of a
majority of the Board of Directors of the Fund or by a vote of the
majority of the outstanding shares of beneficial interest of the
Sub-Fund; or (c) by the Sub-Advisor on sixty (60) days written notice
to the Advisor.
This Agreement will terminate automatically in the event of the
termination of the Investment Advisory Agreement.
This Agreement shall automatically terminate in the event of its
assignment. The Sub-Advisor may employ or contract with any other
person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out its
obligations and duties under this Agreement.
5. Sub-Advisor's Representations. Sub-Advisor represents and warrants
that each the Sub-Fund will at all times be invested in such a manner
as to ensure compliance with Section 817(h) of the Internal Revenue
Code of 1986, as amended, and Treasury Regulations, Section 1.817.5,
relating to the diversification requirements for variable annuity
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulation. Sub-Advisor will be
relieved of this obligation and shall be held harmless when direction
from the Advisor or Directors causes non-compliance with Section
817(h) and/or Regulation Section 1.817-5. Sub-Advisor agrees to
provide quarterly reports to Advisor, executed by a duly authorized
officer of Sub-Advisor, within seven (7) business days of the close of
each calendar quarter certifying as to compliance with said Section or
Regulations. In addition to the quarterly reports, Advisor may request
and Sub-Advisor agrees to provide Section 817 diversification
compliance reports at more frequent intervals, as reasonably requested
by Advisor.
6. Standard of Care and Indemnification. In the performance of its
duties, the Sub Advisor will comply with the stated investment
objectives, policies and restrictions of the Sub-Fund as set forth in
the Prospectus and Statement of Additional Information and will in all
material respects act in accordance with any applicable regulations of
any governmental authority pertaining to its activities hereunder. The
Sub-Advisor shall exercise its best judgment and shall act in good
faith in rendering its services pursuant to this Agreement. The
Sub-Advisor shall not be liable for any error of judgment or for any
loss suffered by the Sub-Fund in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement shall
be deemed to protect or purport to protect the Sub-Advisor against any
liability to the Advisor, the Fund or to the shareholders of the
Sub-Fund to which the Sub-Advisor would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or by reason of the Sub-Advisor's
reckless disregard of its obligations and duties under this Agreement.
The Advisor shall indemnify and hold harmless the Sub-Advisor, its
officers and directors and each person, if any, who controls the
Sub-Advisor within the meaning of Section 15 of the Securities Act of
1933 ("1933 Act") (any and all such persons shall be referred to as an
"Indemnified Party"), against loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages or expense and reasonable
counsel fees incurred in connection therewith), arising by reason of
any matter to which this Agreement relates.
The Sub-Advisor shall indemnify and hold harmless the Advisor and each
of its directors and officer and each person if any who controls the
Advisor within the meaning of Section 15 of the 1933 Act, against any
loss, liability, claim, damage or expense described in the foregoing
indemnity, but only with respect to the Sub-Advisor's willful
misfeasance, bad faith or gross negligence in the performance of its
duties under the Sub-Advisory Agreement. In case any action shall be
brought against the Advisor or any person so indemnified, in respect of
which indemnity may be sought against Sub-Advisor, the Sub-Advisor
shall have the rights and duties given to the Advisor, and the Advisor
and each person so indemnified shall have the rights and duties given
to the Sub-Advisor by the provisions of subsections (a) and (b) of this
section.
However, in no case (a) are these indemnifications deemed to protect
any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
under this Agreement or (b) is the Advisor or Sub-Advisor to be liable
under this indemnity with respect to any claim made against any
particular Indemnified Party unless such Indemnified Party shall have
notified the Advisor or Sub-Advisor in writing within a reasonable time
after the summons or other first legal process giving information of
the nature of the claim shall have been served upon the Advisor or
Sub-Advisor or their controlling persons.
7. Portfolio Transactions Brokerage. Investment decisions for the
Sub-Fund shall be made by Sub-Advisor independently from those for any
other investment companies and accounts advised or managed by
Sub-Advisor. The Sub-Fund and such investment companies and accounts
may, however, invest in the same securities. When a purchase or sale
of the same security is made at substantially the same time on behalf
of a Sub-Fund and/or another investment company or account, the
transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Sub-Advisor believes to be
equitable to the Sub-Fund and such other investment company or
account. In some instances, this investment procedure may adversely
affect the price paid or received by the Sub-Fund or the size of the
position obtained or sold by the Sub-Fund. To the extent permitted by
law, Sub-Advisor may aggregate the securities to be sold or purchased
for the Sub-Fund with those to be sold or purchased for other
investment companies or accounts in order to obtain best execution.
Sub-Advisor shall place all orders for the purchase and sale of
portfolio securities for the accounts of the Sub-Fund with
broker-dealers selected by the Sub-Advisor. In executing portfolio
transactions and selecting broker-dealers, the Sub-Advisor will use its
best efforts to seek best execution on behalf of the Sub-Fund. In
assessing the best execution available for any transaction, the
Sub-Advisor shall consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and
the reasonableness of the commission, if any (all for the specific
transaction and on a continuing basis). In evaluating the best
execution available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Advisor may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Sub-Fund
and/or other accounts over which the Sub-Advisor or an affiliate of the
Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Fund to pay
a broker-dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Sub-Fund which
is in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction if, but only if, the
Sub-Advisor determines in good faith that such commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment
discretion is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that the amendment shall be approved in the
manner required by the Act.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Missouri.
10. Registration as an Investment Advisor. Advisor and Sub-Advisor each
hereby acknowledges that it is registered as an investment advisor
under the Investment Advisors Act of 1940, that it will use its
reasonable best efforts to maintain such registration, and that it will
promptly notify the other if it ceases to be so registered, if its
registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it
should show cause why its registration should not be suspended or
terminated.
Witness the due execution hereof this _____ day of ________________,
1997.
Attest: INVESTORS MARK ADVISORS LLC
__________________________ By:______________________________________
Attest: KORNITZER CAPITAL MANAGEMENT Inc.
__________________________ By:______________________________________
Attest INVESTORS MARK SERIES FUND, INC.
__________________________ By:______________________________________
EXHIBIT A
FEES
Advisor will pay Sub-Advisor, as compensation for the Sub-Advisor's investment
management services provided for each Sub-Fund, the annual fee (denominated in
"basis points" which are one-hundredths of one percent) specified below. This
fee will be: computed daily as specified below; determined in accordance with
the Fund's "price make-up" sheet; payable monthly or at such other interval as
may be agreed to by the parties.
The daily fee will be calculated as follows:
.01*(X/100)
(----------) * ADB
Y
Where:
1. X is 40 for first $40,000,000 of Balanced Sub-Fund average daily total net
assets;
2. X is 35 for Balanced Sub-Fund average daily total net assets greater than
$40,000,000;
3. Y is 365, except in leap years when it is 366; and,
4. ADB is the average daily total net assets of the Sub-Fund.
This compensation will not be due or payable until the earlier of:
1. the expiration of 180 days from the date that the first insurance product
is sold that results in funds being deposited in the Fund; or,
2. the Sub-Fund achieves a daily balance of at least $20,000,000.00.
SUB-ADVISORY AGREEMENT
This Agreement is made between, INVESTORS MARK ADVISORS, a Delaware
limited liability company, having its principal place of business in Kansas
City, Missouri (hereinafter referred to as the "Advisor"), DAVID L. BABSON &
CO., INC., a Massachusetts corporation, having its principal place of business
in Cambridge, Massachusetts (hereinafter referred to as the "Sub-Advisor") and
INVESTORS MARK SERIES FUND, INC., a Maryland corporation (hereinafter referred
to as the "Fund").
WHEREAS, the Fund, an open-end diversified management investment
company, as that term is defined in the Investment Company Act of 1940, as
amended (the "Act"), that is registered as such with the Securities and Exchange
Commission, has appointed Advisor as investment advisor for and to the Value
Portfolio of the Fund (referred to as the "Sub-Fund), pursuant to the terms of
an investment advisory effective July 15, 1997, between the Fund and Advisor
("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain
investment management services for the Sub-Fund as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment advisor for the Sub-Fund. Subject
to the oversight and review of Advisor and the Board of Directors of
the Fund, Sub-Advisor shall manage the investment and reinvestment of
the assets of the Sub-Fund. Sub-Advisor will determine in its
discretion, subject to the oversight and review of Advisor, the
investments to be purchased or sold, will provide Advisor with records
concerning its activities which Advisor or the Fund is required to
maintain and will render regular reports to Advisor and to officers and
Directors of the Fund concerning its discharge of the foregoing
responsibilities.
Sub-Advisor, in its supervision of the investments of the Sub-Fund,
will be guided by the Sub-Fund's investment objectives and policies and
the provisions and restrictions contained in the Articles of
Incorporation and Bylaws of the Fund and as set forth in the
Registration Statement and exhibits as may be on file with the
Securities and Exchange Commission, all as communicated by Advisor to
Sub-Advisor. Advisor hereby undertakes to provide Sub-Advisor with
copies of such Articles of Incorporation and Bylaws and Registration
Statement and exhibits as well as any amendments as the same become
available from time to time.
Sub-Advisor shall be deemed to be an independent contractor under this
Agreement and, unless otherwise expressly provided or authorized, shall
have no authority to act for or represent the Fund or the Sub-Fund in
any way or otherwise be deemed an agent of the Fund or the Sub-Fund.
The services furnished by Sub-Advisor hereunder are deemed not to be
exclusive, and nothing in this Agreement shall (a) prevent Sub-Advisor
or any affiliated person (as defined in the Act) of Sub-Advisor from
acting as investment advisor or manager for any other person or
persons, including other management investment companies with
investment objectives and policies the same as or similar to those of
the Sub-Fund, or (b) limit or restrict Sub-Advisor or any such
affiliated person from buying, selling or trading any securities or
other investments (including any securities or other investments which
the Sub-Fund is eligible to buy) for its or their own accounts or for
the accounts of others for whom it or they may be acting; provided,
however, that Sub-Advisor agrees that it will not undertake any
activities which, in its reasonable judgment, will adversely affect the
performance of its obligations to the Sub-Fund under this Agreement.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Fund by Sub-Advisor hereunder, the sub-advisory fees set forth in
Exhibit A attached hereto. During the term of this Agreement,
Sub-Advisor will bear all expenses incurred by it in the performance of
its duties hereunder, other than the cost of securities, commodities
and other investments (including brokerage fees, commissions and other
charges, if any) purchased for the Sub-Fund.
3. Term. The term of this Agreement shall begin on the date of its
execution and shall remain in effect for two years from that date and
from year to year thereafter, subject to the provisions for termination
and all of the other terms and conditions hereof, if such continuation
is specifically approved at least annually in the manner required by
the Act. This Agreement shall be submitted to the shareholders of the
Fund and the Sub-Fund for approval and shall automatically terminate if
not approved by a majority of the shares of the Sub-Fund.
4. Termination. This Agreement may be terminated at any time without the
payment of any penalty: (a) by the Advisor on sixty (60) days written
notice to the Sub-Advisor; (b) by the Fund either by a vote of a
majority of the Board of Directors of the Fund or by a vote of the
majority of the outstanding shares of beneficial interest of the
Sub-Fund; or (c) by the Sub-Advisor on sixty (60) days written notice
to the Advisor.
This Agreement will terminate automatically in the event of the
termination of the Investment Advisory Agreement.
This Agreement shall automatically terminate in the event of its
assignment. The Sub-Advisor may employ or contract with any other
person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out its
obligations and duties under this Agreement.
5. Sub-Advisor's Representations. Sub-Advisor represents and warrants
that the Sub-Fund will at all times be invested in such a manner as to
ensure compliance with Section 817(h) of the Internal Revenue Code of
1986, as amended, and Treasury Regulations, Section 1.817.5, relating
to the diversification requirements for variable annuity, endowment,
or life insurance contracts and any amendments or other modifications
to such Section or Regulation. Sub-Advisor will be relieved of this
obligation and shall be held harmless when direction from the Advisor
or Directors causes non-compliance with Section 817(h) and/or
Regulation Section 1.817-5. Sub-Advisor agrees to provide quarterly
reports to Advisor, executed by a duly authorized officer of
Sub-Advisor, within seven (7) business days of the close of each
calendar quarter certifying as to compliance with said Section or
Regulations. In addition to the quarterly reports, Advisor may request
and Sub-Advisor agrees to provide Section 817 diversification
compliance reports at more frequent intervals, as reasonably requested
by Advisor.
6. Standard of Care and Indemnification. In the performance of its
duties, the Sub Advisor will comply with the stated investment
objectives, policies and restrictions of the Sub-Fund as set forth in
the Prospectus and Statement of Additional Information and will in all
material respects act in accordance with any applicable regulations of
any governmental authority pertaining to its activities hereunder. The
Sub-Advisor shall exercise its best judgment and shall act in good
faith in rendering its services pursuant to this Agreement. The
Sub-Advisor shall not be liable for any error of judgment or for any
loss suffered by the Sub-Fund in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement shall
be deemed to protect or purport to protect the Sub-Advisor against any
liability to the Advisor, the Fund or to the shareholders of the
Sub-Fund to which the Sub-Advisor would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or by reason of the Sub-Advisor's
reckless disregard of its obligations and duties under this Agreement.
The Advisor shall indemnify and hold harmless the Sub-Advisor, its
officers and directors and each person, if any, who controls the
Sub-Advisor within the meaning of Section 15 of the Securities Act of
1933 ("1933 Act") (any and all such persons shall be referred to as an
"Indemnified Party"), against loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages or expense and reasonable
counsel fees incurred in connection therewith), arising by reason of
any matter to which this Agreement relates.
The Sub-Advisor shall indemnify and hold harmless the Advisor and each
of its directors and officer and each person if any who controls the
Advisor within the meaning of Section 15 of the 1933 Act, against any
loss, liability, claim, damage or expense described in the foregoing
indemnity, but only with respect to the Sub-Advisor's willful
misfeasance, bad faith or gross negligence in the performance of its
duties under the Sub-Advisory Agreement.
However, in no case: (a) are these indemnifications deemed to protect
any particular Indemnified Party against any liability to which such
Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
under this Agreement; (b) is the Advisor or Sub-Advisor to be liable
under this indemnity with respect to any claim made against any
particular Indemnified Party unless such Indemnified Party shall have
notified the Advisor or Sub-Advisor in writing within a reasonable time
after the summons or other first legal process giving information of
the nature of the claim shall have been served upon the Advisor or
Sub-Advisor or their controlling persons; or, (c) will either party be
obligated to pay any amount in settlement unless that party shall have
consented to such settlement, which consent shall not be unreasonably
withheld.
8. Portfolio Transactions Brokerage. Investment decisions for the
Sub-Fund shall be made by Sub-Advisor independently from those for any
other investment companies and accounts advised or managed by
Sub-Advisor. The Sub-Fund and such investment companies and accounts
may, however, invest in the same securities. When a purchase or sale
of the same security is made at substantially the same time on behalf
of the Sub-Fund and/or another investment company or account, the
transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which Sub-Advisor believes to be
equitable to the Sub-Fund and such other investment company or
account. In some instances, this investment procedure may adversely
affect the price paid or received by the Sub-Fund or the size of the
position obtained or sold by the Sub-Fund. To the extent permitted by
law, Sub-Advisor may aggregate the securities to be sold or purchased
for the Sub-Fund with those to be sold or purchased for other
investment companies or accounts in order to obtain best execution.
Sub-Advisor shall place all orders for the purchase and sale of
portfolio securities for the account of the Sub-Fund with
broker-dealers selected by the Sub-Advisor. In executing portfolio
transactions and selecting broker-dealers, the Sub-Advisor will use its
best efforts to seek best execution on behalf of the Sub-Fund. In
assessing the best execution available for any transaction, the
Sub-Advisor shall consider all factors it deems relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and
the reasonableness of the commission, if any (all for the specific
transaction and on a continuing basis). In evaluating the best
execution available, and in selecting the broker-dealer to execute a
particular transaction, the Sub-Advisor may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Sub-Fund
and/or other accounts over which the Sub-Advisor or an affiliate of the
Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Fund to pay
a broker-dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Sub-Fund which
is in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction if, but only if, the
Sub-Advisor determines in good faith that such commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment
discretion is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of
the parties, provided that the amendment shall be approved in the
manner required by the Act.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Missouri.
10. Registration as an Investment Adviser. Advisor and Sub-Advisor each
hereby acknowledges that it is registered as an investment advisor
under the Investment Advisers Act of 1940, that it will use its
reasonable best efforts to maintain such registration, and that it will
promptly notify the other if it ceases to be so registered, if its
registration is suspended for any reason, or if it is notified by any
regulatory organization or court of competent jurisdiction that it
should show cause why its registration should not be suspended or
terminated.
Witness the due execution hereof this _____ day of ________________,
1997.
Attest: INVESTORS MARK ADVISORS
__________________________ By:______________________________________
Attest: DAVID L. BABSON & CO., INC.
__________________________ By:______________________________________
Attest INVESTORS MARK SERIES FUND, INC.
__________________________ By:______________________________________
EXHIBIT A
FEES
Advisor will pay Sub-Advisor, as compensation for the Sub-Advisor's investment
management services provided for the Value Sub-Fund, the annual fee (denominated
in "basis points" which are one-hundredths of one percent) specified below. This
fee will be: computed daily as specified below; determined in accordance with
the Fund's "price make-up" sheet; payable monthly or at such other interval as
may be agreed to by the parties.
The daily fee will be calculated as follows:
.01*(X/Y)
(---------) * ADB
Y
Where:
1. X is 45 for the first $40,000,000 of Value Sub-Fund average daily total net
assets;
2. X is 40 for Value Sub-Fund average daily total net assets greater than
$40,000,000;
3. Y is 365, except in leap years when it is 366; and,
4. ADB is the average daily total net assets of the Sub-Fund.
This compensation will not be due or payable until the earlier of:
1. the expiration of 180 days from the date that the first insurance product
is sold that results in funds being deposited in the Fund; or,
2. the Sub-Fund achieves total assets of at least $20,000,000.00.
FORM OF DISTRIBUTION AGREEMENT
INVESTORS MARK SERIES FUND, INC.
THIS AGREEMENT is made as of this ___ day of ____, 1997 between Investors Mark
Series Fund, Inc. (the "Company"), a Maryland corporation, and Jones & Babson
Inc. (the "Distributor"), a ________________ corporation.
WHEREAS, the Company is registered as an investment company with the Securities
and Exchange Commission ("SEC") under the Investment Company Act of 1940, as
amended (the "1940 Act"), and is authorized to issue shares of common stock
("Shares") in separately designated series ("Funds"), each with its own
objectives, investment program, policies and restrictions; and
WHEREAS, the Company has registered the Shares of the Funds under the Securities
Act of 1933, as amended (the "1933 Act"), pursuant to a registration statement
on Form N-1A (the "Registration Statement"), including a prospectus
("Prospectus") and a statement of additional information ("Statement of
Additional Information"); and
WHEREAS, the Distributor is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended (the "1934 Act"); and
WHEREAS, the Company wishes to continue to engage the services of the
Distributor as principal underwriter and distributor of the Shares of the Funds
that now exist and that hereafter may be established, which are listed on
Schedule A to this Agreement as may be amended from time to time, and the
Distributor is willing to continue to serve in that capacity.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT OF DISTRIBUTOR.
(a) The Company hereby appoints the Distributor as principal underwriter
and distributor of the Funds of the Company to sell the Shares of the Funds in
jurisdictions wherein the Shares may be legally offered for sale. The
Distributor shall be the exclusive agent for the distribution of Shares of the
Funds; provided, however, that the Company in its absolute discretion may issue
Shares of the Funds otherwise than through the Distributor in connection with
(i) the payment or reinvestment of dividends or distributions, (ii) any merger
or consolidation of the Company or a Fund with any other investment company or
trust or any personal holding company, or the acquisition of the assets of any
such entity by the Company or any Fund, and (iii) any offer of exchange
authorized by the Board of Directors of the Company. Notwithstanding any other
provision hereof, the Company may terminate, suspend, or withdraw the offering
of the Shares of a Fund whenever, in its sole discretion, it deems such action
to be desirable.
(b) The Distributor agrees that it will use all reasonable efforts,
consistent with its other business, in connection with the distribution of
Shares of the Company; provided, however, that the Distributor shall not be
prevented from entering into like arrangements with other issuers. The
provisions of this paragraph do not obligate the Distributor to register as a
broker or dealer under the state Blue Sky laws of any jurisdiction when it
determines it would be uneconomical for it to do so or to maintain its
registration in any jurisdiction in which it is now registered nor obligate the
Distributor to sell any particular number of Shares. The Distributor is
currently registered as a broker-dealer or exempt from registration in all
jurisdictions listed in Schedule B hereto. The Distributor shall promptly notify
the Company in the event it fails to maintain its registration in any
jurisdiction in which it is currently registered. The Distributor shall sell
Shares of the Funds as agent for the Company at prices determined as hereinafter
provided and on the terms set forth herein, all according to applicable federal
and state Blue Sky laws and regulations and the Articles of Incorporation and
By-Laws of the Company. The Distributor may sell Shares of the Funds to or
through qualified brokers, dealers or others and shall require each such person
to conform to the provisions hereof, the Registration Statement, the then
current Prospectus and Statement of Additional Information, and applicable law.
Neither the Distributor nor any such person shall withhold the placing of
purchase orders for Shares so as to make a profit thereby.
(c) The Distributor shall order Shares of the Funds from the Company only
to the extent that it shall have received purchase orders therefor. The
Distributor will not make, or authorize any brokers, dealers, or others to make,
(i) any short sales of Shares or (ii) any sales of Shares to any Director or
officer of the Company, the Distributor, or any corporation or association
furnishing investment advisory, managerial, or supervisory services to the
Company, or to any such corporation or association, unless such sales are made
in accordance with the Company's then current Prospectus and Statement of
Additional Information.
(d) The Distributor is not authorized by the Company to give any
information or to make any representation other than those contained in the then
current Prospectus, Statement of Additional Information, and Fund shareholder
reports ("Shareholder Reports"), or in supplementary sales materials
specifically approved by the Company. The Distributor may prepare and distribute
sales literature and other material as it may deem appropriate, provided that
such literature and materials have been approved by the Company prior to their
use.
2. OFFERING PRICE OF SHARES.
All Shares of each Fund sold under this Agreement shall be sold at the public
offering price per Share in effect at the time of the sale as described in the
Company's then current Prospectus and Statement of Additional Information;
provided, however, that any public offering price for the Shares shall be the
net asset value per Share, as determined in the manner described in the
Company's then current Prospectus and/or Statement of Additional Information. At
no time shall the Company receive less than the full net asset value of the
Shares, determined in the manner set forth in the then current Prospectus and/or
Statement of Additional Information.
3. REGISTRATION OF SHARES.
The Company agrees that it will take all actions necessary to register Shares
under the Federal and state Blue Sky securities laws so that there will be
available for sale the number of Shares the Distributor may reasonably be
expected to sell and to pay all fees associated with said registration.
4. PAYMENT OF EXPENSES.
(a) Except as otherwise provided herein, the Distributor shall pay, or
arrange for others to pay, all of the following expenses: (i) payments to sales
representatives of the Distributor and at the discretion of the Distributor to
qualified brokers, dealers and others in respect of the sale of Shares of the
Funds; (ii) compensation and expenses of employees of the Distributor who engage
in or support distribution of Shares of the Funds or render shareholder support
services not otherwise provided by the Company's transfer and shareholder
servicing agent; and (iii) the cost of obtaining such information, analysis, and
reports with respect to marketing and promotional activities as the Company may
from time to time reasonably request.
(b) The Company shall pay, or arrange for others to pay, the following
expenses: (i) preparation, printing, and distribution to shareholders of
Prospectuses and Statements of Additional Information; (ii) preparation,
printing, and distribution of Shareholder Reports and other communications
required by law to shareholders; (iii) registration of the Shares of the Funds
under the federal securities laws; (iv) qualification of the Shares of the Funds
for sale in such states as the Distributor and the Company may approve; (v)
maintaining facilities for the issue and transfer of Shares; (vi) supplying
information, prices, and other data to be furnished by the Company under this
Agreement; and (vii) taxes applicable to the sale or delivery of the Shares of
the Funds or certificates therefor.
(c) In connection with the Distributor's distribution of sales materials,
Prospectuses, Statements of Additional Information, and Shareholder Reports to
potential investors in the Company, the Company shall make available to the
Distributor such number of copies of such materials as the Distributor may
reasonably request. The Company shall also furnish to the Distributor copies of
all information, financial statements and other documents the Distributor may
reasonably request for use in connection with the distribution of Shares of the
Company. The Company will enter into arrangements providing that persons other
than the Company will bear any and all expenses of preparing, printing and
providing to the Distributor, sales materials, Prospectuses, Statements of
Additional Information and Shareholder Reports for distribution to potential
investors in the Company.
5. COMPENSATION.
It is understood that the Distributor will not receive any commissions or other
compensation for acting as the Company's principal underwriter and distributor.
6. REPURCHASE OF SHARES.
The Distributor as agent and for the account of the Company may repurchase
Shares of the Funds offered for resale to it and redeem such Shares at their net
asset value determined as set forth in the then current Prospectus and Statement
of Additional Information.
7. INDEMNIFICATION OF DISTRIBUTOR.
The Company agrees to indemnify and hold harmless the Distributor and each of
its directors and officers and each person, if any, who controls the Distributor
within the meaning of Section 15 of the 1933 Act against any loss, liability,
claim, damages or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, damages, claim, or expense, and any
reasonable counsel fees and disbursements incurred in connection therewith)
arising by reason of any person acquiring any Shares, based upon the ground that
the Registration Statement, Prospectuses, Statements of Additional Information,
Shareholder Reports or other information filed or made public by the Company (as
from time to time amended) included an untrue statement of a material fact or
omitted to state a material fact required to be stated or necessary in order to
make the statements made not misleading. However, the Company does not agree to
indemnify the Distributor or hold it harmless to the extent that the statements
or omission was made in reliance upon, and in conformity with, information
furnished to the Company by or on behalf of the Distributor.
In no case (i) is the indemnity of the Company to be deemed to protect the
Distributor against any liability to the Company or its shareholders to which
the Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of its failure to exercise due care in rendering its services and duties
under this Agreement, or (ii) is the Company to be liable to the Distributor
under the indemnity agreement contained in this section with respect to any
claim made against the Distributor or any person indemnified unless the
Distributor or other person shall have notified the Company in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or such other person (or after the Distributor or
the person shall have received notice of service on any designated agent).
However, failure to notify the Company of any claim shall not relieve the
Company from any liability which it may have to the Distributor or any person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this section.
The Company shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Company elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Company and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Company
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Company does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Company agrees to notify the Distributor promptly of the commencement
of any litigation or proceedings against it or any of its officers or Directors
in connection with the issuance or sale of any of its Shares.
8. INDEMNIFICATION OF COMPANY.
The Distributor covenants and agrees that it will indemnify and hold
harmless the Company and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of the 1933 Act,
against any loss, liability, damages, claim or expense (including the reasonable
cost of investigating or defending any alleged loss, liability, damages, claim
or expense, and reasonable counsel fees and disbursements incurred in connection
therewith) based upon the 1933 Act or any other statute or common law and
arising by reason of any person acquiring any Shares, and alleging (i) a
wrongful act or deed of the Distributor or any of its employees or sales
representatives, or (ii) that the Registration Statement, Prospectuses,
Statements of Additional Information, shareholder reports or other information
filed or made public by the Company (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements not misleading,
insofar as any such statements or omissions were made in reliance upon and in
conformity with information furnished to the Company by or on behalf of the
Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Company
or any other person indemnified to be deemed to protect the Company or any other
person against any liability to which the Company or such other person would
otherwise be subject by reason of willful misfeasance or bad faith in the
performance of its duties or by reason of its failure to exercise due care in
rendering its services and duties under this Agreement, or (ii) is the
Distributor to be liable under its indemnity agreement contained in this section
with respect to any claim made against the Company or any person indemnified
unless the Company or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon the Company or upon any person (or after the
Company or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Company or
any person against whom the action is brought otherwise than on account on its
indemnity agreement contained in this section.
The Distributor shall be entitled to participate, at its own expense, in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants, whose approval shall not be unreasonably
withheld. In the event that the Distributor elects to assume the defense of any
suit and retain counsel, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them. If the Distributor does not
elect to assume the defense of any suit, it will reimburse the indemnified
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them.
The Distributor agrees to notify the Company promptly of the commencement
of any litigation or proceedings against it in connection with the issue and
sale of any of the Company's Shares.
9. TERM AND TERMINATION.
(a) This Agreement shall become effective as of the date hereof. Unless
sooner terminated as herein provided, this Agreement shall remain in full force
and effect for two (2) years from the effective date and thereafter for
successive periods of one year, but only so long as each such continuance is
specifically approved at least annually (i) either by vote of a majority of the
Board of Directors of the Company or by vote of a majority of the outstanding
voting securities of the company, and (ii) by vote of a majority of the
Directors of the Company who are not interested persons of the Company or in
this Agreement), cast in person at a meeting called for the purpose of voting on
such approval.
(b) This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Directors of the Company, by vote of a majority of
the outstanding voting securities of the Company, or by the Distributor, on not
less than ninety (90) days' written notice to the other party or upon such
shorter notice as may be mutually agreed upon.
(c) This Agreement shall automatically terminate in the event of its
assignment.
(d) The indemnification provisions contained in Sections 7 and 8 of this
Agreement shall remain in full force and effect regardless of any termination of
this Agreement.
10. AMENDMENT.
No provisions of this Agreement may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge, or termination is
sought. If the Company should at any time deem it necessary or advisable in the
best interests of the Company that any amendment of this Agreement be made in
order to comply with the recommendations or requirements of the SEC or other
governmental authority or to obtain any advantage under state or federal tax
laws and notifies Distributor of the form of such amendment, and the reasons
therefor, and if Distributor should decline to assent to such amendment, the
Company may terminate this Agreement forthwith. If Distributor should at any
time request that a change be made in the Company's Articles of Incorporation or
Bylaws or in its methods of doing business, in order to comply with any
requirements of Federal law or regulations of the SEC, or of a national
securities association of which Distributor is or may be a member relating to
the sale of Shares, and the Fund should not make such necessary change within a
reasonable time, Distributor may terminate this Agreement forthwith.
11. INDEPENDENT CONTRACTOR.
Distributor shall be an independent contractor and neither Distributor nor any
of its officers, directors, employees, or representatives is or shall be an
employee of the Company in the performance of Distributor's duties hereunder.
Distributor shall be responsible for its own conduct and the employment,
control, and conduct of its agents and employees and for injury to such agents
or employees or to others through its agents or employees. Distributor assumes
full responsibility for its agents and employees under applicable statutes and
agrees to pay all employee taxes thereunder.
12. DEFINITION OF CERTAIN TERMS.
For purposes of this Agreement the terms "assignment," "interested person,"
"majority of the outstanding voting securities," and "principal underwriter"
shall have their respective meanings defined in the 1940 Act and the rules and
regulations thereunder, subject, however, to such exemptions as may be granted
to either the Distributor or the Company by the SEC, or such interpretative
positions as may be taken by the SEC or its staff under the 1940 Act.
13. NOTICE.
Any notice under this Agreement shall be deemed to be sufficient if it is given
in writing, addressed and delivered, or mailed postpaid (a) if to the
Distributor, to Jones & Babson, Inc. [ADDRESS]; and (b) if to the Company, to
Investors Mark Series Fund, Inc., 700 Karnes Boulevard, Kansas City, Missouri
64108, Attention: _________________.
14. CAPTIONS.
The captions in this Agreement are included for convenience of reference only
and in no other way define or delineate any of the provisions hereof or
otherwise affect construction or effect.
15. INTERPRETATION.
Nothing herein contained shall be deemed to require the Company or the
Distributor to take any action contrary to its Articles of Incorporation or
Bylaws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of its responsibility for and control of the conduct of the affairs of the
Company.
16. GOVERNING LAW.
This Agreement shall be construed in accordance with the laws of the
_____________ and the applicable provisions of the 1940 Act. To the extent that
the applicable laws of the __________________ or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
17. MULTIPLE ORIGINALS.
This Agreement may be executed in two or more counterparts, each of which when
so executed shall be deemed to be an original, but such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the Company and Distributor have each duly executed
this Agreement, as of the day and year above written.
ATTEST: INVESTORS MARK SERIES FUND, INC.
____________________________ By:____________________________
Title:______________________ Title:_________________________
ATTEST: JONES & BABSON, INC.
____________________________ By:_____________________________
Title:______________________ Title:__________________________
SCHEDULE A
INVESTORS MARK SERIES FUND, INC.
Investors Mark Series Fund, Inc. consists of the following Portfolios:
Balanced Portfolio
Global Fixed Income Portfolio
Growth & Income Portfolio
Intermediate Fixed Income Portfolio
Large Cap Value Portfolio
Large Cap Growth Portfolio
Mid Cap Equity Portfolio
Money Market Portfolio
Small Cap Equity Portfolio
Date: _________, 1997
SCHEDULE B
[The Distributor is currently registered as a broker-dealer or exempt from
registration in all fifty states and Puerto Rico.]
CUSTODY AGREEMENT
DATED _OCTOBER 2, 1997
BETWEEN
UMB BANK, N.A.
AND
INVESTORS MARK SERIES FUND
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SECTION PAGE
- ------- ----
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 2
(c) Instructions and Special Instructions 2
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian 3
(a) Safekeeping 4
(b) Manner of Holding Securities 4
(c) Free Delivery of Assets 5
(d) Exchange of Securities 6
(e) Purchases of Assets 6
(f) Sales of Assets 7
(g) Options 7
(h) Futures Contracts 8
(i) Segregated Accounts 9
(j) Depository Receipts 9
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 9
(l) Interest Bearing Deposits 10
(m) Foreign Exchange Transactions 10
(n) Pledges or Loans of Securities 11
(o) Stock Dividends, Rights, Etc. 12
(p) Routine Dealings 12
(q) Collections 12
(r) Bank Accounts 13
(s) Dividends, Distributions and Redemptions 13
(t) Proceeds from Shares Sold 13
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 13
(v) Books and Records 14
(w) Opinion of Fund's Independent Certified Public Accountants 14
(x) Reports by Independent Certified Public Accountants 14
(y) Bills and Others Disbursements 14
5. Subcustodians 15
(a) Domestic Subcustodians 15
(b) Foreign Subcustodians 15
(c) Interim Subcustodians 16
(d) Special Subcustodians 16
(e) Termination of a Subcustodian 17
(f) Certification Regarding Foreign Subcustodians 17
6. Standard of Care 17
(a) General Standard of Care 17
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's Control, Armed 17
Conflict, Sovereign Risk, etc.
(c) Liability for Past Records 18
(d) Advice of Counsel 18
(e) Advice of the Fund and Others 18
(f) Instructions Appearing to be Genuine 18
(g) Exceptions from Liability 19
7. Liability of the Custodian for Actions of Others 19
(a) Domestic Subcustodians 19
(b) Liability for Acts and Omissions of Foreign Subcustodians 19
(c) Securities Systems, Interim Subcustodians, Special Subcustodians, Securities 20
Depositories and Clearing Agencies
(d) Defaults or Insolvencies of Brokers, Banks, Etc. 20
(e) Reimbursement of Expenses 20
8. Indemnification 20
(a) Indemnification by Fund 20
(b) Indemnification by Custodian 21
9. Advances 21
10. Liens 21
11. Compensation 22
12. Powers of Attorney 22
13. Termination and Assignment 22
14. Additional Funds 23
15. Notices 23
16. Miscellaneous 23
</TABLE>
CUSTODY AGREEMENT
This agreement made as of this 2nd day of October , 1997, between UMB Bank,
n.a., a national banking association with its principal place of business
located at Kansas City, Missouri (hereinafter "Custodian"), and each of the
Funds which have executed the signature page hereof together with such
additional Funds which shall be made parties to this Agreement by the execution
of a separate signature page hereto (individually, a "Fund" and collectively,
the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for the
custody of Assets (as hereinafter defined) owned by such Fund which Assets are
to be held in such accounts as such Fund may establish from time to time; and
WHEREAS, Custodian is willing to accept such appointment on the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto, intending to be legally bound, mutually covenant and agree
as follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby constitutes and appoints the Custodian as custodian of
Assets belonging to each such Fund which have been or may be from time to time
deposited with the Custodian. Custodian accepts such appointment as a custodian
and agrees to perform the duties and responsibilities of Custodian as set forth
herein on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings
so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills, rights,
script, warrants, interim certificates and all negotiable or nonnegotiable paper
commonly known as Securities and other instruments or obligations.
(b) "Assets" shall mean Securities, monies and other property held by the
Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex, a
written (including, without limitation, facsimile transmission) request,
direction, instruction or certification signed or initialed by or on behalf of a
Fund by an Authorized Person; (ii) a telephonic or other oral communication from
a person the Custodian reasonably believes to be an Authorized Person; or (iii)
a communication effected directly between an electro-mechanical or electronic
device or system (including, without limitation, computers) on behalf of a Fund.
Instructions in the form of oral communications shall be confirmed by the
appropriate Fund by tested telex or in writing in the manner set forth in clause
(i) above, but the lack of such confirmation shall in no way affect any action
taken by the Custodian in reliance upon such oral Instructions prior to the
Custodian's receipt of such confirmation. Each Fund authorizes the Custodian to
record any and all telephonic or other oral Instructions communicated to the
Custodian.
(c)(2) "Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Treasurer or any Assistant
Treasurer of a Fund or any other person designated by the Treasurer of such Fund
in writing, which countersignature or confirmation shall be included on the same
instrument containing the Instructions or on a separate instrument relating
thereto.
(c)(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian and each Fund.
(c)(4) Where appropriate, Instructions and Special Instructions shall be
continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that its execution does
not violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been taken.
Each Fund has furnished the Custodian with copies, properly certified or
authenticated, with all amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document) of the Fund as in
effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
(c) Resolutions of the Board of Directors of the Fund appointing the
Custodian and approving the form of this Agreement; and
(d) The Fund's current prospectus and statements of additional information.
Each Fund shall promptly furnish the Custodian with copies of any updates,
amendments or supplements to the foregoing documents.
In addition, each Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and
all amendments or supplements thereto, properly certified or authenticated,
designating certain officers or employees of each such Fund who will have
continuing authority to certify to the Custodian: (a) the names, titles,
signatures and scope of authority of all persons authorized to give Instructions
or any other notice, request, direction, instruction, certificate or instrument
on behalf of each Fund, and (b) the names, titles and signatures of those
persons authorized to countersign or confirm Special Instructions on behalf of
each Fund (in both cases collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such Resolutions and certificates may be
accepted and relied upon by the Custodian as conclusive evidence of the facts
set forth therein and shall be considered to be in full force and effect until
delivery to the Custodian of a similar Resolution or certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Instructions or to countersign
or confirm Special Instructions, such persons shall no longer be considered an
Authorized Person authorized to give Instructions or to countersign or confirm
Special Instructions. Unless the certificate specifically requires that the
approval of anyone else will first have been obtained, the Custodian will be
under no obligation to inquire into the right of the person giving such
Instructions or Special Instructions to do so. Notwithstanding any of the
foregoing, no Instructions or Special Instructions received by the Custodian
from a Fund will be deemed to authorize or permit any director, trustee,
officer, employee, or agent of such Fund to withdraw any of the Assets of such
Fund upon the mere receipt of such authorization, Special Instructions or
Instructions from such director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to Sections
5(b), (c), or (d) of this Agreement, the Custodian shall have and perform the
powers and duties hereinafter set forth in this Section 4. For purposes of this
Section 4 all references to powers and duties of the "Custodian" shall also
refer to any Domestic Subcustodian appointed pursuant to Section 5(a).
(a) Safekeeping.
The Custodian will keep safely the Assets of each Fund which are delivered
to it from time to time. The Custodian shall not be responsible for any property
of a Fund held or received by such Fund and not delivered to the Custodian.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold Securities of each Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or
(ii) in book-entry form by a Securities System (as hereinafter defined) in
accordance with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which have
been delivered to it in physical form, by registering the same in the name
of the appropriate Fund or its nominee, or in the name of the Custodian or
its nominee, for whose actions such Fund and Custodian, respectively, shall
be fully responsible. Upon the receipt of Instructions, the Custodian shall
hold such Securities in street certificate form, so called, with or without
any indication of fiduciary capacity. However, unless it receives
Instructions to the contrary, the Custodian will register all such
portfolio Securities in the name of the Custodian's authorized nominee. All
such Securities shall be held in an account of the Custodian containing
only assets of the appropriate Fund or only assets held by the Custodian as
a fiduciary, provided that the records of the Custodian shall indicate at
all times the Fund or other customer for which such Securities are held in
such accounts and the respective interest therein.
(3) The Custodian may deposit and/or maintain domestic Securities
owned by a Fund in, and each Fund hereby approves use of: (a) The
Depository Trust Company; (b) The Participants Trust Company; and (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No.
300, 31 CFR 306.115, (ii) Subpart B of Treasury Circular Public Debt Series
No. 27-76, 31 CFR 350.2, or (iii) the book-entry regulations of federal
agencies substantially in the form of 31 CFR 306.115. Upon the receipt of
Special Instructions, the Custodian may deposit and/or maintain domestic
Securities owned by a Fund in any other domestic clearing agency registered
with the Securities and Exchange Commission ("SEC") under Section 17A of
the Securities Exchange Act of 1934 (or as may otherwise be authorized by
the SEC to serve in the capacity of depository or clearing agent for the
Securities or other assets of investment companies) which acts as a
Securities depository. Each of the foregoing shall be referre to in this
Agreement as a "Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be
in accordance with applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or through
one or more agents or Subcustodians which are also qualified to act as
custodians for investment companies.
(ii) The Custodian shall deposit and/or maintain the Securities
in a Securities System, provided that such Securities are represented
in an account ("Account") of the Custodian in the Securities System
that includes only assets held by the Custodian as a fiduciary,
custodian or otherwise for customers.
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to any one or more Funds which are
maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for the
account of a Fund only upon (a) receipt of advice from the Securities
System that such Securities have been transferred to the Account of
the Custodian in accordance with the rules of the Securities System,
and (b) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of such Fund. The
Custodian shall transfer Securities sold for the account of a Fund
only upon (a) receip of advice from the Securities System that payment
for such Securities has been transferred to the Account of the
Custodian in accordance with the rules of the Securities System, and
(b) the making of an entry on the records of the Custodian to reflect
such transfer and payment for the account of such Fund. Copies of all
advices from the Securities System relating to transfers of Securities
for the account of a Fund shall be maintained for such Fund by the
Custodian. The Custodian shall deliver to a Fund on the next
succeeding business day daily transaction reports which shall include
each day's transactions in the Securities System for the account of
such Fund. Such transaction reports shall be delivered to such Fund or
any agent designated by such Fund pursuant to Instructions, by
computer or in such other manner as such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the Custodian
or any Subcustodian with respect to a Securities System's accounting
system, internal accounting control and procedures for safeguarding
Securities deposited in the Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a Fund as
promptly as practicable and shall take all actions reasonably
practicable to safeguard the Securities of such Fund maintained with
such Securities System.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid in connection
with any reorganization, recapitalization, merger, consolidation, or conversion
of convertible Securities, and will deposit any such Securities in accordance
with the terms of any reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange Securities
held by it in temporary form for Securities in definitive form, to surrender
Securities for transfer into a name or nominee name as permitted in Section
4(b)(2), to effect an exchange of shares in a stock split or when the par value
of the stock is changed, to sell any fractional shares, and, upon receiving
payment therefor, to surrender bonds or other Securities held by it at maturity
or call.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for a Fund's account for which the purchase
was made, but only insofar as monies are available therein for such
purpose, and receive the portfolio Securities so purchased. Unless the
Custodian has received Special Instructions to the contrary, such payment
will be made only upon receipt of Securities by the Custodian, a clearing
corporation of a national Securities exchange of which the Custodian is a
member, or a Securities System in accordance with the provisions of Section
4(b)(3) hereof. Notwithstanding the foregoing, upon receipt of
Instructions: (i) in connection with a repurchase agreement, the Custodian
may release funds to a Securities System prior to the receipt of advice
from the Securities System that the Securities underlying such repurchase
agreement have been transferred by book-entry into the Account maintained
with such Securities System by the Custodian, provided that the Custodian's
instructions to the Securities System require that the Securities System
may make payment of such funds to the other party to the repurchase
agreement only upon transfer by book-entry of the Securities underlying the
repurchase agreement into such Account; (ii) in the case of Interest
Bearing Deposits, currency deposits, and other deposits, foreign exchange
transactions, futures contracts or options, pursuant to Sections 4(g),
4(h), 4(l), and 4(m) hereof, the Custodian may make payment therefor before
receipt of an advice of transaction; and (iii) in the case of Securities as
to which payment for the Security and receipt of the instrument evidencing
the Security are under generally accepted trade practice or the terms of
the instrument representing the Security expected to take place in
different locations or through separate parties, such as commercial paper
which is indexed to foreign currency exchange rates, derivatives and
similar Securities, the Custodian may make payment for such Securities
prior to delivery thereof in accordance with such generally accepted trade
practice or the terms of the instrument representing such Security.
(2) Other Assets Purchased. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with Instructions, the Custodian
will, with respect to a sale, deliver or cause to be delivered the
Securities thus designated as sold to the broker or other person specified
in the Instructions relating to such sale. Unless the Custodian has
received Special Instructions to the contrary, such delivery shall be made
only upon receipt of payment therefor in the form of: (a) cash, certified
check, bank cashier's check, bank credit, or bank wire transfer; (b) credit
to the account of the Custodian with a clearing corporation of a national
Securities exchange of which the Custodian is a member; or (c) credit to
the Account of the Custodian with a Securities System, in accordance with
the provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing,
Securities held in physical form may be delivered and paid for in
accordance with "street delivery custom" to a broker or its clearing agent,
against delivery to the Custodian of a receipt for such Securities provided
that the Custodian shall have taken reasonable steps to ensure prompt
collection of the payment for, or return of, such Securities by the broker
or its clearing agent, and provided further that the Custodian shall not be
responsible for the selection of or the failure or inability to perform of
such broker or its clearing agent or for any related loss arising from
delivery or custody of such Securities prior to receiving payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment for and
deliver other Assets for the account of a Fund as provided in Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to the purchase of an option
or sale of a covered call option, the Custodian shall: (a) receive and
retain confirmations or other documents, if any, evidencing the purchase or
writing of the option by a Fund; (b) if the transaction involves the sale
of a covered call option, deposit and maintain in a segregated account the
Securities (either physically or by book-entry in a Securities System)
subject to the covered call option written on behalf of such Fund; and (c)
pay, release and/or transfer such Securities, cash or other Assets in
accordance with any notices or other communications evidencing the
expiration, termination or exercise of such options which are furnished to
the Custodian by the Options Clearing Corporation (the "OCC"), the
securities or options exchanges on which such options were traded, or such
other organization as may be responsible for handling such option
transactions.
(2) Upon receipt of Instructions relating to the sale of a naked
option (including stock index and commodity options), the Custodian, the
appropriate Fund and the broker-dealer shall enter into an agreement to
comply with the rules of the OCC or of any registered national securities
exchange or similar organizations(s). Pursuant to that agreement and such
Fund's Instructions, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the writing of the
option; (b) deposit and maintain in a segregated account, Securities
(either physically or by book-entry in a Securities System), cash and/or
other Assets; and (c) pay, release and/or transfer such Securities, cash or
other Assets in accordance with any such agreement and with any notices or
other communications evidencing the expiration, termination or exercise of
such option which are furnished to the Custodian by the OCC, the securities
or options exchanges on which such options were traded, or such other
organization as may be responsible for handling such option transactions.
The appropriate Fund and the broker-dealer shall be responsible for
determining the quality and quantity of assets held in any segregated
account established in compliance with applicable margin maintenance
requirements and the performance of other terms of any option contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall enter into a futures
margin procedural agreement among the appropriate Fund, the Custodian and the
designated futures commission merchant (a "Procedural Agreement"). Under the
Procedural Agreement the Custodian shall: (a) receive and retain confirmations,
if any, evidencing the purchase or sale of a futures contract or an option on a
futures contract by such Fund; (b) deposit and maintain in a segregated account
cash, Securities and/or other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any options on
futures contracts written by such Fund, in accordance with the provisions of any
Procedural Agreement designed to comply with the provisions of the Commodity
Futures Trading Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar organization(s), regarding
suc margin deposits; and (c) release Assets from and/or transfer Assets into
such margin accounts only in accordance with any such Procedural Agreements. The
appropriate Fund and such futures commission merchant shall be responsible for
determining the type and amount of Assets held in the segregated account or paid
to the broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on a futures
contract in accordance with its terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian shall establish and maintain on
its books a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred Assets of such Fund, including
Securities maintained by the Custodian in a Securities System pursuant to
Paragraph (b)(3) of this Section 4, said account or accounts to be maintained
(i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by such Fund with the procedures required by the SEC
Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies, or (iii) for such other purposes as may be set forth, from
time to time, in Special Instructions The Custodian shall not be responsible for
the determination of the type or amount of Assets to be held in any segregated
account referred to in this paragraph, or for compliance by the Fund with
required procedures noted in (ii) above.
(j) Depository Receipts.
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered Securities to the depository used for such Securities by an issuer
of American Depository Receipts or International Depository Receipts
(hereinafter referred to, collectively, as "ADRs"), against a written receipt
therefor adequately describing such Securities and written evidence satisfactory
to the organization surrendering the same that the depository has acknowledged
receipt of instructions to issue ADRs with respect to such Securities in the
name of the Custodian or a nominee of the Custodian, for delivery in accordance
with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the organization surrendering the same that the issuer of the ADRs has
acknowledged receipt of instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall: (a) deliver warrants,
puts, calls, rights or similar Securities to the issuer or trustee thereof (or
to the agent of such issuer or trustee) for the purpose of exercise or sale,
provided that the new Securities, cash or other Assets, if any, acquired as a
result of such actions are to be delivered to the Custodian; and (b) deposit
Securities upon invitations for tenders thereof, provided that the consideration
for such Securities is to be paid or delivered to the Custodian, or the tendered
Securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of security
ownership, and shall notify the appropriate Fund of such action in writing by
facsimile transmission or in such other manner as such Fund and Custodian may
agree in writing.
The Fund agrees that if it gives an Instruction for the performance of an
act on the last permissible date of a period established by any optional offer
or on the last permissible date for the performance of such act, the Fund shall
hold the Bank harmless from any adverse consequences in connection with acting
upon or failing to act upon such Instructions.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the Custodian to purchase interest
bearing fixed term and call deposits (hereinafter referred to, collectively, as
"Interest Bearing Deposits") for the account of a Fund, the Custodian shall
purchase such Interest Bearing Deposits in the name of such Fund with such banks
or trust companies, including the Custodian, any Subcustodian or any subsidiary
or affiliate of the Custodian (hereinafter referred to as "Banking
Institutions"), and in such amounts as such Fund may direct pursuant to
Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars
or other currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for Interest
Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other than those
issued by the Custodian, (a) the Custodian shall be responsible for the
collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions.
(l) Each Fund hereby appoints the Custodian as its agent in the execution
of all currency exchange transactions. The Custodian agrees to provide exchange
rate and U.S. Dollar information, in writing, to the Funds. Such information
shall be supplied by the Custodian at least by the business day prior to the
value date of the foreign exchange transaction, provided that the Custodian
receives the request for such information at least two business days prior to
the value date of the transaction.
(2) Upon receipt of Instructions, the Custodian shall settle foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf of and for the account of a Fund with such
currency brokers or Banking Institutions as such Fund may determine and direct
pursuant to Instructions. If, in its Instructions, a Fund does not direct the
Custodian to utilize a particular currency broker or Banking Institution, the
Custodian is authorized to select such currency broker or Banking Institution as
it deems appropriate to execute the Fund's foreign currency transaction.
(3) Each Fund accepts full responsibility for its use of third party
foreign exchange brokers and for execution of said foreign exchange contracts
and understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange. The Custodian shall have no
responsibility or liability with respect to the selection of the currency
brokers or Banking Institutions with which Fund deals or the performance of such
brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein, upon receipt
of Instructions the Custodian may, in connection with a foreign exchange
contract, make free outgoing payments of cash in the form of U.S. Dollars or
foreign currency prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency completing such contract
has been delivered or received.
(5) The Custodian shall not be obligated to enter into foreign exchange
transactions as principal. However, if the Custodian has made available to a
Fund its services as a principal in foreign exchange transactions and subject to
any separate agreement between the parties relating to such transactions, the
Custodian shall enter into foreign exchange contracts or options to purchase and
sell foreign currencies for spot and future delivery on behalf of and for the
account of the Fund, with the Custodian as principal.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a Fund, the Custodian will release or
cause to be released Securities held in custody to the pledgees designated in
such Instructions by way of pledge or hypothecation to secure loans incurred by
such Fund with various lenders including but not limited to UMB Bank, n.a.;
provided, however, that the Securities shall be released only upon payment to
the Custodian of the monies borrowed, except that in cases where additional
collateral is required to secure existing borrowings, further Securities may be
released or delivered, or caused to be released or delivered for that purpose
upon receipt of Instructions. Upon receipt of Instructions, the Custodian will
pay, but only from funds available for such purpose, any such loan upon
re-delivery to it of the Securities pledged or hypothecated therefor and upon
surrender of the note or notes evidencing such loan. In lieu of delivering
collateral to a pledgee, the Custodian, on the receipt of Instructions, shall
transfer the pledged Securities to a segregated account for the benefit of the
pledgee.
(2) Upon receipt of Special Instructions, and execution of a separate
Securities Lending Agreement, the Custodian will release Securities held in
custody to the borrower designated in such Instructions and may, except as
otherwise provided below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that, in case of loans of
Securities held by a Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall require that the
Securities System deliver the Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such borrowing. The Custodian
shall have no responsibility or liability for any loss arising from the delivery
of Securities prior to the receipt of collateral. Upon receipt of Instructions
and the loaned Securities, the Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock dividends, rights, and
other items of like nature and, upon receipt of Instructions, take action with
respect to the same as directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with Securities or
other property of each Fund except as may be otherwise provided in this
Agreement or directed from time to time by Instructions from any particular
Fund. The Custodian may also make payments to itself or others from the Assets
for disbursements and out-of-pocket expenses incidental to handling Securities
or other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
The Custodian shall (a) collect amounts due and payable to each Fund with
respect to portfolio Securities and other Assets; (b) promptly credit to the
account of each Fund all income and other payments relating to portfolio
Securities and other Assets held by the Custodian hereunder upon Custodian's
receipt of such income or payments or as otherwise agreed in writing by the
Custodian and any particular Fund; (c) promptly endorse and deliver any
instruments required to effect such collection; and (d) promptly execute
ownership and other certificates and affidavits for all federal, state, local
and foreign tax purposes in connection with receipt of income or other payments
with respect to portfolio Securities and other Assets, or in connection with the
transfer of such Securities or other Assets; provided, however, that with
respect to portfolio Securities registered in so-called street name, or physical
Securities with variable interest rates, the Custodian shall use its best
efforts to collect amount due and payable to any such Fund. The Custodian shall
notify a Fund in writing by facsimile transmission or in such other manner as
such Fund and Custodian may agree in writing if any amount payable with respect
to portfolio Securities or other Assets is not received by the Custodian when
due. The Custodian shall not be responsible for the collection of amounts due
and payable with respect to portfolio Securities or other Assets that are in
default.
(r) Bank Accounts.
Upon Instructions, the Custodian shall open and operate a bank account or
accounts on the books of the Custodian; provided that such bank account(s) shall
be in the name of the Custodian or a nominee thereof, for the account of one or
more Funds, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to any one or more such Funds for deposits
accepted on the Custodian's books shall be that of a U.S. bank for a similar
deposit.
(s) Dividends, Distributions and Redemptions.
To enable each Fund to pay dividends or other distributions to shareholders
of each such Fund and to make payment to shareholders who have requested
repurchase or redemption of their shares of each such Fund (collectively, the
"Shares"), the Custodian shall release cash or Securities insofar as available.
In the case of cash, the Custodian shall, upon the receipt of Instructions,
transfer such funds by check or wire transfer to any account at any bank or
trust company designated by each such Fund i such Instructions. In the case of
Securities, the Custodian shall, upon the receipt of Special Instructions, make
such transfer to any entity or account designated by each such Fund in such
Special Instructions.
(t) Proceeds from Shares Sold.
The Custodian shall receive funds representing cash payments received for
shares issued or sold from time to time by each Fund, and shall credit such
funds to the account of the appropriate Fund. The Custodian shall notify the
appropriate Fund of Custodian's receipt of cash in payment for shares issued by
such Fund by facsimile transmission or in such other manner as such Fund and the
Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a)
deliver all federal funds received b the Custodian in payment for shares as may
be set forth in such Instructions and at a time agreed upon between the
Custodian and such Fund; and (b) make federal funds available to a Fund as of
specified times agreed upon from time to time by such Fund and the Custodian, in
the amount of checks received in payment for shares which are deposited to the
accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders Communication Act
of 1985.
The Custodian shall deliver or cause to be delivered to the appropriate
Fund all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to Securities owned by such Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Instructions, the Custodian shall execute and deliver, or
cause such Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Instructions,
neither the Custodian nor any Subcustodian or nominee shall vote upon any such
Securities, or execute any proxy to vote thereon, or give any consent or take
any other action with respect thereto.
The Custodian will not release the identity of any Fund to an issuer which
requests such information pursuant to the Shareholder Communications Act of 1985
for the specific purpose of direct communications between such issuer and any
such Fund unless a particular Fund directs the Custodian otherwise in writing.
(v) Books and Records.
The Custodian shall maintain such records relating to its activities under
this Agreement as are required to be maintained by Rule 31a-1 under the
Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the
periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open
for inspection by duly authorized officers, employees or agents (including
independent public accountants) of the appropriate Fund during normal business
hours of the Custodian.
The Custodian shall provide accountings relating to its activities under
this Agreement as shall be agreed upon by each Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
The Custodian shall take all reasonable action as each Fund may request to
obtain from year to year favorable opinions from each such Fund's independent
certified public accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of each such Fund's periodic
reports to the SEC and with respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, Securities and
other Assets, including cash, Securities and other Assets deposited and/or
maintained in a Securities System or with a Subcustodian. Such report shall be
of sufficient scope and in sufficient detail as may reasonably be required by
such Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or cause to be paid,
all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are
hereinafter defined) to act on behalf of any one or more Funds. A Domestic
Subcustodian, in accordance with the provisions of this Agreement, may also
appoint a Foreign Subcustodian, Special Subcustodian, or Interim Subcustodian to
act on behalf of any one or more Funds. For purposes of this Agreement, all
Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim
Subcustodians shall be referred to collectively as "Subcustodians".
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to time, appoint any bank as
defined in Section 2(a)(5) of the 1940 Act or any trust company or other entity,
any of which meet the requirements of a custodian under Section 17(f) of the
1940 Act and the rules and regulations thereunder, to act for the Custodian on
behalf of any one or more Funds as a subcustodian for purposes of holding Assets
of such Fund(s) and performing other functions of the Custodian within the
United States (a "Domestic Subcustodian"). Each Fund shall approve in writing
the appointment of the proposed Domestic Subcustodian; and the Custodian's
appointment of any such Domestic Subcustodian shall not be effective without
such prior written approval of the Fund(s). Each such duly approved Domestic
Subcustodian shall be listed on Appendix A attached hereto, as it may be
amended, from time to time.
(b) Foreign Subcustodians.
The Custodian may at any time appoint, or cause a Domestic Subcustodian to
appoint, any bank, trust company or other entity meeting the requirements of an
"eligible foreign custodian" under Section 17(f) of the 1940 Act and the rules
and regulations thereunder to act for the Custodian on behalf of any one or more
Funds as a subcustodian or sub-subcustodian (if appointed by a Domestic
Subcustodian) for purposes of holding Assets of the Fund(s) and performing other
functions of the Custodian in countries other than the United States of America
(hereinafter referred to as a "Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian); provided that the Custodian shall have
obtained written confirmation from each Fund of the approval of the Board of
Directors or other governing body of each such Fund (which approval may be
withheld in the sole discretion of such Board of Directors or other governing
body or entity) with respect to (i) the identity of any proposed Foreign
Subcustodian (including branch designation), (ii) the country or countries in
which, and the securities depositories or clearing agencies (hereinafter
"Securities Depositories and Clearing Agencies"), if any, through which, the
Custodian or any proposed Foreign Subcustodian is authorized to hold Securities
and other Assets of each such Fund, and (iii) the form and terms of the
subcustodian agreement to be entered into with such proposed Foreign
Subcustodian. Each such duly approved Foreign Subcustodian and the countries
where and the Securities Depositories and Clearing Agencies through which they
may hold Securities and other Assets of the Fund(s) shall be listed on Appendix
A attached hereto, as it may be amended, from time to time. Each Fund shall be
responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country in which no Foreign Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian, or any Domestic Subcustodian, to effect the appropriate arrangements
with a proposed Foreign Subcustodian, including obtaining approval as provided
in this Section 5(b). In connection with the appointment of any Foreign
Subcustodian, the Custodian shall, or shall cause the Domestic Subcustodian to,
enter into a subcustodian agreement with the Foreign Subcustodian in form and
substance approved by each such Fund. The Custodian shall not consent to the
amendment of, and shall cause any Domestic Subcustodian not to consent to the
amendment of, any agreement entered into with a Foreign Subcustodian, which
materially affects any Fund's rights under such agreement, except upon prior
written approval of such Fund pursuant to Special Instructions.
(c) Interim Subcustodians.
Notwithstanding the foregoing, in the event that a Fund shall invest in an
Asset to be held in a country in which no Foreign Subcustodian is authorized to
act, the Custodian shall notify such Fund in writing by facsimile transmission
or in such other manner as such Fund and the Custodian shall agree in writing of
the unavailability of an approved Foreign Subcustodian in such country; and upon
the receipt of Special Instructions from such Fund, the Custodian shall, or
shall cause its Domestic Subcustodian to, appoint or approve an entity (referred
to herein as an "Interim Subcustodian") designated in such Special Instructions
to hold such Security or other Asset.
(d) Special Subcustodians.
Upon receipt of Special Instructions, the Custodian shall, on behalf of a
Fund, appoint one or more banks, trust companies or other entities designated in
such Special Instructions to act for the Custodian on behalf of such Fund as a
subcustodian for purposes of: (i) effecting third-party repurchase transactions
with banks, brokers, dealers or other entities through the use of a common
custodian or subcustodian; (ii) providing depository and clearing agency
services with respect to certain variable rate demand note Securities, (iii)
providing depository and clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any other transactions designated by
such Fund in such Special Instructions. Each such designated subcustodian
(hereinafter referred to as a "Special Subcustodian") shall be listed on
Appendix A attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian, the Custodian shall
enter into a subcustodian agreement with the Special Subcustodian in form and
substance approved by the appropriate Fund in Special Instructions. The
Custodian shall not amend any subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement, except upon prior
approval pursuant to Special Instructions.
(e) Termination of a Subcustodian.
The Custodian may, at any time in its discretion upon notification to the
appropriate Fund(s), terminate any Subcustodian of such Fund(s) in accordance
with the termination provisions under the applicable subcustodian agreement, and
upon the receipt of Special Instructions, the Custodian will terminate any
Subcustodian in accordance with the termination provisions under the applicable
subcustodian agreement.
(f) Certification Regarding Foreign Subcustodians.
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agencies through which each such Foreign Subcustodian
is then holding cash, Securities and other Assets of such Fund; and (iii) such
other information as may be requested by such Fund, and as the Custodian shall
be reasonably able to obtain, to evidence compliance with rules and regulations
under the 1940 Act.
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund resulting from
the negligence or willful misfeasance of the Custodian; provided, however, in no
event shall the Custodian be liable for special, indirect or consequential
damages arising under or in connection with this Agreement.
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
Control, Sovereign Risk, Etc.
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder (i) if the Custodian or any Subcustodian or Securities
System, or any subcustodian, Securities System, Securities Depository or
Clearing Agency utilized by the Custodian or any such Subcustodian, or any
nominee of the Custodian or any Subcustodian (individually, a "Person") is
prevented, forbidden or delayed from performing, or omits to perform, any act or
thing which this Agreement provides shall be performed or omitted to be
performed, by reason of: (a) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or of
any foreign country, or political subdivision thereof or of any court of
competent jurisdiction (and neither the Custodian nor any other Person shall be
obligated to take any action contrary thereto); or (b) any event beyond the
control of the Custodian or other Person such as armed conflict, riots, strikes,
lockouts, labor disputes, equipment or transmission failures, natural disasters,
or failure of the mails, transportation, communications or power supply; or (ii)
for any loss, damage, cost or expense resulting from "Sovereign Risk." A
"Sovereign Risk" shall mean nationalization, expropriation, currency
devaluation, revaluation or fluctuation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting a Fund's Assets; or acts of armed conflict,
terrorism, insurrection or revolution; or any other act or event beyond the
Custodian's or such other Person's control.
(c) Liability for Past Records.
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the Custodian or
any Domestic Subcustodian in reliance upon records that were maintained for such
Fund by entities other than the Custodian or any Domestic Subcustodian prior to
the Custodian's employment hereunder.
(d) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall be entitled to receive
and act upon advice of counsel of its own choosing on all matters. The Custodian
and all Domestic Subcustodians shall be without liability for any actions taken
or omitted in good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may rely upon the advice of any
Fund and upon statements of such Fund's accountants and other persons believed
by it in good faith to be expert in matters upon which they are consulted, and
neither the Custodian nor any Domestic Subcustodian shall be liable for any
actions taken or omitted, in good faith, pursuant to such advice or statements.
(f) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall be fully protected and
indemnified in acting as a custodian hereunder upon any Resolutions of the Board
of Directors or Trustees, Instructions, Special Instructions, advice, notice,
request, consent, certificate, instrument or paper appearing to it to be genuine
and to have been properly executed and shall, unless otherwise specifically
provided herein, be entitled to receive as conclusive proof of any fact or
matter required to be ascertained from any Fund hereunder a certificate signed
by any officer of such Fund authorized to countersign or confirm Special
Instructions.
(g) Exceptions from Liability.
Without limiting the generality of any other provisions hereof, neither the
Custodian nor any Domestic Subcustodian shall be under any duty or obligation to
inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or for
any Fund, the legality of the purchase thereof or evidence of ownership
required to be received by any such Fund, or the propriety of the decision
to purchase or amount paid therefor;
(ii) the legality of the sale of any Securities by or for any Fund, or
the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities, borrowings
or similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of any such Fund's Declaration of Trust,
Partnership Agreement, Articles of Incorporation or By-Laws or votes or
proceedings of the shareholders, trustees, partners or directors of any
such Fund, or any such Fund's currently effective Registration Statement on
file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) Domestic Subcustodians
The Custodian shall be liable for the acts or omissions of any Domestic
Subcustodian to the same extent as if such actions or omissions were performed
by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
The Custodian shall be liable to a Fund for any loss or damage to such Fund
caused by or resulting from the acts or omissions of any Foreign Subcustodian to
the extent that, under the terms set forth in the subcustodian agreement between
the Custodian or a Domestic Subcustodian and such Foreign Subcustodian, the
Foreign Subcustodian has failed to perform in accordance with the standard of
conduct imposed under such subcustodian agreement and the Custodian or Domestic
Subcustodian recovers from the Foreign Subcustodian under the applicable
subcustodian agreement.
(c) Securities Systems, Interim Subcustodians, Special Subcustodians,
Securities Depositories and Clearing Agencies.
The Custodian shall not be liable to any Fund for any loss, damage or
expense suffered or incurred by such Fund resulting from or occasioned by the
actions or omissions of a Securities System, Interim Subcustodian, Special
Subcustodian, or Securities Depository and Clearing Agency unless such loss,
damage or expense is caused by, or results from, the negligence or willful
misfeasance of the Custodian.
(d) Defaults or Insolvencies of Brokers, Banks, Etc.
The Custodian shall not be liable for any loss, damage or expense suffered
or incurred by any Fund resulting from or occasioned by the actions, omissions,
neglects, defaults or insolvency of any broker, bank, trust company or any other
person with whom the Custodian may deal (other than any of such entities acting
as a Subcustodian, Securities System or Securities Depository and Clearing
Agency, for whose actions the liability of the Custodian is set out elsewhere in
this Agreement) unless such loss, damage or expense is caused by, or results
from, the negligence or willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
Each Fund agrees to reimburse the Custodian for all out-of-pocket expenses
incurred by the Custodian in connection with this Agreement, but excluding
salaries and usual overhead expenses.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this Agreement, each Fund agrees to
indemnify and hold harmless the Custodian and its nominees from all losses,
damages and expenses (including attorneys' fees) suffered or incurred by the
Custodian or its nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall not apply
to the extent the Custodian is liable under Sections 6 or 7 hereof.
If any Fund requires the Custodian to take any action with respect to
Securities, which action involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or its nominee assigned to
such Fund being liable for the payment of money or incurring liability of some
other form, such Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this Agreement and in addition to
the obligations provided in Sections 6 and 7, the Custodian agrees to indemnify
and hold harmless each Fund from all losses, damages and expenses suffered or
incurred by each such Fund caused by the negligence or willful misfeasance of
the Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing Agency
acting either directly or indirectly under agreement with the Custodian (each of
which for purposes of this Section 9 shall be referred to as "Custodian"), makes
any payment or transfer of funds on behalf of any Fund as to which there would
be, at the close of business on the date of such payment or transfer,
insufficient funds held by the Custodian on behalf of any such Fund, the
Custodian may, in its discretion without further Instructions, provide an
advance ("Advance") to any such Fund in an amount sufficient to allow the
completion of the transaction by reason of which such payment or transfer of
funds is to be made. In addition, in the event the Custodian is directed by
Instructions to make any payment or transfer of funds on behalf of any Fund as
to which it is subsequently determined that such Fund has overdrawn its cash
account with the Custodian as of the close of business on the date of such
payment or transfer, said overdraft shall constitute an Advance. Any Advance
shall be payable by the Fund on behalf of which the Advance was made on demand
by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall
accrue interest from the date of the Advance to the date of payment by such Fund
to the Custodian at a rate agreed upon in writing from time to time by the
Custodian and such Fund. It is understood that any transaction in respect of
which the Custodian shall have made an Advance, including but not limited to a
foreign exchange contract or transaction in respect of which the Custodian is
not acting as a principal, is for the account of and at the risk of the Fund on
behalf of which the Advance was made, and not, by reason of such Advance, deemed
to be a transaction undertaken by the Custodian for its own account and risk.
The Custodian and each of the Funds which are parties to this Agreement
acknowledge that the purpose o Advances is to finance temporarily the purchase
or sale of Securities for prompt delivery in accordance with the settlement
terms of such transactions or to meet emergency expenses not reasonably
foreseeable by a Fund. The Custodian shall promptly notify the appropriate Fund
of any Advance. Such notification shall be sent by facsimile transmission or in
such other manner as such Fund and the Custodian may agree.
10. LIENS.
The Bank shall have a lien on the Property in the Custody Account to secure
payment of fees and expenses for the services rendered under this Agreement. If
the Bank advances cash or securities to the Fund for any purpose or in the event
that the Bank or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of its duties hereunder, except such as may arise from its or its nominee's
negligent action, negligent failur to act or willful misconduct, any Property at
any time held for the Custody Account shall be security therefor and the Fund
hereby grants a security interest therein to the Bank. The Fund shall promptly
reimburse the Bank for any such advance of cash or securities or any such taxes,
charges, expenses, assessments, claims or liabilities upon request for payment,
but should the Fund fail to so reimburse the Bank, the Bank shall be entitled to
dispose of such Property to the extent necessary to obtain reimbursement. The
Bank shall be entitled to debit any account of the Fund with the Bank including,
without limitation, the Custody Account, in connection with any such advance and
any interest on such advance as the Bank deems reasonable.
11. COMPENSATION.
Each Fund will pay to the Custodian such compensation as is agreed to in
writing by the Custodian and each such Fund from time to time. Such
compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such Fund
and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the Custodian such proxies, powers
of attorney or other instruments as may be reasonable and necessary or desirable
in connection with the performance by the Custodian or any Subcustodian of their
respective obligations under this Agreement or any applicable subcustodian
agreement.
13. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return receipt
requested) to the other not less than 90 days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, the
appropriate Fund shall pay to the Custodian such fees as may be due the
Custodian hereunder as well as its reimbursable disbursements, costs and
expenses paid or incurred. Upon termination of this Agreement, the Custodian
shall deliver, at the terminating party's expense, all Assets held by it
hereunder to the appropriate Fund or as otherwise designated by such Fund by
Special Instructions. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the effective date
of termination.
This Agreement may not be assigned by the Custodian or any Fund without the
respective consent of the other, duly authorized by a resolution by its Board of
Directors or Trustees.
14. ADDITIONAL FUNDS.
An additional Fund or Funds may become a party to this Agreement after the
date hereof by an instrument in writing to such effect signed by such Fund or
Funds and the Custodian. If this Agreement is terminated as to one or more of
the Funds (but less than all of the Funds) or if an additional Fund or Funds
shall become a party to this Agreement, there shall be delivered to each party
an Appendix B or an amended Appendix B, signed by each of the additional Funds
(if any) and each of the remaining Funds as well as the Custodian, deleting or
adding such Fund or Funds, as the case may be. The termination of this Agreement
as to less than all of the Funds shall not affect the obligations of the
Custodian and the remaining Funds hereunder as set forth on the signature page
hereto and in Appendix B as revised from time to time.
15. NOTICES.
As to each Fund, notices, requests, instructions and other writings
delivered to [INSERT FUND COMPLEX ADDRESS], postage prepaid, or to such other
address as any particular Fund may have designated to the Custodian in writing,
shall be deemed to have been properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration Department of the Custodian at its office at 928 Grand
Avenue, Kansas City, Missouri, or mailed postage prepaid, to the Custodian's
Securities Administration Department, Post Office Box 226, Kansas City, Missouri
64141, or to such other addresses as the Custodian may have designated to each
Fund in writing, shall be deemed to have been properly delivered or given to the
Custodian hereunder; provided, however, that procedures for the delivery of
Instructions and Special Instructions shall be governed by Section 2(c) hereof.
16. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of Missouri and
shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived, in
any manner except in writing, properly executed by both parties hereto;
provided, however, Appendix A may be amended from time to time as Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, and Securities
Depositories and Clearing Agencies are approved or terminated according to the
terms of this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following sections of
the Agreement:
Term Section
- ---- -------
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2(b)
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Term Section
- ---- -------
Liability 10
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Securities Depositories and Clearing Agencies 5(b)
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(c)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to be illegal,
in conflict with any law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall be considered severable
and shall not be affected, and the rights and obligations of the parties shall
be construed and enforced as if this Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement, any custodian agreement
heretofore in effect between the Fund and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement
to be executed by their respective duly authorized officers.
INVESTORS MARK SERIES FUND
Attest:__________________ By:________________________________
Name:______________________________
Title:_____________________________
Date:______________________________
UMB BANK, N.A.
Attest:__________________ By:________________________________
Name: Ralph R. Santoro
Title: Vice President
Date:______________________________
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Morgan Stanley Trust Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
- --------- --------------------- -----------------
Euroclear
INVESTORS MARK SERIES FUND UMB BANK, N.A.
By:_______________________ By:___________________________________
Name:_____________________ Name: Ralph R. Santoro
Title:____________________ Title: Vice President
Date:_____________________ Date:_________________________________
APPENDIX B
CUSTODY AGREEMENT
The following portfolios are hereby made parties to the Custody Agreement
dated October 2 , 1997 , with UMB Bank, n.a. ("Custodian") and INVESTORS MARK
SERIES FUND , and agree to be bound by all the terms and conditions contained in
said Agreement:
- -----------------------------
LARGE CAP VALUE
BALANCED
LARGE CAP GROWTH
SMALL CAP EQUITY
GROWTH AND INCOME
INVESTORS MARK SERIES FUND
Attest:______________________ By:____________________________________
Name:__________________________________
Title:_________________________________
Date:__________________________________
UMB BANK, N.A.
Attest:______________________ By:____________________________________
Name: Ralph R. Santoro
Title: Vice President
Date:__________________________________
CUSTODY AGREEMENT
THIS AGREEMENT is made effective the ___ day of __________, 19__, by
and between INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under
the laws of the state of Missouri, having its trust office located at 127 West
10th Street, Kansas City, Missouri 64105 ("IFTC"), and , a
______________________________ corporation,/trust, having its principal office
and place of business at ("Fund").each registered investment company listed on
Schedule A hereto, as it may be amended from time to time, incorporated herein
by this reference, each having its principal office and place of business at
____________ (each a "Fund").
WITNESSETH:
WHEREAS, Fund desires to appoint IFTC as custodian of the assets of the
Fund's investment portfolio or portfolios (each a "Portfolio", and collectively
the "Portfolios"); and
WHEREAS, IFTC is willing to accept such appointment on the terms and
conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual promises
contained herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN AND AGENT. Fund hereby constitutes and appoints
IFTC as custodian of the investment securities, interests in loans and
other non-cash investment property, and monies at any time owned by each of
the Portfolios and delivered to IFTC as custodian hereunder ("Assets").
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to IFTC:
1. That it is a corporation/trust duly organized and existing and in
good standing under the laws of its state of organization, and
that it is registered under the 1940 Act; and
2. That it has the requisite power and authority under applicable
law, its articles of incorporation and its bylaws/and its
declaration of trust to enter into this Agreement; that it has
taken all requisite action necessary to appoint IFTC as custodian
for the Portfolios; that this Agreement has been duly executed
and delivered by Fund; and that this Agreement constitutes a
legal, valid and binding obligation of Fund, enforceable in
accordance with its terms.
B. IFTC hereby represents, warrants and acknowledges to Fund:
1. That it is a trust company duly organized and existing and in
good standing under the laws of the State of Missouri; and
2. That it has the requisite power and authority under applicable
law, its charter and its bylaws to enter into and perform this
Agreement; that this Agreement has been duly executed and
delivered by IFTC; and that this Agreement constitutes a legal,
valid and binding obligation of IFTC, enforceable in accordance
with its terms.
3. DUTIES AND RESPONSIBILITIES OF THE PARTIES.
A. Delivery of Assets. Except as permitted by the 1940 Act, Fund will
deliver or cause to be delivered to IFTC on the effective date hereof,
or as soon thereafter as practicable, and from time to time
thereafter, all Assets acquired by, owned by or from time to time
coming into the possession of each of the Portfolios during the term
hereof. IFTC has no responsibility or liability whatsoever for or on
account of assets not so delivered.
B. Delivery of Accounts and Records. Fund will turn over or cause to be
turned over to IFTC all of each Portfolio's relevant accounts and
records needed by IFTC to fully and properly perform its duties and
responsibilities hereunder. IFTC may rely conclusively on the
completeness and correctness of such accounts and records.
C. Delivery of Assets to Third Parties. IFTC will receive delivery of and
keep safely the Assets of each Portfolio segregated in a separate
account. IFTC will not deliver, assign, pledge or hypothecate any such
Assets to any person except as permitted by the provisions hereof or
any agreement executed according to the terms of Section 3.P hereof.
Upon delivery of any such Assets to a subcustodian appointed pursuant
hereto (hereinafter referred to as "Subcustodian"), IFTC will create
and maintain records identifying such Assets as belonging to the
applicable Portfolio. IFTC is responsible for the safekeeping of the
Assets only until they have been transmitted to and received by other
persons as permitted under the terms hereof, except for Assets
transmitted to Subcustodians, for which IFTC remains responsible to
the extent provided herein. IFTC may participate directly or
indirectly through a subcustodian in the Depository Trust Company
(DTC), Treasury/Federal Reserve Book Entry System (Fed System),
Participant Trust Company (PTC) or other depository approved by Fund
(as such entities are defined at 17 CFR Section 270.17f- 4(b)) (each a
"Depository" and collectively the "Depositories"). IFTC will be
responsible to Fund for any loss, damage or expense suffered or
incurred by Fund resulting from the actions or omissions of any
Depository only to the same extent such Depository is responsible to
IFTC.
D. Registration. IFTC will at all times hold registered Assets in the
name of IFTC as custodian, the applicable Portfolio, or a nominee of
either of them, unless specifically directed by Instructions, as
hereinafter defined, to hold such registered Assets in so-called
"street name;" provided that, in any event, IFTC will hold all such
Assets in an account of IFTC as custodian containing only Assets of
the applicable Portfolio, or only assets held by IFTC as a fiduciary
or custodian for customers; and provided further, that IFTC's records
at all times will indicate the Portfolio or other customer for which
such Assets are held and the respective interests therein. If,
however, Fund directs IFTC to maintain Assets in "street name",
notwithstanding anything contained herein to the contrary, IFTC will
be obligated only to utilize its best efforts to timely collect income
due the Portfolio on such Assets and to notify the Portfolio of
relevant information, such as maturities and pendency of calls, and
corporate actions including, without limitation, calls for redemption,
tender or exchange offers, declaration, record and payment dates and
amounts of any dividends or income, reorganization, recapitalization,
merger, consolidation, split-up of shares, change of par value, or
conversion ("Corporate Actions"). All Assets and the ownership thereof
by Portfolio will at all times be identifiable on the records of IFTC.
Fund agrees to hold IFTC and its nominee harmless for any liability as
a shareholder of record of securities held in custody.
E. Exchange. Upon receipt of Instructions, IFTC will exchange, or cause
to be exchanged, Assets held for the account of a Portfolio for other
Assets issued or paid in connection with any Corporate Action or
otherwise, and will deposit any such Assets in accordance with the
terms of any such Corporate Action. Without Instructions, IFTC is
authorized to exchange Assets in temporary form for Assets in
definitive form, to effect an exchange of shares when the par value of
stock is changed, and, upon receiving payment therefor, to surrender
bonds or other Assets at maturity or when advised of earlier call for
redemption, except that IFTC will receive Instruction prior to
surrendering any convertible security.
F. Purchases of Investments -- Other Than Options and Futures. On each
business day on which a Portfolio makes a purchase of Assets other
than options and futures, Fund will deliver to IFTC Instructions
specifying with respect to each such purchase:
1. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the Asset;
3. The number of shares and the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase;
8. The name of the person from whom or the broker or dealer through
whom the purchase was made; and
9. Whether the Asset is to be received in certificated form or via a
specified Depository.
In accordance with such Instructions, IFTC will pay for out of monies
held for the purchasing Portfolio, but only insofar as such monies are
available for such purpose, and receive the Assets so purchased by or
for the account of such Portfolio, except that IFTC, or a
Subcustodian, may in its sole discretion advance funds to such
Portfolio which may result in an overdraft because the monies held on
behalf of such Portfolio are insufficient to pay the total amount
payable upon such purchase. Except as otherwise instructed by Fund,
IFTC will make such payment only upon receipt of Assets: (a) by IFTC;
(b) by a clearing corporation of a national exchange of which IFTC is
a member; or (c) by a Depository. Notwithstanding the foregoing, (i)
IFTC may release funds to a Depository prior to the receipt of advice
from the Depository that the Assets underlying a repurchase agreement
have been transferred by book-entry into the account maintained with
such Depository by IFTC on behalf of its customers; provided that
IFTC's instructions to the Depository require that the Depository make
payment of such funds only upon transfer by book-entry of the Assets
underlying the repurchase agreement in such account; (ii) IFTC may
make payment for time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures
contracts or options, before receipt of an advice or confirmation
evidencing said deposit or entry into such transaction; and (iii) IFTC
may make, or cause a Subcustodian to make, payment for the purchase of
Assets the settlement of which occurs outside of the United States of
America in accordance with generally accepted local custom and market
practice.
G. Sales and Deliveries of Investments -- Other Than Options and Futures.
On each business day on which a Portfolio makes a sale of Assets other
than options and futures, Fund will deliver to IFTC Instructions
specifying with respect to each such sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the Asset;
3. The number of shares and principal amount sold, and accrued
interest, if any;
4. The date on which the Assets sold were purchased or other
information identifying the Assets sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by the Portfolio upon such sale;
and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
IFTC will deliver or cause to be delivered the Assets thus designated
as sold for the account of the selling Portfolio as specified in the
Instructions. Except as otherwise instructed by Fund, IFTC will make
such delivery upon receipt of: (a) payment therefor in such form as is
satisfactory to IFTC; (b) credit to the account of IFTC with a
clearing corporation of a national securities exchange of which IFTC
is a member; or (c) credit to the account maintained by IFTC on behalf
of its customers with a Depository. Notwithstanding the foregoing: (i)
IFTC will deliver Assets held in physical form in accordance with
"street delivery custom" to a broker or its clearing agent; or (ii)
IFTC may make, or cause a Subcustodian to make, delivery of Assets the
settlement of which occurs outside of the United States of America
upon payment therefor in accordance with generally accepted local
custom and market practice.
H. Purchases or Sales of Options and Futures. On each business day on
which a Portfolio makes a purchase or sale of the options and/or
futures listed below, Fund will deliver to IFTC Instructions
specifying with respect to each such purchase or sale:
1. If applicable, the name of the Portfolio making such purchase or
sale;
2. In the case of security options:
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom the
sale or purchase was made.
3. In the case of options on indices:
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising, expiring
or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through whom
the sale or purchase was made, or other applicable
settlement instructions.
4. In the case of security index futures contracts:
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition to
Instructions, and if not already in the possession of IFTC,
Fund will deliver a substantially complete and executed
custodial safekeeping account and procedural agreement,
incorporated herein by this reference); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.
5. In the case of options on index future contracts:
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Assets Pledged or Loaned. If specifically allowed for in the
prospectus of a Portfolio, and subject to such additional terms and
conditions as IFTC may require:
1. Upon receipt of Instructions, IFTC will release or cause to be
released Assets to the designated pledgee by way of pledge or
hypothecation to secure any loan incurred by a Portfolio;
provided, however, that IFTC will release Assets only upon
payment to IFTC of the monies borrowed, except that in cases
where additional collateral is required to secure a borrowing
already made, further Assets may be released or caused to be
released for that purpose. Upon receipt of Instructions, IFTC
will pay, but only from funds available for such purpose, any
such loan upon redelivery to it of the Assets pledged or
hypothecated therefor and upon surrender of the note or notes
evidencing such loan.
2. Upon receipt of Instructions, IFTC will release Assets to the
designated borrower; provided, however, that the Assets will be
released only upon deposit with IFTC of full cash collateral as
specified in such Instructions, and that the lending Portfolio
will retain the right to any dividends, interest or distribution
on such loaned Assets. Upon receipt of Instructions and the
loaned Assets, IFTC will release the cash collateral to the
borrower.
J. Routine Matters. IFTC will, in general, attend to all routine and
mechanical matters in connection with the sale, exchange,
substitution, purchase, transfer, or other dealings with the Assets
except as may be otherwise provided herein or upon Instruction from
Fund.
K. Deposit Accounts. IFTC will open and maintain one or more special
purpose deposit accounts for each Portfolio in the name of IFTC in
such banks or trust companies (including, without limitation,
affiliates of IFTC) as may be designated by it or Fund in writing
("Accounts"), subject only to draft or order by IFTC upon receipt of
Instructions. IFTC will deposit all monies received by IFTC from or
for the account of a Portfolio in an Account maintained for such
Portfolio. Subject to Section 5.J hereof, IFTC agrees:
1. To make Fed Funds available to the applicable Portfolio at 9:00
a.m., Kansas City time, on the second business day after deposit
of any check into an Account, in the amount of the check;
2. To make funds available immediately upon a deposit made by
Federal Reserve wire; and
3. To make funds available on the next business day after deposit of
ACH wires.
L. Income and Other Payments. IFTC will:
1. Collect, claim and receive and deposit for the account of the
applicable Portfolio all income (including income from the
Accounts) and other payments which become due and payable on or
after the effective date hereof with respect to the Assets, and
credit the account of such Portfolio in accordance with the
schedule attached hereto as Exhibit A. If, for any reason, a
Portfolio is credited with income that is not subsequently
collected, IFTC may reverse that credited amount. If monies are
collected after such reversal, IFTC will credit the Portfolio in
that amount;
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the
collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with (a) the collection, receipt and deposit of such
income and other payments, including but not limited to the
presentation for payment of all coupons and other income items
requiring presentation; and all other Assets which may mature or
be called, redeemed, retired or otherwise become payable and
regarding which IFTC has actual knowledge, or should reasonably
be expected to have knowledge; and (b) the endorsement for
collection, in the name of Fund or a Portfolio, of all checks,
drafts or other negotiable instruments. IFTC, however, will not
be required to institute suit or take other extraordinary action
to enforce collection except upon receipt of Instructions and
upon being indemnified to its satisfaction against the costs and
expenses of such suit or other actions. IFTC will receive, claim
and collect all stock dividends, rights and other similar items
and will deal with the same pursuant to Instructions.
M. Proxies and Notices. IFTC will promptly deliver or mail (or have
delivered or mailed) to Fund all proxies properly signed, all notices
of meetings, all proxy statements and other notices, requests or
announcements affecting or relating to Assets and will, upon receipt
of Instructions, execute and deliver or mail (or cause its nominee to
execute and deliver or mail) such proxies or other authorizations as
may be required. Except as provided herein or pursuant to Instructions
hereafter received by IFTC, neither it nor its nominee will exercise
any power inherent in any such Assets, including any power to vote the
same, or execute any proxy, power of attorney, or other similar
instrument voting any of such Assets, or give any consent, approval or
waiver with respect thereto, or take any other similar action.
N. Disbursements. IFTC will pay or cause to be paid, insofar as funds are
available for the purpose, bills, statements and other obligations of
each Portfolio (including but not limited to obligations in connection
with the conversion, exchange or surrender of Assets, interest
charges, dividend disbursements, taxes, management fees, custodian
fees, legal fees, auditors' fees, transfer agents' fees, brokerage
commissions, compensation to personnel, and other operating expenses
of such Portfolio) pursuant to Instructions setting forth the name of
the person to whom payment is to be made, and the amount and purpose
of the payment.
O. Daily Statement of Accounts. IFTC will, within a reasonable time,
render to Fund a detailed statement of the amounts received or paid
and of Assets received or delivered for the account of each Portfolio
during each business day. IFTC will maintain such books and records as
are necessary to enable it to render, from time to time upon request
by Fund, a detailed statement of the Assets. IFTC will permit, and
upon Instruction will cause any Subcustodian to permit, such persons
as are authorized by Fund, including Fund's independent public
accountants, reasonable access to such records or will provide
reasonable confirmation of the contents of such records, and if
demanded, IFTC will permit, and will cause any Subcustodian to permit,
federal and state regulatory agencies to examine the Assets, books and
records of the Portfolios.
P. Appointment of Subcustodians. Notwithstanding any other provisions
hereof:
1. All or any of the Assets may be held in IFTC's own custody or in
the custody of one or more other banks or trust companies
(including, without limitation, affiliates of IFTC) acting as
Subcustodians as may be selected by IFTC. Any such Subcustodian
selected by IFTC must have the qualifications required for a
custodian under the 1940 Act. IFTC will be responsible to the
applicable Portfolio for any loss, damage or expense suffered or
incurred by such Portfolio resulting from the actions or
omissions of any Subcustodians selected and appointed by IFTC
(except Subcustodians appointed at the request of Fund and as
provided in Subsections 2 or 3 below) to the same extent IFTC
would be responsible to Fund hereunder if it committed the act or
omission itself.
2. Upon request of Fund, IFTC will contract with other Subcustodians
reasonably acceptable to IFTC for purposes of (a) effecting
third-party repurchase transactions with banks, brokers, dealers,
or other entities through the use of a common custodian or
subcustodian, or (b) providing depository and clearing agency
services with respect to certain variable rate demand note
securities, or (c) for other reasonable purposes specified by
Fund; provided, however, that IFTC will be responsible to Fund
for any loss, damage or expense suffered or incurred by Fund
resulting from the actions or omissions of any such Subcustodian
only to the same extent such Subcustodian is responsible to IFTC.
Fund may review IFTC's contracts with such Subcustodians.
3. Each Portfolio's foreign securities (as defined in Rule
17f-5(c)(1) under the 1940 Act) and cash or cash equivalents, in
amounts deemed by Fund to be reasonably necessary to effect such
Portfolio's foreign securities transactions, may be held in the
custody of one or more banks or trust companies acting as
Subcustodians ("Global Subcustodian"), and thereafter, pursuant
to a written contract or contracts as approved by Fund, may be
transferred to accounts maintained by any such Global
Subcustodian with eligible foreign custodians, as defined in Rule
17f-5(c)(2)("Eligible Foreign Custodian"). IFTC will be
responsible to Fund for any loss, damage or expense suffered or
incurred by Fund resulting from the actions or omissions of any
Eligible Foreign Custodian only to the same extent such
subcustodian is liable to the Global Subcustodian.
Q. Accounts and Records Property of Fund. IFTC acknowledges that all of
the accounts and records maintained by IFTC pursuant hereto are the
property of Fund, and will be made available to Fund for inspection or
reproduction within a reasonable period of time, upon demand. IFTC
will assist Fund's independent auditors, or upon approval of Fund, or
upon demand, any regulatory body, in any requested review of Fund's
accounts and records but Fund will reimburse IFTC for all expenses and
employee time invested in any such review outside of routine and
normal periodic reviews. Upon receipt from Fund of the necessary
information or instructions, IFTC will supply information from the
books and records it maintains for Fund that Fund needs for tax
returns, questionnaires, periodic reports to shareholders and such
other reports and information requests as Fund and IFTC agree upon
from time to time.
R. Adoption of Procedures. IFTC and Fund hereby adopt the Funds Transfer
Operating Guidelines attached hereto as Exhibit B. IFTC and Fund may
from time to time adopt such additional procedures as they agree upon,
and IFTC may conclusively assume that no procedure approved or
directed by Fund, Fund's or Portfolio's accountants or other advisors
conflicts with or violates any requirements of the prospectus,
articles of incorporation, bylaws,/declaration of trust, any
applicable law, rule or regulation, or any order, decree or agreement
by which Fund may be bound. Fund will be responsible to notify IFTC of
any changes in statutes, regulations, rules, requirements or policies
which might necessitate changes in IFTC's responsibilities or
procedures.
S. Advances. Fund will pay on demand any advance of cash or securities
made by IFTC or any Subcustodian, in its sole discretion, for any
purpose (including but not limited to securities settlements, purchase
or sale of foreign exchange or foreign exchange contracts and assumed
settlement) for the benefit of any Portfolio. Any such cash advance
will be subject to an overdraft charge at the rate set forth in the
then-current fee schedule from the date advanced until the date
repaid. As security for each such advance, Fund hereby grants IFTC and
such Subcustodian a lien on and security interest in all Assets at any
time held for the account of the applicable Portfolio, including
without limitation all Assets acquired with the amount advanced.
Should Fund fail to promptly repay the advance, IFTC and such
Subcustodian may utilize available cash and to dispose of such
Portfolio's Assets pursuant to applicable law to the extent necessary
to obtain reimbursement of the amount advanced and any related
overdraft charges.
T. Exercise of Rights; Tender Offers. Upon receipt of Instructions, IFTC
will: (1) deliver warrants, puts, calls, rights or similar securities
to the issuer or trustee thereof, or to the agent of such issuer or
trustee, for the purpose of exercise or sale, provided that the new
Assets, if any, are to be delivered to IFTC; and (2) deposit
securities upon invitations for tenders thereof, provided that the
consideration for such securities is to be paid or delivered to IFTC
or the tendered securities are to be returned to IFTC.
W. Fund Shares.
1. Fund will deliver to IFTC Instructions with respect to the
declaration and payment of any dividend or other distribution on
the shares of capital stock of a Portfolio ("Fund Shares") by a
Portfolio. On the date specified in such Instruction, IFTC will
pay out of the monies held for the account of the Portfolio,
insofar as it is available for such purposes, and credit to the
account of the Dividend Disbursing Agent for the Portfolio, the
amount specified in such Instructions.
2. Whenever Fund Shares are repurchased or redeemed by a Portfolio,
Portfolio or its agent will give IFTC Instructions regarding the
aggregate dollar amount to be paid for such shares. Upon receipt
of such Instruction, IFTC will charge such aggregate dollar
amount to the account of the Portfolio and either deposit the
same in the account maintained for the purpose of paying for the
repurchase or redemption of Fund Shares or deliver the same in
accordance with such Instruction. IFTC has no duty or
responsibility to determine that Fund Shares have been removed
from the proper shareholder accounts or that the proper number of
Fund Shares have been canceled and removed from the shareholder
records.
3. Whenever Fund Shares are purchased from Fund, Fund will deposit
or cause to be deposited with IFTC the amount received for such
shares. IFTC has no duty or responsibility to determine that Fund
Shares purchased from Fund have been added to the proper
shareholder account or that the proper number of such shares have
been added to the shareholder records.
4. INSTRUCTIONS.
A. The term "Instructions", as used herein, means written (including
telecopied, telexed, or electronically transmitted) or oral
instructions which IFTC reasonably believes were given by a designated
representative of Fund. Fund will deliver to IFTC, prior to delivery
of any Assets to IFTC and thereafter from time to time as changes
therein are necessary, written Instructions naming one or more
designated representatives to give Instructions in the name and on
behalf of Fund, which Instructions may be received and accepted by
IFTC as conclusive evidence of the authority of any designated
representative to act for Fund and may be considered to be in full
force and effect until receipt by IFTC of notice to the contrary.
Unless such written Instructions delegating authority to any person to
give Instructions specifically limit such authority to specific
matters or require that the approval of anyone else will first have
been obtained, IFTC will be under no obligation to inquire into the
right of such person, acting alone, to give any Instructions
whatsoever. If Fund fails to provide IFTC any such Instructions naming
designated representatives, any Instructions received by IFTC from a
person reasonably believed to be an appropriate representative of Fund
will constitute valid and proper Instructions hereunder. "Designated
representatives" may include Fund's or a Portfolio's employees and
agents, including investment managers and their employees.
B. No later than the next business day immediately following each oral
Instruction, Fund will send IFTC written confirmation of such oral
Instruction. At IFTC's sole discretion, IFTC may record on tape, or
otherwise, any oral Instruction whether given in person or via
telephone, each such recording identifying the date and the time of
the beginning and ending of such oral Instruction.
C. Fund will provide, upon IFTC's request a certificate signed by an
officer or designated representative of Fund, as conclusive proof of
any fact or matter required to be ascertained from Fund hereunder.
Fund will also provide IFTC Instructions with respect to any matter
concerning this Agreement requested by IFTC. If IFTC reasonably
believes that it could not prudently act according to the
Instructions, or the instruction or advice of Fund's or a Portfolio's
accountants or counsel, it may in its discretion, with notice to Fund,
not act according to such Instructions.
5. LIMITATION OF LIABILITY OF IFTC. IFTC is not responsible or liable for, and
Fund will indemnify and hold IFTC harmless from and against, any and all
costs, expenses, losses, damages, charges, counsel fees, payments and
liabilities which may be asserted against or incurred by IFTC or for which
IFTC may be held to be liable, arising out of or attributable to:
A. IFTC's action or omission to act pursuant hereto; provided that IFTC
has acted in good faith and with due diligence and reasonable care;
and provided further, that IFTC is not liable for consequential,
special, or punitive damages in any event.
B. IFTC's payment of money as requested by Fund, or the taking of any
action which might make it or its nominee liable for payment of monies
or in any other way; provided, however, that nothing herein obligates
IFTC to take any such action or expend its own moneys except in its
sole discretion.
C. IFTC's action or omission to act hereunder upon any Instructions,
advice, notice, request, consent, certificate or other instrument or
paper appearing to it to be genuine and to have been properly
executed, including any Instructions, communications, data or other
information received by IFTC by means of the Systems, as hereinafter
defined, or any electronic system of communication.
D. IFTC's action or omission to act in good faith reliance on the advice
or opinion of counsel for Fund or of its own counsel with respect to
questions or matters of law, which advice or opinion may be obtained
by IFTC at the expense of Fund, or on the Instructions, advice or
statements of any officer or employee of Fund, or Fund's accountants
or other authorized individuals, and other persons believed by it in
good faith to be expert in matters upon which they are consulted.
E. The purchase or sale of any securities or foreign currency positions.
Without limiting the generality of the foregoing, IFTC is under no
duty or obligation to inquire into:
1. The validity of the issue of any securities purchased by or for
any Portfolio, or the legality of the purchase thereof or of
foreign currency positions, or evidence of ownership required by
Fund to be received by IFTC, or the propriety of the decision to
purchase or the amount paid therefor;
2. The legality of the sale of any securities or foreign currency
positions by or for any Portfolio, or the propriety of the amount
for which the same are sold; or
3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor, the legality
of the repurchase or redemption of any Fund Shares, or the
propriety of the amount to be paid therefor, or the legality of
the declaration of any dividend by Fund, or the legality of the
issue of any Fund Shares in payment of any stock dividend.
F. Any error, omission, inaccuracy or other deficiency in any Portfolio's
accounts and records or other information provided by or on behalf of
a Portfolio to IFTC, or the failure of Fund to provide, or provide in
a timely manner, any accounts, records, or information needed by IFTC
to perform hereunder.
G. Fund's refusal or failure to comply with the terms hereof (including
without limitation Fund's failure to pay or reimburse IFTC under
Section 5 hereof), Fund's negligence or willful misconduct, or the
failure of any representation or warranty of Fund hereunder to be and
remain true and correct in all respects at all times.
H. The use or misuse, whether authorized or unauthorized, of the Systems
or any electronic system of communication used hereunder, by Fund or
by any person who acquires access to the Systems or such other systems
through the terminal device, passwords, access instructions or other
means of access to such Systems or such other system which are
utilized by, assigned to or otherwise made available to Fund, except
to the extent attributable to any negligence or willful misconduct by
IFTC.
I. Any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the payment
of money to be received by IFTC on behalf of a Portfolio until
actually received; provided, however, that IFTC will advise Fund
promptly if it fails to receive any such money in the ordinary course
of business and will cooperate with Fund toward the end that such
money is received.
J. Except as provided in Section 3.P hereof, loss occasioned by the acts,
neglects, defaults or insolvency of any broker, bank, trust company,
or any other person with whom IFTC may deal.
K. The failure or delay in performance of its obligations hereunder, or
those of any entity for which it is responsible hereunder, arising out
of or caused, directly or indirectly, by circumstances beyond the
affected entity's reasonable control, including, without limitation:
any interruption, loss or malfunction of any utility, transportation,
computer (hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a delay in
mails; governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornados, acts of God or public enemy,
revolutions, or insurrection.
6. COMPENSATION. In consideration for its services hereunder, Fund will pay to
IFTC the compensation set forth in a separate fee schedule, incorporated
herein by this reference, to be agreed to by Fund and IFTC from time to
time, and reimbursement for IFTC's cash disbursements and reasonable
out-of-pocket costs and expenses, including attorney's fees, incurred by
IFTC in connection with the performance of services hereunder, on demand.
IFTC may charge such compensation against monies held by it for the account
of the Portfolios. IFTC will also be entitled to charge against any monies
held by it for the account of the Portfolios the amount of any loss,
damage, liability, advance, overdraft or expense for which it is entitled
to reimbursement from Fund, including but not limited to fees and expenses
due to IFTC for other services provided to Fund by IFTC. IFTC will be
entitled to reimbursement by Fund for the losses, damages, liabilities,
advances, overdrafts and expenses of Subcustodians only to the extent that
(a) IFTC would have been entitled to reimbursement hereunder if it had
incurred the same itself directly, and (b) IFTC is obligated to reimburse
the Subcustodian therefor.
7. TERM AND TERMINATION. The initial term of this Agreement is for a period of
one (1) year. Thereafter, Fund or IFTC may terminate the same by notice in
writing, delivered or mailed, postage prepaid, to the other party and
received not less than ninety (90) days prior to the date upon which such
termination will take effect. Upon termination hereof:
A. Fund will pay IFTC its fees and compensation due hereunder and its
reimbursable disbursements, costs and expenses paid or incurred to
such date; and
B. Fund will designate a successor custodian by Instruction to IFTC by
the termination date. In the event no such Instruction has been
delivered to IFTC on or before the date when such termination becomes
effective, then IFTC may, at its option, (i) choose as successor
custodian a bank or trust company meeting the qualifications for
custodian set forth in the 1940 Act and having not less than Two
Million Dollars ($2,000,000) aggregate capital, surplus and undivided
profits, as shown by its last published report, or (ii) apply to a
court of competent jurisdiction for the appointment of a successor or
other proper relief, or take any other lawful action under the
circumstances; provided, however, that Fund will reimburse IFTC for
its costs and expenses, including reasonable attorney's fees, incurred
in connection therewith; and
C. IFTC will, upon payment of all sums due to IFTC from Fund hereunder or
otherwise, deliver all Assets, duly endorsed and in form for transfer,
to the successor custodian, or as specified by the court, at IFTC's
office. IFTC will co-operate in effecting changes in book-entries at
all Depositories. Upon delivery to a successor or as specified by the
court, IFTC will have no further obligations or liabilities hereunder.
Thereafter such successor will be the successor hereunder and will be
entitled to reasonable compensation for its services.
In the event that Assets remain in the possession of IFTC after the
date of termination hereof for any reason other than IFTC's failure to
deliver the same, IFTC is entitled to compensation as provided in the
then-current fee schedule for its services during such period, and the
provisions hereof relating to the duties and obligations of IFTC will
remain in full force and effect.
8. NOTICES. Notices, requests, instructions and other writings addressed to
Fund at the address set forth above, or at such other address as Fund may
have designated to IFTC in writing, will be deemed to have been properly
given to Fund hereunder. Notices, requests, Instructions and other writings
addressed to IFTC at the address set forth above, Attention: Custody
Department, or to such other address as it may have designated to Fund in
writing, will be deemed to have been properly given to IFTC hereunder.
9. THE SYSTEMS; CONFIDENTIALITY.
A. If IFTC provides Fund direct access to the computerized investment
portfolio custody systems used by IFTC ("Systems") or if IFTC and Fund
agree to utilize any electronic system of communication, Fund agrees
to implement and enforce appropriate security policies and procedures
to prevent unauthorized or improper access to or use of the Systems or
such other system.
B. Fund will preserve the confidentiality of the Systems and the tapes,
books, reference manuals, instructions, records, programs,
documentation and information of, and other materials relevant to, the
Systems and the business of IFTC ("Confidential Information"). Fund
agrees that it will not voluntarily disclose any such Confidential
Information to any other person other than its own employees who
reasonably have a need to know such information pursuant hereto. Fund
will return all such Confidential Information to IFTC upon termination
or expiration hereof.
C. Fund has been informed that the Systems are licensed for use by IFTC
from one or more third parties ("Licensors"), and Fund acknowledges
that IFTC and Licensors have proprietary rights in and to the Systems
and all other IFTC or Licensor programs, code, techniques, know-how,
data bases, supporting documentation, data formats, and procedures,
including without limitation any changes or modifications made at the
request or expense or both of Fund (collectively, the "Protected
Information"). Fund acknowledges that the Protected Information
constitutes confidential material and trade secrets of IFTC and
Licensors. Fund will preserve the confidentiality of the Protected
Information, and Fund hereby acknowledges that any unauthorized use,
misuse, disclosure or taking of Protected Information, residing or
existing internal or external to a computer, computer system, or
computer network, or the knowing and unauthorized accessing or causing
to be accessed of any computer, computer system, or computer network,
may be subject to civil liabilities and criminal penalties under
applicable law. Fund will so inform employees and agents who have
access to the Protected Information or to any computer equipment
capable of accessing the same. Licensors are intended to be and are
third party beneficiaries of Fund's obligations and undertakings
contained in this Section.
D. Fund hereby represents and warrants to IFTC that it has determined to
its satisfaction that the Systems are appropriate and suitable for its
use. THE SYSTEMS ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. IFTC
EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS OF A PARTICULAR PURPOSE.
10. MULTIPLE PORTFOLIOS. If Fund is comprised of more than one Portfolio:
A. Each Portfolio will be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered hereby,
every reference herein to Fund is deemed to relate solely to the
particular Portfolio to which such transaction relates. Under no
circumstances will the rights, obligations or remedies with respect to
a particular Portfolio constitute a right, obligation or remedy
applicable to any other Portfolio. The use of this single document to
memorialize the separate agreement of each Portfolio is understood to
be for clerical convenience only and will not constitute any basis for
joining the Portfolios for any reason.
B. Fund may appoint IFTC as its custodian for additional Portfolios from
time to time by written notice, provided that IFTC consents to such
addition. Rates or charges for each additional Portfolio will be as
agreed upon by IFTC and Fund in writing.
11. MISCELLANEOUS.
A. This Agreement will be construed according to, and the rights and
liabilities of the parties hereto will be governed by, the laws of the
State of Missouri, without reference to the choice of laws principles
thereof.
B. All terms and provisions hereof will be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 9 hereof are intended to and
will continue after and survive the expiration, termination or
cancellation hereof.
D. No provisions hereof may be amended or modified in any manner except
by a written agreement properly authorized and executed by each party
hereto.
E. The failure of either party to insist upon the performance of any
terms or conditions hereof or to enforce any rights resulting from any
breach of any of the terms or conditions hereof, including the payment
of damages, will not be construed as a continuing or permanent waiver
of any such terms, conditions, rights or privileges, but the same will
continue and remain in full force and effect as if no such forbearance
or waiver had occurred. No waiver, release or discharge of any party's
rights hereunder will be effective unless contained in a written
instrument signed by the party sought to be charged.
F. The captions herein are included for convenience of reference only,
and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which is deemed an original but all of which together constitute one
and the same instrument.
H. If any provision hereof is determined to be invalid, illegal, in
conflict with any law or otherwise unenforceable, the remaining
provisions hereof will be considered severable and will not be
affected thereby, and every remaining provision hereof will remain in
full force and effect and will remain enforceable to the fullest
extent permitted by applicable law.
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
J. Neither the execution nor performance hereof will be deemed to create
a partnership or joint venture by and between IFTC and Fund or any
Portfolio.
K. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto
and any actions taken or omitted by either party hereunder will not
affect any rights or obligations of the other party hereunder.
L. Notice is hereby given that a copy of Fund's Trust Agreement and all
amendments thereto is on file with the Secretary of State of the state
of its organization; that this Agreement has been executed on behalf
of Fund by the undersigned duly authorized representative of Fund in
his/her capacity as such and not individually; and that the
obligations of this Agreement are binding only upon the assets and
property of Fund and not upon any trustee, officer of shareholder of
Fund individually.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By:____________________________
Title:_________________________
FUND NAME
By:____________________________
Title:_________________________
<TABLE>
<CAPTION>
EXHIBIT A -- INCOME AVAILABILITY SCHEDULE
FOREIGN--Income will be credited contractually on pay day in the markets noted
with Contractual Income Policy. The markets noted with Actual income policy will
be credited income when it is received.
MARKET INCOME POLICY MARKET INCOME POLICY MARKET INCOME POLICY
====================== ====================== ====================== ====================== ====================== =============
<S> <C> <C> <C> <C> <C>
Argentina Actual Hong Kong Contractual Poland Actual
Australia Contractual Hungary Actual Portugal Contractual
Austria Contractual India Actual Russia Actual
Bahrain Actual Indonesia Actual Singapore Contractual
Bangladesh Actual Ireland Actual Slovak Republic Actual
Belgium Contractual Israel Actual South Africa Actual
Bermuda Actual Italy Contractual South Korea Actual
* Bolivia Actual Ivory Coast Actual Spain Contractual
Botswana Actual * Jamaica Actual Sri Lanka Actual
Brazil Actual Japan Contractual Swaziland Actual
Canada Contractual Jordan Actual Sweden Contractual
Chile Actual Kenya Actual Switzerland Contractual
China Actual Lebanon Actual Taiwan Actual
Colombia Actual Luxembourg Actual Thailand Actual
Cyprus Actual Malaysia Actual * Trinidad & Actual
Tobago
Czech Republic Actual Mauritius Actual * Tunisia Actual
Denmark Contractual Mexico Actual Turkey Actual
Ecuador Actual Morocco Actual United Kingdom Contractual
Egypt Actual Namibia Actual United States See Attached
**Euroclear Contractual/ Netherlands Contractual Uruguay Actual
Actual
Euro CDs Actual New Zealand Contractual Venezuela Actual
Finland Contractual Norway Contractual Zambia Actual
France Contractual Oman Actual Zimbabwe Actual
Germany Contractual Pakistan Actual
Ghana Actual Peru Actual
Greece Actual Philippines Actual
<FN>
* Market is not 17F-5 eligible
** For Euroclear, contractual income paid only in markets listed with
Income Policy of Contractual.
</FN>
</TABLE>
<TABLE>
<CAPTION>
UNITED STATES--
INCOME TYPE DTC FED PTC PHYSICAL
=========================== =========================== ========================== ========================== =================
<S> <C> <C> <C> <C>
Dividends Contractual N/A N/A Actual
Fixed Rate Interest Contractual Contractual N/A Actual
Variable Rate Interest Contractual Contractual N/A Actual
GNMA I N/A N/A Contractual PD +1 N/A
GNMA II N/A N/A Contractual PD *** N/A
Mortgages Actual Contractual Contractual Actual
Maturities Actual Contractual N/A Actual
</TABLE>
Exceptions to the above Contractual Income Policy include securities that
are:
* Involved in a trade whose settlement either failed, or is pending over
the record date, (excluding the United States);
* On loan under a self directed securities lending program other than
IFTC's own vendor lending program;
* Known to be in a condition of default, or suspected to present a risk of
default or payment delay;
* In the asset categories, without limitation, of Private Placements,
Derivatives, Options, Futures, CMOs, and Zero Coupon Bonds.
* Securities whose amount of income and redemption cannot be calculated in
advance of payable date, or determined in advance of actual collection,
examples include ADRs;
* Payments received as the result of a corporate action, not limited to,
bond calls, mandatory or optional puts, and tender offers.
*** For GNMA II securities, if the 19th day of the month is a business day,
Payable/Distribution Date is the next business day. If the 19th is not a
business day, but the 20th is a business day, Payable/Distribution date is the
first business day after the 20th. If both the 19th and 20th are not business
days, Payable/Distribution will be the next business day thereafter.
EXHIBIT B -- FUNDS TRANSFER OPERATING GUIDELINES
1. OBLIGATION OF THE SENDER: IFTC is authorized to promptly debit Fund's
("Client's") account(s) upon the receipt of a payment order in compliance with
any of the Security Procedures chosen by the Client, from those offered on the
attached selection form (and any updated selection forms hereafter executed by
the Client), for funds transfers and in the amount of money that IFTC has been
instructed to transfer. IFTC is hereby instructed to accept funds transfer
instructions only via the delivery methods and Security Procedures indicated on
the attached selection form (and any updated executed by the Client). The Client
agrees that the Security Procedures are reasonable and adequate for its wire
transfer transactions and agrees to be bound by any payment orders, amendments
and cancellations, whether or not authorized, issued in its name and accepted by
IFTC after being confirmed by any of the selected Security Procedures. The
Client also agrees to be bound by any other valid and authorized payment order
accepted by IFTC. IFTC shall execute payment orders in compliance with the
selected Security Procedures and with the Client's/Investment Manager's
instructions on the execution date provided that such payment order is received
by the customary deadline for processing such a request, unless the payment
order specifies a later time. IFTC will use reasonable efforts to execute on the
execution date payment orders received after the customary deadline, but if it
is unable to execute any such payment order on the execution date, such payment
order will be deemed to have been received on the next business day.
2. SECURITY PROCEDURES: The Client acknowledges that the selected Security
Procedures were selected by the Client from Security Procedures offered by IFTC.
The Client shall restrict access to confidential information relating to the
Security Procedures to authorized persons as communicated in writing to IFTC.
The Client must notify IFTC immediately if it has reason to believe unauthorized
persons may have obtained access to such information or of any change in the
Client's authorized personnel. IFTC shall verify the authenticity of all
instructions according to the selected Security Procedures.
3. ACCOUNT NUMBERS: IFTC shall process all payment orders on the basis of the
account number contained in the payment order. In the event of a discrepancy
between any name indicated on the payment order and the account number, the
account number shall take precedence and govern. Financial institutions that
receive payment orders initiated by IFTC at the instruction of the Client may
also process payment orders on the basis of account numbers, regardless of any
name included in the payment order. IFTC will also rely on any financial
institution identification numbers included in any payment order, regardless of
any financial institution name included in the payment order.
4. REJECTION: IFTC reserves the right to decline to process or delay the
processing of a payment order which (a) is in excess of the collected balance in
the account to be charged at the time of IFTC's receipt of such payment order;
(b) if initiating such payment order would cause IFTC, in IFTC's sole judgment,
to exceed any applicable volume, aggregate dollar, network, time, credit or
similar limits upon wire transfers; or (c) if IFTC, in good faith, is unable to
satisfy itself that the transaction has been properly authorized.
5. CANCELLATION OR AMENDMENT: IFTC shall use reasonable efforts to act on all
authorized requests to cancel or amend payment orders received in compliance
with the selected Security Procedures provided that such requests are received
in sufficient time to afford IFTC a reasonable opportunity to act prior to
executing the payment order. However, IFTC assumes no liability if the request
for amendment or cancellation cannot be satisfied by IFTC's reasonable efforts.
6. ERRORS: IFTC shall assume no responsibility for failure to detect any
erroneous payment order provided that IFTC complies with the payment order
instructions as received and IFTC complies with the selected Security
Procedures. The Security Procedures are established for the purpose of
authenticating payment orders only and not for the detection of errors in
payment orders.
7. INTEREST AND LIABILITY LIMITS: IFTC shall assume no responsibility for lost
interest with respect to the refundable amount of any unauthorized payment
order, unless IFTC is notified of the unauthorized payment order within thirty
(30) days of notification by IFTC of the acceptance of such payment order. In no
event (including but not limited to failure to execute a payment order) shall
IFTC be liable for special, indirect or consequential damages, even if advised
of the possibility of such damages.
8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When
the Client initiates or receives ACH credit and debit entries pursuant to these
Guidelines and the rules of the National Automated Clearing House Association
and the Mid- America Payment Exchange or other similar body, IFTC or its agent
will act as an Originating Depository Financial Institution and/or Receiving
Depository Financial Institution, as the case may be, with respect to such
entries. Credits given with respect to an ACH credit entry are provisional until
final settlement for such entry is received from the Federal Reserve Bank. If
such final settlement is not received, the Client agrees to promptly refund the
amount credited to the Client in connection with such entry, and the party
making payment to the Client via such entry shall not be deemed to have paid the
amount of the entry.
9. CONFIRMATIONS: Confirmation of IFTC's execution of payment orders shall
ordinarily be provided within 24 hours. Notice may be delivered through IFTC's
account statements, advices, information systems, or by facsimile or callback.
The Client must report any objections to the execution of a payment order within
30 days.
10. MISCELLANEOUS: IFTC may use the Federal Reserve System Fedwire to execute
payment orders, and any payment order carried in whole or in part through
Fedwire will be subject to applicable Federal Reserve Board rules and
regulations. IFTC and the Client agree to cooperate to attempt to recover any
funds erroneously paid to wrong parties, regardless of any fault of IFTC or the
Client, but the party responsible for the erroneous payment shall bear all costs
and expenses incurred in trying to effect such recovery. These Guidelines may
not be amended except by a written agreement signed by the parties.
SECURITY PROCEDURES SELECTION FORM
Please select one or more of the funds transfer security procedures indicated
below.
|_| SWIFT SWIFT (Society for Worldwide Interbank Financial Telecommunication)
is a cooperative society owned and operated by member financial
institutions that provides telecommunication services for its membership.
Participation is limited to securities brokers and dealers, clearing and
depository institutions, recognized exchanges for securities, and
investment management institutions. SWIFT provides a number of security
features through encryption and authentication to protect against
unauthorized access, loss or wrong delivery of messages, transmission
errors, loss of confidentiality and fraudulent changes to messages.
Selection of this security procedure would be most appropriate for existing
SWIFT members.
|_| REMOTE BATCH TRANSMISSION Wire transfer instructions are delivered via
Computer-to-Computer (CPU-CPU) data communications between the Client
and/or its agent and IFTC and/or its agent. Security procedures include
encryption and/or the use of a test key by those individuals authorized as
Automated Batch Verifiers or a callback procedure to those individuals.
Clients selecting this option should have an existing facility for
completing CPU-CPU transmissions. This delivery mechanism is typically used
for high-volume business such as shareholder redemptions and dividend
payments.
|_| TELEPHONE CONFIRMATION (CALL BACK) This procedure requires Clients to
designate individuals as authorized initiators and authorized verifiers.
IFTC will verify that the instruction contains the signature of an
authorized person and prior to execution of the payment order, will contact
someone other than the originator at the Client's location to authenticate
the instruction. Non-repetitive wire transfers with the original signatures
of 2 authorized persons are acceptable and do not require a call back.
Selection of this alternative is appropriate for Clients who do not have
the capability to use other security procedures.
|_| TEST KEY Test Key confirmation will be used to verify all non-repetitive
funds transfer instructions received via facsimile or phone. IFTC will
provide test keys if this option is chosen. IFTC will verify that the
instruction contains the signature of an authorized person and prior to
execution of the payment order, will authenticate the test key provided
with the corresponding test key at IFTC. Non-repetitive wire transfers with
the original signatures of 2 authorized persons are acceptable and do not
require a test key. Selection of this alternative is appropriate for
Clients who do not have the capability to use other security procedures.
|_| REPETITIVE WIRES For situations where funds are transferred periodically
from an existing authorized account to the same payee (destination bank and
account number) and only the date and currency amount are variable, a
repetitive wire may be implemented. Repetitive wires will be subject to a
$10 million limit. If the payment order exceeds the $10 million limit, the
instruction will be confirmed by telephone or test key prior to execution.
Repetitive wire instructions must be reconfirmed annually. Clients may
establish Repetitive Wires by following the agreed upon security procedures
for Non-Repetitive Wire Transfers as described by Telephone Confirmation
(Call Back) or Test Key. This alternative is recommended whenever funds are
frequently transferred between the same two accounts.
|_| STANDING INSTRUCTIONS Funds are transferred by IFTC to a counter party on
the Client's established list of authorized counter parties. Only the date
and the dollar amount are variable. Clients may establish Standby
Instructions by following the agreed upon security procedures for
Non-Repetitive Wire Transfers as described by Telephone Confirmation (Call
Back) or Test Key. This option is used for transactions that include but
are not limited to Foreign Exchange Contracts, Time Deposits and Tri-Party
Repurchase Agreements.
|_| AUTOMATED CLEARING HOUSE (ACH) IFTC or its agent receives an automated
transmission from a Client for the initiation of payment (credit) or
collection (debit) transactions through the ACH network. The transactions
contained on each transmission or tape must be authenticated by the Client.
The transmission is sent from the Client's or its agent's system to IFTC's
or its agent's system with encryption.
KEY CONTACT INFORMATION
Whom shall we contact to implement your selection(s)?
CLIENT OPERATIONS CONTACT
Name:___________________________________________
Address:________________________________________
City/State/Zip Code:____________________________
Telephone Number:_______________________________
Facsimile Number:_______________________________
SWIFT Number:___________________________________
ALTERNATE CONTACT
Name:___________________________________________
Address:________________________________________
City/State/Zip Code:____________________________
Telephone Number:_______________________________
Facsimile Number:_______________________________
SWIFT Number:___________________________________
Fund Name:______________________________________
By:_____________________________________________
Title:__________________________________________
Date:___________________________________________
TRANSFER AGENCY AGREEMENT
This Agreement made as of the 2nd day of October, 1997 between Investors
Mark Series Fund, Inc., a Maryland corporation (the "Fund"), and Jones & Babson,
Inc., a Missouri corporation (the "Transfer Agent").
WITNESSETH
That in consideration of the mutual promises hereinafter set forth, the
parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have
the following meanings:
1. "APPROVED INSTITUTION" shall mean an entity so named in a
Certificate, as hereinafter defined. From time to time, the Fund may amend
a previously delivered Certificate by delivering to the Transfer Agent a
Certificate naming an additional entity or deleting any entity named in a
previously delivered Certificate.
2. The "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Fund.
3. "CERTIFICATE" shall mean any notice, instruction or other
instrument in writing, authorized or required by this Agreement to be given
to the Transfer Agent by the Fund which is signed by any Officer, as
hereinafter defined, and actually received by the Transfer Agent.
4. "CUSTODIAN" shall mean the financial institution appointed as
custodian under the terms and conditions of the Custody Agreement between
the financial institution and the Fund, or its successor(s).
5. "FUND BUSINESS DAY" shall be determined as set out in the Fund's
prospectuses as shall be effective from time to time.
6. "OFFICER" shall be deemed to be the Fund's President, any Vice
President, Secretary, Treasurer, Controller, any Assistant Controller, any
Assistant Treasurer and any Assistant Secretary, and any other person duly
authorized by the Board of Directors of the Fund to execute any
Certificate, instruction, notice or other instrument on behalf of the Fund,
and any person reasonably believed by the Transfer Agent to be such a
person.
7. "OUT-OF-POCKET EXPENSES" means amounts reasonably necessary and
actually incurred by Transfer Agent in the provision of Transfer Agent
services or pursuant to this Agreement for the following purposes: postage
(and first class mail insurance in connection with mailing Share
certificates), envelopes, check forms, continuous forms, forms for reports
and statements, stationery and other similar items, telephone and telegraph
charges incurred in answering inquiries from dealers or shareholders,
microfilm used to record transactions in shareholder accounts and computer
tapes used for permanent storage of records and cost of insertion of
materials in mailing envelopes by outside firms. Any charges associated
with special or exception processing shall also be considered Out-of-Pocket
Expenses.
8. "PROSPECTUS" shall mean the most recent Fund prospectus actually
received by the Transfer Agent from the Fund with respect to which the Fund
has indicated a registration statement under the Securities Act of 1933, as
amended, has become effective, including the Statement of Additional
Information, incorporated by reference therein.
9. "SHARES" shall mean all or any part of each class or series of the
shares of beneficial interest of the Fund or portfolio listed in the
Certificate as to which the Transfer Agent acts as transfer agent
hereunder, as may be amended from time to time, which are authorized and/or
issued by the Fund.
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. Effective as of the date of this Agreement, the Fund hereby
constitutes and appoints the Transfer Agent as transfer agent of all the
Shares of the Fund and as dividend disbursing agent during the period of
this Agreement.
2. The Transfer Agent hereby accepts appointment as transfer agent and
dividend disbursing agent and agrees to perform duties thereof as
hereinafter set forth.
3. In connection with such appointment, the Fund upon the request of
the Transfer Agent, shall deliver the following documents to the Transfer
Agent:
(i) A copy of the Articles of Incorporation of the Fund and all
amendments thereto certified by the Secretary of the Fund;
(ii) A copy of the By-laws of the Fund certified by the Secretary
of the Fund;
(iii) A copy of a resolution of the Board of Directors of the
Fund certified by the Secretary of the Fund appointing the Transfer
Agent and authorizing the execution of this Transfer Agency Agreement;
(iv) A Certificate signed by the Secretary of the Fund
specifying: the number of authorized Shares, the number of such
authorized Shares issued, the number of such authorized Shares issued
and currently outstanding, the names and specimen signatures of the
Officers of the Fund and the name and address of the legal counsel for
the Fund;
(v) Specimen Share certificate for each or series class of Shares
in the form approved by the Board of Directors of the Fund (and in a
format compatible with the Transfer Agent's system), together with a
Certificate signed by the Secretary of the Fund as to such approval;
(vi) Copies of the Fund's registration statement, as amended to
date, and the most recently filed Post-Effective Amendment thereto,
filed by the Fund with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, and under the Investment
Company Act of 1940, as amended, together with any applications filed
in connection therewith; and
(vii) Opinion of counsel for the Fund with respect to the
validity of the authorized and outstanding Shares, whether such Shares
are fully paid and nonassessable and the status of such Shares under
the Securities Act of 1933, as amended, and any other applicable
federal law or regulation (i.e., if subject to registration, that they
have been registered and that the registration statement has become
effective or, if exempt, the specific grounds therefor).
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. If requested by the Transfer Agent, the Fund shall deliver to the
Transfer Agent the following documents on or before the effective date of
any increase or decrease in the total number of Shares authorized to be
issued:
(a) A certified copy of the amendment to the Articles of
Incorporation giving effect to such increase or decrease;
(b) In the case of an increase, an opinion of counsel for the
Fund with respect to the validity of the Shares of the Fund and the
status of such Shares under the Securities Act of 1933, as amended,
and any other applicable federal law or regulation (i.e., if subject
to registration, that they have been registered and that the
registration statement has become effective or, if exempt, the
specific grounds therefor); and
(c) In the case of an increase, if the appointment of the
Transfer Agent was theretofore expressly limited, a certified copy of
a resolution of the Board of Directors of the Fund increasing the
authority of the Transfer Agent.
2. Prior to the issuance of any additional Shares pursuant to stock
dividends or stock splits, etc., and prior to any reduction in the number
of Shares outstanding, if requested by the Transfer Agent, the Fund shall
deliver the following documents to the Transfer Agent:
(a) A certified copy of the resolution(s) adopted by the Board of
Directors and/or the shareholders of the Fund authorizing such
issuance of additional Shares or such reduction, as the case may be;
and
(b) An opinion of counsel for the Fund with respect to the
validity of the Shares and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable federal
law or regulation (i.e., if subject to registration, that they have
been registered and that the registration statement has become
effective, or, if exempt, the specific grounds therefor).
ARTICLE IV
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or other
capital adjustment requiring a change in the form of Share certificates,
the Transfer Agent will issue Share certificates in the new form in
exchange for, or upon transfer of, outstanding Share certificates in the
old form, upon receiving:
(a) A Certificate authorizing the issuance of the Share
certificates in the new form;
(b) A certified copy of any amendment to the Articles of
Incorporation with respect to the change;
(c) Specimen Share certificates for each class of Shares in the
new form approved by the Board of Directors of the Fund, with a
Certificate signed by the Secretary of the Fund as to such approval;
and
(d) An opinion of counsel for the Fund with respect to the
validity of the Shares in the new form and the status of such Shares
under the Securities Act of 1933, as amended, and any other applicable
federal law or regulation (i.e., if subject to registration, that the
Shares have been registered and that the registration statement has
become effective or, if exempt, the specific grounds therefor).
2. The Fund at its expense shall furnish the Transfer Agent with a
sufficient supply of blank Share certificates in the new form and from time
to time will replenish such supply upon the request of the Transfer Agent.
Such blank Share certificates shall be compatible with the Transfer Agent's
system and shall be properly signed by facsimile or otherwise by Officers
of the Fund authorized by law or by the By-laws to sign Share certificates
and, if required, shall bear the corporate seal or facsimile thereof. The
Fund agrees to indemnify and exonerate, save and hold the Transfer Agent
harmless from and against any and all claims or demands that may be
asserted against the Transfer Agent with respect to the genuineness of any
Share certificate supplied to the Transfer Agent pursuant to this Article.
ARTICLE V
ISSUANCE, REDEMPTION AND TRANSFER OF SHARES
1. (a) The Transfer Agent acknowledges that it has received a copy of
the Fund's Prospectus, which Prospectus describes how sales and redemption
of Shares of the Fund shall be made, and the Transfer Agent agrees to
accept purchase orders and redemption requests with respect to Shares on
each Fund Business Day in accordance with such Prospectus. The Fund agrees
to provide the Transfer Agent with sufficient advance notice to enable the
Transfer Agent to effect any changes in the procedures set forth in the
Prospectus regarding such purchase and redemption procedure; provided,
however, that in no event will such advance notice be less than thirty (30)
days.
(b) The Transfer Agent shall also accept with respect to each
Fund Business Day, at such times as are agreed upon from time to time
by the Transfer Agent and the Fund, a computer tape or electronic data
transmission consistent in all respects with the Transfer Agent's
record format, as amended from time to time, which is believed by the
Transfer Agent to be furnished by or on behalf of any Approved
Institution. The Transfer Agent shall not be liable for any losses or
damages to the Fund or its shareholders in the event that a computer
tape or electronic data transmission from an Approved Institution is
unable to be processed for any reason beyond the control of the
Transfer Agent, or if any of the information on such tape or
transmission is found to be incorrect.
2. On each Fund Business Day, the Transfer Agent shall, as of the time
at which the Fund computes the net asset value of the Fund, issue to and
redeem from the accounts specified in a purchase order, redemption request
or computer tape or electronic data transmission, which in accordance with
the Prospectus is effective on such Fund Business Day, the appropriate
number of full and fractional Shares based on the net asset value per Share
of such Fund specified in an advice received on such Fund Business Day from
the Fund. Notwithstanding the foregoing, if a redemption specified in a
computer tape or electronic data transmission is for a dollar value of
Shares in excess of the dollar value of uncertificated Shares in the
specified account, the Transfer Agent shall not effect such redemption in
whole or in part and shall within twenty-four (24) hours orally advise the
Approved Institution which supplied such tape of the discrepancy.
3. In connection with a reinvestment of a dividend or distribution of
Shares of the Fund, the Transfer Agent shall as of each Fund Business Day,
as specified in a Certificate or resolution described in paragraph 1 of
succeeding Article VI, issue Shares of the Fund based on the net asset
value per Share of such Fund specified in an advice received from the Fund
on such Fund Business Day.
4. On each Fund Business Day, the Transfer Agent shall supply the Fund
with a statement specifying with respect to the immediately preceding Fund
Business Day: the total number of Shares of the Fund (including fractional
Shares) issued and outstanding at the opening of business on such day; the
total number of Shares of the Fund sold on such day, pursuant to the
preceding paragraph 2 of this Article; the total number of Shares of the
Fund redeemed from shareholders by the Transfer Agent on such day; the
total number of Shares of the Fund, if any, sold on such day pursuant to
the preceding paragraph 3 of this Article, and the total number of Shares
of the Fund issued and outstanding.
5. In connection with each purchase and each redemption of Shares, the
Transfer Agent shall send such statements as are prescribed by the Federal
Securities laws applicable to transfer agents or as described in the
Prospectus. If the Prospectus indicates that certificates for Shares are
available and if specifically requested in writing by any shareholder, or
if otherwise required hereunder, the Transfer Agent will countersign (if
necessary), issue and mail to such shareholder at the addres set forth in
the records of the Transfer Agent a Share certificate for any full Share
requested.
6. As of each Fund Business Day, the Transfer Agent shall furnish the
Fund with an advice setting forth the number and dollar amount of Shares to
be redeemed on such Fund Business Day in accordance with paragraph 2 of
this Article.
7. Upon receipt of a proper redemption request and moneys paid to it
by the Custodian in connection with a redemption of Shares, the Transfer
Agent shall cancel the redeemed Shares and after making appropriate
deduction for any withholding of taxes required of it by applicable law:
(a) in the case of a redemption of Shares pursuant to a redemption
described in the preceding paragraph l(a) of this Article, make payment in
accordance with the Fund's redemption and payment procedures described in
the Prospectus; and (b) in the case of a redemption of Shares pursuant to a
computer tape or electronic data transmission described in the preceding
paragraph l(b) of this Article, make payment by directing a federal funds
wire order to the account previously designated by the Approved Institution
specified in said computer tape or electronic data transmission.
8. The Transfer Agent shall not be required to issue any Shares after
it has received from an Officer of the Fund or from an appropriate federal
or state authority written notification that the sale of Shares has been
suspended or discontinued, and the Transfer Agent shall be entitled to rely
upon such written notification.
9. Upon the issuance of any Shares in accordance with this Agreement,
the Transfer Agent shall not be responsible for the payment of any original
issue or other taxes required to be paid by the Fund in connection with
such issuance of any Shares.
10. The Transfer Agent shall accept a computer tape or electronic data
transmission consistent with the Transfer Agent's record format, as amended
from time to time, which is reasonably believed by the Transfer Agent to be
furnished by or on behalf of any Approved Institution and is represented to
be instructions with respect to the transfer of Shares from one account of
such Approved Institution to another such account, and shall effect the
transfers specified in said computer tape or electronic data transmission.
The Transfer Agent shall not be liable for any losses to the Fund or its
shareholders in the event that a computer tape or electronic data
transmission from an Approved Institution is unable to be processed for any
reason beyond the control of the Transfer Agent, or if any of the
information on such tape or transmission is found to be incorrect.
11. (a) Except as otherwise provided in subparagraph (b) of this
paragraph and in paragraph 13 of this Article, Shares will be
transferred or redeemed upon presentation to the Transfer Agent of
Share certificates or instructions properly endorsed for transfer or
redemption, accompanied by such documents as the Transfer Agent deems
necessary to evidence the authority of the person making such transfer
or redemption, and bearing satisfactory evidence of the payment of
stock transfer taxes In the case of small estates where no
administration is contemplated, the Transfer Agent may, when furnished
with an appropriate surety bond, and without further approval of the
Fund, transfer or redeem Shares registered in the name of a decedent
where the current market value of the Shares being transferred does
not exceed such amount as may from time to time be prescribed by
various states. The Transfer Agent reserves the right to refuse to
transfer or redeem Shares until it is satisfied that the endorsement
on the stock certificate or instructions is valid and genuine, and for
that purpose it will require, unless otherwise instructed by an
authorized Officer of the Fund, a guarantee of signature by an
"Eligible Guarantor Institution" as that term is defined by SEC Rule
17Ad-15. The Transfer Agent also reserves the right to refuse to
transfer or redeem Shares until it is satisfied that the requested
transfer or redemption is legally authorized, and it shall incur no
liability for the refusal, in good faith, to make transfers or
redemptions which the Transfer Agent, in its judgment, deems improper
or unauthorized, or until it is satisfied that there is no basis to
any claims adverse to such transfer or redemption. The Transfer Agent
may, in effecting transfers and redemptions of Shares, rely upon those
provisions of the Uniform Act for the Simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be
amended from time to time, applicable to the transfer of securities,
and the Fund shall indemnify the Transfer Agent for any act done or
omitted by it in good faith in reliance upon such laws. In no event
will the Fund indemnify the Transfer Agent for any act done by it as a
result of willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties. The Transfer Agent shall be entitled to
accept, and shall be fully protected by the Fund in accepting, any
request from any entity to carry out any transaction in Shares
received by the Transfer Agent through any of the various programs
offered through the National Securities Clearing Corporation ("NSCC")
(including, but not limited to, Networking and FundServ). Any such
entity shall constitute an Approved Institution as defined herein.
(b) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, the Transfer Agent shall
be fully protected by the Fund in not requiring any instruments,
documents, assurances, endorsements or guarantees, including, without
limitation, any signature guarantees, in connection with a redemption
or transfer of Shares whenever the Transfer Agent reasonably believes
that requiring the same would be inconsistent with the transfer and
redemption procedures as described in the Prospectus.
12. Notwithstanding any provision contained in this Agreement to the
contrary, the Transfer Agent shall not be required or expected to require,
as a condition to any transfer of any Shares pursuant to paragraph 11 of
this Article or any redemption of any Shares pursuant to a computer tape or
electronic data transmission described in this Agreement, any documents,
including, without limitation, any documents of the kind described in
subparagraph (a) of paragraph 11 of this Article, to evidence the authority
of the person requesting the transfer or redemption and/or the payment of
any stock transfer taxes, and shall be fully protected in acting in
accordance with the applicable provisions of this Article.
13. (a) As used in this Agreement, the terms "computer tape or
electronic data transmission" and "computer tape believed by the Transfer
Agent to be furnished by an Approved Institution", shall include any tapes
generated by the Transfer Agent to reflect information believed by the
Transfer Agent to have been input by an Approved Institution, via a remote
terminal or other similar link, into a data processing, storage or
collection system, or similar system (the "System"), located on th Transfer
Agent's premises. For purposes of paragraph 1 of this Article, such a
computer tape or electronic data transmission shall be deemed to have been
furnished at such times as are agreed upon from time to time by the
Transfer Agent and Fund only if the information reflected thereon was input
to the System at such times as are agreed upon from time to time by the
Transfer Agent and the Fund.
(b) Nothing contained in this Agreement shall constitute any
agreement or representation by the Transfer Agent to permit, or to
agree to permit, any Approved Institution to input information into a
System.
(c) The Transfer Agent reserves the right to approve, in advance,
any Approved Institution; such approval not to be unreasonably
withheld. The Transfer Agent also reserves the right to terminate any
and all automated data communications, at its discretion, upon a
reasonable attempt to notify the Fund when in the opinion of the
Transfer Agent continuation of such communications would jeopardize
the accuracy and/or integrity of the Fund's records on the System.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Fund shall furnish to the Transfer Agent a copy of a resolution
of its Board of Directors, certified by the Secretary or any Assistant
Secretary, either: (i) setting forth the date of the declaration of a
dividend or distribution, the date of accrual or payment, as the case may
be, thereof, the record date as of which shareholders entitled to payment,
or accrual, as the case may be, shall be determined, the amount per Share
of such dividend or distribution, the paymen date on which all previously
accrued and unpaid dividends are to be paid and the total amount, if any,
payable to the Transfer Agent on such payment date; or (ii) authorizing the
declaration of dividends and distributions on a daily or other periodic
basis and authorizing the Transfer Agent to rely on a Certificate setting
forth the information described in subsection (i) of this paragraph.
2. Upon the mail date specified in such Certificate or resolution, as
the case may be, the Fund shall, in the case of a cash dividend or
distribution, cause the Custodian to deposit in an account in the name of
the Transfer Agent on behalf of the Fund an amount of cash, if any,
sufficient for the Transfer Agent to make the payment, as of the mail date,
specified in such Certificate or resolution, as the case may be, to the
shareholders who were of record on the record date. The Transfer Agent
will, upon receipt of any such cash, make payment of such cash dividends or
distributions to the shareholders of record as of the record date by: (i)
mailing a check, payable to the registered shareholder, to the address of
record or dividend mailing address; or (ii) wiring such amounts to the
accounts previously designated by an Approved Institution, as the case may
be. The Transfer Agent shall not be liable for any improper payments made
in good faith and without negligence, in accordance with a Certificate or
resolution described in the preceding paragraph. If the Transfer Agent
shall not receive from the Custodian sufficient cash to make payments of
any cash dividend or distribution to all shareholders of the Fund as of the
record date, the Transfer Agent shall, upon notifying the Fund, withhold
payment to all shareholders of record as of the record date until
sufficient cash is provided to the Transfer Agent.
3. It is understood that the Transfer Agent shall in no way be
responsible for the determination of the rate or form of dividends or
capital gain distributions due to the shareholders. It is expressly agreed
and understood that the Transfer Agent is not liable for any loss as a
result of processing a distribution based on information provided in the
Certificate that is incorrect. The Fund agrees to pay the Transfer Agent
for any and all costs, both direct and Out-of-Pocket Expenses, incurre in
such corrective work as necessary to remedy such error.
4. It is understood that the Transfer Agent shall file such
appropriate information returns concerning the payment of dividend and
capital gain distributions with the proper federal, state and local
authorities as are required by law to be filed by the Fund, but shall in no
way be responsible for the collection or withholding of taxes due on such
dividends or distributions due to shareholders, except and only to the
extent required by applicable law. Anything in this Agreement to the
contrary notwithstanding, the Fund shall be solely responsible for the
accurate, complete and timely filing with the proper federal, state and
local authorities of all tax information with respect to any Fund account
maintained under Matrix Level 3 through any of the various programs offered
through the NSCC (including, but not limited to, Networking and FundServ).
ARTICLE VII
CONCERNING THE FUND
1. The Fund represents to the Transfer Agent that:
(a) It is a corporation duly organized and existing under the
laws of the State of Maryland.
(b) It is empowered under applicable laws and by its Articles of
Incorporation and By-laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(d) It is an investment company registered under the Investment
Company Act of 1940, as amended.
(e) A registration statement under the Securities Act of 1933, as
amended, with respect to the Shares is effective. The Fund shall
notify the Transfer Agent if such registration statement or any state
securities registrations have been terminated or a stop order has been
entered with respect to the Shares.
2. Each copy of the Articles of Incorporation of the Fund and copies
of all amendments thereto shall be certified by the Secretary of State (or
other appropriate official) of the state of organization, and if such
Articles of Incorporation and/or amendments are required by law also to be
filed with a county or other officer or official body, a certificate of
such filing shall be filed with a certified copy submitted to the Transfer
Agent. Each copy of the By-laws and copies of all amendment thereto, and
copies of resolutions of the Board of Directors of the Fund shall be
certified by the Secretary of the Fund under seal.
3. The Fund shall promptly deliver to the Transfer Agent written
notice of any change in the Officers authorized to sign Share certificates,
notifications or requests, together with a specimen signature of each new
Officer. In the event any Officer who shall have signed manually or whose
facsimile signature shall have been affixed to blank Share certificates
shall die, resign or be removed prior to issuance of such Share
certificates, the Transfer Agent may issue such Share certificates of the
Fund notwithstanding such death, resignation or removal, and the Fund shall
promptly deliver to the Transfer Agent such approval, adoption or
ratification as may be required by law.
4. It shall be the sole responsibility of the Fund to deliver to the
Transfer Agent the Fund's currently effective Prospectus and, for purposes
of this Agreement, the Transfer Agent shall not be deemed to have notice of
any information contained in such Prospectus until a reasonable time after
it is actually received by the Transfer Agent.
ARTICLE VIII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent represents and warrants to the Fund that:
(a) It is a corporation duly organized and existing under the
laws of the State of Missouri.
(b) It is empowered under applicable law and by its Articles of
Incorporation and By-laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(d) It is duly registered as a transfer agent under Section 17A
of the Securities Exchange Act of 1934, as amended.
2. The Transfer Agent shall not be liable and shall be indemnified in
acting upon any computer tape or electronic data transmission, writing or
document reasonably believed by it to be genuine and to have been signed or
made by an Officer of the Fund or person designated by the Fund and shall
not be held to have any notice of any change of authority of any person
until receipt of written notice thereof from the Fund or such person. It
shall also be protected in processing Share certificates which bear the
proper countersignature of the Transfer Agent and which it reasonably
believes to bear the proper manual or facsimile signature of the Officers
of the Fund.
3. The Transfer Agent upon notice to the Fund may establish such
additional procedures, rules and regulations governing the transfer or
registration of Share certificates as it may deem advisable and consistent
with such rules and regulations generally adopted by mutual fund transfer
agents.
4. The Transfer Agent shall keep such records as it may deem advisable
and is agreeable to the Fund, but not inconsistent with the rules and
regulations of appropriate government authorities, in particular Rules
31a-2 and 31a-3 under the Investment Company Act of 1940, as amended. The
Transfer Agent acknowledges that such records are the property of the Fund.
The Transfer Agent may deliver to the Fund from time to time at its
discretion, for safekeeping or disposition by the Fund in accordance with
law, such records, papers, documents accumulated in the execution of its
duties as such Transfer Agent, as the Transfer Agent may deem expedient,
other than those which the Transfer Agent is itself required to maintain
pursuant to applicable laws and regulations. The Fund shall assume all
responsibility for any failure thereafter to produce any record, paper,
cancelled Share certificate or other document so returned, if and when
required. Such records maintained by the Transfer Agent pursuant to this
paragraph 4, which have not been previously delivered to the Fund pursuant
to the foregoing provisions of this paragraph 4, shall be considered to be
the property of the Fund, shall be made available upon request for
inspection by the Officers, employees and auditors of the Fund, and records
shall be delivered to the Fund upon request and in any event upon the date
of termination of this Agreement, as specified in Article IX of this
Agreement, in the form and manner kept by the Transfer Agent on such date
of termination or such earlier date as may be requested by the Fund.
5. The Transfer Agent shall not be liable for any loss or damage,
including counsel fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its bad faith,
willful misfeasance, gross negligence or reckless disregard of its duties
under this Agreement.
6. (a) The Fund shall indemnify and exonerate, save and hold harmless
the Transfer Agent from and against any and all claims (whether with or
without basis in fact or law), demands, expenses (including reasonable
attorneys' fees) and liabilities of any and every nature which the Transfer
Agent may sustain or incur or which may be asserted against the Transfer
Agent by any person by reason of or as a result of any action taken or
omitted to be taken by any prior transfer agent of the Fund or as a result
of any action taken or omitted to be taken by the Transfer Agent in good
faith and without gross negligence or willful misfeasance or in reliance
upon: (i) any provision of this Agreement; (ii) the Prospectus; (iii) any
instruction or order including, without limitation, any computer tape or
electronic data transmission reasonably believed by the Transfer Agent to
have been received from an Approved Institution; (iv) any instrument, order
or Share certificate reasonably believed by it to be genuine and to be
signed, countersigned or executed by any duly authorized Officer of the
Fund; (v) any Certificate or other instructions of an Officer; (vi) any
opinion of legal counsel for the Fund or the Transfer Agent; or (vii) any
request by any entity to carry out any transaction in Shares received by
the Transfer Agent through any of the various programs offered through the
NSCC (including, but not limited to, Networking and FundServ). The Fund
shall indemnify and exonerate, save and hold the Transfer Agent harmless
from and against any and all claims (whether with or without basis in fact
or law), demands, expenses (including reasonable attorneys' fees) and
liabilities of any and every nature which the Transfer Agent may sustain or
incur or which may be asserted against the Transfer Agent by any person by
reason of or as a result of any action taken or omitted to be taken by the
Transfer Agent in good faith in connection with its appointment or in
relianc upon any law, act, regulation or any interpretation of the same
even though such law, act or regulation may thereafter have been altered,
changed, amended or repealed.
(b) The Transfer Agent shall not settle any claim, demand,
expense or liability to which it may seek indemnity pursuant to
paragraph 6(a) above (each, an "Indemnifiable Claim") without the
express written consent of an Officer of the Fund. The Transfer Agent
shall notify the Fund within fifteen (15) days of receipt of
notification of an Indemnifiable Claim, provided that the failure by
the Transfer Agent to furnish such notification shall not impair its
right to seek indemnification from the Fund unless the Fund is unable
to adequately defend the Indemnifiable Claim as a result of such
failure, and further provided, that if as a result of the Transfer
Agent's failure to provide the Fund with timely notice of the
institution of litigation a judgment by default is entered, prior to
seeking indemnification from the Fund the Transfer Agent, at its own
cost and expense, shall open such judgment. The Fund shall have the
right to defend any Indemnifiable Claim at its own expense, provided
that such defense shall be conducted by counsel selected by the Fund
and reasonably acceptable to the Transfer Agent. The Transfer Agent
may join in such defense at its own expense, but to the extent that it
shall so desire the Fund shall direct such defense. The Fund shall not
settle any Indemnifiable Claim without the express written consent of
the Transfer Agent if the Transfer Agent determines that such
settlement would have an adverse effect on the Transfer Agent beyond
the scope of this Agreement. In such event, the Fund and the Transfer
Agent shall each be responsible for their own defense at their own
cost and expense, and such claim shall not be deemed an Indemnifiable
Claim hereunder. If the Fund shall fail or refuse to defend an
Indemnifiable Claim, the Transfer Agent may provide its own defense at
the cost and expense of th Fund. Anything in this Agreement to the
contrary notwithstanding, the Fund shall not indemnify the Transfer
Agent against any liability or expense arising out of the Transfer
Agent's willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties and obligations under this Agreement. The
Transfer Agent shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to any
action or failure or omission to act by the Transfer Agent as a result
of the Transfer Agent's lack of good faith, gross negligence or
willful misfeasance.
7. The Transfer Agent shall not be liable to the Fund with respect to
any redemption draft on which the signature of the drawer is forged and
which the Fund's Custodian has advised the Transfer Agent to honor the
redemption (but nothing herein is meant to impose any duties upon the
Fund's Custodian); nor shall the Transfer Agent be liable for any material
alteration or absence or forgery of any endorsement, it being understood
that the Transfer Agent's sole responsibility with respect to inspecting
redemption drafts is to use reasonable care to verify the drawer's
signature against signatures on file.
8. There shall be excluded from the consideration of whether the
Transfer Agent has breached this Agreement in any way, any period of time,
and only such period of time during which the Transfer Agent's performance
is materially affected, by reason of circumstances beyond its control
(collectively, "Causes"), including, without limitation, mechanical
breakdowns of equipment (including any alternative power supply and
operating systems software), flood or catastrophe, acts of God, failures o
transportation, communication or power supply, strikes, lockouts, work
stoppages or other similar circumstances.
9. At any time the Transfer Agent may apply to an Officer of the Fund
for written instructions with respect to any matter arising in connection
with the Transfer Agent's duties and obligations under this Agreement, and
the Transfer Agent shall not be liable for any action taken or permitted by
it in good faith in accordance with such written instructions. Such
application by the Transfer Agent for written instructions from an Officer
of the Fund may set forth in writing any action proposed to be taken or
omitted by the Transfer Agent with respect to its duties or obligations
under this Agreement and the date on and/or after which such action shall
be taken. The Transfer Agent shall not be liable for any action taken or
omitted in accordance with a proposal included in any such application on
or after the date specified therein unless, prior to taking or omitting any
such action, the Transfer Agent has received written instructions in
response to such application specifying the action to be taken or omitted.
The Transfer Agent may consult counsel of the Fund, or upon notice to the
Fund, its own counsel, at the expense of the Fund and shall be fully
protected with respect to anything done or omitted by it in good faith in
accordance with the advice or opinion of counsel to the Fund or its own
counsel.
10. The Transfer Agent may issue new Share certificates in place of
certificates represented to have been lost, stolen or destroyed upon
receiving written instructions from the shareholder accompanied by proof of
an indemnity or surety bond issued by a recognized insurance institution
specified by the Fund or the Transfer Agent. If the Transfer Agent receives
written notification from the shareholder or broker dealer that the
certificate issued was never received, and such notification is made within
thirty (30) days of the date of issuance, the Transfer Agent may reissue
the certificate without requiring a surety bond. The Transfer Agent may
also reissue certificates which are represented as lost, stolen or
destroyed without requiring a surety bond provided that the notification is
in writing and accompanied by an indemnificatio signed on behalf of a
member firm of the New York Stock Exchange and signed by an officer of said
firm with the signature guaranteed. Notwithstanding the foregoing, the
Transfer Agent will reissue a certificate upon written authorization from
an Officer of the Fund.
11. In case of any requests or demands for the inspection of the
shareholder records of the Fund, the Transfer Agent will endeavor to notify
the Fund promptly and to secure instructions from an Officer as to such
inspection. The Transfer Agent reserves the right, however, to exhibit the
shareholder records to any person whenever it receives an opinion from its
counsel that there is a reasonable likelihood that the Transfer Agent will
be held liable for the failure to exhibit the shareholder records to such
person; provided, however, that in connection with any such disclosure the
Transfer Agent shall promptly notify the Fund that such disclosure has been
made or is to be made.
12. At the request of an Officer of the Fund, the Transfer Agent will
address and mail such appropriate notices to shareholders as the Fund may
direct.
13. Notwithstanding any of the foregoing provisions of this Agreement,
the Transfer Agent shall be under no duty or obligation to inquire into,
and shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority of
the Approved Institution or of the Fund, as the case may be, to
request such sale or issuance;
(b) The legality of a transfer of Shares, or of a redemption of
any Shares, the propriety of the amount to be paid therefor, or the
authority of the Approved Institution or of the Fund, as the case may
be, to request such transfer or redemption;
(c) The legality of the declaration of any dividend by the Fund,
or the legality of the issue of any Shares in payment of any stock
dividend; or
(d) The legality of any recapitalization or readjustment of
Shares.
14. The Transfer Agent shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set
forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Transfer Agent.
15. Purchase and Prices of Services:
(a) The Fund will compensate the Transfer Agent for, and Transfer
Agent will provide, beginning on the execution date of this Agreement
and continuing until the termination of this Agreement as provided
hereinafter, the services set forth in Schedule I.
(b) The current unit prices for the services are set forth in
Schedule II (the "Schedule II Fees"). Effective as of January 1, 1997,
once in each calendar year, the Transfer Agent may elect to raise the
Schedule II Fees upon ninety (90) days prior notice to the Fund, all
subject to the mutual agreement of the parties hereto. Notwithstanding
the annual right to raise the Schedule II Fees, the Transfer Agent may
increase prices due to changes in legal or regulatory requirements
subjec to the approval of the Fund, which approval shall not be
unreasonably withheld.
16. Billing and Payment:
(a) The Transfer Agent shall bill the Fund monthly in arrears for
accounts maintained and Out-of-Pocket Expenses. The Transfer Agent may
from time to time request that the Fund advance estimated expenditures
of an unusual nature subject to reconciliation of actual expenses as
soon as practicable thereafter.
(b) The Fund shall pay the Transfer Agent in immediately
available funds at UMB Bank, n.a. in Kansas City, Missouri within
thirty (30) days of the date of the bill. Any amounts due under this
Agreement which are not paid within said thirty (30) day period shall
bear interest at the rate of one and one-half percent (l 1/2%) per
month from such date until paid in full.
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such
termination, which shall be not less than sixty (60) days after the date of
receipt of such notice. In the event such notice is given by the Fund, it
shall be accompanied by a copy of a resolution of the Board of Directors of
the Fund, certified by the Secretary or any Assistant Secretary, electing
to terminate this Agreement and designating the successor transfer agent or
transfer agents. In the event such notice is given by the Transfer Agent,
the Fund shall on or before the termination date, deliver to the Transfer
Agent a copy of a resolution of its Board of Directors, certified by the
Secretary or any Assistant Secretary, designating a successor transfer
agent or transfer agents. In the absence of such designation by the Fund,
the Fund shall upon the date specified in the notice of termination of this
Agreement and delivery of the records maintained hereunder be deemed to be
its own transfer agent and the Transfer Agent shall thereby be relieved of
all duties and responsibilities pursuant to this Agreement.
In the event this Agreement is terminated as provided herein, the
Transfer Agent, upon the written request of the Fund, shall deliver the
records of the Fund on electromagnetic media to the Fund or its successor
transfer agent. The Fund shall be responsible to the Transfer Agent for the
reasonable costs and expenses associated with the preparation and delivery
of such media.
ARTICLE X
MISCELLANEOUS
1. The Fund agrees that prior to effecting any change in the
Prospectus which would increase or alter the duties and obligations of the
Transfer Agent hereunder, it shall advise the Transfer Agent of such
proposed change at least thirty (30) days prior to the intended date of the
same, and shall proceed with such change only if it shall have received the
written consent of the Transfer Agent thereto, which shall not be
unreasonably withheld.
2. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Fund shall be sufficiently given if
addressed to the Fund and mailed or delivered to it at:
2440 Pershing Road
Kansas City, MO 64108
or at such other place as the Fund may from time to time designate in
writing.
3. Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Transfer Agent shall be sufficiently
given if addressed to the Transfer Agent and mailed or delivered to:
2440 Pershing Road
Kansas City, MO 64108
or at such other place as the Transfer Agent may from time to time
designate in writing.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the formality of this
Agreement.
5. This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns.
6. This Agreement shall be governed by and construed in accordance
with the laws of the State of Missouri.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
8. The provisions of this Agreement are intended to benefit only the
Transfer Agent and the Fund, and no rights shall be granted to any other
person by virtue of this Agreement.
9. (a) The Transfer Agent shall endeavor to assist in resolving
shareholder inquiries and errors relating to the period during which prior
transfer agents acted as such for the Fund. Any such inquiries or errors
which cannot be expediently resolved by the Transfer Agent will be referred
to the Fund.
(b) The Transfer Agent shall only be responsible for the
safekeeping and maintenance of transfer agency records, cancelled
Share certificates and correspondence of the Fund created or produced
prior to the time of conversion which are under its control and
acknowledged in a writing to the Fund to be in its possession. Any
expenses or liabilities incurred by the Transfer Agent as a result of
shareholder inquiries, regulatory compliance or audits related to such
records and not caused as a result of Transfer Agent's bad faith,
willful misfeasance or gross negligence shall be the responsibility of
the Fund as provided in Article VIII herein.
[The remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officer, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as of the day and year
first above written INVESTORS MARK SERIES FUND, INC.
By _____________________
Name: Larry D. Armel
Title: President
JONES & BABSON, INC.
Name: Martin A. Cramer
Title: Secretary
TA Agreement/J&B & IMSF
[TO BE TYPED ON INVESTORS MARK ADVISORS, LLC LETTERHEAD]
(Date)
Investors Mark Series Fund, Inc.
700 Karnes Boulevard
Kansas City, MO 64108
Re: Expense Reimbursement
Dear Sirs:
The undersigned, Investors Mark Advisors, LLC ("Adviser"), serves as the
investment adviser to Investors Mark Series Fund, Inc. ("Adviser"). The Fund
intends to offer its shares to separate accounts of life insurance companies
("Participating Insurance Companies") in connection with variable annuity and
variable life insurance policies issued by the Participating Insurance Companies
and to qualified pension and other retirement plans ("Qualified Plans").
The Adviser desires that the Fund be an attractive investment medium to
Participating Insurance Companies and their variable annuity and variable life
insurance policy owners and to Qualified Plans and their Participants. In
consideration thereof and as an inducement to the Fund to offer its shares to
the separate accounts of Participating Insurance Companies and to Qualified
Plans, the Adviser hereby undertakes and agrees with the Fund that it will, if
necessary, reimburse expenses of the Portfolios to the extent that expenses of
each of the Portfolios, including management fees, exceed the annual rate of
each of the Portfolio's average daily net assets as set forth on the attached
Schedule A. This undertaking is subject to termination at any time without
notice to shareholders after the expiration of twelve (12) months from the date
shares of the Portfolios are first offered to the public.
INVESTORS MARK ADVISORS, LLC
By:_______________________________
Agreed and Accepted:
INVESTORS MARK SERIES FUND, INC.
By: ________________________________________
SCHEDULE A
The Adviser has agreed to limit the expenses of the Portfolios to the extent
necessary to limit the total annual operating expenses (expressed as a
percentage of each Portfolio's average daily net assets) to not more than .90%
of the average daily net assets of each of the Mid Cap Equity, Large Cap Growth,
Large Cap Value, Growth & Income and Balanced Portfolios; to not more than .80%
of the average daily net assets of the Intermediate Fixed Income Portfolio; to
not more than .50% of the average daily net assets of the Money Market
Portfolio; to not more than 1.00% of the average daily net assets of the Global
Fixed Income Portfolio; and to not more than 1.05% of the average daily net
assets of the Small Cap Equity Portfolio. This expense limitation may be
modified or terminated in the discretion of the Adviser at any time without
notice to shareholders after the expiration of twelve (12) months from the date
shares of the Portfolios are first offered to the public. Reimbursement by the
Portfolios of expenses paid by the Adviser pursuant to the Expense Limitation
Agreement may be made at a later date when the Portfolios have reached a
sufficient asset size to permit reimbursement to be made without causing the
total annual expense ratio of each Portfolio to exceed the Total Operating
Expense percentages.
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the ___ day of ________, , by and between INVESTORS
MARK SERIES FUND, INC. ("FUND"), a Maryland corporation, INVESTORS MARK
ADVISORS, LLC ("ADVISER"), a Delaware limited liability company , and
______________ ("LIFE COMPANY"), a life insurance company organized under the
laws of the State of __________.
WHEREAS, FUND is registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940, as amended (the "'40 Act"), as an
open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series trust comprised of several Portfolios
("Portfolios"), with those currently available being listed on Appendix A
hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for certain variable
life insurance and/or variable annuity contracts ("Variable Contracts") offered
by life insurance companies through separate accounts ("Separate Accounts") of
such life insurance companies ("Participating Insurance Companies"); and
WHEREAS, FUND may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, FUND will apply for an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the FUND to be sold to and held by Variable Contract separate
accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more separate
accounts ("Separate Accounts") to offer Variable Contracts and is desirous of
having FUND as one of the underlying funding vehicles for such Variable
Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser under the
Investment Advisers Act of 1940 and acts as the FUND's investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
LIFE COMPANY intends to purchase shares of FUND to fund the aforementioned
Variable Contracts and FUND is authorized to sell such shares to LIFE COMPANY at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY, FUND,
and ADVISER agree as follows:
Article I. SALE OF FUND SHARES
1.1 FUND agrees to make available to the Separate Accounts of LIFE COMPANY
shares of the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in FUND's Registration Statement.
1.2 FUND agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of FUND which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by FUND or its designee
of the order for the shares of FUND. For purposes of this Section 1.2, LIFE
COMPANY shall be the designee of FUND for receipt of such orders from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and FUND receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as FUND and LIFE COMPANY may agree in writing) of such
order by 9:00 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which FUND calculates its net asset value pursuant to the rules of the
SEC.
1.3 FUND agrees to redeem on LIFE COMPANY's request, any full or fractional
shares of FUND held by LIFE COMPANY, executing such requests on a daily basis at
the net asset value next computed after receipt by FUND or its designee of the
request for redemption, in accordance with the provisions of this agreement and
FUND's Registration Statement. For purposes of this Section 1.3, LIFE COMPANY
shall be the designee of FUND for receipt of requests for redemption from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that LIFE COMPANY receives the request for redemption
by 4:00 p.m. New York time and FUND receives notice from LIFE COMPANY by
telephone or facsimile (or by such other means as FUND and LIFE COMPANY may
agree in writing) of such request for redemption by 9:00 a.m. New York time on
the next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to LIFE
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolio of FUND. LIFE COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. FUND shall notify LIFE COMPANY or
its designee of the number of shares so issued as payment of such dividends and
distributions.
1.5 FUND shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
If FUND provides LIFE COMPANY with materially incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any material
error in the calculation of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the information
described in Section 1.5 to calculate Separate Account unit values for the day.
Using these unit values, LIFE COMPANY shall process each such Business Day's
Separate Account transactions based on requests and premiums received by it by
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m. New York time) to determine the net dollar amount of FUND shares which
shall be purchased or redeemed at that day's closing net asset value per share.
The net purchase or redemption orders so determined shall be transmitted to FUND
by LIFE COMPANY by 9:00 a.m. New York Time on the Business Day next following
LIFE COMPANY's receipt of such requests and premiums in accordance with the
terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of FUND shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, FUND shall use its best efforts
to wire the redemption proceeds to LIFE COMPANY by the next Business Day, unless
doing so would require FUND to dispose of Portfolio securities or otherwise
incur additional costs. In any event, proceeds shall be wired to LIFE COMPANY
within three Business Days or such longer period permitted by the '40 Act or the
rules, orders or regulations thereunder and FUND shall notify the person
designated in writing by LIFE COMPANY as the recipient for such notice of such
delay by 3:00 p.m. New York Time the same Business Day that LIFE COMPANY
transmits the redemption order to FUND. If LIFE COMPANY's order requests the
application of redemption proceeds from the redemption of shares to the purchase
of shares of another Fund advised by ADVISER, FUND shall so apply such proceeds
the same Business Day that LIFE COMPANY transmits such order to FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be sold only
to Participating Insurance Companies which have agreed to participate in FUND to
fund their Separate Accounts and/or to Qualified Plans, all in accordance with
the requirements of Section 817(h)(4) of the Internal Revenue Code of 1986, as
amended ("Code") and Treasury Regulation 1.817-5. Shares of the Portfolios of
FUND will not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any Portfolio of
FUND if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Trustees of the FUND
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY or the Separate Accounts.
Shares ordered from Portfolio will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of ___________________ and
that it has legally and validly established each Separate Account as a
segregated asset account under such laws, and that ___________________, the
principal underwriter for the Variable Contracts, is registered as a
broker-dealer under the Securities Exchange Act of 1934 (the "'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the '40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933 (the "'33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and further that the sale of the Variable Contracts shall comply in all material
respects with applicable state insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and FUND shall be
registered under the '40 Act prior to and at the time of any issuance or sale of
such shares. FUND, subject to Section 1.9 above, shall amend its registration
statement under the '33 Act and the '40 Act from time to time as required in
order to effect the continuous offering of its shares. FUND shall register and
qualify its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance.
2.7 FUND represents and warrants that each Portfolio invested in by the
Separate Account will be treated as a "regulated investment company" under
Subchapter M of the Code, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 ADVISER represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 FUND shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND. FUND
shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 FUND or its designee shall provide LIFE COMPANY, free of charge, with
as many copies of the current prospectus (or prospectuses), statements of
additional information, annual and semi-annual reports and proxy statements for
the shares of the Portfolios as LIFE COMPANY may reasonably request for
distribution to existing Variable Contract owners whose Variable Contracts are
funded by such shares. FUND or its designee shall provide LIFE COMPANY, at LIFE
COMPANY's expense, with as many copies of the current prospectus for the shares
as LIFE COMPANY may reasonably request for distribution to prospective
purchasers of Variable Contracts. If requested by LIFE COMPANY in lieu thereof,
FUND or its designee shall provide such documentation (including a "camera
ready" copy of the new prospectus as set in type or, at the request of LIFE
COMPANY, as a diskette in the form sent to the financial printer) and other
assistance as is reasonably necessary in order for the parties hereto once a
year (or more frequently if the prospectus for the shares is supplemented or
amended) to have the prospectus for the Variable Contracts and the prospectus
for the FUND shares printed together in one document. The expenses of such
printing will be apportioned between LIFE COMPANY and FUND in proportion to the
number of pages of the Variable Contract and FUND prospectus, taking account of
other relevant factors affecting the expense of printing, such as covers,
columns, graphs and charts; FUND to bear the cost of printing the FUND
prospectus portion of such document for distribution only to owners of existing
Variable Contracts funded by the FUND shares and LIFE COMPANY to bear the
expense of printing the portion of such documents relating to the Separate
Account; provided, however, LIFE COMPANY shall bear all printing expenses of
such combined documents where used for distribution to prospective purchasers or
to owners of existing Variable Contracts not funded by the shares. In the event
that LIFE COMPANY requests that FUND or its designee provide FUND's prospectus
in a "camera ready" or diskette format, FUND shall be responsible for providing
the prospectus in the format in which it is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (e.g. typesetting expenses), and LIFE COMPANY shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses.
3.3 FUND will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide FUND with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to FUND and
ADVISER, each piece of sales literature or other promotional material in which
FUND or ADVISER is named, at least fifteen (15) Business Days prior to its
intended use. No such material will be used if FUND or ADVISER objects to its
use in writing within ten (10) Business Days after receipt of such material.
4.2 FUND and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY or its Separate Accounts are named, at least fifteen (15) Business
Days prior to its intended use. No such material will be used if LIFE COMPANY
objects to its use in writing within ten (10) Business Days after receipt of
such material.
4.3 FUND and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission
of LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND or concerning FUND
other than the information or representations contained in a registration
statement or prospectus for FUND, as such registration statement and prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by FUND or its designee, except with the
written permission of FUND.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. ("NASD")
rules, the '40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that FUND will be filing an application with
the SEC to request an order granting relief from various provisions of the '40
Act and the rules thereunder to the extent necessary to permit FUND shares to be
sold to and held by Variable Contract separate accounts of both affiliated and
unaffiliated Participating Insurance Companies and Qualified Plans. It is
anticipated that the Exemptive Order, when and if issued, shall require FUND and
each Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Section 5. If the Exemptive Order imposes
conditions materially different from those provided for in this Section 5, the
conditions and undertakings imposed by the Exemptive Order shall govern this
Agreement and the parties hereto agree to amend this Agreement consistent with
the Exemptive Order. The Fund will not enter into a participation agreement with
any other Participating Insurance Company unless it imposes the same conditions
and undertakings as are imposed on LIFE COMPANY hereby.
5.2 The Board will monitor FUND for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts investing in FUND. An irreconcilable material conflict may
arise for a variety of reasons, which may include: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of FUND are being managed;
(e) a difference in voting instructions given by Variable Contract owners; (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of Variable Contract owners and (g) if applicable, a decision by a
Qualified Plan to disregard the voting instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts to the
Board. LIFE COMPANY will be responsible for assisting the Board in carrying out
its duties in this regard by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. The responsibility
includes, but is not limited to, an obligation by the LIFE COMPANY to inform the
Board whenever it has determined to disregard Variable Contract owner voting
instructions. These responsibilities of LIFE COMPANY will be carried out with a
view only to the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Trustees), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from FUND or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of FUND, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group (i.e
variable annuity or variable life insurance Contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Variable Contract owners the option of making such a
change; and (c) establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of LIFE COMPANY's decision to disregard Variable
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, LIFE COMPANY may be required, at the
election of FUND, to withdraw the Separate Account's investment in FUND, and no
charge or penalty will be imposed as a result of such withdrawal. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict but in no event will
FUND or ADVISER (or any other investment adviser of FUND) be required to
establish a new funding medium for any Variable Contract. Further, LIFE COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the '40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. LIFE COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
FUND calculates voting privileges in a manner consistent with other
Participating Insurance Companies. LIFE COMPANY will vote shares for which it
has not received timely voting instructions, as well as shares it owns, in the
same proportion as its votes those shares for which it has received voting
instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule
6e-3 is adopted, to provide exemptive relief from any provision of the '40 Act
or the rules thereunder with respect to mixed and shared funding on terms and
conditions materially different from any exemptions granted in the Exemptive
Order, then FUND, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e- 2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and
hold harmless FUND, ADVISER and each of their Trustees, directors, principals,
officers, employees and agents and each person, if any, who controls FUND or
ADVISER within the meaning of Section 15 of the '33 Act (collectively, the
"Indemnified Parties") against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY,
which consent shall not be unreasonably withheld) or litigation (including legal
and other expenses), to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of FUND's shares or the
Variable Contracts and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration Statement
or prospectus for the Variable Contracts or contained in the Variable Contracts
(or any amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to LIFE COMPANY by or on behalf of FUND for use in the registration statement or
prospectus for the Variable Contracts or in the Variable Contracts or sales
literature (or any amendment or supplement) or otherwise for use in connection
with the sale of the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration state ment,
prospectus or sales literature of FUND not supplied by LIFE COMPANY, or persons
under its control) or wrongful conduct of LIFE COMPANY or persons under its
control, with respect to the sale or distribution of the Variable Contracts or
FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of FUND or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to FUND by or on
behalf of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by LIFE COMPANY in this Agreement or arise out of or result
from any other material breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.4 Indemnification by FUND. FUND agrees to indemnify and hold harmless
LIFE COMPANY and each of its directors, officers, employees, and agents and each
person, if any, who controls LIFE COMPANY within the meaning of Section 15 of
the '33 Act (collectively, the "Indemnified Parties") against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of FUND which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses) to which the Indemnified Parties
may become subject under any statute, or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of FUND's
shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus or sales literature of FUND (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to ADVISER or FUND by or on
behalf of LIFE COMPANY for use in the registration statement or prospectus for
FUND or in sales literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration state ment,
prospectus or sales literature for the Variable Contracts not supplied by
ADVISER or FUND or persons under its control) or wrongful conduct of FUND or
persons under its control, with respect to the sale or distribution of the
Variable Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to LIFE COMPANY for inclusion therein by or on behalf of FUND; or
(d) arise as a result of (i) a failure by FUND to provide substantially
the services and furnish the materials under the terms of this Agreement; or
(ii) a failure by a Portfolio(s) invested in by the Separate Account to comply
with the diversification requirements of Section 817(h) of the Code; or (iii) a
failure by a Portfolio(s) invested in by the Separate Account to qualify as a
"regulated investment company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by FUND in this Agreement or arise out of or result from
any other material breach of this Agreement by FUND.
7.5 FUND shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
7.6 FUND shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified FUND in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify FUND of any such claim shall not relieve FUND from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, FUND shall
be entitled to participate at its own expense in the defense thereof. FUND also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from FUND to such party of FUND's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and FUND will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or FUND at any time from the date
hereof upon 180 days' notice, unless a shorter time is agreed to by the parties;
(b) At the option of LIFE COMPANY, if FUND shares are not reasonably
available to meet the requirements of the Variable Contracts as determined by
LIFE COMPANY. Prompt notice of election to terminate shall be furnished by LIFE
COMPANY, said termination to be effective ten days after receipt of notice
unless FUND makes available a sufficient number of shares to reasonably meet the
requirements of the Variable Contracts within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against FUND by the SEC, the NASD, or any other regulatory body, the
expected or anticipated ruling, judgment or outcome of which would, in LIFE
COMPANY's reasonable judgment, materially impair FUND's ability to meet and
perform FUND's obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by LIFE COMPANY with said termination to be
effective upon receipt of notice;
(d) At the option of FUND, upon the institution of formal proceedings
against LIFE COMPANY by the SEC, the NASD, or any other regulatory body, the
expected or anticipated ruling, judgment or outcome of which would, in FUND's
reasonable judgment, materially impair LIFE COMPANY's ability to meet and
perform its obligations and duties hereunder. Prompt notice of election to
terminate shall be furnished by FUND with said termination to be effective upon
receipt of notice;
(e) In the event FUND's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law precludes the use
of such shares as the underlying investment medium of Variable Contracts issued
or to be issued by LIFE COMPANY. Termination shall be effective upon such
occurrence without notice;
(f) At the option of FUND if the Variable Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under the Code, or
if FUND reasonably believes that the Variable Contracts may fail to so qualify.
Termination shall be effective upon receipt of notice by LIFE COMPANY;
(g) At the option of LIFE COMPANY, upon FUND's breach of any material
provision of this Agreement, which breach has not been cured to the satisfaction
of LIFE COMPANY within ten days after written notice of such breach is delivered
to FUND;
(h) At the option of FUND, upon LIFE COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the satisfaction
of FUND within ten days after written notice of such breach is delivered to LIFE
COMPANY;
(i) At the option of FUND, if the Variable Contracts are not registered,
issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice;
(j) In the event this Agreement is assigned without the prior written
consent of LIFE COMPANY, FUND, and ADVISER, termination shall be effective
immediately upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.2 hereof, FUND at its option may elect to continue to make available
additional FUND shares, as provided below, for so long as FUND desires pursuant
to the terms and conditions of this Agreement, for all Variable Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, if FUND
so elects to make additional FUND shares available, the owners of the Existing
Contracts or LIFE COMPANY, whichever shall have legal authority to do so, shall
be permitted to reallocate investments in FUND, redeem investments in FUND
and/or invest in FUND upon the payment of additional premiums under the Existing
Contracts. In the event of a termina tion of this Agreement pursuant to Section
8.2 hereof, FUND and ADVISER, as promptly as is practicable under the
circumstances, shall notify LIFE COMPANY whether FUND elects to continue to make
FUND shares available after such termination. If FUND shares continue to be made
available after such termination, the provisions of this Agreement shall remain
in effect and thereafter either FUND or LIFE COMPANY may terminate the
Agreement, as so continued pursuant to this Section 8.3, upon sixty (60) days
prior written notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until sixty (60) days after the LIFE COMPANY shall have
notified FUND of its intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to FUND:
Investors Mark Series Fund, Inc.
700 Karnes Boulevard
Kansas City, MO 64108
Attention:
If to ADVISER:
Investors Mark Advisors, LLC
700 Karnes Boulevard
Kansas City, MO 64108
Attention:
If to LIFE COMPANY:
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Trustees or officers of FUND or
any Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with FUND or a
Portfolio must look solely to the property of FUND or that Portfolio,
respectively, for enforcement of any claims against FUND or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.8 If the Agreement terminates, the parties agree that Article 7 and
Sections 10.5, 10.6 and 10.7 shall remain in effect after termination.
10.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by FUND,
ADVISER and the LIFE COMPANY.
10.10 No failure or delay by a party in exercising any right or remedy
under this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The rights
and remedies provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
INVESTORS MARK SERIES FUND, INC.
By:_______________________________
Name:
Title:
INVESTORS MARK ADVISORS, LLC
By:________________________________
Name:
Title:
LIFE COMPANY
By:________________________________
Name:
Title:
Appendix A
Available Portfolios
Intermediate Fixed Income
Mid Cap Equity
Money Market
Global Fixed Income
Small Cap Equity
Large Cap Growth
Growth & Income
Balanced
Appendix B
Separate Accounts Selected Portfolios
SERVICES AGREEMENT
BETWEEN
JONES & BABSON, INC.
AND
INVESTORS MARK ADVISORS, LLC
THIS AGREEMENT, made and entered into as of the 2nd day of October, 1997,
by and between Jones & Babson, Inc., a Missouri corporation ("J&B"), and
Investors Mark Advisors, a Delaware Limited Liability Company ("IMA");
WHEREAS, IMA is statutory manager of the Investors Mark Series Fund, Inc.;
and
WHEREAS, J&B and IMA desire to enter into agreement to provide general fund
administration and portfolio accounting to the Investors Mark Series Fund, Inc.;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto do hereby agree as follows:
1. Term of Agreement
The effective date of this Agreement shall be October 10, 1997, and shall
continue in effect until termination by either party upon 60 days written
notice.
2. Duties of the Parties
(a) During the term of this Agreement, J&B will provide transfer agency
services to the Investors Mark Series Fund pursuant to a written Transfer Agency
Agreement appropriately approved by the Board of Directors of the Investors Mark
Series Fund, such Agreement to be in a form acceptable to IMA.
The parties understand and agree that the cost of such transfer agency
services, as documented in said Agreement, shall be the responsibility of J&B,
and in no event shall Investors Mark Series Fund be responsible for such cost.
(b) Jones & Babson shall also furnish or provide for portfolio accounting,
various fund administration and legal/regulatory services to the Investors Mark
Series Fund Portfolios including, without limitation, federal and state
registration of the shares of the Investors Mark Series Fund Portfolios for
public sale, preparation and printing of appropriate prospectuses, proxies and
other similar documents, and responsibility for various activities in connection
with necessary meetings of shareholders and Board of Directors of the Investors
Mark Series Fund.
(c) During the term of this Agreement, J&B will serve as statutory
underwriter/distributor of the Investors Mark Series Fund, subject to continued
approval thereof by the Board of Directors of the Investors Mark Series Fund,
pursuant to the terms and conditions of the Underwriting Agreement now in effect
or as may be in effect from time to time hereafter. As statutory
underwriter/distributor, J&B will perform including, without limitation,
reviewing advertising, promotional and other offerin material relating to the
Investors Mark Series Fund Portfolios and filing such material with regulatory
authorities as necessary.
(d) IMA shall act as statutory manager of the Investors Mark Series Fund
pursuant to the terms and conditions of the Management Agreement in effect from
time to time during the term of this Agreement, and shall perform all of its
duties as statutory manager in a reasonable and appropriate manner. IMA shall
cooperate with J&B in its capacity as statutory underwriter/distributor and
service provider to the various Investors Mark Series Fund Portfolios, and shall
provide all information, documentation and assistance reasonably requested by
J&B in connection with such services.
3. Compensation
(a) As compensation for its services hereunder, for the period from the
effective date, IMA shall pay J&B an annual fee, payable monthly (based on
average total net assets of each of the Investors Mark Series Fund Portfolios
computed daily in accordance with Certificate of Incorporation and Bylaws) equal
to 0.06% of the average total net assets of Investors Mark Series Fund
Portfolios
4. Standard of Care and Indemnification
(a) J&B and IMA agree to discharge their duties and responsibilities
hereunder in an appropriate and businesslike manner, generally consistent with
the standards and norms of performance of the mutual fund industry in connection
with similar arrangements with respect to similar duties and responsibilities.
Neither J&B nor IMA shall be liable hereunder for any error committed in the
reasonable exercise of good business judgment for any loss suffered by the other
in connection herewith, but nothing herein contained shall be construed to
protect either J&B or IMA against any liability by reason of willful
misfeasance, nonfeasance, bad faith or gross negligence in the performance of
their respective duties, or by reason of reckless disregard of their respective
obligations and duties under this Agreement.
(b) J&B and IMA each agrees to indemnify and hold the other and its
nominees harmless from and against all taxes, charges, expenses, assessments,
claims and liabilities including, without limitation, reasonable attorneys' fees
and disbursements, arising from any action or thing which either party takes or
does or omits to take or do in connection with this Agreement; provided,
however, that neither J&B nor IMA nor any of their respective nominees shall be
entitled to indemnification if such party is guilty of willful misfeasance,
nonfeasance, bad faith, gross negligence or reckless disregard of its duties and
obligations hereunder.
5. Miscellaneous
This Agreement shall be deemed to be a contract made in Missouri and
governed by Missouri law, and may be executed in any number of counterparts,
each of which shall be deemed an original. All the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of, and be
enforceable by, the parties hereto and their respective successors and assigns.
This Agreement or any part hereof may be amended, modified or waived only by an
instrument in writing signed by each party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
Jones & Babson, Inc. Investors Mark Advisors, LLC
By:____________________________ By:__________________________
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
October 17, 1997
Board of Directors
Investors Mark Series Fund, Inc.
700 Karnes Boulevard
Kansas City, MO 64108
Re: Opinion of Counsel - Investors Mark Series Fund, Inc.
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Pre-Effective Amendment to a
Registration Statement on Form N-1A with respect to Investors Mark Series Fund,
Inc.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. Investors Mark Series Fund, Inc. ("Fund") is an open-end management
investment company.
2. The Fund is created and validly existing pursuant to the Maryland Laws.
3. All of the prescribed Fund procedures for the issuance of the shares
have been followed, and, when such shares are issued in accordance with the
Prospectus contained in the Registration Statement for such shares, all state
requirements relating to such Fund shares will have been complied with.
4. Upon the acceptance of purchase payments made by shareholders in
accordance with the Prospectus contained in the Registration Statement and upon
compliance with applicable law, such shareholders will have legally-issued,
fully paid, non-assessable shares of the Fund.
We consent to the reference to our Firm under the caption "Counsel and
Independent Auditors contained in the Prospectus which forms a part of the
Registration Statement.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/ RAYMOND A. O'HARA III
____________________________
Raymond A. O'Hara III
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Counsel
and Independent Auditors" and to the use of our report dated October 7, 1997
in the Registration Statement (Form N-1A) and related Prospectus of Investors
Mark Series Fund, Inc. filed with the Securities and Exchange Commission
in this Pre-Effective Amendment No. 1 to the Registration Statement under
the Securities Act of 1933 and Amendment No. 1 to the Registration
Statement under the Investment Company Act of 1940.
/s/ERNST & YOUNG LLP
Ernst & Young LLP
Kansas City, Missouri
October 14, 1997
FORM OF STOCK SUBSCRIPTION AGREEMENT
THIS AGREEMENT by and between Jones & Babson, Inc. ("Jones & Babson") and
Investors Mark Series Fund, Inc. (the "Fund"), a corporation organized and
existing under and by virtue of the laws of the State of Maryland.
In consideration of the mutual promises set forth herein, the parties agree as
follows:
1. The Fund agrees to sell to Jones & Babson and Jones & Babson hereby
subscribes to purchase the specified number of shares of common stock of the
following nine (9) Portfolios of the Fund: 1,112 shares of the Balanced
Portfolio, 1,112 shares of the Global Fixed Income Portfolio, 1,112 shares of
the Growth & Income Portfolio, 1,112 shares of the Intermediate Fixed Income
Portfolio, 1,112 shares of the Large Cap Value Portfolio, 1,112 shares of the
Large Cap Growth Portfolio, 1,112 shares of the Mid Cap Equity Portfolio and
1,112 shares of the Small Cap Equity Portfolio, each with a par value of $.01
per Share, at a price of ten dollars ($10.00) per each Share; and 11,111 shares
of the Money Market Portfolio with a par value of $.01 per Share, at a price of
one dollar ($1.00) per share (together, the "Shares").
2. Jones & Babson agrees to pay $100,000 for all such Shares at the time of
their issuance, which shall occur upon call of the President of the Fund, at any
time on or before the effective date of the Fund's Registration Statement filed
by the Investors Mark Series Fund, Inc. on Form N-1A with the Securities and
Exchange Commission ("Registration Statement") on August 1, 1997.
3. Jones & Babson acknowledges that the Shares to be purchased hereunder have
not been, and will not be, registered under the federal securities laws and
that, therefore, the Fund is relying on certain exemptions from such
registration requirements, including exemptions dependent on the intent of the
undersigned in acquiring the Shares. Jones & Babson also understands that any
resale of the Shares, or any part thereof, may be subject to restrictions under
the federal securities laws, and that Jones & Babson may be required to bear the
economic risk of any investment in the Shares for an indefinite period of time.
4. Jones & Babson represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof.
5. Jones & Babson agrees that it will not sell or dispose of the Shares or any
part thereof unless the Registration Statement with respect to such Shares is
then in effect under the Securities Act of 1933, as amended.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their
duly authorized representatives this _____ day of _______________, 1997.
JONES & BABSON, INC.
By:___________________________
Title:
INVESTORS MARK SERIES FUND, INC.
By:____________________________
Title:
AGREEMENT GOVERNING CONTRIBUTION OF WORKING CAPITAL
TO
INVESTORS MARK SERIES FUND, INC.
BY
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
THIS AGREEMENT is made by and between Investors Mark Series Fund, Inc.
("Fund"), a Maryland corporation, and BUSINESS MEN'S ASSURANCE COMPANY OF
AMERICA ("BMA"), a Missouri stock life insurance company.
WHEREAS, BMA desires that the Portfolios of the Fund have sufficient
assets to be able to efficiently invest in a diversified portfolio of
securities; and
WHEREAS, BMA proposes to contribute Nine Million Five Hundred Thousand
Dollars ($9,500,000) ("Working Capital") to the Portfolio(s) in the manner
hereinafter described; and
WHEREAS, it is necessary and desirable that the terms under which said
Working Capital is contributed and the respective rights of BMA and the Fund
with respect thereto be determined;
NOW, THEREFORE, it is hereby agreed between BMA and the Fund as
follows:
I
The BMA will provide for the contribution to the Fund the sum of Nine
Million Five Hundred Thousand Dollars ($9,500,000) to be apportioned among the
Portfolios as is specified in Attachment A. BMA hereby represents and agrees
that such Working Capital is for investment purposes and not for the purpose of
redeeming or disposing of any interest in the Portfolio resulting from such
contribution. This Working Capital is in addition to any minimum capital
requirement imposed upon the Fund.
II
In consideration for the contribution of the Working Capital and
without deduction of any sales or other charges, the Fund shall credit BMA with
shares. Such shares shall share pro rata in the investment performance of the
Portfolio and shall be subject to the same valuation procedures and the same
periodic charges as are other shares of such Portfolio.
III
The BMA hereby acknowledges that by the contribution of such Working
Capital, BMA is not and shall not be regarded as a creditor of the Fund and that
the relationship of debtor-creditor between the Fund and BMA does not exist with
respect to the amount so contributed. BMA agrees that the contribution of the
Working Capital does not now and shall not in the future deem BMA the holder of
any interest other than as provided in Section II of this Agreement. BMA agrees
that its interest in the Portfolio as a result of such Contribution shall be
neither senior to nor subordinate to the beneficial interests of the Portfolio
held by (I) owners of variable annuity contracts and other variable insurance
contracts issued with respect to the separate accounts of insurance companies,
or (ii) participants in qualified pension and other retirement plans. BMA
further agrees that in the event the Portfolio is liquidated, BMA shall have no
preferential rights of any kind over such contract owners or qualified plan
participants but shall share ratably with them.
IV
All commitments of BMA hereunder shall be forever binding upon its
successor or successors. This Agreement may not be assigned by the parties.
V
BMA agrees that it will not seek and a withdrawal of contributed
Working Capital shall not occur unless the below listed circumstances and
conditions have been met. The time periods in this section are measured from the
date the Working Capital is contributed.
A. During the first year, no withdrawal from a Portfolio will be allowed if it
results in a Net Redemption. For purposes of this agreement, a Net
Redemption is a withdrawal from a Portfolio that, on the day of the
request, would exceed the amount of available cash, including any amounts
transferred or deposited into the Portfolio, and, as a result, require the
sale of Portfolio assets.
B. No Working Capital may be withdrawn during the first six (6) month period.
C. After the first six (6) months and prior to the end of the first year,
withdrawals may occurso long as the Portfolio's balance is not reduced
below $20,000,000.
D. After the first year and prior to the end of the second year, withdrawals
may occur so long as the Portfolio's balance is not reduced below
$15,000,000.
E. After the second year and prior to the end of the third year, withdrawals
may occur so long as the Portfolio's balance is not reduced below
$10,000,000.
F. Beginning with the first day of the fourth (4th) year, withdrawals may
occur without regard to a minimum Portfolio balance.
VI
The Fund, on behalf of the Portfolio, hereby accepts the contribution
of such Working Capital subject to the terms of the Agreement.
Executed this 15th day of September, 1997.
BUSINESS MEN'S ASSURANCE COMPANY OF AMERICA
By:______________________________
INVESTORS MARK SERIES FUND, INC.
By:______________________________
ATTACHMENT A
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISOR AMOUNT
--------- ----------- ------
<S> <C> <C>
Global Fixed Income Standish, Ayer & Wood $5,000,000
Large Cap Value David L. Babson & Co. $2,500,000
Mid Cap Growth Standish, Ayer & Wood $2,000,000
$9,500,000
</TABLE>
AGREEMENT GOVERNING CONTRIBUTION OF WORKING CAPITAL
TO
INVESTORS MARK SERIES FUND, INC.
BY
TRANSOCEAN HOLDING CORPORATION
THIS AGREEMENT is made by and between Investors Mark Series Fund, Inc.
("Fund"), a Maryland corporation, and TRANSOCEAN HOLDING CORPORATION
("Transocean"), a corporation with its principal place of business in State of
New York.
WHEREAS, Transocean desires that the Portfolios of the Fund have
sufficient assets to be able to efficiently invest in a diversified portfolio of
securities; and
WHEREAS, Transocean proposes to contribute four Million Dollars
($4,000,000) ("Working Capital") to the Portfolio(s) in the manner hereinafter
described; and
WHEREAS, it is necessary and desirable that the terms under which said
Working Capital is contributed and the respective rights of Transocean and the
Fund with respect thereto be determined;
NOW, THEREFORE, it is hereby agreed between Transocean and the Fund as
follows:
I
Transocean will provide for the contribution to the Fund the sum of Four
Million Dollars ($4,000,000) to be apportioned among the Portfolios as is
specified in Attachment A. Transocean hereby represents and agrees that such
Working Capital is for investment purposes and not for the purpose of redeeming
or disposing of any interest in the Portfolio resulting from such contribution.
This Working Capital is in addition to any minimum capital requirement imposed
upon the Fund.
II
In consideration for the contribution of the Working Capital and
without deduction of any sales or other charges, the Fund shall credit
Transocean with shares. Such shares shall share pro rata in the investment
performance of the Portfolio and shall be subject to the same valuation
procedures and the same periodic charges as are other shares of such Portfolio.
III
Transocean hereby acknowledges that by the contribution of such Working
Capital, Transocean is not and shall not be regarded as a creditor of the Fund
and that the relationship of debtor-creditor between the Fund and Transocean
does not exist with respect to the amount so contributed. Transocean agrees that
the contribution of the Working Capital does not now and shall not in the future
deem Transocean the holder of any interest other than as provided in Section II
of this Agreement. Transocean agrees that its interest in the Portfolio as a
result of such Contribution shall be neither senior to nor subordinate to the
beneficial interests of the Portfolio held by (I) owners of variable annuity
contracts and other variable insurance contracts issued with respect to the
separate accounts of insurance companies, or (ii) participants in qualified
pension and other retirement plans. Transocean further agrees that in the event
the Portfolio is liquidated, Transocean shall have no preferential rights of any
kind over such contract owners or qualified plan participants but shall share
ratably with them.
IV
All commitments of Transocean hereunder shall be forever binding upon
its successor or successors. This Agreement may not be assigned by the parties.
V
Transocean agrees that it will not seek and a withdrawal of contributed
Working Capital shall not occur unless the below listed circumstances and
conditions have been met. The time periods in this section are measured from the
date the Working Capital is contributed.
A. During the first year, no withdrawal from a Portfolio will be allowed if it
results in a Net Redemption. For purposes of this agreement, a Net
Redemption is a withdrawal from a Portfolio that, on the day of the
request, would exceed the amount of available cash, including any amounts
transferred or deposited into the Portfolio, and, as a result, require the
sale of Portfolio assets.
B. No Working Capital may be withdrawn during the first six (6) month period.
C. After the first six (6) months and prior to the end of the first year,
withdrawals may occur so long as the Portfolio's balance is not reduced
below $20,000,000.
D. After the first year and prior to the end of the second year, withdrawals
may occur so long as the Portfolio's balance is not reduced below
$15,000,000.
E. After the second year and prior to the end of the third year, withdrawals
may occur so long as the Portfolio's balance is not reduced below
$10,000,000.
F. Beginning with the first day of the fourth (4th) year, withdrawals may
occur without regard to a minimum Portfolio balance.
VI
The Fund, on behalf of the Portfolio, hereby accepts the contribution
of such Working Capital subject to the terms of the Agreement.
Executed this _____ day of ___________, 1997.
TRANSOCEAN HOLDING CORPORATION
By:_________________________________
Angela Mastroserio, Asst. Secretary
INVESTORS MARK SERIES FUND, INC.
By:_________________________________
ATTACHMENT A
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISOR AMOUNT
--------- ----------- ------
<S> <C> <C>
Small Cap Growth Stein, Roe & Farnham $2,000,000
Large Cap Growth Stein, Roe & Farnham $2,000,000
$4,000,000
</TABLE>
AGREEMENT GOVERNING CONTRIBUTION OF WORKING CAPITAL
TO
INVESTORS MARK SERIES FUND, INC.
BY
GENERALI, U.S. BRANCH
THIS AGREEMENT is made by and between Investors Mark Series Fund, Inc.
("Fund"), a Maryland corporation, and GENERALI - U.S. BRANCH ("Generali"), a
branch of Assicurazioni Generali, S.P.A., authorized to operate in the United
States pursuant to the laws of the State of New York.
WHEREAS, Generali desires that the Portfolios of the Fund have
sufficient assets to be able to efficiently invest in a diversified portfolio of
securities; and
WHEREAS, Generali proposes to contribute Seven Million Five Hundred
Thousand Dollars ($7,500,000) ("Working Capital") to the Portfolio(s) in the
manner hereinafter described; and
WHEREAS, it is necessary and desirable that the terms under which said
Working Capital is contributed and the respective rights of Generali and the
Fund with respect thereto be determined;
NOW, THEREFORE, it is hereby agreed between Generali and the Fund as
follows:
I
Generali will provide for the contribution to the Fund the sum of Seven
Million Five Hundred Thousand Dollars ($7,500,000) to be apportioned among the
Portfolios as is specified in Attachment A. Generali hereby represents and
agrees that such Working Capital is for investment purposes and not for the
purpose of redeeming or disposing of any interest in the Portfolio resulting
from such contribution. This Working Capital is in addition to any minimum
capital requirement imposed upon the Fund.
II
In consideration for the contribution of the Working Capital and
without deduction of any sales or other charges, the Fund shall credit Generali
with shares. Such shares shall share pro rata in the investment performance of
the Portfolio and shall be subject to the same valuation procedures and the same
periodic charges as are other shares of such Portfolio.
III
Generali hereby acknowledges that by the contribution of such Working
Capital, Generali is not and shall not be regarded as a creditor of the Fund and
that the relationship of debtor-creditor between the Fund and Generali does not
exist with respect to the amount so contributed. Generali agrees that the
contribution of the Working Capital does not now and shall not in the future
deem Generali the holder of any interest other than as provided in Section II of
this Agreement. Generali agrees that its interest in the Portfolio as a result
of such Contribution shall be neither senior to nor subordinate to the
beneficial interests of the Portfolio held by (I) owners of variable annuity
contracts and other variable insurance contracts issued with respect to the
separate accounts of insurance companies, or (ii) participants in qualified
pension and other retirement plans. Generali further agrees that in the event
the Portfolio is liquidated, Generali shall have no preferential rights of any
kind over such contract owners or qualified plan participants but shall share
ratably with them.
IV
All commitments of Generali hereunder shall be forever binding upon its
successor or successors. This Agreement may not be assigned by the parties.
V
Generali agrees that it will not seek and a withdrawal of contributed
Working Capital shall not occur unless the below listed circumstances and
conditions have been met. The time periods in this section are measured from the
date the Working Capital is contributed.
A. During the first two (2) years, no withdrawal from a Portfolio will be
allowed if it results in a Net Redemption. For purposes of this agreement,
a Net Redemption is a withdrawal from a Portfolio that, on the day of the
request, would exceed the amount of available cash, including any amounts
transferred or deposited into the Portfolio, and, as a result, require the
sale of Portfolio assets.
B. No Working Capital may be withdrawn during the first six (6) month period.
C. After the first six (6) months and prior to the last day of the first year,
withdrawals may occur so long as the Portfolio's balance is not reduced
below $20,000,000.
D. After the first year and prior to the last day of the third year,
withdrawals may occur so long as the Portfolio's balance is not reduced
below $15,000,000.
E. Beginning with the first day of the fourth (4th) year, withdrawals may
occur without regard to a minimum Portfolio balance.
VI
The Fund, on behalf of the Portfolio, hereby accepts the contribution
of such Working Capital subject to the terms of the Agreement.
Executed this _____ day of ___________, 1997.
GENERALI - U.S. BRANCH
By:_________________________________
INVESTORS MARK SERIES FUND, INC.
By:_________________________________
ATTACHMENT A
<TABLE>
<CAPTION>
PORTFOLIO SUB-ADVISOR AMOUNT
--------- ----------- ------
<S> <C> <C>
Money Market Standish, Ayer & Wood $1,000,000
Intermediate Fixed Income Standish, Ayer & Wood $2,000,000
Balanced Kornitzer Capital
Management $2,500,000
Growth and Income Lord, Abbett & Co. $2,000,000
$7,500,000
</TABLE>
