The Wright Asset Allocation Trust
PROSPECTUS
MAY 27, 1999
o Wright Managed Growth with Income Fund
Advisor Shares
Individual Shares
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or determined whether the information
in this prospectus is accurate or complete. Anyone who tells you otherwise is
committing a crime.
An investment in a mutual fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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TABLE OF CONTENTS
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The Wright Asset Allocation Trust: Overview of Principal Strategies.......1
Information About the Fund
Wright Managed Growth with Income Fund...........................2
Information About Your Account ..........................................4
How the Fund Values its Shares...................................4
Purchasing Shares................................................4
Distribution and Service Plans...................................5
Selling Shares...................................................5
Exchanging Shares................................................5
Dividends and Taxes ...................................................6
Managing the Funds ....................................................7
Wright Investors' Service, the Investment Adviser................7
Master Feeder Fund Structure.....................................8
Year 2000 Readiness..............................................9
The Euro.........................................................9
Financial Highlights .................................................10
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HOW TO USE THIS PROSPECTUS:
Reading this prospectus will help you decide if investing in the fund is right
for you. Please keep this prospectus for future reference. Included in this
prospectus are descriptions telling you about the fund's:
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OBJECTIVE: what the fund seeks to achieve.
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PRINCIPAL INVESTMENT STRATEGIES: how the fund intends to achieve its investment
objective and the strategy used by Wright Investors'Service, the fund's
investment adviser.
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PRINCIPAL RISKS: the risks associated with the fund's primary investments.
(Graphic - Assorted Nautical Flags)
Who May Want to Invest: determine if the fund is a suitable investment for you.
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PAST PERFORMANCE: the total return on your investment, including income from
dividends and capital gain distributions, as well as appreciation or
depreciation in price over various time periods.
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FEES AND EXPENSES: what overall costs you bear by investing in the fund.
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THE WRIGHT ASSET ALLOCATION TRUST:
OVERVIEW OF PRINCIPAL STRATEGIES
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The Wright Asset Allocation Trust was created to offer a variety of funds to
meet differing investment objectives. Each fund is a fund of funds. This means
that a fund invests in other mutual funds managed by Wright Investors Service.
Only Wright Managed Growth with Income Fund is currently offered. Depending on
Wrights model asset allocation for the fund, the fund may invest in some or all
of the following Wright Blue Chip Funds.
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Blue Chip
Financial dictionaries define Blue Chip as a common stock of a company that has
a long record of profit growth and dividend payment and a reputation for quality
management, products and services. Wright further refines this to include only
securities issued by companies that meet its qualitative standards.
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o WRIGHT SELECTED BLUE CHIP EQUITIES PORTFOLIO (WSBC) seeks long-term total
return by investing in equity securities of well-established quality
companies whose current operations reflect characteristics likely to
provide comparatively superior total investment return.
o WRIGHT JUNIOR BLUE CHIP EQUITIES PORTFOLIO (WJBC) seeks long-term total
return by investing in equity securities of smaller companies. Wright
selects companies that have strong balance sheets and strong recent
earnings and price momentum. Selected companies generally have both growth
and value characteristics and some companies may not currently pay
dividends on their shares.
o WRIGHT MAJOR BLUE CHIP EQUITIES FUND (WMBC) seeks total return by investing
in the equity securities of larger companies. The market capitalizations of
these companies are similar to that of the Standard and Poor's 500 Index.
o WRIGHT INTERNATIONAL BLUE CHIP EQUITIES PORTFOLIo (WIBC) seeks total return
by investing in equity securities of well-established non-U.S. companies.
Wright focuses on individual stock selection instead of trying to predict
which country or industry will perform best. No more than 20% of assets
will be invested in any one country.
o WRIGHT U.S. GOVERNMENT NEAR TERM PORTFOLIO (WNTB) seeks a higher level of
income than is normally above that available from short-term money market
instruments by investing in U.S. Government obligations of all types and
maintaining an average weighted maturity of less than five years.
o WRIGHT U.S. TREASURY PORTFOLIO (WUSTB) seeks a high total return with a
high level of income by investing in U.S. Treasury bills, notes and bonds.
o WRIGHT TOTAL RETURN BOND FUND (WTRB) seeks a superior rate of total return
by investing in U.S. Government and high grade (rated "AA" or higher)
corporate debt securities of companies meeting Wright quality standards.
Wright allocates assets among different market sectors with different
maturities based on its view of the relative value of each sector or
maturity.
o WRIGHT CURRENT INCOME PORTFOLIO (WCIF) seeks a high level of current income
with moderate fluctuations of principal by investing in debt obligations
issued or guaranteed by the US. Government or any of its agencies, and
corporate debt securities. Since inception, this portfolio has invested
almost exclusively in mortgage-backed securities of the Government National
Mortgage Association.
You should understand that, when investing in a fund of funds, you will bear the
operating expenses of the underlying funds as well as your share of the funds
operating expenses. For example, you will pay a management or asset allocation
fee for the fund and management fees for the underlying fund.
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WRIGHT MANAGED GROWTH WITH INCOME FUND
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CUSIP: Advisor Shares 982225104 Ticker Symbol:Advisor Shares WGIAY (Unofficial)
Individual Shares 982225203 Individual Shares WGIIY (Unofficial)
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OBJECTIVE
High total return (consisting of price appreciation and high income) with
reduced risk. This objective may be changed without shareholder approval.
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PRINCIPAL INVESTMENT STRATEGIES
The fund is a balanced fund investing its assets in various Wright managed
equity and income funds. Wright allocates the fund's assets based on a
fundamental analysis of the economy and investment markets in the U.S. and
foreign countries. Over the long-term, the fund expects to have an asset mix of
65 percent equity (10 percent is international equity) and 35 percent fixed
income. This mix will vary over short-term periods as Wright follows a dynamic
process of monitoring the asset allocation model and making adjustments.
Purchases and sales of funds are made when necessary to adjust the asset
allocation model, when new investments become available to the fund, or when
necessary to accomodate redemption activity. The equity allocation may range
from 0 to 75 percent with up to 20 percent being international equities. The
U.S. equities may be allocated among large, medium and small companies. The
fixed income allocation may range from 25 to 100 percent. Fixed income funds
selected could include those investing in U.S. government issues, high quality
corporate issues and mortgage backed securities issued and guaranteed as to
timely payment of principal and interest by the Government National Mortgage
Association. Up to 50 percent of the fixed income allocation could be in money
market securities.
At the end of 1998 the asset allocation model for growth with income called for
a mix of 55% equities and 45% fixed income. This was further allocated as
follows:
o Wright Major Blue Chip Equities Fund 12%
o Wright Selected Blue Chip Equities Portfolio 25%
o Wright Junior Blue Chip Equities Portfolio 3%
o Wright International Blue Chip Equities Portfolio 15%
o Wright Total Return Bond Fund 35%
The remaining 10% of the fund's assets were invested in U.S. Treasury bills and
similar money market securities.
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PRINCIPAL RISKS
In addition to normal market and management risks, the fund may invest in equity
funds that have specific risks. These risks are:
o WRIGHT MAJOR BLUE CHIP EQUITIES FUND. Performance could be adversely
affected if large capitalization or value stocks fall out of favor an
returns trail the overall stock market.
o WRIGHT SELECTED BLUE CHIP EQUITIES PORTFOLIO. Performance could be
adversely affected if mid-cap or value stocks fall out of favor with the
market and returns trail the overall market. Also, if selected companies
remain undervalued or experience an adverse event such as an unfavorable
earnings report.
o WRIGHT JUNIOR BLUE CHIP EQUITIES PORTFOLIO. Performance could be
adversely affected if small company securities fall out of favor with
the market and returns trail the overall market. The price of small
company securities may reflect greater risk due to narrow product lines,
limited financial resources, less depth in management or a limited
trading market.
o WRIGHT INTERNATIONAL BLUE CHIP EQUITIES PORTFOLIO. Foreign investments
are subject to special risks including currency risk (changes in foreign
currency rates reducing the value of the fund's assets), seizure,
expropriation or nationalization of a company, lack of public
information, and the impact of political, social, or diplomatic events.
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A Word About Risk
Before you invest in any mutual fund, you should understand the risks involved.
There are two basic risks prevalent in mutual funds investing in common stocks,
such as the fund. They are:
o MARKET RISK: when the prices of stocks fall, the value of the fund's
investments may fall and you could lose money on your investment.
o MANAGEMENT RISK: Wright's strategy may not produce the expected results,
causing losses.
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In addition, fixed income funds may be subject to special risks such as:
o CREDIT OR DEFAULT RISK: An issuer's credit rating may be downgraded as
the issuer may be unable to pay principal and interest obligations.
o INTEREST RATE RISK: Bond prices fall when interest rates rise and vice
versa. The longer the maturity of the bonds, the greater the change in
price.
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o PREPAYMENT RISK: When interest rates decline, the issuer of a
mortgage-backed or other debt security may exercise an option to prepay
the principal. This forces reinvestment in lower yielding securities.
o EXTENSION RISK: When interest rates rise, the life of a mortgage-backed
security is extended beyond the expected prepayment time, reducing the
value of the security.
Also, the fund's income may decline during times of falling interest rates.
When the market is unfavorable, the fund's assets may be held temporarily in
cash or invested in short-term obligations without limit. Although the fund
would do this to reduce losses, defensive investments may hurt the fund's
efforts to achieve its investment objective. Likewise, Wright's efforts to
maximize returns while minimizing risk may not be successful.
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WHO MAY WANT TO INVEST
You may be interested in the fund if you are seeking an actively managed
well-diversified balanced investment portfolio with the fund's objective of
growth with a high level of income. The fund will be of particular interest to
individuals wishing to have a professional investment adviser make the decision
when to enter or exit different markets.
Advisor Shares have been created for use in 401(k) and similar retirement plans.
Individual Shares were created for individuals who wish to invest directly or
through their bank or other financial institution. The fund is intended for
those seeking a long-term investment commitment.
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PAST PERFORMANCE
The fund has no prior operating history and no past performance record. Wright
manages certain private balanced investment accounts which have investment
objectives and strategies that are identical to the fund's and invest in the
same Blue Chip Funds. The performance of these accounts for the years ended
December 31, 1998 is on page 8.
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FEES AND EXPENSES
The table describes the estimated fees and expenses you may pay if you buy and
hold shares of the fund.
Individual Advisor
Shares Shares
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SHAREHOLDER FEES
(paid directly from Maximum deferred sales charge(load) 1.00%(1) none
your investment) (% of offering price)
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ANNUAL FUND OPERATING
EXPENSES Management fee 0.20% 0.20%
(deducted directly Distribution and service (12b-1) fees 1.00% 0.50%
from fund assets) Other expenses 0.80% 0.80%
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Total Operating Expenses 2.00% 1.50%
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(1)Shares redeemed during the first year after purchase are subject to a
deferred sales charge of 1.00% deducted from redemption proceeds.
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Understanding Expenses
Annual fund operating expenses are paid by the fund. As a result, you pay for
them indirectly because they reduce the fund's return. Fund expenses include
management fees, 12b-1 fees and administrative costs, such as shareholder
recordkeeping and reports, custodian and pricing services, and registration
fees.
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Example
The following example allows you to compare the cost of investing in the fund to
the cost of investing in other mutual funds by showing what your costs may be
over time. It uses the same assumptions that other funds use in their
prospectuses: $10,000 initial investment, 5% total return for each year, fund
operating expenses remain the same for each period and redemption after the end
of each period. Your actual costs may be higher or lower, so use this example
for comparison only. Based on these assumptions your costs at the end of each
period would be:
1 Year 3 Years
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Individual Shares with redemption $303 $627
Individual Shares without redemption $203 $627
Advisor Shares $153 $474
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INFORMATION ABOUT YOUR ACCOUNT
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HOW THE FUND VALUES ITS SHARES
The price at which you buy, sell or exchange fund shares is the net asset value
per share or NAV. The NAV is calculated at the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m. New York time) each day the Exchange
is open. It is not calculated on days the Exchange is closed. The value of the
fund's assets may change on days when the Exchange is not open. You will not be
able to purchase, redeem or exchange the fund's shares on those days. The price
for a purchase, redemption or exchange of fund shares is the next NAV calculated
after your request is received.
When the fund calculates its NAV, it values the underlying funds at their asset
values. Other portfolio securities are valued at the last current sales price on
the market where the security is normally traded. Securities that can not be
valued at these closing prices are valued by Wright at fair value in accordance
with procedures adopted by the trustees. This could happen if an event after the
close of the market seemed likely to have a major impact on the price of
securities traded on the market. Although the fund calculates its value each day
the Exchange is open, the NAV reported to NASDAQ for distribution to news
agencies will be delayed by one day.
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Determining NAV
Share price is determined by adding the value of a fund's investments, cash and
other assets attributable to the class, deducting liabilities, and then dividing
that amount by the total number of shares outstanding for that class.
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PURCHASING SHARES
Purchasing Shares for Cash
Shares of the fund are sold without an up-front sales charge at NAV. The minimum
initial investment is $1,000 for either Advisor Shares or Individual Shares.
There are no minimums for subsequent investments.
Waiver of the Minimum Initial Investment: The minimums may be waived for
investments by bank trust departments, 401(k) or similar tax-sheltered
retirement plans and automatic investment program accounts. The minimum initial
investment will be reduced to $500 for shares purchased through certain
investment advisers, financial planners, brokers or other intermediaries that
charge a fee for their services. The fund has the right to reject any purchase
order, or limit or suspend the offering of its shares.
Authorized dealers, including investment dealers, banks or other institutions,
may impose investment minimums higher than those imposed by the fund. They may
also charge for their services. There are no charges if you purchase your shares
directly from the fund.
Buying Fund Shares
o If you are buying shares directly from the fund, please refer to your
Shareholder Manual for instructions on how to buy fund shares.
o If you buy shares through bank trust departments or other fiduciary
institutions, please consult your trust or investment officer.
o If you buy shares through a broker, please consult your broker for
purchase instructions.
o If you buy shares through an account with a registered investment
adviser or financial planner, please contact your investment adviser or
planner.
o If you buy shares of the fund through a retirement plan, please consult
your plan documents or speak with your plan administrator.
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Paying for Shares
You may pay for shares by wire, check, Federal Reserve draft, or other
negotiable bank draft, payable in U.S. dollars and drawn on U.S banks. Third
party checks will not be accepted. A charge is imposed on any returned checks.
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DISTRIBUTION AND SERVICE PLANS
The fund has adopted a 12b-1 plan permitting it to pay a fee in connection with
the distribution of its shares. Wright Investors' Service Distributors, Inc.
(WISDI), the principal underwriter and distributor of the fund's shares,
receives a distribution fee of up to 0.75% of the average daily net assets of
the Individual Share class and up to 0.25% of the average daily net assets of
the Advisor Share class. Because this fee is paid on an ongoing basis, this may
cost you more than other types of sales charges over time.
The fund has also adopted a service plan. This plan allows WISDI to be
reimbursed for payments to intermediaries for providing account administration
and personal and account maintenance services to fund shareholders. The annual
service fee may not exceed 0.25% of the average daily net assets of each class
of shares.
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Signature Guarantees
Signature guarantees are used to protect you and the fund from possible
fraudulent requests for redeemed shares. They are required on all requests to
change account application information and for certain redemption requests
including any that direct that redemption proceeds be sent to other than the
address of record. See the Shareholders Manual for more information.
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SELLING SHARES
You may redeem or sell shares of the fund on any business day. NO REDEMPTION
REQUEST WILL BE PAID UNTIL YOUR SHARES HAVE BEEN PAID FOR IN FULL. IF THE SHARES
TO BE REDEEMED REPRESENT AN INVESTMENT MADE BY CHECK, THE REDEMPTION PAYMENT
WILL BE DELAYED UNTIL THE CHECK HAS BEEN COLLECTED, WHICH MAKE TAKE UP TO
FIFTEEN DAYS FROM THE DATE OF PURCHASE. Telephone and internet redemption
procedures are described in the Shareholder Manual. Individual Shares are
subject to a 1% contingent deferred sales charge if sold within one year of
purchase.
Redemption requests received in "proper form" before 4:00 p.m. New York time
will be processed at that day's NAV. "Proper form" means that the fund has
received your request, all shares are paid for, and all documentation, along
with any required signature guarantees, are included. The fund normally pays
redemption proceeds by check on the next business day to the address of record.
Payment will be by wire if you specified this option on your account
application.
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Redemption Proviso
In times of drastic economic or market conditions, you may have difficulty
selling shares by telephone or the internet, so you should send your request by
mail or overnight delivery. These redemption options may be modified or
terminated without notice to shareholders.
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Individual shares redeemed within 12 months of purchase are subject to a
contingent deferred sales charge of one percent of purchase price.
For more information about selling your shares, please refer to your Shareholder
Manual or consult your trust officer, adviser or plan administrator.
Involuntary Redemption
If your account falls below $500 the fund may redeem your shares. You will
receive notice 60 days before this happens. Your account will not be redeemed if
the balance is below the minimum due to investment losses.
EXCHANGING SHARES
Individual Shares may be exchanged for Individual Shares of Catholic Values
Investment Trust Equity Fund. Advisor Shares may be exchanged for Standard
Shares of the Wright Managed Blue Chip Investment Funds. See the Shareholder
Manual for detailed instructions.
You are limited to four "round-trip" exchanges each year. A round-trip exchange
is an exchange of one fund into another Wright fund, and then back into the
original fund. You will receive notice 60 days before the fund materially amends
or terminates the exchange privilege.
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Market-Timers
The fund believes that use of the exchange privilege by investors utilizing
market-timing strategies adversely affects other fund shareholders. Therefore,
the fund generally will not honor requests for exchanges by shareholders who
identify themselves or are identified as "market-timers." Market-timers are
identified as those investors who repeatedly (more than once) make exchanges
within a short period. The fund does not automatically redeem shares that are
the subject of a rejected exchange request.
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DIVIDENDS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS
Unless you tell us that you want to receive your distributions in cash, they are
reinvested automatically in fund shares. The fund generally makes two different
kinds of distributions:
o Capital gains from the sale of investments or other transactions. The
fund will distribute any net realized capital gains annually, normally
in December. Capital gains are the main source of distributions paid by
the fund.
o Net investment income from interest or dividends. The fund generally will
distribute its net investment income quarterly.
TAX CONSEQUENCES
Selling, redeeming, or exchanging mutual fund shares may result in a gain or a
loss and is a taxable event. Distributions, whether received in cash or
reinvested in additional shares of the fund, are subject to federal income tax.
Transaction Tax Status
Income dividends Ordinary income
Short-term capital gains distribution Ordinary income
Long-term capital gains distribution Long-term capital gains
The international fund may be subject to foreign withholding taxes or other
foreign taxes on some of its foreign investments. This will reduce the yield or
total return on those investments and may affect the return of the fund if it
invests in the international fund.
Your investment in the fund could have additional tax consequences. Please
consult your tax advisor on federal, state, local or other applicable tax laws.
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Tax Considerations
Unless your investment is in a tax-deferred account you may want to avoid:
o Investing in the fund near the end of its fiscal year; if the fund makes a
distribution of net investment income or capital gains you will receive some
of your investment back as a taxable distribution.
o Selling shares at a loss for tax purposes and making an investment in the
fund within 30 days before or after the sale. This results in a "wash sale"
and you will not be allowed to claim a tax loss.
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MANAGING THE FUNDS
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WRIGHT INVESTORS SERVICE, THE INVESTMENT ADVISER
Wright Investors' Service, Inc. manages the fund and its investments. Wright is
located at 1000 Lafayette Boulevard, Bridgeport, CT 06604. Wright receives a
monthly advisory fee for its services in the amount of 0.20% annually of the
fund's average annual net assets. It also receives advisory fees from the
underlying funds.
Wright is a leading independent international investment management and advisory
firm with more than 35 years experience. Wright manages about $4.5 billion of
assets in portfolios of all sizes and styles as well as a family of mutual
funds. The Wright Asset Allocation Trust may invest in as many as nine of these
funds.
Wright developed Worldscope(R), one of the world's largest and most complete
databases of financial information, which currently includes more than 19,000
companies in 49 nations. Using a bottom-up fundamental approach, Wright
systematically identifies those companies in the Worldscope(R) database that
meet minimum standards of prudence and thus are suitable for consideration by
fiduciary investors. These companies are then subjected to extensive analysis
and evaluation to identify those that meet Wright's standards of investment
quality. These standards focus on liquidity, financial strength, stability of
profits and growth.
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Fundamental Analysis
The analysis of company financial statements to forecast future price movements
using past records of assets, earnings, sales, products, management and markets.
It differs from technical analysis which relies on price and volume movements of
stocks and does not concern itself with financial statistics.
"Bottom-Up" Approach to Investing
The analysis of company information before considering the impact of industry
and economic trends. It differs from the "top-down" approach which looks first
at the economy, then the industry and last the company.
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Only those companies meeting or exceeding these standards are eligible for
selection by the Wright investment committee for inclusion on an Approved Wright
Investment List (AWIL). There are separate AWILs for U.S. companies, non-U.S.
companies, small companies and fixed income securities. Different standards may
apply to each list. For example, smaller companies may have a lower market
capital requirement but a higher standard of profitability and growth. All the
companies on the lists are considered by Wright to be "Blue Chips." This means
that the companies have established records of earnings profitability and equity
growth. All have established investment acceptance and active, liquid markets.
Investment Committee
An investment committee of senior officers controls the investment selections,
policies and procedures of the fund. These officers are experienced analysts
with different areas of expertise, and have over 195 years of combined service
with Wright. The committee makes all decisions for the asset allocation model
for the fund of funds and for the selection, purchase and sale of all securities
for the Blue Chip Funds. The investment committee consists of the following
members:
<TABLE>
<CAPTION>
Committee Member Title Joined Wright in
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<S> <C> <C>
Peter M. Donovan, CFA President and Chief Executive Officer 1966
Judith R. Corchard Chairman of the investment committee 1960
Executive Vice President - Investment Management
Jatin J. Mehta, CFA Chief Investment Officer - U.S. Equities 1969
Harivadan K. Kapadia, CFA Senior Vice President - Investment Analysis and Information 1969
Michael F. Flament, CFA Senior Vice President - Investment and Economic Analysis 1972
James P. Fields, CFA Senior Vice President - Fixed Income Investments 1982
Amit S. Khandwala Senior Vice President - International Investments 1986
Charles T. Simko, Jr., CFA Senior Vice President - Investment Research 1985
Patricia J. Pierce, CFA Senior Vice President - Equities 1999
</TABLE>
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Wrights Balanced Investment Accounts
The chart shows the performance of fee paying balanced investment accounts
under Wright's discretionary management invested in Wright managed mutual funds.
These accounts have objectives, policies and strategies identical to those of
the fund.
Year by Year Total Return of Wright's Balanced investment Accounts
as of December 31
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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30% 22.10%
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20% 16.59% 18.04%
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10% 9.29% 14.52% 15.81%
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0% 3.08% 3.07% 3.07%
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(10%) -5.38%
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Best quarter: 9.84% (4th quarter 1998) Worst quarter: -10.13% (3rd quarter 1998)
</TABLE>
Average Annual Returns of Wright's Balanced Investment Accounts
as of December 31, 1998
1 Year 5 Years 10 Years
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Average Annual Returns
as of December 31, 1998 3.07% 9.58% 9.71%
The performance of these accounts is not that of the fund, is not a substitute
for the fund's performance and does not predict the fund's performance results,
which may differ from the private accounts' results. Performance data in the
chart are net of the expenses of the Wright managed mutual funds in which the
accounts invest and of the management fee paid by the accounts.
The management fees and expenses of the private accounts in some instances
could be higher than the estimated fees/expenses of the fund, which could result
in lower performance. Private accounts are not subject to certain investment
limitations, diversification requirements and other restrictions imposed by the
Investment Company Act of 1940 and the Internal Revenue Code. If applicable,
these limitations and restrictions could lower the performance results of
private accounts. However, Wright believes that all of these limitations,
diversification requirements and other restrictions were met by the accounts.
Performance has been calculated using the Association of Investment Management
and Research (AIMR) performance method, which may differ from the SEC method.
Master/Feeder Fund Structure
Six of the Blue Chip Funds in which the fund may invest are organized as
"master" funds. These include:
o Wright Selected Blue Chip Equities Portfolio
o Wright Junior Blue Chip Equities Portfolio
o Wright International Blue Chip Equities Portfolio
o Wright U.S. Treasury Portfolio
o Wright U.S. Government Near Term Portfolio
o Wright Current Income Portfolio
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These portfolios are organized as trusts and are treated as partnerships for
federal tax purposes. Partnerships are "pass-through-entities" which means that
they do not pay federal taxes; instead, all of their realized gains or losses,
other income, and expenses are allocated to, and taken into account for tax
purposes by, the fund and the other investors in the portfolios.
YEAR 2000 READINESS
Mutual funds and businesses around the world could be adversely affected if
computers do not properly process date-related information with respect to the
Year 2000. Wright is addressing this issue and is getting reasonable assurances
from the fund's other major service providers that they too are addressing these
issues to preserve smooth functioning of the fund's trading, pricing,
shareholder account, custodial and other operations. Wright is also considering
the vulnerability to Year 2000 problems of companies in which the funds or
portfolios invest.
Improperly functioning computers may disrupt securities markets or result in
overall economic uncertainty. Individual companies may also be adversely
affected by the cost of fixing their computers, which could be substantial.
There is no guarantee that all problems will be avoided.
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Administrator
Eaton Vance Management serves as the fund's administrator and is responsible for
managing its daily business affairs. Eaton Vance's services include operating
the fund's order room, recordkeeping, preparing and filing documents required to
comply with federal and state securities laws, supervising activities of the
fund's custodian and transfer agent, providing assistance in connection with the
trustees' and shareholders' meetings and other administrative services.
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The Euro
The European countries have adopted the Euro as their common currency. Existing
national currencies of these countries will be sub-currencies of the Euro until
July 1, 2002, when the old currencies will disappear entirely. The introduction
of the Euro presents some possible risks, which could adversely affect the value
of securities held by the fund, as well as possible adverse tax consequences.
There could be unpredictable effects on trade and commerce, resulting in
increased volatility for all financial markets.
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Financial Highlights
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The fund has no operating history and no financial highlights are available for
the fund.
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Wright Investors' Service Distributors, Inc.
1000 Lafayette Boulevard, Bridgeport, CT 06604
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FOR MORE INFORMATION
Additional information about the fund's investments will be available in the
fund's semi-annual and annual reports to shareholders. The fund's annual report
will contain a discussion of the market conditions and investment strategies
that affected the fund's performance over the first year of its operations.
You may wish to read the Statement of Additional Information (SAI) for more
information on the fund and the securities it invests in. The SAI is
incorporated into this prospectus by reference, which means that it is
considered to be part of the prospectus.
You can get free copies of the semi-annual and annual reports and the SAI,
request other information or get answers to your questions about the fund by
writing or calling:
Wright Investors' Service Distributors, Inc.
1000 Lafayette Boulevard
Bridgeport, CT 06604
(800) 888-9471
E-mail: [email protected]
Copies of documents and application forms can be viewed and downloaded from
Wright Investors' Service website: www.wrightinvestors.com.
Text-only versions of fund documents can be viewed online or downloaded from the
SEC's web site at www.sec.gov. You can also obtain copies by visiting the SEC's
Public Reference Room in Washington DC. For information on the operation of the
Public Reference Room, call (800) SEC-0330. Copies of documents may also be
obtained by sending your request and the appropriate fee to the SEC's Public
Reference Section, Washington, DC 20549-6009.
Investment Company Act File Number............................811-09263
STATEMENT OF ADDITIONAL INFORMATION
ADVISOR SHARES
INDIVIDUAL SHARES
May 27, 1999
THE WRIGHT ASSET ALLOCATION TRUST
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Wright Managed Growth with Income Fund
255 State Street
Boston, Massachusetts 02109
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TABLE OF CONTENTS
Page
The Wright Asset Allocation Trust......................................2
The Fund and its Investment Objective and Policies.....................2
Investment Policies and Other Information
About the Underlying Blue Chip Funds..................................2
Investment Restrictions................................................7
Officers and Trustees..................................................8
Control Persons and Principal Holders of Shares.......................10
Investment Advisory and Administrative Services.......................10
Custodian and Transfer Agent..........................................11
Independent Certified Public Accountants..............................11
Brokerage Allocation..................................................12
Pricing of Shares.....................................................12
Taxes.................................................................12
Calculation of Performance and Yield Quotations.......................14
Financial Statements..................................................15
APPENDIX..............................................................17
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Fund's prospectus dated May 27, 1999, which is
incorporated by reference herein. The information in this Statement of
Additional Information expands on information contained in the prospectus. The
prospectus can be obtained without charge by contacting the Distributor at the
phone number or address below.
WRIGHT INVESTORS' SERVICE DISTRIBUTORS, INC.
PRINCIPAL DISTRIBUTORS
1000 Lafayette Boulevard
Bridgeport, Connecticut 06604
1-(800)-888-9471
<PAGE>
THE WRIGHT ASSET ALLOCATION TRUST
The Wright Asset Allocation Trust is an open-end management company
registered under the Investment Company Act of 1940. The Trust was organized as
a Massachusetts trust on June 17, 1997. The fund is a diversified series of the
Trust.
The Trust's Declaration of Trust may be amended with the affirmative vote
of a majority of the outstanding shares of the Trust or, if only the interests
of the fund are affected, a majority of the fund's outstanding shares. The
trustees are authorized to make amendments to the Declaration of Trust without
shareholder approval that do not have a material adverse effect on the interests
of shareholders. The Trust may be terminated (i) upon the sale of the Trust's
assets to another investment company, if approved by the holders of two-thirds
of the outstanding shares of the Trust, except that if the Trustees recommend
such sale of assets, the approval by the vote of a majority of the Trust's
outstanding shares will be sufficient, or (ii) upon liquidation and distribution
of the assets of the Trust, if approved by a majority of its Trustees or by the
vote of a majority of the Trust's outstanding shares. If not so terminated, the
Trust may continue indefinitely.
The Trust's Declaration of Trust further provides that the Trustees will
not be liable for errors of judgment or mistakes of fact or law; however,
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.
The Trust is an organization of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. The Trust's Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Trust property or the
acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Trust property of any shareholder held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations. The Trust has been advised by counsel that the risk of any
shareholder incurring any liability for the obligations of a Trust is extremely
remote. Wright does not consider this risk to be material.
THE FUND AND ITS INVESTMENT OBJECTIVE AND POLICIES
The fund's objective is high total return (consisting of price appreciation
and high income) with reduced risk. The fund seeks to meet its investment
objective by allocating its assets among the Blue Chip Funds described in the
Prospectus. Capitalized terms used in the Statement of Additional Information
have the same meaning as in the Prospectus.
INVESTMENT POLICIES AND OTHER INFORMATION ABOUT THE UNDERLYING BLUE CHIPS
The fund will concentrate its investments in the underlying Blue Chip Funds
which are mutual funds. Mutual funds pool the investments of many investors and
use professional management to select and purchase securities of different
issuers for their portfolios. Any investment in a mutual fund involves risk.
Even though the fund may invest in a number of the underlying Blue Chip Funds,
this investment strategy cannot eliminate investment risk. Investing in mutual
funds through a fund involves additional and duplicative expenses that would not
be present if an investor were to make a direct investment in the underlying
funds.
Under certain circumstances an underlying Blue Chip Fund may determine to
make payment of a redemption by the fund (wholly or in part) by a distribution
in kind of securities from its portfolio, instead of in cash. As a result, the
fund may hold securities distributed by an underlying Blue Chip Fund until such
time as Wright determines it appropriate to dispose of such securities. Such
disposition will impose additional costs on the fund.
The types of securities that may be acquired by the underlying Blue Chip
Funds and the various investment techniques which they may employ, including the
risks associated with these investments, are described below. References to
"fund" and "funds" in this section only refer to the underlying Blue Chip Funds.
<PAGE>
EQUITY SECURITIES
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.
Preferred Stocks and Convertible Securities. Convertible debt securities
and preferred stock entitle the holder to acquire the issuer's stock by exchange
or purchase for a predetermined rate. Convertible securities are subject both to
the credit and interest rate risks associated with fixed income securities and
to the stock market risk associated with equity securities. Convertible debt
securities in which the fund invests generally are rated at the time of
investment in one of the top two rating categories by a nationally recognized
rating organization or their unrated equivalent.
Foreign Securities. Wright International Blue Chip Equities Fund may invest
in foreign securities. Investing in securities of foreign governments or
securities issued by companies whose principal business activities are outside
the United States may involve significant risks not associated with domestic
investments. It is anticipated that in most cases, the best available market for
foreign securities will be on exchanges or in over-the-counter markets located
outside the U.S. Foreign stock markets, while growing in volume and
sophistication, are generally not as developed as those in the U.S. Securities
of some foreign issuers (particularly those located in developing countries) may
be less liquid and more volatile than securities of comparable U.S. companies.
In addition, foreign brokerage commissions are generally higher than commissions
on securities traded in the U.S. and may be non-negotiable. In general, there is
less overall governmental supervision and regulation of securities exchanges,
brokers and listed companies than in the U.S.
The limited liquidity of certain foreign markets may affect the fund's
ability to accurately value its assets invested in such market. In addition, the
settlement systems of certain foreign countries are less developed than the
U.S., which may impede the fund's ability to effect portfolio transactions.
There is generally less publicly available information about foreign companies,
particularly those not subject to the disclosure and reporting requirements of
the U.S. securities laws. Foreign issuers are generally not bound by uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to domestic issuers. Investments in foreign securities also involve
the risk of possible adverse changes in exchange control regulations,
expropriation or confiscatory taxation, limitation on removal of funds or other
assets of the fund, political or financial instability or diplomatic and other
developments which could affect such investments. Further, economies of
particular countries or areas of the world may differ favorably or unfavorably
from the economy of the U.S.
Foreign Currency Exchange Transactions. Investments in securities of
foreign governments and companies whose principal business activities are
located outside of the United States will frequently involve currencies of
foreign countries. In addition, assets of the fund may temporarily be held in
bank deposits in foreign currencies during the completion of investment
programs. Therefore, the value of the fund's assets, as measured in U.S.
dollars, may be affected favorably or unfavorably by changes in foreign currency
exchange rates and exchange control regulations. Although the fund values its
assets daily in U.S. dollars, the fund does not intend to convert its holdings
of foreign currencies into U.S. dollars on a daily basis. The fund may conduct
its foreign currency exchange transactions on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market. The fund will
convert currency on a spot basis from time to time and will incur costs in
connection with such currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the fund at one rate, while offering a lesser rate of exchange should the
fund desire to resell that currency to the dealer. The funds do not intend to
speculate in foreign currency exchange rates.
As an alternative to spot transactions, the fund may enter into contracts
to purchase or sell foreign currencies at a future date ("forward" contracts) or
purchase currency call or put options. A forward contract involves an obligation
to purchase or sell a specific currency at a future date and price fixed by
agreement between the parties at the time of entering into the contract. These
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally involves no deposit requirement and no commissions are charged at any
stage for trades. The funds intend to enter into such contracts only on net
terms. The purchase of a put or call option is an alternative to the purchase or
sale of forward contracts and will be used if the option premiums are less then
those in the forward contract market.
The funds may enter into forward contracts only under two circumstances.
First, when a fund enters into a contract for the purchase or sale of a security
quoted or dominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security. This is accomplished by entering into a forward
contract for the purchase or sale, for a fixed amount of U.S. dollars, of the
amount of foreign currency involved in the underlying security transaction
("transaction hedging"). Such forward contract transactions will enable the fund
to protect itself against a possible loss resulting from an adverse change in
<PAGE>
the relationship between the U.S. dollar and the subject foreign currency during
the period between the date the security is purchased or sold and the date of
payment for the security.
Second, when Wright believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, the fund may
enter into a forward contract to sell, for a fixed amount of U.S. dollars, the
amount of foreign currency approximating the value of some or all of the
securities quoted or denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible. The future value of such securities in foreign
currencies will change as a consequence of fluctuations in the market value of
those securities between the date the forward contract is entered into and the
date it matures. The projection of currency exchange rates and the
implementation of a short-term hedging strategy are highly uncertain. As an
operating policy, the fund does not intend to enter into forward contracts for
such hedging purposes on a regular or continuous basis, and will not do so if,
as a result, more than 50% of the value of the fund's total assets would be
committed to the consummation of such contracts. The fund will also not enter
into such forward contracts or maintain a net exposure to such contracts if the
contracts would obligate the fund to deliver an amount of foreign currency in
excess of the value of the fund's securities or other assets denominated in that
currency.
The fund's custodian will place cash or liquid securities in a segregated
account. The amount of such segregated assets will be at least equal to the
value of the fund's total assets committed to the consummation of forward
contracts involving the purchase of forward currency. If the value of the
securities placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the value of
the account will equal the amount of the fund's commitments with respect to such
contracts.
The fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the fund may elect
to sell the portfolio security and make delivery of the foreign currency.
Alternatively, the fund may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an identical offsetting
contract from the same currency trader.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a forward contract. Accordingly, it may be
necessary for the fund to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the fund intends to sell the
security and the market value of the security is less than the amount of foreign
currency that the fund is obligated to deliver. Conversely, it may be necessary
to sell on the spot market some of the foreign currency received upon the sale
of the portfolio security if its market value exceeds the amount of foreign
currency that the fund is obligated to deliver.
If the fund retains the portfolio security and engages in an offsetting
transaction, the fund will incur a gain or a loss (as described below) to the
extent that there has been a change in forward contract prices. If the fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward contract prices
decline during the period between the date the fund enters into a forward
contract for the sale of the foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
contract prices increase, the fund will suffer a loss to the extent that the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
The fund will not speculate in forward contracts and will limit its use of
such contracts to the transactions described above. Of course, the fund is not
required to enter into such transactions with respect to its portfolio
securities and will not do so unless deemed appropriate by its investment
adviser. This method of protecting the value of the fund's securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities. It simply establishes a rate of exchange
which the fund can achieve at some future time. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, they also tend to limit any potential gain which might be
realized if the value of such currency increases.
FIXED INCOME SECURITIES
Generally. Investments in fixed income securities may subject the fund to
risks, including the following.
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.
<PAGE>
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 fund 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
its 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 fund will suffer from having to reinvest
in lower yielding securities. Extension risk exists when the issuer may exercise
its 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 fund will suffer from the inability to
invest in higher yield securities.
Corporate Debt Obligations. 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.
U.S. Government Securities. U.S. Government securities include: bills,
certificates of indebtedness, and notes and bonds issued by the U.S. Treasury or
by agencies or instrumentalities of the U.S. Government. Some U.S. Government
securities, such as U.S. Treasury bills and bonds, are supported by the full
faith and credit of the U.S. Treasury; others are supported by the right of the
issuer to borrow from the U.S. Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association and the Federal Home Loan
Mortgage Corporation ("FHLMC"), are supported only by the credit of the
instrumentality. Mortgage participation certificates issued by the FHLMC
generally represent ownership interests in a pool of fixed-rate conventional
mortgages. Timely payment of principal and interest on these certificates is
guaranteed solely by the issuer of the certificates. Other investments will
include Government National Mortgage Association Certificates ("GNMA
Certificates"), which are mortgage-backed securities representing part ownership
of a pool of mortgage loans on which timely payment of interest and principal is
guaranteed by the full faith and credit of the U.S. Government. While the U.S.
Government guarantees the payment of principal and interest on GNMA
Certificates, the market value of the securities is not guaranteed and will
fluctuate.
Mortgage-Related Securities. Wright Total Return Bond Fund and Wright
Current Income Fund may invest in mortgage-related securities, including
collateralized mortgage obligations ("CMOs") and other derivative
mortgage-related securities. These securities will either be issued by the U.S.
Government or one of its agencies or instrumentalities or, if privately issued,
supported by mortgage collateral that is insured, guaranteed or otherwise backed
by the U.S. Government or its agencies or instrumentalities. THE FUNDS DO NO
INVEST IN THE RESIDUAL CLASSES OF CMOS, STRIPPED MORTGAGE-RELATED SECURITIES,
LEVERAGED FLOATING RATE INSTRUMENTS OR INDEXED SECURITIES.
Mortgage-related securities represent participation interests in pools of
adjustable and fixed mortgage loans. Unlike conventional debt obligations,
mortgage-related securities provide monthly payments derived from the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. The mortgage loans underlying
mortgage-related securities are generally subject to a greater rate of principal
prepayments in a declining interest rate environment and to a lesser rate of
principal prepayments in an increasing interest rate environment. Under certain
interest and prepayment rate scenarios, a fund may fail to recover the full
amount of its investment in mortgage-related securities purchased at a premium,
notwithstanding any direct or indirect governmental or agency guarantee. The
fund may realize a gain on mortgage-related securities purchased at a discount.
Since faster than expected prepayments must usually be invested in lower
yielding securities, mortgage-related securities are less effective than
conventional bonds in "locking in" a specified interest rate. Conversely, in a
rising interest rate environment, a declining prepayment rate will extend the
average life of many mortgage-related securities. Extending the average life of
a mortgage related security increases the risk of depreciation due to future
increases in market interest rates.
A fund's investments in mortgage-related securities may include
conventional mortgage pass-through securities and certain classes of multiple
class CMOs. Senior CMO classes will typically have priority over residual CMO
classes as to the receipt of principal and/or interest payments on the
underlying mortgages. The CMO classes in which a fund may invest include
sequential and parallel pay CMOs, including planned amortization class ("PAC")
and target amortization class ("TAC") securities.
Different types of mortgage-related securities are subject to different
combinations of prepayment, extension, interest rate and/or other market risks.
Conventional mortgage pass-through securities and sequential pay CMOs are
subject to all of these risks, but are typically not leveraged. PACs, TACs and
other senior classes of sequential and parallel pay CMOs involve less exposure
<PAGE>
to prepayment, extension and interest rate risk than other mortgage-related
securities, provided that prepayment rates remain within expected prepayment
ranges or "collars."
MONEY MARKET INSTRUMENTS
CERTIFICATES OF DEPOSIT - are certificates issued against funds deposited
in a bank, are for a definite period of time, earn a specified rate of return,
and are normally negotiable.
BANKERS' ACCEPTANCEs - are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed "accepted"
when a bank guarantees their payment at maturity.
COMMERCIAL PAPER - refers to promissory notes issued by corporations in
order to finance their short-term credit needs.
FINANCE COMPANY PAPER - refers to promissory notes issued by finance
companies in order to finance their short-term credit needs.
CORPORATE OBLIGATIONS - include bonds and notes issued by corporations in
order to finance longer-term credit needs.
Forward Commitments and When-Issued Securities. A fund may purchase
when-issued securities and make contracts to purchase or sell securities for a
fixed price at a future date beyond customary settlement time. Alternatively, a
fund may enter into offsetting contracts for the forward sale of other
securities that it owns. Securities purchased or sold on a when-issued or
forward commitment basis involve a risk of loss if the value of the security to
be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date.
Securities are frequently offered on a "when-issued" basis. When so
offered, the price, which is generally expressed in terms of yield to maturity,
is fixed at the time the commitment to purchase is made, but delivery and
payment for the when-issued securities may take place at a later date. Normally,
the settlement date occurs 15 to 90 days after the date of the transaction. The
payment obligation and the interest rate that will be received on the securities
are fixed at the time a fund enters into the purchase commitment. During the
period between purchase and settlement, no payment is made by the fund to the
issuer and no interest accrues to the fund. To the extent that assets of a fund
are held in cash pending the settlement of a purchase of securities, the fund
would earn no income; however, it is intended that the funds will be fully
invested to the extent practicable and subject to the policies stated above.
While forward commitments and when-issued securities may be sold prior to the
settlement date, it is intended that such securities will be purchased for a
fund with the purpose of actually acquiring them unless a sale appears to be
desirable for investment reasons. At the time a commitment to purchase
securities on a when-issued basis is made for a fund, the transaction will be
recorded and the value of the security reflected in determining the fund's net
asset value. A fund will establish a segregated account in which a fund that
purchases securities on a when-issued basis will maintain cash and liquid
securities equal in value to commitments for when-issued securities. If the
value of the securities placed in the separate account declines, additional cash
or securities will be placed in the account on a daily basis so that the value
of the account will at least equal the amount of a fund's when-issued
commitments. Such segregated securities either will mature or, if necessary, be
sold on or before the settlement date. Securities purchased on a when-issued
basis and the securities held by a fund are subject to changes in value based
upon the public's perception of the credit worthiness of the issuer and changes
in the level of interest rates (which will generally result in both changing in
value in the same way, i.e., both experiencing appreciation when interest rates
decline and depreciation when interest rates rise). Therefore, to the extent
that a fund remains substantially fully invested at the same time that it has
purchased securities on a when-issued basis, there will be greater fluctuations
in the market value of the fund's net assets than if cash were solely set aside
to pay for when-issued securities.
Lending Portfolio Securities. A fund may seek to increase income by lending
portfolio securities to broker-dealers or other institutional borrowers. Under
present regulatory policies of the Securities and Exchange Commission, such
loans are required to be secured continuously by collateral in cash or liquid
assets held by the fund's custodian and maintained on a current basis at an
amount at least equal to the market value of the securities loaned, which will
be marked to market daily. Cash equivalents include certificates of deposit,
commercial paper and other short-term money market instruments. The fund would
have the right to call a loan and obtain the securities loaned at any time on up
to five business days' notice. The fund would not have the right to vote any
securities having voting rights during the existence of a loan, but would call
the loan in anticipation of an important vote to be taken among holders of the
securities or the giving or withholding of their consent on a material matter
affecting the investment.
During the existence of a loan, a fund will continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and will also receive a fee, or all or a portion of the interest, if any,
on investment of the collateral.
<PAGE>
However, the fund may at the same time pay a transection fee to such
borrowers and administrative expenses, such as finders' fees to third parties.
As with other extensions of credit there are risks of delay in recovery or even
loss of rights in the securities loaned if the borrower of the securities fails
financially. However, the loans will be made only to organizations deemed by the
Investment Adviser to be of good standing and when, in the judgment of the
Investment Adviser, the consideration which can be earned from securities loans
of this type justifies the attendant risk. The financial condition of the
borrower will be monitored by the Investment Adviser on an ongoing basis and
collateral values will be continuously maintained at no less than 100% by
"marking to market" daily. If the Investment Adviser decides to make securities
loans, it is intended that the value of the securities loaned would no exceed
30% of the fund's total assets.
Repurchase Agreements. A fund may enter into repurchase agreements only
with large, well-capitalized banks or government securities dealers that meet
Wright's credit standards. Repurchase agreements involve the purchase of U.S.
Government securities or of other high-quality, short-term debt obligations. At
the same time a fund purchases the security, it resells it to the vendor (a
member bank of the Federal Reserve System or recognized securities dealer), and
is obligated to redeliver the security to the vendor on an agreed-upon date in
the future. The resale price is in excess of the purchase price and reflects an
agreed-upon market rate unrelated to the coupon rate on the purchased security.
These transactions, which are like short-term loans, afford an opportunity for a
fund to earn a return on cash which is only temporarily available. A fund's risk
is the ability of the vendor to pay an agreed-upon sum upon the delivery date,
and each fund believes the risk is limited to the difference between the market
value of the security and the repurchase price provided for in the repurchase
agreement. However, bankruptcy or insolvency proceedings affecting the vendor of
the security which is subject to the repurchase agreement, prior to the
repurchase, may result in a delay in a fund being able to resell the security.
In all cases when entering into repurchase agreements with other than FDIC
insured depository institutions, the funds will take physical possession of the
underlying collateral security, or will receive written confirmation of the
purchase of the collateral security and a custodial or safekeeping receipt from
a third party under a written bailment for hire contract, or will be the
recorded owner of the collateral security through the Federal Reserve Book-Entry
System.
Defensive Investments. During periods of unusual market conditions, when
Wright believes that investing for temporary defensive purposes is appropriate,
all or a portion of a fund's assets may be held in cash or invested in
short-term obligations. Short-term obligations include but are not limited to
short-term obligations issued or guaranteed as to interest and principal by the
U.S. Government or any agency or instrumentality thereof (including repurchase
agreements collateralized by such securities); commercial paper which at the
date of investment is rated A-1 by S&P or P-1 by Moody's, or, if not rated by
such rating organizations, is deemed by Wright pursuant to procedures
established by the Trustees to be of comparable quality; short-term corporate
obligations and other debt instruments which at the date of investment are rated
AA or better by S&P or Aa or better by Moody's or, if unrated by such rating
organizations, are deemed by Wright pursuant to procedures established by the
Trustees to be of comparable quality; and certificates of deposit, bankers'
acceptances and time deposits of domestic banks which are determined to be of
high quality by Wright pursuant to procedures established by the Trustees. A
fund may invest in instruments and obligations of banks that have other
relationships with the fund, Wright or Eaton Vance Management, the administrator
("Eaton Vance" or "Administrator"). No preference will be shown towards
investing in banks which have such relationships.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the fund and may
be changed only by the vote of a majority of the fund's outstanding voting
securities, which as used in this Statement of Additional Information means the
lesser of (a) 67% of the shares of the fund if the holders of more than 50% of
the shares are present or represented at the meeting or (b) more than 50% of the
shares of the fund. Accordingly, the fund may not:
(1) With respect to 75% of the total assets of the fund, purchase the
securities of any issuer if such purchase at the time thereof would
cause more than 5% of its total assets (taken at market value) to
be invested in the securities of such issuer, or purchase
securities of any issuer if such purchase at the time thereof would
cause more than 10% of the total voting securities of such issuer
to be held by the fund, except that this restriction does not apply
to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and securities of other investment
companies;
(2) Borrow money or issue senior securities except as permitted by the
Investment Company Act of 1940. In addition, the fund may not issue
bonds, debentures or senior equity securities, other than shares of
beneficial interest;
(3) Purchase securities on margin (but the fund may obtain such short-
term credits as may be necessary for the clearance of purchases
and sales of securities);
<PAGE>
(4) Underwrite or participate in the marketing of securities of others;
(5) Make an investment in any one industry if such investment would
cause investments in such industry to equal or exceed 25% of the
fund's total assets taken at market value at the time of such
investment (other than (i) securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities) and (ii)
securities of other investment companies;
(6) Purchase or sell real estate, although it may purchase and sell
securities which are secured by real estate and securities of
companies which invest or deal in real estate;
(7) Purchase or sell commodities or commodity contracts for the
purchase or sale of physical commodities, except that the fund may
purchase and sell financial futures contracts, options on financial
futures contracts and all types of currency contracts; or
(8) Make loans to any person except by (a) the acquisition of debt
securities and making portfolio investments (b) entering into
repurchase agreements or (c) lending portfolio securities.
The fund has adopted the following investment policy which may be changed
without approval by the fund's shareholders. As a matter of nonfundamental
policy, the fund will not invest more than 15% of net assets in illiquid
investments. If the fund's holdings of illiquid securities exceed 15% of its net
assets, the fund will take steps necessary to reduce these holdings in its
ordinary course of business. In addition, the fund will not purchase securities
when bank borrowing exceeds 5% of total assets.
Except for the fund's investment policies with respect to borrowing money
and investing in illiquid securities, if a percentage restriction contained in
the fund's investment policies is adhered to at the time of investment, a later
increase or decrease in the percentage resulting from a change in the value of
portfolio securities or the fund's net assets will not be considered a violation
of such restriction.
OFFICERS AND TRUSTEES
The officers and trustees of the Trust are listed below. Except as
indicated, each individual has held the office shown or other offices in the
same company for the last five years. Those trustees who are "interested
persons" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of
the Trust, Wright, The Winthrop Corporation ("Winthrop"), Eaton Vance, Eaton
Vance's wholly owned subsidiary, Boston Management and Research ("BMR"), Eaton
Vance's parent company, Eaton Vance Corp. ("EVC"), or Eaton Vance's and BMR's
trustee, Eaton Vance, Inc. ("EV") by virtue of their affiliation with either the
Trust, Wright, Winthrop, Eaton Vance, BMR, EVC or EV, are indicated by an
asterisk (*).
PETER M. DONOVAN (56), President and Trustee*
President, Chief Executive Officer and Director of Wright and Winthrop; Vice
President, Treasurer and a Director of Wright Investors' Service Distributors,
Inc.
Address: 1000 Lafayette Boulevard, Bridgeport, CT 06604
H. DAY BRIGHAM, JR. (72), Vice President, Secretary and Trustee*
Retired, Vice President, Chairman of the Management Committee and Chief Legal
Officer of Eaton Vance, BMR, EVC and EV and Director of EV and EVC; Director of
Wright and Winthrop since February, 1997.
Address: 92 Reservoir Avenue, Chestnut Hill, MA 02167
JUDITH R. CORCHARD (60), Vice President and Trustee*
Executive Vice President, Investment Management: Senior Investment Officer;
Chairman of the Investment Committee and Director of Wright and Winthrop. Ms.
Corchard was appointed a Trustee of the Trust on December 10, 1997.
Address: 1000 Lafayette Boulevard, Bridgeport, CT 06604
A.M. MOODY, III (62), Vice President & Trustee*
Senior Vice President, Wright and Winthrop; President, Wright Investors'
Service Distributors, Inc.
Address: 1000 Lafayette Boulevard, Bridgeport, CT 06604
<PAGE>
DORCAS R HARDY (52), Trustee
President, Dorcas R. Hardy & Associates (a public policy and government
relations firm), Spotsylvania, VA; Director, The Options Clearing Corporation
and First Coast Service Options, Jacksonville, FL (FL Blue Cross Blue Shield
subsidiary); 1996-1998 - Chairman and CEO of Work Recovery, Inc. (an advanced
rehabilitation technology firm), Tucson AZ; 19861989 - U.S. Commissioner of
Social Security. Ms. Hardy was elected a Trustee on December 9, 1998.
Address: 11407 Stonewall Jackson Drive, Spotsylvania, VA 22553
LELAND F. MILES (75), Trustee
President Emeritus, University of Bridgeport (1987-present); President,
University of Bridgeport (1974-1987); Director, United Illuminating Company.
Address: 332 North Cedar Road, Fairfield, CT 06430
LLOYD F. PIERCE (80), Trustee
Retired Vice Chairman (prior to 1984 - President), People's Bank, Bridgeport,
CT; Member, Board of Trustees, People's Bank, Bridgeport, CT; Board of
Directors, Southern Connecticut Gas Company; Chairman, Board of Directors,
COSINE (a software company).
Address: 140 Snow Goose Court, Daytona Beach, FL 32119
RICHARD E. TABER (50), Trustee
Chairman and Chief Executive Officer of First County Bank, Stamford, CT
(1989-present). Mr. Taber was appointed a Trustee of the Trust on
March 18, 1997.
Address: 117 Prospect Street, Stamford, CT 06904
RAYMOND VAN HOUTTE (74), Trustee
President Emeritus and Counselor of The Tompkins County Trust Company,
Ithaca, NY (since January 1989); President and Chief Executive Officer, The
Tompkins County Trust Company (1973-1988); President, New York State Bankers
Association (1987-1988); Trustee Emeritus Paleontological Institution (since
May, 1995).
Address: One Strawberry Lane, Ithaca, NY 14850
JAMES L. O'CONNOR (54), Treasurer
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Address: 255 State Street, Boston, MA 02109
JANET E. SANDERS (63), Assistant Secretary and Assistant Treasurer
Vice President of Eaton Vance, BMR and EV. Officer of various investment
companies managed by Eaton Vance or BMR.
Address: 255 State Street, Boston, MA 02109
A. JOHN MURPHY (36), Assistant Secretary
Vice President of Eaton Vance, BMR and EV since March 1, 1994;
employee of Eaton Vance since March 1993. Officer of various investment
companies managed by Eaton Vance or BMR.
Address: 255 State Street, Boston, MA 02109
ERIC G. WOODBURY (41), Assistant Secretary
Vice President of Eaton Vance, BMR and EV since February 1993. Officer o
various investment companies managed by Eaton Vance or BMR.
Address: 255 State Street, Boston, MA 02109
WILLIAM J. AUSTIN, JR. (47), Assistant Treasurer
Assistant Vice President of Eaton Vance, BMR and EV. Officer of various
investment companies managed by Eaton Vance or BMR.
Address: 255 State Street, Boston, MA 02109
All of the trustees and officers hold identical positions with The Wright
Managed Equity Trust, The Wright Managed Income Trust, The Wright EquiFund
Equity Trust, The Wright Blue Chip Master Portfolio Trust and Catholic Values
Investment Trust. Each trustee who is not an employee of Wright, Winthrop, Eaton
Vance, its parents or subsidiaries, including Mr. Brigham, receives annual
compensation from the Trust. The trustees who are employees of Wright receive no
compensation from the Trust. Non-affiliated trustees, including Mr. Brigham,
also receive additional payments from other investment companies for which
Wright provides investment advisory services. The Trust does not have a
retirement plan for the trustees. See the following "Compensation Table."
<PAGE>
The Board of Trustees has established an Independent Trustees' Committee
consisting of all of the Independent Trustees, who are Messrs. Miles, Pierce
(Chairman), Taber and Van Houtte and Ms. Hardy. The responsibilities of the
Independent Trustees' Committee include those of an audit committee for the
financial governance of the Trust, a nominating committee for additional or
replacement trustees of the Trust and a contract review committee for
consideration of renewals or changes in the investment advisory agreements,
distribution agreements and distribution plans and other agreements as
appropriate.
COMPENSATION TABLE
Estimated Total
Compensation Compensation from
from the Fund(1) Fund and Funds Complex(1)(2)
- -------------------------------------------------------------------------------
H. Day Brigham, Jr. $ 750 $ 11,250
Dorcas Hardy 750 11,250
Leland Miles 750 11,250
Lloyd F. Pierce 750 11,250
Richard E. Taber 750 11,250
Raymond Van Houtte 750 11,250
- -------------------------------------------------------------------------------
(1) Estimated for the fiscal year ended December 31, 1999.
(2) Includes service on other boards in the Wright fund complex for a total
of 24 Funds.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SHARES
As of the date of this Statement of Additional Information, all of the
outstanding shares of the fund are owned by Wright.
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES
The fund has engaged Wright to act as the fund's investment adviser
pursuant to an Investment Advisory Contract (the "Investment Advisory
Contract"). Wright, acting under the general supervision of the trustees,
furnishes the fund with investment advice and management services, as described
below. The School for Ethical Education, 1000 Lafayette Boulevard, Bridgeport,
CT 06604, may be considered a controlling person of Wright's parent, Winthrop,
and Wright by reason of its ownership of more than 25% of the outstanding shares
of Winthrop.
Pursuant to the Investment Advisory Contract, Wright will carry out the
investment and reinvestment of the assets of the fund, will furnish continuously
an investment program with respect to the fund, will determine which securities
should be purchased, sold or exchanged and will implement such determinations.
Wright will be solely responsible for evaluating the investment merits of the
fund's portfolio investments. Wright will furnish to the fund investment advice
and management services, office space, equipment and clerical personnel, and
investment advisory, statistical and research facilities. In addition, Wright
has arranged for certain members of the Eaton Vance and Wright organizations to
serve without salary as officers or trustees of the Trust. In return for these
services, the fund is obligated to pay a monthly advisory fee calculated at the
rate set forth in the fund's current Prospectus.
The fund has engaged Eaton Vance to act as its administrator pursuant to an
Administration Agreement. For its services under the Administration Agreement,
Eaton Vance receives monthly administration fees at the annual rate of 0.02% of
the fund's average net assets.
<PAGE>
Eaton Vance is a business trust organized under Massachusetts law. Eaton
Vance, Inc. ("EV") serves as trustee of Eaton Vance. Eaton Vance and EV are
wholly owned subsidiaries of Eaton Vance Corporation ("EVC"), a Maryland
corporation and publicly held holding company. EVC through its subsidiaries and
affiliates engages primarily in investment management, administration and
marketing activities. The Directors of EVC are James B. Hawkes, Benjamin A.
Rowland, Jr. , John G.L. Cabot, John M. Nelson, Vincent M. O'Reilly and Ralph Z.
Sorenson. All of the issued and outstanding shares of Eaton Vance are owned by
EVC. All shares of the outstanding Voting Common Stock of EVC are deposited in a
Voting Trust, the Voting Trustees of which are Messrs. Hawkes and Rowland, Alan
R. Dynner, Thomas E. Faust, Jr., Thomas J. Fetter, Duncan W. Richardson, William
M. Steul and Wharton P. Whitaker. The Voting Trustees have unrestricted voting
rights for the election of Directors of EVC. All of the outstanding voting trust
receipts issued under said Voting Trust are owned by certain of the officers of
Eaton Vance who are also officers, or officers and Directors of EVC and EV.
The fund will be responsible for all of its expenses not expressly stated
to be payable by Wright under its Investment Advisory Contract, including,
without limitation, the fees and expenses of its custodian and transfer agent,
including those incurred for determining the fund's net asset value and keeping
the fund's books; the cost of share certificates; membership dues to investment
company organizations; brokerage commissions and fees; fees and expenses of
registering its shares; expenses of reports to shareholders, proxy statements,
and other expenses of shareholders' meetings; insurance premiums; printing and
mailing expenses; interest, taxes and corporate fees; legal and accounting
expenses; expenses of trustees not affiliated with Eaton Vance or Wright; and
investment advisory and administration fees. The fund will also bear expenses
incurred in connection with litigation in which the fund is a party and the
legal obligation the fund may have to indemnify the officers and trustees of the
Trust with respect thereto.
The fund's Investment Advisory Contract and Administration Agreement will
remain in effect until February 28, 2001. The Investment Advisory Contract may
be continued from year to year thereafter so long as such continuance after
February 28, 2001 is approved at least annually (i) by the vote of a majority of
the trustees who are not "interested persons" of the Trust, Eaton Vance or
Wright cast in person at a meeting specifically called for the purpose of voting
on such approval and (ii) by the board of trustees or by vote of a majority of
the outstanding shares of the fund. The fund's Administration Agreement may be
continued from year to year after February 28, 2001 so long as such continuance
is approved annually by the vote of a majority of the trustees. Each agreement
may be terminated at any time without penalty on sixty (60) days written notice
by the board of trustees or directors of either party, or by vote of the
majority of the outstanding shares of the fund. Each agreement will terminate
automatically in the event of its assignment. Each agreement provides that, in
the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations or duties to the fund under such agreement on the
part of Eaton Vance or Wright, neither Eaton Vance nor Wright, as the case may
be, will be liable to the fund for any loss incurred.
CUSTODIAN AND TRANSFER AGENT
IBT, 200 Clarendon Street, Boston, MA 02116, acts as custodian for the
fund. IBT has the custody of all cash and securities of the fund, maintains the
fund's general ledgers and computes the daily net asset value per share. In such
capacity it attends to details in connection with the sale, exchange,
substitution, transfer or other dealings with the fund's investments, receives
and disburses all funds and performs various other ministerial duties upon
receipt of proper instructions from the fund.
First Data Investor Services Group, P.O. Box 5156, Westborough, MA
01581-9686 is the fund's transfer agent.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Deloitte & Touche LLP, Boston, Massachusetts, is the Trust's independent
certified public accountant, providing audit services, tax return preparation,
and assistance and consultation with respect to the preparation of filings with
the Securities and Exchange Commission.
<PAGE>
BROKERAGE ALLOCATION
Wright places the portfolio security transactions for the fund, which in
some cases may be effected in block transactions which include other accounts
managed by Wright. Wright provides similar services directly for bank trust
departments and other investment advisory accounts. Wright seeks to execute
portfolio security transactions on the most favorable terms and in the most
effective manner possible. In seeking best execution, Wright will use its best
judgment in evaluating the terms of a transaction, and will give consideration
to various relevant factors, including without limitation the size and type of
the transaction, the nature and character of the markets for the security, the
confidentiality, speed and certainty of effective execution required for the
transaction, the reputation, experience and financial condition of the
broker-dealer and the value and quality of service rendered by the broker-dealer
in other transactions, and the reasonableness of the brokerage commission or
markup, if any.
It is expected that on frequent occasions there will be many broker-dealer
firms which will meet the foregoing criteria for a particular transaction. In
selecting among such firms, Wright may give consideration to those firms which
supply brokerage and research services, quotations and statistical and other
information to Wright for its use in servicing its advisory accounts. Wright may
include firms which purchase investment services from Wright. The term
"brokerage and research services" includes advice as to the value of securities,
the advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts; and
effecting securities transactions and performing functions incidental thereto
(such as clearance and settlement). Such services and information may be useful
and of value to Wright in servicing all or less than all of its accounts and the
services and information furnished by a particular firm may not necessarily be
used in connection with the account which paid brokerage commissions to such
firm. The advisory fee paid by the fund to Wright is not reduced as a
consequence of Wright's receipt of such services and information. While such
services and information are not expected to reduce Wright's normal research
activities and expenses, Wright would, through use of such services and
information, avoid the additional expenses which would be incurred if it should
attempt to develop comparable services and information through its own staff.
Under the fund's Investment Advisory Contract, Wright has the authority to
pay commissions on portfolio transactions for brokerage and research services
exceeding that which other brokers or dealers might charge provided certain
conditions are met. This authority will not be exercised, however, until the
Prospectus or this Statement of Additional Information has been supplemented or
amended to disclose the conditions under which Wright proposes to do so.
The Investment Advisory Contract expressly recognizes the practices which
are provided for in Section 28(e) of the Securities Exchange Act of 1934 by
authorizing the selection of a broker or dealer which charges the fund a
commission which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if it is determined in
good faith that such commission was reasonable in relation to the value of the
brokerage and research services which have been provided.
PRICING OF SHARES
For a description of how the fund values its shares, see "Information About
Your Account -- How the Fund Values its Shares" in the fund's current
Prospectus. The fund values securities with a remaining maturity of 60 days or
less by the amortized cost method. The amortized cost method involves initially
valuing a security at its cost (or its fair market value on the sixty-first day
prior to maturity) and thereafter assuming a constant amortization to maturity
of any discount or premium, without regard to unrealized appreciation or
depreciation in the market value of the security. Foreign securities in which an
underlying fund may invest may be listed primarily on foreign stock exchanges
that my trade on days when the fund is not open for business. For this reason,
the net asset value of an underlying fund's portfolio may be significantly
affected by trading on days when an investor does not have access to the fund.
The fund will not price its securities on the following national holidays:
New Year's Day; Martin Luther King, Jr. Day; Presidents' Day; Good Friday;
Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and Christmas Day.
TAXES
In order to qualify as a regulated investment company as described in the
Prospectus, the fund must, among other things, (1) derive at least 90% of its
gross income in each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stocks
or securities or foreign currencies, or other income (including but not limited
<PAGE>
to gains from options and forward contracts) derived with respect to its
business of investing in such stocks or securities and (2) diversify its
holdings in compliance with the diversification requirements of Subchapter M of
the Code so that, at the end of each quarter of the fund's taxable year, (a) at
least 50% of the market value of the fund's total assets is represented by cash,
U.S. Government securities and other securities limited in respect of any one
issuer to not more than 5% of the value of the fund's total (gross) assets and
to not more than 10% of the voting securities of such issuer, and (b) not more
than 25% of the value of its total (gross) assets is invested in securities of
any one issuer (other than U.S. Government securities) or certain other issuers
controlled by the fund.
As a regulated investment company, the fund will not be subject to federal
income tax on net investment income and net capital gains (short and long-term),
if any, that it distributes to its shareholders if at least 90% of its
investment company taxable income (i.e., all of its net taxable income other
than the excess, if any, of net long-term capital gain over net short-term
capital loss ("net capital gain"), for the taxable year is distributed in
accordance with applicable timing requirements, but will be subject to tax at
regular corporate rates on any investment company taxable income or net capital
gain that is not so distributed. In general, dividends will be treated as paid
when actually distributed, except that dividends declared in October, November
or December and made payable to shareholders of record in such a month will be
treated as having been received by shareholders on December 31, if the dividend
is paid in the following January. The fund intends to satisfy the distribution
requirement in each taxable year. The fund's distributions from investment
company taxable income and net capital gain are generally treated as ordinary
income and long-term capital gain, respectively, under the Code. Insurance
companies should consult their own tax advisers regarding the tax rules
governing their treatment upon receipt of these distributions and the proceeds
of share redemptions (including exchanges).
The fund will not be subject to federal excise tax or the related
distribution requirements for any taxable year in which all of its shares are
held by segregated asset accounts of life insurance companies held in connection
with variable contracts or are attributable to certain "seed money" in
accordance with Section 4982(f) of the Code.
Investment by the fund in the stock of a "passive foreign investment
company" may cause the fund to recognize income prior to the receipt of
distributions from such a company or to become subject to tax upon the receipt
of certain excess distributions from, or upon disposition of its stock of, such
a company, although an election may generally be available that would ameliorate
some of these adverse tax consequences.
The fund intends to comply with the diversification requirements imposed by
Section 817(h) of the Code and the regulations thereunder. These requirements,
which are in addition to the diversification requirements imposed on the fund by
the 1940 Act and Subchapter M of the Code, place certain limitations on the
assets of each separate account and, because Section 817(h) and those
regulations treat the assets of the fund as assets of the related separate
account, the assets of the fund, that may be represented by any one, two, three
and four investments. Specifically, the regulations provide that, except as
permitted by the "safe harbor" described below, as of the end of each calendar
quarter or within 30 days thereafter no more than 55% of the total assets of the
fund may be represented by any one investment, no more than 70% by any two
investments, no more than 80% by any three investments and no more than 90% by
any four investments. For this purpose, all securities of the same issuer are
considered a single investment, and each U.S. Government agency and
instrumentality is considered a separate issuer. Section 817(h) provides, as a
safe harbor, that a separate account will be treated as being adequately
diversified if the diversification requirements under Subchapter M are satisfied
and no more than 55% of the value of the account's total assets are cash and
cash items (including receivables), U.S. Government securities and securities of
other regulated investment companies. Failure by the fund to both qualify as a
regulated investment company and satisfy the Section 817(h) requirements would
generally result in treatment of the variable contract holders other than as
described in the applicable variable contract prospectus, including inclusion in
ordinary income of income accrued under the contracts for the current and all
prior taxable years. Any such failure may also result in adverse tax
consequences for the insurance company issuing the contracts.
The Trust may therefore find it necessary to take action to seek to ensure
that a Contract continues to qualify as a Contract under federal tax laws,
although the insurance company that maintains each segregated asset account is
responsible for ensuring that the assets held in that account satisfy the
diversification requirements of Section 817(h) of the Code and the applicable
regulations and the Trust itself can control only the assets held within the
fund. The Trust, for example, may be required to alter the investment objectives
of the fund or substitute the shares of one fund for those of another. No such
change of investment objectives or substitution of securities will take place
without notice to the shareholders of the affected fund. Failure by the fund to
qualify as a regulated investment company would also subject the fund to federal
and possibly state taxation of its income and gains, whether or not distributed
to shareholders, and distributions would generally be treated as ordinary income
to the extent of the fund's current or accumulated earnings and profits.
The fund is not subject to Massachusetts corporate excise or franchise tax.
Provided that the fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
<PAGE>
CALCULATION OF PERFORMANCE AND YIELD QUOTATIONS
The average annual total return of the fund is determined for a particular
period by calculating the actual dollar amount of investment return on a $1,000
investment in the fund made at the maximum public offering price (i.e. net asset
value) at the beginning of the period, and then calculating the annual
compounded rate of return which would produce that amount. Total return for a
period of one year is equal to the actual return of the fund during that period.
This calculation assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period.
The yield of the fund is computed by dividing its net investment income per
share earned during a recent 30-day period by the maximum offering price (i.e.
net asset value) per share on the last day of the period and analyzing the
resulting figure. Net investment income per share is equal to the fund's
dividends and interest earned during the period, with the resulting number being
divided by the average daily number of shares outstanding and entitled to
receive dividends during the period.
The fund's yield is calculated according to the following formula:
6
Yield = 2 [(a-b + 1)- 1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (after reductions).
c = the average daily number of shares outstanding during the period.
d = the net asset value per share on the last day of the period.
Yield and effective yield will be based on historical earnings and are not
intended to indicate future performance. Yield and effective yield will vary
based on changes in market conditions and the level of expenses. The fund's
yield or total return may be compared to the Consumer Price Index and various
domestic securities indices. The fund's yield or total return and comparisons
with these indices may be used in advertisements and in information furnished to
present or prospective shareholders.
From time to time, in advertisements, in sales literature, or in reports to
shareholders, the past performance of the fund may be illustrated and/or
compared with that of other mutual funds with similar investment objectives, and
to stock or other relevant indices. In addition, the performance of the fund may
be compared to alternative investment or savings vehicles and/or to indexes or
indicators of economic activity, e.g., inflation or interest rates. Performance
rankings and listings reported in newspapers or national business and financial
publications, such as Barron's, Business Week, Consumers Digest, Consumer
Reports, Financial World, Forbes, Fortune, Investors Business Daily, Kiplinger's
Personal Finance Magazine, Money Magazine, New York Times, Smart Money, USA
Today, U.S. News and World Report, The Wall Street Journal and Worth may also be
cited (if the fund is listed in any such publication) or used for comparison, as
well as performance listings and rankings from various other sources including
Bloomberg Financial Markets, CDA/Wiesenberger, Donoghue's Mutual fund Almanac,
Investment Company Data, Inc., Johnson's Charts, Kanon Bloch Carre and Co.,
Lipper Analytical Services, Inc., Micropal, Inc., Morningstar, Inc., Schabacker
Investment Management and Towers Data Systems, Inc.
In addition, from time to time quotations from articles from financial
publications such as those listed above may be used in advertisements, in sales
literature, or in reports to shareholders of the fund. The performance of the
fund will not be presented in advertisements or sales literature without also
presenting the performance of the separate account.
<PAGE>
FINANCIAL STATEMENTS
Wright Managed Growth with Income Fund
Statement of Assets and Liabilities
May 19, 1999
Assets:
Cash................................................ $ 100,000
Deferred offering costs (Note 2).................... 43,000
----------
Total Assets...................................... $ 143,000
Liabilities:
Accrued offering costs.............................. $ 43,000
----------
Net assets (applicable to 10,000 shares of beneficial
interest issued and outstanding)........................ $ 100,000
Net asset value, offering price, and repurchase
price per share......................................... $ 10.00
============
Statement of Operations
Period Ended May 19, 1999
Investment income $ -
----------
Expenses -
Incorporation fees................................. $ 500
Legal.............................................. 27,630
Audit.............................................. 2,000
----------
Total expenses ......................................... $ 30,130
----------
Deduct -
Allocation of expenses to the investment adviser.. 30,130
----------
Net expenses ........................................... $ -
----------
Net investment income .................................. -
----------
See notes to financial statements.
Notes:
(1) Wright Managed Growth with Income Fund is a separate series of The Wright
Asset Allocation Trust. A purchase of interests therein at a price of $10
per share was made by Wright Investors' Service (the "initial interests").
(2) Offering costs are being deferred and will be amortized on a straight line
basis over a period not to exceed twelve months, commencing on the
effective date of the Fund's initial offering of its shares. The amount
paid by the Fund on any withdrawal by the holders of the initial interests
of any of the respective initial interests will be reduced by a portion of
any unamortized offering costs, determined by the proportion of the amount
of the initial interests withdrawn to the initial interests then
outstanding.
<PAGE>
Independent Auditors' Report
To the Trustees and Shareholder of
The Wright Asset Allocation Trust:
We have audited the accompanying statement of assets and liabilities of Wright
Managed Growth with Income Fund (one of the series of The Wright Asset
Allocation Trust) (the Trust) as of May 19, 1999, and the related statement of
operations for the period then ended. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Wright Managed Growth with Income Fund as of
May 19, 1999, and the results of its operations for the period then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 20, 1999
<PAGE>
APPENDIX
- ------------------------------------------------------------------------------
WRIGHT QUALITY RATINGS
Wright Quality Ratings provide the means by which the fundamental criteria
for the measurement of quality of an issuer's securities for investment by an
underlying Blue Chip Fund can be objectively evaluated.
Each rating is based on 32 individual measures of quality grouped into four
components: (1) Investment Acceptance, (2) Financial Strength, (3) Profitability
and Stability, and (4) Growth. The total rating is three letters and a numeral.
The three letters measure (1) Investment Acceptance, (2) Financial Strength, and
(3) Profitability and Stability. Each letter reflects a composite measurement of
eight individual standards which are summarized as A: Outstanding, B: Excellent,
C: Good, D: Fair, L: Limited, and N: Not Rated. The numeral rating reflects
Growth and is a composite of eight individual standards ranging from 0 to 20.
EQUITY SECURITIES
INVESTMENT ACCEPTANCE reflects the acceptability of a security by and its
marketability among investors, and the adequacy of the floating supply of its
common shares for the investment of substantial funds.
FINANCIAL STRENGTH represents the amount, adequacy and liquidity of the
corporation's resources in relation to current and potential requirements. Its
principal components are aggregate equity and total capital, the ratio of
invested equity capital to debt, the adequacy of net working capital, its fixed
charges coverage ratio and other appropriate criteria.
PROFITABILITY AND STABILITY measures the record of a corporation's
management in terms of (1) the rate and consistency of the net return on
shareholders' equity capital investment at corporate book value, and (2) the
profits or losses of the corporation during generally adverse economic periods,
including its ability to withstand adverse financial developments.
GROWTH per common share of the corporation's equity capital, earnings, and
dividends - rather than the corporation's overall growth of dollar sales and
income.
These ratings are determined by specific quantitative formulae. A
distinguishing characteristic of these ratings is that The Wright Investment
Committee must review and accept each rating. The Committee may reduce a
computed rating of any company, but may not increase it.
DEBT SECURITIES
Wright ratings for commercial paper, corporate bonds and bank certificates
of deposit consist of the two central positions of the four position
alphanumeric corporate equity rating. The two central positions represent those
factors which are most applicable to fixed income and reserve investments. The
first, Financial Strength, represents the amount, the adequacy and the liquidity
of the corporation's resources in relation to current and potential
requirements. Its principal components are aggregate equity and total capital,
the ratios of (a) invested equity capital, and (b) long-term debt, total of
corporate capital, the adequacy of net working capital, fixed charges coverage
ratio and other appropriate criteria. The second letter represents Profitability
and Stability and measures the record of a corporation's management in terms of:
(a) the rate and consistency of the net return on shareholders' equity capital
investment at corporate book value, and (b) the profits and losses of the
corporation during generally adverse economic periods, and its ability to
withstand adverse financial developments.
The first letter rating of the Wright four-part alphanumeric corporate
rating is not included in the ratings of fixed-income securities since it
primarily reflects the adequacy of the floating supply of the company's common
shares for the investment of substantial funds. The numeric growth rating is not
included because this element is identified only with equity investments.
A-1 AND P-1 COMMERCIAL PAPER RATINGS BY S&P AND MOODY'S
An S&P Commercial Paper Rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
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`A': Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers 1, 2, and 3 to indicate the relative degree of safety. The
`A-1' designation indicates that the degree of safety regarding timely payment
is either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics will be denoted with a plus (+) sign
designation.
The commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to S&P by the
issuer or obtained from other sources it considers reliable. The ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information.
Issuers (or related supporting institutions) rated P-1 by Moody's have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
BOND RATINGS
In addition to Wright quality ratings, bonds or bond insurers may be
expected to have credit risk ratings assigned by the two major rating companies,
Moody's and S&P. Moody's uses a nine-symbol system with Aaa being the highest
rating and C the lowest. S&P uses a 10-symbol system that ranges from AAA to D.
Bonds within the top four categories of Moody's (Aaa, Aa, A and Baa) and of S&P
(AAA, AA, A and BBB) are considered to be of investment-grade quality. Bonds in
the lowest investment grade category (BBB) may have speculative characteristics.
Note that both S&P and Moody's currently give their highest rating to issuers
insured by the American Municipal Bond Assurance Corporation (AMBAC) or by the
Municipal Bond Investors Assurance Corporation (MBIA).
Bonds rated A by S&P have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of change in
circumstances and economic conditions than debt in higher-rated categories. The
rating of AA is accorded to issues where the capacity to pay principal and
interest is very strong and they differ from AAA issues only in small degree.
The AAA rating indicates an extremely strong capacity to pay principal and
interest.
Bonds rated A by Moody's are judged by Moody's to possess many favorable
investment attributes and are considered as upper medium grade obligations.
Bonds rated Aa by Moody's are judged by Moody's 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 Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater degree or there may be other elements present which make the long-term
risks appear somewhat larger. Bonds rated Aaa by Moody's are judged to be of the
best quality. 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 issuers.
NOTE RATINGS
In addition to Wright quality ratings, municipal notes and other short-term
loans may be assigned ratings by Moody's or S&P.
Moody's ratings for municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG). This distinction is in recognition of
the differences between short-term and long-term credit risk. Loans bearing the
designation MIG 1 are of the best quality, enjoying strong protection by
establishing cash flows of funds for their servicing or by established and
broad-based access to the market for refinancing, or both. Loans bearing the
designation MIG 2 are of high quality, with margins of protection ample although
not so large as in the preceding group.
S&P's top ratings for municipal notes issued after July 29, 1984 are SP-1
and SP-2. the designation SP-1 indicates a very strong capacity to pay principal
and interest. A "+" is added for those issues determined to possess overwhelming
safety characteristics.
An "SP-2" designation indicates a satisfactory capacity to pay principal and
interest.
