As Filed With The Securities And Exchange Commission On August 27, 1999
File Nos. 333-80845 and 811-09379
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. 1 (X)
Post-Effective Amendment No. ___ ( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. ___
LSA VARIABLE SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
3100 Sanders Road, Suite J5B, Northbrook, Illinois 60062
(Address of Principal Executive Offices) (Zip Code)
(847) 402-5000
(Registrant's Telephone Number, Including Area Code)
Brenda D. Sneed, Esquire
(Name and Address of Agent for Service of Process)
Copies to:
Joan E. Boros, Esquire
Thomas C. Mira, Esquire
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007
Approximate Date of Commencement of the Proposed Public Offering of the
Securities: As soon as practicable after the effective date of the Registration
Statement under the Securities Act of 1933. The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement thereafter shall become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
LSA VARIABLE SERIES TRUST
The LSA Variable Series Trust (the "Trust") is a group of mutual funds sold
exclusively to separate accounts of life insurance companies, including Allstate
Life Insurance Company and its subsidiaries. There are presently six portfolios
(the "Funds") that are available for investment.
The information in this prospectus is of interest to anyone who owns or is
considering purchasing a variable annuity or variable life contract issued by an
insurance company separate account that makes the Funds available as investment
options. This prospectus explains the investment objectives, risks and
strategies of each Fund.
You should read the prospectus to help you decide whether the insurance company
separate account that invests in a Fund is the right investment for you. You
should keep this prospectus for future reference along with the prospectus for
the insurance product which accompanies this prospectus.
The terms "you", "your" and "yours" refer to the Contract owner as an investor
in the insurance company separate accounts.
To learn more about the Funds and their investments, you may obtain a copy of
the Statement of Additional Information (SAI) Dated October__, 1999. The SAI has
been filed with the Securities and Exchange Commission (SEC) and is incorporated
herein by reference, which means it is legally part of the prospectus. For a
free copy contact your insurance company.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
This Prospectus contains information you should know before investing, including
information about risks. Please read it before you invest and keep it for future
reference.
<PAGE>
Table of Contents
Funds at a Glance
General information about the Funds, the Manager, and the Advisers
Fund Summaries
For each Fund, the investment objective, Adviser, strategy, risks and who may
want to invest
More Information About the Funds
The types of investment strategies that may be used by some or all of the Funds
and additional information about investment risks
Management of the Funds
General information about the organization and operations of the Funds,
including details about the Adviser to each Fund
Valuing a Fund's Assets
General information on how a Fund's assets are valued, including market value,
fair value, and the use of foreign currency conversion values
Pricing of Fund Shares
Details on how each Fund's per share price (also known as "net asset value") is
determined, how to purchase and redeem shares
Fees and Expenses
Details on the cost of operating the Funds including fees, expenses and
calculations
Additional Fund Information
Income and capital gain distributions, taxes, year 2000 preparations, Statement
of Additional Information, annual reports
<PAGE>
PART A
Funds at a Glance
The Trust
The LSA Variable Series Trust (the "Trust") is a group of mutual funds managed
by LSA Asset Management LLC (the "Manager").
The Manager
The Manager carefully selects other professional investment managers (the
"Advisers") to carry out the day-to-day management of each Fund. The Manager
receives a fee, payable quarterly, based on a percentage of average net assets
of the Funds.
The Advisers
The Advisers are the professional investment managers who perform the day-to-day
investing on behalf of the Funds subject to the general supervision of the
Manager and the Trust's Board of Trustees (the "Board"). The fees of the
Advisers are paid by the Manager, not the Funds. Each Adviser is a registered
investment adviser with the Securities and Exchange Commission (the "SEC"). The
following chart lists the Adviser and each Fund's investment objective.
<TABLE>
<CAPTION>
- ---------------------- ------------------------- ---------------------------------------------------------------------
Fund Adviser Investment Objective
- ---------------------- ------------------------- ---------------------------------------------------------------------
<S> <C> <C>
Focused Equity Morgan Stanley Asset Seeks to provide capital appreciation by investing primarily in
Management* equity securities of U.S. and foreign companies.
- ---------------------- ------------------------- ---------------------------------------------------------------------
Growth Equity Goldman Sachs Asset Seeks to provide long-term growth of capital.
Management
- ---------------------- ------------------------- ---------------------------------------------------------------------
Disciplined Equity J.P.Morgan Investment Seeks to provide a consistently high total return from a broadly
Management Inc. diversified portfolio of equity securities with risk
characteristics similar to the Standard & Poor's 500 Stock Index.
- ---------------------- ------------------------- ---------------------------------------------------------------------
Value Equity Salomon Brothers Seeks to provide long-term growth of capital with current income as
Asset Management Inc. a secondary objective.
- ---------------------- ------------------------- ---------------------------------------------------------------------
Balanced OpCap Advisors Seeks to provide a combination of growth of capital and investment
income (growth of capital is the primary objective) by investing in
a mix of equity and debt.
- ---------------------- ------------------------- ---------------------------------------------------------------------
Emerging Growth RS Investment Seeks to provide capital appreciation through investing primarily
Domestic Equity Management, L.P. in smaller, rapidly growing emerging companies.
- ---------------------- ------------------------- ---------------------------------------------------------------------
</TABLE>
*On December 1, 1998 Morgan Stanley Asset Management Inc. changed its name to
Morgan Stanley Dean Witter Investment Management Inc. but continues to do
business in certain instances using the name Morgan Stanley Asset Management.
<PAGE>
FUND SUMMARIES
Focused Equity Fund (Morgan Stanley Asset Management)
Investment Objective: The Focused Equity Fund seeks to provide capital
appreciation by investing primarily in equity securities of U.S. and foreign
companies. The Fund is "non-diversified" meaning that it may, and generally
will, invest in securities of a limited number of issuers; however, the Fund
presently does not intend to invest more than 25% of its assets in securities of
a single company.
Investment Strategies: The Fund invests primarily in common stocks. The Fund
will invest in securities of companies the Adviser believes possess
above-average potential for capital appreciation. The Adviser focuses on
companies with consistent or rising earnings growth records and compelling
business strategies. Valuation is of secondary importance and is considered
generally in the context of prospects for sustainable earnings growth. The
Adviser's focus on individual security selection may result in an emphasis on
particular industry sectors. In general, the Fund invests in companies with
market size of $1 billion or more but may also include smaller companies. The
Fund may invest all of its assets in securities of foreign companies; however,
it presently does not anticipate investing more than 25% of its total assets in
foreign securities.
Primary Risks: The Fund is subject to the market fluctuation risks associated
with all investments in common stocks and other equity securities. Stock markets
tend to move in cycles. Stock values fluctuate based on the performance of
individual companies and on general market and economic conditions. You can lose
money over the short or even long-term. The Fund is also subject to:
o The risk that the Fund's market sector, mid- to large-size growth oriented
companies, may underperform relative to other sectors.
o The risk that poor stock selection may cause the Fund to underperform when
compared with other funds with similar objectives.
o The risk that, because the Fund is "non-diversified", its value could
decrease significantly if one or more of its investments performs poorly.
o The risk that the Fund's foreign investments may be subject to fluctuations
in foreign currency values, adverse political or economic events, greater
market volatility and lower liquidity.
Who May Want to Invest: You may wish to consider investing in this Fund if:
o You are seeking capital appreciation.
o You are willing to accept the above-average risks associated with investing
in a portfolio of common stocks which may include foreign stocks.
o You are willing to accept greater volatility in hopes of a greater increase
in share price.
Past Performance:
Because the Fund has been in operation for less than one year no performance
history has been provided.
Growth Equity Fund (Goldman Sachs Asset Management)
Investment Objective: The Growth Equity Fund seeks long-term growth of capital.
Investment Strategies: The Fund invests in a diversified portfolio of equity
securities (mainly common stocks) of companies that the Adviser believes have
long-term capital appreciation potential. The Fund invests at least 90% of its
total assets in equity securities. The Adviser primarily seeks companies showing
a relatively strong earnings growth trend.
<PAGE>
Primary Risks: The Fund is subject to the market fluctuation risks associated
with all investments in common stocks and other equity securities. Stock markets
tend to move in cycles. Stock values fluctuate based on the performance of
individual companies and on general market and economic conditions. You can lose
money over the short or even long-term. The Fund is also subject to:
o The risk that returns on the types of securities purchased by the Fund may
not perform as well as other types of investments.
o The risk that poor stock selection may cause the Fund to underperform when
compared with other funds with similar objectives.
Who May Want to Invest: You may wish to consider investing in this Fund if:
o You are seeking potential capital appreciation over the long-term.
o You are willing to accept the above-average risks associated with investing
in a portfolio of common stocks which may include foreign stocks.
o You are willing to accept greater volatility in the hopes of a greater
increase in share price.
Past Performance:
Because the Fund has been in operation for less than one year no performance
history has been provided.
Disciplined Equity Fund (J.P. Morgan Investment Management Inc.)
Investment Objective: The Disciplined Equity Fund seeks to provide a
consistently high total return from a broadly diversified portfolio of equity
securities with risk characteristics similar to the Standard & Poor's 500 (S&P
500) Composite Stock Price Index.
Investment Strategies: The Fund invests primarily in large and medium size U.S.
companies contained in the S&P 500 Index. Industry by industry, the Fund's
assets are invested so that the Fund's industry exposure is similar to the S&P
500. Within each industry the Fund modestly emphasizes stocks the Adviser
identifies as being undervalued or fairly valued and modestly underweights or
does not hold stocks that appear overvalued. By owning a large number of stocks
within the S&P 500, with an emphasis on those that appear undervalued or fairly
valued, and by tracking the industry weightings of that index, the Fund seeks
returns that modestly exceed those of the S&P 500 over the long term with
virtually the same level of volatility.
<PAGE>
Primary Risks: The Fund is subject to the market fluctuation risks associated
with all investments in common stocks and other equity securities. Stock markets
tend to move in cycles. Stock values fluctuate based on the performance of
individual companies and on general market and economic conditions. You can lose
money over the short or even long-term. The Fund is also subject to:
o The risk that returns from stocks of medium and large size companies may
not perform as well as other types of investments.
o The risk that poor stock selection may cause the Fund to underperform when
compared to other funds with similar objectives.
Who May Want to Invest: You may wish to consider investing in this Fund if:
o You are seeking high total return from a diversified portfolio of stocks of
large and medium size U.S. companies.
o You are willing to accept the above-average risks associated with investing
in a portfolio of common stocks which may include foreign stocks.
o You are willing to accept greater volatility in hopes of a greater increase
in share price.
Past Performance:
Because the Fund has been in operation for less than one year no performance
history has been provided.
Value Equity Fund (Salomon Brothers Asset Management Inc.)
Investment Objectives: The Value Equity Fund seeks to provide long-term growth
of capital. Current income is a secondary objective.
Investment Strategies: The Fund seeks to achieve its objective by investing
primarily in common stocks of established U.S. companies. The Adviser will favor
companies believed to have growth possibilities at reasonable values. The Fund
will maintain a carefully selected portfolio of securities that is diversified
among industries and companies.
Primary Risks: The Fund is subject to the market fluctuation risks associated
with all investments in common stocks and other equity securities. Stock markets
tend to move in cycles. Stock values fluctuate based on the performance of
individual companies and on general market and economic conditions. You can lose
money over the short or even long-term. The Fund is also subject to:
o The risk that returns on the types of securities purchased by the Fund may
not perform as well as other types of investments.
o The risk that poor stock selection may cause the Fund to underperform when
compared with other funds with similar objectives.
Who May Want to Invest: You may wish to consider investing in this Fund if:
o You are seeking long-term capital growth.
o You are willing to accept the above-average risks associated with investing
in a portfolio of common stocks which may include foreign stocks.
o You would like a Fund that provides the potential for current income as a
secondary objective. You are willing to accept greater volatility in hopes
of a greater increase in share price.
<PAGE>
Past Performance:
Because the Fund has been in operation for less than one year no performance
history has been provided.
Balanced Fund (OpCap Advisors)
Investment Objective: The Balanced Fund seeks to provide a combination of growth
of capital and investment income by investing in a mix of debt and equity
securities. Growth of capital is the Fund's primary objective.
Investment Strategies: The Fund invests in common stocks (with an emphasis on
dividend paying stocks), preferred stocks, securities convertible into common
stock, and debt securities. The Fund will invest at least 25% of its assets in
equity securities and at least 25% in debt securities. In general, the Fund
expects to be 50-75% invested in equity securities. However, the Balanced Fund's
day-to-day investment allocation mix among equity and debt securities will be
determined by the Adviser based on the Adviser's perception of prevailing market
conditions and risks. By investing in both debt and equity securities, it is
anticipated that the Balanced Fund will generally be less volatile than the
overall market. The Fund's equity investments will be primarily in dividend
paying common stocks that the Adviser believes to be "undervalued" in the
marketplace. Generally, equity securities the Adviser believes are undervalued
may have certain characteristics such as substantial and growing discretionary
cash flow; strong shareholder value-oriented management; valuable consumer or
commercial franchises; and favorable price to intrinsic value relationship. The
Fund may invest up to 25% of its total assets in below investment grade,
high-yield debt securities (commonly known as "junk bonds"). The Fund may also
invest all of its assets in securities of foreign companies, though it presently
does not anticipate investing more than 25% of its assets in foreign securities.
Primary Risks: The Fund is subject to the market fluctuation risks associated
with all investments in common stocks and other equity securities. Stock markets
tend to move in cycles. Stock values fluctuate based on the performance of
individual companies and on general market and economic conditions. You can lose
money over the short or even long-term. The Fund is also subject to:
o The risk that (1) an issuer of debt securities held by the Fund may fail to
repay interest and principal in a timely manner and (2) the prices of debt
securities will decline over short or even long periods due to rising
interest rates. While all debt securities in which the Fund invests will be
subject to these risks, the Fund's ability to invest up to 25% of its
assets in junk bonds increases these risks.
o The risk that poor security selection may cause the Fund to underperform
when compared with other funds with similar objectives.
o The risk that the Fund's foreign investments may be subject to fluctuations
in foreign currency values, adverse political or economic events and
greater market volatility and lower liquidity.
o The risk that the types of securities in which the Fund invests may not
perform as well as other types of investments.
<PAGE>
Who May Want to Invest: You may wish to consider investing in this Fund if:
o You wish to invest in a fund emphasizing a combination of growth of capital
and investment income by investing in a combination of equity and debt
securities.
o You are seeking exposure to foreign investments and are willing to assume
the related risks. You are seeking exposure to junk bonds and are willing
to assume the related risks.
Past Performance:
Because the Fund has been in operation for less than one year no performance
history has been provided.
Emerging Growth Domestic Equity Fund (RS Investment Management, L.P.)
Investment Strategies: The Fund invests in smaller (usually companies with a
market capitalization of 1.5 billion or less), rapidly growing emerging
companies and generally in industry segments that are experiencing rapid growth
and companies with proprietary advantages. The Adviser considers several factors
in evaluating potential investments. These include whether a company is gaining
market share, earning superior margins, or experiencing superior profitability.
Generally, the Fund invests at least 65% of its assets in companies with some or
all of the previous characteristics. The Fund may also invest part of its assets
in technology companies.
Primary Risks: The Fund is subject to the market fluctuation risks associated
with all investments in common stocks and other equity securities. The stocks of
small cap companies often involve more risk and volatility than those of larger
companies. Because small companies are often dependent on a small number of
products and have limited financial resources, they may be severely affected by
economic changes, business cycles and adverse market conditions. Stock markets
tend to move in cycles. Stock values fluctuate based on the performance of
individual companies and on general market and economic conditions. You can lose
money over the short or even long-term. The Fund is also subject to:
The risk that returns on stocks of smaller companies may not perform as well as
other types of investments.
The risk that poor stock selection may cause the Fund to underperform when
compared with other funds with similar objectives.
The risk that returns on stocks of technology companies may not perform as well
as other types of investments.
Who May Want To Invest: You may wish to consider investing in this Fund if:
o You are seeking high total returns from a diversified portfolio of stocks
of small size U.S. companies.
o You are willing to accept greater volatility in the hopes of a greater
increase in share price.
o You are willing to accept the above-average risks associated with investing
in a portfolio of common stocks which may include foreign stocks.
<PAGE>
Past Performance:
Because the Fund has been in operation for less than one year no performance
history has been provided.
More Information About The Funds
Some of the Funds have been established by investment advisers which manage
other mutual funds having similar names and investment objectives. While some of
the Funds may be similar to, and may in fact be modeled after, other mutual
funds, you should understand that the Funds are not otherwise directly related
to any other mutual fund. Consequently, the investment performance of other
mutual funds and any similarly named fund may differ substantially from that of
the Fund.
INVESTMENT STRATEGIES
Each Fund follows a distinct set of investment strategies. Five of the Funds,
the Focused Equity Fund, Growth Equity Fund, Disciplined Equity Fund, Emerging
Growth Domestic Equity Fund and Value Equity Fund are considered "Equity Funds"
because they invest primarily in equity securities (mostly common stocks). The
Balanced Fund is considered a "balanced" fund because its principal strategy is
to invest in a mix of equity and debt securities. Each Fund may change its
investment objective without shareholder approval in accordance with applicable
law. All percentage limitations relating to the Funds' investment strategies are
applied at the time a Fund acquires a security.
The Disciplined Equity Fund, Focused Equity Fund, Emerging Growth Domestic
Equity Fund and Value Equity Fund will normally invest at least 65% of their
assets in equity securities; the Growth Equity Fund will normally invest at
least 90% of its assets in equity securities. Therefore, as an investor in these
Funds, the return on your investment will be based primarily on the risks and
rewards relating to equity securities. The Balanced Fund will invest at least
25% of its assets in equity securities and at least 25% in debt securities. As
an investor in the Balanced Fund, the return on your investment will be based on
the risks and rewards relating to both equity and debt securities.
Equity Securities
Each Fund will invest in equity securities. There are various types of equity
securities such as common stocks, preferred stocks, and warrants. In addition,
the Funds may treat debt instruments which are "convertible" into equity as
equity securities (or as debt securities). However, it is expected that the
Funds' equity investments will be primarily in common stocks.
Common stocks represent partial ownership in a company and entitle stockholders
to share in the company's profits (or losses). Common stocks also entitle the
holder to share in any of the company's dividends. The value of a company's
stock may fall as a result of factors which directly relate to that company,
such as lower demand for the company's products or services or poor management
decisions. A stock's value may also fall because of economic conditions which
affect many companies, such as increases in production costs. The value of a
company's stock may also be affected by changes in financial market conditions
that are not directly related to the company or its industry, such as changes in
interest rates or currency exchange rates. In addition, a company's stock
generally pays dividends only after the company makes required payments to
holders of its bonds and other debt. For this reason, the value of the stock
will usually react more strongly than bonds and other debt to actual or
perceived changes in the company's financial condition or progress.
<PAGE>
As a general matter, other types of equity securities are subject to many of the
same risks as common stocks.
The Funds may invest in equity securities of U.S. and foreign companies.
Investments in foreign securities present special risks and other considerations
- - -- these are discussed under "Foreign Securities" on page __.
Small Cap Companies
All of the Funds may invest in small cap companies. The Emerging Growth Domestic
Equity Fund may invest a substantial portion, or at times all, of its assets in
small cap companies. Companies that are small or unseasoned (less than 3 years
of operating history) are more likely not to survive or accomplish their goals
with the result that the value of their stock could decline significantly. These
companies are less likely to survive since they are often dependent upon a small
number of products and may have limited financial resources.
Small or unseasoned companies often have a greater degree of change in earnings
and business prospects than larger companies resulting in more volatility in the
price of their securities. As well, the securities of small or unseasoned
companies may not have wide marketability. This fact could cause a Fund to lose
money if it needs to sell the securities when there are few interested buyers.
Small or unseasoned companies also normally have fewer outstanding shares than
larger companies. As a result, it may be more difficult to buy or sell large
amounts of these shares without unfavorably impacting the price of the security.
Finally, there may be less publicly available information about small or
unseasoned companies. As a result, when making a decision to purchase a security
for a Fund, an Adviser may not be aware of some problems associated with the
company issuing the security.
Small cap companies typically include companies with a market capitalization of
$1.5 billion or less.
Debt Securities
Investments in debt securities are part of the Balanced Fund's principal
investment strategy. The other Funds will generally have a portion of their
assets invested in debt securities as a cash reserve or for other appropriate
reasons. Convertible debt securities may be considered equity or debt
securities, and, in either event, they possess many of the attributes and risks
of debt securities. A prospective investor in any of the Funds should be aware
of the risks associated with investing in debt securities.
Debt securities can generally be classified into two categories as follows: (1)
"investment grade" debt securities and (2) "non-investment grade" debt
securities (also known as "junk bonds"). Investment grade debt securities are
those which are rated within the four highest rating categories of a nationally
recognized rating organization (or if unrated, securities of comparable quality
as determined by an Adviser). A discussion of the ratings services appears in an
Appendix to the Statement of Additional Information. Investment grade debt
securities are considered to have less risk of issuer default than
non-investment grade debt securities. However, investment grade debt securities
will generally have a lower yield than non-investment grade debt securities.
Debt securities in the fourth highest rating category are viewed as having
adequate capacity for payment of interest and repayment of principal, but do
have speculative characteristics and involve a higher degree of risk than that
associated with investments in debt securities in the three higher rating
categories.
Money market instruments are short-term high quality debt securities. They are
the highest investment grade quality and therefore carry the lowest risk of
issuer default. Some common types of money market instruments include U.S.
Treasury bills and notes, commercial paper, banker's acceptances and negotiable
certificates of deposit. All of the Funds may invest in money market instruments
and other types of debt securities as a cash reserve.
Debt securities that are rated below the four highest categories (or unrated
securities of comparable quality determined by an Adviser) are known as "junk
bonds". Junk bonds are considered to be of poor standing and predominantly
speculative. Junk bonds are considered speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of the
obligations. Accordingly, they present considerable risk of issuer default.
Junk bonds may be subject to substantial market fluctuations. They are also
subject to greater risk of loss of income and principal than investment-grade
securities. There may be less of a market for junk bonds and therefore they may
be harder to sell at a desirable price.
<PAGE>
Foreign Securities
The Focused Equity, Emerging Growth Domestic Equity and Balanced Funds may each
invest all of their respective assets in foreign securities, though the Focused
Equity Fund and the Balanced Fund presently do not anticipate investing over 25%
of their respective assets in foreign securities. The Disciplined Equity Fund
and the Value Equity Fund may each invest up to 20% in foreign securities; the
Growth Equity Fund may invest up to 10% of its assets in foreign securities. For
these purposes, foreign securities include securities of issuers in emerging
countries and securities quoted in foreign currencies.
Foreign equity and debt securities generally have the same risk characteristics
as U.S. equity and debt securities. However, they also present a number of
additional risks and considerations that are not associated with U.S.
investments. For example, investments in foreign securities may subject a Fund
to the adverse political or economic conditions of the foreign country. These
risks increase in the case of "emerging market" countries which are more likely
to be politically and economically unstable. Foreign countries, especially
emerging market countries, may prevent or delay a Fund from selling its
investments and taking money out of the country. In addition, foreign securities
may not be as liquid as U.S. securities which could result in a Fund being
unable to sell its investments in a timely manner. Foreign countries, especially
emerging market countries, also have less stringent investor protection,
disclosure and accounting standards than the U.S. As a result, there is
generally less publicly-available information about foreign companies than U.S.
companies. Investments in foreign securities may cause a Fund to lose money when
converting investments from foreign currencies into U.S. dollars due to
unfavorable currency exchange rates.
Additionally, even with respect to U.S. issuers, such issuers may have
substantial non-U.S. activities, and thus, face similar risks as foreign
issuers. Conversely, certain foreign issuers may also have significant U.S.
activities and may face the same risks as U.S. issuers with regard to those
activities.
Derivatives
Derivatives are financial instruments designed to achieve a particular economic
result when the price of an underlying security, index, interest rate,
commodity, or other financial instrument changes. Derivatives may be used by
each Fund to hedge investments and potential investments, manage risks, or to
manage interest or currency-sensitive assets. However, hedging techniques may
not always be available to the Funds; and it may not always be feasible for a
Fund to use hedging techniques even when they are available. Each Fund may enter
into certain derivative transactions to enhance total return. For example, each
Fund may, in lieu of purchasing the underlying assets, enter into futures
contracts on stock indices or options on such futures contracts. Derivatives can
subject a Fund to various levels of risk. There are four basic derivative
products: forward contracts, futures contracts, options, and swaps.
<PAGE>
Forward contracts commit the parties to a transaction at a time in the future at
a price determined when the transaction is initiated. They are the predominant
means of hedging currency or commodity exposures. Futures contracts are similar
to forwards but differ in that (1) they are traded through regulated exchanges,
and (2) are "marked to market" daily. Options differ from forwards and futures
in that the buyer has no obligation to perform under the contract. The buyer
pays a fee, called a premium, to the seller, who is called a writer. The writer
gets to keep the premium in any event but must deliver (in the context of the
type of option) at the buyer's demand. Caps and floors are specialized options
which enable floating-rate borrowers and lenders, for a fee, to reduce their
exposure to interest rate swings.
A swap is an agreement between two parties to exchange certain financial
instruments or components of financial instruments. Parties may exchange streams
of interest rate payments, principal denominated in two different currencies, or
virtually any payment stream as agreed to by the parties.
Derivatives involve special risks. If an Adviser judges market conditions
incorrectly or employs a strategy that does not correlate well with a Fund's
investments, these techniques could result in a loss. These techniques may
increase a Fund's volatility and may involve a small investment of cash relative
to the magnitude of the risk assumed. In addition, these techniques could result
in a loss if the counterparty to the transaction does not perform as promised.
In addition, the use of derivatives for non-hedging purposes (that is, to seek
to increase total return) is considered a speculative practice and presents even
greater risk of loss when these instruments are leveraged.
Temporary Defensive Strategies
Each Fund may take temporary defensive positions that depart from its principal
investment strategies in response to adverse market, economic, political or
other conditions. During these times, a Fund may not be actively pursuing its
investment goals and may have up to 100% of its assets in short-term debt
securities or cash.
OTHER INVESTMENT RISKS
This prospectus describes the main risks an investor faces in any of the Funds.
It is important to keep in mind one of the main principles of investing: the
higher the risk of losing your money, the higher the potential reward. The
reverse is also generally true: the lower the risk, the lower the potential
reward. Risk tolerances vary among investors.
In addition to the primary risks described in the Fund summaries, all of the
Funds are subject to liquidity risk. This is the risk that a Fund will not be
able to timely pay redemption proceeds because of unusual market conditions, an
unusually high volume of redemption requests, or other reasons.
<PAGE>
Portfolio Turnover
Consistent with its investment policies, the Emerging Growth Domestic Equity
Fund may engage in active trading without regard to the effect on portfolio
turnover. Higher portfolio turnover (e.g., 100% or more per year) would cause
the Emerging Growth Domestic Equity Fund to incur additional transaction costs
on the sale of securities and reinvestment in other securities. Such sales may
result in realization of taxable capital gains including short-term capital
gains which are generally taxed to shareholders at ordinary income tax rates.
MANAGEMENT OF THE FUNDS
Board of Trustees
The Board is responsible for overseeing all operations of the Funds, including
retaining and supervising the performance of the Manager.
Investment Manager
LSA Asset Management LLC, the Manager, located at 3100 Sanders Road, Northbrook,
Illinois, is each Fund's investment adviser. The Manager is a wholly owned
subsidiary of Allstate Life Insurance Company ("Allstate Life"). The Manager was
organized in Delaware in 1999 and is registered with the Securities and Exchange
Commission as an investment adviser. The Funds are the only investment companies
managed by the Manager. Allstate Life, incorporated in 1957 in Illinois, has
established a record of financial strength that has consistently resulted in
superior ratings. A.M. Best Company assigns an A+ (Superior) to Allstate Life.
Standard & Poor's Insurance Rating Services assigns an AA+ (Very Strong)
financial strength rating and Moody's Investors Service, Inc. assigns an Aa2
(Excellent) financial strength rating to Allstate Life.
The Manager has overall responsibility for providing investment advisory and
related services to the Funds, including responsibility for selecting Advisers
to carry out the day-to-day investment management of the Funds. The Manager will
review and monitor the performance of each Fund for purposes of considering
whether changes should be made in regard to a Fund's investment strategies as
well as whether a change in the Adviser to a Fund is warranted. The Manager will
also monitor the Funds for compliance purposes and will instruct each of the
Advisers as to their compliance duties for their respective Fund. The Manager
considers various factors in selecting the Advisers, including:
<PAGE>
o level of knowledge and skill.
o performance as compared to a peer group of other advisers or to an
appropriate index.
o consistency of performance over five years or more.
o adherence to investment style and Fund objectives.
o employees, facilities and financial strength.
o quality of service.
o how the Adviser's investment style compliments other selected Advisers'
investment styles.
Two or more Advisers may manage a Fund, with each managing a portion of the
Fund's assets. If a Fund has more than one Adviser, the Manager may change these
allocations from time to time, often based upon the results of the Manager's
evaluations of the Advisers.
The Advisers
The Advisers make the day-to-day decisions to buy and sell specific securities
for a Fund. Each Adviser manages a Fund's investments according to the Fund's
investment objectives and strategies.
The Funds and the Manager have applied for an order from the Securities and
Exchange Commission which permits the Manager to hire and fire Advisers or
change the terms of these advisory agreements without obtaining shareholder
approval. The Manager has ultimate responsibility to oversee the Advisers and
their hiring, termination and replacement.
Adviser to the Focused Equity Fund
Morgan Stanley Asset Management ("MSAM"), 1221 Avenue of the Americas, New York,
New York 10020, is the adviser to the Focused Equity Fund. MSAM conducts a
worldwide portfolio management business and provides a broad range of portfolio
management services to customers in the United States and abroad. Morgan Stanley
Dean Witter & Co. is the direct parent of MSAM. Philip W. Freidman and William
S. Auslander are the portfolio managers for the Focused Equity Fund, and have
served in that capacity since commencement of the Fund's operations.
Philip W. Friedman is a Managing Director of MSAM and is head of MSAM's
Institutional Equity Group. He has been with MSAM and its affiliates since 1990.
William S. Auslander is a Principal of MSAM and a portfolio manager in the
Institutional Equity Group. He joined MSAM in 1995 as an equity analyst in the
Institutional Equity Group. Prior to joining MSAM, he worked at Icahn & Co. for
nine years as an equity analyst.
On December 1, 1998, Morgan Stanley Asset Management Inc. changed its name to
Morgan Stanley Dean Witter Investment Management Inc., but continues to do
business in certain instances using the name Morgan Stanley Asset Management.
<PAGE>
Adviser to the Growth Equity Fund
Goldman Sachs Asset Management ("GSAM"), One New York Plaza, New York, New York
10004, a separate operating division of Goldman, Sachs and Co. ("Goldman
Sachs"), serves as the Adviser to the Growth Equity Fund. Goldman Sachs provides
a wide range of fully discretionary investment advisory services including
quantitatively driven and actively managed U.S. and international equity
portfolios, U.S. and global fixed income portfolios, commodity and currency
products, and money markets. The portfolio management team is led by Herbert E.
Ehlers, Robert G. Collins, and Gregory H. Ekizian, all of whom joined GSAM in
1997. From 1994-1997, Mr. Ehlers, Managing Director, was Chief Investment
Officer and Chairman of Liberty Investment Management, Inc. ("Liberty"). From
1984-1994, Mr. Ehlers was a portfolio manager and President of Liberty's
predecessor firm, Eagle Asset Management ("Eagle"). From 1991-1997, Mr. Collins,
Vice President, was a portfolio manager at Liberty. From 1990-1997, Mr. Ekizian,
Vice President, was a portfolio manager at Liberty and its predecessor firm,
Eagle.
Adviser to the Disciplined Equity Fund
J.P. Morgan Investment Management Inc. ("JPMIM"), 522 Fifth Avenue, New York,
New York 10036, is the Adviser to the Disciplined Equity Fund. JPMIM is a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated. JPMIM manages
employee benefit funds of corporations, labor unions and state and local
governments and the accounts of other institutional investors, including
investment companies.
The portfolio management team is led by James C. Wiess and Timothy J. Devlin,
both vice presidents of JPMIM. Mr. Wiess has been at J.P. Morgan since 1992, and
prior to managing the Fund managed other disciplined equity portfolios for J.P.
Morgan. Mr. Devlin has been at J.P. Morgan since July of 1996, and prior to that
time was an equity portfolio manager at Mitchell Hutchins Asset Management Inc.
<PAGE>
Adviser to the Value Equity Fund
Salomon Brothers Asset Management Inc. ("SBAM"), 7 World Trade Center, New York,
New York 10048, is the Adviser to the Value Equity Fund. SBAM is an indirect
wholly owned subsidiary of Citigroup, Inc. John B. Cunningham, a Vice President
of SBAM from 1995-1998 and a Director of SBAM since 1998, is primarily
responsible for the day-to-day management of the Value Equity Fund. Prior to
1995, Mr. Cunningham was an Associate in the Investment Banking Group of Salomon
Brothers, Inc.
Adviser to the Balanced Fund
OpCap Advisors ("OpCap"), One World Financial Center, New York, New York 10281,
is the Adviser to the Balanced Fund. OpCap is a majority owned subsidiary of
Oppenheimer Capital. Oppenheimer Capital has been an investment advisory firm
since 1969 and has $59.8 billion of assets under management as of March 31,
1999. OpCap has been an investment adviser since 1987. Oppenheimer Capital and
OpCap are indirect, wholly owned subsidiaries of PIMCO Advisors L.P. ("PIMCO
Advisors"). PIMCO Advisors has two general partners: PIMCO Partners, G.P., a
California general partnership, and PIMCO Advisors Holdings L.P., an NYSE-listed
Delaware limited partnership of which PIMCO Partners, GP is the sole general
partner. Colin Glinsman is the portfolio manager for the Balanced Fund. Mr.
Glinsman is the chief investment officer and a managing director of Oppenheimer
Capital and has been with Oppenheimer Capital since 1989.
Adviser to the Emerging Growth Domestic Equity Fund
RS Investment Management, L.P. ("RSIM"), 388 Market Street, Suite 200, San
Francisco, California 99111, is the Adviser to the Emerging Growth Domestic
Equity Fund. RSIM commenced operations in March, 1993. RSIM is a wholly owned
subsidiary of RS Investment Management Co. LLC, a Delaware limited liability
company. James L. Callinan is responsible for managing the Emerging Growth
Domestic Equi Fund's portfolio. Mr. Callinan also serves as portfolio manager of
the RS Emerging Growth Fund. From 1986 until June 1996, Mr. Callinan was
employed by Putnam Investments, where, beginning in June 1994, he served as
portfolio manager of the Putnam OTC Emerging Growth Domestic Equity Fund.
Prior Performance of the Advisers
Each Adviser manages assets of client accounts that have investment objectives
and strategies that are similar to those of the corresponding Fund that they
manage. These client accounts consist of individuals, institutions, and other
mutual funds. Listed below is "composite performance" for each Adviser with
regard to all of these similarly managed accounts. Composite performance is
essentially the Adviser's "average" performance with regard to such accounts,
net of fees and expenses. The composite performance information shown below is
based on a composite of all accounts of each Adviser (and its predecessors, if
any) having substantially similar investment objectives, policies and strategies
as the corresponding Fund, adjusted to give effect to the applicable Fund's
estimated annualized expenses (without giving effect to any expense waivers or
reimbursements) during its first fiscal year. Some of the accounts included in
the composites are not mutual funds registered under the 1940 Act, and hence,
these accounts are not subject to investment limitations, diversification
requirements, and other restrictions imposed by the 1940 Act and the Internal
Revenue Code. If such requirements were applicable to these accounts, the
performance shown may have been lower. This composite data is provided to
illustrate the past performance of each Adviser in managing similar accounts and
does not represent the performance of any Fund. You should not consider this
performance data as an indication of future performance of any Fund or any
Adviser. You should also note that the performance shown would be lower upon
taking into account charges assessed in connection with a variable annuity or
variable life contract.
<PAGE>
<TABLE>
<CAPTION>
- --------------------- ----------- ---------- ---------- ----------- ------------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Total Average Average Average
Return Return Total Annual Annual Total Annual
Investment Inception One Year Five Return Ten Total Return Five Total
Name of Adviser Objective Date Ended Years Years Ended Return One Years Ended Return Ten
12/31/98 Ended 12/31/98 Year Ended 12/31/98 Years
12/31/98 12/31/98 Ended
12/31/98
- --------------------- ----------- ---------- ---------- ----------- ------------- ------------ --------------- -------------
Morgan Stanley Focused
Asset Management Equity
- --------------------- ----------- ---------- ---------- ----------- ----------- -------------- --------------- -------------
Goldman Sachs Growth
Asset Management Equity
- --------------------- ----------- ---------- ---------- ----------- ----------- -------------- --------------- -------------
J.P. Morgan Disciplined
Investment Equity
Management Inc.
- --------------------- ----------- ---------- ---------- ----------- ----------- -------------- --------------- -------------
Salomon Brothers Value
Asset Management Equity
Inc.
- --------------------- ----------- ---------- ---------- ----------- ----------- -------------- --------------- -------------
OpCap Advisors Balanced
- --------------------- ----------- ---------- ---------- ----------- ----------- -------------- --------------- -------------
RS Investment Emerging Growth
Management, L.P. Domestic Equity
- --------------------- ----------- ---------- ---------- ----------- ----------- -------------- --------------- -------------
</TABLE>
Valuing a Fund's Assets
A Fund's investments are valued based on market value or, if no market value is
available, based on fair value as determined under guidelines set by the Board.
All assets and liabilities initially expressed in foreign currency values will
be converted into U.S. dollar values.
- --All short-term dollar-denominated investments that mature in 60 days or less
are valued on the basis of "amortized" cost which the Board has determined
represents fair value.
- --Securities mainly traded on a U.S. exchange are valued at the last sale price
on that exchange or, if no sales occurred during the day, at the current quoted
bid price.
- --Securities mainly traded on a non-U.S. exchange are generally valued according
to the preceding closing values on that exchange. However, if an event which may
change the value of a security occurs after that time, the "fair value" might be
adjusted under guidelines set by the Board.
- --Securities that are not traded on an exchange and securities for which market
quotations are not readily available will be valued in good faith at fair value
by, or under guidelines established by, the Board.
<PAGE>
Pricing of Fund Shares
Each Fund's per share price (also known as "net asset value" or "NAV") is
determined at the close of trading (normally 4:00 p.m., Eastern Standard Time)
every day that the New York Stock Exchange (NYSE) is open for business. If the
NYSE closes at any other time, or if an emergency exists, the time at which the
NAV is calculated may differ. Each Fund calculates the price per share based on
the values of the securities it owns. The price per share is calculated
separately for each Fund by dividing the value of a Fund's assets, minus all
liabilities, by the number of the Fund's outstanding shares. Each Fund may
purchase securities that are primarily listed on foreign exchanges that trade on
weekends or other days when the Funds' do not price their shares; therefore, the
Funds' NAV may change on days when shareholders will not be able to purchase or
redeem the Funds' shares.
Purchasing and Redeeming Shares
The per share price received will be the price next determined after a Fund
receives and accepts a purchase or redemption order. Payments for redemptions
generally will be made no later than seven days after receipt of a redemption
request, and generally on the date of receipt.
Investors may purchase or redeem shares of the Funds in connection with variable
annuity contracts and variable life insurance policies offered through insurance
company separate accounts. Individuals may not place orders directly with the
Funds. You should refer to the prospectus of your variable insurance contract
for information on how to select specific Funds as investment options for your
contract and how to redeem monies from the Funds.
Orders received by the Funds are effected only on days when the NYSE is open for
trading (Business Days). The insurance company separate accounts purchase and
redeem shares of each Fund at the Fund's net asset value per share calculated as
of the close of the NYSE (generally 4:00 p.m. ET) although purchases and
redemptions may be executed the next morning. Redemption proceeds paid by wire
transfer will normally be wired in federal funds on the next Business Day after
the Fund receives actual notice of the redemption order, but may be paid within
three Business Days after receipt of actual notice of the order (or longer as
permitted by the SEC). The Funds may suspend the right of redemption under
certain extraordinary circumstances in accordance with the rules of the SEC. In
addition, each Fund reserves the right to suspend the offering of its shares for
any period of time, and reserves the right to reject any specific purchase
order. The Funds do not assess any fees when they sell or redeem their shares.
The Funds reserve the right to refuse to sell their shares if the request to
purchase or sell shares is based on market timing decisions as determined by the
Adviser(s) or Manager.
Transfers
The separate account issuing your variable insurance contract may transfer
assets between the Funds consistent with timely receipt of all information
necessary to process transfer requests. The Funds reserve the right to limit the
sale of shares of each Fund. In all cases redemptions will be processed in
accordance with the 1940 Act.
<PAGE>
Fees and Expenses
Breakdown of Expenses
Investors in the Funds will incur various operating costs which are described
below. Each Fund pays a management fee for the management of its investments and
business affairs. Each Fund also pays its own operational expenses (see below).
Some of the Funds may engage in active trading to achieve their investment
objectives. As a result, a Fund may incur higher brokerage and other transaction
costs.
Management Fees
The Manager is entitled to receive from each Fund a management fee, payable
quarterly, at an annual rate as a percentage of average daily net assets of the
Fund as set forth in the table below.
Focused Equity Fund 0.95%
Growth Equity Fund 0.85%
Disciplined Equity Fund 0.75%
Value Equity Fund 0.80%
Balanced Fund 0.80%
Emerging Growth Domestic Equity Fund 1.05%
The Manager compensates the Advisers from the management fee it receives. No
additional management fees are paid by the Funds to the Advisers.
Operational Expenses
Each Fund pays other operational expenses not assumed by the Manager. These
expenses may include, among others, the following: fees for Fund accounting and
Fund administration; fees related to the purchase, sale or loan of securities
such as brokers' commissions; fees of independent accountants and legal counsel;
expenses of preparing and printing shareholder annual and semi-annual reports;
bank transaction charges; custodian fees and expenses; federal, state or local
income or other taxes; independent Trustee compensation; SEC fees; and costs of
Trustee and shareholder meetings.
All of these expenses that are incurred by the Fund will be passed on to
shareholders through a daily charge made to the assets held in the Funds, which
will be reflected in share prices.
<PAGE>
The Manager has currently agreed to reduce its fees or reimburse the Funds for
expenses above certain limits. Currently this limit is set so that no Fund will
incur expenses (not including management fees, or fees related to the purchase,
sale or loan of portfolio securities such as brokers' commissions) that exceed
.30% of its assets. These fee reductions or expense reimbursements, which may be
terminated at any time without notice, can decrease a Fund's expenses and
increase its performance.
Additional Fund Information
Tax Information
Shares of the Funds are owned for federal tax purposes by life insurance company
separate accounts established in connection with variable contracts, not by the
owners of these variable contracts. Owners of variable contracts should refer to
the prospectuses for these contracts for a description of the tax consequences
of owning contracts and receiving distributions or other contract related
payments. Each Fund intends to comply with the federal tax diversification and
other federal tax requirements with which it must comply in order for variable
contracts to qualify for the tax treatment described in the applicable variable
contract prospectus. A Fund's failure to comply with these requirements could
cause the holder of a variable contract based on a separate account that
invested in whole or in part in that Fund to be subject to current taxation on
all income on the contract, unless the Internal Revenue Service permits
correction of the failure, which cannot be assured.
Dividends and Other Distributions
Each Fund intends to distribute substantially all of its income and capital
gains each year. All dividend and capital gain distributions will automatically
be reinvested in additional shares of the Funds.
Performance
From time to time, the Funds may advertise yield and total return figures. Yield
is a measure of past dividend income. Total return includes both past dividend
income plus realized and unrealized capital appreciation (or depreciation).
Yield and total return should not be used to predict the future performance of a
Fund. Yields and total returns are presented net of the Funds' operating
expenses. Fund performance information does not reflect any fees or charges
imposed under a variable insurance contract.
<PAGE>
Year 2000 Preparation
Allstate Life is heavily dependent upon complex computer systems for all phases
of its operations, including customer service, and policy and contract
administration. As a wholly owned subsidiary of Allstate Life, the Manager is
also heavily dependent upon these computer systems in connection with its duties
in regard to the Funds. Since many of Allstate Life's older computer software
programs recognize only the last two digits of the year in any date, some
software may fail to operate properly in or after the year 1999, if the software
is not reprogrammed or replaced ("Year 2000 Issue"). Allstate Life believes that
many of its service providers and suppliers also have Year 2000 Issues which
could adversely affect Allstate Life. In 1995, Allstate Life commenced a plan
intended to mitigate and/or prevent the adverse effects of Year 2000 Issues.
These strategies include normal development and enhancement of new and existing
systems, upgrades to operating systems already covered by maintenance agreements
and modifications to existing systems to make them Year 2000 compliant. The plan
also includes Allstate Life actively working with its major external service
providers and suppliers (including the Advisers and the Funds' other service
providers) to assess their compliance efforts and Allstate Life's exposure to
them. Allstate Life presently believes that it will resolve the Year 2000 Issue
in a timely manner, and that the financial impact will not materially affect its
results of operations, liquidity or financial position. The Manager also
believes that the Year 2000 Issue will not materially harm the Funds or their
shareholders. However, there can be no assurances that the Year 2000 Issue will
not adversely affect the Funds and their shareholders or issuers of securities
purchased by the Funds.
Custodian, Transfer Agent, Fund Accountant and Administrator
Investors Bank & Trust Company is the custodian, transfer agent, and fund
accountant and administrator.
Other Information
The Statement of Additional Information (SAI) provides more detailed information
about the Funds and is legally considered to be a part of this prospectus. The
Funds' annual and semi-annual reports provide additional information about the
Funds' investments. The annual report includes a discussion of the market
conditions and investment strategies that significantly affected a Fund's
performance during its last fiscal year. Copies of the SAI, the annual and
semi-annual reports, and other information may be obtained, at no cost, by
contacting the Manager at 1-800-XXX-XXXX. Questions pertaining to the Funds may
also be directed to 1-800-XXX-XXXX.
Information can also be reviewed and copied at the Public Reference Room of the
Securities and Exchange Commission in Washington, D.C. For a fee, text-only
copies can be obtained by writing to the Public Reference Room of the SEC,
Washington, D.C. 20549-6009. You can also call 1-800-SEC-0330. Additionally,
information about the Funds can be obtained on the SEC's Internet website at
http://www.sec.gov.
<PAGE>
PART B
LSA VARIABLE SERIES TRUST
Focused Equity Fund
Growth Equity Fund
Disciplined Equity Fund
Value Equity Fund
Balanced Fund
Emerging Growth Domestic Equity Fund
STATEMENT OF ADDITIONAL INFORMATION
October __, 1999
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the current Prospectus dated October , 1999 of the Funds. To
obtain the Prospectus please contact LSA Asset Management LLC (the "Manager"), a
wholly owned subsidiary of Allstate Life Insurance Company ("Allstate Life") at
3100 Sanders Road, Suite J5B, Northbrook, Illinois 60062 or call 1-800-XXX-XXXX.
This Statement of Additional Information is intended to provide additional
information about the activities and operations of the Funds and should be read
in conjunction with the Prospectus.
You can review the Funds' Prospectus as well as other reports relating to the
Funds at the Public Reference Room of the Securities and Exchange Commission
("SEC").
You can get text-only copies:
For a fee by writing to or calling the Public Reference Room of the SEC,
Washington, D.C. 20549-6009. Telephone: 1-800-SEC-0330 or; free from the SEC's
Internet website at http://www.sec.gov.
TABLE OF CONTENTS PAGE
The Trust and the Funds B -
Investment Objectives and Policies B -
Board of Trustees B -
Capital Structure B -
Control Persons B -
Investment Management Arrangements B -
Fund Expenses B -
Portfolio Transactions and Brokerage B -
Determination of Net Asset Value B -
Purchase and Redemption of Shares B -
Suspension of Redemptions and Postponement
of Payments B -
Investment Performance B -
Taxes B -
Custodian and Transfer Agent Services B -
Administrator and Accounting Agent B -
Independent Public Accountants B -
Financial Statements B -
Appendix A B -
<PAGE>
THE TRUST AND THE FUNDS
LSA Variable Series Trust (the "Trust") presently consists of six portfolios:
the Focused Equity Fund, the Growth Equity Fund, the Disciplined Equity Fund,
the Value Equity Fund, the Emerging Growth Domestic Equity Fund, and the
Balanced Fund (each referred to as a "Fund" and together as the "Funds"). The
Trust is registered as an open-end, management investment company under the
Investment Company Act of 1940 ("1940 Act"). The Trust was formed as a Delaware
business trust on March 2, 1999. Shares of the Funds are sold exclusively to
insurance company separate accounts as a funding vehicle for variable life
and/or variable annuity contracts, including separate accounts of Allstate Life
and its subsidiaries.
LSA Asset Management LLC (the "Manager") is a wholly owned subsidiary of
Allstate Life and is the investment manager of each Fund. The specific
investments of each Fund are managed on a day-to-day basis by investment
advisers selected by the Manager who are called the "Advisers".
INVESTMENT OBJECTIVES AND POLICIES
A. Fundamental Restrictions of the Funds
Each Fund has adopted the following fundamental investment restrictions which
may not be changed without approval of a majority of the applicable Fund's
outstanding voting securities. Under the 1940 Act, a "majority of the
outstanding voting securities" means the approval of the lesser of (1) the
holders of 67% or more of the shares of a Fund represented at a meeting if the
holders of more than 50% of the outstanding shares of the Fund are present in
person or by proxy or (2) the holders of more than 50% of the outstanding shares
of the Fund. Those investment policies that are not fundamental investment
restrictions may be changed by the Board of Trustees of the Trust (the "Board")
without a shareholder vote under the 1940 Act. In addition, each Fund's
investment objective may be changed without a shareholder vote.
Each Fund may not:
1. Issue senior securities. For purposes of this restriction, the issuance of
shares of common stock in multiple classes or series, obtaining of short-term
credits as may be necessary for the clearance of purchases and sales of
portfolio securities, short sales against the box, the purchase or sale of
permissible options and futures transactions (and the use of initial and
maintenance margin arrangements with respect to futures contracts or related
options transactions), the purchase or sale of securities on a when issued or
delayed delivery basis, permissible borrowings entered into in accordance with a
Fund's investment policies, and reverse repurchase agreements are not deemed to
be issuances of senior securities.
2. Borrow money, except from banks and then only if immediately after each such
borrowing there is asset coverage of at least 300% (including the amount
borrowed) as defined in the 1940 Act. For purposes of this investment
restriction, reverse repurchase agreements, mortgage dollar rolls, short sales,
futures contracts, options on futures contracts, securities or indices, when
issued and delayed delivery transactions and securities lending shall not
constitute borrowing for purposes of this limitation to the extent they are
covered by a segregated account consisting of appropriate liquid assets or by an
offsetting position.
3. Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities a Fund may be deemed to be an underwriter
for purposes of the Securities Act of 1933 (the "1933 Act").
<PAGE>
4. Purchase or sell real estate, except that a Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that invest
in real estate or interests therein, (e.g., real estate investment trusts),
(iii) invest in securities that are secured by real estate or interests therein,
(iv) purchase and sell mortgage-related securities, (v) hold and sell real
estate acquired by the Fund as a result of the ownership of securities and (vi)
invest in real estate limited partnerships.
5. Invest in commodities, except that a Fund may (i) invest in securities of
issuers that invest in commodities, and (ii) engage in permissible options and
futures transactions and forward foreign currency contracts, entered into in
accordance with the Fund's investment policies.
6. Make loans, except that a Fund may (i) lend portfolio securities in
accordance with the Fund's investment policies in amounts up to 33 1/3% of the
Fund's total assets (including collateral received) taken at market value, (ii)
enter into fully collateralized repurchase agreements, and (iii) purchase debt
obligations in which the Fund may invest consistent with its investment
policies.
7. Purchase the securities of any issuer (other than obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities)
if, as a result, more than 25% of the Fund's total assets would be invested in
the securities of companies whose principal business activities are in the same
industry, except that this limitation does not apply to the Focused Equity Fund.
For these purposes, each Adviser determines appropriate industry classification
which means that different Funds will use different industry classification
standards. In addition, each Fund, except the Focused Equity Fund, will operate
as a "diversified" fund within the meaning of the 1940 Act. This means that with
respect to 75% of a Fund's total assets, a Fund will not purchase securities of
an issuer (other than cash, cash items or securities issued or guaranteed by the
U.S. government, its agencies, instrumentalities or authorities), if such
purchase would cause more than 5% of the Fund's total assets taken at market
value to be invested in the securities of such issuer; or such purchase would at
the time result in more than 10% of the outstanding voting securities of such
issuer being held by the Fund. If a percentage restriction on investment or
utilization of assets as set forth above is adhered to at the time an investment
is made, a later change in percentage resulting from changes in the values of a
Fund's assets will not be considered a violation of the restriction; provided,
however, that the asset coverage requirement applicable to borrowings under
Section 18(f)(1) of the 1940 Act shall be maintained in the manner contemplated
by that Section.
<PAGE>
B. Miscellaneous Investment Practices
The following discussion provides additional information about the types of
securities which may be purchased by one or more of the Funds, including
information about risk factors. An investor in a Fund would be exposed to all of
the investment risks associated with the securities purchased by that Fund.
Therefore, these risks should be considered carefully by all prospective
investors. In addition, due to the myriad of factors that affect investment
results, it is not possible to identify every possible risk factor. All
investment limitations that are expressed as a percentage of a Fund's assets are
applied as of the time a Fund purchases a particular security, except those
limitations relating to a Fund's asset coverage requirements applicable to
certain borrowings under Section 18 of the 1940 Act. Not all Funds will
necessarily engage in all of the strategies discussed below, even where it is
permissible for a Fund to do so.
Money Market Instruments and Temporary Investment Strategies
Each Fund may hold cash items and invest in money market instruments under
appropriate circumstances as determined by the Manager or the Advisers. Each
Fund may invest up to 100% of its assets in cash or money market instruments for
temporary defensive purposes. Money market instruments include (but are not
limited to): (1) banker's acceptances; (2) obligations of governments (whether
U.S. or non-U.S.) and their agencies and instrumentalities; (3) short-term
corporate obligations, including commercial paper, notes, and bonds; (4) other
short-term debt obligations; (5) obligations of U.S. banks, non-U.S. branches of
U.S. banks (Eurodollars), U.S. branches and agencies of non-U.S. banks (Yankee
dollars), and non-U.S. branches of non-U.S. banks; (6) asset-backed securities;
and (7) repurchase agreements. Money market instruments are subject, to a
limited extent, to credit risk, which is the possibility that the issuer of a
security will fail to repay interest and principal in a timely manner.
Eurodollar and Yankee obligations have the same risks, such as income risk and
credit risk, as U.S. money market instruments. Other risks of Eurodollar and
Yankee obligations include the possibility that a foreign government will not
let U.S. dollar-denominated assets leave the country; the possibility that the
banks that issue Eurodollar obligations may not be subject to the same
regulations as U.S. banks; and the possibility that adverse political or
economic developments will affect investments in a foreign country.
Certificates of Deposit and Bankers' Acceptances
Each Fund may purchase certificates of deposit and bankers' acceptances.
Certificates of deposit are receipts issued by a depository institution in
exchange for the deposit of funds. The issuer agrees to pay the amount deposited
plus interest to the bearer of the receipt on the date specified on the
certificate. The certificate usually can be traded in the secondary market prior
to maturity. Bankers' acceptances typically arise from short-term credit
arrangements designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
<PAGE>
Repurchase Agreements
Each Fund is permitted to enter into fully collateralized repurchase agreements.
The Funds' Board has established standards for evaluation of the
creditworthiness of the banks and securities dealers with which the Funds may
engage in repurchase agreements. The Board also monitors on a quarterly basis
the Advisers' compliance with such standards. The Fund will enter into
repurchase agreements only with banks and broker/dealers believed by the Manager
to present minimal credit risks in accordance with guidelines approved by the
Board of Trustees and in consultation with the Advisers. The Manager will review
and monitor the creditworthiness of such institutions, and will consider the
capitalization of the institution, any rating of the institution or its debt by
independent rating agencies and other relevant factors. A repurchase agreement
is an agreement by which the seller of a security agrees to repurchase the
security sold to a Fund at a mutually agreed upon time and price. It may also be
viewed as the loan of money by a Fund to the seller of the security. The resale
price would be in excess of the purchase price, reflecting an agreed upon market
interest rate. The Advisers will monitor such transactions to ensure that the
value of underlying collateral will be at least equal at all times to the total
amount of the repurchase obligation, including the accrued interest. If the
seller defaults, the Fund could realize a loss on the sale of the underlying
security to the extent that the proceeds of sale, including accrued interest,
are less than the resale price (including interest). Further, a Fund could
experience delays in liquidating the underlying securities while it enforces its
rights to the collateral, below normal levels of income, decline in value of the
underlying securities or a lack of access to income during this period. A Fund
may also incur unanticipated expenses associated with enforcing its rights in
connection with a repurchase agreement transaction. The Growth Equity Fund may,
together with other registered investment companies managed by GSAM or its
affiliates, transfer uninvested cash balances into a single joint account, the
daily aggregate balance of which will be invested in one or more repurchase
agreements. Similarly, the Focused Equity Fund may, together with other
registered investment companies managed by MSAM or its affiliates, transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
Reverse Repurchase Agreements
Each Fund, except the Growth Equity Fund, may enter into reverse repurchase
agreements. Reverse repurchase agreements involve sales by a Fund of portfolio
assets concurrently with an agreement by a Fund to repurchase the same assets at
a later date at a fixed price. Reverse repurchase agreements carry the risk that
the market value of the securities which a Fund is obligated to repurchase may
decline below the repurchase price. A reverse repurchase agreement is viewed as
a collateralized borrowing by a Fund. Borrowing magnifies the potential for gain
or loss on the portfolio securities of a Fund and, therefore, increases the
possibility of fluctuation in a Fund's net asset value. A Fund will establish a
segregated account with its custodian bank in which the Fund will maintain
liquid assets equal in value to a Fund's obligations in respect of any reverse
repurchase agreements.
Debt Securities
Each Fund is permitted to invest in debt securities including: (1) securities
issued or guaranteed as to principal or interest by the U.S. Government, its
agencies or instrumentalities; (2) non-convertible debt securities issued or
guaranteed by U.S. corporations or other issuers (including foreign governments
or corporations); (3) asset-backed securities; (4) mortgage-related securities,
including collateralized mortgage obligations ("CMO's"); and (5) securities
issued or guaranteed as to principal or interest by a sovereign government or
one of its agencies or political subdivisions, supranational entities such as
development banks, non-U.S. corporations, banks or bank holding companies, or
other non-U.S. issuers. Debt securities may be classified as investment grade
debt securities and non-investment grade debt securities.
<PAGE>
Investment Grade Debt Securities
Each Fund is permitted under its investment policies to invest in debt
securities rated within the four highest rating categories (i.e., Aaa, Aa, A or
Baa by Moody's or AAA, AA, A or BBB by S&P) (or, if unrated, securities of
comparable quality as determined by an Adviser). These securities are generally
referred to as "investment grade securities." Each rating category has within it
different gradations or sub-categories. If a Fund is authorized to invest in a
certain rating category, the Fund is also permitted to invest in any of the
sub-categories or gradations within that rating category. If a security is
downgraded to a rating category which does not qualify for investment, the
Adviser will use its discretion in determining whether to hold or sell based
upon its opinion on the best method to maximize value for shareholders over the
long term. Debt securities carrying the fourth highest rating (i.e., "Baa" by
Moody's and "BBB" by S&P), and unrated securities of comparable quality (as
determined by an Adviser) are viewed to have adequate capacity for payment of
principal and interest, but do involve a higher degree of risk than that
associated with investments in debt securities in the higher rating categories
and such securities lack outstanding investment characteristics and do have
speculative characteristics. Ratings made available by S&P and Moody's are
relative and subjective and are not absolute standards of quality. Although
these ratings are initial criteria for selection of portfolio investments, an
Adviser also will make its own evaluation of these securities. Among the factors
that will be considered are the long-term ability of the issuers to pay
principal and interest and general economic trends.
Below Investment Grade Debt Securities Securities rated below investment grade
are commonly referred to as "high yield-high risk securities" or "junk bonds".
Each rating category has within it different gradations or sub-categories. For
instance the "Ba" rating for Moody's includes "Ba3", "Ba2" and "Ba1". Likewise
the S&P rating category of "BB" includes "BB+", "BB" and "BB-". See Appendix A
for a description of the ratings of the ratings services. If a Fund is
authorized to invest in a certain rating category, the Fund is also permitted to
invest in any of the sub-categories or gradations within that rating category.
Securities in the highest category below investment grade are considered to be
of poor standing and predominantly speculative. These securities are considered
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. Accordingly, it is
possible that these types of factors could, in certain instances, reduce the
value of securities held by a Fund with a commensurate effect on the value of a
Fund's shares. If a security is downgraded, the Adviser will use its discretion
in determining whether to hold or sell based upon its opinion on the best method
to maximize value for shareholders over the long term. The Value Equity Fund has
no limit on the amount of assets it may invest in non-investment grade
convertible debt securities; it may invest up to 5% in non-investment grade,
non-convertible debt securities and does not expect to invest more than 10% of
total assets in non-investment grade securities of any type. The Structured
Equity Fund and the Aggressive Equity Fund may each invest up to 10% of total
assets in non-investment grade convertible debt securities. The Balanced Fund
may invest up to 25% of its total assets in below investment grade debt
securities. The Growth Equity Fund may invest up to 10% of its total assets in
below investment grade debt securities. The Emerging Growth Domestic Equity Fund
will not invest in below investment grade debt securities. Junk bonds pay higher
interest yields in an attempt to attract investors. Junk bonds may be issued by
small, less-seasoned companies, or by larger companies as part of a corporate
restructuring such as a merger, acquisition or leveraged buy out. However, junk
bonds have special risks that make them riskier investments than
investment-grade securities. They may be subject to greater market fluctuations
and risk of loss of income and principal than lower-yielding, investment-grade
securities. There may be less of a market for them and therefore they may be
harder to sell at an acceptable price. There is a relatively greater possibility
that the issuer's earnings may be insufficient to make the payments of interest
due on the bonds. The issuers' low creditworthiness may increase the potential
for its insolvency. These risks mean that the Funds investing in junk bonds may
not achieve the expected income from lower-grade securities, and that the net
asset value per share of such Funds may be affected by declines in the value of
these securities. However, the Funds' limitations on investing in junk bonds may
reduce some of these risks. The market value of certain of these securities also
tend to be more sensitive to individual corporate developments and changes in
economic conditions than higher quality bonds. In addition, medium and lower
rated securities and comparable unrated securities generally present a higher
degree of credit risk. The risk of loss due to default by these issuers is
significantly greater because medium and lower rated securities and unrated
securities of comparable quality generally are unsecured and frequently are
subordinated to the prior payment of senior indebtedness.
<PAGE>
Mortgage-Related Securities
Each Fund (other than the Disciplined Equity Fund) may invest in pools of
mortgage loans made by lenders such as savings and loan institutions, mortgage
bankers, commercial banks and others and in other types of mortgages backed
securities. Pools of mortgage loans are assembled for sale to investors (such as
the Funds) by various governmental, government-related and private
organizations. A Fund may also invest in similar mortgage-related securities
which provide funds for multi-family residences or commercial real estate
properties. In general, there are several risks associated with mortgage-related
securities. One is the risk that the monthly cash inflow from the underlying
loan may be insufficient to meet the monthly payment requirements of the
mortgage-related security. Prepayment of principal by mortgagors or mortgage
foreclosures will shorten the term of the underlying mortgage pool for a
mortgage-related security. Early returns of principal will affect the average
life of the mortgage-related securities remaining in a Fund. The occurrence of
mortgage prepayments is affected by factors including the level of interest
rates, general economic conditions, the location and age of the mortgage and
other social and demographic conditions. In periods of rising interest rates,
the rate of prepayment tends to decrease, thereby lengthening the average life
of a pool of mortgage-related securities. Conversely, in periods of falling
interest rates the rate of prepayment tends to increase, thereby shortening the
average life of a pool. Reinvestment of prepayments may occur at higher or lower
interest rates than the original investment, thus affecting the yield of a Fund.
Because prepayments of principal generally occur when interest rates are
declining, it is likely that a Fund will have to reinvest the proceeds of
prepayments at lower interest rates than those at which the assets were
previously invested. If this occurs, a Fund's yield will correspondingly
decline. Thus, mortgage-related securities may have less potential for capital
appreciation in periods of falling interest rates than other fixed-income
securities of comparable maturity, although these securities may have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that a Fund purchases mortgage-related securities at a premium,
unscheduled prepayments, which are made at par, will result in a loss equal to
any unamortized premium. Collateralized Mortgage Obligations ("CMOs") are
obligations fully collateralized by a portfolio of mortgages or mortgage-related
securities. Payments of principal and interest on the mortgages are passed
through to the holders of the CMOs on the same schedule as they are received,
although certain classes of CMOs have priority over others with respect to the
receipt of prepayments on the mortgages. Therefore, depending on the type of
CMOs in which a Fund invests, the investment may be subject to a greater or
lesser risk of prepayment than other types of mortgage-related securities.
Mortgage-related securities may not be readily marketable. To the extent any of
these securities are not readily marketable in the judgment of the Adviser, the
investment restriction limiting a Fund's investment in illiquid investments to
not more than 15% of the value of its net assets is applicable. See Illiquid
Securities herein. The value of these securities may be significantly affected
by interest rates, the market's perception of the issuers and the
creditworthiness of the parties involved. These securities may also be subject
to prepayment risk which is the risk that prepayments of the underlying
mortgages may shorten the life of the investment, adversely affecting yield to
maturity. The yield characteristics of the mortgage securities differ from those
of traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently on mortgage securities, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other assets generally permit prepayment at any time.
Evaluation of the risks associated with prepayment and determination of the rate
at which prepayment will occur, is influenced by a variety of economic,
geographic, demographic, social and other factors including interest rate
levels, changes in housing needs, net equity built by mortgagors in the
mortgaged properties, job transfers, and unemployment rates. If a Fund purchases
these securities at a premium, a prepayment rate that is faster than expected
will reduce, yield to maturity, while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield to maturity.
Conversely, if a Fund purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce yield to maturity. Amounts available for reinvestment are likely to be
greater during a period of declining interest rates and, as a result, are likely
to be reinvested at lower interest rates than during a period of rising interest
rates. Accelerated prepayments on securities purchased by a Fund at a premium
also impose a risk of loss of principal because the premium may not have been
fully amortized at the time the principal is repaid in full.
<PAGE>
Mortgage securities differ from conventional bonds in that principal is paid
back over the life of the mortgage securities rather than at maturity. As a
result, the holder of the mortgage securities (i.e., a Fund) receives monthly
scheduled payments of principal and interest, and may receive unscheduled
principal payments representing prepayments on the underlying mortgages. As
noted, the mortgage loans underlying mortgage-backed 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 scenarios, a
Fund may fail to recover the full amount of its investment in mortgage-backed
securities notwithstanding any direct or indirect governmental or agency
guarantee. Since faster than expected prepayments must usually be invested in
lower yielding securities, mortgage-backed securities are less effective than
conventional bonds or types of U.S. government securities in "locking in" a
specified interest rate. REITs are pooled investment vehicles that invest
primarily in either real estate or real estate related loans. The value of a
REIT is affected by changes in the value of the properties owned by the REIT or
securing mortgage loans held by the REIT. REITs are dependent upon the ability
of the REITs' managers, and are subject to heavy cash flow dependency, default
by borrowers and the qualification of the REITs under applicable regulatory
requirements for favorable income tax treatment. REITs are also subject to risks
generally associated with investments in real estate including possible declines
in the value of real estate, adverse general and local economic conditions,
environmental problems and changes in interest rates. To the extent that assets
underlying a REIT are concentrated geographically by property type or in certain
other respects, these risks may be heightened. A Fund that invests in a REIT
will indirectly bear its proportionate share of any expenses, including
management fees, paid by a REIT in which it invests.
Asset-Backed Securities
Each Fund (other than the Disciplined Equity Fund) may invest in asset-backed
securities. The securitization techniques used for asset-backed securities are
similar to those used for mortgage-related securities. The collateral for these
securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital accounts receivables. The Funds may
invest in these and other types of asset-backed securities that may be developed
in the future. These securities may be subject to the risk of prepayment or
default. The ability of an issuer of asset-backed securities to enforce its
security interest in the underlying securities may be limited.
Asset-backed securities entail certain risks not presented by mortgage-backed
securities. The collateral underlying asset-backed securities may entail
features that make them less effective as security for payments than real estate
collateral. Debtors may have the right to set off certain amounts owed on the
credit cards or other obligations underlying the asset-backed security, such as
credit card receivables, or the debt holder may not have a first (or proper)
security interest in all of the obligations backing the receivable because of
the nature of the receivable or state or federal laws granting protection to the
debtor. Certain collateral may be difficult to locate in the event of default,
and recoveries on depreciated or damaged collateral may not support payments on
these securities.
Equity Securities
Each Fund may invest in equity securities which include common stocks, preferred
stocks (including convertible preferred stock) and rights to acquire such
securities (such as warrants). In addition, the Funds may invest in securities
such as bonds, debentures and corporate notes which are convertible into common
stock at the option of the holder. These convertible debt securities are
considered equity securities for purposes of the Funds' investment policies and
limitations. Generally, the Funds' equity securities will consist mostly of
common stocks. The value of a company's stock may fall as a result of factors
which directly relate to that company, such as lower demand for the company's
products or services or poor management decisions. A stock's value may also fall
because of economic conditions which affect many companies, such as increases in
production costs. The value of a company's stock may also be affected by changes
in financial market conditions that are not directly related to the company or
its industry, such as changes in interest rates or currency exchange rates. In
addition, a company's stock generally pays dividends only after the company
makes required payments to holders of its bonds and other debt. For this reason,
the value of the stock will usually react more strongly than the bonds and other
debt to actual or perceived changes in the company's financial condition or
progress.
Warrants
Each Fund may invest in warrants, which are certificates that give the holder
the right to buy a specific number of shares of a company's stocks at a
stipulated price within a certain time limit (generally, two or more years).
Because a warrant does not carry with it the right to dividends or voting rights
with respect to the securities which it entitles a holder to purchase, and
because it does not represent any rights in the assets of the issuer, warrants
may be considered more speculative than certain other types of investments.
Also, the value of a warrant does not necessarily change in tandem with the
value of the underlying securities, and a warrant ceases to have value if it is
not exercised prior to its expiration date.
<PAGE>
Small Capitalization Securities
Each Fund may invest in equity securities (including securities issued in
initial public offerings) of companies with market capitalizations within the
range represented by the Russell 2000 Index ("Small Capitalization Securities").
Because the issuers of Small Capitalization Securities tend to be smaller or
less well-established companies, they may have limited product lines, market
share or financial resources and may have less historical data with respect to
operations and management. As a result, Small Capitalization Securities are
often less marketable and experience a higher level of price volatility than
securities of larger or more well-established companies. In addition, companies
whose securities are offered in initial public offerings may be more dependent
on a limited number of key employees. Because securities issued in initial
public offerings are being offered to the public for the first time, the market
for such securities may be inefficient and less liquid.
Non-U.S. Securities
Each Fund is permitted to invest a portion of its assets in non-U.S. securities,
including American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), and Global Depositary Receipts ("GDRs") and other similar types of
instruments. ADRs are certificates issued by a U.S. bank or trust company and
represent the right to receive securities of a non-U.S. issuer deposited in a
domestic bank or non-U.S. branch of a U.S. bank. ADRs are traded on a U.S.
securities exchange, or in an over-the-counter market, and are denominated in
U.S. dollars. EDRs, which are sometimes referred to as Continental Depositary
Receipts (CDRs"), are generally issued by foreign banks and evidence ownership
of either foreign or domestic securities. GDRs are certificates issued globally
and evidence a similar ownership arrangement. GDRs are traded on non-U.S.
securities exchanges and are denominated in non-U.S. currencies. The value of an
ADR, EDR, or a GDR will fluctuate with the value of the underlying security,
will reflect any changes in exchange rates and otherwise will involve risks
associated with investing in non-U.S. securities. When selecting securities of
non-U.S. issuers, the Manager or the respective Adviser will evaluate the
economic and political climate and the principal securities markets of the
country in which an issuer is located.
Investing in securities issued by non-U.S. issuers involves considerations and
potential risks not typically associated with investing in obligations issued by
U.S. issuers. Less information may be available about non-U.S. issuers compared
with U.S. issuers. For example, non-U.S. companies generally are not subject to
uniform accounting, auditing and financial reporting standards or to other
regulatory practices and requirements comparable to those applicable to U.S.
companies. In addition, the values of non-U.S. securities are affected by
changes in currency rates or exchange control regulations, restrictions or
prohibitions on the repatriation of non-U.S. currencies, application of non-U.S.
tax laws, including withholding taxes, changes in governmental administration or
economic or monetary policy (in the U.S. or outside the U.S.) or changed
circumstances in dealings between nations. Costs are also incurred in connection
with conversions between various currencies. Investing in non-U.S. sovereign
debt will expose a Fund to the direct or indirect consequences of political,
social or economic changes in the countries that issue the securities. The
ability and willingness of sovereign obligors in developing and emerging
countries or the governmental authorities that control repayment of their
external debt to pay principal and interest on such debt when due may depend on
general economic and political conditions with the relevant country. Many
foreign countries have historically experienced, and may continue to experience,
high rates of inflation, high interest rates, exchange rate trade difficulties
and unemployment. Many foreign countries are also characterized by political
uncertainty or instability. Additional factors which may influence the ability
or willingness to service debt include, but are not limited to, a country's cash
flow situation, the availability of sufficient foreign exchange on the date a
payment is due, the relative size of its debt service burden to the economy as a
whole, and its government's policy towards the International Monetary Fund, the
World Bank and other international agencies.
<PAGE>
From time to time, each Fund, except the Disciplined Equity Fund, may invest in
securities of issuers located in emerging countries. Compared to the United
States and other developed countries, developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that are less liquid and trade a small number of securities. Prices on
these exchanges tend to be volatile and, in the past, securities in these
countries have offered greater potential for gain (as well as loss) than
securities of companies located in developed countries.
"Emerging markets" are located in the Asia-Pacific region, Eastern Europe, Latin
and South America and Africa. Security prices in these markets can be
significantly more volatile than in more developed countries, reflecting the
greater uncertainties of investing in less established markets and economies.
Political, legal and economic structures in many of these emerging market
countries may be undergoing significant evolution and rapid development, and
they may lack the social, political, legal and economic stability
characteristics of more developed countries. Emerging market countries may have
failed in the past to recognize private property rights. They may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions on repatriation
of assets, and may have less protection of property rights than more developed
countries. Their economies may be predominantly based on only a few industries,
may be highly vulnerable to changes in local or global trade conditions, and may
suffer from extreme and volatile debt burdens or inflation rates. Local
securities markets may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times. A Fund may
be required to establish special custodian or other arrangements before making
investments in securities of issuers located in emerging market countries.
Securities of issuers located in these countries may have limited marketability
and may be subject to more abrupt or erratic price movements.
Currency Transactions Each Fund, except the Disciplined Equity Fund and Small
Cap Equity Fund, may engage in currency transactions to hedge the value of
portfolio securities denominated in particular currencies against fluctuations
in relative value. Currency transactions include forward currency contracts,
currency swaps, exchange-listed and over-the-counter ("OTC") currency futures
contracts and options thereon, and exchange listed and OTC options on
currencies. The Balanced Fund, however, will not engage in currency swaps.
<PAGE>
Forward currency contracts involve a privately negotiated obligation to purchase
or sell a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Currency swaps are agreements to exchange cash flows
based on the notional difference between or among two or more currencies. See
"Swap Agreements." The Disciplined Equity Fund, Balanced Fund and Emerging
Growth Domestic Equity Fund will not engage in forward foreign currency
contracts.
A Fund may enter into currency transactions only with counterparties deemed
creditworthy by the Manager under standards established by the Board and the
Manager and in consultation with the Advisers.
A Fund may also enter into options and futures contracts relative to a foreign
currency to hedge against fluctuations in foreign currency rates. The use of
forward currency transactions and options and futures contracts relative to a
foreign currency to protect the value of a Fund's assets against a decline in
the value of a currency does not eliminate potential losses arising from
fluctuations in the value of a Fund's underlying securities. A Fund may, to the
extent it invests in foreign securities, purchase or sell foreign currencies on
a spot basis and may also purchase or sell forward foreign currency exchange
contracts for hedging purposes and to seek to protect against anticipated
changes in future foreign currency exchange rates. If a Fund enters into a
forward foreign currency exchange contract to buy foreign currency, the Fund
will segregate cash or liquid assets in an amount equal to the value of the
Fund's total assets committed to the consummation of the forward contract, or
otherwise cover its position in a manner permitted by the SEC.
A Fund would incur costs in connection with conversions between various
currencies. A Fund may hold foreign currency received in connection with
investments in foreign securities when, in the judgment of the Adviser, it would
be beneficial to convert such currency into U.S. dollars at a later date, based
on anticipated changes in the relevant exchange rate. See "Options and Futures
Contracts" for a discussion of risk factors relating to foreign currency
transactions including options and futures contracts related thereto. Options
and Futures Contracts
In seeking to protect against the effect of changes in equity market values,
currency exchange rates or interest rates that are adverse to the present or
prospective position of the Funds, and for cash flow management, a Fund may
employ certain hedging and risk management techniques. These techniques include
the purchase and sale of options, futures and options on futures involving
equity and debt securities and foreign currencies, aggregates of equity and debt
securities, indices of prices of equity and debt securities and other financial
indices. Although these hedging transactions are intended to minimize the risk
of loss due to a decline in the value of the hedged security, asset class or
currency, certain of them may limit any potential gain that might be realized
should the value of the hedged security increase. A Fund may engage in these
types of transactions for the purpose of enhancing returns. The use of options
can also increase a Fund's transaction costs.
<PAGE>
The techniques described herein will not always be available to the Funds, and
it may not always be feasible for a Fund to use these techniques even where they
are available. For example, the cost of entering into these types of
transactions may be prohibitive in some situations. In addition, a Fund's
ability to engage in these transactions may also be limited by tax
considerations and certain other legal considerations.
A Fund may write covered call options and purchase put and call options on
individual securities as a partial hedge against an adverse movement in the
security and in circumstances consistent with the objective and policies of the
Fund. This strategy limits potential capital appreciation in the portfolio
securities subject to the put or call option.
The Funds may also write covered put and call options and purchase put and call
options on foreign currencies to hedge against the risk of foreign exchange
fluctuations on foreign securities the particular Fund holds in its portfolio or
that it intends to purchase. For example, if a Fund enters into a contract to
purchase securities denominated in foreign currency, it could effectively
establish the maximum U.S. dollar cost of the securities by purchasing call
options on that foreign currency. Similarly, if a Fund held securities
denominated in a foreign currency and anticipated a decline in the value of that
currency against the U.S. dollar, the Fund could hedge against such a decline by
purchasing a put option on the foreign currency involved.
In addition, a Fund may purchase put and call options and write covered put and
call options on aggregates of equity and debt securities, and may enter into
futures contracts and options thereon for the purchase or sale of aggregates of
equity and debt securities, indices of equity and debt securities and other
financial indices. Aggregates are composites of equity or debt securities that
are not tied to a commonly known index. An index is a measure of the value of a
group of securities or other interests. An index assigns relative values to the
securities included in that index, and the index fluctuates with changes in the
market value of those securities.
<PAGE>
A Fund may write covered options only. "Covered" means that, so long as a Fund
is obligated as the writer of a call option on particular securities or
currency, it (1) will own either the underlying securities or currency or an
option to purchase the same underlying securities or currency having an
expiration date not earlier than the expiration date of the covered option and
an exercise price equal to or less than the exercise price of the covered
option, or (2) will establish or maintain with its custodian for the term of the
option a segregated account consisting of liquid assets. A Fund will cover any
put option it writes on particular securities or currency by maintaining a
segregated account with its custodian as described above.
To hedge against fluctuations in currency exchange rates, a Fund may purchase or
sell foreign currency futures contracts, and write put and call options and
purchase put and call options on such futures contracts. For example, a Fund may
use foreign currency futures contracts when it anticipates a general weakening
of the foreign currency exchange rate that could adversely affect the market
values of the Fund's foreign securities holdings. In this case, the sale of
futures contracts on the underlying currency may reduce the risk of a reduction
in market value caused by foreign currency variations. This provides an
alternative to the liquidation of securities positions in the Fund and resulting
transaction costs. When the Fund anticipates a significant foreign exchange rate
increase while intending to invest in a non-U.S. security, the Fund may purchase
a foreign currency futures contract to hedge against a rise in foreign exchange
rates pending completion of the anticipated transaction. Such a purchase of a
futures contract would serve as a temporary measure to protect the Fund against
any rise in the foreign exchange rate that may add additional costs to acquiring
the non-U.S. security position. The Fund similarly may use futures contracts on
equity and debt securities to hedge against fluctuations in the value of
securities it owns or expects to acquire or to increase or decrease equity
exposure in managing cash flows.
The Funds also may purchase call or put options on foreign currency futures
contracts to obtain a fixed foreign exchange rate at limited risk. A Fund may
purchase a call option on a foreign currency futures contract to hedge against a
rise in the foreign exchange rate while intending to invest in a non-U.S.
security of the same currency. A Fund may purchase put options on foreign
currency futures contracts to hedge against a decline in the foreign exchange
rate or the value of its non-U.S. securities. A Fund may write a covered call
option on a foreign currency futures contract as a partial hedge against the
effects of declining foreign exchange rates on the value of non-U.S. securities.
Options on indexes are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered option on an index, a
Fund will be required to deposit and maintain liquid assets with a custodian
equal in value to the aggregate exercise price of a put or call option pursuant
to the requirements and the rules of the applicable exchange. If, at the close
of business on any day, the market value of the deposited securities falls below
the contract price, the Fund will deposit with the custodian additional liquid
assets equal in value to the deficiency.
Each Fund may purchase and sell futures contracts, and purchase and write call
and put options an futures contracts, in order to seek to increase total return
or to hedge against changes in interest rates, securities prices or, to the
extent a Fund invests in foreign securities, currency exchange rates, or to
otherwise manage their term structures, sector selection and durations in
accordance with their investment objectives and policies.
<PAGE>
To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies that are traded on an exchange
regulated by the Commodities Futures Trading Commission ("CFTC"), in each case
that are not for "bona fide hedging" purposes (as defined by regulations of the
CFTC), the aggregate initial margin and premiums required to establish those
positions may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account the unrealized profits and unrealized losses on any
such contracts the Fund has entered into. However, the "in-the-money" amount of
such options may be excluded in computing the 5% limit. Adoption of this
guideline will not limit the percentage of a Fund's assets at risk to 5%.
A Fund's use of options, futures and options thereon and forward currency
contracts (as described under "Currency Transactions") involves certain
investment risks and transaction costs to which it might not be subject were
such strategies not employed. Such risks include: dependence on the ability of
an Adviser to predict movements in the prices of individual securities,
fluctuations in the general securities markets or market sections and movements
in interest rates and currency markets; imperfect correlation between movements
in the price of the securities or currencies hedged or used for cover; the fact
that skills and techniques needed to trade options, futures contracts and
options thereon or to use forward currency contracts are different from those
needed to select the securities in which a Fund invests; lack of assurance that
a liquid secondary market will exist for any particular option, futures
contract, option thereon or forward contract at any particular time, which may
affect a Fund's ability to establish or close out a position; possible
impediments to effective portfolio management or the ability to meet current
obligations caused by the segregation of a large percentage of a Fund's assets
to cover its obligations; and the possible need to defer closing out certain
options, futures contracts, options hereon and forward contracts in order to
continue to qualify for the beneficial tax treatment afforded "regulated
investment companies" under the Internal Revenue Code of 1986, as amended, (the
"Code"). In the event that the anticipated change in the price of the securities
or currencies that are the subject of such a strategy does not occur, it may be
that a Fund would have been in a better position had it not used such a strategy
at all. The Funds' ability to engage in certain investment strategies, including
hedging techniques, may be limited by tax considerations, cost considerations
and other factors. Transactions in futures contracts and options on futures
involve brokerage costs, require margin deposits, and in the case of options
obligating a Fund to purchase securities may require the Fund to establish a
segregated account consisting of cash or liquid securities in an amount equal to
the underlying value of such futures contracts and options to the extent not
covered by an offsetting position. While transactions in futures contracts and
options on futures may reduce certain risks, these transactions themselves
entail certain other risks. For example, unanticipated changes in interest rates
or securities prices may result in a poorer overall performance for a Fund than
if it had not entered into any futures contracts or options transactions.
Perfect correlation between a Fund's futures positions and portfolio positions
is impossible to achieve. There are no futures contracts based upon individual
securities, except certain U.S. government securities. In the event of an
imperfect correlation between a futures position and a portfolio position which
is intended to be protected, the desired protection may not be obtained and the
Fund may be exposed to risk of loss.
<PAGE>
Some futures contracts or options on futures may be inherently illiquid or may
become illiquid under adverse market conditions. In addition, during periods of
market volatility, a commodity exchange may suspend or limit trading in a
futures contract or related option, which may make the instrument temporarily
illiquid and difficult to price. Commodity exchanges may also establish daily
limits on the amount that the price of a futures contract or related option can
vary from the previous day's settlement price. Once the daily price limit is
reached no trades may be made that day at a price beyond the limit. This may
prevent a Fund from closing out positions and limiting its losses. The
successful utilization of hedging and risk management transactions requires
skills different from those needed in the selection of a Fund's portfolio
securities and depends on an Adviser's ability to predict correctly the
direction and degree of movements in interest rates. Although it is believed
that use of the hedging and risk management techniques described above will
benefit the Funds, if an Adviser's judgment about the direction or extent of the
movement in interest rates is incorrect, a Fund's overall performance would be
worse than if it had not entered into any such transactions. For example, if a
Fund had purchased an interest rate swap or an interest rate floor to hedge
against its expectation that interest rates would decline but instead interest
rates rose, such Fund would lose part or all of the benefit of the increased
payments it would receive as a result of the rising interest rates because it
would have to pay amounts to its counterparties under the swap agreement or
would have paid the purchase price of the interest rate floor.
Swap Agreements
A Fund may enter into interest rate swaps, currency swaps, and other types of
swap agreements such as caps, collars, and floors. The Focused Equity Fund may
invest up to 10% of its assets in these types of instruments. The Growth Equity
Fund, will not enter into credit, currency, index, interest rate and mortgage
swaps and up to 10% of its total assets may be invested in equity swaps. The
Disciplined Equity Fund may invest up to 10% of its assets in equity swaps. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate multiplied by a "notional principal amount," in return
for payments equal to a fixed rate multiplied by the same amount, for a
specified period of time. If a swap agreement provides for payments in different
currencies, the parties might agree to exchange (swap) the notional principal
amount as well. Swaps may also depend on other prices or rates, such as the
value of an index or mortgage prepayment rates. Equity swaps allow the parties
to a swap agreement to exchange the dividend income or other component of return
on an equity investment (for example, a group of equity securities or an index)
for a component of return on another non-equity or equity investment.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments equal to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments equal to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of
investment to another. For example, if a Fund agreed to exchange floating rate
payments for fixed rate payments, the swap agreement would tend to decrease the
Fund's exposure to rising interest rates. Caps and floors have an effect similar
to buying or writing options. Depending on how they are used, swap agreements
may increase or decrease the overall volatility of a Fund's investments and its
share price and yield.
<PAGE>
A Fund will usually enter into interest rate swaps on a net basis, i.e., where
the two parties make net payments with a Fund receiving or paying, as the case
may be, only the net amount of the two payments. The net amount of the excess,
if any, of a Fund's obligations over its entitlement with respect to each
interest rate swap will be covered by liquid assets having an aggregate net
asset value at least equal to the accrued excess maintained by the Fund's
custodian in a segregated account. If a Fund enters into a swap on other than a
net basis, the Fund will maintain in the segregated account the full amount of
the Fund's obligations under each such swap. A Fund may enter into swaps, caps,
collars and floors with member banks of the Federal Reserve System, members of
the New York Stock Exchange or other entities determined to be creditworthy by
an Adviser, pursuant to procedures adopted and reviewed on an ongoing basis by
the Board and the Manager. If a default occurs by the other party to such
transaction, a Fund will have contractual remedies pursuant to the agreements
related to the transaction but such remedies may be subject to bankruptcy and
insolvency laws which could affect such Fund's rights as a creditor. A Fund may
invest in equity swaps. As noted, equity swaps allow one party to exchange the
dividend income or other components of return on an equity investment for a
component of return on another non-equity or equity investment. An equity swap
may be used by a Fund to invest in a market without owning or taking physical
custody of particular securities in circumstances in which direct investment may
be restricted for legal reasons or is otherwise impractical. The swap market has
grown substantially in recent years with a large number of banks and financial
services firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps, collars and floors are more recent innovations and they are less liquid
than swaps. There can be no assurance, however, that a Fund will be able to
enter into interest rate swaps or to purchase interest rate caps, collars or
floors at prices or on terms an Adviser believes are advantageous to such Fund.
In addition, although the terms of interest rate swaps, caps, collars and floors
may provide for termination, there can be no assurance that a Fund will be able
to terminate an interest rate swap or to sell or offset interest rate caps,
collars or floors that it has purchased. Because interest rate swaps, caps,
collars and floors are privately negotiated transactions rather than publicly
traded, they may be considered to be illiquid securities. To the extent that an
Adviser does not accurately analyze and predict the potential relative
fluctuation of the components swapped with another party, a Fund may suffer a
loss. Equity swaps are very volatile. To the extent that an Adviser does not
accurately analyze and predict the potential relative fluctuation of the
components swapped with another party, a Fund may suffer a loss. The value of
some components of an equity swap (such as the dividends on a common stock) may
also be sensitive to changes in interest rates. Furthermore, during the period a
swap is outstanding, a Fund may suffer a loss if the counterparty defaults.
Structured Investments
Each Fund may enter into Structured Investments. Structured Investments are
derivative securities that are convertible into, or the value of which is based
upon the value of, other debt or equity securities or indices or other factors.
Currency exchange rates, interest rates (such as the prime lending rate and
LIBOR) and stock indices (such as the S&P 500) may be used. The amount a Fund
receives when it sells a Structured Investment or at maturity of a Structured
Investment is not fixed, but is based on the price of the underlying security or
index or other factor. Particular Structured Investments may be designed so that
they move in conjunction with or differently from their underlying security or
index in terms of price or volatility. It is impossible to predict whether the
underlying index or price of the underlying security will rise or fall, but
prices of the underlying indices and securities (and, therefore, the prices of
Structured Investments) will be influenced by the same types of political and
economic events that affect particular issuers of fixed income and equity
securities and capital markets generally. Structured Investments also may trade
differently from their underlying securities. Structured Investments generally
trade on the secondary market, which is fairly developed and liquid. However,
the market for such securities may be shallow compared to the market for the
underlying securities or the underlying index. Accordingly, periods of high
market volatility may affect the liquidity of Structured Investments, making
high volume trades possible only with discounting. Structured Investments are a
relatively new innovation and may be designed to have various combinations of
equity and fixed income characteristics. The following sections describe 4
common types of Structured Investments. A Fund may invest in other Structured
Investments, including those that may be developed in the future, to the extent
that the Structured Investments are otherwise consistent with the Fund's
investment objective and policies.
<PAGE>
LYONS
Liquid Yield Option Notes ("LYONs") differ from ordinary debt securities, in
that the amount received prior to maturity is not fixed but is based on the
price of the issuer's common stock. LYONs are zero-coupon notes that sell at a
large discount from face value. For an investment in LYONs, the Fund will not
receive any interest payments until the notes mature, typically in 15 to 20
years, when the notes are redeemed at face, or par, value. The yield on LYONs is
typically lower-than-market rate for debt securities of the same maturity, due
in part to the fact that the LYONs are convertible into common stock of the
issuer at any time at the option of the holder of the LYONs. Commonly, the LYONs
are redeemable by the issuer at any time after an initial period or if the
issuer's common stock is trading at a specified price level or better or, at the
option of the holder, upon certain fixed dates. The redemption price typically
is the purchase price of the LYONs plus accrued original issue discount on the
date of redemption, which amounts to the lower-than-market yield. A Fund would
receive only the lower-than-market yield unless the underlying common stock
increase in value at a substantial rate. LYONs are an attractive investment when
it appears that they will increase in value due to the rise in value of the
underlying common stock.
PERCS
Preferred Equity Redemption Cumulative Stock ("PERCS") technically is preferred
stock with some characteristics of common stock. PERCS are mandatorily
convertible into common stock after a period of time, usually three years,
during which the investors' capital gains are capped, usually at 30%. Commonly,
PERCS may be redeemed by the issuer at any time or if the issuer's common stock
is trading at a specified price level or better. The redemption price starts at
the beginning of the PERCS duration period at a price that is above the cap by
the amount of the extra dividends the PERCS holder is entitled to receive
relative to the common stock over the duration of the PERCS and declines to the
cap price shortly before maturity of the PERCS. In exchange for having the cap
on capital gains and giving the issuer the option to redeem the PERCS at any
time or at the specified common stock price level, a Fund may be compensated
with a substantially higher dividend yield than that on the underlying common
stock. Investors that seek current income find PERCS attractive because PERCS
provide a high dividend income than that paid with respect to a company's common
stock.
ELKS
Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that
the principal amount received at maturity is not fixed but is based on the price
of the issuer's common stock. ELKS are debt securities commonly issued in fully
registered form for a term of three years under a trust indenture. At maturity,
the holder of ELKS will be entitled to receive a principal amount equal to the
lesser of a cap amount, commonly in the range of 30% to 55% greater than the
current price of the issuer's common stock, or the average closing price per
share of the issuer's common stock, or the average closing price per share of
the issuer's common stock, subject to adjustment as a result of certain dilution
events, for the 10 trading days immediately prior to maturity. Unlike PERCS,
ELKS are commonly not subject to redemption prior to maturity. ELKS usually bear
interest during the three-year term at a substantially higher rate than the
dividend yield on the underlying common stock. In exchange for having the cap on
the return that might have been received as capital gains on the underlying
common stock, a Fund may be compensated with the higher yield, contingent on how
well the underlying common stock performs. Investors that seek current income
find ELKS attractive because ELKS provide a higher dividend income than that
paid with respect to a company's common stock. The return on ELKS depends on the
creditworthiness of the issuer of the securities, which may be the issuer of the
underlying securities or a third party investment banker or other lender. The
creditworthiness of such third party issuer of ELKS may, and often does, exceed
the creditworthiness of the issuer of the underlying securities. The advantage
of using ELKS over traditional equity and debt securities is that the former are
income producing vehicles that may provide a higher income than the dividend
income on the underlying securities while allowing some participation in the
capital appreciation of the underlying equity securities. Another advantage of
using ELKS is that they may be used as a form of hedging to reduce the risk of
investing in the generally more volatile underlying equity securities.
<PAGE>
Structured Notes
Structured Notes are derivative securities for which the amount of principal
repayments and/or interest payments is based upon the movement of one or more
"factors". These factors include, but are not limited to, currency exchange
rates, interest rates (such as the prime lending rate and LIBOR) and stock
indices (such as the S&P 500). In some cases, the impact of the movements of
these factors may increase or decrease through the use of multipliers or
deflators. Structured Notes may be designed to have particular quality and
maturity characteristics and may vary from money market quality to below
investment grade. Depending on the factor used and use of multipliers or
deflators, however, changes in interest rates and movement of the factor may
cause significant price fluctuations or may cause particular Structured Notes to
become illiquid. A Fund would use Structured Notes to tailor its investments to
the specific risks and returns an Adviser wishes to accept while avoiding or
reducing certain other risks.
Risk Management
Each Fund may employ non-hedging risk management techniques. Risk management
strategies are used to keep a Fund fully invested and to reduce the transaction
costs associated with incoming and outgoing cash flows. The objective where
equity futures are used to "equitize" cash is to match the notional value of all
futures contracts to a Fund's cash balance. The notional value of futures and of
the cash is monitored daily. As the cash is invested in securities and/or paid
out to participants in redemptions, the Adviser simultaneously adjusts the
futures positions. Through such procedures, a Fund not only gains equity
exposure from the use of futures, but also benefits from increased flexibility
in responding to a Fund's cash flow needs. Additionally, because it can be less
expensive to trade a list of securities as a package or program trade rather
than as a group of individual orders, futures provide a means through which
transaction costs can be reduced. Such non-hedging risk management techniques
are not speculative, but because they involve leverage they include, as do all
leveraged transactions, the possibility of losses or gains that are greater than
if these techniques involved the purchase and sale of the securities themselves.
Illiquid Securities
Each Fund is permitted to invest in illiquid securities. No illiquid securities
will be acquired if upon the purchase thereof more than 15% of a Fund's net
assets would consist of illiquid securities. "Illiquid securities" are
securities that may not be sold or disposed of in the ordinary course of
business within seven days at approximately the price used to determine a Fund's
net asset value. Each Fund may purchase certain restricted securities commonly
known as rule 144A securities that can be resold to institutions and which may
be determined to be liquid pursuant to policies and guidelines of the Board. A
Fund may not be able to sell illiquid securities when an Adviser considers it
desirable to do so or may have to sell such securities at a price that is lower
than the price that could be obtained if the securities were more liquid. A sale
of illiquid securities may require more time and may result in higher dealer
discounts and other selling expenses than does the sale of liquid securities.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value. Further,
the purchase price and subsequent valuation of illiquid securities normally
reflect a discount, which may be significant, from the market price of
comparable securities for which a liquid market exists. Under current
interpretations of the Staff of the Securities and Exchange Commission, the
following types of securities in which a Fund may invest will be considered
illiquid:
<PAGE>
o repurchase agreements maturing in more than seven days;
o certain restricted securities (securities whose public resale is subject to
legal or contractual restrictions);
o options, with respect to specific securities, not traded on a national
securities exchange that are not readily marketable; and
o any other securities in which a Fund may invest that are not readily
marketable.
Short Sales
Each Fund, except the Emerging Growth Domestic Equity Fund and Balanced Fund,
may make short sales of securities. The Focused Equity, Growth Equity,
Disciplined Equity, and Value Equity Funds may make short sales against the box.
The Focused Equity, Disciplined Equity and Value Equity Funds may engage in
short sales other than against the box. A short sale is a transaction in which a
Fund sells a security it does not own in anticipation that the market price of
that security will decline. A Fund expects to make short sales both to obtain
capital gains from anticipated declines in securities and as a form of hedging
to offset potential declines in long positions in the same or similar
securities. The short sale of a security is considered a speculative investment
technique. When a Fund makes a short sale, it must borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
in order to satisfy its obligation to deliver the security upon conclusion of
the sale. A Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities. A
Fund's obligation to replace the borrowed security will be secured by collateral
deposited with the broker-dealer, usually cash, U.S. Government securities or
other liquid high grade debt obligations. A Fund will also be required to
deposit in a segregated account established and maintained with such Fund's
custodian, liquid assets to the extent necessary so that the value of both
collateral deposits in the aggregate is at all times equal to the greater of the
price at which the security is sold short or 100% of the current market value of
the security sold short. Depending on arrangements made with the broker-dealer
from which it borrowed the security, a Fund may not receive any payments
(including interest) on its collateral deposited with such broker-dealer. If the
price of the security sold short increases between the time of the short sale
and the time a Fund replaces the borrowed security, a Fund will incur a loss.
Although a Fund's gain is limited to the price at which it sold the security
short, its potential loss is theoretically unlimited. In a "short sale against
the box," at the time of the sale, a Fund owns or has the immediate and
unconditional right to acquire at no additional cost the security and maintains
that right at all times when the short position is open. A Fund may make short
sales of securities or maintain a short position, provided that at all times
when a short position is open the Fund owns an equal amount of such securities
or securities convertible into or exchangeable for, without payment of any
further consideration, an equal amount of the securities of the same issuer as
the securities sold short (a short sale against-the-box). As a result of recent
tax legislation, short sales may not generally be used to defer the recognition
of gain for tax purposes with respect to appreciated securities in a Fund's
portfolio.
<PAGE>
When-Issued and Delayed-Delivery Securities
Each Fund is permitted to purchase or sell securities on a when-issued or
delayed-delivery basis. When-issued or delayed-delivery transactions arise when
securities are purchased or sold with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price and
yield at the time of entering into the transaction. While the Funds generally
purchase securities on a when-issued or delayed delivery basis with the
intention of acquiring the securities, the Funds may sell the securities before
the settlement date if an Adviser deems it advisable. The purchase of securities
on a when-issued basis involves a risk of loss if the value of the security to
be purchased declines prior to the settlement date. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed delivery basis,
the Fund will record the transaction and thereafter reflect the value, each day,
of such security in determining the net asset value of the Fund. At the time of
delivery of the securities, the value may be more or less than the purchase
price. A Fund will maintain, in a segregated account, liquid assets having a
value equal to or greater than the Fund's purchase commitments in respect of any
obligations relating to when-issued or delayed delivery securities; a Fund will
likewise segregate securities sold on a delayed-delivery basis.
Investing in Other Investment Companies
Each Fund is permitted to invest in other investment companies including
investment companies which are not registered under the 1940 Act. Each Fund may
invest in investment companies located outside the United States. Investments in
other investment companies will involve the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies. Pursuant
to Section 12(d)(1) of the 1940 Act, a Fund will not purchase a security of an
investment company, if as a result, (1) more than 10% of the Fund's total assets
would be invested in securities of other investment companies, (2) such purchase
would result in more than 3% of the total outstanding voting securities of any
one such investment company being held by the Fund, or (3) more than 5% of the
Fund's total assets would be invested in any one such investment company; unless
an exemption from the limitations of Section 12(d)(1) is available. The Funds
may also purchase Standard & Poor's Depository Receipts ("SPDRs"). SPDRs are
American Stock Exchange - traded securities that represent ownership in the SPDR
Trust, a trust which has been established to accumulate and hold a portfolio of
common stocks that is intended to track the price performance and dividend yield
of the S&P 500. With regard to each Fund, SPDRs and other similar types of
instruments would be subject to the requirements of Section 12(d)(1) of the 1940
Act.
The Focused Equity Fund may invest in World Equity Benchmark Shares ("WEBS")
consistent with the limitations of Section 12(d)(1) of the 1940 Act. WEBS are
shares of an investment company that invests substantially all of its assets in
securities included in the Morgan Stanley Composite Index ("MSCI") indices for
specified countries. WEBS are listed on the American Stock Exchange ("AMEX") and
were initially offered to the public in 1996. The market prices of WEBS are
expected to fluctuate in accordance with both changes in the net asset values of
their underlying indices and supply and demand of WEBS on the AMEX. To date,
WEBS have traded at relatively modest discounts and premiums to their NAVS.
However, WEBS have a limited operating history and information is lacking
regarding the actual performance and trading liquidity of WEBS for extended
periods or over complete market cycles. In addition, there is no assurance that
the requirements of the AMEX necessary to maintain the listing of WEBS will
continue to be met or will remain unchanged. In the event substantial market or
other disruptions affecting WEBS should occur in the future, the liquidity and
value of a Fund's shares could also be substantially and adversely affected. If
such disruptions were to occur, a Fund could be required to reconsider the use
of WEBS as part of its investment strategy.
<PAGE>
Portfolio Securities Lending
Each of the Funds may lend its portfolio securities to broker/dealers and other
institutions as a means of earning interest income. The borrower is required to
deposit as collateral, liquid assets that at all times will be at least equal to
100% of the market value of the loaned securities and such amount will be
maintained in a segregated account of the respective Fund. While the securities
are on loan the borrower will pay the respective Fund any income accruing
thereon. Delays or losses could result if a borrower of portfolio securities
becomes bankrupt or defaults on its obligation to return the loaned securities.
The Funds may lend securities only if: (1) each loan is fully secured by
appropriate collateral at all times; and (2) the value of all loaned securities
and borrowings of the Fund (not including transactions that are covered by a
segregated account or an offsetting position) would not be more than 33-1/3% of
the Fund's total assets taken at the time of the loan (including collateral
received in connection with any loans). Under present regulatory policies, loans
of portfolio securities may be made to financial institutions such as brokers or
dealers and are required to be secured continuously by collateral in cash, cash
equivalents or U.S. Government securities maintained on a current basis at an
amount at least equal to the market value of the securities loaned. A Fund is
required to have the right to call a loan and obtain the securities loaned at
any time on five days' notice. For the duration of a loan, a Fund continues to
receive the equivalent of the interest or dividends paid by the issuer on the
securities loaned and also receives compensation from investment of the
collateral. A Fund does not have the right to vote any loaned securities having
voting rights during the existence of the loan, but a Fund could 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. As with other extensions of credit there are risks of delay in
recovering, or even loss of rights in, the collateral should the borrower of the
securities default. However, the loans are made only to firms deemed by the
Advisers to be of good standing under guidelines established by the Manager and
the Board, and when, in the judgment of an Adviser, the money which can be
earned by loaning the particular securities justifies the attendant risks.
BOARD OF TRUSTEES
The Board of Trustees of the Trust (the Board) is responsible for overseeing all
operations of the Funds, including supervising the Manager. The Manager is
responsible for overseeing the Advisers and establishing and monitoring
investment guidelines for the Trust. The Trustees and officers of the Trust,
some of whom are directors and officers of Allstate Life and affiliates thereof,
and their principal business occupations for the last five years are set forth
below. Trustees who are deemed to be "interested persons" of the Trust under the
1940 Act are indicated by an asterisk next to their respective names.
<PAGE>
Trustees of the Fund:
Listed below are the names of the Trustees of the Fund, along with each
Trustee's age; business address; and principal business occupation(s) during the
previous five years.
Robert S. Engelman, Jr. (57), 3514 Fremont Chicago, Illinois 60657;
(1998-Present), Chairman of the Board, MB Financial Inc. (Successor to Avondale
Financial Corp.); (1993-1998), President and Chief Executive Officer, Avondale
Financial Corp./Avondale Bank.
Karen J. May (41), 180 Pembroke, Lake Forest, Illinois 60045; (1998-Present),
Vice President, Global Planning and Staffing; (1997-1998), Vice President,
International Finance; (1994-1997), Vice President, Corporate Audit, Baxter
International Inc.
Arthur S. Nicholas (69), 655 Oak Road, Barrington, Illinois 60010;
(1993-Present), Owner-President, The Antech Group.
Brenda D. Sneed* (51), 3100 Sanders Road, Northbrook, Illinois 60062;
(1996-Present), Assistant Secretary and Assistant General Counsel, Allstate Life
Insurance Company; (1994-1995), Chief, Office of Insurance Products, Division of
Investment Management, U.S. Securities and Exchange Commission.
Thomas J. Wilson* (41), Chairman of the Board, 3100 Sanders Road, Northbrook,
Illinois 60062; (1999-Present), President, Allstate Life Insurance Company;
(1995-1998), Vice President, Senior Vice President, Chief Financial Officer and
Director, Allstate Insurance Company; (1993-1995), Vice President, Sears Roebuck
and Co.
Officers of the Fund:
Listed below are the names of the officers of the Fund, along with each
officer's age; business address; position held with the Fund; and principal
business occupation(s) during the previous five years.
Jeanette Jaytricia Donahue, (49), 3100 Sanders Road, Northbrook, Illinois 60062;
Vice President, Chief Operations Officer, LSA Variable Series Trust; (1993 -
Present), Director, Allstate Life Insurance Company.
Keith A. Hauschildt, (38), 3100 Sanders Road, Northbrook, Illinois 60062;
Treasurer, LSA Variable Series Trust; (1996 - Present), Director and Controller,
Allstate Life Insurance Company (1993-1996), Director of Finance, Allstate
Insurance Company.
John R. Hunter, (44), 3100 Sanders Road, Northbrook, Illinois 60062; President;
LSA Variable Series Trust; (1993 - Present), Assistant Vice President, Allstate
Life Insurance Company.
Barbara J. Whisler, (34), 3100 Sanders Road, Northbrook, Illinois 60062,
Secretary and Chief Compliance Officer, LSA Variable Series Trust; (1997 -
Present), Assistant Counsel, Allstate Life Insurance Company; (1993 - 1997),
Senior Counsel, Acting Assistant Chief, Office of Insurance Products, Division
of Investment Management, U.S. Securities and Exchange Commission.
Douglas G. Wolff, (34), 3100 Sanders Road, Northbrook, Illinois 60062; Vice
President, Investments, LSA Variable Series Trust; (1995 - Present), Director,
Allstate Life Insurance Company; (1993-1995), Consulting Actuary, Ernst & Young.
Compensation of Officers and Directors
The Funds pay no salaries or compensation to any officer or Trustee affiliated
with the Manager. The chart below sets forth the fees to be paid by the Funds
each fiscal year to the non-interested Trustees and certain other information as
of September 30, 1999.
<PAGE>
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual From the Funds and
Compensation Accrual as Part of Benefits Upon Complex Paid to
Name of Person, Position From Trust Fund Expenses Retirement Trustee
<S> <C> <C> <C> <C>
Each Non-Interested $11,000 -0- -0- $11,000
Trustee
</TABLE>
*As of September 30, 1999, there were six Funds in the Trust.
CAPITAL STRUCTURE
The Trust was organized under Delaware law on March 2, 1999. The Trust is a
Delaware Business Trust and has the authority to authorize and issue an
unlimited number of shares. The Board may reclassify authorized shares to
increase or decrease the allocation of shares among the Funds or to add any new
Funds. The Board has the power, from time to time and without shareholder
approval, to classify and reclassify existing and new Funds into one or more
classes.
CONTROL PERSONS
As of September 30, 1999, a separate account of Allstate Life owned 100% of the
shares of the Funds.
Voting
Shareholders are entitled to vote on a matter if: (i) a shareholder vote is
required under the 1940 Act; (ii) the matter concerns an amendment to the
Declaration of Trust that would adversely affect to a material degree the rights
and preferences of any Fund or any class thereof; or (iii) the Trustees
determine that it is necessary or desirable to obtain a shareholder vote. The
1940 Act requires a shareholder vote under various circumstances, including to
change any fundamental policy of a Fund. Shareholders of the Funds receive one
vote for each share owned on the record date; except that with respect to a
matter submitted for a vote of shareholders of all Funds, shareholders will be
entitled to vote on a dollar weighted basis. However, only shareholders of a
Fund that is affected by a particular matter are entitled to vote on that
matter. Voting rights are non-cumulative and cannot be modified without a
majority vote of shareholders.
Other Rights
Each Fund share representing interests in a Fund, when issued and paid for in
accordance with the terms of the offering, will be fully paid and
non-assessable. These shares have no pre-emptive, subscription or conversion
rights and are redeemable. There are no shareholder pre-emptive rights. Upon
liquidation of a Fund, the shareholders of that Fund shall be entitled to share,
pro rata, in any assets of the Fund after discharge of all liabilities and
payment of the expenses of liquidation.
<PAGE>
INVESTMENT MANAGEMENT ARRANGEMENTS
LSA Asset Management LLC, the Manager, located at 3100 Sanders Road, Northbrook,
Illinois 60062, serves as the investment adviser to the Trust and, accordingly,
as investment manager to each of the Funds. The Manager is a wholly owned
subsidiary of Allstate Life. Allstate Life and its subsidiaries are wholly owned
subsidiaries of Allstate Insurance Company. Allstate Insurance Company is the
second largest property/casualty writer in the U.S. Allstate Insurance Company
is a wholly owned subsidiary of the Allstate Corporation. Allstate Life,
incorporated in 1957 in Illinois, has established a record of financial strength
that has consistently resulted in superior ratings. A.M. Best Company assigns an
A+ (Superior) to Allstate Life. Standard & Poor's Insurance Rating Services
assigns an AA+ (Very Strong) financial strength rating and Moody's Investors
Service, Inc. assigns an Aa2 (Excellent) financial strength rating to Allstate
Life. The Manager provides investment management services to each Fund pursuant
to an Investment Management Agreement with the Trust (the "Management
Agreement). The services provided by the Manager consist of (among other things)
directing and supervising each Adviser, reviewing and evaluating the performance
of each Adviser and determining whether or not any Adviser should be replaced.
The Manager and its affiliates will furnish all facilities and personnel
necessary in connection with providing these services. The Management Agreement,
after being initially approved, continues in force for two years; thereafter it
will continue in effect if such continuance is specifically approved at least
annually at a meeting called for the purpose of voting on the Management
Agreement by the Trustees and by a majority of the Board members who are not
parties to the Management Agreement or interested persons of any such party. The
Manager pays all fees of the Advisers. The Advisers serve as independent
contractors of the Manager. The Management Agreement is terminable, with respect
to a Fund without penalty on not more than 60 days' nor less than 30 days'
written notice by (1) the Trust when authorized either by (a) in the case of a
Fund, a majority vote of the Fund's shareholders or (b) a vote of a majority of
the Board or (2) the Manager. The Management Agreement will automatically
terminate in the event of its assignment. The Management Agreement provides that
neither the Manager nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss arising out of any investment or for any act
or omission in its services to the Funds, except for willful misfeasance, bad
faith or gross negligence or reckless disregard of its or their obligations and
duties under the Management Agreement. The Trust's Prospectus contains a
description of fees payable to the Manager for services under the Management
Agreement. The Manager, not any Fund, pays the fees of the Advisers.
The Advisers
The Manager has entered into an advisory agreement for each Fund pursuant to
which the Manager has appointed an Adviser to carry out the day-to-day
investment and reinvestment of the assets of the relevant Fund. Under the
direction of the Manager, and, ultimately, of the Board, each Adviser is
responsible for making all of the day-to-day investment decisions for the
respective Fund (or portion of a Fund) in accordance with the Fund's investment
objective, guidelines and policies. As noted, the Manager pays each Adviser a
fee for its services from the Manager's own resources. A Fund pays no additional
management fees for the services of the Advisers. Each Adviser furnishes at its
own expense all facilities and personnel necessary in connection with providing
these services.
Goldman Sachs Asset Management ("GSAM") is a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"). GSAM serves as the investment adviser to
the Growth Equity Fund. Goldman Sachs provides a wide range of fully
discretionary investment advisory services including quantitatively driven and
actively managed U.S. and international equity portfolios, U.S. and global fixed
income portfolios, commodity and currency products, and money markets. The
Goldman Sachs Group, L.P., which controls GSAM, has merged into The Goldman
Sachs Group Inc. as a result of an initial public offering.
Salomon Brothers Asset Management Inc. ("SBAM") serves as the investment adviser
to the Value Equity Fund. Together with its affiliates, manages a wide spectrum
of equity and fixed income products for both institutional and private
investors, including corporations, pension funds, public funds, central banks,
insurance companies, supranational organizations, endowments and foundations.
SBAM is an indirect, wholly owned subsidiary of Citigroup Inc. and manages over
$27 billion in assets as of March 31, 1999.
<PAGE>
J.P. Morgan Investment Management Inc. ("JPMIM"), 522 Fifth Avenue, New York,
New York 10036, serves as the Adviser to the Disciplined Equity Fund. JPMIM is a
wholly owned subsidiary of J.P. Morgan &Co. Incorporated. JPMIM manages employee
benefit funds of corporations, labor unions and state and local governments and
the accounts of other institutional investors, including investment companies.
Morgan Stanley Asset Management ("MSAM"), with principal offices at 1221 Avenue
of the Americas, New York, New York 10020, serves as the adviser to the Focused
Equity Fund. MSAM conducts a worldwide portfolio management business and
provides a broad range of portfolio management services to customers in the
United States and abroad. Morgan Stanley Dean Witter & Co. ("MSDW") is the
direct parent of MSAM. MSDW is a preeminent global financial services firm that
maintains leading market positions in each of its three primary businesses:
securities, asset management and credit services.
OpCap Advisors ("OpCap"), One World Financial Center, New York, New York 10281,
serves as the Adviser to the Balanced Fund. OpCap is a majority owned subsidiary
of Oppenheimer Capital. Oppenheimer Capital and OpCap are indirect, wholly owned
subsidiaries of PIMCO Advisors L.P. ("PIMCO Advisors"). PIMCO Advisors has two
general partners: PIMCO Partners, G.P., a California general partnership, and
PIMCO Advisors Holdings L.P., an NYSE-listed Delaware limited partnership of
which PIMCO Partners, GP is the sole general partner. Colin Glinsman is the
portfolio manager for the Balanced Fund. Mr. Glinsman is the chief investment
officer and a managing director of Oppenheimer Capital and has been a securities
analyst with Oppenheimer Capital since 1989.
RS Investment Management, L.P. ("RSIM"), 388 Market Street, Suite 200, San
Francisco, California 99111, serves as the Adviser to the Emerging Growth
Domestic Equity Fund. RSIM commenced operations in March, 1993. RSIM is a wholly
owned subsidiary of RS Investment Management Co. LLC, a Delaware limited
liability company. James L. Callinan is responsible for managing the Emerging
Growth Domestic Equity Fund. Mr. Callinan also serves as portfolio manager of
the RS Emerging Growth Fund. From 1986 until June 1996, Mr. Callinan was
employed by Putnam Investments, where, beginning in June 1994, he served as
portfolio manager of the Putnam OTC Emerging Growth Domestic Equity Fund.
Organizational and portfolio manager information for each Adviser is also
provided in the Trust's prospectus.
<PAGE>
FUND EXPENSES
Each Fund assumes and pays the following costs and expenses to the extent they
are not assumed by the Manager: interest; taxes, brokerage charges (which may be
paid to broker-dealers affiliated with the Manager or an Adviser); costs of
preparing, printing and filing any amendments or supplements to the registration
forms of each Fund and its securities; all federal and state registration,
qualification and filing costs and fees, issuance and redemption expenses,
transfer agency and dividend and distribution disbursing costs and expenses;
custodian fees and expenses; accounting, auditing and legal expenses; fidelity
bond and other insurance premiums; fees and salaries of trustees, officers and
employees (if any) of the Funds other than those who are also officers or
employees of the Manager or its affiliates; industry membership dues; all annual
and semiannual reports and prospectuses mailed to each Fund's shareholders as
well as all quarterly, annual and any other periodic report required to be filed
with the SEC or with any state; any notices required by a federal or state
regulatory authority; and any proxy solicitation materials directed to each
Fund's shareholders as well as all printing, mailing and tabulation costs
incurred in connection therewith, and any expenses incurred in connection with
the holding of meetings of each Fund's shareholders, and other miscellaneous
expenses related directly to the Funds' operations and interest.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Funds have no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to any policy
established by the Manager and the Board, the Advisers are responsible for
making the day-to-day investment decisions for each Fund and the placing of its
portfolio transactions. In placing orders, it is the policy of each Fund to
obtain the most favorable net results, taking into account various factors,
including price, dealer spread or commission, if any, size of the transaction
and difficulty of execution. While the Advisers generally seek competitive
spreads or commissions, they may direct brokerage transactions to broker/dealers
who also sell variable annuity and variable life insurance contracts issued by
Allstate Life and its affiliates and the sale of such contracts may be taken
into account by Manager and/or the Advisers when allocating brokerage
transactions. In addition, the Advisers may direct brokerage transactions to
broker-dealers with which they are affiliated subject to principles of best
execution and procedures established by the Board. The Advisers will generally
deal directly with the dealers who make a market in the securities involved
(unless better prices and execution are available elsewhere) if the securities
are traded primarily in the over-the-counter market. Such dealers usually act as
principals for their own account. On occasion, securities may be purchased
directly from the issuer. Bonds and money market securities are generally traded
on a net basis and do not normally involve either brokerage commissions or
transfer taxes. While the Advisers seek to obtain the most favorable net results
in effecting transactions in a Fund's portfolio securities, dealers who provide
supplemental investment research to an Adviser may receive orders for
transactions for the Funds. Such supplemental research services ordinarily
consist of assessments and analyses of the business or prospects of a company,
industry, or economic sector. If, in the judgment of an Adviser, a Fund will
benefit by such supplemental research services, the Fund may pay spreads or
commissions to brokers or dealers furnishing such services which are in excess
of spreads or commissions which another broker or dealer may charge for the same
transaction. Information so received will be in addition to and not in lieu of
the services required to be performed under the Management Agreement or the
advisory agreements between the Manager and the Advisers. The expenses of the
Advisers will not necessarily be reduced as a result of the receipt of such
supplemental information. The Advisers may use such supplemental research in
providing investment advice to their client accounts other than those for which
the transactions are made. Similarly, the Funds may benefit from such research
obtained by the Advisers for portfolio transactions for other client accounts.
Investment decisions for the Funds will be made independently from those of any
other clients that may be (or in the future may be) managed by the Manager, the
Advisers or their affiliates. If, however, accounts managed by an Adviser are
simultaneously engaged in the purchase of the same security, then, pursuant to
general authorization of the Board and the Manager, available securities may be
allocated to each Fund in a manner an Adviser deems to be fair. Such allocation
and pricing may affect the amount of brokerage commissions paid by each Fund. In
some cases, this system might adversely affect the price paid by a Fund (for
example, during periods of rapidly rising or falling interest rates) or limit
the size of the position obtainable for a Fund (for example, in the case of a
small issue). Securities held by any Fund may also be held by other funds and
other clients for which the Advisers or their respective affiliates provide
investment advice. Because of different investment objectives or other factors,
a particular security may be bought by the Advisers for one or more clients when
one or more of the Advisers' clients are selling the same security. If purchases
or sales of securities arise for consideration at or about the same time for any
Fund or client accounts (including other funds) for which the Manager or an
Adviser acts as an investment adviser (including the Funds described herein),
transactions in such securities will be made, insofar as feasible, for the
respective Funds and other client accounts in a manner deemed equitable to all
and in accordance with procedures established by the Board. To the extent that
transactions on behalf of more than one client of the Advisers or their
respective affiliates during the same period may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price.
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Fund is based on the prices of a
Fund's underlying securities as of the close of trading of the New York Stock
Exchange on each day the Exchange is open for business. The New York Stock
Exchange usually closes at 4:00 p.m. Eastern Standard Time though it may close
earlier on any given day. The Funds will be closed for business and will not
price their shares on the following business holidays: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Equity securities are valued at
the last sales price reported on principal securities exchanges (domestic or
foreign). If no sale took place on such day, then such securities are valued at
the mean between the bid and asked prices. Securities quoted in foreign
currencies are translated into U.S. dollars at the exchange rate at the end of
the reporting period. Options are valued at the last sales price; if no sales
took place on such day, then options are valued at the mean between the bid and
asked prices. Securities for which market quotations are not readily available
and all other assets are valued in good faith at fair value by, or under
guidelines established by, the Funds' Board. Short-term debt securities with a
maturity of more than 60 days when purchased are valued based on market
quotations until the remaining days to maturity become less than 61 days. From
such time until maturity, the investments are valued at amortized cost. Under
the amortized cost method of valuation, an instrument is valued at cost and the
interest payable at maturity upon the instrument is accrued as income, on a
daily basis, over the remaining life of the instrument. Neither the amount of
daily income nor the net asset value is affected by unrealized appreciation or
depreciation of the Fund's investments assuming the instrument's obligation is
paid in full on maturity. In periods of declining interest rates, the indicated
daily yield on shares of the portfolio computed using amortized cost may tend to
be higher than a similar computation made using a method of valuation based upon
market prices and estimates. In periods of rising interest rates, the indicated
daily yield computed using amortized cost may tend to be lower than a similar
computation made using a method of valuation based upon market prices and
estimates. For all Funds, securities with remaining maturities of less than 60
days are valued at amortized cost, which approximates market value. Debt
securities (other than short-term obligations) are valued on the basis of
valuations furnished by an unaffiliated pricing service which determines
valuations for normal institutional size trading units of debt securities.
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
For information regarding the purchase of Fund shares, or how a shareholder may
have a Fund redeem his/her shares, see "Purchase and Redemption of Fund Shares"
in the Funds' Prospectus.
SUSPENSION OF REDEMPTIONS AND POSTPONEMENT OF PAYMENTS
A Fund may not suspend a shareholder's right of redemption, or postpone payment
for a redemption for more than seven days, unless the New York Stock Exchange
(NYSE) is closed for other than customary weekends or holidays, or trading on
the NYSE is restricted, or for any period during which an emergency exists as a
result of which (1) disposal by a Fund of securities owned by it is not
reasonably practicable, or (2) it is not reasonably practicable for a Fund to
fairly determine the value of its assets, or for such other periods as the SEC
may permit for the protection of investors.
INVESTMENT PERFORMANCE
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
Average annual total return quotations for the Funds are computed by finding the
average annual compounded rates of return that would cause a hypothetical
investment made on the first day of a designated period to equal the ending
redeemable value of such hypothetical investment on the last day of the
designated period in accordance with the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of
$1,000, less the maximum sales
load applicable to a Fund
n = number of years
T = average annual total return
ERV = ending redeemable value of
the hypothetical $1,000 initial payment
made at the beginning
of the designated period
(or fractional portion thereof)
<PAGE>
The computation above assumes that all dividends and distributions made by a
Fund are reinvested at net asset value during the designated period. The average
annual total return quotation is determined to the nearest 1/100 of 1%. One of
the primary methods used to measure performance is "total return." "Total
return" will normally represent the percentage change in value of a Fund, or of
a hypothetical investment in a Fund, over any period up to the lifetime of the
class. Unless otherwise indicated, total return calculations will assume the
reinvestment of all dividends and capital gains distributions and will be
expressed as a percentage increase or decrease from an initial value, for the
entire period or for one or more specified periods within the entire period.
Total return percentages for periods longer than one year will usually be
accompanied by total return percentages for each year within the period and/or
by the average annual compounded total return for the period. The income and
capital components of a given return may be separated and portrayed in a variety
of ways in order to illustrate their relative significance. Performance may also
be portrayed in terms of cash or investment values, without percentages. Past
performance cannot guarantee any particular future result. In determining the
average annual total return (calculated as provided above), recurring fees, if
any, that are charged to all shareholder accounts are taken into consideration.
Each Fund's average annual total return quotations and yield quotations as they
may appear in the Prospectus, this SAI or in advertising are calculated by
standard methods prescribed by the SEC. Each Fund may also publish its
distribution rate and/or its effective distribution rate. A Fund's distribution
rate is computed by dividing the most recent monthly distribution per share
annualized, by the current net asset value per share. A Fund's effective
distribution rate is computed by dividing the distribution rate by the ratio
used to annualize the most recent monthly distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. A Fund's yield is calculated
using a standardized formula (set forth below), the income component of which is
computed from the yields to maturity of all debt obligations held by the Fund
based on prescribed methods (with all purchase and sales of securities during
such period included in the income calculation on a settlement date basis),
whereas the distribution rate is based on a Fund's last monthly distribution. A
Fund's monthly distribution tends to be relatively stable and may be more or
less than the amount of net investment income and short-term capital gain
actually earned by the Fund during the month. Other data that may be advertised
or published about each Fund include the average portfolio quality, the average
portfolio maturity and the average portfolio duration.
STANDARDIZED YIELD QUOTATIONS. The yield of a Fund is computed by dividing the
Fund's net investment income per share during a base period of 30 days, or one
month, by the maximum offering price per share of the Fund on the last day of
such base period in accordance with the following formula:
2[(a-b)+1)6-1]
--------------
cd
<TABLE>
<CAPTION>
<S> <C> <C>
Where:
a = net investment income earned c = the average daily number of
during the period attributable to shares of the subject class
the subject class outstanding during the period
that were entitled to receive dividends
b = net expenses accrued for the d = the maximum offering price per
period attributable to the subject share of the subject
class
</TABLE>
Net investment income will be determined in accordance with rules established by
the SEC.
<PAGE>
NON-STANDARDIZED PERFORMANCE. In addition, in order to more completely represent
a Fund's performance or more accurately compare such performance to other
measures of investment return, a Fund also may include in advertisements, sales
literature and shareholder reports other total return performance data
("Non-Standardized Performance"). Non-Standardized Performance may be quoted for
the same or different periods as those for which Standardized Return data is
quoted; it may consist of an aggregate or average annual percentage rate of
return, actual year-by-year rates or any combination thereof. Non-Standardized
Performance may or may not take sales charges (if any) into account; performance
data calculated without taking the effect of sales charges into account will be
higher than data including the effect of such charges. All Non-Standardized
Performance will be advertised only if the standard performance data for the
same period, as well as for the required periods, is also presented.
GENERAL INFORMATION. From time to time, the Funds may advertise their
performance compared to similar funds using certain unmanaged indices, reporting
services and publications.
The Standard & Poor's 500 Composite Stock Price Index is a well diversified list
of 500 companies representing the U.S. Stock Market. The Index is a broad-based
measurement of changes in stock-market conditions based on the average
performance of 500 widely held common stocks. The Standard & Poor's MidCap 400
Index is designed to represent price movements in the mid cap U.S. equity
market. It contains companies chosen by the Standard & Poor's Index Committee
for their size, liquidity and industry representation. None of the companies in
the S&P 400 overlap with those in the S&P 500 Index or the S&P 600 Index.
Decisions about stocks to be included and deleted are made by the Committee
which meets on a regular basis. S&P 400 stocks are market cap weighted; each
stock influences the Index in proportion to its relative market capitalization.
The range of capitalization of companies in the Index as of April 30, 1999 was
$202 million to $14.4 billion. The inception year of the S&P MidCap 400 Index is
1982. The Index is rebalanced as needed. S&P 400 companies which merge or are
acquired are immediately replaced in the Index; other companies are replaced
when the Committee decides they are no longer representative. The Standard and
Poor's Small Cap 600 index is designed to represent price movements in the small
cap U.S. equity market. It contains companies chosen by the Standard & Poor's
Index Committee for their size, industry characteristics, and liquidity. None of
the companies in the S&P 600 overlap with the S&P 500 or the S&P 400 (MidCap
Index). The S&P 600 is weighted by market capitalization. REITs are not eligible
for inclusion. The NASDAQ Composite OTC Price Index is a market value-weighted
and unmanaged index showing the changes in the aggregate market value of
approximately 3,500 stocks. The Lehman Government Bond Index is a measure of the
market value of all public obligations of the U.S. Treasury; all publicly issued
debt of all agencies of the U.S. Government and all quasi-federal corporations;
and all corporate debt guaranteed by the U.S. Government. Mortgage backed
securities, bonds and foreign targeted issues are not included in the Lehman
Government Bond Index. The Lehman Government/Corporate Bond Index is a measure
of the market value of approximately 5,900 bonds with a face value currently in
excess of $3.5 trillion. Issues must have at least one year to maturity and an
outstanding par value of at least $100 million for U.S. Government issues and
<PAGE>
$50 million for all others. The Russell 2000 Index represents the bottom two
thirds of the largest 3000 publicly traded companies domiciled in the U.S.
Russell uses total market capitalization to sort its universe to determine the
companies that are included in the Index. Only common stocks are included in the
Index. REITs are eligible for inclusion. The Russell 2500 Index is a market
value-weighted, unmanaged index showing total return (i.e., principal changes
with income) in the aggregate market value of 2,500 stocks of publicly traded
companies domiciled in the United States. The Index includes stocks traded on
the New York Stock Exchange and the American Stock Exchange as well as in the
over-the-counter market. The Morgan Stanley Capital International EAFE Index
(the "EAFE Index") is an unmanaged index, which includes over 1,000 companies
representing the stock markets of Europe, Australia, New Zealand and the Far
East. The EAFE Index is typically shown weighted by the market capitalization.
However, EAFE is also available weighted by Gross Domestic Product (GDP). These
weights are modified on July 1st of each year to reflect the prior year's GDP.
Indices with dividends reinvested constitute an estimate of total return arrived
at by reinvesting one twelfth of the month end yield at every month end. The
Lehman Brothers High Yield BB Index is a measure of the market value of public
debt issues with a minimum par value of $100 million and rated Ba1-Ba3 by
Moody's. All bonds within the index are U.S. dollar denominated, non-convertible
and have at least one year remaining to maturity. In addition, from time to time
in reports and promotions: a Fund's performance may be compared to other groups
of mutual funds tracked by: (a) Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets; (b) Morningstar, Inc., another widely used
independent research from which ranks mutual funds by overall performance,
investment objectives, and assets; or (c) other financial or business
publications, such as Business Week, Money Magazine, Forbes and Barron's which
provide similar information; the Consumer Price Index (measure for inflation)
may be used to assess the real rate of return from an investment in the Fund;
other statistics such as GNP, and net import and export figures derived from
governmental publications, e.g., The Survey of Current Business or other
independent parties, e.g., the Investment Company Institute, may be used to
illustrate investment attributes to a Fund or the general economic, business,
investment or financial environment in which a Fund operates; various financial,
economic and market statistics developed by brokers, dealers and other persons
may be used to illustrate aspects of a Fund's performance; the effect of
tax-deferred compounding on a Fund's investment returns, or on returns in
general, may be illustrated by graphs, charts, etc. where such graphs or charts
would compare, at various points in time, the return from an investment in a
Fund (or returns in general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates) with the return
on a taxable basis; and the sectors or industries in which a Fund invests may be
compared to relevant indices or surveys (e.g., S&P Industry Surveys) in order to
evaluate a Fund's historical performance or current or potential value with
respect to the particular industry or sector. TAXES Each Fund is treated as a
separate entity for federal income tax purposes. Each Fund intends to elect to
be treated, and intends to qualify for each taxable year, as a separate
"regulated investment company" under Subchapter M of the Internal Revenue Code
(the "Code"). As such and by complying with the applicable provisions of the
<PAGE>
Code regarding the sources of its income, the timing of its distributions, and
the diversification of its assets, each Fund will not be subject to federal
income tax on taxable income (including net realized capital gains) which is
distributed to shareholders in accordance with the timing and other requirements
of the Code. Qualification of a Fund for treatment as a regulated investment
company under the Code requires, among other things, that (a) at least 90% of a
Fund's gross income for its taxable year, without offset for losses from the
sale or other disposition of stock or securities or other transactions, be
derived from interest, dividends, payments with respect to securities loans and
gains from the sale or other disposition of stock or securities or foreign
currencies, or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; (b) each Fund distribute to its
shareholders for each taxable year (in compliance with certain timing
requirements) as dividends at least 90% of the sum of its taxable and any
tax-exempt net investment income, the excess of net short-term capital gain over
net long-term capital loss and any other net income for that year (except for
the excess, if any, of net long-term capital gain over net short-term capital
loss, which need not be distributed in order for the Fund to qualify as a
regulated investment company but is taxed to the Fund if it is not distributed);
and (c) each Fund diversify its assets so that, at the close of each quarter of
its taxable year, (i) at least 50% of the fair market value of its total (gross)
assets is comprised of cash, cash items, U.S. Government securities, securities
of other regulated investment companies and other securities limited in respect
of any one issuer to no more than 5% of the fair market value of the Fund's
total assets and 10% of the outstanding voting securities of such issuer and
(ii) no more than 25% of the fair market value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies) or of two or more issuers
controlled by the Fund and engaged in the same, similar, or related trades or
businesses. Each Fund also intends to comply with the separate diversification
requirements imposed by Section 817(h) of the Code and the regulations
thereunder on certain insurance company separate accounts. These requirements,
which are in addition to the diversification requirements imposed on a Fund by
the 1940 Act and Subchapter M of the Code, place certain limitations on assets
of each insurance company separate account used to fund variable contracts.
Because Section 817(h) and those regulations treat the assets of the Fund as
assets of the related separate account, these regulations are imposed on the
assets of a Fund. Specifically, the regulations provide that, after a one year
start-up period or 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 a 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 is
attributable to cash and cash items (including receivables), U.S. Government
securities and securities of other regulated investment companies. Failure by a
Fund to both qualify as a regulated investment company and satisfy the Section
817(h) requirements would generally cause the variable contracts to lose their
favorable tax status and require a contract holder to include in ordinary income
any income accrued under the contracts for the current and all prior taxable
years. Under certain circumstances described in the applicable Treasury
regulations, inadvertent failure to satisfy the applicable diversification
<PAGE>
requirements may be corrected, but such a correction would require a payment to
the Internal Revenue Service based on the tax contract holders would have
incurred if they were treated as receiving the income on the contract for the
period during which the diversification requirements were not satisfied. Any
such failure may also result in adverse tax consequences for the insurance
company issuing the contracts. Failure by a Fund to qualify as a regulated
investment company would also subject the Fund to federal and state income
taxation on all of its taxable income and gain, whether or not distributed to
shareholders. Under certain circumstances, the Fund will be subject to a 4%
nondeductible federal excise tax on any amounts required to be but not
distributed under a prescribed formula. The formula requires that a Fund
distribute (or be deemed to have distributed) to its shareholders during each
calendar year at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over its capital losses realized
during the one-year period ending on October 31 of such year, and any income or
gain (as so computed) from the prior calendar year that was not distributed for
such year and on which the Fund paid no income tax. Each Fund intends generally
to seek to avoid liability for this tax. Any dividend declared by a Fund in
October, November or December as of a record date in such a month and paid the
following January will be treated for federal income tax purposes as received by
shareholders on December 31 of the year in which it is declared. If a Fund
acquires any equity interest in certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties, or capital gains) or hold at least 50%
of their assets in investments producing such passive income ("passive foreign
investment companies"), that Fund could be subject to federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may ameliorate these adverse tax
consequences, but any such election could require the applicable Fund to
recognize taxable income or gain (subject to tax distribution requirements)
without the concurrent receipt of cash. These investments could also result in
the treatment of associated capital gains as ordinary income. Any Fund that is
permitted to invest in foreign corporations may limit and/or manage its holdings
in passive foreign investment companies to minimize its tax liability or
maximize its return from these investments. Foreign exchange gains and losses
realized by a Fund in connection with certain transactions involving foreign
currency-denominated debt securities, certain foreign currency futures and
options, foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code. Section 988 generally causes such gains and losses to be treated as
ordinary income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not directly
related to a Fund's investment in stock or securities, possibly including
speculative currency positions or currency derivatives not used for hedging
purposes, could under future Treasury regulations produce income not among the
types of "qualifying income" from which the Fund must derive at least 90% of its
annual gross income. Income for investments in commodities, such as gold and
certain related derivative instruments, is also not treated as qualifying income
under this test. If the net foreign exchange loss for a year treated as ordinary
loss under Section 988 were to exceed a Fund's investment company taxable income
computed without regard to such loss, the resulting overall ordinary loss for
such year would not be deductible by the Fund or shareholders in future years. A
Fund may be subject to withholding and other taxes imposed by foreign countries
with respect to its investments in foreign securities. Tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes in some cases.
Investments in debt obligation that are at risk of default may present special
tax issues. Tax rules may not be entirely clear about issues such as when a Fund
may cease to accrue interest, original issue discount, or market discount, when
and to what extent deductions may be taken for bad debts or worthless
<PAGE>
securities, how payments received on obligations in default should be allocated
between principal and income, and whether exchanges of debt obligations in a
workout context are taxable. These and any other issues will be addressed by a
Fund, in the event it invests in such securities, in order to seek to ensure
that it distributes sufficient income to preserve its status as a regulated
investment company and does not become subject to federal income or excise tax.
Each Fund that invests in certain pay in-kind securities ("PIKs") (debt
securities whose interest payments may be made either in cash or in-kind), zero
coupon securities, deferred payment securities, or certain increasing rate
securities (and, in general, any other securities with original issue discount
or with market discount if the Fund elects to include market discount in income
currently) must accrue income on such investments prior to the receipt of the
corresponding cash payments. However, each Fund must distribute, at least
annually, all or substantially all of its net income, including such accrued
income, to shareholders to qualify as a regulated investment company under the
Code and avoid federal income tax. Therefore, a Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy distribution
requirements. Redemptions and exchanges of Fund shares are potentially taxable
transactions for shareholders that are subject to tax. Shareholders should
consult their own tax advisers to determine whether any particular transaction
in Fund shares is properly treated as a sale for tax purposes, as the following
discussion assumes, and to ascertain its tax consequences in their particular
circumstances. Any loss realized by a shareholder upon the redemption, exchange
or other disposition of shares with a tax holding period of six months or less
will be treated as a long-term capital loss to the extent of any amounts treated
as distribution of long-term capital gain with respect to such shares. Losses on
redemptions or other dispositions of shares may be disallowed under wash sale
rules in the event of other investments in the same Fund (including through
automatic reinvestment of dividends and distributions) within a period of 61
days beginning 30 days before and ending 30 days after a redemption or other
disposition of shares. In such a case, the disallowed portion of any loss would
be included in the federal tax basis of the shares acquired in the other
investments. Limitations imposed by the Code on regulated investment companies
like the Fund may restrict a Fund's ability to enter into futures, options and
currency forward transactions. Certain options, futures and forward foreign
currency transactions undertaken by a Fund may cause the Fund to recognize gains
or losses from marking to market even though its securities or other positions
have not been sold or terminated and affect the character as long-term or
short-term (or, in the case of certain currency forwards, options and futures,
as ordinary income or loss) and timing of some capital gains and losses realized
by the Fund. Also, certain of a Fund's losses on its transactions involving
options, futures and forward foreign currency contracts and/or offsetting or
successor portfolio positions may be deferred rather than being taken into
account currently calculating the Fund's taxable income or gains. These
transactions may therefore affect the amount, timing and character of a Fund's
distributions to shareholders. Certain of the applicable tax rules may be
modified if the Fund is eligible and chooses to make one or more of certain tax
elections that may be available. The Funds will take into account the special
tax rules (including consideration of available elections) applicable to
options, futures or forward contracts in order to minimize any potential adverse
tax consequences. The tax rules applicable to dollar rolls, currency swaps and
interest rate swaps, caps, floors and collars may be unclear in some respects,
and the Funds may be required to limit participation in such transactions in
order to qualify as regulated investment companies. Additionally, the Fund may
be required to recognize gain, but not loss, if any option, collar, futures
contract, swap, short sale or other transaction that is not subject to the
market-to-market rules is treated as a constructive sale of an appreciated
financial position in the Fund's portfolio under Section 1259 of the Code. The
Fund may have to sell portfolio securities under disadvantageous circumstances
to generate cash, or borrow cash, to satisfy these distribution requirements.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to the Funds and certain aspects of their distributions. The
discussion does not address special tax rules applicable to insurance companies.
<PAGE>
CUSTODIAN, TRANSFER AGENT FUND ACCOUNTANT AND ADMINISTRATOR
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
Massachusetts 02116, provides the Funds with transfer agent, accounting,
administrative and custodial services. As such, IBT is responsible for (among
other things) processing purchase and redemption orders, calculating the Funds'
net asset values and safeguarding the Funds' assets.
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements of the Trust will be audited by __________, for the
periods indicated in their report.
<PAGE>
APPENDIX A
Description of S & P, Moody's, Fitch and Duff ratings:
S & P
Bond Ratings
AAA
Bonds rated AAA have the highest rating assigned by the S & P. Capacity to pay
interest and repay principal is extremely strong.
AA
Bonds rated AA have a very strong capacity to pay interest and repay principal.
A
Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rated
categories.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay interest and
repay principal. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for bonds in this
category than bonds in higher rated categories.
BB
Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B
Bonds rated B have a greater vulnerability to default but presently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial or economic conditions would likely impair capacity or willingness to
pay interest and repay principal.
CCC
Bonds rated CCC have a current identifiable vulnerability to default and are
dependent upon favorable business, financial and economic conditions to meet
timely payments of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, they are not likely to have the
capacity to pay interest and repay principal.
CC
The rating CC is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC rating.
C
The rating C is typically applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S & P's letter ratings may be modified by the addition of a plus (+) or a minus
(-) sign designation, which is used to show relative standing within the major
rating categories, except in the AAA (Prime Grade) category.
Commercial Paper Rating
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.
Issues assigned an A 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.
<PAGE>
A-1
This designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) designation.
A-2
Capacity for timely payment on issues with this designation is strong. However,
the relative degree of safety is not as high as for issues designated
A-3
Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B
Issues carrying this designation are regarded as having only speculative
capacity for timely repayment.
C
This designation is assigned to short-term obligations with doubtful capacity
for payment.
D
Issues carrying this designation are in default, and payment of interest and/or
repayment of principal is in arrears.
Moody's
Bond Ratings
Aaa
Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and generally are referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what generally are known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
<PAGE>
A
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and, therefore, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca
Bonds which are rated Ca present obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative standing
within the major rating categories, except in the Aaa category and in the
categories below B. The modifier 1 indicates a ranking for the security in the
higher end of a rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates a ranking in the lower end of a rating category.
Commercial Paper Rating
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior capacity for repayment of
short-term promissory obligations, and ordinarily will be evidenced by 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, and well established access
to a range of financial markets and assured sources of alternate liquidity.
<PAGE>
Issuers (or related supporting institutions) rated Prime-2 (P-2) have a strong
capacity for repayment of short-term promissory obligations. This ordinarily
will be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be subject to
more variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Issuers (or related supporting institutions) rated Prime-3 (P-3) have an
acceptable capacity for repayment of short-term promissory obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirements for relatively
high financial leverage.
Adequate alternate liquidity is maintained.
Issuers (or related supporting institutions) rated Not Prime do not fall within
any of the Prime rating categories.
Fitch
Bond Rating
The ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of specific debt issue or class of debt. The ratings take into
consideration special features of the issue, its relationship to other
obligations of the issuer, the current financial condition and operative
performance of the issuer and of any guarantor, as well as the political and
economic environment that might affect the issuer's future financial strength
and credit quality.
AAA
Bonds rated AAA are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA
Bonds rated AA are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F1+.
A
Bonds rated A are considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
<PAGE>
BBB
Bonds rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is considered
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have an adverse impact on these bonds, and therefore, impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB
Bonds rated BB are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B
Bonds rated B are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC
Bonds rated CCC have certain identifiable characteristics, which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC
Bonds rated CC are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C
Bonds rated C are in imminent default in payment of interest or principal.
DDD, DD and D
Bonds rated DDD, DD and D are in actual default of interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the basis
of their ultimate recovery value in liquidation or reorganization of the
obligor. DDD represents the highest potential for recovery on these bonds and D
represents the lowest potential for recovery.
Plus (+) and minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the AAA category covering 12-36 months.
<PAGE>
Short-Term Ratings
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal and investment notes.
Although the credit analysis is similar to Fitch's bond rating analysis, the
short-term rating places greater emphasis than bond ratings on the existence of
liquidity necessary to meet the issuer's obligations in a timely manner.
F-1+
Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as
having the strongest degree of assurance for timely payment.
F-1
Very Strong Credit Quality. Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues rated F-1+.
F-2
Good Credit Quality. Issues carrying this rating have a satisfactory degree of
assurance for timely payments, but the margin of safety is not as great as the
F-1+ and F-1 categories.
F-3
Fair Credit Quality. Issues assigned this rating have characteristics suggesting
that the degree of assurance for timely payment is adequate; however, near-term
adverse changes could cause these securities to be rated below investment grade.
F-S
Weak Credit Quality. Issues assigned this rating have characteristics suggesting
a minimal degree of assurance for timely payment and are vulnerable to near-term
adverse changes in financial and economic conditions.
D
Default. Issues assigned this rating are in actual or imminent payment default.
<PAGE>
Duff
Bond Ratings
AAA
Bonds rated AAA are considered highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA
Bonds rated AA are considered high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A
Bonds rated A have protection factors which are average but adequate. However,
factors are more variable and greater in periods of economic stress.
BBB
Bonds rated BBB are considered to have below average protection factors but
still considered sufficient for prudent investment. There may be considerable
variability in risk for bonds in this category during economic cycles.
BB
Bonds rated BB are below investment grade but are deemed by Duff as likely to
meet obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within the category.
B
Bonds rated B are below investment grade and possess the risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in quality rating within this category or
into a higher or lower quality rating grade.
CCC
Bonds rated CCC are well below investment grade securities. Such bonds may be in
default or have considerable uncertainty as to timely payment of interest,
preferred dividends and/or principal. Protection factors are narrow and risk can
be substantial with unfavorable economic or industry conditions and/or with
unfavorable company developments.
<PAGE>
DD
Defaulted debt obligations. Issuer has failed to meet scheduled principal and/or
interest payments.
Plus (+) and minus (-) signs are used with a rating symbol (except AAA) to
indicate the relative position of a credit within the rating category.
Commercial Paper Rating
The rating Duff-1 is the highest commercial paper rating assigned by Duff. Paper
rated Duff-1 is regarded as having very high certainty of timely payment with
excellent liquidity factors which are supported by ample asset protection. Risk
factors are minor. Paper rated Duff-2 is regarded as having good certainty of
timely payment, good access to capital markets and sound liquidity factors and
company fundamentals. Risk factors are small. Paper rated Duff-3 is regarded as
having satisfactory liquidity and other protection factors. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
Paper rated Duff-4 is regarded as having speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation. Paper rated Duff-5 is in default. The issuer has failed to meet
scheduled principal and/or interest payments.
<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS:
The following exhibits correspond to those required in Item 23 (a)-(o), as to
Exhibits in Form N1A.
(1) Agreement and Declaration of Trust of LSA Variable Series Trust
(2) By-Laws of LSA Variable Series Trust
(3) Inapplicable
(4a) Form of Management Agreement
(4b) (i) Investment Sub-Advisory Agreement with respect to Disciplined Equity
Fund
(ii) Investment Sub-Advisory Agreement with respect to Growth Equity Fund
(iii) Investment Sub-Advisory Agreement with respect to Value Equity Fund
(iv) Investment Sub-Advisory Agreement with respect to Focused Equity Fund
(v) Investment Sub-Advisory Agreement with respect to Balanced Value Fund
(vi) Investment Sub-Advisory Agreement with respect to Emerging Growth
Domestic Equity Fund
(5) Inapplicable
(6) Inapplicable
(7) Custodian Agreement
(8) Other Material Contracts
(8a) Delegation Agreement
(8b) Administration Agreement
(8c) Transfer Agency and Service Agreement
(8d) Form of Participation Agreement
(8e) Form of Distribution Agreement
(9) Opinion of Counsel
(10) Inapplicable
(11) Inapplicable
(12) Inapplicable
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
(16) Inapplicable
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE TRUST
OPERATING SUBSIDIARIES OF
THE ALLSTATE CORPORATION
The Allstate Corporation (Delaware Holding Company)
Allstate Insurance Company (Illinois)
Allstate International Insurance Holdings, Inc. (Delaware)
Allstate Non-Insurance Holdings, Inc. (Delaware)
Allstate Federal Savings Bank1
Kennett Capital, Inc.
Willow Insurance Holdings Inc.
Allstate Insurance Company
(Subsidiary of The Allstate Corporation)
Allstate Holdings, Inc. (Delaware)
Allstate Indemnity Company (Illinois)
Allstate International Inc. (Delaware)
Allstate Life Insurance Company (Illinois)
Allstate New Jersey Holdings, Inc. (Delaware)
Allstate Property and Casualty Insurance Company (Illinois)
Allstate Texas Lloyd's, Inc. (Texas)
Deerbrook Insurance Company (Illinois)
Forestview Mortgage Insurance Co. (California)
General Underwriters Agency, Inc. (Illinois)
Pinebrook Mortgage Insurance Company (Illinois)
The Northbrook Corporation (Nebraska)
Allstate International Insurance Holdings, Inc.
(Subsidiary of The Allstate Corporation)
Allstate International Holding GmbH (Germany)
Allstate Life Insurance Company of the Philippines, Inc. (Philippines)2
Allstate Property and Casualty Insurance Japan Company, Limited (Japan)3
Allstate Reinsurance Ltd. (Bermuda)
Allstate Services, Inc. (Japan)4
Pafco Underwriting Managers Inc. (Ontario)
Pembridge America Inc. (Florida)
Allstate Non-Insurance Holdings, Inc.
(Subsidiary of The Allstate Corporation)
Allstate Enterprises, Inc. (Delaware)5
Allstate Investment Management Company (Delaware)
Tech-Cor, Inc. (Delaware)
Allstate Holdings, Inc.
(Subsidiary of Allstate Insurance Company)
Allstate Floridian Insurance Company (Illinois)
Allstate Floridian Indemnity Company (Illinois)
Allstate New Jersey Holdings, Inc.
(Subsidiary of Allstate Insurance Company)
Allstate New Jersey Insurance Company (Illinois)
Allstate Life Insurance Company
(Subsidiary of Allstate Insurance Company)
Allstate Distributors, L.L.C. (Delaware)6
Allstate Insurance Company of Canada (Canada)
Allstate Life Financial Services, Inc. (Delaware)7
Allstate Life Insurance Company of New York (New York)
Allstate Settlement Corporation (Nebraska)
Charter National Life Insurance Company (Missouri)
CNL, Inc. (Missouri)
Glenbrook Life and Annuity Company (Arizona)
Intramerica Life Insurance Company (New York)
Laughlin Group Holdings, Inc. (Delaware)
Lincoln Benefit Life Company (Nebraska)
LSA Asset Management LLC (Delaware)
LSA Variable Series Trust (Delaware)
Northbrook Life Insurance Company (Arizona)
PT Asuransi Jiwa Allstate (Indonesia)8
Surety Life Insurance Company (Nebraska)
Allstate Enterprises, Inc.
(Subsidiary of Allstate Non-Insurance Holdings, Inc.)
Allstate Motor Club, Inc. (Delaware)
Roadway Protection Auto Club, Inc. (Delaware)
Allstate Motor Club of Canada Inc. (Canada)
Allstate International Inc.
(Subsidiary of Allstate Insurance Company)
Samshin Allstate Life Insurance Company, Ltd. (Republic of Korea)9
Northbrook Services, Inc.
(Subsidiary of Tech-Cor, Inc.)
Northbrook Technology of Northern Ireland, Limited (N.Ireland)
Tech-Cor, Inc.
(Subsidiary of Allstate Non-Insurance Holdings,Inc.)
Northbrook Services, Inc. (Delaware)
Allstate Insurance Company of Canada
(Subsidiary of Allstate Life Insurance Company)
Allstate Life Insurance Company of Canada (Canada)
Laughlin Group Holdings, Inc.
(Subsidiary of Allstate Life Insurance Company)
Investor Financial Services, Inc. (Nevada)
LSA Securities, Inc. (Oregon)10
Lifemark Financial and Insurance Agency, LLC (New York)
Lifemark Financial & Insurance Services, Inc. (California)
Lifemark Insurance Services of California, Inc. (California)
ProVest Insurance Services, Inc. (Indiana)
ProVest Insurance Services, Inc. (Kentucky)
ProVest Insurance Services, Inc. (Pennsylvania)
Security Financial Network, Inc. (Georgia)
The Laughlin Direct Advantage Agency, Inc. (Delaware)
The Laughlin Group, Inc. (Oregon)
Lincoln Benefit Life Company
(Subsidiary of Allstate Life Insurance Company)
Allstate Financial Distributors, Inc.(Delaware)11
Allstate International Holding GmbH
(Subsidiary of Allstate International Insurance Holdings, Inc.)
Allstate Direct Versicherungs-Aktiengesellschaft (Germany)
Allstate Diretto Assicurazioni Danni S.p.A (Italy)12
Allstate Werbung und Marketing GmbH (Germany)
Pafco Underwriting Managers Inc.
(Subsidiary of Allstate International Insurance Holdings, Inc.)
Pafco Insurance Company (Ontario)13
Pembridge Reinsurance Company Limited (Ireland)
Pembridge America Inc.
(Subsidiary of Allstate International Insurance Holdings, Inc.)
American Surety and Casualty Company (Florida)
Allstate Motor Club, Inc.
(Subsidiary of Allstate Enterprises,Inc.)
Direct Marketing Center, Inc. (Delaware)
Enterprises Services Corporation (Delaware)
Rescue Express, Inc. (Delaware)
<PAGE>
OTHER POSSIBLY SIGNIFICANT COMPANIES
Allstate County Mutual Insurance Company (Texas)
A mutual company owned by policy holders. Officers and employees of
Allstate Insurance Company serve as directors and officers of Allstate
County Mutual Insurance Company
Allstate Texas Lloyd's (Texas)
An insurance syndicate organized under the laws of Texas. Allstate
Texas Lloyd's, Inc. (a direct wholly owned subsidiary of Allstate
Insurance Company) is the attorney-in-fact for this syndicate.
LSI Financial Services, Inc. (Ohio)
S corporation owned by Marco Mazzone. Sole member of Board of Directors
is Bud Taylor, indirectly appointed by Allstate.
ProVest Insurance Services, Inc. (Ohio)
S corporation owned by Marco Mazzone. Sole member of Board of Directors
is Bud Taylor, indirectly appointed by Allstate.
Saison Automobile and Fire Insurance Company, Ltd. (Japan)
5% owned by Allstate International Inc.
- --------
1 A "stock savings association" organized under federal law.
2 wholly owned except for five shares owned by incorporator(s).
3 wholly owned except for one share owned by incorporator.
4 wholly owned except for one share owned by incorporator.
5 Formerly AEI Group, Inc.
6 Joint Venture of which Allstate Life Insurance Company controls 50%.
7 Broker/Dealer 8 Joint venture of which Allstate Life Insurance Company
controls80%.
9 Allstate International Inc. owns only 50%.
10 Broker/dealer.
11 Broker/dealer {formerly Lincoln Benefit Financial Services, Inc.}
12 Allstate International Holding GmbH owns 90% of this company and Allstate
International Insurance Holdings, Inc. owns 10%.
13 Pafco Underwriting Managers Inc. owns all of the common stock except for
directors' qualifying shares.
<PAGE>
ITEM 25. INDEMNIFICATION
Under Article VII, Section 2 of the Trust's Declaration of Trust, the Trustees
shall not be responsible or liable in any event for any neglect or wrong-doing
of any officer, agent, employee, Investment Adviser or any principal underwriter
of the Trust, nor shall any Trustee be responsible for the act or omission of
any other Trustee, and the Trust out of its assets shall indemnify and hold
harmless each and every Trustee from and against any and all claims and demands
whatsoever arising out of or related to each Trustee's performance of his or her
duties as Trustee of the Trust; provided that nothing herein contained shall
indemnify, hold harmless or protect any Trustee from or against any liability to
the Trust or any Shareholder to which he or she 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 or her office.
Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to Trustees, officers and
controlling persons of the Trust pursuant to the foregoing provisions, or
otherwise, the Trust has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Trust of expenses incurred or paid by a Trustee, officer
or controlling person of the Trust in the successful defense of any action, suit
or proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Trust will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as express in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
LSA Asset Management LLC (the "Manager") serves as investment adviser to each
Fund.
Set forth below are the names, principal business addresses and positions of
each director and officer of the Manager. Unless otherwise noted, the principal
business address of these individuals is 3100 Sanders Road, J5B, Northbrook,
Illinois 60062. Unless otherwise specified, none of the officers and directors
of the Manager serve as officers and Trustees of the Trust.
<PAGE>
POSITIONS AND OFFICES
NAME WITH THE MANAGER
John R. Hunter** President
Jeanette J. Donahue** Vice President, Chief Operating Officer
Keith A. Hauschildt** Controller
Michael J. Velotta Secretary and General Counsel
Brenda D. Sneed* Assistant Secretary & Assistant General Counsel
Barbara J. Whisler** Assistant Secretary & Chief Compliance Officer
James P. Zils Treasurer
Robert N. Roeters Vice President, Tax
David A. Chalpunik Vice President, Investments
Douglas G. Wolff** Vice President, Investments
Louis G. Lower, II Chairman, Board of Managers
Kevin R. Slawin Member, Board of Managers
Thomas J. Wilson*** Member, Board of Managers
*Serves as Trustee to the Trust.
**Serves as Officer of the Trust.
***Serves as Chairman of the Board of the Trust.
ITEM 27. PRINCIPAL UNDERWRITERS
Inapplicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
The Declaration of Trust, By-laws, minute books of the Registrant and certain
investment adviser records are in the physical possession of LSA Asset
Management LLC at 3100 Sanders Road, J5B, Northbrook, Illinois 60062. All other
accounts, books and other documents required to be maintained under Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
are in the physical possession of Investors Bank and Trust Company at 200
Clarendon Street, Boston, Massachusetts 02116.
ITEM 29. MANAGEMENT SERVICES
Inapplicable
ITEM 30. UNDERTAKINGS
Inapplicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Northbrook and the State of Illinois on the 26th
day of August, 1999.
Michael J. Velotta
(Sole Trustee)
By:/s/ Michael J. Velotta
----------------------
Michael J. Velotta
<PAGE>
EXHIBIT INDEX
23(1) Agreement and Declaration of Trust of LSA Variable Series Trust
(2) By-Laws of LSA Variable Series Trust
(4)(a) Form of Management Agreement
(4)(b)
(i) Investment Sub-Advisory Agreement with respect to Disciplined
Equity Fund
(ii) Investment Sub-Advisory Agreement with respect to Growth Equity Fund
(iii) Investment Sub-Advisory Agreement with respect to Value Equity Fund
(iv) Investment Sub-Advisory Agreement with respect to Focused Equity Fund
(v) InvestmentSub-Advisory Agreement with respect to Balanced Value Fund
(vi) Investment Sub-Advisory Agreement with respect to Emerging Growth
Domestic Equity Fund
(7) Custodian Agreement
(8) Other Material Contracts
(a) Delegation Agreement
(b) Administration Agreement
(c) Transfer Agency and Service Agreement
(d) Form of Participation Agreement
(e) Form of Distribution Agreement
(9) Opinion of Counsel
AGREEMENT AND DECLARATION OF TRUST
of
LSA VARIABLE SERIES TRUST
a Delaware Business Trust
Principal Place of Business:
3100 Sanders Road
Northbrook, Illinois 60062
<PAGE>
TABLE OF CONTENTS
LSA Variable Series Trust
AGREEMENT AND DECLARATION OF TRUST
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I Name and Definitions................................................................................1
1. Name................................................................................................1
2. Definitions..........................................................................................1
(a) The "Trust.............................................................................1
(b) The "Trust Property....................................................................1
(c) "Trustees..............................................................................1
(d) "Shares................................................................................2
(e) "Shareholder...........................................................................2
(f) "Person................................................................................2
(g) The "Investment Company Act............................................................2
(h) The terms "Commission" and "Principal Underwriter......................................2
(i) "Declaration of Trust..................................................................2
(i) "By-Laws...............................................................................2
(k) The term "Interested Person............................................................2
(l) "Investment Adviser" or "Manager" .....................................................2
(m) "Series"...............................................................................2
ARTICLE II Purpose of Trust................................................................................2
ARTICLE III Shares..........................................................................................3
1. Division of Beneficial Interest......................................................................3
2. Ownership of Shares..................................................................................3
3. Investments in the Trust.............................................................................4
4. Status of Shares and Limitation of Personal Liability................................................4
5. Power of Board of Trustees to Change Provisions Relating to Shares...................................4
6. Establishment and Designation of Series..............................................................4
(a) Assets Held with Respect to a Particular Series........................................5
(b) Liabilities Held With Respect to a Particular Series...................................5
(c) Dividends. Distributions. Redemptions and Repurchases..................................5
(d) Voting.................................................................................6
(e) Equality...............................................................................6
(f) Fractions..............................................................................6
(g) Exchange Privilege.....................................................................6
(h) Combination of Series..................................................................6
(i) Elimination of Series..................................................................6
7. Indemnification of Shareholders......................................................................7
ARTICLE IV The Board of Trustees...........................................................................7
1. Number. Election and Tenure..........................................................................7
2. Effect of Death. Resignation. etc. of a Trustee......................................................7
3. Powers...............................................................................................8
4. Payment of Expenses by the Trust....................................................................10
5. Payment of Expenses by Shareholders.................................................................11
6. Ownership of Assets of the Trust....................................................................11
7. Service Contracts...................................................................................11
ARTICLE V Shareholders' Voting Powers and Meetings.......................................................13
1. Voting Powers.......................................................................................13
2. Voting Power and Meetings...........................................................................13
3. Quorum and Required Vote............................................................................13
4. Action by Written Consent...........................................................................14
5. Record Dates........................................................................................14
6. Additional Provisions................................................................................14
ARTICLE VI Net Asset Value, Distributions and Redemptions.................................................14
1. Determination of Net Asset Value, Net Income and Distributions......................................14
2. Redemptions and Repurchases.........................................................................15
3. Redemptions at the Option of the Trust..............................................................15
ARTICLE VII Compensation and Limitation of Liability of Trustees...........................................16
1. Compensation........................................................................................16
2. Indemnification and Limitation of Liability.........................................................16
3. Trustee's Good Faith Action. Expert Advice. No Bond or Surety.......................................16
4. Insurance...........................................................................................16
ARTICLE VIII Miscellaneous..................................................................................17
1. Liability of Third Persons Dealing with Trustees....................................................17
2. Termination of Trust or Series......................................................................17
3. Merger and Consolidation............................................................................17
4. Amendments..........................................................................................18
5. Filing of Copies. References. Headings..............................................................18
6. Applicable Law......................................................................................18
7. Provisions in Conflict with Law or Regulations......................................................18
8. Business Trust Only.................................................................................19
9. Use of the Identifying Words "LSA Variable Series Trust" and "LSA.".................................19
</TABLE>
<PAGE>
AGREEMENT AND DECLARATION OF TRUST
OF
LSA Variable Series Trust
WHEREAS, THIS AGREEMENT AND DECLARATION OF TRUST made _______________, 1999
by __________________________ the Trustees named hereunder for the purpose of
forming a Delaware business trust in accordance with the provisions hereinafter
set forth,
NOW, THEREFORE, the Trustees hereby declare that the Trustees will hold IN
TRUST all cash, securities and other assets which the Trust now possesses or may
hereafter acquire from time to time in any manner and manage and dispose of the
same upon the following terms and conditions for the pro rata benefit of the
holders of Shares in this Trust.
ARTICLE I
Name and Definitions
Section 1. Name. The name of the Trust created hereby is LSA Variable
Series Trust.
Section 2. Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) The "Trust" refers to the Delaware business trust established by
this Agreement and Declaration of Trust, as amended from time to time;
(b) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust, including without limitation the rights referenced in Article VIII,
Section 9 hereof;
(c) "Trustees" refers to the persons who have signed this Agreement
and Declaration of Trust, so long as they continue in office in accordance
with the terms hereof, and all other persons who may from time to time be
duly elected or appointed to serve on the Board of Trustees in accordance
with the provisions hereof, and reference herein to a Trustee or the
Trustees shall refer to such person or persons in their capacity as
trustees hereunder;
<PAGE>
(d) "Shares" means the shares of beneficial interest into which the
beneficial interest in the Trust shall be divided from time to time and
includes fractions of Shares as well as whole Shares;
(e) "Shareholder" means a record owner of outstanding Shares;
(f) "Person" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures, estates and other
entities, whether or not legal entities, and governments and agencies and
political subdivisions thereof, whether domestic or foreign;
(g) The "Investment Company Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder, all as amended from time
to time;
(h) The terms "Commission" and "Principal Underwriter" shall have the
meanings given them in the Investment Company Act;
(i) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust, as amended or restated from time to time;
(i) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time and incorporated herein by reference;
(k) The term "Interested Person" has the meaning given it in Section
2(a) (19) of the Investment Company Act;
(l) "Investment Adviser" or "Manager" means a party furnishing
investment advisory or management services to the Trust pursuant to any
contract described in Article IV, Section 7(a) hereof; and
(m) "Series" refers to each Series of Shares established and
designated under or in accordance with the provisions of Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to conduct, operate and carry on the business
of a management investment company registered under the Investment Company Act
through one or more Series investing primarily in securities and to engage in
any other lawful business under Delaware law.
<PAGE>
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in the
Trust shall at all times be divided into an unlimited number of Shares. The
Trustees may authorize the division of Shares into separate Series and the
division of Series into separate classes of Shares. The different Series shall
be established and designated, and the variations in the relative rights and
preferences as between the different Series shall be fixed and determined, by
the Trustees. If only one or no Series (or classes) shall be established, the
Shares shall have the rights and preferences provided for herein and in Article
III, Section 6 hereof to the extent relevant and not otherwise provided for
herein, and all references to Series (and classes) shall be construed (as the
context may require) to refer to the Trust.
Subject to the provisions of Section 6 of this Article III, each Share
shall have voting rights as provided in Article V hereof, and holders of the
Shares of any Series shall be entitled to receive dividends when, if and as
declared with respect thereto in the manner provided in Article VI, Section 1
hereof. No Shares shall have any priority or preference over any other Share of
the same Series with respect to dividends or distributions upon termination of
the Trust or of such Series made pursuant to Article VIII, Section 4 hereof. All
dividends and distributions shall be made ratably among all Shareholders of a
particular class of a particular Series and, if no classes, of a particular
Series from the assets held with respect to such Series according to the number
of Shares of such class of such Series or of such Series held of record by such
Shareholder on the record date for any dividend or distribution or on the date
of termination, as the case may be. Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust or any Series. The Trustees may from time to time divide or combine
the Shares of any particular Series into a greater or lesser number of Shares of
that Series without thereby materially changing the proportionate beneficial
interest of the Shares of that series in the assets held with respect to that
Series or materially affecting the rights of Shares of any other series.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded
on the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series (or class of
each Series). No certificates certifying the ownership of Shares shall be issued
except as the Board of Trustees may otherwise determine from time to time. The
Trustees may make such rules as they consider appropriate for the transfer of
Shares of each Series (or class of each Series) and similar matters. The record
books of the Trust as kept by the Trust or any transfer or similar agent, as the
case may be, shall be conclusive as to the identity of the Shareholders of each
Series (or class of each Series) and as to the number of Shares of each Series
(or class) held from time to time by each.
<PAGE>
Section 3. Investments in the Trust. Investments may be accepted by the
Trust from such Persons, at such times, on such terms, and for such
consideration as the Trustees from time to time may authorize.
Section 4. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder, by virtue of having become a Shareholder, shall
be held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder during the existence of the
Trust shall not operate to terminate the Trust, nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but entitles such representative
only to the rights of said deceased Shareholder under this Trust. Ownership of
Shares shall not entitle the Shareholder to any title in or to the whole or any
part of the Trust Property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares constitute the
Shareholders as partners. Neither the Trust nor the Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind personally any
Shareholder, nor, except as specifically provided herein, to call upon any
Shareholder for the payment of any sum of money or assessment whatsoever other
than such as the Shareholder may at any time personally agree to pay.
Section 5. Power of Board of Trustees to Change Provisions Relating to
Shares. Notwithstanding any other provision of this Declaration of Trust and
without limiting the power of the Board of Trustees (as described in Article IV)
to amend the Declaration of Trust as provided elsewhere herein, the Board of
Trustees shall have the power to amend this Declaration of Trust, at any time
and from time to time, in such manner as the Board of Trustees may determine in
their sole discretion, without the need for Shareholder action, so as to add to,
delete, replace or otherwise modify any provisions relating to the Shares
contained in this Declaration of Trust, provided that before adopting any such
amendment without Shareholder approval the Board of Trustees shall determine
that it is consistent with the fair and equitable treatment of all Shareholders
or that Shareholder approval is not otherwise required by the Investment Company
Act or other applicable law. If Shares have been issued, Shareholder approval
shall be required to adopt any amendments to this Declaration of Trust that
would adversely affect to a material degree the rights and preferences of the
Shares of any Series (or class of any Series).
Subject to the foregoing Paragraph, the Board of Trustees may amend any
provisions of this Declaration of Trust to the extent permitted by applicable
law.
Section 6. Establishment and Designation of Series. The establishment and
designation of any Series (or class) of Shares shall be effective upon the
resolution by a majority of the then Trustees, adopting a resolution that sets
forth such establishment and designation and the relative rights and preferences
of such Series (or class). Each such resolution shall be incorporated herein by
reference upon adoption.
<PAGE>
Shares of each Series (or class) established pursuant to this Section 6,
unless otherwise provided in the resolution establishing such Series, shall have
the following relative rights and preferences:
(a) Assets Held with Respect to a Particular Series. All consideration
received by the Trust for the issue or sale of Shares of a particular
Series, together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof from
whatever source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably be held with respect to
that Series for all purposes, subject only to the rights of creditors, and
shall be so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits and proceeds thereof, from
whatever source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, are herein referred to as "assets held with
respect to" that Series. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are not
readily identifiable as assets held with respect to any particular Series
(collectively "General Assets"), the Trustees shall allocate such General
Assets to, between or among any one or more of the Series in such manner
and on such basis as the Trustees, in their sole discretion, deem fair and
equitable, and any General Asset so allocated to a particular Series shall
be held with respect to that Series. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes.
(b) Liabilities Held With Respect to a Particular Series. The assets
of the Trust held with respect to each particular Series shall be charged
against the liabilities of the Trust held with respect to that Series and
all expenses, costs, charges and reserves attributable to that Series, and
any general liabilities of the Trust which are not readily identifiable as
being held with respect to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series in such
manner and on such basis as the Trustees in their sole discretion deem fair
and equitable. The liabilities, expenses, costs, charges, and reserves so
charged to a Series are herein referred to as "liabilities held with
respect to" that Series. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and binding upon
the holders of all Series for all purposes. All Persons who have extended
credit which has been allocated to a particular Series, or who have a claim
or contract which has been allocated to any particular Series, shall look
exclusively to the assets of that particular Series for payment of such
credit, claim, or contract.
<PAGE>
(c) Dividends. Distributions. Redemptions and Repurchases.
Notwithstanding any other provisions of this Declaration of Trust,
including, without limitation, Article VI, no dividend or distribution
including, without limitation, any distribution paid upon termination of
the Trust or of any Series (or class) with respect to, nor any redemption
or repurchase of, the Shares of any Series (or class) shall be effected by
the Trust other than from the assets held with respect to such Series, nor,
except as specifically provided in Section 7 of this Article III, shall any
Shareholder of any particular Series otherwise have any right or claim
against the assets held with respect to any other Series except to the
extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series. The Trustees shall have full discretion,
to the extent not inconsistent with the Investment Company Act, to
determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders.
(d) Voting. All Shares of the Trust entitled to vote on a matter shall
vote separately by Series (and, if applicable, by class): that is, the
Shareholders of each Series (or class) shall have the right to approve or
disapprove matters affecting the Trust and each respective Series (or
class) as if the Series (or classes) were separate companies. There are,
however, two exceptions to voting by separate Series (or classes). First,
if the Investment Company Act requires all Shares of the Trust to be voted
in the aggregate without differentiation between the separate Series (or
classes), then all the Trust's Shares shall be entitled to vote on a
dollar-weighted basis by which each shareholder shall vote his or her
shares multiplied by the per-Share net asset value of these shares on the
record date. Second, if any matter affects only the interests of some but
not all Series (or classes), then only the Shareholders of such affected
Series (or classes) shall be entitled to vote on the matter on the same
dollar-weighted basis.
(e) Equality. All the Shares of each particular Series shall represent
an equal proportionate interest in the assets held with respect to that
Series (subject to the liabilities held with respect to that Series and
such rights and preferences as may have been established and designated
with respect to classes of Shares within such Series), and each Share of
any particular Series shall be equal to each other Share of that Series.
(f) Fractions. Any fractional Share of a Series shall carry
proportionately all the rights and obligations of a whole share of that
Series, including rights with respect to voting, receipt of dividends and
distributions, redemption of Shares and termination of the Trust.
(g) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any series shall have the right to
exchange said Shares for Shares of one or more other Series of Shares in
accordance with such requirements and procedures as may be established by
the Trustees.
(h) Combination of Series. The Trustees shall have the authority,
without the approval of the Shareholders of any Series unless otherwise
required by applicable law, to combine the assets and liabilities held with
respect to any two or more Series into assets and liabilities held with
respect to a single Series.
<PAGE>
(i) Elimination of Series. At any time that there are no Shares
outstanding of any particular Series (or class) previously established and
designated, or for other appropriate reasons, the Trustees may by
resolution of a majority of the then Trustees abolish that Series (or
class) and rescind the establishment and designation thereof and take such
other steps as may be necessary in that regard.
Section 7. Indemnification of Shareholders. If any Shareholder or former
Shareholder shall be exposed to liability by reason of a claim or demand
relating to his or her being or having been a Shareholder, and not because of
his or her acts or omissions, the Shareholder or former Shareholder (or his or
her heirs, executors, administrators, or other legal representatives or in the
case of a corporation or other entity, its corporate or other general successor)
shall be entitled to be held harmless from and indemnified out of the assets of
the applicable Series of the Trust against all loss and expense arising from
such claim or demand.
ARTICLE IV
The Board of Trustees
Section 1. Number. Election and Tenure. The number of Trustees constituting
the Board of Trustees shall be fixed from time to time by a written instrument
signed, or by resolution approved at a duly constituted meeting, by a majority
of the Board of Trustees, provided, however, that the number of Trustees shall
in no event be less than [1] nor more than [15]. The Board of Trustees, by
action of a majority of the then Trustees at a duly constituted meeting, may
fill vacancies in the Board of Trustees or remove Trustees with or without
cause. Each Trustee shall serve during the continued lifetime of the Trust until
he or she dies, resigns, is declared bankrupt or incompetent by a court of
appropriate jurisdiction, or is removed, or, if sooner, until the next meeting
of Shareholders called for the purpose of electing Trustees and until the
election and qualification of his or her successor. Any Trustee may resign at
any time by written instrument signed by him or her and delivered to any officer
of the Trust or to a meeting of the Trustees. Such resignation shall be
effective upon receipt unless specified to be effective at some other time.
Except to the extent expressly provided in a written agreement with the Trust,
no Trustee resigning and no Trustee removed shall have any right to any
compensation for any period following his or her resignation or removal, or any
right to damages on account of such removal. The Shareholders may fix the number
of Trustees and elect Trustees at any meeting of Shareholders called by the
Trustees for that purpose, except that the initial Trustee may appoint the Board
of Trustees if at an organizational meeting of the Trust there are no
Shareholders of the Trust at such time. Any Trustee may be removed at any
meeting of Shareholders by a vote of two-thirds of the outstanding Shares of the
Trust. A meeting of Shareholders for the purpose of electing or removing one or
more Trustees may be called (i) by the Trustees upon their own vote, or (ii)
upon the demand of Shareholders to the extent required by applicable law.
<PAGE>
Section 2. Effect of Death. Resignation. etc. of a Trustee. The death,
declination, resignation, retirement, removal, or incapacity of one or more
Trustees, or all of them, shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this Declaration of Trust.
Whenever a vacancy in the Board of Trustees shall occur, until such vacancy is
filled as provided in Article IV, Section l, the Trustees in office, regardless
of their number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by this Declaration of Trust.
As conclusive evidence of such vacancy, a written instrument certifying the
existence of such vacancy may be executed by an officer of the Trust or by a
majority of the Board of Trustees. In the event of the death, declination,
resignation, retirement, removal, or incapacity of all the then Trustees within
a short period of time and without the opportunity for at least one Trustee
being able to appoint additional Trustees to fill vacancies, the Trust's
Investment Adviser(s) are empowered to appoint new Trustees subject to the
provisions of Section 16(a) of the Investment Company Act.
Section 3. Powers. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Board of Trustees, and such
Board shall have all powers necessary or convenient to carry out that
responsibility, including the power to engage in securities transactions of all
kinds on behalf of the Trust. Without limiting the foregoing, the Trustees may:
adopt By-Laws not inconsistent with this Declaration of Trust providing for the
regulation and management of the affairs of the Trust and may amend and repeal
them to the extent that such By-Laws do not reserve that right to the
Shareholders; fill vacancies in or remove from their number, and may elect and
remove such officers and appoint and terminate such agents as they consider
appropriate; appoint from their own number and establish and terminate one or
more committees consisting of one or more Trustees, which may exercise the
powers and authority of the Board of Trustees to the extent that the Trustees
determine; employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities or
with a Federal Reserve Bank; retain a transfer agent or a shareholder servicing
agent, or both; provide for the issuance and distribution of Shares by the Trust
directly or through one or more Principal Underwriters or otherwise; redeem,
repurchase and transfer Shares pursuant to applicable law; set record dates for
the determination of Shareholders with respect to various matters; declare and
pay dividends and distributions to Shareholders of each Series from the assets
of such Series; and, in general, delegate such authority as they consider
desirable to any officer of the Trust, to any committee of the Trustees and to
any agent or employee of the Trust or to any such custodian, transfer or
shareholder servicing agent, or Principal Underwriter. Any determination as to
what is in the interests of the Trust made by the Trustees in good faith shall
be conclusive. In construing the provisions of this Declaration of Trust, the
presumption shall be in favor of a grant of power to the Trustees. Unless
otherwise specified or required by law, any action by the Board of Trustees
shall be deemed effective if approved or taken by a majority of the Trustees
then in office.
Without limiting the foregoing, the Trust shall have power and authority:
<PAGE>
(a) To invest and reinvest cash, to hold cash uninvested, and to
subscribe for, invest in, reinvest in, purchase or otherwise acquire, own,
hold, pledge, sell, assign, transfer, exchange, distribute, write options
on, lend or otherwise deal in or dispose of contracts for the future
acquisition or delivery of fixed income or other securities, and securities
of every nature and kind, including, without limitation, all types of
bonds, debentures, stocks, negotiable or non-negotiable instruments,
obligations, evidences of indebtedness, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, bankers'
acceptances, and other securities of any kind, issued, created, guaranteed,
or sponsored by any and all Persons, including, without limitation, states,
territories, and possessions of the United States and the District of
Columbia and any political subdivision, agency, or instrumentality thereof,
any foreign government or any political subdivision of the U.S. Government
or any foreign government, or any international instrumentality, or by any
bank or savings institution, or by any corporation or organization
organized under the laws of the United States or of any state, territory,
or possession thereof, or by any corporation or organization organized
under any foreign law, or in "when issued" contracts for any such
securities, to change the investments of the assets of the Trust; and to
exercise any and all rights, powers, and privileges of ownership or
interest in respect of any and all such investments of every kind and
description, including, without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more
Persons, to exercise any of said rights, powers, and privileges in respect
of any of said instruments;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property rights
relating to any or all of the assets of the Trust or any Series;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;
(d) To exercise powers and right of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in its
own name or in the name of a custodian or subcustodian or a nominee or
nominees or otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which
is held in the Trust; to consent to any contract, lease, mortgage, purchase
or sale of property by such corporation or issuer; and to pay calls or
subscriptions with respect to any security held in the Trust;
<PAGE>
(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or transferred)
as the Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited
to claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(j) To borrow funds or other property in the name of the Trust
exclusively for Trust purposes;
(k) To endorse or guarantee the payment of any notes or other
obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof;
(l) To purchase and pay for entirely out of Trust Property such
insurance as the Trustees may deem necessary or appropriate for the conduct
of the business, including, without limitation, insurance policies insuring
the assets of the Trust or payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, principal
underwriters, or independent contractors of the Trust, individually against
all claims and liabilities of every nature arising by reason of holding
Shares, holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such
Person as Trustee, officer, employee, agent, investment adviser, principal
underwriter, or independent contractor, including any action taken or
omitted that may be determined to constitute negligence, whether or not the
Trust would have the power to indemnify such Person against liability; and
The Trust shall not be limited to investing in obligations maturing before
the possible termination of the Trust or one or more of its Series. The Trust
shall not in any way be bound or limited by any present or future law or custom
in regard to investment by fiduciaries. The Trust shall not be required to
obtain any court order to deal with any assets of the Trust or take any other
action hereunder.
<PAGE>
Section 4. Payment of Expenses by the Trust. The Trustees are authorized to
pay or cause to be paid out of the principal or income of the Trust, or partly
out of the principal and partly out of income, as they deem fair, all expenses,
fees, charges, taxes and liabilities incurred or arising in connection with the
Trust, or in connection with the management thereof, including, but not limited
to, the Trustees' compensation and such expenses and charges for the services of
the Trust's officers, employees, investment adviser or manager, principal
underwriter, auditors, counsel, custodian, transfer agent, Shareholder servicing
agent, and such other agents or independent contractors and such other expenses
and charges as the Trustees may deem necessary or proper to incur.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have the
power, as frequently as they may determine, to cause each Shareholder, or each
Shareholder of any particular Series, to pay directly, in advance or arrears,
for charges of the Trust's custodian or transfer, Shareholder servicing or
similar agent, an amount fixed from time to time by the Trustees, by setting off
such charges due from such Shareholder from declared but unpaid dividends owed
such Shareholder and/or by reducing the number of shares in the account of such
Shareholder by that number of full and/or fractional Shares which represents the
outstanding amount of such charges due from such Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of the assets of
the Trust shall at all times be considered as vested in the Trust, except that
the Trustees shall have power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees, or in the name of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the resignation, removal or death of a Trustee, he or she shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in the Trust
Property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered.
Section 7. Service Contracts.
(a) Subject to such requirements and restrictions as may be set forth
in the By-Laws, the Trustees may, at any time and from time to time,
contract for exclusive or nonexclusive advisory, management and/or
administrative services for the Trust or for any Series with any
corporation, trust, association or other organization; and any such
contract may contain such other terms as the Trustees may determine,
including without limitation, authority for the Investment Adviser or
administrator to determine from time to time without prior consultation
with the Trustees what investments shall be purchased, held, sold or
exchanged and what portion, if any, of the assets of the Trust shall be
held uninvested and to make changes in the Trust's investments, or such
other activities as may specifically be delegated to such party.
(b) The Trustees may also, at any time and from time to time, contract
with any corporation, trust, association or other organization, appointing
it exclusive or nonexclusive distributor or Principal Underwriter for the
Shares of one or more of the Series (or classes) or other securities to be
issued by the Trust. Every such contract shall comply with such
requirements and restrictions as may be set forth in the By-Laws; and any
such contract may contain such other terms as the Trustees may determine.
<PAGE>
(c) The Trustees are also empowered, at any time and from time to
time, to contract with any corporations, trusts, associations or other
organizations, appointing it or them custodian, transfer agent and/or
shareholder servicing agent for the Trust or one or more of its Series.
Every such contract shall comply with such requirements and restrictions as
may be set forth in the By-Laws or stipulated by resolution of the
Trustees.
(d) The Trustees are further empowered, at any time and from time to
time, to contract with any entity to provide such other services to the
Trust or one or more of the Series, as the Trustees determine to be
consistent with the best interests of the Trust and the applicable Series.
(e) The fact that:
(i) any of the Shareholders, Trustees, or officers of the Trust
is a shareholder, director, officer, partner, trustee, employee,
investment adviser, manager, principal underwriter, distributor, or
affiliate or agent of or for any corporation, trust, association, or
other organization, or for any parent or affiliate of any organization
with which an advisory, management or administration contract, or
principal underwriter's or distributor's contract, or transfer,
shareholder servicing or other type of service contract may have been
or may hereafter be made, or that any such organization, or any parent
or affiliate thereof, is a Shareholder or has an interest in the
Trust, or
(ii) any corporation, trust, association or other organization
with which an advisory, management or administration contract or
principal underwriter's or distributor' s contract, or transfer,
shareholder servicing or other type of service contract may have been
or may hereafter be made also has an advisory, management or
administration contract, or principal underwriter's or distributor's
contract, or transfer, shareholder servicing or other service contract
with one or more other corporations, trusts, associations, or other
organizations, or has other business or interests, shall not affect
the validity of any such contract or disqualify any Shareholder,
Trustee or officer of the Trust from voting upon or executing the
same, or create any liability or accountability to the Trust or its
Shareholders, provided approval of each such contract is made pursuant
to the requirements of the Investment Company Act.
<PAGE>
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. Subject to the provisions of Article III, Section
6(d), the Shareholders shall have power to vote only (i) for the election or
removal of Trustees as provided in Article IV, Section 1, and (ii) with respect
to such additional matters relating to the Trust as may be required by this
Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. As appropriate, voting may be by Series (or
class), except as noted in Section 6(d). Each whole Share shall be entitled to
one vote multiplied by the per-Share net asset value on the record date for the
vote as to any matter on which it is entitled to vote and each fractional Share
shall be entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may be
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section l and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Written notice of any meeting of Shareholders shall be given or caused
to be given by the Trustees by mailing such notice at least seven (7) days
before such meeting, postage prepaid, stating the time and place of the meeting,
to each Shareholder at the Shareholder's address as it appears on the records of
the Trust. Whenever notice of a meeting is required to be given to a Shareholder
under this Declaration of Trust or the By-Laws, a written waiver thereof,
executed before or after the meeting by such shareholder or his or her attorney
thereunto authorized and filed with the records of the meeting, shall be deemed
equivalent to such notice.
<PAGE>
Section 3. Quorum and Required Vote. A quorum of Shareholders shall be
determined based on the Shares entitled to vote at Shareholders' meeting as of
the applicable record date and shall be the minimum amount required by
applicable law. When any one or more Series (or classes) is to vote as a single
class separate from any other Shares, a quorum of each such Series (or classes)
entitled to vote shall constitute a quorum at a Shareholder's meeting of that
Series. Any meeting of Shareholders may be adjourned from time to time by a
majority of votes properly cast upon the question of adjourning a meeting to
another date and time, whether or not a quorum is present, and the meeting may
be held as adjourned within a reasonable time after the date set for the
original meeting without further notice. Subject to the provisions of Article
III, Section 6(d), when a quorum is present at any meeting, the vote required to
elect a Trustee or approve any other matter shall be the minimum vote required
by applicable law.
Section 4. Action by Written Consent. Any action taken by shareholders may
be taken without a meeting if Shareholders holding a majority (on a
dollar-weighted basis) of the Shares entitled to vote on the matter (or such
larger proportion thereof as shall be required by any express provision of this
Declaration of Trust or by the By-Laws or by applicable law) and holding a
majority (or such larger proportion as aforesaid) of the Shares of any Series
(or class) entitled to vote separately on the matter consent to the action in
writing and such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the Shareholders of
any Series (or class) who are entitled to vote or act at any meeting or any
adjournment thereof, the Trustees may from time to time fix a time, which shall
be not more than ninety (90) days before the date of any meeting of
Shareholders, as the record date for determining the Shareholders of such Series
(or class) having the right to notice of and to vote at such meeting and any
adjournment thereof, and in such case only Shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date. For the purpose of determining the
Shareholders of any Series (or class) who are entitled to receive payment of any
dividend or of any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such dividend or such
other payment, as the record date for determining the Shareholders of such
Series (or class) having the right to receive such dividend or distribution.
Without fixing a record date the Trustees may for voting and/or distribution
purposes close the register or transfer books for one or more Series for all or
any part of the period between a record date and a meeting of Shareholders or
the payment of a distribution. Nothing in this Section shall be construed as
precluding the Trustees from setting different record dates for different Series
(or classes). For the purpose of determining the dollar-weighing, such weighing
shall be based on the per-Share net asset value determined on the record date,
and if none is determined on such date, the last determined per-Share net asset
value.
Section 6. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
<PAGE>
ARTICLE VI
Net Asset Value, Distributions and Redemptions
Section 1. Determination of Net Asset Value, Net Income and Distributions.
Subject to Article III, Section 6 hereof, the Trustees, in their absolute
discretion, may prescribe and shall set forth in the By-laws or in a duly
adopted vote of the Trustees such bases and time for determining the per-Share
net asset value of the Shares of any Series or net income attributable to the
Shares of any Series, or the declaration and payment of dividends and
distributions on the Shares of any Series, as they may deem necessary or
desirable.
Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument of transfer together with a request directed to the Trust
or a Person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, in accordance with the By-Laws and applicable law. Payment for said
Shares shall be made by the Trust to the Shareholder within seven days after the
date on which the request is made in proper form. The obligation set forth in
this Section 2 is subject to the provision that in the event that any time the
New York Stock Exchange (the "Exchange") is closed for other than weekends or
holidays, or if permitted by the Rules of the Commission during periods when
trading on the Exchange is restricted or during any emergency which makes it
impracticable for the Trust to dispose of the investments of the applicable
Series or to determine fairly the value of the net assets held with respect to
such Series or during any other period permitted by order of the Commission for
the protection of investors, such obligations may be suspended or postponed by
the Trustees.
The redemption price may in any case or cases be paid wholly or partly in
kind if the Trustees determine that such payment is advisable in the interest of
the remaining Shareholders of the Series for which the Shares are being
redeemed. Subject to the foregoing, the fair value, selection and quantity of
securities or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the Trustees. In no
case shall the Trust be liable for any delay of any corporation or other Person
in transferring securities selected for delivery as all or part of any payment
in kind.
Section 3. Redemptions at the Option of the Trust. The Trust shall have the
right, at its option and at any time, to redeem Shares of any Shareholder at the
net asset value thereof as described in Section 1 of this Article VI: (i) if at
such time such Shareholder owns Shares of any Series having an aggregate net
asset value of less than an amount determined from time to time by the Trustees
prior to the acquisition of said Shares; or (ii) to the extent that such
Shareholder owns Shares of a particular Series equal to or in excess of a
percentage of the outstanding Shares of that series determined from time to time
by the Trustees; or (iii) to the extent that such Shareholder owns Shares equal
to or in excess of a percentage, determined from time to time by the Trustees,
of the outstanding Shares of the Trust or of any Series.
<PAGE>
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and may fix the amount of such
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Indemnification and Limitation of Liability. The Trustees shall
not be responsible or liable in any event for any neglect or wrong-doing of any
officer, agent, employee, Investment Adviser or principal underwriter of the
Trust, nor shall any Trustee be responsible for the act or omission of any other
Trustee, and the Trust out of its assets shall indemnify and hold harmless each
and every Trustee from and against any and all claims and demands whatsoever
arising out of or related to each Trustee's performance of his or her duties as
a Trustee of the Trust; provided that nothing herein contained shall indemnify,
hold harmless or protect any Trustee from or against any liability to the Trust
or any Shareholder to which he or she would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
Section 3. Trustee's Good Faith Action. Expert Advice. No Bond or Surety.
The exercise by the Trustees of their powers and discretion hereunder shall be
binding upon everyone interested. A Trustee shall be liable to the Trust and to
any Shareholder solely for his or her own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice nor
for failing to follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.
Section 4. Insurance. The Trustees shall be entitled and empowered to the
fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee or officer in connection with any claim, action, suit or
proceeding in which he or she becomes involved by virtue of his or her capacity
or former capacity with the Trust.
<PAGE>
ARTICLE VIII
Miscellaneous
Section 1. Liability of Third Persons Dealing with Trustees. No Person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 2. Termination of Trust or Series. Unless terminated as provided
herein, the Trust shall continue without limitation of time. The Trust may be
terminated at any time by vote of a majority of the Shares of each Series
entitled to vote, voting separately by Series, or by the Trustees by written
notice to the Shareholders. Any Series may be terminated at any time by vote of
a majority of the Shares of that Series or by the Trustees by written notice to
the Shareholders of that Series.
Upon termination of the Trust (or any Series, as the case may be), after
paying or otherwise providing for all charges, taxes, expenses and liabilities
held, severally, with respect to each Series (or the applicable Series, as the
case may be), whether due or accrued or anticipated as may be determined by the
Trustees, the Trust shall, in accordance with such procedures as the Trustees
consider appropriate, reduce the remaining assets held, severally, with respect
to each Series (or the applicable Series, as the case may be), to distributable
form in cash or shares or other securities, or any combination thereof, and
distribute the proceeds held with respect to each Series (or the applicable
Series, as the case may be), to the Shareholders of that Series, as a Series,
ratably according to the number of Shares of that Series held by the several
Shareholders on the date of termination.
Section 3. Merger and Consolidation. The Trustees may cause (i) the Trust
or one or more of its Series to the extent consistent with applicable law to be
merged into or consolidated with another trust or company, (ii) the Shares of
the Trust or any Series to be converted into beneficial interests in another
business trust (or series thereof) created pursuant to this section 3 of Article
VIII, or (iii) the Shares to be exchanged under or pursuant to any state or
federal statute to the extent permitted by law. Such merger or consolidation,
Share conversion or Share exchange must be authorized by vote of a majority of
the outstanding Shares of the Trust, as a whole, or any affected Series, as may
be applicable; provided that in all respects not governed by statute or
applicable law, the Trustees shall have the power to prescribe the procedure
necessary or appropriate to accomplish a sale of assets, merger or consolidation
including the power to create one or more separate business trusts to which all
or any part of the assets, liabilities, profits or losses of the Trust may be
transferred and to provide for the conversion of Shares of the Trust or any
Series into beneficial interests in such separate business trust or trusts (or
series thereof).
<PAGE>
Section 4. Amendments. This Declaration of Trust may be restated and/or
amended at any time by an instrument in writing signed by a majority of the then
Trustees and, if required, by approval of such amendment by shareholders in
accordance with Article V Section 3 hereof. Any such restatement and/or
amendment hereto shall be effective immediately upon execution and approval. The
Certificate of Trust of the Trust may be restated and/or amended by a similar
procedure (however, only one Trustee need sign an Amendment to the Certificate
of Trust, and other Trustees need not approve such Amendment in writing when it
directly reflects provisions in, or approved amendments to, the Declaration of
Trust), and any such restatement and/or amendment shall be effective immediately
upon filing with the Office of the Secretary of State of the State of Delaware
or upon such future date as may be stated therein.
Section 5. Filing of Copies. References. Headings. The original or a copy
of this instrument and of each restatement and/or amendment hereto shall be kept
at the office of the Trust where it may be inspected by any Shareholder. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such restatements and/or amendments have been made and as
to any matters in connection with the Trust hereunder; and, with the same effect
as if it were the original, may rely on a copy certified by an officer of the
Trust to be a copy of this instrument or of any such restatements and/or
amendments. In this instrument and in any such restatements and/or amendment,
references to this instrument, and all expressions like "herein," "hereof " and
"hereunder," shall be deemed to refer to this instrument as amended or affected
by any such restatements and/or amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. Whenever the
singular number is used herein, the same shall include the plural; and the
neuter, masculine and feminine genders shall include each other, as applicable.
This instrument may be executed in any number of counterparts each of which
shall be deemed an original.
Section 6. Applicable Law. This Agreement and Declaration of Trust is
created under and is to be governed by and construed and administered according
to the laws of the State of Delaware and the Delaware Business Trust Act, as
amended from time to time (the "Act"). The Trust shall be a Delaware business
trust pursuant to such Act, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a business
trust.
Section 7. Provisions in Conflict with Law or Regulations.
(a) The provisions of the Declaration of Trust are severable, and if
the Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the Investment Company Act, the regulated
investment company provisions of the Internal Revenue Code or with other
applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of the Declaration of Trust; provided,
however, that such determination shall not affect any of the remaining
provisions of the Declaration of Trust or render invalid or improper any
action taken or omitted prior to such determination.
<PAGE>
(b) If any provision of the Declaration of Trust shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall attach only to such provision in such jurisdiction and shall not in
any manner affect such provision in any other jurisdiction or any other
provision of the Declaration of Trust in any jurisdiction.
Section 8. Business Trust Only. It is the intention of the Trustees to
create a business trust pursuant to the Delaware Business Trust Act, as amended
from time to time (the "Act"), and thereby to create only the relationship of
trustee and beneficial owners within the meaning of such Act between the
Trustees and each Shareholder. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment, or any form of legal relationship other than a business
trust pursuant to such Act. Nothing in this Declaration of Trust shall be
construed to make the Shareholders, either by themselves or with the Trustees,
partners or members of a joint stock association.
Section 9. Use of the Identifying Words "LSA Variable Series Trust" and
"LSA." The identifying words "LSA Variable Series Trust" and "LSA" and all
rights to the use of such identifying words belong to Allstate Life Insurance
Company, the sponsor of the Trust. Allstate Life Insurance Company has licensed
the Trust to use the identifying words "LSA Variable Series Trust" in the
Trust's name and to use the identifying word "LSA" in the name of any series of
the Trust. In the event that LSA Asset Management or its affiliate is not
appointed or ceases to be the Investment Adviser of the Trust, the non-exclusive
license may be revoked by Allstate Life Insurance Company, and the Trust and any
series thereof shall respectively cease using the identifying words "LSA
Variable Series Trust" and "LSA", unless otherwise consented to by Allstate Life
Insurance Company or any successor to in interest.
IN WITNESS WHEREOF, the Trustees named below do hereby make and enter into
this Agreement and Declaration of Trust as of this __ day of ______, 199_.
<PAGE>
THE PRINCIPAL PLACE OF BUSINESS OF THE TRUST IS 3100 Sanders Road, Northbrook,
Illinois 60062.
Exhibit 23(2)
BY-LAWS
of
LSA Variable Series Trust
A Delaware Business Trust
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
BY-LAWS
<S> <C>
ARTICLE I...........................................................................1
Agreement And Declaration of Trust.........................................1
Definitions................................................................1
ARTICLE II..........................................................................1
Principal Office...........................................................1
Delaware Offices...........................................................1
Other Offices..............................................................1
ARTICLE III.........................................................................1
Place of Meetings..........................................................1
Annual Meetings............................................................1
Special Meetings...........................................................2
Call of Meeting............................................................2
Notice of Shareholders' Meeting............................................3
Manner of Giving Notice; Affidavit.........................................3
Adjourned Meeting..........................................................3
Voting ....................................................................4
Waiver of Notice by Consent of Absent Shareholders.........................4
Shareholder Action by Written Consent Without a Meeting....................4
Record Date For Shareholder Notice, Voting And Giving Consents.............5
Proxies ..................................................................5
Inspectors of Election.....................................................6
Conduct of Meetings........................................................6
ARTICLE IV..........................................................................7
Powers ...................................................................7
Number And Qualification of Trustees.......................................7
Vacancies..................................................................7
Place of Meetings And Meetings by Telephone................................8
Regular Meetings...........................................................8
Special Meetings...........................................................8
Quorum .................................................................. 8
Waiver of Notice...........................................................9
Adjournment................................................................9
Notice of Adjournment......................................................9
Action Without a Meeting...................................................9
Fees And Compensation of Trustees..........................................9
Delegation of Power to Other Trustees......................................9
ARTICLE V...........................................................................9
Committees of Trustees.....................................................9
Meetings And Action of Committees.........................................10
ARTICLE VI.........................................................................10
Officers .................................................................10
Election of Officers......................................................11
Subordinate Officers......................................................11
Removal And Resignation of Officers.......................................11
Vacancies in Offices......................................................11
Chairman of the Board.....................................................11
President.................................................................11
Vice President(s).........................................................11
Secretary.................................................................12
Treasurer.................................................................12
ARTICLE VII........................................................................12
Agents, Proceedings And Expenses..........................................12
Actions Other Than by Trust...............................................13
Actions by The Trust......................................................13
Exclusion of Indemnification..............................................13
Successful Defense by Agent...............................................14
Required Approval.........................................................14
Advance of Expenses.......................................................14
Other Contractual Rights..................................................14
Limitations...............................................................14
Insurance.................................................................15
Fiduciaries of Employee Benefit Plan......................................15
ARTICLE VIII.......................................................................15
Maintenance And Inspection of Share Register..............................15
Maintenance And Inspection of By-laws.....................................15
Maintenance And Inspection of Other Records...............................15
Inspection by Trustees....................................................16
Financial Statements......................................................16
ARTICLE IX.........................................................................16
Checks, Drafts, Evidence of Indebtedness..................................16
Contracts And Instruments; How Executed...................................16
Certificates For Shares...................................................16
Lost Certificates.........................................................17
Representation of Shares of Other Entities Held by Trust..................17
Fiscal Year...............................................................17
ARTICLE X..........................................................................17
Amendment.................................................................17
</TABLE>
<PAGE>
ARTICLE I
Section 1. AGREEMENT AND DECLARATION OF TRUST. These By-Laws shall be
subject to the Agreement and Declaration of Trust, as from time to time in
effect (the "Declaration of Trust"), of the LSA Variable Series Trust, a
Delaware business trust (the "Trust"). In the event of any inconsistency between
the terms hereof and the terms of the Declaration of Trust, the terms of the
Declaration of Trust shall control.
Section 2. DEFINITIONS. Capitalized terms used herein and not herein
defined are used as defined in the Declaration of Trust.
ARTICLE II
OFFICES
Section 1. PRINCIPAL OFFICE. The Board of Trustees shall fix and, from time
to time, may change the location of the principal executive office of the Trust
at any place within or outside the State of Delaware.
Section 2. DELAWARE OFFICES. The Board of Trustees shall establish a
registered office in the State of Delaware and shall appoint as the Trust=s
registered agent for service of process in the State of Delaware an individual
who is a resident of the State of Delaware or a Delaware corporation or a
corporation authorized to transact business in the State of Delaware; in each
case the business office of such registered agent for service of process shall
be identical with the registered Delaware office of the Trust.
Section 3. OTHER OFFICES. The Board of Trustees may at any time establish
branch or subordinate offices at any place or places within or outside the State
of Delaware where the Trust intends to do business.
ARTICLE III
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any
place designated by the Board of Trustees. In the absence of any such
designation, shareholders' meetings shall be held at the principal executive
office of the Trust.
Section 2. ANNUAL MEETINGS. The Trust shall not be required to hold an
annual meeting of its shareholders in any year in which election of Trustees is
not required to be acted upon under the Investment Company Act of 1940 (the
"1940 Act"). In the event that the Trust shall be required by the 1940 Act to
hold an annual meeting of shareholders, such meeting shall be held:
<PAGE>
(a) at a date and time set by the Board of Trustees in accordance with the
1940 Act if the purpose of the meeting is to elect Trustees, but in no
event later than one hundred and twenty (120) days after the event
requiring the annual meeting; and
(b) on a date and time fixed by the Board of Trustees during the month of
April (i) in the fiscal year immediately following the fiscal year in
which independent accountants were appointed by the Board of Trustees
if the purpose of the meeting is to ratify the selection of such
independent accounts, or (ii) in any fiscal year if an annual meeting
is to be held for any reason other than as specified in the foregoing.
Any shareholders' meeting held in accordance with the preceding sentence shall
for all purposes constitute the annual meeting of shareholders for the fiscal
year of the Trust in which the meeting is held. At any such meeting, the
shareholders shall elect Trustees to hold offices of any Trustees who have held
office for more than one (1) year or who have been elected by the Board of
Trustees to fill vacancies which result from any cause. Except as the
Declaration of Trust or applicable law provides otherwise, Trustees may transact
any business within the powers of the Trust as may properly come before the
meeting. Any business of the Trust may be transacted at the annual meeting
without being specially designated in the notice, except such business as
specifically required by applicable law to be stated in the notice.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the Chairman of the Board, the President, any Vice
President, or by the Board of Trustees. Special meetings of the shareholders
also shall be called by the Secretary on the written request of shareholders
entitled to cast at least ten (10) percent of all the votes entitled to be cast
at such a meeting, provided that
(a) such request shall state the purpose or purposes of the meeting and
the matters proposed to be acted on, and
(b) the shareholders requesting the meeting shall have paid to the Trust
the reasonably estimated cost of preparing and mailing the notice
thereof, which the Secretary shall determine and specify to such
shareholders.
Unless requested by shareholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, a special meeting need not be called to
consider any matter which is substantially the same as a matter voted upon at
any annual or special meeting of the shareholders held during the preceding
twelve (12) months.
<PAGE>
Section 4. CALL OF MEETING. A meeting of the shareholders may be called at
any time by the Board of Trustees or by the Chairman of the Board or by the
President. Meetings of the shareholders may be called for any purpose deemed
necessary or desirable upon the written consent of the shareholders holding at
least 10% of the outstanding shares of the Trust entitled to vote. To the extent
required by the Investment Company Act of 1940 (the "1940 Act"), meetings of the
shareholders for the purpose of voting on the removal of any Trustee shall be
called promptly by the Trustees upon the written request of shareholders holding
at least 10% of the outstanding shares of the Trust entitled to vote.
Section 5. NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 6 of
this Article III not less than seven (7) days before the date of the meeting.
The notice shall specify (i) the place, date and time of the meeting, and (ii)
the general nature of the business to be transacted. The notice of any meeting
at which Trustees are to be elected shall include the name of any nominee or
nominees whom at the time of the notice are intended to be presented for
election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a Trustee has a direct or indirect financial
interest, (ii) an amendment of the Agreement and Declaration of Trust, (iii) a
reorganization of the Trust, or (iv) a voluntary dissolution of the Trust, the
notice shall state the general nature of that proposed action.
Section 6. MANNER OF GIVING NOTICE; AFFIDAVIT. Notice of any shareholder
meeting shall be given either by (i) personal delivery, first-class mail,
telegraphic or other written communication, charges prepaid, and (ii) addressed
to the shareholder at the address of that shareholder appearing on the books of
the Trust or its transfer agent or given by the shareholder to the Trust for the
purpose of notice. If no such address appears on the Trust's books or is given,
notice shall be deemed to have been given if sent to that shareholder via
first-class mail, telegraphic or other written communication to the Trust's
principal executive office, or if published at least once in a newspaper of
general circulation in the county where that office is located. Notice shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent via telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the Trust is returned to the Trust by the United
States Postal Service marked to indicate that the Postal Service is unable to
deliver the notice to the shareholder at that address, all future notices or
reports shall be deemed to have been duly given without further mailing if they
shall be available to the shareholder upon his or her written demand at the
principal executive office of the Trust for a period of one year from the date
of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholder's meeting shall be executed by the Secretary, assistant secretary or
any transfer agent of the Trust giving the notice and shall be filed and
maintained in the minute book of the Trust.
<PAGE>
Section 7. ADJOURNED MEETING. Any meeting of shareholders may be adjourned
from time to time by vote of the majority of shares at that meeting, either in
person or by proxy, to reconvene at the same or some other place, and notice
need not be given of any such adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Trust may transact any business which might have been transacted at
the original meeting. If the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting,
notice of the adjourned meeting shall be given to each shareholder of record
entitled to vote at the meeting.
Section 8. VOTING. Except as otherwise specifically provided in the
Declaration of Trust or these By-laws, or as required in the 1940 Act or other
applicable law, with respect to the vote of a series or class, if any, of the
Trust, at every shareholders= meeting, each shareholder shall be entitled to one
(1) vote for each share of stock of the Trust validly issued and outstanding and
held by such shareholder, except that no shares held by the Trust shall be
entitled to a vote. Except as otherwise provided by the Declaration of Trust,
each shareholder entitled to vote at any meeting of shareholders shall be
entitled to one vote for each share held which has voting power upon the matter
in question. The shareholders entitled to vote at any meeting of shareholders
shall be determined in accordance with the provisions of the Declaration of
Trust, as in effect at such time. The shareholders' vote may be by voice vote or
by ballot, provided, however, that any election for Trustees must be by ballot
if demanded by any shareholder before the voting has begun. On any matter other
than elections of Trustees, any shareholder may vote part of the shares in favor
of the proposal and refrain from voting the remaining shares or vote them
against the proposal, but if the shareholder fails to specify the number of
shares which the shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to the total
shares that the shareholder is entitled to vote on such proposal.
Section 9. WAIVER OF NOTICE BY CONSENT OF ABSENT SHAREHOLDERS. The
transactions of the meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though taken at a meeting duly held after
regular call and notice provided a quorum is present either in person or by
proxy and if either before or after the meeting, each shareholder entitled to
vote who was not present in person or by proxy signs a written waiver of notice
or a consent to a holding of the meeting or an approval of the minutes. The
waiver of notice or consent need not specify either the business to be
transacted or the purpose of any meeting of shareholders.
Attendance by a shareholder at a meeting of shareholders shall constitute a
waiver of notice of that meeting, except if the shareholder objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters not included
in the notice of the meeting if that objection is expressly made at the
beginning of the meeting.
<PAGE>
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Except
as provided in the Declaration of Trust, any action which may be taken at any
meeting of shareholders may be taken without a meeting and without prior notice
if a consent in writing setting forth the action to be taken is signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting at which
all shares entitled to vote on that action were present and voted. All such
consents shall be filed with the Secretary of the Trust and shall be maintained
in the Trust's records. Any shareholder giving a written consent or the
shareholder's proxy holders or a transferee of the shares or a personal
representative of the shareholder or their respective proxy holders may revoke
the consent by a writing received by the Secretary of the Trust before written
consents of the number of shares required to authorize the proposed action have
been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the action approved by the shareholders without a meeting. This notice
shall be given in the manner specified in Section 6 of this Article III. In the
case of approval of (i) contracts or transactions in which a Trustee has a
direct or indirect financial interest, (ii) indemnification of agents of the
Trust, or (iii) a reorganization of the Trust, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS.
(a) For the purpose of determining the shareholders entitled to notice of
or to vote at any meeting of shareholders, the Board of Trustees may
fix in advance a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by
the Board of Trustees, and which record date shall not be more than
ninety (90) days before the date of any such meeting as provided in
the Declaration of Trust. If the Board of Trustees does not so fix a
record date the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which
notice is given or if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is held.
(b) For the purpose of determining the shareholders entitled to consent to
Trust action in writing without a meeting, the Board of Trustees may
fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is established by the
Board of Trustees, and which date shall not be more than ten (10) days
after the date on which the resolution fixing the record date is
adopted by the Board of Trustees. If the Board of Trustees does not so
fix a record date the record date for determining shareholders
entitled to give consent to action in writing without a meeting, (i)
when no prior action by the Board of Trustees has been taken, shall be
the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Trust, or
(ii) when prior action of the Board of Trustees has been taken, shall
be at the close of business on the day on which the Board of Trustees
adopt the resolution relating to that action or the seventy-fifth (75)
day before the date of such other action, whichever is later.
<PAGE>
Section 12. PROXIES. Subject to the provisions of the Declaration of Trust,
every person entitled to vote for Trustees or on any other matter shall have the
right to do so either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the Secretary of the Trust. A proxy
shall be deemed signed if the shareholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
shareholder or the shareholder's attorney-in-fact. A validly executed proxy
which does not state that it is irrevocable shall continue in full force and
effect unless (i) revoked by the person executing it before the vote pursuant to
that proxy by a writing delivered to the Trust stating that the proxy is revoked
or by a subsequent proxy executed by or attendance at the meeting and voting in
person by the person executing that proxy; or (ii) written notice of the death
or incapacity of the maker of that proxy is received by the Trust before the
vote pursuant to that proxy is counted; provided however, that no proxy shall be
voted or acted upon three years from its date unless the proxy provides for a
longer period.
Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders, the
Board of Trustees may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors of
election are so appointed, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy shall, appoint inspectors of election
at the meeting. The number of inspectors shall be either one (1) or three (3).
If inspectors are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one (1) or three (3) inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, the chairman of the meeting may and on the request of
any shareholder or a shareholder's proxy, shall appoint a person to fill the
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting power
of each, the shares represented at the meeting, the existence of
a quorum and the authenticity, validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
<PAGE>
Section 14. CONDUCT OF MEETINGS. The Board of Trustees may adopt by
resolution such rules and regulations for the conduct of the meeting of
shareholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board of Trustees, the
chairman of any meeting of shareholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts as, in
the judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board of
Trustees or prescribed by the chairman of the meeting, may include, without
limitation, the following:
(1) The establishment of an agenda or order of business for the
meeting;
(2) Rules and procedures for maintaining order at the meeting and the
safety of those present;
(3) Limitations on attendance at or participation in the meeting to
shareholders of record the of Trust, their duly authorized and
constituted proxies or such other persons as the chairman of the
meeting shall determine;
(4) Restrictions on entry to the meeting after the time fixed for the
commencement thereof; and
(5) Limitations on the time allotted to questions or comments by
participants.
ARTICLE IV
TRUSTEES
Section 1. POWERS. Subject to the applicable provisions of the Declaration
of Trust and these By-Laws relating to action required to be approved by the
shareholders or by the outstanding shares, the business and affairs of the Trust
shall be managed and all powers shall be exercised by or under the direction of
the Board of Trustees.
Section 2. NUMBER AND QUALIFICATION OF TRUSTEES. The exact number of
Trustees within the limits specified in the Declaration of Trust shall be fixed
from time to time by a resolution of the Trustees. No more than sixty percent
(60%) of the Board of Trustees shall qualify as "interested persons" as that
term is defined in the 1940 Act. The 1940 Act, specifically '10, shall control
the qualifications of the members of the Board of Trustees.
Section 3. VACANCIES. In the event that at any time, other than the time
preceding the first meeting of shareholders, any vacancies occur in the Board of
Trustees by reason of resignation, removal, or otherwise, or if the authorized
number of Trustees is increased, the Trustees then in office shall continue to
act, and such vacancies (if not previously filled by the shareholders) may be
filled by a majority of the Trustees then in office, whether or not sufficient
to constitute a quorum, provided that, immediately after filling such vacancy,
at least two-thirds of the Trustees then holding office shall have been elected
to such office by the shareholders of the Trust. In the event that at any time,
other than the time preceding the first meeting of shareholders, less than a
majority of the Trustees of the Trust holding office at that time were so
elected by the shareholders, a meeting of the shareholders shall be held
promptly and in any event within sixty (60) days for the purpose of electing
Trustees to fill any existing vacancies in the Board of Trustees unless the
Securities and Exchange Commission shall by order extend such period.
<PAGE>
Notwithstanding the above, whenever and for so long as the Trust is a
participant in or otherwise has in effect a Plan under which the Trust may be
deemed to bear expenses of distributing its shares as that practice is described
in Rule 12b-1 under the 1940 Act, then the selection and nomination of the
Trustees who are not interested persons of the Trust (as that term is defined in
the 1940 Act) shall be, and is, committed to the discretion of such
disinterested Trustees.
Section 4. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. All meetings of the
Board of Trustees may be held at any place within or outside the State of
Delaware that has been designated from time to time by resolution of the Board.
In the absence of such a designation, regular meetings shall be held at the
principal executive office of the Trust. Members of the Board of Trustees or of
any committee designated by the Board of Trustees may participate in a meeting
of the Board of Trustees or of such committee by means of a conference telephone
or similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation by such means shall
constitute presence in person at such meeting, unless otherwise prohibited by
provisions of the 1940 Act or other applicable law.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Trustees
shall be held without call at such time as shall from time to time be fixed by
the Board of Trustees. Such regular meetings may be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Trustees for
any purpose or purposes may be called at any time by the President or any Vice
President or the Secretary or any two (2) Trustees.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each Trustee or sent by first-class mail or
telegram, charges prepaid, addressed to each Trustee at that Trustee's address
as it is shown on the records of the Trust. In case the notice is mailed, it
shall be deposited in the United States mail at least seven (7) days before the
time of the holding of the meeting. In case the notice is delivered personally,
by telephone, to the telegraph company, or by express mail or similar service,
it shall be given at least forty-eight (48) hours before the time of the holding
of the meeting. Any oral notice given personally or by telephone may be
communicated either to the Trustee or to a person at the office of the Trustee
who the person giving the notice has reason to believe will promptly communicate
it to the Trustee. The notice need not specify the purpose of the meeting or the
place if the meeting is to be held at the principal executive office of the
Trust.
Section 7. QUORUM. A majority of the authorized number of Trustees shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 9 of this Article IV. Every act or decision done or made by
a majority of the Trustees present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Trustees, subject to the
provisions of the Declaration of Trust. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
Trustees if any action taken is approved by a least a majority of the required
quorum for that meeting.
<PAGE>
Section 8. WAIVER OF NOTICE. Notice of any meeting need not be given to any
Trustee who either before or after the meeting signs a written waiver of notice,
a consent to holding the meeting, or an approval of the minutes. The waiver of
notice or consent need not specify the purpose of the meeting. All such waivers,
consents, and approvals shall be filed with the records of the Trust or made a
part of the minutes of the meeting. Notice of a meeting shall also be deemed
given to any Trustee who attends the meeting without protesting before or at its
commencement the lack of notice to that Trustee.
Section 9. ADJOURNMENT. A majority of the Trustees present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
Section 10. NOTICE OF ADJOURNMENT. Notice of the time and place of holding
an adjourned meeting need not be given unless the meeting is adjourned for more
than forty-eight (48) hours, in which case notice of the time and place shall be
given before the time of the adjourned meeting in the manner specified in
Section 6 of this Article IV to the Trustees who were present at the time of the
adjournment.
Section 11. ACTION WITHOUT A MEETING. Unless the 1940 Act requires that a
particular action be taken only at a meeting at which the Trustees are present
in person, any action to be taken by the Trustees at a meeting may be taken
without such meeting by the written consent of a majority of the Trustees then
in office. Any such written consent may be executed and given by telecopy or
similar electronic means. Such written consents shall be filed with the minutes
of the proceedings of the Trustees. If any action is so taken by the Trustees by
the written consent of less than all of the Trustees, prompt notice of the
taking of such action shall be furnished to each Trustee who did not execute
such written consent, provided that the effectiveness of such action shall not
be impaired by any delay or failure to furnish such notice.
Section 12. FEES AND COMPENSATION OF TRUSTEES. Trustees and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
Board of Trustees. This Section 12 shall not be construed to preclude any
Trustee from serving the Trust in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation for those services.
Section 13. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
fewer than two (2) Trustees personally exercise the powers granted to the
Trustees under the Declaration of Trust except as otherwise expressly provided
herein or by resolution of the Board of Trustees.
<PAGE>
ARTICLE V
COMMITTEES
Section 1. COMMITTEES OF TRUSTEES. The Board of Trustees may, by
resolution, designate one or more committees, each consisting of two (2) or more
Trustees, to serve at the pleasure of the Board. The Board may designate one or
more Trustees as alternate members of any committee who may replace any absent
member at any meeting of the committee. Any committee to the extent provided in
the resolution of the Board, shall have the authority of the Board, except with
respect to:
(a) The approval of any action which under applicable law also
requires shareholders' approval or approval of the outstanding
shares, or requires approval by a majority of the entire Board or
certain members of the Board;
(b) The filling of vacancies on the Board of Trustees or in any
committee;
(c) The fixing of compensation of the Trustees for services generally
or as a member of any committee;
(d) The amendment or termination of the Declaration of Trust or of
the By-Laws or the adoption of new By-Laws;
(e) The amendment or repeal of any resolution of the Board of
Trustees which by its express terms is not so amendable or
repealable;
(f) A distribution to the shareholders of the Trust, except at a rate
or in a periodic amount or within a designated range determined
by the Board of Trustees; or
(g) The appointment of any other committees of the Board of Trustees
or the members of such new committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by and held and taken in accordance with the
provisions of Article IV of these By-Laws, with such changes in the context
thereof as are necessary to substitute the committee and its members for the
Board of Trustees and its members, except that the time of regular meetings of
committees may be determined either by resolution of the Board of Trustees or by
resolution of the committee. Special meetings of committees may also be called
by resolution of the Board of Trustees, and notice of special meetings of
committees shall also be given to all alternate members who shall have the right
to attend all meetings of the committee. The Board of Trustees may adopt rules
for the government of any committee not inconsistent with the provisions of
these By-Laws.
ARTICLE VI
OFFICERS
Section 1. OFFICERS. The officers of the Trust shall be a President, a
Secretary, and a Treasurer. The Trust may also have, at the discretion of the
Board of Trustees, a Chairman of the Board, one or more Vice Presidents, one or
more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3 of
this Article VI. Any number of offices may be held by the same person.
<PAGE>
Section 2. ELECTION OF OFFICERS. The officers of the Trust, except such
officers as may appointed in accordance with the provisions of Section 3 or
Section 5 of this Article VI, shall be chosen by the Board of Trustees, and each
shall serve at the pleasure of the Board of Trustees, subject to the rights, if
any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board of Trustees may appoint and may
empower the President to appoint such other officers as the business of the
Trust may require, each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-Laws or as the
Board of Trustees may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Trustees at any regular or special
meeting of the Board of Trustees or except in the case of an officer upon whom
such power of removal may be conferred by the Board of Trustees.
Any officer may resign at any time by giving written notice to the Trust.
Any resignation shall take effect at the date of the receipt of that notice or
at any later time specified in that notice; and unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
Trust under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or other cause shall be filled in the
manner prescribed in these By-Laws for regular appointment to that office. The
President may make temporary appointments to a vacant office pending action by
the Trustees.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer is elected, shall, if present preside at meetings of the Board of
Trustees and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Trustees or prescribed by the
By-Laws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Trustees to the Chairman of the Board, if there be such an
officer, the President shall be the chief executive officer of the Trust and
shall, subject to the control of the Board of Trustees, have general
supervision, direction and control of the business and the officers of the
Trust. The President shall preside at all meetings of the shareholders and in
the absence of the Chairman of the Board, or if there be none, at all meetings
of the Board of Trustees. He shall have the general powers and duties of
management usually vested in the office of President of a corporation and shall
have such other powers and duties as may be prescribed by the Board of Trustees
or these By-Laws.
<PAGE>
Section 8. VICE PRESIDENT(S). In the absence or disability of the
President, the Vice President(s), if any, in order of their rank as fixed by the
Board of Trustees or if not ranked, a Vice President designated by the Board of
Trustees, shall perform all the duties of the President and when so acting shall
have all powers of and be subject to all the restrictions upon the President.
The Vice President(s) shall have such other powers and perform such other duties
as from time to time may be prescribed for them respectively by the Board of
Trustees or by these By-Laws and the President or the Chairman of the Board.
Section 9. SECRETARY. The Secretary shall keep or cause to be kept at the
principal executive office of the Trust or such other place as the Board of
Trustees may direct, a book of minutes of all meetings and actions of Trustees,
committees of Trustees and shareholders with the time and place of holding,
whether regular or special, and if special, how authorized, the notice given,
the names of those present at Trustees' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings of the meetings.
The Secretary shall keep or cause to be kept at the principal executive
office of the Trust or at the office of the Trust's transfer agent or registrar,
a share register or a duplicate share register showing the names of all
shareholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same and the number and date
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of the
shareholders and of the Board of Trustees (or committees thereof) required to be
given by these By-Laws or by applicable law and shall have such other powers and
perform such other duties as may be prescribed by the Board of Trustees or by
these By-Laws.
Section 10. TREASURER. The Treasurer shall be the chief financial officer
and chief accounting officer of the Trust and shall keep and maintain or cause
to be kept and maintained adequate and correct books and records of accounts of
the properties and business transactions of the Trust, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, capital, retained
earnings and shares. The books of account shall at all reasonable times be open
to inspection by any Trustee.
The Treasurer shall deposit or cause to be deposited all monies and other
valuables in the name and to the credit of the Trust with such depositories as
may be designated by the Board of Trustees. The Treasurer shall disburse or
cause to be disbursed the funds of the Trust as may be ordered by the Board of
Trustees, shall render or cause to be rendered to the President and Trustees,
whenever requested, an account of all of his or her transactions as chief
financial officer and of the financial condition of the Trust and shall have
other powers and perform such other duties as may be prescribed by the Board of
Trustees or these By-Laws.
<PAGE>
ARTICLE VII
INDEMNIFICATION OF TRUSTEES, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purpose of this
Article, "agent" means any person who is or was a Trustee, officer, employee or
other agent of this Trust or is or was serving at the request of this Trust as a
Trustee, director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise or was a
Trustee, director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor of another enterprise at the request of such
predecessor entity; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" includes without limitation attorney's fees and any expenses of
establishing a right to indemnification under this Article.
Section 2. ACTIONS OTHER THAN BY TRUST. The Trust shall indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of this Trust) by reason of
the fact that such person is or was an agent of the Trust, against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with such proceeding if that person acted in good faith and in a
manner that person reasonably believed to be in the best interests of the Trust
and in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of that person was unlawful. The termination of any proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the person did not act
in good faith and in a manner which the person reasonably believed to be in the
best interests of the Trust or that the person had reasonable cause to believe
that the person's conduct was unlawful.
Section 3. ACTIONS BY THE TRUST. This Trust shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of the Trust to procure a judgment in its
favor by reason of the fact that person is or was an agent of the Trust, against
expenses actually and reasonably incurred by that person in connection with the
defense or settlement of that action if that person acted in good faith, in a
manner that the person believed to be in the best interests of the Trust and
with such care, including reasonable inquiry, as an ordinarily prudent person in
a like position would use under similar circumstances.
Section 4. EXCLUSION OF INDEMNIFICATION. Notwithstanding any provision to
the contrary contained herein, there shall be no right to indemnification for
any liability arising by reason of willful misfeasance, bad faith, gross
negligence, or the reckless disregard of the duties involved in the conduct of
the agent=s office with this Trust.
No indemnification shall be made under Sections 2 or 3 of this Article:
(a) In respect of any claim, issue or matter as to which that person
shall have been adjudged to be liable in the performance of that
person's duty to this Trust, unless and only to the extent that
the court in which that action was brought shall determine upon
application that in view of all the circumstances of the case,
that person was not liable by reason of the disabling conduct set
forth in the preceding paragraph and is fairly and reasonably
entitled to indemnity for the expenses which the court shall
determine; or
<PAGE>
(b) In respect of any claim, issue, or matter as to which that person
shall have been adjudged to be liable on the basis that personal
benefit was improperly received by him or her, whether or not the
benefit resulted from an action taken in the person's official
capacity; or
(c) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval, or
of expenses incurred in defending a threatened or pending action
which is settled or otherwise disposed of without court approval,
unless the required approval set forth in Section 6 of this
Article is obtained.
Section 5. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of this
Trust has been successful on the merits in defense of any proceeding referred to
in Sections 2 or 3 of this Article or in defense of any claim, issue or matter
therein, before the court or other body before whom the proceeding was brought,
the agent shall be indemnified against expenses actually and reasonably incurred
by the agent in connection therewith, provided that the Board of Trustees,
including a majority who are disinterested, non-party Trustees, also determines
that based upon a review of the facts, the agent was not liable by reason of the
disabling conduct referred to in Section 4 of this Article.
Section 6. REQUIRED APPROVAL. Except as provided in Section 5 of this
Article, any indemnification under this Article shall be made by the Trust only
if authorized in the specific case on a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article and
is not prohibited from indemnification because of the disabling conduct set
forth in Section 4 of this Article, by:
(a) A majority vote of a quorum consisting of Trustees who are not
parties to the proceeding and are not interested persons of the
Trust (as defined in the 1940 Act); or
(b) A written opinion by an independent legal counsel.
Section 7. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the Trust before the final disposition of the
proceeding on receipt of an undertaking by or on behalf of the agent to repay
the amount of the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article, provided the
agent provides a security for his undertaking, or a majority of a quorum of the
disinterested, non-party Trustees, or an independent legal counsel in a written
opinion, determine that based on a review of readily available facts, there is
reason to believe that said agent ultimately will be found entitled to
indemnification.
Section 8. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than Trustees
and officers of this Trust or any subsidiary hereof may be entitled by contract
or otherwise.
Section 9. LIMITATIONS. No indemnification or advance shall be made under
this Article, except as provided in Sections 5 or 6 in any circumstances where
it appears:
<PAGE>
(a) That it would be inconsistent with a provision of the Declaration
of Trust, a resolution of the shareholders, or an agreement in
effect at the time of accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred or
other amounts were paid which prohibits or otherwise limits
indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 10. INSURANCE. Upon and in the event of a determination by the
Board of Trustees of this Trust to purchase such insurance, this Trust shall
purchase and maintain insurance on behalf of any agent of this Trust against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such, but only to the extent that this Trust would
have the power to indemnify the agent against that liability under the
provisions of this Article.
Section 11. FIDUCIARIES OF EMPLOYEE BENEFIT PLAN. This Article does not
apply to any proceeding against any Trustee, investment manager or other
fiduciary of an employee benefit plan in that person's capacity as such, even
though that person may also be an agent of this Trust as defined in Section 1 of
this Article. Nothing contained in this Article shall limit any right to
indemnification to which such a Trustee, investment manager, or other fiduciary
may be entitled by contract or otherwise which shall be enforceable to the
extent permitted by applicable law other than this Article.
ARTICLE VIII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The Trust shall
keep at its principal executive office or at the office of its transfer agent or
registrar, if either be appointed and as determined by resolution of the Board
of Trustees, a record of its shareholders, giving the names and addresses of all
shareholders and the number and series of shares held by each shareholder.
Section 2. MAINTENANCE AND INSPECTION OF BY-LAWS. The Trust shall keep at
its principal executive office the original or a copy of these By-Laws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
<PAGE>
Section 3. MAINTENANCE AND INSPECTION OF OTHER RECORDS. The accounting
books and records and minutes of proceedings of the shareholders and the Board
of Trustees and any committee or committees of the Board of Trustees shall be
kept at such place or places designated by the Board of Trustees or in the
absence of such designation, at the principal executive office of the Trust. The
minutes shall be kept in written form and the accounting books and records shall
be kept either in written form or in any other form capable of being converted
into written form. The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate at any reasonable time during usual business hours for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts.
Section 4. INSPECTION BY TRUSTEES. Every Trustee shall have the absolute
right at any reasonable time to inspect all books, records, and documents of
every kind and the physical properties of the Trust. This inspection by a
Trustee may be made in person or by an agent or attorney and the right of
inspection includes the right to copy and make extracts of documents.
Section 5. FINANCIAL STATEMENTS. A copy of any financial statements and any
income statement of the Trust for each quarterly period of each fiscal year and
accompanying balance sheet of the Trust as of the end of each such period that
has been prepared by the Trust shall be kept on file in the principal executive
office of the Trust for at least twelve (12) months and each such statement
shall be exhibited at all reasonable times to any shareholder demanding an
examination of any such statement or a copy shall be mailed to any such
shareholder.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the Trust or the certificate of an authorized officer of
the Trust that the financial statements were prepared without audit from the
books and records of the Trust.
ARTICLE IX
GENERAL MATTERS
Section 1. CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS. All checks, drafts, or
other orders for payment of money, notes or other evidences of indebtedness
issued in the name of or payable to the Trust shall be signed or endorsed by
such person or persons and in such manner as from time to time shall be
determined by resolution of the Board of Trustees.
Section 2. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of Trustees,
except as otherwise provided in these By-Laws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Trust and this authority may be general or
confined to specific instances; and unless so authorized or ratified by the
Board of Trustees or within the agency power of an officer, no officer, agent,
or employee shall have any power or authority to bind the Trust by any contract
or engagement or to pledge its credit or to render it liable for any purpose or
for any amount.
<PAGE>
Section 3. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of beneficial interest in any series of the Trust may be issued to a
shareholder upon his request when such shares are fully paid. All certificates
shall be signed in the name of the Trust by the Chairman of the Board or the
President or Vice President and by the Treasurer or an assistant treasurer or
the Secretary or any assistant Secretary, certifying the number of shares and
the series of shares owned by the shareholders. Any or all of the signatures on
the certificate may be facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be that officer, transfer agent, or registrar
before that certificate is issued, it may be issued by the Trust with the same
effect as if that person were an officer, transfer agent or registrar at the
date of issue. Notwithstanding the foregoing, the Trust may adopt and use a
system of issuance, recordation and transfer of its shares by electronic or
other means.
Section 4. LOST CERTIFICATES. Except as provided in this Section 4, no new
certificates for shares shall be issued to replace an old certificate unless the
latter is surrendered to the Trust and canceled at the same time. The Board of
Trustees may in case any share certificate or certificate for any other security
is lost, stolen, or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board of Trustees may require,
including a provision for indemnification of the Trust secured by a bond or
other adequate security sufficient to protect the Trust against any claim that
may be made against it, including any expense or liability on account of the
alleged loss, theft, or destruction of the certificate or the issuance of the
replacement certificate.
Section 5. REPRESENTATION OF SHARES OF OTHER ENTITIES HELD BY TRUST. The
Chairman of the Board, the President or any Vice President or any other person
authorized by resolution of the Board of Trustees or by any of the foregoing
designated officers, is authorized to vote or represent on behalf of the Trust
any and all shares of any corporation, partnership, trusts, or other entities,
foreign or domestic, standing in the name of the Trust. The authority granted
may be exercised in person or by a proxy duly executed by such designated
person.
Section 6. FISCAL YEAR. The fiscal year of the Trust shall be fixed and
refixed or changed from time to time by resolution of the Trustees. The fiscal
year of the Trust shall be the taxable year of each Series of the Trust.
ARTICLE X
AMENDMENTS
Section 1. AMENDMENT. Except as otherwise provided by applicable law or by
the Declaration of Trust, these By-Laws may be restated, amended, supplemented
or repealed by the Trustees, provided that no restatement, amendment, supplement
or repeal hereof shall limit the rights to indemnification or insurance provided
in Article VII hereof with respect to any acts or omissions of agents (as
defined in Article VII) of the Trust prior to such amendment.
Exhibit 23(4)(a)
MANAGEMENT AGREEMENT
Management Agreement dated _______, between LSA Variable Series Trust, a
Delaware business trust (the "Trust") and LSA Asset Management LLC, a Delaware
limited liability company, (the "Manager"). In consideration of the mutual
covenants contained herein, the parties agree as follows:
1. APPOINTMENT OF MANAGER
The Trust hereby appoints the Manager, subject to the supervision of the
Trustees of the Trust and the terms of this Agreement, as the investment manager
for each of the Funds of the Trust (the "Funds") specified in Schedule 1 to this
Agreement as it shall be amended by the Manager and the Trust from time to time.
The Manager accepts such appointment and agrees to render the services and to
assume the obligations set forth in this Agreement commencing on its effective
date. The Manager will be an independent contractor and will have no authority
to act for or represent the Trust in any way or otherwise be deemed an agent
unless expressly authorized in this Agreement or another writing by the Trust
and the Manager.
2. DUTIES OF THE MANAGER
a. Subject to the general supervision of the Trustees of the Trust and
the terms of this Agreement, the Manager will at its own expense,
select and contract with investment advisers ("Advisers") to manage
the investments and determine the composition of the assets of the
Funds; provided, that any contract with an Adviser (an "Advisory
Agreement") shall be in compliance with and approved as required by
the Investment Company Act of 1940 ("Investment Company Act") and the
performance thereunder consistent with terms of an exemptive order
granted by the Securities and Exchange Commission ("SEC") permitting
the Manager to employ a manager-of-managers strategy. Subject always
to the direction and control of the Trustees of the Trust, the Manager
will monitor compliance of each Adviser with the investment objectives
and related investment policies, as set forth in the Trust's
registration statement filed with the SEC, of any Fund or Funds under
the management of such Adviser, and review and report to the Trustees
of the Trust on the performance of such Adviser.
b. The Manager will furnish to the Trust the following:
i. necessary office space in the offices of the Manager or in such
other place as may be agreed upon by the parties hereto from time
to time, and all necessary office facilities and equipment;
<PAGE>
ii. necessary office personnel, including personnel for the
performance of clerical, accounting and other office functions,
exclusive of those functions (a) related to the investment
subadvisory services to be provided by any Adviser pursuant to an
Advisory Agreement and (b) relating to other services for which
the Trust has contracted with a third party;
iii. accounting, bookkeeping, recordkeeping and related services other
than services in respect of the records relating to any other
services for which the Trust has contracted with a third party
(including any Adviser); and
iv. all other information and services, (other than services of
counsel or independent accountants or investment subadvisory
services to be provided by any Adviser under an Advisory
Agreement), required in connection with the preparation of all
registration statements and prospectuses, all annual, semiannual
and periodic reports to shareholders of the Trust, regulatory
authorities or others, all notices and proxy solicitation
materials furnished to shareholders of the Trust or regulatory
authorities and all tax returns.
c. In addition to negotiating and contracting with Advisers as set forth
in section (2)(a) of this Agreement and providing facilities,
personnel and services as set forth in section (2)(b) at its own
expense, the Manager will pay or cause to be paid:
i. the cost of any advertising or sales literature relating solely
to the Trust;
ii. the cost of printing and mailing prospectuses to persons other
than current holders of Trust shares or variable contracts funded
by Trust shares; and
iii. the compensation of all officers and Trustees of the Trust who
are also directors, officers or employees of the Manager or its
affiliates.
3. EXPENSES ASSUMED BY THE TRUST
The Trust will pay all expenses of its organization, operations and
business not specifically assumed or agreed to be paid by the Manager as
provided in this Agreement or by an Adviser as provided in an Advisory
Agreement. Without limiting the generality of the foregoing, the Trust shall pay
or arrange for the payment of the following:
a. any of the costs of printing and mailing all registration statements
and prospectuses, all annual, semiannual and periodic reports to
shareholders of the Trust, regulatory authorities or others, all
notices and proxy solicitation materials furnished to shareholders of
the Trust or regulatory authorities and all tax returns;
<PAGE>
b. compensation of the officers and Trustees of the Trust other than
those enumerated in (2.)(c.)(iii.);
c. registration, filing and other fees in connection with requirements of
applicable state and federal regulatory authorities;
d. the charges and expenses of the custodian appointed by the Trust for
custodial services;
e. the charges and expenses of the independent accountants retained by
the Trust;
f. the charges and expenses of any administrative, transfer, bookkeeping,
fund accounting, and compliance testing services, and dividend
disbursing agents appointed by the Trust;
g. broker's commissions and issue and transfer taxes chargeable to the
Trust in connection with securities transactions to which the Trust is
a party;
h. taxes and corporate fees payable by the Trust to federal, state or
other governmental agencies;
i. the cost of stock certificates, if any, representing shares of the
Trust;
j. legal fees and expenses in connection with the affairs of the Trust,
including registering and qualifying its shares with regulatory
authorities;
k. association membership dues if any;
l. insurance premiums for fidelity and other coverage;
m. expenses of shareholders and Trustees' meetings;
n. pricing shares of the Trust's Funds;
o. interest on borrowings; and
p. litigation expenses.
<PAGE>
4. COMPENSATION OF MANAGER
As compensation for the services rendered and obligations assumed hereunder
by the Manager, the Trust shall pay to the Manager monthly a fee that is equal
on an annual basis to that percentage of the average daily net assets of each
Fund set forth on Schedule 1 attached hereto, which is incorporated by reference
herein (and with respect to any future Fund, such percentage as the Trust and
the Manager may agree to from time to time in writing by a signed Amendment of
Schedule 1 subject to Section 13 herein). Such fee shall be computed and accrued
daily. If the Manager serves as Manager for less than the whole of any period
specified in this Section 4, the compensation to the Manager shall be prorated.
For purposes of calculating the Manager's fee, the daily value of each Fund's
net assets shall be computed by the same method as the Trust uses to compute the
net asset value of that Fund. The Manager will pay all fees owing to each
Adviser, and the Trust shall not be obligated to the Advisers in any manner with
respect to the compensation of such Advisers. The Manager reserves the right to
waive all or a part of its fee.
5. NON-EXCLUSIVITY
The services of the Manager to the Trust are not to be deemed to be
exclusive, and the Manager shall be free to render investment management or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that the directors, officers and
employees of the Manager are not prohibited from engaging in any other business
activity or from rendering services to any other person, or from serving as
partners, officers, directors, trustees or employees of any other firm or
corporation, including other investment companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Manager may enter into arrangements with other persons affiliated with
the Manager to better enable it to fulfill its obligations under this Agreement
for the provision of certain personnel and facilities to the Manager.
7. LIMITATION OF LIABILITY OF THE MANAGER
a. Absent willful misfeasance, bad faith, gross negligence, or reckless
disregard of obligations or duties hereunder on the part of the
Manager, the Manager and/or any of its affiliates and the directors,
officers and employees of the Manager and/or of its affiliates shall
not be subject to liability to the Trust or to any holder of an
interest in any Fund for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
<PAGE>
b. The Trust will indemnify the Manager against, and hold it harmless
from, any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from acts
or omissions of the Trust. Indemnification shall be made only after:
(i) a final decision on the merits by a court or other body before
whom the proceeding was brought that the Trust was liable for the
damages claimed or (ii) in the absence of such a decision, a
reasonable determination based upon a review of the facts, that the
Trust was liable for the damages claimed, which determination shall be
made by either (a) the vote of a majority of a quorum of Trustees of
the Trust who are neither "interested persons" of the Trust nor
parties to the proceeding ("disinterested non-party Trustees") or (b)
an independent legal counsel satisfactory to the parties hereto, whose
determination shall be set forth in a written opinion. The Manager
shall be entitled to advances from the Trust for payment of the
reasonable expenses incurred by it in connection with the matter as to
which it is seeking indemnification in the manner and to the fullest
extent that would be permissible under the applicable provisions of
Delaware law and the Investment Company Act. The Manager shall provide
to the Trust a written affirmation of its good faith belief that the
standard of conduct necessary for indemnification under such law has
been met and a written undertaking to repay any such advance if it
should ultimately be determined that the standard of conduct has not
been met. In addition, at least one of the following additional
conditions shall be met: (a) the Manager shall provide security in
form and amount acceptable to the Trust for its undertaking; (b) the
Trust is insured against losses arising by reason of the advance; or
(c) a majority of the independent Trustees of the Trust, or
independent legal counsel in a written opinion, shall have determined,
based on a review of facts readily available to the Trust at the time
the advance is proposed to be made, that there is reason to believe
that the Manager will ultimately be found to be entitled to
indemnification.
8. LIMITATION OF TRUST'S LIABILITY.
The Manager acknowledges that it has received notice of and accepts the
limitations upon the Trust's liability set forth in its Declaration of Trust.
The Manager agrees that the Trust's obligations hereunder in any case shall be
limited to the Trust and to its assets and that the Manager shall not seek
satisfaction of any such obligation from the holders of the interests in any
Fund nor from any Trustee, officer, employee or agent of the Trust.
9. CONFLICTS OF INTEREST
It is understood that Trustees, officers, agents and shareholders of the
Trust are or may be interested in the Manager as directors, officers,
stockholders, or otherwise; that directors, officers, agents and stockholders of
the Manager are or may be interested in the Trust as Trustees, officers,
shareholders or otherwise; that the Manager may be interested in the Trust; and
that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Articles of
Incorporation of the Manager, respectively, or by specific provision of
applicable law.
<PAGE>
10. REGULATION
The Manager shall submit to all regulatory and administrative bodies having
jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
11. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective on the later of its execution or the
date that it has been approved by shareholders of the Trust and/or the Board of
Trustees of the Trust in the manner required by the Investment Company Act. The
Agreement will continue in effect for a period of more than two years from the
date of its execution only so long as such continuance is specifically approved
at least annually either by the Trustees of the Trust or by the vote of a
majority of the outstanding voting securities of the Trust, provided that in
either such event the continuance shall also be approved by the vote of a
majority of the Trustees of the Trust who are not interested persons (as defined
in the Investment Company Act) of any party to this Agreement cast in person at
a meeting called for the purpose of voting on such approval. The required
shareholder approval of the Agreement or any continuance of the Agreement shall
be effective with respect to any Fund if a majority of the outstanding voting
securities of the series (as defined in Rule 18f-2(h) under the Investment
Company Act) of shares of that Fund votes to approve the Agreement or its
continuance, notwithstanding that the Agreement or its continuance may not have
been approved by a majority of the outstanding voting securities of (a) any
other Fund affected by the Agreement or (b) all the Funds of the Trust.
If the shareholders of a series of any Fund fail to approve the Agreement
or any continuance of the Agreement, the Manager will continue to act as
investment Manager with respect to such Fund pending the required approval of
the Agreement or its continuance or of a new contract with the Manager or a
different Manager or other definitive action; provided, that the compensation
received by the Manager in respect of such Fund during such period will be no
more than its actual costs incurred in furnishing investment advisory and
management services to such Fund or the amount it would have received under the
Agreement in respect of such Fund, whichever is less.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Fund by the
vote of a majority of the outstanding voting securities of the shares of such
Fund, on sixty days written notice to the Manager, or by the Manager on sixty
days' written notice to the Trust. This Agreement will automatically terminate,
without payment of any penalty, in the event if its assignment (as defined in
the Investment Company Act).
12. PROVISION OF CERTAIN INFORMATION BY MANAGER
The Manager will promptly notify the Trust in writing of the occurrence of
any of the following events:
<PAGE>
a. the Manager fails to be registered as an investment adviser under the
Investment Advisers Act of 1940 or under the laws of any jurisdiction
in which the Manager is required to be registered as an investment
adviser in order to perform its obligations under this Agreement;
b. the Manager is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity,
before or by any court, public board or body, involving the affairs of
the Trust; and
c. the chief executive officer or controlling stockholder of the Manager
or the Fund manager of any Fund changes.
13. AMENDMENTS TO THE AGREEMENT
This Agreement may be materially amended by the parties only if such
amendment is specifically approved by the vote of a majority of the outstanding
voting securities of each of the Funds affected by the amendment and by the vote
of a majority of the Trustees of the Trust who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to any Fund if a majority of the outstanding voting securities of
the shares of that Fund vote to approve the amendment, notwithstanding that the
amendment may not have been approved by a majority of the outstanding voting
securities of (a) any other Fund affected by the amendment or (b) all the Funds
of the Trust.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
15. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part thereof.
16. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust to the
attention of its Secretary or to the last known business address of the Manager
to the attention of its Secretary, in person or by registered mail or a private
mail or delivery service providing the sender with notice of receipt. Notice
shall be deemed given on the date delivered or mailed in accordance with this
section.
<PAGE>
17. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void in
law or in equity, the Agreement shall be construed, insofar as is possible, as
if such portion had never been contained herein.
18. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of Delaware, or any of the applicable provisions of the
Investment Company Act. To the extent that the laws of Delaware, or any of the
provisions in this Agreement, conflict with applicable provisions of the
Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
[SEAL] LSA VARIABLE SERIES TRUST
By:
[NAME, TITLE]
LSA ASSET MANAGEMENT LLC
[SEAL]
By:
[NAME, TITLE]
<PAGE>
SCHEDULE 1
1. Focused Equity Fund: ____ of the current net assets of the Fund.
2. Growth Equity Fund: ____ of the current net assets of the Fund.
3. Disciplined Equity Fund: ____ of the current net assets of the Fund.
4. Value Equity Fund: ____ of the current net assets of the Fund.
5. Balanced Fund: ____ of the current net assets of the Fund.
6. Emerging Growth Domestic Equity Fund: ____ of the current net assets of
the Fund.
The Percentage Fee for each Fund shall be accrued for each calendar day and
the sum of the daily fee accruals shall be payable monthly to the Manager. The
daily fee accruals will be computed by multiplying the fraction of one over the
number of calendar days in the year by the applicable annual rate described in
the preceding paragraph, and multiplying this product by the net assets of the
Fund as determined in accordance with the Trust's prospectus and statement of
additional information as of the close of business on the previous business day
on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of such month
or from the beginning of such month to the date of termination, as the case may
be, shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
Exhibit 23(4)(b)(i)
INVESTMENT SUB-ADVISORY AGREEMENT
J.P Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Dear Sir or Madam:
This Agreement, executed this ______________ day of September, 1999,
and effective the first day of October, 1999, between J.P. Morgan Investment
Management Inc., a Delaware corporation (the "Adviser") and LSA Asset Management
LLC, a Delaware limited liability company (the "Manager").
WHEREAS, LSA Variable Series Trust, a Delaware business trust (the
"Trust") has entered into an advisory agreement with the Manager (the
"Investment Advisory Agreement"), pursuant to which Manager will act as adviser
to the J.P. Morgan Disciplined Equity Fund (the "Fund"), a series of the Trust.
WHEREAS, The Manager is authorized, with the approval of the Board of
Trustees of the Trust (the "Board" or "Trustees" as the context requires), to
retain the Adviser to provide investment advisory services to the Fund.
WHEREAS, The parties hereto wish to enter into an agreement whereby the
Adviser will provide investment advisory services to the Fund.
NOW THEREFORE, In consideration of the mutual covenants herein
contained, the Manager and the Adviser agree as follows:
1. Appointment
The Manager hereby appoints the Adviser to render certain investment
advisory services to the Fund as set forth herein. The Adviser hereby accepts
such appointment and agrees to perform such services on the terms herein set
forth, and for the compensation herein provided.
<PAGE>
2. Services as Investment Adviser
Subject to the supervision of the Manager and the Board, and in
cooperation with any administrator appointed by the Manager (the
"Administrator"), the Adviser shall (a) manage the Fund's assets in accordance
with the investment objectives, restrictions and limitations of the Fund, as set
forth in the Trust's most recent Registration Statement, subject to the
Guidelines (as such term is defined below); (b) make investment decisions for
the Fund; (c) place purchase and sale orders for portfolio transactions for the
Fund; and (d) employ professional portfolio managers and securities analysts to
provide research services to the Fund. In providing these services, the Adviser
will conduct a continual program of investment, evaluation and, if appropriate,
sale and reinvestment of the Fund's assets. The Adviser shall provide the Fund's
custodian (as defined below) on each business day with information relating to
all transactions concerning the Fund's assets and shall provide the Manager with
such information upon request of the Manager. The Adviser shall review all proxy
solicitation materials and be responsible for voting and handling all proxies in
relation to the securities held in the Fund. The Manager shall instruct the
custodian of the Fund and other parties providing services to the Fund to
promptly forward misdirected proxy materials to the Adviser.
The Adviser shall provide to the Manager a copy of its Form ADV as
filed with the Securities and Exchange Commission and as amended from time to
time and a list of the persons whom Adviser wishes to have authorized to give
written and/or oral instructions to the Fund's custodian.
Copies of the Registration Statement of the Trust, as currently in
effect, have been delivered to the Adviser. The Manager agrees, on an ongoing
basis, to provide to the Adviser as promptly as practicable copies of all
amendments and supplements to the Registration Statement.
The Manager shall provide the Adviser with a copy of the Trust's
agreement with the custodian designated to hold the assets of the Fund (the
"Custodian") and any modifications thereto (the "Custody Agreement"), copies of
such modifications to be provided to the Adviser a reasonable time in advance of
the effectiveness of such modifications. The assets of the Fund shall be
maintained in the custody of the Custodian identified in, and in accordance with
the terms and conditions of, the Custody Agreement (or any sub-custodian
properly appointed as provided in the Custody Agreement). The Adviser shall have
no liability for the acts or omissions of the Custodian unless such act or
omission is required by and taken in good faith and without negligence by the
Custodian in reliance upon improper instruction(s) given to the Custodian by a
representative of the Adviser, which improper instruction(s) is due to the gross
negligence or willful misconduct of the Adviser, properly authorized to give
such instruction(s) under the Custody Agreement. Any assets added to the Fund
shall be delivered directly to the Custodian.
The Manager agrees on an on-going basis to provide or cause to be provided
to the Adviser guidelines, to be revised as provided below (the "Guidelines"),
setting forth limitations, by dollar amount or percentage of net assets, on the
types of securities in which the Fund is permitted to invest or investment
activities in which the Fund is permitted to engage. Among other matters, the
Guidelines shall set forth clearly the limitations imposed upon the Fund as a
result of relevant diversification requirements under state and federal law
pertaining to insurance products, including, without limitation, the provisions
of Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code").
The Guidelines shall remain in effect until 12:00 p.m. on the third business day
following actual receipt by the Adviser of a written notice, denominated clearly
as such, setting forth revised Guidelines. The Adviser shall be permitted to
rely on the most recent Guidelines delivered to it. The Manager agrees that the
Adviser may rely on the Guidelines without independent verification of their
accuracy and that the Adviser will reasonably use its best judgment to interpret
the Guidelines.
The Manager shall perform quarterly and annual tax compliance tests to
ensure that the Fund is in compliance with Subchapter M and Section 817(h) of
the Code. In connection with such compliance tests, the Manager shall prepare
and provide reports to the Adviser within ten (10) business days of a calendar
quarter end relating to the diversification of the Fund under Subchapter M and
Section 817(h) of the Code. The Adviser shall review such reports for purposes
of determining compliance with such diversification requirements. If it is
determined that the Fund is not in compliance with the diversification
requirements noted above, the Adviser, in consultation with the Manager, will
take prompt action to bring the Fund back into compliance within the time
permitted under the Code (the Adviser's "Tax Compliance Responsibilities").
The Adviser shall for all purposes herein be deemed to be an
independent contractor. The Adviser has no authority to act for or represent the
Trust or the Fund in any way except to direct securities transactions pursuant
to its investment advice hereunder. The Adviser is not an agent of the Manager,
the Trust or the Fund.
3. Brokerage.
In selecting brokers or dealers to execute transactions on behalf of
the Fund, the Adviser will seek the best overall terms available. In assessing
the best overall terms available for any transaction, the Adviser will consider
factors it deems relevant, including, without limitation, the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and will continually monitor
such factors. In selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms available, the Adviser is
authorized to consider the brokerage and research services (within the meaning
of Section 28(e) of the Securities Exchange Act of 1934, as amended (the "1934
Act")) provided to the Fund and/or other accounts over which the Adviser or its
affiliates exercise investment discretion.
In no instance will the Fund's assets be purchased from or sold to the
Manager, Adviser, the Trust's principal underwriter, or any affiliated person of
such persons, acting as principal in the transaction, except to the extent
permitted by the Securities and Exchange Commission and the 1934 Act.
4. Information Provided to the Manager.
The Adviser will keep the Manager informed of developments materially
affecting the Fund.
5. Standard of Care.
The Adviser shall exercise its best judgment in rendering the services
described in paragraphs 2, 3 and 4 above. The Adviser shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
6. Compensation.
In consideration of the services rendered pursuant to this Agreement,
the Manager will pay the Adviser the fee as set forth in Exhibit A. Such fees
will be computed daily and payable no later than the 20th business day following
the end of each month. The fee for the period from the initial capitalization of
the Trust to the end of the month during which such capitalization shall have
occurred shall be prorated according to the proportion that such period bears to
the full monthly period. Upon any termination of this Agreement before the end
of a month, the fee for such part of that month shall be prorated according to
the proportion that such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to the Adviser, the value of the Fund's net assets
shall be computed at the times and in the manner specified in the Trust's
Registration Statement.
7. Expenses.
Except for expenses specifically assumed or agreed to be paid by the
Adviser pursuant hereto, the Adviser shall not be liable for any expenses of the
Manager or the Fund including, without limitation, (a) interest and taxes, (b)
brokerage commissions and other costs in connection with the purchase of sale of
securities or other investment instruments with respect to the Fund, and (c)
custodian fees and expenses. The Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement.
8. Services to Other Companies or Accounts.
The Manager understands that the Adviser now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and as investment adviser to other investment companies, and the
Manager has no objection to the Adviser so acting, provided that whenever the
Trust and one or more other accounts or investment companies advised by the
Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a methodology believed
to be equitable to each entity. The Adviser agrees to allocate similarly
opportunities to sell securities. The Manager recognizes that, in some cases,
this procedure may limit the size of the position that may be acquired or sold
for the Fund. In addition, the Manager understands that the persons employed by
the Adviser to assist in the performance of the Adviser's duties hereunder will
not devote their full time to such service and nothing contained herein shall be
deemed to limit or restrict the right of the Adviser or any affiliate of the
Adviser to engage in and devote time and attention to other business or to
render services of whatever kind or nature.
9. Books and Records.
The Adviser shall maintain in compliance with the Investment Company
Act of 1940 (the "1940 Act") all books and records with respect to transactions
involving the assets of the Fund for which the Adviser has responsibility. In
compliance with the requirements of Rule 31a-3 under the 1940 Act, the Adviser
hereby agrees that all records which it maintains for the Fund are the property
of the Trust and further agrees to surrender promptly to the Manager copies of
any of such records upon the Fund's or the Manager's request. The Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
Act the records relating to its activities hereunder required to be maintained
by Rule 31a-1 under the Act and to preserve the records relating to its
activities hereunder required by Rule 204-2 under the Investment Advisers Act of
1940, as amended, for the period specified in the rule.
The Adviser shall provide to the Manager or the Board such periodic and
special reports, balance sheets or financial information, and such other
information with regard to its affairs as the Manager or Board may reasonably
request.
10. Termination of Agreement.
This Agreement shall become effective as of the date of its execution
and shall continue in effect for a period more than two years from the date of
execution only so long as such continuance is specifically approved by the
Trustees at the times and in the manner required by Section 15(a) and (c) of the
1940 Act and rules thereunder.
Pursuant to an Order of the Commission, the Manager may engage a
sub-adviser without first obtaining approval of the investment advisory
agreement by a vote of a majority of the outstanding voting securities of the
Fund. This Agreement shall become effective upon its approval by the Board. The
Adviser shall be without the protection accorded by shareholder approval of an
investment adviser=s receipt of compensation under Section 36(b) of the 1940
Act.
This Agreement may be terminated, at any time, without penalty, by the
Manager or Trustees on sixty (60) days= written notice to the Adviser or by the
Adviser on sixty (60) days= written notice to the Manager.
The Agreement will terminate automatically in the event of assignment.
The agreement will terminate automatically upon the termination of the
Investment Advisory Agreement.
11. Indemnification.
(a) The Manager shall indemnify and hold harmless the Adviser, its
officers, directors and affiliates and each person, if any, who controls the
Adviser within the meaning of Section 15 of the Securities Act of 1933 (the
"1933 Act") ("Affiliates") against any loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damage or expense and reasonable counsel fees incurred in
connection therewith) ("Liabilities") directly arising out of any service, other
than as provided in paragraph (b) of this Section 11, to be rendered under this
Agreement except Liabilities resulting from willful misfeasance, bad faith or
gross negligence in the performance of Adviser's duties. The Manager shall not
be liable for any consequential or incidental damages. The Adviser's complete
compliance with the Guidelines referenced in Section 2 may serve to mitigate
conduct otherwise considered willful misfeasance, bad faith or gross negligence.
(b) With regard to the Adviser's Tax Compliance Responsibilities as set
forth in Section 2, the Manager shall not indemnify and hold harmless Adviser
for any negligent conduct or for Adviser's not taking any corrective action
required to be taken based on consultations with Manager.
(c) The Adviser shall indemnify and hold harmless the Manager and its
Affiliates and each person, if any, who controls the Manager within the meaning
of Section 15 of the 1933 Act, Allstate Life Insurance Company and its
Affiliates, including their separate accounts, which may invest in the Fund
(collectively, the "Life Company") against any Liabilities directly arising out
of the Adviser=s willful misfeasance, bad faith or gross negligence in the
performance of its duties under this Agreement, and further, with regard to the
Adviser's Tax Compliance Responsibilities, shall indemnify Manager, Affiliates,
and the Life Company for Liabilities directly resulting from Adviser"s negligent
conduct. The Adviser shall not be liable for any consequential or incidental
damages. The Adviser and its Affiliates will not be liable to Manager for any
Liabilities relating to the failure of Manager or its Affiliates to comply with
this Agreement and/or any applicable insurance laws and rules, or as a result of
any error of judgment or mistake of law.
As used herein, "consequential or incidental damages" shall not include
any tax consequence(s) under variable insurance products funded by the Fund
resulting from the Adviser's failure to comply with its Tax Compliance
Responsibilities as defined in Section 2 of this Agreement.
12. Disclosure.
The Manager shall not, without the prior written consent of the
Adviser, make representations regarding or reference to the Adviser or any of
its affiliates in any disclosure document, advertisement, sales literature or
other promotional materials.
13. Reference to Manager or Life Company or Trust.
Any materials utilized by the Adviser which contain any information
relating to the Manager, a life insurance company investing in the Fund
(including any information relating to its separate accounts or variable annuity
or variable life insurance contracts) or the Trust shall be submitted to the
Manager for approval prior to use, not less than five (5) business days before
such approval is needed by the Adviser. No such materials shall be used if the
Adviser or the Manager reasonably objects in writing to such use within five (5)
days after receipt of such material.
14. Computer Systems.
The Adviser hereby warrants and represents to the Manager that it has
or will have on or prior to December 31, 1999, plans, steps and procedures which
are reasonably designed to make its mission critical computers, software,
hardware, processes, and procedures related to the services provided herein that
are date sensitive, Year 2000 Compliant (as defined below), provided that,
Adviser makes no representation or warranty as to the Year 2000 Compliance (as
defined below) of third party products or services and Adviser shall not be
responsible for any failure of its computer, software, hardware, processes or
procedures to the extent such failures arise as a result of or in connection
with external dependencies including energy utilities, telecommunications firms,
clients, counter parties, exchanges, depositories, governments and regulatory
agencies and third party providers of products or services. As used herein, Year
2000 Compliant or Year 2000 Compliance means information and technology that
accurately processes date and time data, including calculating, comparing and
sequencing, from, into and between the twentieth and twenty-first centuries;
and, the years 1999 and 2000; and leap year calculations.
15. Definitions.
For the purposes of this Agreement, the terms Avote of a majority of
the outstanding voting securities, ""interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act.
16. Miscellaneous.
Notices and other writings delivered or mailed postage prepaid to
Manager and the Trust at 3100 Sanders Road, Northbrook, Illinois 60062,
Attention: Barbara J. Whisler; or to Adviser at 522 Fifth Avenue, New York, New
York 10036, Attention: Kathleen H. Tripp, or to such other address as Manager or
Advisor may hereafter specify by written notice to the most recent address
specified by the other party, will be deemed to have been properly delivered or
given hereunder to the respective addressee.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought. This Agreement constitutes the entire agreement among the parties hereto
and supersedes any prior agreement among the parties relating to the subject
matter hereof. The paragraph headings of this Agreement are for convenience of
reference and do not constitute a part hereof. This Agreement shall be governed
in accordance with the laws of the State of Illinois, without giving effect to
principles of conflict of laws.
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
LSA ASSET MANAGEMENT LLC
By: __________________________
Name: _______________________
Title: _________________________
Accepted:
J.P. Morgan Investment Management Inc.
By: ____________________________
Name: __________________________
Title: ___________________________
<PAGE>
EXHIBIT A
SUB-ADVISORY AGREEMENT
BETWEEN
LSA ASSET MANAGEMENT LLC
and
J.P. MORGAN INVESTMENT MANAGEMENT INC.
Portfolio Fee Schedule
J.P. Morgan Disciplined Equity Fund ___% of average daily net
assets of the first $250 million;
and ___% of average daily net
assets in excess of $250 million.
<PAGE>
Exhibit 23(4)(b)(ii)
SUB-ADVISORY AGREEMENT
BETWEEN
LSA Asset Management LLC, a
Delaware limited liability company
and
GOLDMAN SACHS ASSET MANAGEMENT,
a separate operating division of
GOLDMAN, SACHS & CO.
It is hereby agreed by and between LSA Asset Management LLC (the "Manager") and
GOLDMAN SACHS ASSET MANAGEMENT, a separate operating division of GOLDMAN SACHS &
CO. ( the "Adviser"), as follows:
1.
Engagement of Adviser. LSA Variable Series Trust, a Delaware business trust (the
"Trust") has entered into an Investment Management Agreement with the Manager on
behalf of the Goldman Sachs Growth Equity Fund (the "Fund"). The Manager is
authorized, with the approval of the Board of Trustees of the Trust (the "Board"
or "Trustees" as the context requires), to retain the Adviser to provide
investment advisory services to the Manager in connection with the management of
the Fund. Manager hereby engages the services of Adviser in furtherance of its
Investment Management Agreement with the Trust. Pursuant to this Sub-Advisory
Agreement and subject to the supervision of the Manager and the Board, and in
cooperation with any administrator appointed by the Manager (the
"Administrator"), the Adviser will manage the investment and reinvestment of the
assets of the Fund.
In this regard, Adviser will determine in its discretion the securities
to be purchased or sold, will provide Manager with records concerning its
activities which Manager or the Trust is required to maintain, and will render
regular reports to the Manager, the Trustees and the Board concerning its
discharge of the foregoing responsibilities. Adviser will discharge the
foregoing responsibilities subject to the control of the Board and in compliance
with such policies as the Board may from time to time establish, and in
compliance with the objectives, policies, and limitations for the Fund set forth
in the Fund's then-current prospectus and statement of additional information.
Manager represents that the engagement of Adviser hereunder has been duly
authorized by the Trust in accordance with the Investment Company Act of 1940
(the "1940 Act"). Manager agrees to inform Adviser of any and all applicable
state insurance law restrictions on investments that operate to limit or
restrict the investments the Fund may otherwise make, and to inform Adviser
promptly of any changes in such requirements.
Adviser accepts its engagement under this Section 1 and agrees, at its
own expense, to render the services set forth herein and to provide the office
space, furnishings, equipment and personnel required by it to perform such
services on the terms and for the compensation provided in this Agreement;
provided, however, that Adviser will not be required to pay the cost (including
taxes, brokerage commissions and other transaction costs, if any) of securities
and other investments purchased or sold for the Fund.
The Manager shall perform quarterly and annual tax compliance tests to
ensure that the Fund is in compliance with Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code") and Section 817(h) of the Code. In
connection with such compliance tests, the Manager shall prepare and provide
reports to the Adviser within ten (10) business days of a calendar quarter end
relating to the diversification of the Fund under Subchapter M and Section
817(h) of the Code (Manager's "Tax Compliance Reports"). The Adviser shall
review such reports for purposes of determining compliance with such
diversification requirements. If it is determined that the Fund is not in
compliance with the requirements noted above, the Adviser, in consultation with
the Manager, will take prompt action to bring the Fund back into compliance
within the time permitted under the Code (the Adviser's ATax Remediation
Responsibilities@).
The Manager shall provide the Adviser with a copy of the Trust's
agreement with the custodian designated to hold the assets of the Fund (the
"Custodian") and any modifications thereto (the "Custody Agreement"), copies of
such modifications to be provided to the Adviser a reasonable time in advance of
the effectiveness of such modifications. The assets of the Fund shall be
maintained in the custody of the Custodian identified in, and in accordance with
the terms and conditions of, the Custody Agreement (or any sub-custodian
properly appointed as provided in the Custody Agreement). The Adviser shall have
no liability for the acts or omissions of the Custodian unless such act or
omission is required by and taken in reliance upon instruction given to the
Custodian by a representative of the Adviser properly authorized to give such
instruction under the Custody Agreement. Any assets added to the Fund shall be
delivered directly to the Custodian.
The Adviser shall review all proxy solicitation materials and be
responsible for voting and handling all proxies in relation to the securities
held in the Fund. The Manager shall instruct the Custodian of the Fund and other
parties providing services to the Fund to promptly forward misdirected proxy
materials to the Adviser.
<PAGE>
2.
Fund Transactions. In connection with purchases or sales of portfolio securities
for the account of the Fund, neither Adviser nor any of its partners, officers,
employees or affiliates will act as a principal, except as otherwise permitted
by the 1940 Act and the rules thereunder. Adviser or its agents will arrange for
the placing of orders for the purchase and sale of portfolio securities for the
Fund's account with brokers or dealers (including Goldman, Sachs & Co.) selected
by Adviser. In the selection of such brokers or dealers (including Goldman,
Sachs & Co.) and the placing of such orders Adviser is directed at all times to
seek for the Fund the most favorable execution and net price available. It is
also understood that it is desirable for the Fund that Adviser have access to
supplemental investment and market research and security and economic analyses
provided by brokers who may execute brokerage transactions at a higher cost to
the Fund than may result when allocating brokerage to other brokers on the basis
of seeking the most favorable price and efficient execution. Therefore, Adviser
is authorized to consider such services provided to the Fund and other accounts
over which Adviser or any of its affiliates exercises investment discretion and
to place orders for the purchase and sale of securities for the Fund with such
brokers, subject to review by the Board from time to time with respect to the
extent and continuation of this practice. It is understood that the services
provided by such brokers may be useful to Adviser in connection with its
services to other clients. Adviser may, on occasions when it deems the purchase
or sale of a security to be in the best interests of the Fund as well as its
other clients, aggregate, to the extent permitted by applicable laws and rules,
the securities to be sold or purchased in order to obtain the most favorable
execution and net price. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction will be
made by Adviser in the manner it considers to be the most equitable and
consistent with its obligations to the Fund and to such other clients. Adviser
is not, however, required to aggregate securities orders.
3.
Compensation of Adviser. As its compensation hereunder, Manager will pay to
Adviser, within twenty (20) business days after the end of each month, a fee
calculated daily as a percentage of the average daily net assets of the Fund
during that month at the following annual rate: ___% of the first $50 million;
___% up to the next $200 million; ___% up to the next $250 million; and ___% in
excess of $500 million.
For the purpose of accruing compensation, the net assets of the Fund
will be determined in the manner provided for in the then-current prospectus of
the Fund.
In the event of termination of this Agreement, all compensation due to
Adviser through the date of termination will be calculated on a pro-rated basis
through the date of termination and paid within fifteen (15) business days of
the date of termination.
4.
Delivery of Information and Reports. Manager agrees to furnish to Adviser
current prospectuses, statements of additional information, proxy statements,
reports of shareholders, certified copies of financial statements, charter
documents and such other information with regard to the affairs of the Fund as
Adviser may reasonably request. Adviser agrees to render to Manager such
periodic and special reports regarding its activities under this Agreement as
Manager may reasonably request. Manager represents that it and the Trust have
received Parts I and II of Adviser's Form ADV. The Adviser shall provide the
Manager with a copy of amendments to its Form ADV and a list of the persons whom
the Adviser wishes to have authorized to give written and/or oral instructions
to the Custodian of the assets of the Fund.
5.
Status of Adviser. The services of Adviser to Manager and the Fund are not to be
deemed exclusive, and Adviser is free to render similar services to others so
long as its services to the Fund are not impaired thereby. Adviser will be
deemed to be an independent contractor and will, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
Without limiting the foregoing, Manager represents that it understands
that the Adviser now acts, will continue to act, or may act in the future, as
investment adviser or investment sub-adviser to fiduciary and other managed
accounts, including other investment companies and that Manager has no objection
to Adviser so acting, provided that Adviser duly performs all obligations under
this Agreement. Manager also understands that Adviser may give advice and take
action with respect to any of its other clients or for its own account which may
differ from the timing or nature of action taken by Adviser with respect to the
Fund. Nothing in this Agreement imposes upon Adviser any obligation to purchase
or sell or to recommend for purchase or sale, with respect to the Fund, any
security which Adviser or its partners, officers, employees or affiliates may
purchase or sell for its or their own account(s) or for the account(s) of any
other client.
6.
Certain Records. Adviser agrees to maintain, in the form and for the period
required by Rule 31a-2 under the 1940 Act, all records relating to the Fund's
investments made by Adviser that are required to be maintained by the Fund
pursuant to the requirements of Rule 31 a-1 (b)(5), (6), (7), (9) and (10) under
the 1940 Act. Any records required to be maintained and preserved pursuant to
the provisions of Rule 31 a-1 and Rule 31 a-2 promulgated under the 1940 Act
which are prepared or maintained by Adviser on behalf of the Fund are the
property of the Fund and will be surrendered promptly to the Fund or Manager on
request.
Adviser agrees that all accounts, books and other records maintained
and preserved by it as required hereby will be subject at any time, and from
time to time, to such reasonable periodic, special and other examinations by the
Securities and Exchange Commission, the Fund's auditors, the Fund or any
representative of the Fund, the Manager, or any governmental agency or other
instrumentality having regulatory authority over the Fund.
7.
Reference to Adviser. The Manager shall not publish or distribute any
information, including but not limited to registration statements, advertising
or promotional material, regarding the provision of investment advisory services
by Adviser pursuant to this Agreement, or use in advertising, publicity or
otherwise the name of Adviser or any of its affiliates, or any trade name,
trademark, trade device, service mark, symbol or any abbreviation, contraction
or simulation thereof of Adviser or its affiliates, without the prior written
consent of Adviser. Any materials utilized by the Manager which contain any
information relating to the Adviser shall be submitted to the Adviser for
approval prior to use, not less than five (5) business days before such approval
is needed by Manager.
Notwithstanding the foregoing, Manager may distribute information
regarding the provision of investment advisory services by Adviser to the Board
(the "Board Materials") without the prior written consent of Adviser. Manager
will provide copies of the Board Materials to Adviser within a reasonable time
following distribution to the Board.
Reference to Manager or Life Company or Trust. Any materials utilized by the
Adviser which contain any information relating to the Manager, a life insurance
company investing in the Fund (including any information relating to its
separate accounts or variable annuity or variable life insurance contracts) or
the Trust shall be submitted to the Manager for approval prior to use, not less
than five (5) business days before such approval is needed by the Adviser. No
such materials shall be used if the Adviser or the Manager reasonably objects in
writing to such use within five (5) days after receipt of such material.
8.
Liability of Manager and Adviser.
(a) The Manager shall indemnify and hold harmless the Adviser, its
officers and directors and each person, if any, who controls the Adviser within
the meaning of Section 15 of the Securities Act of 1933 (the "1933 Act")
("Affiliates") against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged loss, liability,
claim, damage or expense and reasonable counsel fees incurred in connection
therewith) ("Liabilities") arising out of any service, other than as provided in
paragraph (b) of this Section 8, to be rendered under this Agreement except by
reason of willful misfeasance, bad faith or gross negligence in the performance
of Adviser's duties.
(b) With regard to the Adviser's Tax Remediation Responsibilities as
set forth in Section 1, the Manager shall not indemnify and hold harmless
Adviser for Adviser's not taking any corrective action required to be taken
based on consultations with Manager; however, if any Tax Compliance Report is
not properly prepared by Manager which gives rise to the liabilities, Manager
shall indemnify Adviser with respect to such liabilities.
(c) The Adviser shall indemnify and hold harmless the Manager and its
Affiliates and each person, if any, who controls the Manager within the meaning
of Section 15 of the 1933 Act, Allstate Life Insurance Company and its
Affiliates (collectively, the "Life Company") against any Liabilities arising
out of any service to be rendered under this Agreement with respect to the
Adviser's willful misfeasance, bad faith or gross negligence in the performance
of its duties under this Agreement, and further, with regard to the Adviser's
Tax Remediation Responsibilities, shall indemnify Manager, Affiliates, and the
Life Company for any Liabilities resulting from Adviser's not taking any
appropriate corrective action required to be taken based on Adviser's
consultations with Manager. The Adviser and its Affiliates will not be liable to
Manager for any Liabilities relating to the failure of Manager or its Affiliates
to comply with this Agreement and/or any applicable insurance laws and rules
(including the failure of Manager to advise Adviser of any insurance related
restrictions as described in paragraph 1 hereof), or as a result of any error of
judgment or mistake of law, except to the extent specified in Section 36(b) of
the 1940 Act concerning loss resulting from a breach of fiduciary duty with
respect to receipt of compensation for services.
9.
Duration and Termination. This Agreement shall become effective as of October 1,
1999, and shall continue in effect for a period more than two years from the
date of execution only so long as such continuance is specifically approved by
the Trustees at the times and in the manner required by Section 15(a) and (c) of
the 1940 Act and the rules thereunder.
Pursuant to an Order of the Commission, the Manager may engage an
adviser without first obtaining approval of the investment advisory agreement by
a majority of the outstanding voting securities of the Fund. This Agreement
shall become effective upon its approval by the Board. The Adviser shall be
without the protection accorded by shareholder approval of an investment
adviser's receipt of compensation under Section 36(b) of the Act.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Manager or Trustees on sixty (60) days' written notice to
the Adviser, or by the Adviser on sixty (60) days' written notice to the Manager
and the Trust.
This Agreement will automatically terminate in the event of its
assignment. This Agreement will automatically terminate in the event that the
Investment Management Agreement by and between the Trust and the Manager on
behalf of the Fund, referred to in Section 1, is terminated.
Notices and other writings delivered or mailed postage prepaid to
Manager and the Trust at 3100 Sanders Road, Suite J5B, Northbrook, Illinois,
60062 Attention: Barbara J. Whisler, or to Adviser at One New York Plaza, New
York, New York 10004, Attention: Douglas C. Grip (42nd Floor), or to such other
address as Manager or Adviser may hereafter specify by written notice to the
most recent address specified by the other party, will be deemed to have been
properly delivered or given hereunder to the respective addressee.
As used in this Section 9, the terms "assignment," "interested persons"
and a "vote of a majority of the outstanding voting securities" will have the
respective meanings set forth in the 1940 Act and the rules thereunder.
10.
Confidentiality. All information and advice by Adviser for the Fund will be
treated as confidential by Manager and will not be disclosed to third parties
without Adviser's prior written consent except as required by law.
11.
Computer. Adviser and its affiliates, on the one hand, and Manager and its
affiliates on the other hand, represent and warrant to each other that they will
use reasonable commercial efforts to (a) review all of their respective hardware
and/or software comprising computer systems which will be used in connection
with this Agreement (individually, the "Computer System" and collectively, the
"Computer Systems") to determine if such Computer Systems are Year 2000
Compliant (as defined below), (b) render such Computer Systems Year 2000
Compliant prior to any part of such Computer Systems suffering a material
malfunction due to its not being made Year 2000 Compliant on a timely basis, and
(c) jointly test any interfaces between Adviser and its affiliates' Computer
System and Manager and its affiliates' Computer System so as to determine that
they are capable of interfacing without material malfunctions. In the event that
any portion of such Computer System materially malfunctions due to the failure
to be made Year 2000 Compliant on a timely basis, the party responsible for
operating and/or maintaining such Computer System shall use good faith efforts
to correct the malfunction and render the relevant portion of the Computer
System Year 2000 Compliant in order to mitigate the damages from such
malfunction and to avoid any further material malfunction. Adviser and its
affiliates and manager and its affiliates represent and warrant to each other
that they have devoted sufficient resources in terms of funding personnel and
project time to satisfy their respective obligations under this warranty.
For the purpose of this Section 11, "Year 2000 Compliant" shall mean
that the referenced Computer System will correctly differentiate between years,
in different centuries, that end in the same two digits, and will accurately
process date/time data (including, but not limited to, calculating, comparing
and sequencing) from, into, and between the centuries including leap year
calculations, provided that any hardware or software not being operated and/or
maintained as part of the referenced Computer System, is itself Year 2000
Compliant.
12.
Severability. If any provision of this Agreement is held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement will
not be affected thereby.
Amendments. This Agreement may not be amended, altered or modified in any way
except by an addendum in writing duly executed by the proper officials of the
parties hereto.
Survival. Sections 7, 8 and 10 will survive the termination of this Agreement.
Governing Law. This Agreement will be construed in accordance with the laws of
the State of Illinois and the applicable provisions of the 1940 Act and the
rules thereunder. To the extent that the applicable laws of the State of
Illinois or any provisions herein conflict with the applicable provisions of the
1940 Act, the latter will control.
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement this __________ day of September,
1999, to be effective October 1, 1999.
LSA ASSET MANAGEMENT LLC GOLDMAN, SACHS & CO.
By: _______________________________ By:___________________________
Name: _____________________________ Name:________________________
Title: ______________________________ Title: ________________________
GOLDMAN SACHS ASSET MANAGEMENT, a separate operating division of GOLDMAN, SACHS
& CO.
By: _______________________________
Name: _____________________________
Title: ______________________________
<PAGE>
Exhibit 23(4)(b)(iii)
SUB-ADVISORY AGREEMENT
BETWEEN LSA Asset Management LLC
a Delaware limited liability company
and
SALOMON BROTHERS ASSET MANAGEMENT INC.
a Delaware Corporation
It is hereby agreed by and between LSA Asset Management LLC (the "Manager") and
SALOMON BROTHERS ASSET MANAGEMENT INC., (the "Adviser"), as follows:
1.
Engagement of Adviser. LSA Variable Series Trust, a Delaware business trust (the
"Trust") has entered into an Investment Management Agreement with the Manager
effective October 1, 1999, on behalf of the Salomon Brothers Value Equity Fund
(the "Fund"). The Manager is authorized, with the approval of the Board of
Trustees of the Trust (the "Board" or "Trustees" as the context requires), to
retain the Adviser to provide investment advisory services to the Manager in
connection with the management of the Fund. Manager hereby engages the services
of Adviser in furtherance of its Investment Management Agreement with the Trust.
Pursuant to this Sub-Advisory Agreement and subject to the supervision of the
Manager and the Board, and in cooperation with any administrator appointed by
the Manager (the "Administrator"), the Adviser will manage the investment and
reinvestment of the assets of the Fund.
<PAGE>
In this regard, Adviser will determine in its discretion the securities
to be purchased or sold, will provide Manager with records concerning its
activities which Manager or the Trust is required to maintain, and will render
regular reports to Manager, Trustees and the Board concerning its discharge of
the foregoing responsibilities. Adviser will discharge the foregoing
responsibilities subject to the control of the Board and in compliance with such
policies as the Board may from time to time establish, and in compliance with
the objectives, policies, and limitations for the Fund set forth in the Fund=s
then-current prospectus and statement of additional information. Manager
represents that the engagement of Adviser hereunder has been duly authorized by
the Trust in accordance with the Investment Company Act of 1940 (the "1940
Act"). Manager agrees to inform Adviser of any and all applicable state
insurance law restrictions on investments that operate to limit or restrict the
investments the Fund may otherwise make, and to inform Adviser promptly of any
changes in such requirements.
Adviser accepts its engagement under this Section 1 and agrees, at its
own expense, to render the services set forth herein and to provide the office
space, furnishings, equipment and personnel required by it to perform such
services on the terms and for the compensation provided in this Agreement;
provided, however, that Adviser will not be required to pay the cost (including
taxes, brokerage commissions and other transaction costs, if any) of securities
and other investments purchased or sold for the Fund.
The Manager shall perform quarterly and annual tax compliance tests to
ensure that the Fund is in compliance with Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code") and Section 817(h) of the Code. In
connection with such compliance tests, the Manager shall prepare and provide
reports to the Adviser within ten (10) business days of a calendar quarter end
relating to the diversification of the Fund under Subchapter M and Section
817(h) of the Code. The Adviser shall review such reports for purposes of
determining compliance with such diversification requirements. If it is
determined that the Fund is not in compliance with the requirements noted above,
the Adviser, in consultation with the Manager, will take prompt action to bring
the Fund back into compliance within the time permitted under the Code (the
Adviser's "Tax Compliance Responsibilities").
Custodian. The Manager shall provide the Adviser with a copy of the Trust's
agreement with the custodian designated to hold the assets of the Fund (the
"Custodian") and any modifications thereto (the "Custody Agreement"), copies of
such modifications to be provided to the Adviser a reasonable time in advance of
the effectiveness of such modifications. The assets of the Fund shall be
maintained in the custody of the Custodian identified in, and in accordance with
the terms and conditions of, the Custody Agreement (or any sub-custodian
properly appointed as provided in the Custody Agreement). The Adviser shall have
no liability for the acts or omissions of the Custodian unless such act or
omission is required by and taken in reliance upon instruction given to the
Custodian by a representative of the Adviser properly authorized to give such
instruction under the Custody Agreement. Any assets added to the Fund shall be
delivered directly to the Custodian.
The Adviser shall review all proxy solicitation materials and be
responsible for voting and handling all proxies in relation to the securities
held in the Fund. The Manager shall instruct the Custodian of the Fund and other
parties providing services to the Fund to promptly forward misdirected proxy
materials to the Adviser.
<PAGE>
2.
Fund Transactions. In connection with purchases or sales of portfolio securities
for the accounts of the Fund, neither Adviser nor any of its partners, officers,
employees or affiliates will act as a principal, except as otherwise permitted
by the 1940 Act and the rules thereunder. Adviser or its agents will arrange for
the placing of orders for the purchase and sale of portfolio securities for the
Fund=s account with brokers or dealers selected by Adviser. In the selection of
such brokers or dealers and the placing of such orders Adviser is directed at
all times to seek for the Fund the most favorable execution and net price
available. It is also understood that it is desirable for the Fund that Adviser
have access to supplemental investment and market research and security and
economic analyses provided by brokers who may execute brokerage transactions at
a higher cost to the Fund than may result when allocating brokerage to other
brokers on the basis of seeking the most favorable price and efficient
execution. Therefore, Adviser is authorized to consider such services provided
to the Fund and other accounts over which Adviser or any of its affiliates
exercises investment discretion and to place orders for the purchase and sale of
securities for the Fund with such brokers, subject to review by the Board from
time to time with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to Adviser
in connection with its services to other clients. Adviser may, on occasions when
it deems the purchase or sale of a security to be in the best interests of the
Fund as well as its other clients, aggregate, to the extent permitted by
applicable laws and rules, the securities to be sold or purchased in order to
obtain the most favorable execution and net price. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction will be made by Adviser in the manner it considers to be the most
equitable and consistent with its obligations to the Fund and to such other
clients. Adviser is not, however, required to aggregate securities orders.
3.
Compensation of Adviser. As its compensation hereunder, Manager will pay to
Adviser, within twenty (20) business days after the end of each month, a fee
calculated daily as a percentage of the average daily net assets of the Fund
during that month at the annual rate of ____% of the first $250 million; ____%
up to the next $250 million; and ____% in excess of $500 million.
For the purpose of accruing compensation, the net assets of the Fund
will be determined in the manner provided in the then-current prospectus of the
Fund.
<PAGE>
The fee for the period from the initial capitalization of the Trust to
the end of the month during which such capitalization shall have occurred shall
be prorated according to the proportion that such period bears to the full
monthly period. In the event of termination of this Agreement, all compensation
due to Adviser through the date of termination will be calculated on a pro-rated
basis through the date of termination and paid within fifteen (15) business days
of the date of termination.
<PAGE>
4.
Delivery of Information and Reports. Manager agrees to furnish to Adviser
current prospectuses, statements of additional information, proxy statements,
reports of shareholders, certified copies of financial statements, charter
documents and such other information with regard to the affairs of the Fund as
Adviser may reasonably request. Adviser agrees to render to Manager such
periodic and special reports regarding its activities under this Agreement as
Manager may reasonably request. Manager represents that it and the Trust have
received Parts I and II of Adviser's Form ADV. The Adviser shall provide the
Manager with a copy of amendments to its Form ADV and a list of the persons whom
the Adviser wishes to have authorized to give written and/or oral instructions
to the Custodian of the assets of the Fund.
5.
Status of Adviser. The services of Adviser to Manager and the Fund are not to be
deemed exclusive, and Adviser is free to render similar services to others so
long as its services to the Fund are not impaired thereby. Adviser will be
deemed to be an independent contractor and will, unless otherwise expressly
provided or authorized, have no authority to act for or represent the Fund in
any way or otherwise be deemed an agent of the Fund.
Without limiting the foregoing, Manager represents that it understands
that the Adviser now acts, will continue to act, or may act in the future, as
investment adviser or investment sub-adviser to fiduciary and other managed
accounts, including other investment companies and that Manager has no objection
to Adviser so acting, provided that Adviser duly performs all obligations under
this Agreement. Manager also understands that Adviser may give advice and take
action with respect to any of its other clients or for its own account which may
differ from the timing or nature of action taken by Adviser with respect to the
Fund. Nothing in this Agreement imposes upon Adviser any obligation to purchase
or sell or to recommend for purchase or sale, with respect to the Fund, any
security which Adviser or its partners, officers, employees or affiliates may
purchase or sell for its or their own account(s) or for the account of any other
client.
6.
<PAGE>
Certain Records. Adviser agrees to maintain, in the form and for the period
required by Rule 31a-2 under the 1940 Act, all records relating to the Fund's
investments made by Adviser that are required to be maintained by the Fund
pursuant to the requirements of Rule 31 a-1 (b)(5), (6), (7), (9) and (10) under
that Act. Any records required to be maintained and preserved pursuant to the
provisions of Rule 31 a-1 and Rule 31 a-2 promulgated under the 1940 Act which
are prepared or maintained by Adviser on behalf of the Fund are the property of
the Fund and will be surrendered promptly to the Fund or Manager on request.
Adviser agrees that all accounts, books and other records maintained and
preserved by it as required hereby will be subject at any time, and from time to
time, to such reasonable periodic, special and other examinations by the
Securities and Exchange Commission, the Fund's auditors, the Fund or any
representative of the Fund, the Manager, or any governmental agency or other
instrumentality having regulatory authority over the Fund.
7.
Reference to Adviser. The Manager shall not publish or distribute any
information, including but not limited to registration statements, advertising
or promotional material, regarding the provision of investment advisory services
by Adviser pursuant to this Agreement, or use in advertising, publicity or
otherwise the name of Adviser or any of its affiliates, or any trade name,
trademark, trade device, service mark, symbol or any abbreviation, contraction
or simulation thereof of Adviser or its affiliates, without the prior written
consent of Adviser. Any materials utilized by the Manager which contain any
information relating to the Adviser shall be submitted to the Adviser for
approval prior to use, not less than five (5) business days before such approval
is needed by Manager.
Notwithstanding the foregoing, Manager may distribute information
regarding the provision of investment advisory services by Adviser to the Board
(the "Board Materials") without the prior written consent of Adviser. Manager
will provide copies of the Board Materials to Adviser within a reasonable time
following distribution to the Board.
Reference to Manager or Life Company or the Trust. Any materials utilized by the
Adviser which contain any information relating to the Manager, a life insurance
company investing in the Fund (including any information relating to its
separate accounts or variable annuity or variable life insurance contracts) or
the Trust shall be submitted to the Manager for approval prior to use, not less
than five (5) business days before such approval is needed by the Adviser. No
such materials shall be used if the Adviser or the Manager reasonably objects in
writing to such use within five (5) days after receipt of such material.
<PAGE>
8.
Liability of Manager and Adviser.
(a) The Manager shall indemnify and hold harmless the Adviser against
any loss, liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or expense
and reasonable counsel fees incurred in connection therewith) ("Liabilities")
arising out of any service, other than as provided in paragraph (b) of this
Section 8, to be rendered under this Agreement except by reason of willful
misfeasance, bad faith or gross negligence in the performance of Adviser's
duties.
(b) With regard to the Adviser's Tax Compliance Responsibilities as set
forth in Section 1, the Manager shall not indemnify and hold harmless Adviser
for any negligent conduct or conduct that is not at the level at which a prudent
person would conduct its own affairs.
(c) The Adviser shall indemnify and hold harmless the Manager against
any loss, liability, claim, damage or expense, including but not limited to
those incurred by life insurance companies and their separate accounts that
invest in the Fund and for which the Manager or the Fund is liable
("Liabilities") arising out of any service to be rendered under this Agreement
with respect to the Adviser's willful misfeasance, bad faith or gross negligence
in the performance of its duties under this Agreement, and further, with regard
to the Adviser's Tax Compliance Responsibilities, shall indemnify Manager for
any Liabilities resulting from Adviser's negligent conduct. The Adviser will not
be liable to Manager for any Liabilities relating to the failure of Manager to
comply with this Agreement and/or any applicable insurance laws and rules, or as
a result of any error of judgment or mistake of law, except to the extent
specified in Section 36(b) of the 1940 Act concerning loss resulting from a
breach of fiduciary duty with respect to receipt of compensation for services.
9.
Duration and Termination. This Agreement shall become effective as of the date
of its execution and shall continue in effect for a period more than two years
from the date of execution only so long as such continuance is specifically
approved by the Trustees at the times and in the manner required by Section
15(a) and (c) of the 1940 Act and the rules thereunder.
<PAGE>
Pursuant to an Order of the Commission, the Manager may engage an
Adviser without first obtaining approval of the investment advisory agreement by
a majority of the outstanding voting securities of the Fund. This Agreement
shall become effective upon its approval by the Board.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Manager or Trustees on sixty (60) days' written notice to the
Adviser, or by the Adviser on sixty (60) days' written notice to the Manager.
This Agreement will automatically terminate in the event of its
assignment. This Agreement will automatically terminate in the event that the
Investment Management Agreement by and between the Trust and the Manager on
behalf of the Fund, referred to in Section 1, is terminated.
Notices and other writings delivered or mailed postage prepaid to Manager
and the Trust at 3100 Sanders Road, Northbrook, Illinois 60062, Attn: Barbara J.
Whisler, Esq., or to Adviser at Salomon Brothers Asset Management Inc., Seven
World Trade Center, 38th Floor, New York, New York 10048, Attn: Robert A.
Vegliante, Esq., or to such other address as Manager or Adviser may hereafter
specify by written notice to the most recent address specified by the other
party, will be deemed to have been properly delivered or given hereunder to the
respective addressee.
As used in this Section 9, the terms "assignment," "interested persons"
and a "vote of a majority of the outstanding voting securities" will have the
respective meanings set forth in the 1940 Act and the rules thereunder.
10.
Confidentiality. All information and advice by Adviser for the Fund will be
treated as confidential by Manager and will not be disclosed to third parties
without Adviser's prior written consent, except as required by law.
11.
<PAGE>
Computer. The Adviser warrants that, to the best of its knowledge, the computer
systems, software, hardware or equipment under its sole control and maintained
in the course of performing its services under this Agreement, shall operate,
without error, and as necessary shall accurately process all data which involve,
in any way or manner, calendar year date dependencies or considerations. The
parties agree that if any clause in this Agreement or any agreement of which
this is a part attempts to limit the Adviser's liability to the Manager in any
way or which disclaims any warranties then such clause or agreement shall not be
effective with regard to any breach of the foregoing warranty. The parties
further agree that the Federal "Year 2000 Information and Readiness Disclosure
Act" and any Year 2000 Statement and Year 2000 Disclosure (as such terms are
defined under the Act referenced) whether made or issued before, contemporaneous
with or after this Agreement shall not operate or be deemed to limit, diminish,
modify or otherwise affect the foregoing warranty the making of which Adviser
acknowledges and agrees is material to the Manager=s Agreement hereunder.
The Adviser represents and warrants that to the best of its knowledge the
software utilized in the course of performing its services under this Agreement
("Software") (a) contains no hidden files, viruses or contaminants, (b) will not
replicate, transmit, or activate itself without control of a person operating
the computing equipment on which it resides, (c) will not access, alter, damage,
erase, or otherwise interfere with, the Software, including, any data or
computer programs without control of a person operating the computing equipment
on which it resides, (d) contains no key, node lock, time-out or other function,
whether implemented by electronic, mechanical or other means, which restricts or
may restrict use or access to the Software without the consent of the computer
user.
12.
Severability. If any provision of this Agreement is held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement will
not be affected thereby.
Amendments. This Agreement may not be amended, altered or modified in any way
except by an addendum in writing duly executed by the proper officials of the
parties hereto.
Survival. Sections 7, 8 and 10 will survive the termination of this Agreement.
Governing Law. This Agreement will be construed in accordance with the laws of
the State of Illinois and the applicable provisions of the 1940 Act and the
rules thereunder. To the extent that the applicable laws of the State of
Illinois or any provisions herein conflict with the applicable provisions of the
1940 Act, the latter will control.
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement on the ___ day of September, 1999,
to be effective as of the 1st day of October, 1999.
By:__________________________
Name:________________________
Title:_________________________
Authorized Officer
SALOMON BROTHERS ASSET MANAGEMENT INC.
By:__________________________
Name:________________________
Title:_________________________
Authorized Officer
LSA ASSET MANAGEMENT LLC
<PAGE>
Exhibit 23(4)(b)(iv)
SUB-ADVISORY AGREEMENT
This Sub-Advisory Agreement (the "Agreement") executed this ___________
day of September, 1999 and effective October 1, 1999, by and between LSA Asset
Management LLC, a Delaware limited liability company (the "Manager"), and Morgan
Stanley Dean Witter Investment Management Inc., a Delaware corporation (the
"Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated
_________, (the "Advisory Agreement") with LSA Variable Series Trust (the
"Trust"), pursuant to which the Manager provides portfolio management and
administrative services to the Morgan Stanley Asset Management Focused Equity
Fund (the AFund@).
WHEREAS, the Manager is authorized, with the approval of the Board of
Trustees of the Trust (the "Board" or "Trustees" as the context requires), to
retain the Adviser to provide portfolio management and administrative services
to the Manager in connection with the management of the Fund.
WHEREAS, the Manager desires to retain the Adviser to render portfolio
management and administrative services in the manner and on the terms set forth
in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Manager and the Adviser agree as follows:
1. Sub-Advisory Services.
a. The Adviser shall, subject to the supervision of the Manager
and the Board, and in cooperation with any administrator appointed by the
Manager (the "Administrator"), manage the investment and reinvestment of the
assets of the Fund. The Adviser shall manage the Fund in conformity with: (1)
the investment objective, policies and restrictions of the Fund set forth in the
Trust's then-current prospectus and statement of additional information relating
to the Fund, (2) any additional policies or guidelines established by the
Manager or by the Board that have been furnished in writing to the Adviser and
(3) the provisions of the Internal Revenue Code of 1986, as amended (the "Code")
applicable to "regulated investment companies" (as defined in Section 851 of the
Code), all as from time to time in effect (collectively, the "Policies"), and
with all applicable provisions of law, including without limitation all
applicable provisions of the Investment Company Act of 1940, as amended (the
"1940 Act") and the rules and regulations thereunder. Subject to the foregoing,
the Adviser is authorized, in its discretion and without prior consultation with
the Manager, to buy, sell, lend and otherwise trade in any stocks, bonds and
other securities and investment instruments on behalf of the Fund, without
regard to the length of time the securities have been held and the resulting
rate of portfolio turnover or any tax considerations, and the majority or the
whole of the Fund may be invested in such proportions of stocks, bonds, other
securities or investment instruments, or cash, as the Adviser shall, in its best
judgment, determine. Notwithstanding the foregoing provisions of this Section
1.a., however, the Adviser shall, upon written instructions from the Manager,
effect such portfolio transactions for the Fund as the Manager shall determine
are necessary in order for the Fund to comply with the Policies.
b. The Adviser shall furnish the Manager and the Administrator
with monthly, quarterly and annual reports concerning transactions and
performance of the Fund in such form as may be mutually agreed upon, and agrees
to review the Fund and discuss the management of the Fund with representatives
or agents of the Manager, the Administrator or the Fund at their reasonable
request. The Adviser shall permit all books and records with respect to the Fund
to be inspected and audited by the Manager and the Administrator at all
reasonable times during normal business hours, on reasonable notice. The Adviser
shall also provide the Manager, the Administrator or the Fund with such other
information and reports as may reasonably be requested by the Manager, the
Administrator or the Fund from time to time, including without limitation all
material as reasonably may be requested by the Board pursuant to Section 15(c)
of the 1940 Act.
c. Adviser agrees to maintain, in the form and for the period
required by Rule 31a-2 under the 1940 Act, all records relating to the Fund's
investments made by Adviser that are required to be maintained by the Fund
pursuant to the requirements of Rule 31 a-1 (b)(5), (6), (7), (9) and (10) under
the 1940 Act. Any records required to be maintained and preserved pursuant to
the provisions of Rule 31 a-1 and Rule 31 a-2 promulgated under the 1940 Act
which are prepared or maintained by Adviser on behalf of the Fund are the
property of the Fund and will be surrendered promptly to the Fund or Manager
upon request.
d. The Adviser shall provide to the Manager a copy of its Form
ADV as filed with the Securities and Exchange Commission and as amended from
time to time and a list of the persons whom the Adviser wishes to have
authorized to give written and/ or oral instructions to custodians of assets of
the Fund.
e. The Adviser shall provide the Fund's Custodian (as defined
below) on each business day with information relating to all transactions
concerning the Fund's assets and shall provide the Manager with such information
upon request of the Manager. The Adviser shall review all proxy solicitation
materials and be responsible for voting and handling all proxies in relation to
the securities held in the Fund. The Adviser shall instruct the Custodian of the
Fund and other parties providing services to the Fund to promptly forward
misdirected proxy materials to the Adviser.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Fund's custodian, as
defined below, to provide) timely information to the Adviser regarding such
matters as the composition of assets of the Fund, cash requirements and cash
available for investment in the Fund, and all other information as may be
reasonably necessary for the Adviser to perform its responsibilities hereunder.
b. The Manager has furnished the Adviser a copy of the prospectus
and statement of additional information of the Trust and agrees during the
continuance of this Agreement to furnish the Adviser copies of any revisions or
supplements thereto at, or, if practicable, before the time the revisions or
supplements become effective. No revisions shall be made nor supplements issued
regarding the Fund or the Adviser without the prior review and approval of the
Adviser. No written materials naming or relating to the Adviser, its employees
or its affiliated companies, other than materials provided or approved by the
Adviser, shall be used by the Manager, the Fund or their affiliates in offering
or marketing shares of the Fund. The Manager agrees to furnish the Adviser with
minutes of meetings of the Trustees applicable to the Fund to the extent they
may affect the duties of the Adviser, and with copies of any financial
statements or reports made by the Fund to its shareholders, and any further
materials or information which the Adviser may reasonably request to enable it
to perform its functions under this Agreement.
The Manager shall provide the Adviser with a copy of the Trust's
agreement with the Custodian designated to hold the assets of the Fund (the
"Custodian") and any modifications thereto (the "Custody Agreement"), copies of
such modifications to be provided to the Adviser a reasonable time in advance of
the effectiveness of such modifications. The assets of the Fund shall be
maintained in the custody of the Custodian identified in, and in accordance with
the terms and conditions of, the Custody Agreement (or any sub-custodian
properly appointed as provided in the Custody Agreement). The Adviser shall have
no liability for the acts or omissions of the Custodian unless such act or
omission is required by and taken in reliance upon instruction given to the
Custodian by a representative of the Adviser properly authorized to give such
instruction under the Custody Agreement. Any assets added to the Fund shall be
delivered directly to the Custodian.
The Manager shall perform quarterly and annual tax compliance
tests to ensure that the Fund is in compliance with Subchapter M and Section
817(h) of the Code. In connection with such compliance tests, the Manager shall
prepare and provide reports to the Adviser within ten (10) business days of a
calendar quarter end relating to the diversification of the Fund under
Subchapter M and Section 817(h) of the Code. The Adviser shall review such
reports for purposes of determining compliance with such diversification
requirements. If it is determined that the Fund is not in compliance with the
requirements noted above, the Adviser, in consultation with the Manager, will
take prompt action to bring the Fund back into compliance within the time
permitted under the Code (the Adviser's "Tax Compliance Responsibilities").
3. Expenses.
Except for expenses specifically assumed or agreed to be paid by
the Adviser pursuant hereto, the Adviser shall not be liable for any expenses of
the Manager or the Fund including, without limitation, (a) interest and taxes,
(b) brokerage commissions and other costs in connection with the purchase or
sale of securities or other investment instruments with respect to the Fund, and
(c) custodian fees and expenses. The Adviser will pay its own expenses incurred
in furnishing the services to be provided by it pursuant to this Agreement.
4. Purchase and Sale of Assets.
Absent instructions from the Manager to the contrary, the Adviser
shall place all orders for the purchase and sale of securities for the Fund with
brokers or dealers selected by the Adviser, which may include brokers or dealers
affiliated with the Adviser, provided such orders comply with Rule 17e-1 under
the 1940 Act. To the extent consistent with applicable law, purchase or sell
orders for the Fund may be aggregated with contemporaneous purchase or sell
orders of other clients of the Adviser. The Adviser shall use its best efforts
to obtain execution of transactions for the Fund at prices which are
advantageous to the Fund and at commission rates that are reasonable in relation
to the benefits received.
5. Compensation of the Adviser.
As its compensation hereunder, Manager will pay to Adviser,
within twenty (20) business days after the end of each month, a fee calculated
daily as a percentage of the average daily net assets of the Fund during that
month at the following annual rate: ___% on the first $150 million; ___% on the
next $100 million; ___% up to the next $250 million; and ___% in excess of $500
million.
For the purpose of accruing compensation, the net assets of the
Fund will be determined in the manner provided in the then-current prospectus of
the Fund.
The fee for any period less than one month shall be prorated
according to the proportion that such period bears to the full monthly period.
In the event of termination of this Agreement, all compensation due to the
Adviser through the date of termination will be calculated on a pro-rated basis
through the date of termination and paid within fifteen (15) business days of
the date of termination.
6. Non-Exclusivity.
The Manager agrees that the services of the Adviser are not to be
deemed exclusive and that the Adviser and its affiliates are free to act as
investment manager and provide other services to various investment companies
and other managed accounts and clients, except as the Adviser and the Manager
may otherwise agree from time to time in writing before or after the date
hereof. This Agreement shall not in any way limit or restrict the Adviser or any
of its directors, officers, employees or agents from buying, selling or trading
any securities or other investment instruments for its or their own account or
for the account of others for whom it or they may be acting, provided that such
activities do not adversely affect or otherwise impair the performance by the
Adviser of its duties and obligations under this Agreement. The Manager
recognizes and agrees that the Adviser may provide advice to or take action with
respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Fund. The Adviser shall for all purposes hereof be
deemed to be an independent contractor and shall, unless otherwise provided or
authorized, have no authority to act for or represent the Fund or the Manager in
any way or otherwise be deemed an agent of the Fund or the Manager.
7. Reference to Manager or Life Company or Trust.
Any materials utilized by the Adviser which contain any
information relating to the Manager, a life insurance company investing in the
Fund (including any information relating to its separate accounts or variable
annuity or variable life insurance contracts) or the Trust shall be submitted to
the Manager for approval prior to use, not less than five (5) business days
before such approval is needed by the Adviser. No such materials shall be used
if the Adviser or the Manager reasonably objects in writing to such use within
five (5) business days after receipt of such material.
8. Reference to Adviser or Fund.
Any materials utilized by the Manager which contain any
information relating to the Adviser or the Fund shall be submitted to the
Adviser for approval prior to use, not less than five (5) business days before
such approval is needed by the Adviser. No such materials shall be used if the
Adviser or the Manager reasonably objects in writing to such use within five (5)
business days after receipt of such material.
9. Computer Systems.
The Adviser warrants that it will use its reasonable efforts to
ensure that the computer systems, software, hardware or equipment supplied or
maintained in the course of performing its services under this Agreement, shall
operate, without error, and as necessary shall accurately process all data which
involve, in any way or manner, calendar year date dependencies or
considerations. The parties agree that the Federal "Year 2000 Information and
Readiness Disclosure Act" shall not operate or be deemed to limit, diminish,
modify or otherwise affect the foregoing warranty the making of which Adviser
acknowledges and agrees is material to the Manager's Agreement hereunder.
10. Indemnification.
a. The Manager shall indemnify and hold harmless the Adviser, its
officers and directors and each person, if any, who controls, is controlled by
or is under common control, with the Adviser within the meaning of Section 15 of
the Securities Act of 1933 (the "1933 Act") ("Affiliates") against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or expense
and reasonable counsel fees incurred in connection therewith) ("Liabilities")
arising out of any service, other than as provided in paragraph (b) of this
Section 10, to be rendered under this Agreement except by reason of willful
misfeasance, bad faith or gross negligence in the performance of Adviser"s
duties.
b. With regard to the Adviser's Tax Compliance Responsibilities
as set forth in Section 2, the Manager shall not indemnify and hold harmless
Adviser for any negligent conduct or conduct that is not at the level at which a
prudent person would conduct its own affairs.
c. The Adviser shall indemnify and hold harmless the Manager and
its Affiliates and each person, if any, who controls, is controlled by or is
under common control, with the Manager within the meaning of Section 15 of the
1933 Act, Allstate Life Insurance Company and its Affiliates, including their
separate accounts, which may invest in the Fund (collectively, the "Life
Company") against any Liabilities arising out of any service to be rendered
under this Agreement with respect to the Adviser's willful misfeasance, bad
faith or gross negligence in the performance of its duties under this Agreement,
and further, with regard to the Adviser's Tax Compliance Responsibilities, shall
indemnify Manager, Affiliates, and the Life Company for any Liabilities
resulting from Adviser's negligent conduct or conduct that is not at the level
at which a prudent person would conduct its own affairs. The Adviser and its
Affiliates will not be liable to Manager for any Liabilities relating to the
failure of Manager or its Affiliates to comply with this Agreement and/or any
applicable insurance laws and rules, or as a result of any error of judgment or
mistake of law, except to the extent specified in Section 36(b) of the 1940 Act
concerning loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services.
11. Effective Date and Termination.
a. This Agreement shall become effective as of the date of its
execution and shall continue in effect for a period more than two years from the
date of execution only so long as such continuance is specifically approved by
the Trustees at the times and in the manner required by Section 15(a) and (c) of
the 1940 Act and the rules thereunder.
b. This Agreement may, at any time, be terminated on sixty (60)
days' written notice to the Adviser by the Manager or Trustees. Pursuant to an
Order of the Commission, the Manager may engage an Adviser without first
obtaining approval of the investment advisory agreement by a majority of the
outstanding voting securities of the Fund. This Agreement shall become effective
upon its approval by the Board. The Adviser shall be without the protection
accorded by shareholder approval of an investment adviser's receipt of
compensation under Section 36(b) of the 1940 Act.
c. This Agreement shall automatically terminate in the event of
its assignment or upon the termination of the Advisory Agreement.
d. This Agreement may be terminated by the Adviser on sixty (60)
days' written notice to the Manager.
Termination of this Agreement pursuant to this Section 11 shall
be without the payment of any penalty.
12. Amendment.
This Agreement may be amended at any time by mutual consent of
the parties, provided that, if required by law, such amendment shall also have
been approved by vote of a majority of the outstanding voting securities of the
Fund and by vote of a majority of the Trustees who are not interested persons of
the Fund, the Manager or the Adviser, cast in person at a meeting called for the
purpose of voting on such approval.
13. Definitions.
For the purpose of this Agreement, the terms "vote of a majority
of the outstanding voting securities," "interested person," "affiliated company"
and "assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act.
14. General.
a. The Adviser may perform its services through an affiliated
company, employee, officer or agent, and the Manager shall not be entitled to
the advice, recommendation or judgment of any specific person; provided,
however, that the persons identified in the then-current prospectus of the Fund
shall perform the Fund management duties described therein until the Adviser
notifies the Manager that one or more other affiliates, employees, officers or
agents identified in such notice shall assume such duties as of a specific date.
b. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
c. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Illinois.
15. Confidentiality.
All information and advice by Adviser for the Fund will be
treated as confidential by Manager and will not be disclosed to third parties
without Adviser"s prior written consent except as required by law.
16. Use of Adviser Name.
The Manager agrees that if this Agreement is terminated and the Adviser
or an affiliate thereof shall no longer be the Adviser to the Fund, the Manager
will change the name of the Fund to delete any reference to "Morgan Stanley Dean
Witter Investment Management Inc." or "Morgan Stanley Asset Management."
LSA ASSET MANAGEMENT LLC
By: _____________________________________
Name: ___________________________________
Title: _____________________________________
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
By: _____________________________________
Name: ___________________________________
Title: _____________________________________
<PAGE>
Exhibit 23(4)(b)(v)
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, executed this __________ day of September, 1999, and
effective the 1st day of October 1999, among OpCap Advisors, a Delaware general
partnership (the "Adviser"), and LSA Asset Management LLC, a Delaware limited
liability company (the "Manager").
WHEREAS, LSA Variable Series Trust, a Delaware business trust (the
"Trust") has entered into an advisory agreement with the "Manager", a copy of
which agreement is attached hereto as Exhibit A (the "Investment Advisory
Agreement"), pursuant to which it will act as adviser to the OpCap Advisors
Balanced Fund (the "Fund"), a series of the Trust. The Manager is authorized,
with the approval of the Board of Trustees of the Trust (the "Board" or
"Trustees" as the context requires), to retain the Adviser to provide investment
advisory services to the Manager in connection with the management of the Fund.
WHEREAS, The parties hereto wish to enter into an agreement whereby the
Adviser will provide to the Manager, in connection with the management of the
Fund, securities investment advisory services.
NOW THEREFORE, In consideration of the mutual covenants herein
contained, the Manager and the Adviser agree as follows:
Appointment
(1) The Manager hereby employs the Adviser to render certain investment advisory
services to the Fund as set forth herein. The Adviser hereby accepts such
employment and agrees to perform such services on the terms herein set forth,
and for the compensation herein provided.
Services as Investment Adviser
(2) Subject to the supervision of the Manager and the Board, and in cooperation
with any administrator appointed by the Manager (the "Administrator"), the
Adviser shall furnish the Fund advice with respect to the investment and
reinvestment of the assets of the Fund in accordance with the investment
objectives, restrictions and limitations of the Fund, as set forth in the
Trust's most recent Registration Statement.
<PAGE>
(3) The Adviser shall provide to the Manager a copy of its Form ADV as filed
with the Securities and Exchange Commission (the "Commission") and as amended
from time to time and a list of the persons whom the Adviser wishes to have
authorized to give written and/or oral instructions to the custodians of the
assets of the Fund.
Custodian The Manager shall provide the Adviser with a copy of the Trust's
agreement with the custodian designated to hold the assets of the Fund (the
"Custodian") and any modifications thereto (the "Custody Agreement"), copies of
such modifications to be provided to the Adviser a reasonable time in advance of
the effectiveness of such modifications. The assets of the Fund shall be
maintained in the custody of the Custodian identified in, and in accordance with
the terms and conditions of, the Custody Agreement (or any sub-custodian
properly appointed as provided in the Custody Agreement). Where the Custodian's
act(s) or omission(s) is required by, and taken in reliance upon, improper
instructions given to the Custodian by a properly authorized representative of
the Adviser, then the Adviser shall be liable for the act(s) or omission(s) of
the Custodian. "Properly authorized" shall mean those representatives of the
Adviser who are authorized, pursuant to the Custody Agreement, to give
instructions to the Custodian under the Custodian Agreement. Any assets added to
the Fund shall be delivered directly to the Custodian.
(4) The Adviser shall perform a monthly reconciliation of the Fund to the
holdings report provided by the Trust's Custodian and bring any material or
significant variances regarding holding or valuation to the attention of the
Manager. The Adviser shall provide the Trust's Custodian on each business day
with information relating to all transactions concerning the Trust's assets and
shall provide the Manager with such information upon request of the Manager.
(5) The Adviser shall manage the Fund in compliance with Subchapter M and
Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations thereunder.
(6) The Manager shall perform quarterly and annual tax compliance tests to
ensure that the Fund is in compliance with Subchapter M of the Code and Section
817(h) of the Code. In connection with such compliance tests, the Manager shall
prepare and provide reports to the Adviser within ten (10) business days of a
calendar quarter end relating to the diversification of the Fund under
Subchapter M and Section 817(h). The Adviser shall review such reports for
purposes of determining compliance with such diversification requirements. If it
is determined that the Fund is not in compliance with the requirements noted
above, the Adviser, in consultation with the Manager, will take prompt action to
bring the Fund back into compliance within the time permitted under the Code
(the Adviser's "Tax Compliance Responsibilities").
(7) The Adviser shall for all purposes herein be deemed to be an independent
contractor. The Adviser has no authority to act for or represent the Trust or
the Fund in any way except to direct securities transactions pursuant to its
investment advice hereunder. The Adviser is not an agent of the Manager, the
Trust or the Fund.
<PAGE>
(8) The Adviser shall bear all of its expenses in connection with the
performance of its services under this Agreement. All other expenses to be
incurred in the operation of the Fund will be borne by the Trust or the Fund.
(9) The Adviser shall review all proxy solicitation materials and be responsible
for voting and handling all proxies in relation to the securities held in the
Fund. The Manager shall instruct the Custodian of the Fund and other parties
providing services to the Fund to promptly forward misdirected proxy materials
to the Adviser.
Maintenance of Books and Records
(10) The Adviser shall maintain, in compliance with the Investment Company Act
of 1940, as amended (the "1940 Act"), all books and records with respect to
transactions involving the assets of the Fund for which the Adviser has
responsibility. In compliance with the requirements of Rule 3la-3 under the 1940
Act, the Adviser hereby agrees that all records which it maintains for the Fund
are the property of the Trust and further agrees to surrender promptly to the
Manager copies of any of such records upon the Fund's or the Manager's request.
The Adviser further agrees to preserve, for the periods prescribed by Rule 31a-2
under the 1940 Act, the records relating to its activities hereunder required to
be maintained by Rule 31a-1 under the 1940 Act and to preserve the records
relating to its activities hereunder required by Rule 204-2 under the Investment
Advisers Act of 1940, as amended, for the period specified in said rule. The
Adviser shall provide to the Manager or the Board such periodic and special
reports, balance sheets or financial information, and such other information
with regard to its affairs as the Manager or Board may reasonably request. Any
records required to be maintained and preserved pursuant to the provisions of
Rule 31a-1 and Rule 31a-2 promulgated under the 1940 Act which are prepared or
maintained by Adviser on behalf of the Fund are the property of the Fund and
will be surrendered promptly to the Fund or Manager on request.
Compensation
(11)(a) The Manager agrees to pay the Adviser for its services to be furnished
under this Agreement the fees set forth in Exhibit B attached hereto. Such fees,
with respect to each calendar month after the effective date of this Agreement,
shall be paid on the 20th business day after the close of each calendar month.
<PAGE>
(11)(b) The fee for the period from the initial capitalization of the Trust to
the end of the month during which such capitalization accrued shall be prorated
according to the proportion that such period bears to the full monthly period.
(11)(c) In the event of termination of this Agreement on a day that is not the
end of a calendar month, the payment of all fees provided for hereunder shall be
prorated and reduced for sums payable for a period less than a full month.
(11)(d) For the purposes of this Section 11, the daily closing net asset values
of the Fund shall be computed in the manner specified in the Trust's
Registration Statement for the computation of the value of such net assets in
connection with the determination of the net asset value of the Fund's shares.
Services to Other Companies or Accounts
(12) The services of the Adviser hereunder are not to be deemed to be exclusive,
and the Adviser is free to render services to others and to engage in other
activities so long as its services hereunder are not impaired thereby. The
Manager has no objection to the Adviser rendering such services, provided that
whenever the Trust and one or more other accounts or investment companies
advised by the Adviser have available funds for investment, that suitable and
appropriate investments for each will be allocated in a manner believed to be
equitable to each entity. The Adviser agrees to similarly allocate opportunities
to sell securities.
Without in any way relieving the Adviser of its responsibilities
hereunder, it is agreed that the Adviser may employ others to furnish factual
information, economic advice and/or research, and investment recommendations,
upon which its investment advice and service is furnished hereunder. Without the
prior written consent of the Board and the Manager, the Adviser shall not
perform its services under this Agreement through affiliated companies other
than Oppenheimer Capital. The Board and the Manager recognize and agree that all
services to be performed by the Adviser for the Fund may be performed by
employees of Oppenheimer Capital, the parent company of the Adviser.
Brokerage
<PAGE>
(13) In connection with the management of the investment and reinvestment of the
assets of the Fund, the Adviser is authorized to select the brokers or dealers
which will execute purchase and sale transactions for the Fund. In its selection
of brokers and dealers, the Adviser is directed to use its best efforts to
obtain the best available price and most favorable execution with respect to
such purchases and sales of Fund securities for the Trust. Subject to this
primary requirement, and maintaining as its first consideration the benefits for
the Fund, and its shareholders, the Adviser shall have the right, subject to the
approval of the Board and the Manager, to follow a policy of selecting brokers
and dealers to furnish statistical research and other services to the Fund, the
Manager, or the Adviser and, subject to the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., to take into account the sale
of variable contracts which are invested in Trust shares in allocating to
brokers and dealers purchase and sale orders for Fund securities, provided the
Adviser believes that the quality of the transaction and commission are
comparable to what they would be with other qualified firms.
Termination of Agreement
(14) The Manager or Trustees may terminate this Agreement by sixty (60) days'
written notice to the Adviser and the Adviser may terminate this Agreement by
sixty (60) days' written notice to the Manager, without the payment of any
penalty. Pursuant to an Order of the Commission, the Manager may engage an
adviser without first obtaining approval of the investment advisory agreement by
a majority of the outstanding voting securities of the Fund. This Agreement
shall become effective upon its approval by the Board. The Adviser shall be
without the protection accorded by shareholder approval of an investment
adviser's receipt of compensation under Section 36(b) of the 1940 Act.
This Agreement will terminate automatically upon the termination of the
Investment Advisory Agreement. This Agreement will terminate automatically in
the event of its assignment.
(15) This Agreement shall become effective as of the date of its execution and
shall continue in effect for a period more than two years from the date of
execution only so long as such continuance is specifically approved by the
Trustees at the times and in the manner required by Section 15(a) and (c) of the
1940 Act and the rules thereunder.
Indemnification
(16)(a) The Manager shall indemnify and hold harmless the Adviser, its officers
and directors and each person, if any, who controls the Adviser within the
meaning of Section 15 of the Securities Act of 1933 (the "1933 Act")
("Affiliates") against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged loss, liability,
claim, damage or expense and reasonable counsel fees incurred in connection
therewith) ("Liabilities") arising out of any service, other than as provided in
paragraph (b) of this Section 16, to be rendered under this Agreement except by
reason of willful misfeasance, bad faith or gross negligence in the performance
of Adviser's duties.
(16)(b) With regard to the Adviser's Tax Compliance Responsibilities as set
forth in Section 6, the Manager shall not indemnify and hold harmless Adviser
for any negligent conduct or for Adviser's not taking any corrective action
required to be taken based on consultations with Manager.
(16)(c) The Adviser shall indemnify and hold harmless the Manager and its
Affiliates and each person, if any, who controls the Manager within the meaning
of Section 15 of the 1933 Act, Allstate Life Insurance Company and its
Affiliates, including their separate accounts, which may invest in the Fund
(collectively, the "Life Company") against any Liabilities arising out of any
service to be rendered under this Agreement with respect to the Adviser's
willful misfeasance, bad faith or gross negligence in the performance of its
duties under this Agreement, and further, with regard to the Adviser's Tax
Compliance Responsibilities, shall indemnify Manager, Affiliates, and the Life
Company for Liabilities resulting from Adviser's negligent conduct. The Adviser
and its Affiliates will not be liable to Manager for any Liabilities relating to
the failure of Manager or its Affiliates to comply with this Agreement and/or
any applicable insurance laws and rules, or as a result of any error of judgment
or mistake of law, except to the extent specified in Section 36(b) of the 1940
Act concerning loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services.
Marketing Support
(17) The Adviser or an affiliate shall provide marketing support to the Manager
in connection with the sale of Trust shares and/or the sale of variable annuity
and variable life insurance contracts issued by the Life Company as reasonably
requested by the Manager. Such support shall include, but not necessarily be
limited to, presentations by representatives of the Adviser at investment
seminars, conferences and other industry meetings. Any materials utilized by the
Manager which contain any information relating to the Adviser shall be submitted
to the Adviser for approval prior to use, not less than five (5) business days
before such approval is needed by the Manager. No such materials shall be used
if the Adviser or the Manager reasonably objects in writing to such use within
five (5) days after receipt of such material.
Reference to Manager or Life Company or Trust
(18) Any materials utilized by the Adviser or an affiliate which contain any
information relating to the Manager, Life Company (including any information
relating to its separate accounts or variable annuity or variable life insurance
contracts) or the Trust shall be submitted to the Manager for approval prior to
use, not less than five (5) business days before such approval is needed by the
Adviser. No such materials shall be used if the Adviser or the Manager
reasonably objects in writing to such use within five (5) days after receipt of
such material.
Year 2000 Representations
(19) Adviser agrees to take steps consistent with the standard of care it is
required to exercise under the Sub-Advisory Agreement with respect to assuring
that its computer systems are Year 2000 compliant. Although the Adviser agrees
to be bound to exercise this standard of care, the Adviser cannot guarantee that
the Fund will not suffer from disruptions or adverse results arising as a
consequence of entering the Year 2000.
Computer Software Representations
(20) The Adviser represents and warrants that to the best of its knowledge, the
software utilized in the course of performing its services under this Agreement
("Software") (a) contains no hidden files, viruses or contaminants, (b) will not
replicate, transmit, or activate itself without control of a person operating
the computing equipment on which it resides, (c) will not access, alter, damage,
erase, or otherwise interfere with, the Software, including, any data or
computer programs without control of a person operating the computing equipment
on which it resides, (d) contains no key, node lock, time-out or other function,
whether implemented by electronic, mechanical or other means, which restricts or
may restrict use or access to the Software without the consent of the computer
user.
Definitions
(21) For the purposes of this Agreement, the terms "vote of a majority of the
outstanding voting securities," "affiliated companies" and "interested persons,"
when used herein, shall have the meanings defined in the 1940 Act, subject,
however, to such exemptions as may be granted by the Commission under the 1940
Act.
General
(22) This Agreement shall be governed by the laws of Illinois.
<PAGE>
(23) The Adviser agrees to notify the parties within a reasonable period of time
regarding a material change in the membership of the Adviser.
(24) This Agreement will become binding on the parties hereto upon their
execution of the Agreement.
(25) Any notice hereunder shall be deemed duly given if sent by hand, evidenced
by written receipt or by certified mail, return receipt requested, to the
parties at the addresses set forth below:
If to the Adviser: If to the Manager or the Trust:
OpCap Advisors LSA Asset Management LLC
1345 Avenue of the Americas 3100 Sanders Road
New York, New York 10105-4800 Northbrook, Illinois 60062
Attn: Deborah Kaback, Esq. Attn: Barbara J. Whisler, Esq.
(26) This Agreement may be amended at any time by mutual consent of the parties,
provided that, if required by law, such amendment shall also have been approved
by a vote of a majority of the outstanding securities of the Fund and by a vote
of a majority of Trustees who are not interested persons of the Fund, the
Manager or the Adviser, and in person at a meeting called for the purpose of
voting on such approval.
(27) If any term or provision of this Agreement or the application thereof to
any person or circumstances is held to be invalid or unenforceable to any
extent, the remainder of this Agreement or the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
<PAGE>
(28) All information and advice by the Adviser for the Fund will be treated as
confidential by Manager and will not be disclosed without Adviser's prior
written consent to third parties except as required by law.
LSA ASSET MANAGEMENT LLC
By: _____________________________________
Name: ___________________________________
Title: _____________________________________
OPCAP ADVISORS
By: _____________________________________
Name: ___________________________________
Title: _____________________________________
<PAGE>
EXHIBIT A
MANAGEMENT AGREEMENT
Management Agreement dated , between LSA Variable Series Trust, a Delaware
business trust (the "Trust") and LSA Asset Management LLC, a Delaware limited
liability Company, (the "Manager"). In consideration of the mutual covenants
contained herein, the parties agree as follows:
1. APPOINTMENT OF MANAGER
The Trust hereby appoints the Manager, subject to the supervision of the
Trustees of the Trust and the terms of this Agreement, as the investment manager
for each of the Funds of the Trust (the "Funds") specified in Schedule 1 to this
Agreement as it shall be amended by the Manager and the Trust from time to time.
The Manager accepts such appointment and agrees to render the services and to
assume the obligations set forth in this Agreement commencing on its effective
date. The Manager will be an independent contractor and will have no authority
to act for or represent the Trust in any way or otherwise be deemed an agent
unless expressly authorized in this Agreement or another writing by the Trust
and the Manager.
2. DUTIES OF THE MANAGER
a. Subject to the general supervision of the Trustees of the Trust and
the terms of this Agreement, the Manager will at its own expense,
select and contract with investment advisers ("Advisers") to manage
the investments and determine the composition of the assets of the
Funds; provided, that any contract with an Adviser (an "Advisory
Agreement") shall be in compliance with and approved as required by
the Investment Company Act of 1940 ("Investment Company Act") and the
performance thereunder consistent with terms of an exemptive order
granted by the Securities and Exchange Commission ("SEC") permitting
the Manager to employ a manager-of-managers strategy. Subject always
to the direction and control of the Trustees of the Trust, the Manager
will monitor compliance of each Adviser with the investment objectives
and related investment policies, as set forth in the Trust's
registration statement filed with the SEC, of any Fund or Funds under
the management of such Adviser, and review and report to the Trustees
of the Trust on the performance of such Adviser.
b. The Manager will furnish to the Trust the following:
i. necessary office space in the offices of the Manager or in such
other place as may be agreed upon by the parties hereto from time
to time, and all necessary office facilities and equipment;
<PAGE>
ii. necessary office personnel, including personnel for the
performance of clerical, accounting and other office functions,
exclusive of those functions (a) related to the investment
subadvisory services to be provided by any Adviser pursuant to an
Advisory Agreement and (b) relating to other services for which
the Trust has contracted with a third party;
iii. accounting, bookkeeping, recordkeeping and related services other
than services in respect of the records relating to any other
services for which the Trust has contracted with a third party
(including any Adviser); and
iv. all other information and services, (other than services of
counsel or independent accountants or investment subadvisory
services to be provided by any Adviser under an Advisory
Agreement), required in connection with the preparation of all
registration statements and prospectuses, all annual, semiannual
and periodic reports to shareholders of the Trust, regulatory
authorities or others, all notices and proxy solicitation
materials furnished to shareholders of the Trust or regulatory
authorities and all tax returns.
c. In addition to negotiating and contracting with Advisers as set forth
in section (2)(a) of this Agreement and providing facilities,
personnel and services as set forth in section (2)(b) at its own
expense, the Manager will pay or cause to be paid:
i. the cost of any advertising or sales literature relating solely
to the Trust;
ii. the cost of printing and mailing prospectuses to persons other
than current holders of Trust shares or variable contracts funded
by Trust shares; and
iii. the compensation of all officers and Trustees of the Trust who
are also directors, officers or employees of the Manager or its
affiliates.
3. EXPENSES ASSUMED BY THE TRUST
The Trust will pay all expenses of its organization, operations and
business not specifically assumed or agreed to be paid by the Manager as
provided in this Agreement or by an Adviser as provided in an Advisory
Agreement. Without limiting the generality of the foregoing, the Trust shall pay
or arrange for the payment of the following:
a. any of the costs of printing and mailing all registration
statements and prospectuses, all annual, semiannual and periodic
reports to shareholders of the Trust, regulatory authorities or
others, all notices and proxy solicitation materials furnished to
shareholders of the Trust or regulatory authorities and all tax
returns;
<PAGE>
b. compensation of the officers and Trustees of the Trust other than
those enumerated in (2.)(c.)(iii.);
c. registration, filing and other fees in connection with
requirements of applicable state and federal regulatory
authorities;
d. the charges and expenses of the custodian appointed by the Trust
for custodial services;
e. the charges and expenses of the independent accountants retained
by the Trust;
f. the charges and expenses of any administrative, transfer,
bookkeeping, fund accounting, and compliance testing services,
and dividend disbursing agents appointed by the Trust;
g. broker's commissions and issue and transfer taxes chargeable to
the Trust in connection with securities transactions to which the
Trust is a party;
h. taxes and corporate fees payable by the Trust to federal, state
or other governmental agencies;
i. the cost of stock certificates, if any, representing shares of
the Trust;
j. legal fees and expenses in connection with the affairs of the
Trust, including registering and qualifying its shares with
regulatory authorities;
k. association membership dues if any;
l. insurance premiums for fidelity and other coverage;
m. expenses of shareholders and Trustees' meetings;
n. pricing shares of the Trust's Funds;
o. interest on borrowings; and
p. litigation expenses.
<PAGE>
4. COMPENSATION OF MANAGER
As compensation for the services rendered and obligations assumed hereunder
by the Manager, the Trust shall pay to the Manager monthly a fee that is equal
on an annual basis to that percentage of the average daily net assets of each
Fund set forth on Schedule 1 attached hereto, which is incorporated by reference
herein (and with respect to any future Fund, such percentage as the Trust and
the Manager may agree to from time to time in writing by a signed Amendment of
Schedule 1 subject to Section 13 herein). Such fee shall be computed and accrued
daily. If the Manager serves as Manager for less than the whole of any period
specified in this Section 4, the compensation to the Manager shall be prorated.
For purposes of calculating the Manager's fee, the daily value of each Fund's
net assets shall be computed by the same method as the Trust uses to compute the
net asset value of that Fund. The Manager will pay all fees owing to each
Adviser, and the Trust shall not be obligated to the Advisers in any manner with
respect to the compensation of such Advisers. The Manager reserves the right to
waive all or a part of its fee.
5. NON-EXCLUSIVITY
The services of the Manager to the Trust are not to be deemed to be
exclusive, and the Manager shall be free to render investment management or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that the directors, officers and
employees of the Manager are not prohibited from engaging in any other business
activity or from rendering services to any other person, or from serving as
partners, officers, directors, trustees or employees of any other firm or
corporation, including other investment companies.
6. SUPPLEMENTAL ARRANGEMENTS
The Manager may enter into arrangements with other persons affiliated with
the Manager to better enable it to fulfill its obligations under this Agreement
for the provision of certain personnel and facilities to the Manager.
7. LIMITATION OF LIABILITY OF THE MANAGER
a. Absent willful misfeasance, bad faith, gross negligence, or reckless
disregard of obligations or duties hereunder on the part of the Manager, the
Manager and/or any of its affiliates and the directors, officers and employees
of the Manager and/or of its affiliates shall not be subject to liability to the
Trust or to any holder of an interest in any Fund for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
<PAGE>
b. The Trust will indemnify the Manager against, and hold it harmless from,
any and all losses, claims, damages, liabilities or expenses (including
reasonable counsel fees and expenses) resulting from acts or omissions of the
Trust. Indemnification shall be made only after: (i) a final decision on the
merits by a court or other body before whom the proceeding was brought that the
Trust was liable for the damages claimed or (ii) in the absence of such a
decision, a reasonable determination based upon a review of the facts, that the
Trust was liable for the damages claimed, which determination shall be made by
either (a) the vote of a majority of a quorum of Trustees of the Trust who are
neither "interested persons" of the Trust nor parties to the proceeding
("disinterested non-party Trustees") or (b) an independent legal counsel
satisfactory to the parties hereto, whose determination shall be set forth in a
written opinion. The Manager shall be entitled to advances from the Trust for
payment of the reasonable expenses incurred by it in connection with the matter
as to which it is seeking indemnification in the manner and to the fullest
extent that would be permissible under the applicable provisions of Delaware law
and the Investment Company Act. The Manager shall provide to the Trust a written
affirmation of its good faith belief that the standard of conduct necessary for
indemnification under such law has been met and a written undertaking to repay
any such advance if it should ultimately be determined that the standard of
conduct has not been met. In addition, at least one of the following additional
conditions shall be met: (a) the Manager shall provide security in form and
amount acceptable to the Trust for its undertaking; (b) the Trust is insured
against losses arising by reason of the advance; or (c) a majority of the
independent Trustees of the Trust, or independent legal counsel in a written
opinion, shall have determined, based on a review of facts readily available to
the Trust at the time the advance is proposed to be made, that there is reason
to believe that the Manager will ultimately be found to be entitled to
indemnification.
8. LIMITATION OF TRUST'S LIABILITY.
The Manager acknowledges that it has received notice of and accepts the
limitations upon the Trust's liability set forth in its Declaration of Trust.
The Manager agrees that the Trust's obligations hereunder in any case shall be
limited to the Trust and to its assets and that the Manager shall not seek
satisfaction of any such obligation from the holders of the interests in any
Fund nor from any Trustee, officer, employee or agent of the Trust.
9. CONFLICTS OF INTEREST
It is understood that Trustees, officers, agents and shareholders of the
Trust are or may be interested in the Manager as directors, officers,
stockholders, or otherwise; that directors, officers, agents and stockholders of
the Manager are or may be interested in the Trust as Trustees, officers,
shareholders or otherwise; that the Manager may be interested in the Trust; and
that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Articles of
Incorporation of the Manager, respectively, or by specific provision of
applicable law.
<PAGE>
10. REGULATION
The Manager shall submit to all regulatory and administrative bodies having
jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
11. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective on the later of its execution or the
date that it has been approved by shareholders of the Trust and/or the Board of
Trustees of the Trust in the manner required by the Investment Company Act. The
Agreement will continue in effect for a period of more than two years from the
date of its execution only so long as such continuance is specifically approved
at least annually either by the Trustees of the Trust or by the vote of a
majority of the outstanding voting securities of the Trust, provided that in
either such event the continuance shall also be approved by the vote of a
majority of the Trustees of the Trust who are not interested persons (as defined
in the Investment Company Act) of any party to this Agreement cast in person at
a meeting called for the purpose of voting on such approval. The required
shareholder approval of the Agreement or any continuance of the Agreement shall
be effective with respect to any Fund if a majority of the outstanding voting
securities of the series (as defined in Rule 18f-2(h) under the Investment
Company Act) of shares of that Fund votes to approve the Agreement or its
continuance, notwithstanding that the Agreement or its continuance may not have
been approved by a majority of the outstanding voting securities of (a) any
other Fund affected by the Agreement or (b) all the Funds of the Trust.
If the shareholders of a series of any Fund fail to approve the Agreement
or any continuance of the Agreement, the Manager will continue to act as
investment Manager with respect to such Fund pending the required approval of
the Agreement or its continuance or of a new contract with the Manager or a
different Manager or other definitive action; provided, that the compensation
received by the Manager in respect of such Fund during such period will be no
more than its actual costs incurred in furnishing investment advisory and
management services to such Fund or the amount it would have received under the
Agreement in respect of such Fund, whichever is less.
This Agreement may be terminated at any time, without the payment of any
penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Fund by the
vote of a majority of the outstanding voting securities of the shares of such
Fund, on sixty days written notice to the Manager, or by the Manager on sixty
days' written notice to the Trust. This Agreement will automatically terminate,
without payment of any penalty, in the event if its assignment (as defined in
the Investment Company Act).
12. PROVISION OF CERTAIN INFORMATION BY MANAGER
The Manager will promptly notify the Trust in writing of the occurrence of
any of the following events:
<PAGE>
a. the Manager fails to be registered as an investment adviser under the
Investment Advisers Act of 1940 or under the laws of any jurisdiction
in which the Manager is required to be registered as an investment
adviser in order to perform its obligations under this Agreement;
b. the Manager is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity,
before or by any court, public board or body, involving the affairs of
the Trust; and
c. the chief executive officer or controlling stockholder of the Manager
or the Fund manager of any Fund changes.
13. AMENDMENTS TO THE AGREEMENT
This Agreement may be materially amended by the parties only if such
amendment is specifically approved by the vote of a majority of the outstanding
voting securities of each of the Funds affected by the amendment and by the vote
of a majority of the Trustees of the Trust who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to any Fund if a majority of the outstanding voting securities of
the shares of that Fund vote to approve the amendment, notwithstanding that the
amendment may not have been approved by a majority of the outstanding voting
securities of (a) any other Fund affected by the amendment or (b) all the Funds
of the Trust.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
15. HEADINGS
The headings in the sections of this Agreement are inserted for convenience
of reference only and shall not constitute a part thereof.
16. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust to the
attention of its Secretary or Manager to the attention of its Secretary, in
person or by registered mail or a private mail or delivery service providing the
sender with notice of receipt. Notice shall be deemed given on the date
delivered or mailed in accordance with this section.
<PAGE>
17. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void in
law or in equity, the Agreement shall be construed, insofar as is possible, as
if such portion had never been contained herein.
18. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of Delaware, or any of the applicable provisions of the
Investment Company Act. To the extent that the laws of Delaware, or any of the
provisions in this Agreement, conflict with applicable provisions of the
Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
[SEAL] LSA VARIABLE SERIES TRUST
By:
[NAME, TITLE]
LSA ASSET MANAGEMENT LLC
[SEAL]
By:
[NAME, TITLE]
<PAGE>
SCHEDULE 1
1. Focused Equity Fund: ____ of the current net assets of the Fund.
2. Growth Equity Fund: ____ of the current net assets of the Fund.
3. Disciplined Equity Fund: ____ of the current net assets of the Fund.
4. Value Equity Fund: ____ of the current net assets of the Fund.
5. Balanced Fund: ____ of the current net assets of the Fund.
6. Emerging Growth Domesitic Equity Fund: ____ of the current net assets of
the Fund.
The Percentage Fee for each Fund shall be accrued for each calendar day
and the sum of the daily fee accruals shall be payable monthly to the Manager.
The daily fee accruals will be computed by multiplying the fraction of one over
the number of calendar days in the year by the applicable annual rate described
in the preceding paragraph, and multiplying this product by the net assets of
the Fund as determined in accordance with the Trust's prospectus and statement
of additional information as of the close of business on the previous business
day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of such month
or from the beginning of such month to the date of termination, as the case may
be, shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
<PAGE>
EXHIBIT B
SUB-ADVISORY COMPENSATION
OpCap Advisors Balanced Fund
For all services rendered by Adviser hereunder, Manager shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, monthly a fee, on an annualized basis of net assets under
management, of ____% of the first $250 million and ___% in excess of $250
million.
<PAGE>
Exhibit 23(4)(b)(vi)
SUB-ADVISORY AGREEMENT
This Sub-Advisory Agreement (the "Agreement") is entered into by and
between LSA Asset Management LLC, a Delaware limited liability company (the
"Manager"), and RS Investment Management, L.P. a California limited partnership
(the "Adviser").
WHEREAS, the Manager has entered into an Advisory Agreement, effective
October 1, 1999, (the "Advisory Agreement") and attached as Exhibit A to this
Agreement, with LSA Variable Series Trust (the "Trust"), pursuant to which the
Manager provides portfolio management and administrative services to the RS
Investment Management Emerging Growth Domestic Equity Fund (the "Fund").
WHEREAS, the Manager is authorized, with the approval of the Board of
Trustees of the Trust (the "Board" or "Trustees" as the context requires), to
retain the Adviser to provide portfolio management and administrative services
to the Manager in connection with the management of the Fund.
WHEREAS, the Manager desires to retain the Adviser to render portfolio
management and administrative services in the manner and on the terms set forth
in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Adviser agree as follows:
1. Sub-Advisory Services.
a. The Adviser shall, subject to the supervision of the Manager and
the Board, and in cooperation with any administrator appointed by the
Manager (the "Administrator"), manage the investment and reinvestment of
the assets of the Fund. The Adviser shall manage the Fund in conformity
with: (1) the investment objective, policies and restrictions of the Fund
set forth in the Trust's then-current prospectus and statement of
additional information relating to the Fund in the form previously provided
by the Manager to the Adviser, (2) any additional policies or guidelines
established by the Manager or by the Board that have been furnished in
writing to the Adviser and (3) the provisions of the Internal Revenue Code
of 1986, as amended (the "Code") applicable to "regulated investment
companies" (as defined in Section 851 of the Code), all as from time to
time in effect (collectively, the "Policies"), and with all applicable
provisions of law, including without limitation all applicable provisions
of the Investment Company Act of 1940, as amended (the "1940 Act") and the
rules and regulations thereunder. Subject to the foregoing, the Adviser is
authorized, in its discretion and without prior consultation with the
Manager, to buy, sell, lend and otherwise trade in any stocks, bonds and
other securities and investment instruments on behalf of the Fund, without
regard to the length of time the securities have been held and the
resulting rate of portfolio turnover or any tax considerations, and the
majority or the whole of the Fund may be invested in such proportions of
stocks, bonds, other securities or investment instruments, or cash, as the
Adviser shall, in its best judgment, determine. Notwithstanding the
foregoing provisions of this Section 1.a., however, the Adviser shall, upon
written instructions from the Manager, effect such portfolio transactions
for the Fund as the Manager shall determine are necessary in order for the
Fund to comply with the Policies.
b. The Adviser shall furnish the Manager and the Administrator with
monthly, quarterly and annual reports concerning transactions and
performance of the Fund in such form as may be mutually agreed upon, and
agrees to review the Fund and discuss the management of the Fund with
representatives or agents of the Manager, the Administrator or the Fund at
their reasonable request. The Adviser shall permit all books and records
with respect to the Fund to be inspected and audited by the Manager and the
Administrator at all reasonable times during normal business hours, on
reasonable notice. The Adviser shall also provide the Manager, the
Administrator or the Fund with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Fund from
time to time, including without limitation all material as reasonably may
be requested by the Board pursuant to Section 15(c) of the 1940 Act.
c. Adviser agrees to maintain, in the form and for the period required
by Rule 31a-2 under the 1940 Act, all records relating to the Fund's
investments made by Adviser that are required to be maintained by the Fund
pursuant to the requirements of Rule 31 a-1 (b)(5), (6), (7), (9) and (10)
under the 1940 Act. Any records required to be maintained and preserved
pursuant to the provisions of Rule 31 a-1 and Rule 31 a-2 promulgated under
the 1940 Act which are prepared or maintained by Adviser on behalf of the
Fund are the property of the Fund and will be surrendered promptly to the
Fund or Manager upon request.
d. The Adviser shall provide to the Manager a copy of its Form ADV as
filed with the Securities and Exchange Commission and as amended from time
to time and a list of the persons whom the Adviser wishes to have
authorized to give written and/ or oral instructions to custodians of
assets of the Fund.
e. The Adviser shall provide the Fund's Custodian (as defined below)
on each business day with information relating to all transactions
concerning the Fund's assets and shall provide the Manager with such
information upon request of the Manager. The Adviser shall review all proxy
solicitation materials and be responsible for voting and handling all
proxies in relation to the securities held in the Fund. The Adviser shall
instruct the Custodian of the Fund and other parties providing services to
the Fund to promptly forward misdirected proxy materials to the Adviser.
2. Obligations of the Manager.
a. The Manager shall provide (or cause the Fund's Custodian, as
defined below, to provide) timely information to the Adviser regarding such
matters as the composition of assets of the Fund, cash requirements and
cash available for investment in the Fund, and all other information as may
be reasonably necessary for the Adviser to perform its responsibilities
hereunder.
b. The Manager has furnished the Adviser a copy of the prospectus and
statement of additional information of the Trust and agrees during the
continuance of this Agreement to furnish the Adviser copies of any
revisions or supplements thereto at, or, if practicable, before the time
the revisions or supplements become effective. No revisions shall be made
nor supplements issued regarding the Fund or the Adviser without the prior
review and approval of the Adviser. No written materials naming or relating
to the Adviser, its employees or its affiliated companies, other than
materials provided or approved by the Adviser, shall be used by the
Manager, the Fund or their affiliates in offering or marketing shares of
the Fund. The Manager agrees to furnish the Adviser with minutes of
meetings of the Trustees applicable to the Fund to the extent they may
affect the duties of the Adviser, and with copies of any financial
statements or reports made by the Fund to its shareholders, and any further
materials or information which the Adviser may reasonably request to enable
it to perform its functions under this Agreement.
The Manager shall provide the Adviser with a copy of the Trust's agreement
with the Custodian designated to hold the assets of the Fund (the "Custodian")
and any modifications thereto (the "Custody Agreement"), copies of such
modifications to be provided to the Adviser a reasonable time in advance of the
effectiveness of such modifications. The assets of the Fund shall be maintained
in the custody of the Custodian identified in, and in accordance with the terms
and conditions of, the Custody Agreement (or any sub-custodian properly
appointed as provided in the Custody Agreement). The Adviser shall have no
liability for the acts or omissions of the Custodian unless such act or omission
is required by and taken in reliance upon instruction given to the Custodian by
a representative of the Adviser properly authorized to give such instruction
under the Custody Agreement. Any assets added to the Fund shall be delivered
directly to the Custodian.
The Manager shall perform quarterly and annual tax compliance tests to
ensure that the Fund is in compliance with Subchapter M and Section 817(h) of
the Code. In connection with such compliance tests, the Manager shall prepare
and provide reports to the Adviser within ten (10) business days of a calendar
quarter end relating to the diversification of the Fund under Subchapter M and
Section 817(h) of the Code. The Adviser shall review such reports for purposes
of determining compliance with such diversification requirements. If it is
determined that the Fund is not in compliance with the requirements noted above,
the Adviser, in consultation with the Manager, will take prompt action to bring
the Fund back into compliance within the time permitted under the Code (the
Adviser's "Tax Compliance Responsibilities).
3. Expenses.
Except for expenses specifically assumed or agreed to be paid by the
Adviser pursuant hereto, the Adviser shall not be liable for any expenses of the
Manager or the Fund including, without limitation, (a) interest and taxes, (b)
brokerage commissions and other costs in connection with the purchase or sale of
securities or other investment instruments with respect to the Fund, and (c)
custodian fees and expenses. The Adviser will pay its own expenses incurred in
furnishing the services to be provided by it pursuant to this Agreement.
4. Purchase and Sale of Assets.
Absent instructions from the Manager to the contrary, the Adviser shall
place all orders for the purchase and sale of securities for the Fund with
brokers or dealers selected by the Adviser, which may include brokers or dealers
affiliated with the Adviser, provided such orders comply with Rule 17e-1 under
the 1940 Act. To the extent consistent with applicable law, purchase or sell
orders for the Fund may be aggregated with contemporaneous purchase or sell
orders of other clients of the Adviser. The Adviser shall use its best efforts
to obtain execution of transactions for the Fund at prices which are
advantageous to the Fund and at commission rates that are reasonable in relation
to the benefits received.
5. Compensation of the Adviser.
As its compensation hereunder, Manager will pay to Adviser, within twenty
(20) business days after the end of each month, a fee calculated daily as a
percentage of the average daily net assets of the Fund during that month at an
annual rate of ___% on the first $100 million of assets; ___% on assets in
excess of $100 million and below $200 million; and ___% on assets in excess of
$200 million.
For the purpose of accruing compensation, the net assets of the Fund will
be determined in the manner provided in the then-current prospectus of the Fund.
The fee for any period less than one month shall be prorated according to
the proportion that such period bears to the full monthly period. In the event
of termination of this Agreement, all compensation due to the Adviser through
the date of termination will be calculated on a pro-rated basis through the date
of termination and paid within fifteen (15) business days of the date of
termination.
6. Non-Exclusivity.
The Manager agrees that the services of the Adviser are not to be deemed
exclusive and that the Adviser and its affiliates are free to act as investment
manager and provide other services to various investment companies and other
managed accounts and clients, except as the Adviser and the Manager may
otherwise agree from time to time in writing after the date hereof. This
Agreement shall not in any way limit or restrict the Adviser or any of its
directors, officers, employees or agents from buying, selling or trading any
securities or other investment instruments for its or their own account or for
the account of others for whom it or they may be acting, provided that such
activities do not adversely affect or otherwise impair the performance by the
Adviser of its duties and obligations under this Agreement. The Manager
recognizes and agrees that the Adviser may provide advice to or take action with
respect to other clients, which advice or action, including the timing and
nature of such action, may differ from or be identical to advice given or action
taken with respect to the Fund. The Adviser shall for all purposes hereof be
deemed to be an independent contractor and shall, unless otherwise provided or
authorized, have no authority to act for or represent the Fund or the Manager in
any way or otherwise be deemed an agent of the Fund or the Manager.
7. Reference to Manager or Life Company or Trust.
Any materials utilized by the Adviser which contain any information
relating to the Manager, a life insurance company investing in the Fund
(including any information relating to its separate accounts or variable annuity
or variable life insurance contracts) or the Trust shall be submitted to the
Manager for approval prior to use, not less than five (5) business days before
such approval is needed by the Adviser. No such materials shall be used if the
Manager reasonably objects in writing to such use within five (5) business days
after receipt of such material.
8. Reference to Adviser or Fund.
Any materials utilized by the Manager which contain any information
relating to the Adviser or the Fund shall be submitted to the Adviser for
approval prior to use, not less than five (5) business days before such approval
is needed by the Manager. No such materials shall be used if the Adviser
reasonably objects in writing to such use within five (5) business days after
receipt of such material.
9. Computer Systems.
Adviser and its affiliates, on the one hand, and Manager and its affiliates
on the other hand, represent and warrant to each other that they will use
reasonable commercial efforts to (a) review all of their respective hardware
and/or software comprising computer systems which will be used in connection
with this Agreement (individually, the "Computer System" and collectively, the
"Computer Systems") to determine if such Computer Systems are Year 2000
Compliant (as defined below), (b) render such Computer Systems Year 2000
Compliant prior to any part of such Computer Systems suffering a material
malfunction due to its not being made Year 2000 Compliant on a timely basis, and
(c) jointly test any interfaces between Adviser and its affiliates' Computer
System and Manager and its affiliates' Computer System so as to determine that
they are capable of interfacing without material malfunctions. In the event that
any portion of such Computer System materially malfunctions due to the failure
to be made Year 2000 Compliant on a timely basis, the party responsible for
operating and/or maintaining such Computer System shall use good faith efforts
to correct the malfunction and render the relevant portion of the Computer
System Year 2000 Compliant in order to mitigate the damages from such
malfunction and to avoid any further material malfunction. Adviser and its
affiliates and manager and its affiliates represent and warrant to each other
that they have devoted sufficient resources in terms of funding personnel and
project time to satisfy their respective obligations under this warranty.
For the purpose of this Section 9, "Year 2000 Compliant" shall mean that
the referenced Computer System will correctly differentiate between years, in
different centuries, that end in the same two digits, and will accurately
process date/time data (including, but not limited to, calculating, comparing
and sequencing) from, into, and between the centuries including leap year
calculations, provided that any hardware or software not being operated and/or
maintained as part of the referenced Computer System, is itself Year 2000
Compliant.
10. Indemnification.
a. The Manager shall indemnify and hold harmless the Adviser, its officers
and directors and each person, if any, who controls, is controlled by or is
under common control, with the Adviser within the meaning of Section 15 of the
Securities Act of 1933 (the "1933 Act') ("Affiliates") against any loss,
liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or expense
and reasonable counsel fees incurred in connection therewith) ("Liabilities")
arising out of any service, other than as provided in paragraph (b) of this
Section 10, to be rendered under this Agreement except by reason of willful
misfeasance, bad faith or gross negligence in the performance of Adviser's
duties.
b. With regard to the Adviser's Tax Compliance Responsibilities as set
forth in Section 2, the Manager shall not indemnify and hold harmless Adviser
for any negligent conduct or conduct that is not at the level at which a prudent
person would conduct its own affairs.
c. The Adviser shall indemnify and hold harmless the Manager and its
Affiliates and each person, if any, who controls, is controlled by or is under
common control, with the Manager within the meaning of Section 15 of the 1933
Act, Allstate Life Insurance Company and its Affiliates, including their
separate accounts, which may invest in the Fund (collectively, the "Life
Company") against any Liabilities arising out of any service to be rendered
under this Agreement with respect to the Adviser's willful misfeasance, bad
faith or gross negligence in the performance of its duties under this Agreement,
and further, with regard to the Adviser's Tax Compliance Responsibilities, shall
indemnify Manager, Affiliates, and the Life Company for any Liabilities
resulting from Adviser's negligent conduct or conduct that is not at the level
at which a prudent person would conduct its own affairs. The Adviser and its
Affiliates will not be liable to Manager for any Liabilities relating to the
failure of Manager or its Affiliates to comply with this Agreement and/or any
applicable insurance laws and rules, or as a result of any error of judgment or
mistake of law, except to the extent specified in Section 36(b) of the 1940 Act
concerning loss resulting from a breach of fiduciary duty with respect to
receipt of compensation for services.
11. Effective Date and Termination.
a. This Agreement shall become effective as of October 1, 1999, and shall
continue in effect for a period more than two years from the date of execution
only so long as such continuance is specifically approved by the Trustees at the
times and in the manner required by Section 15(a) and (c) of the 1940 Act and
the rules thereunder.
b. This Agreement may, at any time, be terminated on sixty (60) days'
written notice to the Adviser by the Manager or Trustees. Pursuant to an Order
of the Commission, the Manager may engage an Adviser without first obtaining
approval of the investment advisory agreement by a majority of the outstanding
voting securities of the Fund. This Agreement shall become effective upon its
approval by the Board. The Adviser shall be without any benefit accruing as a
result of shareholder approval of an investment adviser's receipt of
compensation under Section 36(b) of the 1940 Act.
c. This Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement.
d. This Agreement may be terminated by the Adviser on sixty (60) days'
written notice to the Manager.
Termination of this Agreement pursuant to this Section 11 shall be without
the payment of any penalty.
12. Amendment.
This Agreement may be amended at any time by mutual consent of the parties,
provided that, if required by law, such amendment shall also have been approved
by vote of a majority of the outstanding voting securities of the Fund and by
vote of a majority of the Trustees who are not interested persons of the Fund,
the Manager or the Adviser, cast in person at a meeting called for the purpose
of voting on such approval.
13. Definitions.
For the purpose of this Agreement, the terms "vote of a majority of the
outstanding voting securities," "interested person," "affiliated company" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act.
14. General.
a. The Adviser may perform its services through an affiliated company,
employee, officer or agent, and the Manager shall not be entitled to the advice,
recommendation or judgment of any specific person; provided, however, that the
persons identified in the then-current prospectus of the Fund shall perform the
Fund management duties described therein until the Adviser notifies the Manager
that one or more other affiliates, employees, officers or agents identified in
such notice shall assume such duties as of a specific date.
b. If any term or provision of this Agreement or the application thereof to
any person or circumstances is held to be invalid or unenforceable to any
extent, the remainder of this Agreement or the application of such provision to
other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
c. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Illinois.
15. Confidentiality.
All information and advice by Adviser for the Fund will be treated as
confidential by Manager and will not be disclosed to third parties without
Adviser's prior written consent except as required by law.
16. Use of Adviser Name.
The Manager agrees that if this Agreement is terminated and the Adviser or
an affiliate thereof shall no longer be the Adviser to the Fund, the Manager
will change the name of the Fund to delete any reference to "RS Investment
Management."
IN WITNESS WHEREOF, the parties have caused their respective duly authorized
officers to execute this Agreement on this ___________ day of September, 1999,
effective October 1, 1999.
LSA ASSET MANAGEMENT LLC
By: _____________________________________
Name: ___________________________________
Title: _____________________________________
RS INVESTMENT MANAGEMENT, L.P.
By: _____________________________________
Name: ___________________________________
Title: _____________________________________
<PAGE>
EXHIBIT A
INVESTMENT MANAGEMENT AGREEMENT
CUSTODIAN AGREEMENT
AGREEMENT made as of this _____ day of , 1999, between LSA VARIABLE SERIES
TRUST, a business trust organized under the laws of the state of Delaware (the
"Trust"), and INVESTORS BANK & TRUST COMPANY, a Massachusetts trust company (the
"Bank").
The Trust, an open-end management investment company, on behalf of the
funds listed on Appendix A hereto (as such Appendix A may be amended from time
to time) (each a "Fund" and collectively, the "Funds"), desires to place and
maintain all of its Fund securities and cash in the custody of the Bank. The
Bank has at least the minimum qualifications required by Section 17(f)(1) of the
Investment Company Act of 1940 (the "1940 Act") to act as custodian of the Fund
securities and cash of the Trust, and has indicated its willingness to so act,
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Trust hereby appoints the Bank as
custodian of its Fund securities and cash delivered to the Bank as hereinafter
described and the Bank agrees to act as such upon the terms and conditions
hereinafter set forth. For the services rendered pursuant to this Agreement the
Trust agrees to pay to the Bank the fees set forth on Appendix B hereto.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons duly
authorized to give Proper Instructions or otherwise act on behalf of the Trust
by appropriate resolution of its Board, and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Trustees of the Trust.
2.3 Security. The term security as used herein will have the same meaning
assigned to such term in the Securities Act of 1933, as amended, including,
without limitation, any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or participation in any profit sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
<PAGE>
2.4 Fund Security. Fund Security will mean any security owned by the Trust.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Trust. 2.6 Book-Entry
System. Book-Entry System shall mean the Federal Reserve-Treasury Department
Book Entry System for United States government, instrumentality and agency
securities operated by the Federal Reserve Bank, its successor or successors and
its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company ("DTC"),
a clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 ("Exchange Act"), its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the 1940 Act, its successor or successors and its nominee or nominees,
specifically identified in a certified copy of a resolution of the Board.
2.8 Proper Instructions. Proper Instructions shall mean (i) instructions
regarding the purchase or sale of Fund Securities, and payments and deliveries
in connection therewith, given by an Authorized Person, such instructions to be
given in such form and manner as the Bank and the Trust shall agree upon from
time to time, and (ii) instructions (which may be continuing instructions)
regarding other matters signed or initialed by an Authorized Person. Oral
instructions will be considered Proper Instructions if the Bank reasonably
believes them to have been given by an Authorized Person. The Trust shall cause
all oral instructions to be promptly confirmed in writing. The Bank shall act
upon and comply with any subsequent Proper Instruction which modifies a prior
instruction and the sole obligation of the Bank with respect to any follow-up or
confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Trust. The Trust shall be responsible, at the Trust's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires the Bank
to act, the Trust shall give the Bank specific Proper Instructions as to the
action required. Upon receipt by the Bank of an Officers' Certificate as to the
authorization by the Board accompanied by a detailed description of procedures
approved by the Trust, Proper Instructions may include communication effected
directly between electro-mechanical or electronic devices provided that the
Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Trust's assets.
<PAGE>
3. Separate Accounts. If the Trust has more than one series or Fund, the
Bank will segregate the assets of each series or Fund to which this Agreement
relates into a separate account for each such series or Fund containing the
assets of such series or Fund (and all investment earnings thereon). Unless the
context otherwise requires, any reference in this Agreement to any actions to be
taken by the Trust shall be deemed to refer to the Trust acting on behalf of one
or more of its series, any reference in this Agreement to any assets of the
Trust, including, without limitation, any Fund securities and cash and earnings
thereon, shall be deemed to refer only to assets of the applicable series, any
duty or obligation of the Bank hereunder to the Trust shall be deemed to refer
to duties and obligations with respect to such individual series and any
obligation or liability of the Trust hereunder shall be binding only with
respect to such individual series, and shall be discharged only out of the
assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Trust will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Trust will sign a new 6r amended certification setting forth
the change and the new, additional or omitted names or signatures. The Bank will
be entitled to rely and act upon any Officers' Certificate given to it by the
Trust which has been signed by Authorized Persons named in the most recent
certification received by the Bank.
5. Custody of Cash. As custodian for the Trust, the Bank will open and
maintain a separate account or accounts in the name of the Trust or in the name
of the Bank, as Custodian of the Trust, and will deposit to the account of the
Trust all of the cash of the Trust, except for cash held by a subcustodian
appointed pursuant to Sections 14.2 or 14.3 hereof, including borrowed Trusts,
delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Pursuant to the Bank's internal
policies regarding the management of cash accounts, the Bank may segregate
certain portions of the cash of the Trust into a separate savings deposit
account upon which the Bank reserves the right to require seven (7) days notice
prior to withdrawal of cash from such an account. Upon receipt by the Bank of
Proper Instructions (which may be continuing instructions) or in the case of
payments for redemptions and repurchases of outstanding shares of common stock
of the Trust, notification from the Trust's transfer agent as provided in
Section 7, requesting such payment, designating the payee or the account or
accounts to which the Bank will release funds for deposit, and stating that it
is for a purpose permitted under the terms of this Section 5, specifying the
applicable subsection, the Bank will make payments of cash held for the accounts
of the Trust, insofar as funds are available for that purpose, only as permitted
in subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the Trust,
against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Trust or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 here6f)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the repurchase or
redemption of common shares of the Trust offered for repurchase or redemption in
accordance with Section 7 of this Agreement.
<PAGE>
5.3 Distributions and Expenses of Trust. For the payment on the account of
the Trust of dividends or other distributions to shareholders as may from time
to time be declared by the Board, interest, taxes, management or supervisory
fees, distribution fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as provided hereunder,
fees of any transfer agent, fees for legal, accounting, and auditing services,
or other operating expenses of the Trust.
5.4 Payment in Respect of Securities. For payments in connection with the
conversion, exchange or surrender of Fund Securities or securities subscribed to
by the Trust held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Trust, but, in
the case of final payment, only upon redelivery to the Bank of any Fund
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan.
5.6 Repayment of Cash. To repay the cash delivered to the Trust for the
purpose of collateralizing the obligation to return to the Trust certificates
borrowed from the Trust representing Fund Securities, but only upon redelivery
to the Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
(a) For payments in connection with foreign exchange contracts or options
to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements") which may be entered into by the
Bank on behalf of the Trust upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Trust deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign Exchange
Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of the
Trust, or other obligations of the Trust incurred for proper Trust purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Trust, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 Termination. Upon the termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 16 of this Agreement.
<PAGE>
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided herein, and
except for securities to be delivered to any subcustodian appointed pursuant to
Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and hold
pursuant to the provisions hereof; in a separate account or accounts and
physically segregated at all times from those of other persons, any and all Fund
Securities which may now or hereafter be delivered to it by or for the account
of the Trust. All such Fund Securities will be held or disposed of by the Bank
for, and subject at all times to, the instructions of the Trust pursuant to the
terms of this Agreement. Subject to the specific provisions herein relating to
Fund Securities that are not physically held by the Bank, the Bank will register
all Fund Securities (unless otherwise directed by Proper Instructions or an
Officers' Certificate), in the name of a registered nominee of the Bank as
defined in the Internal Revenue Code and any Regulations of the Treasury
Department issued thereunder, and will execute and deliver all such certificates
in connection therewith as may be required by such laws or regulations or under
the laws of any state.
The Trust will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Fund Securities which may
from time to time be registered in the name of the Trust.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank will
vote any of the Fund Securities held hereunder, except in accordance with Proper
Instructions or an Officers' Certificate. The Bank will execute and deliver, or
cause to be executed and delivered, to the Trust all notices, proxies and proxy
soliciting materials delivered to the Bank with respect to such Securities, such
proxies to be executed by the registered holder of such Securities (if
registered otherwise than in the name of the Trust), but without indicating the
manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an issuer of
any Fund Security has taken or intends to take a corporate action (a "Corporate
Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Fund Security, including without limitation,
liquidation, consolidation, merger, recapitalization, reorganization,
reclassification, subdivision, combination, stock split or stock dividend, which
Corporate Action requires an affirmative response or action on the part of the
holder of such Fund Security (a "Response"), the Bank shall notify the Trust
promptly of the Corporate Action, the Response required in connection with the
Corporate Action and the Bank's deadline for receipt from the Trust of Proper
Instructions regarding the Response (the "Response Deadline"). The Bank shall
forward to the Trust via telecopier and/or overnight courier all notices,
information statements or other materials relating to the Corporate Action
promptly after receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after receipt by the
Bank of Proper Instructions from the Trust no later than 5:00 p.m. on the date
specified as the Response Deadline and only if the Bank (or its agent or
subcustodian hereunder) has actual possession of all necessary Securities,
consents and other materials no later than 5:00 p.m. on the date specified as
the Response Deadline.
<PAGE>
(b) The Bank shall have no duty to act upon a required Response if Proper
Instructions relating to such Response and all necessary Securities, consents
and other materials are not received by and in the possession of the Bank no
later than 5:00 p.m. on the date specified as the Response Deadline.
Notwithstanding, the Bank may, in its sole discretion, use its best efforts to
act upon a Response for which Proper Instructions and/or necessary Securities,
consents or other materials are received by the Bank after 5:00 p.m. on the date
specified as the Response Deadline, it being acknowledged and agreed by the
parties that any undertaking by the Bank to use its best efforts in such
circumstances shall in no way create any duty upon the Bank to complete such
Response prior to its expiration.
(c) In the event that the Trust notifies the Bank of a Corporate Action
requiring a Response and the Bank has received no other notice of such Corporate
Action, the Response Deadline shall be 48 hours prior to the Response expiration
time set by the depository processing such Corporate Action.
(d) Section 14.3(e) of this Agreement shall govern any Corporate Action
involving Foreign Fund Securities held by a Selected Foreign Sub-Custodian.
6.4 Book-Entry System. Provided (i) the Bank has received a certified copy
of a resolution of the Board specifically approving deposits of Trust assets in
the Book-Entry System, and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may keep Fund Securities in the Book-Entry System provided
that such Fund Securities are represented in an account ("Account") of the Bank
(or its agent) in such System which shall not include any assets of the Bank (or
such agent) other than assets held as a fiduciary, custodian, or otherwise for
customers;
(b) The records of the Bank (and any such agent) with respect to the
Trust's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Fund Securities which are included with
other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Trust. Where securities are
transferred to the Trust's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Trust a quantity of securities in a
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for the
account of the Trust or shall pay cash collateral against the return of Fund
Securities loaned by the Trust upon (i) receipt of advice from the Book-Entry
System that such Securities have been transferred to the Account, and (ii) the
making of an entry on the records of the Bank (or its agent) to reflect such
payment and transfer for the account of the Trust. The Bank (or its agent) shall
transfer securities sold or loaned for the account of the Trust upon:
(i) receipt of advice from the Book-Entry System that payment for
securities sold or payment of the initial cash collateral against the
delivery of securities loaned by the Trust has been transferred to the
Account; and
<PAGE>
(ii) the making of an entry on the records of the Bank (or its agent)
to reflect such transfer and payment for the account of the Trust. Copies
of all advices from the Book-Entry System of transfers of securities for
the account of the Trust shall identify the Trust, be maintained for the
Trust by the Bank and shall be provided to the Trust at its request. The
Bank shall send the Trust a confirmation, as defined by Rule 17f4 of the
1940 Act, of any transfers to or from the account of the Trust; and
(d) The Bank will promptly provide the Trust with any report obtained by
the Bank or its agent on the Book-Entry System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Book-Entry System.
6.5 Use of a Depository. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange, release,
lend, deliver and otherwise deal with Fund Securities including stock dividends,
rights and other items of like nature, and to receive and remit to the Bank on
behalf of the Trust all income and other payments thereon and to take all steps
necessary and proper in connection with the collection thereof;
(b) Registration of Fund Securities may be made in the name of any nominee
or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through the
clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Fund Securities, payment will be made
only upon delivery of the securities to or for the account of the Trust and the
Trust shall pay cash collateral against the return of Fund Securities loaned by
the Trust only upon delivery of the Securities to or for the account of the
Trust; and upon any sale of Fund Securities, delivery of the Securities will be
made only against payment therefor or, in the event Fund Securities are loaned,
delivery of Securities will be made only against receipt of the initial cash
collateral to or for the account of the Trust; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated Fund
Security deposited with it in the event such Security is lost, destroyed,
wrongfully taken or otherwise not available to be returned to the Bank upon
its request;
(ii) Proxy materials received by a Depository with respect to Fund
Securities deposited with such Depository are forwarded immediately to the
Bank for prompt transmittal to the Trust;
(iii) Such Depository promptly forwards to the Bank confirmation of
any purchase or sale of Fund Securities and of the appropriate book entry
made by such Depository to the Trust's account;
<PAGE>
(iv) Such Depository prepares and delivers to the Bank such records
with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Trust to comply with the
recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a)
thereunder; and
(v) Such Depository delivers to the Bank all internal accounting
control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Trust may reasonably
request in order to verify the Fund Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the Bank
has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Trust has purchased such Issuer's Book-Entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Trust,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry
Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Trust in an
account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to the Trust's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, commercial paper
belonging to the Trust which is included in the Book-Entry System and shall at
all times during the regular business hours of the Bank be open for inspection
by duly authorized officers, employees or agents of the Trust;
(c) The Bank shall pay for Book-Entry Paper purchased for the account of
the Trust upon contemporaneous (i) receipt of advice from the Issuer that such
sale of Book-Entry Paper has been effected, and (ii) the making of an entry on
the records of the Bank to reflect such payment and transfer for the account of
the Trust;
(d) The Bank shall cancel such Book-Entry Paper obligation upon the
maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Trust, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Trust; and
(e) The Bank will send to the Trust such reports on its system of internal
accounting control with respect to the Book-Entry Paper as the Trust may
reasonably request from time to time.
6.7 Use of Immobilization Programs. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving the
maintenance of Fund Securities in an immobilization program operated by a bank
which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii) for
each year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
<PAGE>
6.8 Eurodollar CDs. Any Fund Securities which are Eurodollar CDs may be
physically held by the European branch of the U.S. banking institution that is
the issuer of such Eurodollar CD (a "European Branch"), provided that such Fund
Securities are identified on the books of the Bank as belonging to the Trust and
that the books of the Bank identify the European Branch holding such Fund
Securities. Notwithstanding any other provision of this Agreement to the
contrary, except as stated in the first sentence of this subsection 6.8, the
Bank shall be under no other duty with respect to such Eurodollar CDs belonging
to the Trust.
6.9 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts") and call
options ("calls") purchased or sold (written) by the Trust regarding escrow
or other arrangements (i) in accordance with the provisions of any
agreement entered into upon receipt of Proper Instructions among the Bank,
any broker-dealer registered with the National Association of Securities
Dealers, Inc. (the "NASD"), and, if necessary, the Trust, relating to the
compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations.
(ii) Unless another agreement requires it to do so, the Bank shall be
under no duty or obligation to see that the Trust has deposited or is
maintaining adequate margin, if required, with any broker in connection
with any option, nor shall the Bank be under duty or obligation to present
such option to the broker for exercise unless it receives Proper
Instructions from the Trust. The Bank shall have no responsibility for the
legality of any put or call purchased or sold on behalf of the Trust, the
propriety of any such purchase or sale, or the adequacy of any collateral
delivered to a broker in connection with an option or deposited to or
withdrawn from a Segregated Account (as defined in subsection 6.10 below).
The Bank specifically, but not by way of limitation, shall not be under any
duty or obligation to: (i) periodically check or notify the Trust that the
amount of such collateral held by a broker or held in a Segregated Account
is sufficient to protect such broker or the Trust against any loss; (ii)
effect the return of any collateral delivered to a broker; or (iii) advise
the Trust that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of the Trust.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures contracts
("Futures") purchased or sold by the Trust in accordance with the
provisions of any agreement entered into upon the receipt of Proper
Instructions among the Trust, the Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding account
deposits in connection with transactions by the Trust.
<PAGE>
(ii) The responsibilities of the Bank as to futures, puts and calls
traded on commodities exchanges, any Futures Commission Merchant account
and the Segregated Account shall be limited as set forth in subparagraph
(a)(ii) of this Section 6.9 as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and Futures and puts and calls
thereon instead of options.
6.10 Segregated Account. The Bank shall upon receipt of Proper Instructions
establish and maintain a Segregated Account or Accounts for and on behalf of the
Trust.
(a) Cash and/or Fund Securities may be transferred into a Segregated
Account upon receipt of Proper Instructions in the following circumstances:
(i) in accordance with the provisions of any agreement among the
Trust, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the
Options Clearing Corporation and of any registered national securities
exchange or the Commodity Futures Trading Commission or any registered
Contract Market, or of any similar organizations regarding escrow or other
arrangements in connection with transactions by the Trust;
(ii) for the purpose of segregating cash or securities in connection
with options purchased or written by the Trust or commodity futures
purchased or written by the Trust;
(iii) for the deposit of liquid assets, such as cash, U.S. Government
securities or other high grade debt obligations, having a market value
(marked to market on a daily basis) at all times equal to not less than the
aggregate purchase price due on the settlement dates of all the Trust's
then outstanding forward commitment or "when-issued" agreements relating to
the purchase of Fund Securities and all the Trust's then outstanding
commitments under reverse repurchase agreements entered into with
broker-dealer firms;
(iv) for the purposes of compliance by the Trust with the procedures
required by Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission relating to
the maintenance of Segregated Accounts by registered investment companies;
or
(v) for other proper corporate purposes, but only, in the case of this
clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board signed by an officer of the
Trust and certified by the Secretary or an Assistant Secretary, setting for
the purpose or purposes of such Segregated Account and declaring such
purposes to be proper corporate purposes.
(b) Cash and/or Fund Securities may be withdrawn from a Segregated Account
pursuant to Proper Instructions in the following circumstances:
(i) with respect to assets deposited in accordance with the provisions
of any agreements referenced in (a)(i) or (a)(ii) above, in accordance with
the provisions of such agreements;
<PAGE>
(ii) with respect to assets deposited pursuant to (a)(iii) or (a)(iv)
above, for sale or delivery to meet the Trust's obligations under
outstanding forward commitment or when-issued agreements for the purchase
of Fund Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater value
deposited in the Segregated Account;
(iv) to the extent that the Trust's outstanding forward commitment or
when-issued agreements for the purchase of Fund Securities or reverse
repurchase agreements are sold to other parties or the Trust's obligations
thereunder are met from assets of the Trust other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward commitment or
when-issued agreement for the sale of Fund Securities; or
(vi) with respect to assets deposited pursuant to (a)(v) above, in
accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt
of Proper Instructions relating to the purchase by the Trust of interest-bearing
fixed-term and call deposits, transfer cash, by wire or otherwise, in such
amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Trust appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Fund Securities of the Trust and the responsibility of the Bank therefore shall
be the same as and no greater than the Bank's responsibility in respect of other
Fund Securities of the Trust.
6.12 Transfer of Securities. The Bank will transfer, exchange, deliver or
release Fund Securities held by it hereunder, insofar as such Securities are
available for such purpose, provided that before making any transfer, exchange,
delivery or release under this Section only upon receipt of Proper Instructions.
The Proper Instructions shall state that such transfer, exchange or delivery is
for a purpose permitted under the terms of this Section 6.12, and shall specify
the applicable subsection, or describe the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection. After receipt of such Proper Instructions, the Bank will transfer,
exchange, deliver or release Fund Securities only in the following
circumstances:
(a) Upon sales of Fund Securities for the account of the Trust, against
contemporaneous receipt by the Bank of payment therefor in full, or against
payment to the Bank in accordance with generally accepted settlement practices
and customs in the jurisdiction or market in which the transaction occurs, each
such payment to be in the amount of the sale price shown in a broker's
confirmation of sale received by the Bank before such payment is made, as
confirmed in the Proper Instructions received by the Bank before such payment is
made;
<PAGE>
(b) In exchange for or upon conversion into other securities alone or other
securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Fund Securities, or for the purpose of
tendering shares in the event of a tender offer therefor, provided, however,
that in the event of an offer of exchange, tender offer, or other exercise of
rights requiring the physical tender or delivery of Fund Securities, the Bank
shall have no liability for failure to so tender in a timely manner unless such
Proper Instructions are received by the Bank at least two business days prior to
the date required for tender, and unless the Bank (or its agent or subcustodian
hereunder) has actual possession of such Security at least two business days
prior to the date of tender;
(c) Upon conversion of Fund Securities pursuant to their terms into other
securities;
(d) For the purpose of redeeming in-kind shares of the Trust upon
authorization from the Trust;
(e) In the case of option contracts owned by the Trust, for presentation to
the endorsing broker;
(f) When such Fund Securities are called, redeemed or retired or otherwise
become payable;
(g) For the purpose of effectuating the pledge of Fund Securities held by
the Bank in order to collateralize loans made to the Trust by any bank,
including the Bank; provided, however, that such Fund Securities will be
released only upon payment to the Bank for the account of the Trust of the
moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Fund Securities may be released for that
purpose without any such payment. In the event that any pledged Fund Securities
are held by the Bank, they will be so held for the account of the lender, and
after notice to the Trust from the lender in accordance with the normal
procedures of the lender and any loan agreement between the Trust and the lender
that an event of deficiency or default on the loan has occurred, the Bank may
deliver such pledged Fund Securities to or for the account of the lender;
(h) for the purpose of releasing certificates representing Fund Securities,
against contemporaneous receipt by the Bank of the fair market value of such
security, as set forth in the Proper Instructions received by the Bank before
such payment is made;
(i) for the purpose of delivering securities lent by the Trust to a bank or
broker dealer, but only against receipt in accordance with street delivery
custom except as otherwise provided herein, of adequate collateral as agreed
upon from time to time by the Trust and the Bank, and upon receipt of payment in
connection with any repurchase agreement relating to such securities entered
into by the Trust;
<PAGE>
(j) for other authorized transactions of the Trust or for other proper
corporate purposes; provided that before making such transfer, the Bank will
also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Trust (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Fund Securities to be delivered, setting forth the transaction in or purpose
for which such delivery is to be made, declaring such transaction to be an
authorized transaction of the Trust or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
(k) upon termination of this Agreement as hereinafter set forth pursuant to
Section 8 and Section 16 of this Agreement.
With the exception of subsection 6.12(k), as to any deliveries made by the
Bank pursuant to this Section 6.12, securities or cash receivable in exchange
therefor shall be delivered to the Bank.
7. Redemptions. In the case of payment of assets of the Trust held by the
Bank in connection with redemptions and repurchases by the Trust of outstanding
common shares, the Bank will rely on notification by the Trust's transfer agent
of receipt of a request for redemption and certificates, if issued, in proper
form for redemption before such payment is made. Payment shall be made in
accordance with the Declaration of Trust (the "Declaration") and By-laws of the
Trust (the "By-laws"), from assets available for said purpose.
8. Merger. Dissolution. etc. of Trust. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Trust into or the consolidation of the Trust with another investment company,
the sale by the Trust of all, or substantially all, of its assets to another
investment company, or the liquidation or dissolution of the Trust and
distribution of its assets, the Bank will deliver the Fund Securities held by it
under this Agreement and disburse cash only upon the order of the Trust set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Board authorizing any of the foregoing transactions. Upon
completion of such delivery and disbursement and the payment of the fees,
disbursements and expenses of the Bank, this Agreement will terminate and the
Bank shall be released from any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Trust or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of the
Trust all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the
Trust and hold for the account of the Trust all income, dividends, interest and
other payments or distributions of cash with respect to the Fund Securities held
thereunder;
9.2 Present for payment all coupons and other income items held by it for
the account of the Trust which call for payment upon presentation and hold the
cash received by it upon such payment for the account of the Trust;
<PAGE>
9.3 Receive and hold for the account of the Trust all securities received
as a distribution on Fund Securities as a result of a stock dividend, share
split-up, reorganization, recapitalization, merger, consolidation, readjustment,
distribution of rights and similar securities issued with respect to any Fund
Securities held by it hereunder;
9.4 Execute as agent on behalf of the Trust all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Trust's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Fund
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Fund Securities which are called, redeemed,
retired or otherwise become payable, and hold cash received by it upon payment
for the account of the Trust; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Fund Securities, including dividends, interest and other income, and to transmit
to the Trust notice actually received by it of any call for redemption, offer of
exchange, right of subscription, reorganization or other proceedings affecting
such Securities. If Fund Securities upon which such income is payable are in
default or payment is refused after due demand or presentation, the Bank will
notify the Trust in writing of any default or refusal to pay within two business
days from the day on which it receives knowledge of such default or refusal.
11. Maintenance of Records and Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act. The books and records of the
Bank pertaining to its actions under this Agreement and reports by the Bank or
its independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Trust and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the 1940 Act. In the event of the
termination of this Agreement, it is the obligation of the Bank to promptly
deliver to the Trust the books and records with respect to transactions for
which the Bank is responsible pursuant to the terms and conditions of this
Agreement.
The Bank shall perform fund accounting and shall keep the books of account
and render statements or copies from time to time as reasonably requested by the
Treasurer or any executive officer of the Trust.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
<PAGE>
The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act and the Rules thereunder, the Bank agrees
that all such records prepared or maintained by the Bank relating to the
services to be performed by the Bank hereunder are the confidential property of
the Trust and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered to the Trust on and in
accordance with its request.
12. Trust Evaluation and Yield Calculation
12.1 Trust Evaluation. The Bank shall compute and, unless otherwise
directed by the Board, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Board, the net asset value and the public offering price of a share of capital
stock of the Trust, such determination to be made in accordance with the
provisions of the Declaration and By-laws and the Prospectus and Statement of
Additional Information relating to the Trust, as they may from time to time be
amended, and any applicable resolutions of the Board at the time in force and
applicable; and promptly to notify the Trust, the proper exchange and the NASD
or such other persons as the Trust may request of the results of such
computation and determination. In computing the net asset value hereunder, the
Bank may rely in good faith upon information furnished to it by any Authorized
Person in respect of (i) the manner of accrual of the liabilities of the Trust
and in respect of liabilities of the Trust not appearing on its books of account
kept by the Bank, (ii) reserves, if any, authorized by the Board or that no such
reserves have been authorized, (iii) the source of the quotations to be used in
computing the net asset value, (iv) the value to be assigned to any security for
which no price quotations are available, and (v) the method of computation of
the public offering price on the basis of the net asset value of the shares, and
the Bank shall not be responsible for any loss occasioned by such reliance or
for any good faith reliance on any quotations received from a source pursuant to
(iii) above.
12.2. Yield Calculation. The Bank will compute the performance results of
the Trust (the "Yield Calculation") in accordance with the provisions of Release
No. 33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases")
promulgated by the Securities and Exchange Commission, and any subsequent
amendments to, published interpretations of or general conventions accepted by
the staff of the Securities and Exchange Commission with respect to such
releases or the subject matter thereof ("Subsequent Staff Positions"), subject
to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for the Trust for the
stated periods of time as shall be mutually agreed upon, and communicate in
a timely manner the result of such computation to the Trust.
(b) In performing the Yield Calculation, the Bank will derive the
items of data necessary for the computation from the records it generates
and maintains for the Trust pursuant Section 11 hereof. The Bank shall have
no responsibility to review, confirm, or otherwise assume any duty or
liability with respect to the accuracy or correctness of any such data
supplied to it by the Trust, any of the Trust's designated agents or any of
the Trust's designated third party providers.
<PAGE>
(c) At the request of the Bank, the Trust shall provide, and the Bank
shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods
set forth in the Releases or any Subsequent Staff Positions as they
specifically apply to the Trust. In the event that the computation methods
in the Releases or the Subsequent Staff Positions or the application to the
Trust of a standard or guideline is not free from doubt or in the event
there is any question of interpretation as to the characterization of a
particular security or any aspect of a security or a payment with respect
thereto (e.g., original issue discount, participating debt security, income
or return of capital, etc.) or otherwise or as to any other element of the
computation which is pertinent to the Trust, the Trust or its designated
agent shall have the full responsibility for making the determination of
how the security or payment is to be treated for purposes of the
computation and how the computation is to be made and shall inform the Bank
thereof on a timely basis. The Bank shall have no responsibility to make
independent determinations with respect to any item which is covered by
this Section, and shall not be responsible for its computations made in
accordance with such determinations so long as such computations are
mathematically correct.
(d) The Trust shall keep the Bank informed of all publicly available
information and of any non-public advice, or information obtained by the
Trust from its independent auditors or by its personnel or the personnel of
its investment adviser, or Subsequent Staff Positions related to the
computations to be undertaken by the Bank pursuant to this Agreement and
the Bank shall not be deemed have knowledge of such information (except as
contained in the Releases) unless it has been furnished to the Bank in
writing.
13. Additional Services. The Bank shall perform the additional services for
the Trust as are set forth on Appendix C hereto. Appendix C may be amended from
time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Trust, at which time the fees set
forth in Appendix B may be appropriately increased.
14. Duties of the Bank.
14.1 Performance of Duties and Standard of Care. In performing its duties
hereunder and any other duties listed on any Schedule hereto, if any, the Bank
will be entitled to receive and act upon the advice of independent counsel of
its own selection, which may be counsel for the Trust, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Fund Securities purchased by or
for the Trust, the legality of the purchases thereof or the propriety of
the price incurred therefor;
(b) the legality of any sale of any Fund Securities by or for the
Trust or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of the Trust
or the sufficiency of the amount to be received therefor;
<PAGE>
(d) the legality of the repurchase of any common shares of the Trust
or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by a Fund or the
legality of the distribution of any Fund Securities as payment in kind of
such dividend; and
(f) any property or moneys of the Trust unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Fund Securities at any time delivered to or held by it for the
account of the Trust are such as may properly be held by the Trust under the
provisions of its Declaration, By-laws, any federal or state statutes or any
rule or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the Trust Held in
the United States.
The Bank may employ agents of its own selection in the performance of its
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder. Without limiting the foregoing,
certain duties of the Bank hereunder may be performed by one or more affiliates
of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
selected by or at the direction of the Trust, provided that any such
subcustodian meets at least the minimum qualifications required by Section
17(f)(1) of the 1940 Act to act as a custodian of the Trust's assets with
respect to property of the Trust held in the United States. The Bank shall have
no liability to the Fund or any other person by reason of any act or omission of
any such subcustodian and the Fund shall indemnify the Bank and hold it harmless
from and against any and all actions, suits and claims, arising directly or
indirectly out of the performance of any such subcustodian. Upon request of the
Bank, the Trust shall assume the entire defense of any action, suit, or claim
subject to the foregoing indemnity. The Trust shall pay all fees and expenses of
any such subcustodian.
14.3 Duties of the Bank with Respect to Property of the Trust Held Outside
of the United States.
(a) Appointment of Foreign Custody Manager
(i) If the Trust has appointed the Bank Foreign Custody Manager
(as that term is defined in Rule 17f-5 under the 1940 Act), the Bank's
duties and obligations with respect to the Trust's Fund Securities and
other assets maintained outside the United States shall be, to the
extent not set forth herein, as set forth in the Delegation Agreement
between the Trust and the Bank (the "Delegation Agreement").
<PAGE>
(ii) If the Trust has appointed any other person or entity
Foreign Custody Manager, the Bank shall act only upon Proper
Instructions from the Trust with regard to any of the Trust's Fund
Securities or other assets held or to be held outside of the United
States, and the Bank shall be without liability for any Claim (as that
term is defined in Section 15 hereof) arising out of maintenance of
the Trust's Fund Securities or other assets outside of the United
States. The Trust also agrees that it shall enter into a written
agreement with such Foreign Custody Manager that shall obligate such
Foreign Custody Manager to provide to the Bank in a timely manner all
information required by the Bank in order to complete its obligations
hereunder. The Bank shall not be liable for any Claim arising out of
the failure of such Foreign Custody Manager to provide such
information to the Bank.
(b) Segregation of Securities. The Bank shall identify on its books as
belonging to the Trust the Foreign Fund Securities held by each foreign
sub-custodian (each an "Eligible Foreign Custodian") selected by the
Foreign Custody Manager, subject to receipt by the Bank of the necessary
information from such Eligible Foreign Custodian if the Foreign Custody
Manager is not the Bank.
(c) Access of Independent Accountants of the Trust. If the Bank is the
Trust's Foreign Custody Manager, upon request of the Trust, the Bank will
use its best efforts to arrange for the independent accountants of the
Trust to be afforded access to the books and records of any foreign banking
institution employed as an Eligible Foreign Custodian insofar as such books
and records relate to the performance of such foreign banking institution
with regard to the Trust's Fund Securities and other assets.
(d) Reports by Bank. If the Bank is the Trust's Foreign Custody
Manager, the Bank will supply to the Trust the reports required under the
Delegation Agreement.
(e) Transactions in Foreign Custody Account. Transactions with respect
to the assets of the Trust held by an Eligible Foreign Custodian shall be
effected pursuant to Proper Instructions from the Trust to the Bank and
shall be effected in accordance with the applicable agreement between the
Foreign Custody Manager and such Eligible Foreign Custodian. If at any time
any Foreign Fund Securities shall be registered in the name of the nominee
of the Eligible Foreign Custodian, the Trust agrees to hold any such
nominee harmless from any liability by reason of the registration of such
securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary, settlement
and payment for Foreign Fund Securities received for the account of the Trust
and delivery of Foreign Fund Securities maintained for the account of the Trust
may be effected in accordance with the customary established securities trading
or securities processing practices and procedures in the jurisdiction or market
in which the transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation of receiving
later payment for such securities from such purchaser or dealer.
<PAGE>
In connection with any action to be taken with respect to the Foreign Fund
Securities held hereunder, including, without limitation, the exercise of any
voting rights, subscription rights, redemption rights, exchange rights,
conversion rights or tender rights, or any other action in connection with any
other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Trust such
information in connection therewith as is made available to the Bank by the
Eligible Foreign Custodian, and shall promptly forward to the applicable
Eligible Foreign Custodian any instructions, forms or certifications with
respect to such Rights, and any instructions relating to the actions to be taken
in connection therewith, as the Bank shall receive from the Trust pursuant to
Proper Instructions. Notwithstanding the foregoing, the Bank shall have no
further duty or obligation with respect to such Rights, including, without
limitation, the determination of whether the Trust is entitled to participate in
such Rights under applicable U.S. and foreign laws, or the determination of
whether any action proposed to be taken with respect to such Rights by the Trust
or by the applicable Eligible Foreign Custodian will comply with all applicable
terms and conditions of any such Rights or any applicable laws or regulations,
or market practices within the market in which such action is to be taken or
omitted.
(f) Tax Law. The Bank shall have no responsibility or liability for
any obligations now or hereafter imposed on the Trust or the Bank as
custodian of the Trust by the tax laws of any jurisdiction, and it shall be
the responsibility of the Trust to notify the Bank of the obligations
imposed on the Trust or the Bank as the custodian of the Trust by the tax
law of any non-U.S. jurisdiction, including responsibility for withholding
and other taxes, assessments or other governmental charges, certifications
and governmental reporting. The sole responsibility of the Eligible Foreign
Custodian with regard to such tax law shall be to use reasonable efforts to
assist the Trust with respect to any claim for exemption or refund under
the tax law of jurisdictions for which the Trust has provided such
information.
14.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Fund Securities and cash of the Trust held by it as it uses in
respect of its own similar property but it need not maintain any special
insurance for the benefit of the Trust.
14.5. Fees and Expenses of the Bank. The Trust will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of Fund
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Trust will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Trust for all reasonable expenses incurred in conjunction
with termination of this Agreement.
14.6 Advances by the Bank. The Bank may, in its sole discretion, advance
funds on behalf of the Trust to make any payment permitted by this Agreement
upon receipt of any proper authorization required by this Agreement for such
payments by the Trust. Should such a payment or payments, with advanced funds,
result in an overdraft (due to insufficiencies of the Trust's account with the
Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Trust payable on demand.
Such overdraft shall bear interest at the current rate charged by the Bank for
such loans unless the Trust shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness and to the
extent required by law, in and to any property at any time held by it for the
Fund's benefit or in which the Fund has an interest and which is then in the
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Trust authorizes the Bank, in the Bank's sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon, against any balance of account standing to the credit of
the Trust on the Bank's books.
<PAGE>
15. Limitation of Liability.
15.1 Limitation of Bank Liability. Notwithstanding anything in this
Agreement to the contrary, in no event shall the Bank or any of its officers,
directors, employees or agents (collectively, the "Indemnified Parties") be
liable to the Trust or any third party, and the Trust shall indemnify and hold
the Bank and the Indemnified Parties harmless from and against any and all loss,
damage, liability, actions, suits, claims, costs and expenses, including legal
fees, (a "Claim") arising as a result of any act or omission of the Bank or any
Indemnified Party under this Agreement, except for any Claim resulting solely
from the negligence, willful misfeasance or bad faith of the Bank or any
Indemnified Party. Without limiting the foregoing, neither the Bank nor the
Indemnified Parties shall be liable for, and the Bank and the Indemnified
Parties shall be indemnified against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party in good
faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by the Bank to
genuine;
(b) Any act or omission of any subcustodian selected by or at the
direction of the Trust;
(c) Any act or omission of any Foreign Custody Manager other than the
Bank or any act or omission of any Eligible Foreign Custodian if the Bank
is not the Foreign Custody Manager;
(d) Any Corporate Action, distribution or other event related to Fund
Securities which, at the direction of the Trust, have not been registered
in the name of the Bank or its nominee;
(e) Any Corporate Action requiring a Response for which the Bank has
not received Proper Instructions or obtained actual possession of all
necessary Securities, consents or other materials by 5:00 p.m. on the date
specified as the Response Deadline;
(f) Any act or omission of any European Branch of a U.S. banking
institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch; or
(g) Information relied on in good faith by the Bank and supplied by
any Authorized Person in connection with the calculation of (i) the net
asset value and public offering price of the shares of capital stock of the
Trust or (ii) the Yield Calculation.
15.2 Limitation of Trust Liability. The Bank shall indemnify and hold the
Trust harmless from and against any and all losses, damages, costs, charges,
legal fees, payments, expenses and liability arising out of or attributed to any
action or failure or omission to act by the Bank as a result of the negligence,
willful misfeasance or bad faith of the Bank or any Indemnified Party.
15.3 Consequential Damages.
(a) Notwithstanding anything to the contrary in this Agreement, in no event
shall the Bank or the Indemnified Parties be liable to the Trust or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
<PAGE>
(b) Notwithstanding anything to the contrary in this Agreement, in no event
shall the Trust or the Trust Indemnified Parties be liable to the Bank or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
15.4 Force Majeure. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
earthquakes, fires, floods, storms or other disturbances of nature, epidemics,
strikes, riots, nationalization, expropriation, currency restrictions, acts of
war, civil war or terrorism, insurrection, nuclear fusion, fission or radiation,
the interruption, loss or malfunction of utilities, transportation or computers
(hardware or software) and computer facilities, the unavailability of energy
sources and other similar happenings or events, such party shall not be liable
to the other for compensation nor for any damages resulting from such failure to
perform or otherwise from such causes.
16. Termination.
16.1 The term of this Agreement shall be three years commencing upon the
date hereof (the "Initial Term"), unless earlier terminated as provided herein.
After the expiration of the Initial Term, the term of this Agreement shall
automatically renew for successive one-year terms (each a "Renewal Term") unless
notice of non-renewal is delivered by the non-renewing party to the other party
no later than ninety days prior to the expiration of the Initial Term or any
Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within sixty days of receipt of such notice.
<PAGE>
(b) Either party may terminate this Agreement during any Renewal Term upon
ninety days written notice to the other party. Any termination pursuant to this
paragraph 16.1(b) shall be effective upon expiration of such ninety days,
provided, however, that the effective date of such termination may be postponed
to a date not more than one hundred twenty days after delivery of the written
notice: (i) at the request of the Bank, in order to prepare for the transfer by
the Bank of all of the assets of the Trust held hereunder; or (ii) at the
request of the Trust, in order to give the Trust an opportunity to make suitable
arrangements for a successor custodian.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Fund Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Trust. The obligation of the Bank to deliver and transfer over the assets of the
Trust held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Trust does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 16.3, deliver the Fund Securities and cash of the Trust
held by the Bank to a bank or trust company of the Bank's own selection which
meets the requirements of Section 17(f)(1) of the 1940 Act and has a reported
capital, surplus and undivided profits aggregating not less than $2,000,000, to
be held as the property of the Trust under terms similar to those on which they
were held by the Bank, whereupon such bank or trust company so selected by the
Bank will become the successor custodian of such assets of the Trust with the
same effect as though selected by the Board. Thereafter, the Bank shall be
released from any and all obligations under this Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Trust may furnish the Bank with an order of the
Trust advising that a successor custodian cannot be found willing and able to
act upon reasonable and customary terms and that there has been submitted to the
shareholders of the Trust the question of whether the Trust will be liquidated
or will function without a custodian for the assets of the Trust held by the
Bank. In that event the Bank will deliver the Fund Securities and cash of the
Trust held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Trust's Secretary and an opinion of
counsel to the Trust in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The Trust shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement and/or
the liquidation or deliverance of the Fund Securities and cash of the Trust to
the successor custodian or other shareholder approved alternative, whatever the
case may be.
16.5 After termination of this Agreement, it is the obligation of the Bank
to promptly deliver to the Trust the records of the Bank relating to its
performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
<PAGE>
18. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Trust to:
LSA Variable Series Trust
Allstate Life Insurance Company
3100 Sanders Road, Suite J5B
Northbrook, Illinois 60062
Attention: Barbara J. Whisler, Secretary and Chief Compliance Officer
With a copy to: Michael J. Velotta, General Counsel, Allstate Life
Insurance Company
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Robert C. Conron, Director - Client Management
With a copy to: John E. Henry, General Counsel
or at such other place as such party may from time to time designate in
writing.
19. Amendments. This Agreement, its Appendices and Schedules, may not be
altered or amended, except by an instrument in writing, executed by both
parties.
20. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Trust
without the written consent of the Bank or by the Bank without the written
consent of the Trust, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 16 hereof will not be deemed to
be an assignment within the meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
<PAGE>
23. Entire Agreement. This Agreement, together with its Appendices,
constitutes the sole and entire agreement between the parties relating to the
subject matter herein and does not operate as an acceptance of any conflicting
terms or provisions of any other instrument and terminates and supersedes any
and all prior agreements and undertakings between the parties relating to the
subject matter herein.
24. Limitation of Liability. The Bank agrees that the obligations assumed
by the Trust hereunder shall be limited in all cases to the assets of the Trust
and that the Bank shall not seek satisfaction of any such obligation from the
officers, agents, employees, trustees, or shareholders of the Trust.
25. Several Obligations of the Funds. This Agreement is an agreement
entered into between the Bank and the Trust with respect to each Fund. With
respect to any obligation of the Trust on behalf of any Fund arising out of this
Agreement, the Bank shall look for payment or satisfaction of such obligation
solely to the assets of the Fund to which such obligation relates as though the
Bank had separately contracted with the Trust by separate written instrument
with respect to each Fund.
26. Severability. If any provision of this Agreement is held to be
unenforceable or invalid, that provision shall be severed from this Agreement
and the remainder of this Agreement shall remain in full force and effect.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
LSA VARIABLE SERIES TRUST
By:________________________________________________
Name:______________________________________________
Title:_____________________________________________
INVESTORS BANK & TRUST COMPANY
By:________________________________________________
Name:______________________________________________
Title:_____________________________________________
Exhibit (8)(a)
DELEGATION AGREEMENT
AGREEMENT, dated as of __________________, 1999 by and between INVESTORS
BANK & TRUST COMPANY, a Massachusetts trust company (the "Delegate"), and LSA
VARIABLE SERIES TRUST, a business trust organized under the laws of the state of
Delaware (the "Trust").
WHEREAS, pursuant to the provisions of Rule 17f-5(b) under the Investment
Company Act of 1940, and subject to the terms and conditions set forth herein,
the Board of Trustees of the Trust desires to delegate to the Delegate, and the
Delegate hereby agrees to accept and assume, certain responsibilities described
herein concerning Assets held outside of the United States.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Definitions
Capitalized terms in this Agreement have the following meanings:
a. Assets
Assets means any of Trust's investments (including foreign currencies) for
which the primary market is outside the United States, and such cash and cash
equivalents as are reasonably necessary to effect Trust's transactions in such
investments.
b. Authorized Representative
Authorized Representative means any one of the persons who are empowered,
on behalf of the parties to this Agreement, to receive notices from the other
party and to send notices to the other party.
c. Board
Board means the Board of Trustees (or the body authorized to exercise
authority similar to that of the board of directors of a corporation) of Trust.
d. Compulsory Securities Depository
Compulsory Securities Depository means a Securities Depository the use of
which is mandatory (i) by law or regulation; (ii) because securities cannot be
withdrawn from the depository; or (iii) because maintaining securities outside
the Securities Depository is not consistent with prevailing custodial practices.
e. Country Risk
Country Risk means all factors reasonably related to the systemic risk of
holding assets in a particular country including, but not limited to, such
country's financial infrastructure (including any Securities Depositories
operating in such country); prevailing custody and settlement practices; and
laws applicable to the safekeeping and recovery of Assets held in custody.
f. Eligible Foreign Custodian
Eligible Foreign Custodian has the meaning set forth in Rule 17f-5(a)(1)
and shall also include foreign branches of U.S. Banks (as the term "U.S. Bank"
is defined in Rule 17f-5).
g. Foreign Custody Manager
Foreign Custody Manager has the meaning set forth in Rule 17f-5(a)(2).
h. Monitor
Monitor means to re-assess or re-evaluate, at reasonable intervals, a
decision or determination previously made.
i. Securities Depository
Securities Depository has the meaning set forth in Rule 17f-5(a)(6).
2. Representations
a. Delegate's Representations
Delegate represents that it is a trust company chartered under the laws of
the Commonwealth of Massachusetts. Delegate further represents that the persons
executing this Agreement and any amendment or appendix hereto on its behalf are
duly authorized to so bind the Delegate with respect to the subject matter of
this Agreement.
b. Trust's Representations
Trust represents that the Board has determined that it is reasonable to
rely on Delegate to perform the responsibilities delegated by this Agreement.
Trust further represents that the persons executing this Agreement and any
amendment or appendix hereto on its behalf are duly authorized to so bind the
Trust with respect to the subject matter of this Agreement.
3. Jurisdictions Covered
a. Initial Jurisdictions
The authority delegated by this Agreement applies only with respect to
Assets held in the jurisdictions listed in Appendix A.
b. Added Jurisdictions
Jurisdictions may be added to Appendix A by written agreement in the form
of Appendix B. Delegate's responsibility and authority with respect to any
jurisdiction so added will commence at the later of (i) the time that Delegate's
Authorized Representative and Board's Authorized Representative have both
executed a copy of Appendix B listing such jurisdiction, or (ii) the time that
Delegate's Authorized Representative receives a copy of such fully executed
Appendix B.
c. Withdrawn Jurisdictions
Board may withdraw its delegation with respect to any jurisdiction upon
written notice to Delegate. Delegate may withdraw its acceptance of delegated
authority with respect to any jurisdiction upon written notice to Board. Ten
days (or such longer period as to which the parties agree) after receipt of any
such notice by the Authorized Representative of the party other than the party
giving notice, Delegate shall have no further responsibility or authority under
this Agreement with respect to the jurisdiction or jurisdictions is to which
authority is withdrawn.
4. Delegation of Authority to Act as Foreign Custody Manager
a. Selection of Eligible Foreign Custodians
Subject to the provisions of this Agreement and the requirements of Rule
17f-5 (and any other applicable law), Delegate is authorized and directed to
place and maintain Assets in the care of any Eligible Foreign Custodian or
Custodians selected by Delegate in each jurisdiction to which this Agreement
applies, except that Delegate does not accept such authorization and direction
with regard to Securities Depositories.
b. Contracts With Eligible Foreign Custodians
Subject to the provisions of this Agreement and the requirements of Rule
17f-5 (and any other applicable law), Delegate is authorized to enter into, on
behalf of Trust, such written contracts governing Trust's foreign custody
arrangements with such Eligible Foreign Custodians as Delegate deems
appropriate.
5. Monitoring of Eligible Foreign Custodians and Contracts
In each case in which Delegate has exercised the authority delegated under
this Agreement to place Assets with an Eligible Foreign Custodian, Delegate is
authorized to, and shall, on behalf of Trust, establish a system to Monitor the
appropriateness of maintaining Assets with such Eligible Foreign Custodian. In
each case in which Delegate has exercised the authority delegated under this
Agreement to enter into a written contract governing Trust's foreign custody
arrangements, Delegate is authorized to, and shall, on behalf of Trust,
establish a system to Monitor the appropriateness of such contract.
6. Guidelines and Procedures for the Exercise of Delegated Authority
a. Board's Conclusive Determination Regarding Country Risk
In exercising its delegated authority under this Agreement, Delegate may
assume, for all purposes, that Board (or Trust's investment advisor, pursuant to
authority delegated by Board) has considered, and pursuant to its fiduciary
duties to Trust and Trust's shareholders, determined to accept, such Country
Risk as is incurred by placing and maintaining Assets in the jurisdictions to
which this Agreement applies. In exercising its delegated authority under this
Agreement, Delegate may also assume that Board (or Trust's investment advisor,
pursuant to authority delegated by Board) has, and will continue to, Monitor
such Country Risk to the extent Board deems necessary or appropriate.
Nothing in this Agreement shall require Delegate to make any selection or
to engage in any Monitoring on behalf of Trust that would entail consideration
of Country Risk.
b. Selection of Eligible Foreign Custodians
In exercising the authority delegated under this Agreement to place Assets
with an Eligible Foreign Custodian, Delegate shall determine that Assets will be
subject to reasonable care, based on the standards applicable to custodians in
the market in which the Assets will be held, after considering all factors
relevant to the safekeeping of such assets, including, without limitation;
i. The Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical protections
available for certificated securities (if applicable), the method of
keeping custodial records, and the security and data protection practices;
ii. Whether the Eligible Foreign Custodian has the financial strength
to provide reasonable care for Assets;
iii. The Eligible Foreign Custodian's general reputation and standing
and, in the case of a Securities Depository, the Securities Depository's
operating history and number of participants;
iv. Whether Trust will have jurisdiction over and be able to enforce
judgments against the Eligible Foreign Custodian, such as by virtue of the
existence of any offices of the Eligible Foreign Custodian in the United
States or the Eligible Foreign Custodian's consent to service of process in
the United States;
v. In the case of an Eligible Foreign Custodian that is a banking
institution or trust company, any additional factors and criteria set forth
in Appendix C to this Agreement; and
c. Evaluation of Written Contracts
In exercising the authority delegated under this Agreement to enter into
written contracts governing Trust's foreign custody arrangements with an
Eligible Foreign Custodian, Delegate shall determine that such contracts provide
reasonable care for Assets based on the standards applicable to Eligible Foreign
Custodians in the relevant market. In making this determination, Delegate shall
ensure that the terms of such contracts comply with the provisions of Rule
17f-5(c)(2).
d. Monitoring
In exercising the authority delegated under this Agreement to establish a
system to Monitor the appropriateness of maintaining Assets with an Eligible
Foreign Custodian or the appropriateness of a written contract governing Trust's
foreign custody arrangements, Delegate shall consider any factors and criteria
set forth in Appendix D to this Agreement. If, as a result of its Monitoring of
Eligible Foreign Custodian relationships hereunder or otherwise, the Delegate
determines in its sole discretion that it is in the best interest of the
safekeeping of the Assets to move such Assets to a different Eligible Foreign
Custodian, the Trust shall bear any expense related to such relocation of
Assets.
7. Standard of Care
In exercising the authority delegated under this Agreement, Delegate agrees
to exercise reasonable care, prudence and diligence such as a person having
responsibility for the safekeeping of assets of an investment company registered
under the Investment Company Act of 1940 would exercise.
8. Reporting Requirements
Delegate agrees to provide written reports notifying Board of the placement
of Assets with a particular Eligible Foreign Custodian and of any material
change in Trust's foreign custody arrangements. Such reports shall be provided
to Board quarterly for consideration at the next regularly scheduled meeting of
the Board or earlier if deemed necessary or advisable by the Delegate in its
sole discretion.
9. Provision of Information Regarding Country Risk
With respect to the jurisdictions listed in Appendix A, or added thereto
pursuant to Article 3, Delegate agrees to provide annually to Board, such
information relating to Country Risk, if available, as is specified in Appendix
E to this Agreement. Such information relating to Country Risk shall be updated
from time to time as the Delegate deems necessary.
10. Limitation of Liability.
a. Notwithstanding anything in this Agreement to the contrary, in no event
shall the Delegate or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Trust or any third
party, and the Trust shall indemnify and hold the Delegate and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Delegate or any Indemnified Party under
this Agreement, except for any Claim resulting solely from the negligence,
willful misfeasance or bad faith of the Delegate or any Indemnified Party.
Without limiting the foregoing, neither the Delegate nor the Indemnified Parties
shall be liable for, and the Delegate and the Indemnified Parties shall be
indemnified against, any Claim arising as a result of:
i. Any act or omission by the Delegate or any Indemnified Party in
reasonable good faith reliance upon the terms of this Agreement, any
resolution of the Board, telegram, telecopy, notice, request, certificate
or other instrument reasonably believed by the Delegate to be genuine;
ii. Any information which the Delegate provides or does not provide
under Section 9 hereof;
iii. Any acts of God, earthquakes, fires, floods, storms or other
disturbances of nature, epidemics, strikes, riots, nationalization,
expropriation, currency restrictions, acts of war, civil war or terrorism,
insurrection, nuclear fusion, fission or radiation, the interruption, loss
or malfunction of utilities, transportation or computers (hardware or
software) and computer facilities, the unavailability of energy sources and
other similar happenings or events.
b. Notwithstanding anything to the contrary in this Agreement, in no event
shall the Delegate or the Indemnified Parties be liable to the Trust or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
11. Arbitration of Disputes
To the extent permitted by law, all disputes or claims arising under this
Agreement shall be resolved through arbitration. Arbitration under this Article
shall be conducted according to the Commercial Arbitration Rules of the American
Arbitration Association and shall take place in the City of Boston,
Massachusetts. This Article shall be enforced and interpreted exclusively in
accordance with applicable federal law, including the Federal Arbitration Act.
12. Effectiveness and Termination of Agreement
This Agreement shall be effective as of the later of the date of execution
on behalf of Board or Delegate and shall remain in effect until terminated as
provided herein. This Agreement may be terminated at any time, without penalty,
by written notice from the terminating party to the non-terminating party.
Termination will become effective 30 days after receipt by the non-terminating
party of such notice.
13. Authorized Representatives and Notices
The respective Authorized Representatives of Trust and Board, and the
addresses to which notices and other documents under this Agreement are to be
sent to each, are as set forth in Appendix F. Any Authorized Representative of a
party may add or delete persons from that party's list of Authorized
Representatives by written notice to an Authorized Representative of the other
party.
14. Governing Law
This Agreement shall be constructed in accordance with the laws of the
Commonwealth of Massachusetts without regard to principles of choice of law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
Investors Bank & Trust Company
By: ___________________________________
Name:
Title:
LSA VARIABLE SERIES TRUST
By:____________________________________
Name:
Title:
<PAGE>
List of Appendices
A -- Jurisdictions Covered
B -- Additional Jurisdictions Covered
C -- Additional Factors and Criteria To Be Applied in the Selection of
Eligible Foreign Custodians That Are Banking Institutions or Trust
Companies
D -- Factors and Criteria To Be Applied in Establishing Systems For the
Monitoring of Foreign Custody Arrangements and Contracts
E -- Information Regarding Country Risk
F -- Authorized Representatives
<PAGE>
A-1
APPENDIX A
Jurisdictions Covered
Argentina Latvia
Austria Lebanon
Australia Lithuania
Bahrain Luxembourg
Bangladesh Malaysia
Belgium Mauritius
Bermuda Mexico
Botswana Morocco
Brazil Namibia
Bulgaria Netherlands
Canada New Zealand
Chile Norway
China Oman
Colombia Pakistan
Croatia Papau New Guinea
Cyprus Peru
Czech Republic Philippines
Denmark Poland
Ecuador Portugal
Egypt Romania
Estonia Russia
Euroclear Singapore
Finland Slovak Republic
France Slovenia
Germany South Africa
Ghana Spain
Greece Sri Lanka
Hong Kong Swaziland
Hungary Sweden
Iceland Switzerland
India Taiwan
Indonesia Thailand
Ireland Turkey
Israel Ukraine
Italy United Kingdom
Japan Uruguay
Jordan Venezuela
Kazakhstan Zambia
Kenya Zimbabwe
Korea
<PAGE>
A-6
<PAGE>
APPENDIX B
Additional Jurisdictions Covered
Pursuant to Article 3 of this Agreement, Delegate and Board agree that
the following jurisdictions shall be added to Appendix A:
[insert additional countries]
Investors Bank & Trust Company
By: ___________________________________
Name:
Title:
[FUND]
By:____________________________________
Name:
Title:
DATE: ______________________________
<PAGE>
APPENDIX C
Additional Factors and Criteria To Be Applied
in the Selection of Eligible Foreign Custodians
That Are Banking Institutions or Trust Companies
In addition to the factors set forth in Rule 17f-5(c)(1), in selecting
Eligible Foreign Custodians that are banking institutions or trust companies,
Delegate shall consider the following factors, if such information is available
(check all that apply):
_________ None
_________ Other (list below):
<PAGE>
APPENDIX D
Factors and Criteria To Be Applied
in the Establishing Systems For the Monitoring of
Foreign Custody Arrangements and Contracts
In establishing systems for the Monitoring of foreign custody
arrangements and contracts with Eligible Foreign Custodians, Delegate shall
consider the following factors, if such information is available:
1. Operating performance
2. Established practices and procedures
3. Relationship with market regulators
4. Contingency planning
<PAGE>
APPENDIX E
Information Regarding Country Risk
To aid the Board in its determinations regarding Country Risk, Delegate
will furnish Board annually with respect to the jurisdictions specified in
Article 3, the following information:
1. Copy of Addenda or Side Letters to Subcustodian Agreements
2. Legal Opinion, if available, with regard to:
a) Access to books and records by the Trust's accountants
b) Ability to recover assets in the event of bankruptcy of a custodian
c) Ability to recover assets in the event of a loss
d) Likelihood of expropriation or nationalization, if available
e) Ability to repatriate or convert cash or cash equivalents
3. Audit Report
4. Copy of Balance Sheet from Annual Report
5. Summary of Central Depository Information
6. Country Profile Matrix containing market practice for:
a) Delivery versus payment
b) Settlement method
c) Currency restrictions
d) Buy-in practice
e) Foreign ownership limits
f) Unique market arrangements
7. Information Regarding Securities Depositories
a) Whether use is voluntary or compulsory
b) Ownership
c) Operating History
d) Established rules, practices and procedures
e) Membership
f) Financial strength
g) Governing regulatory body
<PAGE>
APPENDIX F
Authorized Representatives
The names and addresses of each party's authorized representatives are set forth
below:
A. Board
With a copy to:
B. Delegate
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: _______________, Director, Client Management
Fax: (617) 330-6033
With a copy to:
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: John E. Henry, General Counsel
Fax: (617) 946-1929
<PAGE>
Exhibit (8)(b)
ADMINISTRATION AGREEMENT
AGREEMENT made as of this ____ day of ______________, 1999, between LSA
VARIABLE SERIES TRUST, a business trust organized and registered under the laws
of the state of Delaware (the "Trust"), and INVESTORS BANK & TRUST COMPANY, a
Massachusetts trust company (the "Bank").
WHEREAS, the Trust, a registered investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), consisting of the separate
funds listed on Appendix A hereto; and
WHEREAS, the Trust desires to retain the Bank to render certain
administrative services to the Trust and the Bank is willing to render such
services.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints the Bank to act as
Administrator of the Trust on the terms set forth in this Agreement. The
Bank accepts such appointment and agrees to render the services herein set
forth for the compensation herein provided.
2. Delivery of Documents. The Trust has furnished the Bank with copies
properly certified or authenticated of each of the following:
(a) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Bank to provide certain administrative services to
the Trust and approving this Agreement;
(b) The Trust's Declaration of Trust filed with the state of
Delaware on _______________________, 1999 and all amendments thereto
(the "Declaration");
(c) The Trust's By-laws and all amendments thereto (the
"By-Laws");
(d) The Trust's agreements with all service providers which
include any investment advisory agreements, sub-investment advisory
agreements, custody agreements, distribution agreements and transfer
agency agreements (collectively, the "Agreements");
(e) The Trust's most recent Registration Statement on Form N-lA
(the "Registration Statement") under the Securities Act of 1933 and
under the 1940 Act and all amendments thereto; and
(f) The Trust's most recent prospectus and statement of
additional information (the "Prospectus"); and
<PAGE>
(g) Such other certificates, documents or opinions as may
mutually be deemed necessary or appropriate for the Bank in the proper
performance of its duties hereunder.
The Trust will immediately furnish the Bank with copies of all amendments
of or supplements to the foregoing. Furthermore, the Trust will notify the Bank
as soon as possible of any matter which may materially affect the performance by
the Bank of its services under this Agreement.
3. Duties of Administrator. Subject to the supervision and direction of the
Board of Trustees of the Trust, the Bank, as Administrator, will assist in
conducting various aspects of the Trust's administrative operations and
undertakes to perform the services described in Appendix B hereto. The Bank may,
from time to time, perform additional duties and functions which shall be set
forth in an amendment to such Appendix B executed by both parties. At such time,
the fee schedule included in Appendix C hereto shall be appropriately amended.
In performing all services under this Agreement, the Bank shall act in
conformity with the Trust's Articles and By-Laws and the 1940 Act, as the same
may be amended from time to time, and the investment objectives, investment
policies and other practices and policies set forth in the Trust's Registration
Statement, as the same may be amended from time to time. Notwithstanding any
item discussed herein, the Bank has no discretion over the Trust's assets or
choice of investments and cannot be held liable for any problem relating to such
investments.
4. Duties of the Trust.
(a) The Trust is solely responsible (through its transfer agent or
otherwise) for (i) providing timely and accurate reports ("Daily Sales
Reports") which will enable the Bank as Administrator to monitor the total
number of shares sold in each state on a daily basis and (ii) identifying
any exempt transactions ("Exempt Transactions") which are to be excluded
from the Daily Sales Reports.
(b) The Trust agrees to make its legal counsel available to the Bank
for instruction with respect to any matter of law arising in connection
with the Bank's duties hereunder, and the Trust further agrees that the
Bank shall be entitled to rely on such instruction without further
investigation on the part of the Bank. The Bank agrees that it will obtain
the approval of the Trust before consulting with the Trust=s legal counsel.
5. Fees and Expenses.
(a) For the services to be rendered and the facilities to be furnished
by the Bank, as provided for in this Agreement, the Trust will compensate
the Bank in accordance with the fee schedule attached as Appendix C hereto.
Such fees do not include out-of-pocket disbursements (as delineated on the
fee schedule or other expenses with the prior approval of the Trust's
management) of the Bank for which the Bank shall be entitled to bill the
Trust separately and for which the Trust shall reimburse the Bank.
<PAGE>
(b) The Bank shall not be required to pay any expenses incurred by the
Trust.
6. Limitation of Liability.
(a) The Bank, its directors, officers, employees and agents shall not
be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the performance of its obligations
and duties under this Agreement, except a loss resulting from willful
misfeasance, bad faith or negligence in the performance of such obligations
and duties, or by reason of its reckless disregard thereof. The Trust will
indemnify the Bank, its directors, officers, employees and agents against
and hold it and them harmless from any and all losses, claims, damages,
liabilities or expenses (including legal fees and expenses) resulting from
any claim, demand, action or suit (i) arising out of the actions or
omissions of the Trust, including, but not limited to, inaccurate Daily
Sales Reports and misidentification of Exempt Transactions; (ii) arising
out of the offer or sale of any securities of the Trust in violation of (x)
any requirement under the federal securities laws or regulations, (y) any
requirement under the securities laws or regulations of any state, or (z)
any stop order or other determination or ruling by any federal or state
agency with respect to the offer or sale of such securities; or (iii) not
resulting from the willful misfeasance, bad faith or negligence of the Bank
in the performance of such obligations and duties or by reason of its
reckless disregard thereof.
(b) The Bank may apply to the Trust at any time for instructions and
may consult counsel for the Trust, or its own counsel (at the expense of
the Bank), and with accountants and other experts with respect to any
matter arising in connection with its duties hereunder, and the Bank shall
not be liable or accountable for any action taken or omitted by it in good
faith in accordance with such instruction, or with the opinion of such
counsel, accountants, or other experts. The Bank shall not be liable for
any act or omission taken or not taken in reliance upon any document,
certificate or instrument which it reasonably believes to be genuine and to
be signed or presented by the proper person or persons. The Bank shall not
be held to have notice of any change of authority of any officers,
employees, or agents of the Trust until receipt of written notice thereof
has been received by the Bank from the Trust.
(c) In the event either party is unable to perform, or is delayed in
performing, its obligations under the terms of this Agreement because of
acts of God, strikes, legal constraint, government actions, war, emergency
conditions, interruption of electrical power or other utilities, equipment
or transmission failure or damage reasonably beyond its control or other
causes reasonably beyond its control, such party shall not be liable to the
other for compensation nor for any damages resulting from such failure to
perform or otherwise from such causes.
(d) Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank be liable for special, incidental or consequential
damages, even if advised of the possibility of such damages.
<PAGE>
7. Termination of Agreement.
(a) The term of this Agreement shall be three years commencing upon
the date hereof (the "Initial Term"), unless earlier terminated as provided
herein. After the expiration of the Initial Term, the term of this
Agreement shall automatically renew for successive one-year terms (each a
"Renewal Term") unless notice of non-renewal is delivered by the
non-renewing party to the other party no later than ninety days prior to
the expiration of the Initial Term or any Renewal Term, as the case may be.
(i) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party violates
any material provision of this Agreement, provided that the violating
party does not cure such violation within sixty days of receipt of
written notice from the non-violating party of such violation.
(ii) Either party may terminate this Agreement during any Renewal
Term upon ninety days written notice to the other party. Any
termination pursuant to this paragraph 7(a)(ii) shall be effective
upon expiration of such ninety days, provided, however, that the
effective date of such termination may be postponed, at the request of
the Trust, to a date not more than one hundred twenty days after
delivery of the written notice in order to give the Trust an
opportunity to make suitable arrangements for a successor
administrator.
(b) The Bank, as Administrator, and the Trust agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying
out of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except as may be required by
law.
In the event of the termination of this Agreement, it is the obligation of
the Bank to promptly deliver to the Trust the books and records with respect to
transactions for which the Bank is responsible pursuant to the terms and
conditions of this Agreement.
8. Miscellaneous.
(a) Any notice or other instrument authorized or required by this
Agreement to be given in writing to the Trust or the Bank shall be
sufficiently given if addressed to that party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
To the Trust:
LSA Variable Series Trust
Allstate Life Insurance Company
3100 Sanders Road, Suite J5B
Northbrook, Illinois 60062
<PAGE>
Attention: ______________________________
With a copy to: Michael Velotta, General Counsel
To the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, MA 02117-9130
Attention: Robert C. Conron, Director, Client Management
With a copy to: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable without the written
consent of the other party.
(c) This Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, without regard to its conflict of laws
provisions.
(d) This Agreement may be executed in any number of counterparts each
of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
9. Confidential. All books, records, information and data pertaining to the
business of the other party which are exchanged or received pursuant to the
negotiation or the carrying out of this Agreement shall remain confidential, and
shall not be voluntarily disclosed to any other person, except as may be
required in the performance of duties hereunder or as otherwise required by law.
10. Use of Bank Name. The Trust shall not use the name of the Bank or any
of its affiliates in any prospectus, sales literature or other material relating
to the Trust in a manner not approved by the Bank prior thereto in writing;
provided however, that the approval of the Bank shall not be required for any
use of its name which merely refers in accurate and factual terms to its
appointment hereunder or which is required by the Securities and Exchange
Commission or any state securities or insurance authority or any other
appropriate regulatory, governmental or judicial authority; provided further,
that in no event shall such approval be unreasonably withheld or delayed.
<PAGE>
11. Use of Trust Name. The Bank shall not use the name of the Trust or any
of its affiliates in any advertisement, sales literature or other material
relating to the Bank in a manner not approved by the Trust prior thereto in
writing; provided however, that the approval of the Trust shall not be required
for any use of its name which merely refers in accurate and factual terms to its
relationship with the Trust hereunder or which is required by the Securities and
Exchange Commission or any state securities or insurance authority or any other
appropriate regulatory, governmental or judicial authority; provided further,
that in no event shall such approval be unreasonably withheld or delayed.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
LSA VARIABLE SERIES TRUST
By:
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:
Name:
Title:
<PAGE>
Exhibit (8)(c)
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of this ___ day of ___________________, 1999, between LSA
VARIABLE SERIES TRUST, a business trust organized and registered under the laws
of the state of Delaware (the "Trust"), and INVESTORS BANK & TRUST COMPANY, a
Massachusetts trust company (the "Bank").
WHEREAS, the Trust desires to appoint the Bank as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and the Bank desires to accept such appointment;
WHEREAS, the Bank is duly registered as a transfer agent as provided in
Section 17A(c) of the Securities Exchange Act of 1934, as amended, (the "1934
Act");
WHEREAS, the Trust is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets;
WHEREAS, the Trust intends to initially offer shares in the series listed
on Appendix A hereto (such series, together with all other series subsequently
established by the Trust and made subject to this Agreement in accordance with
Section 17, being herein referred to as the "Fund(s)");
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the Trust and the Bank agree as follows:
1. Terms of Appointment Duties of the Bank.
1.1 Subject to the terms and conditions set forth in this Agreement, the
Trust on behalf of the Funds hereby employs and appoints the Bank to act, and
the Bank agrees to act, as transfer agent for each of the Fund(s)' authorized
and issued shares of beneficial interest ("Shares"), dividend disbursing agent
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of the Trust ("Shareholders") and set out in the
currently effective prospectus and statement of additional information, as each
may be amended from time to time, (the "Prospectus") of the Trust.
1.2 The Bank agrees that it will perform the following services:
(a) In connection with procedures established from time to time by
agreement between the Trust and the Bank, the Bank shall:
<PAGE>
(i) Receive for acceptance orders for the purchase of Shares and
promptly deliver payment and appropriate documentation therefor to the
custodian of the Trust appointed by the Board of Trustees of the Trust
(the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation therefor to the
Custodian;
(iv) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and
distributions declared by the Trust on behalf of a Fund;
(vii) Create and maintain all necessary records including those
specified in Section 10 hereof, in accordance with all applicable
laws, rules and regulations, including but not limited to records
required by Section 31(a) of the Investment Company Act of 1940, as
amended (the "1940 Act"), and those records pertaining to the various
functions performed by it hereunder. All records shall be available
for inspection and use by the Trust. Where applicable, such records
shall be maintained by the Bank for the periods and in the places
required by Rule 3la-2 under the 1940 Act;
(viii) Make available during regular business hours all records
and other data created and maintained pursuant to this Agreement for
reasonable audit and inspection by the Trust, or any person retained
by the Trust. Upon reasonable notice by the Trust, the Bank shall make
available during regular business hours its facilities and premises
employed in connection with its performance of this Agreement for
reasonable visitation by the Trust, or any person retained by the
Trust; and
(ix) Record the issuance of Shares of the Trust and maintain,
pursuant to Rule 1 7Ad- 10(e) under the 1934 Act, a record of the
total number of Shares of the Trust which are authorized, based upon
data provided to it by the Trust, and issued and outstanding. The Bank
shall also provide the Trust on a regular basis with the total number
of Shares which are authorized and issued and outstanding and shall
have no obligation, when recording the issuance of Shares, to monitor
the issuance of such Shares or to take cognizance of any laws relating
to the issue or sale of such Shares, which functions shall be the sole
responsibility of the Trust.
<PAGE>
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a) or in any Schedule hereto, the Bank shall: (i) perform
all of the customary services of a transfer agent, dividend disbursing
agent and, as relevant, agent in connection with accumulation, open-account
or similar plans; including but not limited to maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving
and tabulating proxies, mailing Shareholder reports and prospectuses to
current Shareholders, withholding taxes on all accounts, including
nonresident alien accounts, preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect to dividends
and distributions by federal authorities for all Shareholders, preparing
and mailing confirmation forms and statements of account to Shareholders
for all purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, responding to Shareholder telephone
calls and Shareholder correspondence, preparing and mailing activity
statements for Shareholders, and providing Shareholder account information;
and (ii) provide a system which will enable the Trust to monitor the total
number of shares sold in each State. The Trust shall (i) indemnify to the
Bank in writing those transactions and assets to be treated as exempt from
blue sky reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The responsibility of
the Bank for a Fund's blue sky state registration status is solely limited
to the initial establishment of transactions subject to blue sky compliance
by such Fund(s) and the reporting of such transactions to the Fund(s) as
provided above.
(c) Additionally, the Bank shall utilize a system to identify all
share transactions which involve purchase and redemption orders that are
processed at a time other than the time of the computation of net asset
value per share next computed after receipt of such orders, and shall
compute the net effect upon the Fund(s) of such transactions so identified
on a daily and cumulative basis.
2. Sale of Trust Shares
2.1 Whenever the Trust shall sell or cause to be sold any Shares of a Fund,
the Trust shall deliver or cause to be delivered by facsimile to the Bank a
document duly specifying: (i) the name of the Fund whose Shares were sold; (ii)
the number of Shares sold, trade date, and price; (iii) the amount of money to
be delivered to the Custodian for the sale of such Shares and specifically
allocated to such Fund; and (iv) in the case of a new account, a new account
application or sufficient information to establish an account.
2.2 The Bank will, upon receipt by it of a check or other payment
identified by it as an investment in Shares of one of the Funds and drawn or
endorsed to the Bank as agent for, or identified as being for the account of;
one of the Funds, promptly deposit such check or other payment to the
appropriate account postings necessary to reflect the investment. The Bank will
notify the Trust, or its designee, and the Custodian of all purchases and
related account adjustments.
<PAGE>
2.3 Under procedures as established by mutual agreement between the Trust
and the Bank, the Bank shall issue to the purchaser or its authorized agent such
Shares, computed to the nearest three decimal points, as he is entitled to
receive, based on the appropriate net asset value of the Funds' Shares,
determined in accordance with the prospectus and any applicable federal law or
regulation. In issuing Shares to a purchaser or its authorized agent, the Bank
shall be entitled to rely upon the latest directions, if any, previously
received by the Bank from the purchaser or its authorized agent concerning the
delivery of such Shares.
2.4 The Bank shall not be required to issue any Shares of the Trust where
it has received a written instruction from the Trust or written notification
from any appropriate federal or state authority that the sale of the Shares of
the Fund(s) in question has been suspended or discontinued, and the Bank shall
be entitled to rely upon such written instructions or written notification.
2.5 Upon the issuance of any Shares of any Fund(s) in accordance with
foregoing provisions of this Section, the Bank shall not be responsible for the
payment of any original issue or other taxes, if any, required to be paid by the
Trust in connection with such issuance.
2.6 The Bank may establish such additional rules and regulations governing
the transfer or registration of Shares as it may deem advisable and consistent
with such rules and regulations generally adopted by transfer agents, or with
the written consent of the Trust, any other rules and regulations.
3. Redemptions. Shares of any Fund may be redeemed in accordance with the
procedures set forth in the Prospectus of the Trust and the Bank will duly
process all redemption requests.
4. Transfers and Exchanges. The Bank is authorized to review and process
transfers of Shares of each Fund, exchanges between Funds on the records of the
Funds maintained by the Bank, and exchanges between the Trust and any other
entity as may be permitted by the Prospectus of the Trust. If Shares to be
transferred are represented by outstanding certificates, the Bank will, upon
surrender to it of the certificates in proper form for transfer, and upon
cancellation thereof; countersign and issue new certificates for a like number
of Shares and deliver the same. If the Shares to be transferred are not
represented by outstanding certificates, the Bank will, upon an order therefor
by or on behalf of the registered holder thereof in proper form, credit the same
to the transferee on its books. If Shares are to be exchanged for Shares of
another Fund, the Bank will process such exchange in the same manner as a
redemption and sale of Shares, except that it may in its discretion waive
requirements for information and documentation.
<PAGE>
5. Right to Seek Assurances. The Bank reserves the right to refuse to transfer
or redeem Shares until it is satisfied that the requested transfer or redemption
is legally authorized, and it shall incur no liability for the refusal, in good
faith, to make transfers or redemptions which the Bank, in its judgment, deems
improper or unauthorized, or until it is satisfied that there is no basis for
any claims adverse to such transfer or redemption. The Bank may, in effecting
transfers, rely upon the provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be
amended from time to time, which in the opinion of legal counsel for the Trust
or the Bank's own legal counsel, do not require certain documents in connection
with the transfer or redemption of Shares of any Fund, and the Trust shall
indemnify the Bank for any act done or omitted by it in reliance upon such laws
or opinions of counsel of the Trust or of the Bank.
6. Distributions.
6.1 The Trust will promptly notify the Bank of the declaration of any
dividend or distribution. The Trust shall furnish to the Bank a resolution of
the Board of Trustees of the Trust certified by the Secretary (a "Certificate"):
(i) authorizing the declaration of dividends on a specified periodic basis and
authorizing the Bank to rely on oral instructions or a Certificate specifying
the date of the declaration of such dividend or distribution, the date of
payment thereof; the record date as of which Shareholders entitled to payment
shall be determined and the amount payable per share to Shareholders of record
as of such record date and the total amount payable to the Bank on the payment
date; or (ii) setting forth the date of the declaration of any dividend or
distribution by a Fund, the date of payment thereof; the record date as of which
Shareholders entitled to payment shall be determined, and the amount payable per
share to the Shareholders of record as of that date and the total amount payable
to the Bank on the payment date.
6.2 The Bank, on behalf of the Trust, shall instruct the Custodian to place
in a disbursing account funds equal to the cash amount of any dividend or
distribution to be paid out. The Bank will calculate, prepare and mail checks to
(at the address as it appears on the records of the Bank), or (where
appropriate) credit such dividend or distribution to the account of the Fund
Shareholders, and maintain and safeguard all underlying records.
6.3 The Bank will replace lost checks at its discretion and in conformity
with regular business practices.
6.4 The Bank will maintain all records necessary to reflect the crediting
of dividends which are reinvested in Shares of the Trust, including without
limitation daily dividends.
6.5 The Bank shall not be liable for any improper payments made in
accordance with a resolution of the Board of Trustees of the Trust.
6.6 If the Bank shall not receive from the Custodian sufficient cash to
make payment to all Shareholders of the Trust as of the record date, the Bank
shall, upon notifying the Trust, withhold payment to all Shareholders of record
as of the record date until such sufficient cash is provided to the Bank and
shall not be liable for any claim arising out of such withholding.
7. Other Duties. In addition to the duties expressly provided for herein, the
Bank shall perform such other duties and functions and shall be paid such
amounts therefor as may from time to time be agreed to in writing.
<PAGE>
8. Taxes. It is understood that the Bank shall file such appropriate information
returns concerning the payment of dividends and capital gain distributions and
tax withholding with the proper Federal, State and local authorities as are
required by law to be filed by the Trust and shall withhold such sums as are
required to be withheld by applicable law.
9. Books and Records.
9.1 The Bank shall maintain confidential records showing for each
Shareholder's account the following: (i) names, addresses and tax identification
numbers; (ii) numbers of Shares held; (iii) historical information (as available
from prior transfer agents) regarding the account of each Shareholder, including
dividends paid and date and price of all transactions on a Shareholder's
account; (iv) any stop or restraining order placed against a Shareholder's
account; (v) information with respect to withholdings; (vi) any capital gain or
dividend reinvestment order, plan application, dividend address and
correspondence relating to the current maintenance of a Shareholder's account;
(vii) certificate numbers and denominations for any Shareholders holding
certificates; (viii) any information required in order for the Bank to perform
the calculations contemplated or required by this Agreement; and (ix) such other
information and data as may be required by applicable law.
9.2 Any records required to be maintained by Rule 3la-l under the 1940 Act
will be preserved for the periods prescribed in Rule 3la-2 under the 1940 Act.
Such records may be inspected by the Trust during regular business hours upon
reasonable notice. The Bank may, at its option at any time, and shall forthwith
upon the Trust's demand, turn over to the Trust and cease to retain in the
Bank's files, records and documents created and maintained by the Bank in
performance of its service or for its protection. At the end of the six-year
retention period, such documents will either be turned over to the Trust, or
destroyed in accordance with the Trust's authorization.
9.3 Procedures applicable to the services to be performed hereunder may be
established from time to time by agreement between the Fund(s) and the Bank. The
Bank shall have the right to utilize any shareholder accounting and
recordkeeping systems which, in its opinion, qualifies to perform any services
to be performed hereunder. The Bank shall keep records relating to the services
performed hereunder, in the form and manner as it may deem advisable.
10. Fees and Expenses.
10.1 For performance by the Bank pursuant to this Agreement, the Fund(s)
agree to pay the Bank an annual maintenance fee for each Shareholder account as
set out in the initial fee schedule attached as Appendix B hereto. Such fees and
out-of-pocket expenses and advances identified under Section 10.2 below may be
changed from time to time subject to mutual written agreement between the
Fund(s) and the Bank.
<PAGE>
10.2 In addition to the fee paid under Section 10.1 above, the Fund(s)
agree to reimburse the Bank for out-of-pocket expenses or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In addition,
any other expenses incurred by the Bank at the request or with the consent of
the Fund(s) including, without limitation, any equipment or supplies which the
Trust specifically orders or requires the Bank to purchase, will be reimbursed
by the Fund(s).
10.3 The Fund(s) agree to pay all fees and reimbursable expenses within
thirty days following the mailing of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to the Bank by the Fund(s) at least seven
(7) days prior to the mailing date of such materials. Any waiver or extension by
the Bank of the thirty and seven day time periods enumerated in this Section
10.3 shall not constitute a dismissal of any monies due under this Agreement nor
shall such waiver or extension apply to any future monies due to the Bank
hereunder.
11. Representations and Warranties of the Bank.
The Bank represents and warrants to the Trust that:
11.1 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
11.2 It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
11.3 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
11.4 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
12. Representations and Warranties of the Trust.
The Trust represents and warrants to the Bank that:
12.1 It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware as set forth in the preamble
hereto.
12.2 It is empowered under applicable laws and by its charter documents and
by-laws to enter into and perform this Agreement.
12.3 All proceedings required by said charter documents and by-laws have
been taken to authorize it to enter into and perform this Agreement.
12.4 It is an open-end investment company registered under the 1940 Act.
<PAGE>
12.5 A registration statement on Form N-lA (including a prospectus and
statement of additional information) under the Securities Act of 1933 and the
1940 Act is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Trust being offered for sale.
12.6 When Shares are hereafter issued in accordance with the terms of the
Prospectus, such Shares shall be validly issued, fully paid and nonassessable by
the Fund(s).
13. Indemnification.
13.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Trust, any Fund or
any third party, and the Trust and each Fund shall indemnify and hold the Bank
and the Indemnified Parties harmless from and against any and all loss, damage,
liability, actions, suits, claims, costs and expenses, including legal fees (a
"Claim"), arising as a result of any act or omission of the Bank or any
Indemnified Party under this Agreement, except for any Claim resulting solely
from the negligence, willful misfeasance or bad faith of the Bank or any
Indemnified Party. Without limiting the foregoing, neither the Bank nor the
Indemnified Parties shall be liable for, and the Bank and the Indemnified
Parties shall be indemnified against, any Claim arising as a result of:
(a) Any actions taken or omitted to be taken by the Bank or its agents
or subcontractors in good faith in reliance on, or use by the Bank or its
agents or subcontractors of; information, records and documents which (i)
are received by the Bank or its agents or subcontractors and furnished to
such party by or on behalf of the Fund(s), (ii) have been prepared and/or
maintained by the Fund(s) or any other person or firm on behalf of the
Fund(s), or (iii) were received by the Bank or its agents or subcontractors
from a prior transfer agent.
(b) Any action taken or omitted to be taken by the Bank in good faith
reliance upon any law, act, regulation (a "Regulation") or interpretation
of a Regulation even though such Regulation may thereafter have been
altered, changed, amended or repealed.
(c) The Fund(s)' refusal or failure to comply with the terms of this
Agreement, or which arise out of the Funds' lack of good faith, negligence
or willful misconduct or which arise out of the breach of any
representation or warranty of the Fund(s) hereunder.
(d) The Bank's good faith and reasonable reliance on, or the carrying
out by the Bank or its agents or subcontractors of any instructions or
requests, whether written or oral, of the Fund(s).
(e) The offer or sale of Shares by the Trust in violation of (i) any
requirement under the federal securities laws or regulations; (ii) any
requirement under the securities laws or regulations of any state; or (iii)
any stop order or other determination or ruling by any federal or state
agency with respect to the offer or sale of such Shares.
<PAGE>
13.2 The Bank shall indemnify and hold the Fund(s) harmless from and
against any and all losses, damages, costs, charges, legal fees, payments,
expenses and liability arising out of or attributed to any action or failure or
omission to act by the Bank as a result of the Bank's lack of good faith,
negligence, willful misconduct, knowing violation of law or fraud.
13.3 At any time the Bank may apply to any officer of the Trust for
instructions, and may, after consultation with the Trust, consult with legal
counsel of the Bank or the Trust with respect to any matter arising in
connection with the services to be performed by the Bank under this Agreement,
and the Bank and its agents or subcontractors shall not be liable and shall be
indemnified by the Trust for any action taken or omitted by it in reliance upon
such instructions or upon the opinion of such counsel except for a knowing
violation of law. The Bank, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of
the Fund(s), reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided to the Bank or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized by the
Fund(s), and the Bank, its agents and subcontractors shall not be held to have
notice of any change of authority of any person, until receipt of written notice
thereof from the Fund(s). The Bank, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of an officer of the
Trust, and one proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
13.4 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, interruption of
electrical power or other utilities, equipment or transmission failure or damage
reasonably beyond its control, or other causes reasonably beyond its control,
such party shall not be liable to the other for compensation nor for any damages
resulting from such failure to perform or otherwise from such causes.
13.5 Neither party to this Agreement shall be liable to the other party for
special, incidental or consequential damages, even if the other party has been
advised of the possibility of such damages, under any provision of this
Agreement or for any act or failure to act hereunder as contemplated by this
Agreement.
13.6 In order that the indemnification provisions contained in this Section
13 shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
seeking indemnification shall give the indemnifying party full and complete
authority, information and assistance to defend such claim or proceeding, and
the indemnifying party shall have, at its option, sole control of the defense of
such claim or proceeding and all negotiations for its compromise or settlement.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent, which consent shall not be
unreasonably withheld.
<PAGE>
14. Covenants of the Trust and the Bank.
14.1 The Trust shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Trustees of the Trust
authorizing the appointment of the Bank and the execution and delivery of
this Agreement.
(b) A copy of the charter documents and by-laws of the Trust and all
amendments thereto.
(c) Copies of each vote of the Trustees designating authorized persons
to give instructions to the Bank, and a Certificate providing specimen
signatures for such authorized persons.
(d) Certificates as to any change in any officer or Director of the
Trust.
(e) If applicable a specimen of the certificate of Shares in each Fund
of the Trust in the form approved by the Trustees, with a Certificate as to
such approval.
(f) Specimens of all new certificates for Shares, accompanied by the
Trustees' resolutions approving such forms.
(g) All account application forms and other documents relating to
shareholder accounts or relating to any plan, program or service offered by
the Trust.
(h) A list of all Shareholders of the Fund(s) with the name, address
and tax identification number of each Shareholder, and the number of Shares
of the Fund(s) held by each, certificate numbers and denominations (if any
certificates have been issued), lists of any account against which stops
have been placed, together with the reasons for said stops, and the number
of Shares redeemed by the Fund(s).
(i) An opinion of counsel for the Trust with respect to the validity
of the Shares and the status of such Shares under the Securities Act of
1933.
(j) Copies of the Fund(s) registration statement on Form N-lA (if
applicable)as amended and declared effective by the Securities and Exchange
Commission and all post-effective amendments thereto.
(k) Such other certificates, documents or opinions as the Bank may
deem necessary or appropriate for the Bank in the proper performance of its
duties hereunder.
<PAGE>
14.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Trust for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of; such certificates,
forms and devices.
14.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act and the Rules thereunder, the Bank agrees
that all such records prepared or maintained by the Bank relating to the
services to be performed by the Bank hereunder are the confidential property of
the Trust and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered to the Trust on and in
accordance with its request.
14.4 The Bank and the Trust agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
14.5 In case of any requests or demands for the inspection of the
Shareholder records of the Trust, the Bank will endeavor to notify the Trust and
to secure instructions from an authorized officer of the Trust as to such
request or demand. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel that it
may be subject to enforcement or other action by any court or regulatory body
for the failure to exhibit the Shareholder records to such person.
15. Term of Agreement.
15.1 Termination of Agreement. The term of this Agreement shall be three
years commencing upon the date hereof (the "Initial Term"), unless earlier
terminated as provided herein. After the expiration of the Initial Term, the
term of this Agreement shall automatically renew for successive one-year terms
(each a "Renewal Term") unless notice of non-renewal is delivered by the
non-renewing party to the other party no later than ninety days prior to the
expiration of the Initial Term or any Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior to the
expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the
violating party does not cure such violation within sixty days of receipt
of such notice.
<PAGE>
(b) Either party may terminate this Agreement during any Renewal Term
upon ninety days written notice to the other party. Any termination
pursuant to this paragraph 16.1(b) shall be effective upon expiration of
such ninety days, provided, however, that the effective date of such
termination may be postponed to a date not more than one hundred twenty
days after delivery of the written notice: (i) at the request of the Bank,
in order to prepare for the transfer by the Bank of its duties hereunder;
or (ii) at the request of the Fund, in order to give the Fund an
opportunity to make suitable arrangements for a successor transfer agent.
15.2 Should the Trust exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Trust. Additionally, the Bank reserves the right to recover from the Trust
any other reasonable expenses associated with such termination.
16. Additional Funds. In the event that the Trust establishes one or more series
of Shares in addition to the series listed on Appendix A hereto with respect to
which it desires to have the Bank render services as transfer agent under the
terms hereof; it shall so notify the Bank in writing, and if the Bank agrees to
provide such services, the parties may execute an amendment hereto pursuant to
which such series of Shares shall become a Fund hereunder and Appendix A shall
be appropriately amended.
17. Assignment.
17.1 Except as provided in Section 18.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
17.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
17.3 The Bank, may with the consent on the part of the Trust, subcontract
for the performance of any of the services to be provided hereunder to third
parties, including any affiliate of the Bank, provided that the Bank shall
remain liable hereunder for any acts or omissions of any subcontractor as if
performed by the Bank.
18. Amendment. This Agreement may be amended or modified only by a written
agreement executed by both parties.
19. Governing Law. This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without regard to its conflict of laws provisions.
20. Merger of Agreement and Severability
20.1 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.
20.2 In the event any provision of this Agreement shall be held
unenforceable or invalid for any reason, the remainder of the Agreement shall
remain in full force and effect.
20.3 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall together,
constitute only one instrument.
<PAGE>
21. Notices. Any notice or other instrument in writing authorized or required by
this Agreement to be given to either party hereto will be sufficiently given if
addressed to such party and mailed or delivered to it at its office at the
address set forth below:
For the Trust:
LSA Variable Series Trust
Allstate Life Insurance Company
3100 Sanders Road, Suite J5B
Northbrook, Illinois 60062
Attention: ______________________________
For the Bank:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02117-9130
Attention: Robert C. Conron, Director, Client Management
With a copy to: John E. Henry, General Counsel
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and the year first above written.
LSA VARIABLE SERIES TRUST
By:
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:
Name:
Title:
<PAGE>
Exhibit (8)(d)
FORM OF
PARTICIPATION AGREEMENT
Among
LSA VARIABLE SERIES TRUST,
LSA ASSET MANAGEMENT LLC,
and
LINCOLN BENEFIT LIFE COMPANY
THIS AGREEMENT (the "Agreement"), made and entered into as of the first day
of October, 1999 by and among Lincoln Benefit Life Company (hereinafter the
"Company"), on its own behalf and on behalf of each separate account of the
Company named in Schedule 1 to this Agreement (collectively, the "Accounts"),
LSA Variable Series Trust (the "Fund") and LSA Asset Management LLC (the
"Manager").
WHEREAS, the Fund is an open-end management investment company and is
available to act as the investment vehicle for separate accounts now in
existence or to be established in the future for variable life insurance
policies, variable annuity contracts and other tax-deferred products offered by
insurance companies (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio", (collectively, the "Portfolios") and
each representing the interests in a particular managed pool of securities and
other assets;
<PAGE>
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (the "SEC"), dated ____________, 1999 (File No. 812-6324)
(hereinafter, the "Order") granting relief to the Fund, the Manager and any
subsequently registered open-end investment companies that in the future are
advised by the Manager, or by any entity controlling, controlled by, or under
common control with the Manager. Specifically, the Order provides exemptions
from Section 15(a) of the 1940 Act and Rule 18f-2 thereunder, subject to the
conditions set forth in the application, to permit investment advisers other
than the Manager, to serve and act as an investment subadviser to one or more
portfolios of the Fund (the "Adviser(s)") pursuant to written agreements between
the Manager and each Adviser that have been approved by the board of trustees of
the Fund (the "Trustees") but which have not been approved by a vote of a
majority of the outstanding voting securities of each portfolio. The Order also
provides exemptions from: certain registration statement disclosure requirements
of Items 3, 6(a)(1)(ii) and 15(a)(3) of Form N-1/A and Item 3 of Form N-14;
certain proxy statement disclosure requirements of Items 22(a)(3)(iv),
(c)(1)(ii), (c)(1)(iii), (c)(8) and (c)(9) of Schedule 14A under the Securities
Exchange Act of 1934, as amended; certain semi-annual reporting disclosure
requirements of Item 48 of Form N-SAR; and, certain financial statement
disclosure requirements of Sections 6-07(2)(a), (b), and (c) of Regulation S-X
which may be deemed to require various disclosures regarding advisory fees paid
to the Advisers;
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and its shares are registered under the Securities Act of 1933, as amended (the
"1933 Act");
WHEREAS, the Manager is duly registered as an investment adviser under the
Investment Advisers Act of 1940;
WHEREAS, the Company has registered or will register certain variable
annuity and/or life insurance contracts under the 1933 Act (the "Contracts")
(unless an exemption from registration is available);
WHEREAS, the Accounts are or will be duly organized, validly existing
segregated asset accounts, established by resolution of the Board of Directors
of the Company, to set aside and invest assets attributable to the Contracts and
the Accounts;
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless an exemption from registration is
available);
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios (as named
in Schedule 2 to this Agreement and as may be amended from time to time by
mutual consent of the parties) on behalf of the Accounts to fund the Contracts
(as named in Schedule 3 to this Agreement and as may be amended from time to
time by mutual consent of the parties) and the Fund is authorized to sell such
shares to the Accounts at net asset value; and
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the Fund, the
Manager and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of the Fund which
the Company orders on behalf of the Account, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Fund. For purposes of this Section
1.1, the Company shall be the designee of the Fund for receipt of such orders
from each Account and receipt by such designee shall constitute receipt by the
Fund; provided that the Fund receives written (or facsimile) notice of such
order by 9:30 a.m. Eastern Standard Time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Company shall pay for Fund shares on the next Business Day after
it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire or by a credit for
any shares redeemed.
1.3. The Fund agrees to make Fund shares available for purchase at the
applicable net asset value per share by the Company for its Accounts (as named
in Schedule 1 to this Agreement and as may be amended from time to time by
mutual consent of the parties) on those days on which the Fund calculates its
net asset value pursuant to rules of the SEC; provided, however, that the
Trustees may refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of shares of any Portfolio if such action is required by
law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Trustees, acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, in the best interests of the
shareholders of any Portfolio.
<PAGE>
1.4. The Fund agrees to redeem, upon the Company's request, any full or
fractional shares of the Fund held by the Company, executing such requests on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Fund for receipt of requests for
redemption and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives written (or facsimile) notice of such request
for redemption by 9:30 a.m. Eastern Standard Time on the next following Business
Day. Payment shall be made within the time period specified in the Fund's
prospectus or statement of additional information, in federal funds transmitted
by wire to the Company's account as designated by the Company in writing from
time to time.
1.5. The Company shall pay for the Fund shares on the next Business Day
after an order to purchase shares is made in accordance with the provisions of
Section 1.4 hereof. Payment shall be in federal funds transmitted by wire
pursuant to the instructions of the Fund's treasurer or by a credit for any
shares redeemed.
1.6. The Company agree to purchase and redeem the shares of the Portfolios
named in Schedule 2 offered by the Fund's then current prospectus and statement
of additional information in accordance with the provisions of such prospectus
and statement of additional information. The Company shall not permit any person
other than a Contract owner to give instructions to the Company which would
require the Company to redeem or exchange shares of the Fund.
ARTICLE II. Sales Material, Prospectuses and Other Reports
2.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or the Manager is named, at least ten Business Days prior to its
use. No such material shall be used if the Fund or its designee reasonably
objects to such use within ten Business Days after receipt of such material.
"Business Day" shall mean any day in which the New York Stock Exchange is open
for trading and in which the Fund calculates its net asset value pursuant to the
rules of the SEC.
<PAGE>
2.2. Except with the express permission of the Fund, the Company shall not
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund in connection with the sale of the Contracts other
than the information or representations contained in the registration statement
or prospectus for the Fund shares, as such registration statement and prospectus
may be amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional material
approved by the Fund or its designee.
2.3. For purposes of this Article II, the phrase "sales literature or other
promotional material" shall mean advertisements (such as material published, or
designed for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboard
or electronic media), and sales literature (such as brochures, circulars, market
letters and form letters), distributed or made generally available to customers
or the public.
2.4. The Fund shall provide a copy of its current prospectus within a
reasonable period of its effective filing date, and provide other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Fund is supplemented or amended) to have
the prospectus for the Contracts and the prospectus for the Fund printed
together in one document (such printing to be at the Company's expense). The
Manager shall be permitted to review and approve the typeset form of the Fund's
prospectus prior to such printing.
2.5. The Fund or the Manager shall provide the Company with either: (i) a
copy of the Fund's proxy material, reports to shareholders, other information
relating to the Fund necessary to prepare financial reports, and other
communications to shareholders for printing and distribution to Contract owners
at the Company's expense, or (ii) camera ready and/or printed copies, if
appropriate, of such material for distribution to Contract owners at the
Company' expense, within a reasonable period of the filing date for definitive
copies of such material. The Manager shall be permitted to review and approve
the typeset form of such proxy material, shareholder reports and communications
prior to such printing.
ARTICLE III. Fees and Expenses
3.1. The Fund and Manager shall pay no fee or other compensation to the
Company under this Agreement, and the Company shall pay no fee or other
compensation to the Fund or Manager, except as provided herein.
3.2. All expenses incident to performance by each party of its respective
duties under this Agreement shall be paid by that party. The Fund shall ensure
that all its shares are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, and the preparation of all statements
and notices required by any federal or state law.
3.3. The Company shall bear the expenses of typesetting, printing and
distributing the Fund's prospectus, proxy materials and reports to owners of
Contracts issued by the Company.
3.4. In the event the Fund adds one or more additional Portfolios and the
parties desire to make such Portfolios available to the respective Contract
owners as an underlying investment medium, a new Schedule 3 which shall be an
amendment to this Agreement shall be executed by the parties authorizing the
issuance of shares of the new Portfolios to the particular Account. The
amendment may also provide for the sharing of expenses for the establishment of
new Portfolios among Participating Insurance Companies desiring to invest in
such Portfolios and the provision of funds as the initial investment in the new
Portfolios.
<PAGE>
ARTICLE IV. Conditions of the Order; Applicable Law
4.1. The Company has reviewed a copy of the Order, and in particular, has
reviewed the conditions to the requested relief set forth therein. The Company
agrees to be bound by the responsibilities of a Participating Insurance Company
as set forth in the Order.
4.2. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Illinois.
4.3. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE V. Termination
5.1 This Agreement shall terminate with respect to some or all Portfolios:
(a) at the option of any party upon six month's advance written notice
to the other parties at the addresses specified in Section VI of this
Agreement; or
<PAGE>
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the requirements of its
Contracts or are not appropriate funding vehicles for the Contracts, as
determined by the Company reasonably and in good faith. Prompt written
notice of the election to terminate for such cause and an explanation of
such cause shall be furnished by the Company.
5.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 5.1(a) may be exercised for cause
or for no cause.
ARTICLE VI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other parties to this Agreement.
If to the Fund:
LSA Variable Series Trust
3100 Sanders Road
Northbrook, Illinois 60062
Attn: Legal Department
If to the Manager:
LSA Asset Management LLC
3100 Sanders Road
Northbrook, Illinois 60062
Attn: General Counsel
If to the Company:
Lincoln Benefit Life Company
Lincoln, Nebraska
Attn: Legal Department
<PAGE>
ARTICLE VII. Miscellaneous
7.1. Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as it may come into the public domain
7.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
7.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
7.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
7.5. Each party hereto shall cooperate with all appropriate governmental
authorities (including without limitation the SEC, the National Association of
Securities Dealers, Inc. and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Each party hereto shall promptly notify the other parties
to this Agreement, by written notice to the addresses specified in Section V, of
any such investigation or inquiry.
7.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
7.7. It is understood by the parties that this Agreement is not an
exclusive arrangement.
<PAGE>
7.8. The Company and the Manager each understand and agree that the
obligations of the Fund under this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund and the Fund's
property; the Company and the Manager separately represent that each has notice
of the provisions of the Declaration of Trust of the Fund disclaiming
shareholder liability for acts or obligations of the Fund.
7.9. This Agreement shall not be assigned by any party hereto without the
prior written consent of all the parties.
7.10. This Agreement sets forth the entire agreement between the parties
and supercedes all prior communications, agreements and understandings, oral or
written, between the parties regarding the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed as of the date specified below.
LIncoln Benefit Life Company
By: __________________________________
Title: _______________________________
Date: ________________________________
LSA VARIABLE SERIES TRUST
By: __________________________________
Title: _______________________________
Date: ________________________________
LSA ASSET MANAGEMENT LLC
By: __________________________________
Title: _______________________________
Date: ________________________________
<PAGE>
SCHEDULE 1
[SEPARATE ACCOUNT(S)]
<PAGE>
SCHEDULE 2
[PORTFOLIOS]
<PAGE>
SCHEDULE 3
[CONTRACTS]
<PAGE>
Exhibit (8)(e)
DISTRIBUTION AGREEMENT
DISTRIBUTORS, INC.
AGREEMENT, dated as of _______, 1999, by and between LSA Variable Series
Trust (the "Trust") and Allstate Life Financial Services, Inc. ("ALFS").
W I T N E S S E T H:
WHEREAS, the Trust is a Delaware business trust whose shareholders are and
will be separate accounts in unit investment trust form ("Eligible Separate
Accounts") of insurance companies ("Participating Insurance Companies"); and
WHEREAS, such Participating Insurance Companies issue, among other
products, variable insurance and annuity products ("Variable Products") whose
net premiums, contributions or other considerations may be allocated to Eligible
Separate Accounts for investment in the Trust; and
WHEREAS, the Trust's shares will not be sold except in connection with such
Variable Products outside the separate account context; and
WHEREAS, the Trust desires that ALFS undertake marketing activities with
respect to the Shares of the Trust's constituent series or investment portfolios
("Portfolios"); and
WHEREAS, the Trust is registered as an open-end investment company under
the Investment Company Act of 1940 ("Investment Company Act"); and
WHEREAS, the Investment Company Act prohibits any principal underwriter for
a registered open-end management investment company from offering for sale,
selling, or delivering after sale any security of which such company is the
issuer, except pursuant to a written contract with such investment company, and
ALFS will be a distributor for sale of the shares issued by the Trust; and
WHEREAS, ALFS is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended, ("Securities Exchange Act") and is a member of
the National Association of Securities Dealers, Inc. ("NASD").
NOW THEREFORE, the Trust and ALFS agree as follows:
<PAGE>
Section 1. The Trust has adopted a form of Participation Agreement, which
was approved by the Board of Trustees of the Trust. This Agreement shall be
subject to the provisions of the form of Participation Agreement, the terms of
which are incorporated herein by reference, made a part hereof and controlling.
The form of Participation Agreement may be amended or superseded, without prior
notice, and this Agreement shall be deemed amended to the extent the form of
Participation Agreement is amended or superseded. ALFS represents and warrants
that it will act in a manner consistent with such form of Participation
Agreement as it is currently set forth and as it may be amended or superseded,
so long as ALFS serves as the principal underwriter of the shares of the Trust (
the "Shares").
Section 2. ALFS is hereby authorized, from time to time, to enter into
separate written agreements ("Sales Agreements" or, individually, a "Sales
Agreement"), on terms and conditions not inconsistent with this Agreement, with
Participating Insurance Companies which have Eligible Separate Accounts and
which agree to participate in the distribution of the Trust's shares, directly
or through affiliated broker dealers by means of distribution of Variable
Products and to use their best efforts to solicit applications for Variable
Products. ALFS may not enter into any Sales Agreement with any Participating
Insurance Company that is more favorable than that maintained with any other
Participating Insurance Company and Eligible Separate Account, except that not
all Portfolios of the Trust need be made available for investment by all
Participating Insurance Companies, Eligible Separate Accounts or Variable
Products. The Board of Trustees of the Trust may, in its sole discretion,
determine that certain Portfolios and classes of shares of the Trust shall be
available only to certain types of Variable Products or to a single
Participating Insurance Company and its affiliates.
Section 3. Such Participating Insurance Companies and their agents or
representatives soliciting applications for Variable Products shall be duly and
appropriately licensed, registered or otherwise qualified for the sale of
Variable Products under any applicable insurance laws and any applicable
securities laws of one or more states or other jurisdictions in which Variable
Products may be lawfully sold. Each such Participating Insurance Company shall,
when required by law, be both registered as a broker-dealer under the Securities
Exchange Act and a member of the NASD. Each such Participating Insurance Company
shall agree to comply with all laws and regulations, whether federal or state,
and whether relating to insurance, securities or other general areas, including
but not limited to the recordkeeping and sales supervision requirements of such
laws and regulations.
Section 4. The Trust's shares are divided into series or Portfolios, each
representing a different portfolio of investments. The Trust's Portfolios and
any restrictions on availability for shares relating thereto are set forth in
Schedule A hereto, which may be amended from time to time.
Purchases and redemptions of the Trust's shares of each Portfolio shall be
at the net asset value therefor, computed as set forth in the most recent
relevant Prospectus and Statement of Additional Information relating to the
Trust's contained in its Registration Statement on Form N-1A, or any amendments
thereto (respectively, "Trust Prospectus" and "SAI"), and any supplements
thereto and shall be submitted by the Participating Insurance Company to the
Trust's transfer agent pursuant to procedures and in accordance with payment
provisions adopted by ALFS and the Trust from time to time. The Trust's shares
may not be sold or transferred, except to an Eligible Separate Account or
Qualified Plan, without the prior approval of the Trust's Board of Trustees.
<PAGE>
Section 5. The Trust shall not pay any compensation to ALFS for services as
a distributor hereunder, nor shall the Trust reimburse ALFS for any expenses
related to such services. ALFS may, but need not, pay or charge Participating
Insurance Companies pursuant to Sales Agreements, as described in Section 2
hereof.
Section 6. The Trust represents to ALFS that the Trust Prospectus and SAI,
as of their respective effective dates, contain all statements and information
which are required to be stated therein by the Securities Act of 1933, as
amended ("Securities Act"), and in all respects conform to the requirements
thereof, and neither the Trust Prospectus nor the SAI include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the foregoing representations shall not apply to
information contained in or omitted from the Trust Prospectus and SAI in
reliance upon, and in conformity with, written information furnished by ALFS
specifically for use in the preparation thereof.
In this connection, ALFS acknowledges that the day-to-day operations of the
Trust, including without limitation, investment management, securities brokerage
allocation, cash control, accounting, recordkeeping and other administrative,
marketing and regulatory compliance functions, are carried on and may in the
future be carried on by LSA Asset Management LLC ("Asset Management"),
affiliates of Asset Management and other parties unaffiliated with Asset
Management on behalf of the Trust (collectively, the "Preparing Parties"), under
various agreements and arrangements, and that such activities in large measure
provide the basis upon which statements and information are included or omitted
from the Trust Prospectus and SAI. ALFS further acknowledges that because of the
foregoing arrangements, the preparation of the Trust Prospectus and SAI is
substantially in the control of the Preparing Parties, subject to the broad
supervisory authority and responsibility of the Trust's Board of Trustees, and
that, essentially, the only Trust Prospectus or SAI information not
independently known to, or prepared by, the Preparing Parties is personal
information as to each Trustee's full name, age, background, business experience
and other personal information that may require disclosures under securities
laws and for which the Preparing Parties necessarily must rely on each such
Trustee to produce.
Section 7. The Trust will periodically prepare Prospectuses (and, if
applicable, SAIs) and any supplements thereto, proxy materials and annual and
semi-annual reports (collectively, the "Documents") and shall, in accordance
with the form of Participation Agreement, provide sufficient copies of such
Documents or shall make camera ready copy available to ALFS for reproduction by
ALFS or the Participating Insurance Companies. With respect to Documents
provided to existing owners of Variable Products, the cost of preparing,
printing, mailing or otherwise distributing such Documents shall be borne by the
Trust. With respect to the Trust's shares, the Trust shall not pay the cost of
printing, mailing or otherwise distributing such Documents except as specified
in this Section 7. The Trust will use its best efforts to provide notice to ALFS
of anticipated filings or supplements. ALFS or the Participating Insurance
Companies may alter the form of some or all of the Documents, with the prior
approval of the Trust's officers and legal counsel. Any preparation costs
associated with altering the form of the Documents will be borne by ALFS or the
Participating Insurance Companies, not the Trust.
<PAGE>
Section 8. ALFS and officers of the Trust may, from time to time, authorize
descriptions of the Trust for use in sales literature or advertising by the
Participating Insurance Companies (including brochures, letters, illustrations
and other similar materials, whether transmitted directly to potential
applicants or published in print or audio-visual media), which authorization
will not be unreasonably withheld or delayed.
Section 9. ALFS shall furnish to the Trust, at least quarterly, reports as
to the sales of Trust's shares made pursuant to this Agreement. These reports
may be combined with any similar report prepared by ALFS or any of the Preparing
Parties.
Section 10. ALFS shall submit to all regulatory and administrative bodies
having jurisdiction over the operations of ALFS, the Trust, or any Participating
Insurance Company, present or future, any information, reports or other material
which any such body by reason of this Agreement may request or require as
authorized by applicable laws or regulations.
Section 11. This Agreement shall be subject to the provisions of the
Investment Company Act, the Securities Exchange Act and the Securities Act and
the rules, regulations, and rulings thereunder and of the NASD, from time to
time in effect, including such exemptions and no-action positions as the
Securities and Exchange Commission or its staff may grant, and the terms hereof
shall be interpreted and construed in accordance therewith. Without limiting the
generality of the foregoing, (a) the term "assigned" shall not include any
transaction exempted from section 15(b)(2) of the Investment Company Act and (b)
the vote of the persons having voting rights in respect of the Trust referred to
in Section 12 shall be the affirmative votes of the lesser of (i) the holders of
more than 50% of all votes in respect of shares entitled to be cast in respect
of the Trust or (ii) the holders of at least 67% of the votes in respect of
shares which are present at a meeting of such persons if the holders of more
than 50% of all votes in respect of shares entitled to be cast in respect of the
Trust are present or represented by proxy at such meeting, in either case voted
in accordance with the provisions contained in the form of Participation
Agreement or any policies on conflicts adopted by the Trust's Board of Trustees.
Section 12. This Agreement shall continue in effect only so long as such
continuance is specifically approved at least annually by a majority of the
Trustees of the Trust who are not interested persons of the Trust or ALFS
("Independent Trustees") and by (a) persons having voting rights in respect of
the Trust, by the vote stated in Section 11, voted in accordance with the
provisions contained in the form of Participation Agreement or any policies on
conflicts adopted by the Board of Trustees of the Trust, or (b) the Board of
Trustees of the Trust. This Agreement may be terminated at any time, without
penalty, by a majority of the Independent Trustees or by persons having voting
rights in respect of the Trust by the vote stated in Section 11.
Section 13. This Agreement shall terminate automatically if it shall be
assigned.
Section 14. The Trust shall indemnify and hold harmless ALFS from any and
all losses, claims, damages or liabilities (or actions in respect thereof) to
which ALFS may be subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or result from
negligent, improper, fraudulent or unauthorized acts or omissions by the Trust
or its officers, trustees, agents or representatives, other than acts or
omissions caused directly or indirectly by ALFS.
<PAGE>
ALFS will indemnify and hold harmless the Trust, its officers, trustees,
agents and representatives against any losses, claims, damages or liabilities,
to which the Trust its officers, trustees, agents and representatives may become
subject, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of any material fact contained in the Trust Prospectus
and/or SAI or any supplements thereto; (ii) the omission or alleged omission to
state any material fact required to be stated in the Trust Prospectus and/or SAI
or any supplements thereto or necessary to make the statements therein not
misleading; or (iii) other misconduct or negligence of ALFS in its capacity as a
principal underwriter of the Trust's shares and will reimburse the Trust, its
officers, Trustees, agents and representatives for any legal or other expenses
reasonably incurred by any of them in connection with investigating or defending
against such loss, claim, damage, liability or action; provided, however, that
ALFS shall not be liable in any such instance to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the Trust
Prospectus and/or SAI or any supplement in good faith reliance upon and in
conformity with written information furnished by the Preparing Parties
specifically for use in the preparation of the Trust Prospectus and/or SAI.
Section 15. A copy of the Agreement and Declaration of Trust of the Trust
is on file with the Secretary of State of Delaware and notice is given hereby
that this Agreement is executed on behalf of the trustees of the Trust as
trustees and not individually, and that the obligations of or arising out of
this Agreement are not binding upon any of the trustees or shareholders
individually but are binding only upon the assets and property of each
Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LSA VARIABLE SERIES TRUST
By:
----------------------------------
Title:
ALLSTATE LIFE FINANCIAL SERVICES, INC.
By:
----------------------------------
Title:
<PAGE>
SCHEDULE A
Portfolios
ALLSTATE LIFE INSURANCE COMPANY
LAW AND REGULATION DEPARTMENT
3100 Sanders Road, J5B
Northbrook, Illinois 60062
Direct Dial Number 847-402-5352
Facsimile 847-402-3781
Brenda D. Sneed
Assistant Secretary
and Assistant General Counsel
August 26, 1999
TO: LSA VARIABLE SERIES TRUST
FROM: BRENDA D. SNEED
ASSISTANT SECRETARY AND ASSISTANT GENERAL COUNSEL
RE: FORM N-1/A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FILE NO. 333-80845
With reference to the Registration Statement on Form N-1/A filed by LSA Variable
Series Trust (the "Fund") with the Securities and Exchange Commission, I have
examined such documents and such law as I have considered necessary and
appropriate, and on the basis of such examination, it is my opinion that:
The securities issued by the Fund, and registered by the above Registration
Statement, when issued, will be legally issued, fully paid, and
nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the above
referenced Registration Statement and to the use of my name in the Prospectus
constituting a part of the Registration Statement.
Sincerely,
/s/BRENDA D. SNEED
- --------------------
Brenda D. Sneed
Assistant Secretary and
Assistant General Counsel
