As Filed With The Securities And Exchange Commission On April 25, 2000
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._ ( )
Post-Effective Amendment No. _1_ (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 2
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)
Terry Young, Esq.
(Name and Address of Agent for Service of Process)
Copies to:
Joan E. Boros, Esquire
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/ X / On May 1, 2000, pursuant to paragraph (b)
/ / 60 days after filing, pursuant to paragraph (a)(1)
/ / On ____, pursuant to paragraph (a) (1)
/ / 75 days after filing, pursuant to paragraph (a) (2)
/ / On _________, pursuant to paragraph (a) (2) of Rule 485.
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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" refers 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 May 1, 2000. 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.
Prospectus Dated
May 1, 2000
LSA Variable Series Trust
3100 Sanders Road
Northbrook, IL 60062
IMPORTANT INFORMATION
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.
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TABLE OF CONTENTS
FUNDS AT A GLANCE 2
General information about the Funds,
the Manager, and the Advisers
FUND SUMMARIES 4
For each Fund, the investment objective,
Adviser, strategy, risks and who may want
to invest
Emerging Growth Equity Fund 4
Focused Equity Fund 5
Growth Equity Fund 6
Disciplined Equity Fund 6
Value Equity Fund 7
Balanced Fund 8
MORE INFORMATION ABOUT THE FUNDS 9
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 14
General information about the organization
and operations of the Funds, including
details about the Adviser to each Fund
RELATED PERFORMANCE OF ADVISERS 17
General discussion about composite
performance for each Adviser's
similarly managed accounts
VALUING A FUND'S ASSETS 18
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 18
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 19
Details on the cost of operating the
Funds including fees, expenses and
calculations
ADDITIONAL FUND INFORMATION 20
Taxes, income and capital gain
distributions, service providers,
financial highlights, Statement of
Additional Information, annual reports
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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 monthly, 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. Each
Fund's investment objective may be changed without a shareholder vote.
Fund Adviser Investment Objective
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Emerging Growth RS Investment Seeks to provide capital appreciation
Equity Management, L.P. through investing primarily in smaller,
rapidly growing emerging companies.
Focused Equity Morgan Stanley Asset Seeks to provide capital appreciation
Management by investing primarily in equity
securities.
Growth Equity Goldman Sachs Asset Seeks to provide long-term growth of
Management capital.
Disciplined J.P.Morgan Seeks to provide a consistently high
Equity Investment total return from a broadly diversified
Management Inc. portfolio of equity securities with
risk characteristics similar to the
Standard & Poor's 500 Composite Stock
Price Index.
Value Equity Salomon Brothers Seeks to provide long-term growth
Asset Management Inc of capital with current income as
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.
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FUND SUMMARIES
EMERGING GROWTH EQUITY FUND
Advised by: RS Investment Management, L.P.
INVESTMENT OBJECTIVE: The Emerging Growth Equity Fund seeks to provide capital
appreciation.
INVESTMENT STRATEGIES: The Fund invests in smaller (usually companies with a
market capitalization of $1.5 billion or less), rapidly growing emerging
companies with proprietary advantages, and generally in industry segments that
are experiencing rapid growth. 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 invest a significant portion
of its assets in a variety of technology based industries, particularly when
these industries are considered to include numerous rapidly growing emerging
companies. The Fund may invest all of its assets in securities of foreign
companies; however, it presently does not anticipate investing more than 20% 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. 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 the types of securities purchased by the Fund
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.
* 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:
* You are seeking high total returns from a diversified portfolio of
stocks of small size U.S. companies.
* You are willing to accept greater volatility in the hopes of a greater
increase in share price.
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* You are willing to accept the above-average risks associated with
investing in a portfolio of common stocks, which may include foreign
stocks.
PAST PERFORMANCE:
Because the Fund has been in operation for less than one calendar year, no
performance history has been provided.
FOCUSED EQUITY FUND
Advised by: Morgan Stanley Asset Management
INVESTMENT OBJECTIVE: The Focused Equity Fund seeks to provide capital
appreciation by investing primarily in equity securities. The Fund is
"non-diversified", meaning that it may, and generally will, invest in securities
of a limited number of issuers; however, the Fund will not 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 that 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 capitalizations of $1 billion or more but may also invest in 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:
* The risk that the Fund's market sector, mid- to large-size growth
oriented companies, may underperform relative to other sectors.
* The risk that poor stock selection may cause the Fund to underperform
when compared with other funds with similar objectives.
* The risk that, because the Fund is "non-diversified", its value could
decrease significantly if one or more of its investments performs
poorly.
* 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:
* You are seeking capital appreciation.
* You are willing to accept the above-average risks associated with
investing in a portfolio of common stocks, which may include foreign
stocks.
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* 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 calendar year, no
performance history has been provided.
GROWTH EQUITY FUND
Advised by: 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 Adviser primarily seeks companies
showing a relatively strong earnings growth trend. The Fund invests at least 90%
of its total assets in equity securities. The Fund may invest up to 10% 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:
* The risk that returns on the types of securities purchased by the Fund
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 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:
* You are seeking potential capital appreciation over the long-term.
* You are willing to accept the above-average risks associated with
investing in a portfolio of common stocks, which may include foreign
stocks.
* 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 calendar year no
performance history has been provided.
DISCIPLINED EQUITY FUND
Advised by: J.P. Morgan Investment Management Inc.
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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 that of
the S&P 500. Within each industry, the Fund modestly emphasizes stocks that 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.
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:
* The risk that returns from stocks of medium and large size 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 to other funds with similar objectives.
* 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:
* You are seeking high total return from a diversified portfolio of
stocks of large and medium size U.S. companies.
* You are willing to accept the above-average risks associated with
investing in a portfolio of common stocks, which may include foreign
stocks.
* 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 calendar year, no
performance history has been provided.
VALUE EQUITY FUND
Advised by: 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.
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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:
* The risk that returns on the types of securities purchased by the Fund
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 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:
* You are seeking long-term capital growth.
* You are willing to accept the above-average risks associated with
investing in a portfolio of common stocks, which may include foreign
stocks.
* 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.
PAST PERFORMANCE:
Because the Fund has been in operation for less than one calendar year, no
performance history has been provided.
BALANCED FUND
Advised by: 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.
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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:
* 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.
* The risk that poor security selection may cause the Fund to
underperform when compared with other funds with similar objectives.
* 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.
* The risk that returns on the types of securities purchased by the Fund
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:
* 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.
* You are willing to accept the above-average risks associated with
investing in a portfolio which may include foreign stocks.
* You are willing to accept the above-average risks associated with
investing in junk bonds.
PAST PERFORMANCE:
Because the Fund has been in operation for less than one calendar 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 Funds.
INVESTMENT STRATEGIES
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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 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
objectives 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 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 normally 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.
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 10.
SMALL CAP COMPANIES
All of the Funds may invest in small cap companies. Small Cap Companies
typically include companies with a market capitalization of $1.5 billion or
less. The Emerging Growth 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 than larger more established companies with
the result that the value of their stock could decline significantly. These
companies are less likely to survive than larger more established companies
since they are often dependent upon a small number of products and may have
limited financial resources.
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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.
Further, 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. In addition, transaction costs for these
investments are often higher than those of investments in larger capitalization
companies. Investments in small cap companies may be more difficult to price
precisely than other types of securities because of their characteristics and
lower trading volumes.
DEBT SECURITIES
Investments in debt securities are part of the Balanced Fund's principal
investment strategy. The other Funds may have a portion of their assets invested
in debt securities. 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.
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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.
FOREIGN SECURITIES
The Focused Equity, Emerging Growth 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, and the Emerging Growth Equity
Fund does not anticipate its investments in foreign securities exceeding 20%.
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. Foreign securities also include securities of issuers in
emerging market 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. Foreign investments may also be
affected by changes in currency rates, changes in foreign or U.S. laws or
restrictions applicable to such investments and changes in exchange control
regulations. 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.
In addition, there may be higher brokerage commissions and custodial costs
incurred by investment in foreign securities.
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 also
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.
12
<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. Further, there is a potential for
illiquidity of the markets for derivative instruments, which could also result
in a loss. 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 or achieving its investment objective 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.
LIQUIDITY RISK
13
<PAGE>
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.
PORTFOLIO TURNOVER
Consistent with the Emerging Growth Equity Fund's and the Focused Equity Fund's
respective investment policies, each 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 a Fund to incur additional transaction costs
on the sale of securities and reinvestment in other securities.
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:
* level of knowledge and skill
* performance as compared to a peer group of other advisers or to an
appropriate index
* consistency of performance over five years or more
* adherence to investment style and Fund objectives
* employees, facilities and financial strength
* quality of service
* how the Adviser's investment style compliments other selected
Advisers' investment styles.
14
<PAGE>
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 objective and strategies.
The Funds and the Manager have received an order from the SEC which permits the
Manager to hire and fire Advisers or change the terms of their advisory
agreements without obtaining shareholder approval. The Manager has ultimate
responsibility to oversee the Advisers and their hiring, termination and
replacement.
ADVISER TO THE EMERGING GROWTH EQUITY FUND
RS Investment Management, L.P. ("RSIM"), 388 Market Street, Suite 200, San
Francisco, California 99111, is the Adviser to the Emerging Growth Equity Fund.
RSIM commenced operations in March, 1981. 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 Equity 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 Equity Fund.
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 1995, 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.
ADVISER TO THE GROWTH EQUITY FUND
15
<PAGE>
Goldman Sachs Asset Management ("GSAM"), 32 Old Slip, New York, New York 10005,
serves as the Adviser to the Growth Equity Fund. GSAM is a unit of the
Investment Management Division, a separate operating division of Goldman, Sachs
& Co. Goldman Sachs, which registered as an investment adviser in 1981, 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 controlled the
Investment Adviser, merged into the Goldman Sachs Group, Inc. as a result of an
initial public offering in May of 1999. 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 and Senior Portfolio
Manager, 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 and Senior Portfolio Manager, was a
portfolio manager at Liberty. From 1990-1997, Mr. Ekizian, Vice President and
Senior Portfolio Manager, 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.
Investment decisions are made by a team of portfolio managers and analysts led
by Nanette Buziak, Timothy Devlin, both vice presidents of JPMIM and Bernard
Kroll, managing director of JPMIM. Ms. Buziak has been with JPMIM since March of
1997 and prior to that time was an index arbitrage trader and convertible bond
portfolio manager at First Marathon America, Inc. Mr. Devlin has been with JPMIM
since July of 1996, and prior to that time was an equity portfolio manager at
Mitchell Hutchins Asset Management Inc. Mr. Kroll has been with JPMIM since
August of 1996, and prior to that time was an equity derivatives specialist at
Goldman, Sachs & Co.
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"), 1345 Avenue of the Americas, 49th Floor, New York, New
York 10105, 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 more than $52 billion of assets under
management as of December 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. ("PAH"), a 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.
16
<PAGE>
On October 31, 1999, PIMCO Advisers, PAH and Allianz AG ("Allianz") announced
they had reached an agreement by which Allianz will acquire majority ownership
of PIMCO Advisers and its subsidiaries, including OpCap. Under the terms of the
transaction, Allianz will acquire all of PAH. The transaction will be completed
on or about May 5, 2000.
RELATED 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 the
Adviser manages. 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. The composite
performance is computed based upon essentially the Adviser's "average"
performance with regard to such accounts. 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 LSA Variable Series Trust Fund's annualized expenses (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 note that with some exceptions 1999 was an
exceptionally good year for the stocks of technology companies and mutual funds
that invest in them. You should not expect those stocks and funds to perform as
well every year. Their prices can change unpredictably and, in fact, they may
lose value in some years. 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.
<TABLE>
<CAPTION>
Average Annual Average Annual Average Annual Total Return Total Return Total Return
Total Return Total Return Total Return One Year Five Years Ten Years
Name of Investment Inception One Year Five Years Ten Years Ended Ended Ended
Adviser Style Date Ended 12/31/99 Ended 12/31/99* Ended 12/31/99* 12/31/99 12/31/99* 12/31/99*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RS Emerging 11/87 179.37 44.54 28.78 179.37 530.81 1154.62
Investment Growth
Management, Equity
L.P.
Morgan Focus 3/95 45.96 N/A 35.55 45.96 N/A 313.49
Stanley Equity
Asset
Management
Goldman Growth 5/90 27.56 28.89 20.89 27.56 255.87 525.97
Sachs Asset Equity
Management
J.P. Morgan Disciplined 10/89 18.10 28.10 18.22 18.10 244.88 433.22
Investment Equity
Management
Inc.
Salomon Value 5/90 12.35 24.50 17.65 12.35 199.07 381.15
Brothers Equity
Asset
Management
Inc
OpCap Balanced 1/92 11.74 23.78 17.60 11.74 190.58 265.84
Advisors
</TABLE>
17
<PAGE>
*Note: If life of composite is less than the period described, figure shown is
for the life of the composite.
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.
* 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.
PRICING OF FUND SHARES
NET ASSET VALUE
Each Fund's per share price (also known as "net asset value" or "NAV") is
determined as of 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.
18
<PAGE>
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. Eastern Standard Time) 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).
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 or
terminate these transfer privileges at any time.
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. 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
monthly, at an annual rate as a percentage of average daily net assets of the
Fund as set forth in the table below. Because the Manager waived its management
fees, no management fees were paid by the Funds for the period ended December
31, 1999.
Emerging Growth Equity Fund 1.05%
Focused Equity Fund 0.95%
Growth Equity Fund 0.85%
Disciplined Equity Fund 0.75%
Value Equity Fund 0.80%
Balanced Fund 0.80%
The Manager compensates the Advisers from the management fee it receives. No
additional management fees are paid by the Funds to the Advisers.
19
<PAGE>
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.
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 interest, taxes, or brokerage commissions) that
exceed the amount of its management fee plus 0.30% of its assets. The Manager is
contractually obligated to continue this arrangement through April 30, 2001.
These fee reductions or expense reimbursements can decrease a Fund's expenses
and therefore increase its performance.
The Manager may pay fees to insurance companies or their related entities for
services to be rendered or reflecting cost savings to the Trust. The Manager did
not make any payments in 1999.
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.
CUSTODIAN, TRANSFER AGENT, FUND ACCOUNTANT AND ADMINISTRATOR
Investors Bank & Trust Company is the custodian, transfer agent, fund accountant
and administrator.
PERFORMANCE
20
<PAGE>
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.
21
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance for the period of each Funds' operations. Certain information
reflects financial results for a single share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in each Fund, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, independent auditors,
whose report, along with each Fund's financial statements, are included in the
Annual Report, which is available upon request.
LSA Variable Series Trust
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Emerging Focused Growth
Growth Equity Equity Equity
Fund Fund Fund
---------------- ------------- ----------------
Period Ended Period Ended Period Ended
December 31, December 31, December 31,
1999 (a) 1999 (a) 1999 (a)
<S> <C> <C> <C>
Net asset value, beginning of period $10.00 $10.00 $10.00
--------------- -------------- ------------------
Income from investment operations:
Net investment income (loss) (0.03) (0.01) (0.00) (b)
Net realized and unrealized 7.52 2.08 2.08
gain (loss)
--------------- --------------- ---------------------
Total from investment operations 7.49 2.07 2.08
--------------- -------------- ---------------------
Less distributions to shareholders:
From net investment income - - -
From net realized capital gains - - (0.01)
-------------- -------------- ---------------------
Total distributions - - (0.01)
-------------- -------------- ---------------------
Net asset value, end of period $17.49 $12.07 $12.07
-------------- -------------- ----------------------
-------------- -------------- ----------------------
Total Return* 74.90% 20.70% 20.80%
Ratios/Supplemental Data:
Net assets, end of period (000's) $9,119 $6,564 $6,384
Net expenses to average daily net assets ** 1.35% 1.25% 1.15%
Net investment income (loss) to
average daily net assets ** (1.04%) (.36%) (.05%)
Portfolio turnover rate 47% 26% 13%
Without the waiver/reimbursement of
expenses by the Manager, the ratio
of net expenses and net investment
income (loss) to average net assets
would have been:
Expenses ** 3.96% 4.54% 4.38%
Net investment income (loss)** (3.65%) (3.65%) (3.28%)
(a) Fund commenced operations on October 1, 1999.
(b) Net investment loss was less than $0.01 per share.
(c) Distributions from net realized capital gains were less than $0.01 per share.
* Not annualized.
** Annualized.
</TABLE>
22
<PAGE>
LSA Variable Series Trust
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Disciplined Value
Equity Equity Balanced
Fund Fund Fund
----------------- ---------------- -------------
<S> <C> <C> <C>
Period Ended Period Ended Period Ended
December 31, December 31, December 31,
1999 (a) 1999 (a) 1999 (a)
----------------- --------------- --------------
Net asset value, beginning of period $10.00 $10.00 $10.00
----------------- --------------- ---------------
Income from investment operations:
Net investment income (loss) 0.01 0.02 0.06
Net realized and unrealized gain (loss) 1.16 0.74 0.28
----------------- --------------- ---------------
Total from investment operations 1.17 0.76 0.34
---------------- --------------- ----------------
Less distributions to shareholders:
From net investment income (0.01) (0.02) (0.06)
From net realized capital gains (0.03) - (0.00)(c)
----------------- --------------- ------------------
Total distributions (0.04) (0.02) (0.06)
----------------- --------------- ------------------
Net asset value, end of period $11.13 $10.74 $10.28
----------------- -------------- -------------------
----------------- -------------- -------------------
Total Return* 11.73% 7.56% 3.40%
Ratios/Supplemental Data:
Net assets, end of period (000's) $11,317 $5,566 $5,248
Net expenses to average daily net assets ** 1.05% 1.10% 1.10%
Net investment income (loss) to
average daily net assets ** 0.54% 0.64% 2.31%
Portfolio turnover rate 17% 18% 35%
Without the waiver/reimbursement
of expenses by the Manager, the
ratio of net expenses and net investment
income (loss) to average net assets
would have been:
Expenses ** 2.59% 4.56% 4.60%
Net investment income (loss)** (1.00%) (2.82%) (1.19%)
(a) Fund commenced operations on October 1, 1999.
(b) Net investment loss was less than $0.01 per share.
(c) Distributions from net realized capital gains were less than $0.01 per share.
* Not annualized.
** Annualized.
</TABLE>
23
<PAGE>
STATEMENT OF ADDITIONAL 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 1-800-865-5237.
OTHER INFORMATION
Information can also be reviewed and copied at the Public Reference Room of the
SEC 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. 20549-0102 or by
electronic request at the following email address: [email protected]. You can
also call (202) 942-8090. Additionally, information about the Funds can be
obtained on the SEC's Internet website at http://www.sec.gov.
Investment Company Act file no. 811-09379
24
<PAGE>
LSA VARIABLE SERIES TRUST
Emerging Growth Equity Fund
Focused Equity Fund
Growth Equity Fund
Disciplined Equity Fund
Value Equity Fund
Balanced Fund
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the current Prospectus dated May 1, 2000 of the Funds.
The Annual Report dated December 31, 1999 of the Funds is incorporated by
reference and hereby deemed to be part of this Statement of Additional
Information. To obtain the Prospectus or Annual Report please call
1-800-865-5237. 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. 20549-0102 or by electronic request at the
following email address: [email protected]. Telephone: (202) 942-8090
or; free, from the SEC's Internet website at http://www.sec.gov.
B-1
<PAGE>
TABLE OF CONTENTS PAGE
- ----------------- -----
The Trust and the Funds B - 3
Investment Objectives and Policies B - 3
Board of Trustees B - 24
Code of Ethics B - 26
Capital Structure B - 26
Control Persons B - 26
Investment Management Arrangements B - 27
Fund Expenses B - 30
Portfolio Transactions and Brokerage B - 30
Determination of Net Asset Value B - 32
Purchase and Redemption of Shares B - 33
Suspension of Redemptions and Postponement
of Payments B - 33
Investment Performance B - 33
Taxes B - 37
Custodian, Transfer Agent, Fund Accountant
and Administrator B - 41
Distributor B - 41
Independent Auditors B - 41
Financial Statements B - 41
Appendix A B - 42
B-2
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THE TRUST AND THE FUNDS
LSA Variable Series Trust (the "Trust") presently consists of six
portfolios: the Emerging Growth Equity Fund, the Focused Equity Fund, the Growth
Equity Fund, the Disciplined Equity Fund, the Value 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, as amended ("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 Insurance Company ("Allstate Life") and its subsidiaries.
LSA Asset Management LLC (the "Manager"), located at 3100 Sanders Road,
Northbrook, Illinois 60062, 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.
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<PAGE>
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").
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
("REITs")), (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, 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.
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
B-4
<PAGE>
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 numerous 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.
Credit risk is the possibility that the issuer of a security may 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.
B-5
<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,
each Adviser's 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.
Each of the Funds, may (subject to an order obtained by the Adviser and
issued by the Securities and Exchange Commission), together with other
registered investment companies managed by the particular Fund's Adviser or its
affiliates, transfer uninvested cash balances into a single joint account, the
daily aggregate balance of which may 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
B-6
<PAGE>
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.
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). Appendix A contains
descriptions of the ratings of the ratings services. 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.
Such securities lack outstanding investment characteristics and 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-". 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.
A Fund's ability to achieve its investment objectives may depend to a
greater extent on the Adviser's judgment concerning the creditworthiness of
issuers than funds which invest in higher-rated securities.
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<PAGE>
The Value Equity Fund has no limit on the amount of assets it may invest in
non-investment grade convertible debt securities and it may invest up to 5% in
non-investment grade, non-convertible debt securities. The Value Equity Fund
does not expect to invest more than 10% of total assets in non-investment grade
securities of any type. The Disciplined Equity Fund and the Focused Equity Fund
may each invest up to 10% of the Fund's 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 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 are
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
greater possibility that an issuer's earnings may be insufficient to make the
payments of interest due on the bonds. The issuer's 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 do higher quality bonds. Additionally, 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.
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. Each Fund may also invest in other types
of mortgage 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
B-8
<PAGE>
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 the discussion of Illiquid Securities on page B-36.
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, and 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.
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<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 at
"locking in" a specified interest rate than are conventional bonds or certain
types of U.S. government securities.
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 that Fund 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), depository receipts
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.
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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 stock 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.
SMALL CAPITALIZATION SECURITIES
Each Fund may invest in equity securities (including securities issued in
initial public offerings) of companies with market capitalizations of $1.5
billion or less ("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
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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.
From time to time, each Fund, except the Disciplined Equity Fund, may
invest in securities of issuers located in emerging market 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 America, 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
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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 Emerging Growth 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.
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, Balanced and Emerging
Growth Equity Funds will not engage in forward foreign currency contracts.
A Fund may enter into currency transactions only with counterparties
determined to be creditworthy by an Adviser, subject to approval by the Manager.
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.
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OPTIONS AND FUTURES CONTRACTS
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on 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 the Fund's investment objectives and policies.
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.
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.
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
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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.
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%.
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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.
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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, Value
Equity, Balanced and Emerging Growth Equity Funds may invest up to 10% of their
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 components 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
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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.
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, subject to approval by 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
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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.
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 higher dividend income than that paid with respect to a company's
common stock.
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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 issuers 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.
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. Where equity
futures are used to "equitize" cash, the objective 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
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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 SEC, the following types
of securities in which a Fund may invest will be considered illiquid:
* repurchase agreements and time deposits maturing in more than seven days;
* certain restricted securities (securities whose public resale is subject
to legal or contractual restrictions);
* options, with respect to specific securities, not traded on a national
securities exchange that are not readily marketable; and
* any other securities in which a Fund may invest that are not readily
marketable.
SHORT SALES
Each Fund, except the Balanced Fund, may make short sales of securities.
The Emerging Growth Equity, 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 also 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
B-21
<PAGE>
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.
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.
B-22
<PAGE>
The Funds may also purchase Standard & Poor's Depositary 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 and Growth Equity Funds 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 net asset values. 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.
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
B-23
<PAGE>
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 only
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.
TRUSTEES:
Listed below are the names of the Trustees of the Trust, along with each
Trustee's age, business address, and principal business occupation(s) during the
previous five years.
<TABLE>
<CAPTION>
Principal Occupation(s)
Name, Address, and Age Position(s) Held with Trust During Past Five Years
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Robert S. Engelman, Jr. (58) Trustee (1998-Present), Chairman of the Board, MB Financial Inc.
MB Financial Inc. (Successor to Avondale Financial Corp.); (1993-1998),
1200 N. Ashland Avenue President and Chief Executive Officer, Avondale Financial
Chicago, Illinois 60622 Corp./Avondale Bank.
Karen J. May (42) Trustee (1998-Present) Vice President, Global Planning and .
180 Pembroke Staffing; (1997-1998), Vice President, International
Lake Forest, Illinois 60045 Finance; (1994-1997), Vice President, Corporate Audit,
Baxter International Inc
Arthur S. Nicholas (70) Trustee (1993-Present), Owner-President, The Antech Group.
655 Oak Road
Barrington, Illinois 60010
Michael J. Velotta* (54) Trustee (1994-Present), General Counsel, Allstate Life Insurance
3100 Sanders Road Company.
Northbrook, Illinois 60062
Thomas J. Wilson* (42) Chairman of the Board (1999-Present), President, Allstate Life Insurance Company;
3100 Sanders Road (1995-1998), Vice President, Senior Vice President, Chief .
Northbrook, Illinois 60062 Financial Officer and Director, Allstate Insurance Company
</TABLE>
B-24
<PAGE>
OFFICERS:
Listed below are the names of the officers of the Trust, along with each
officer's age, business address, position held with the Trust, and principal
business occupation(s) during the previous five years.
<TABLE>
<CAPTION>
Principal Occupation(s)
Name, Address, and Age Position(s) Held with Trust During Past Five Years
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Jeanette Donahue (50), Vice President and (1995-Present), Director, Allstate Life Insurance Company.
3100 Sanders Road Chief Operations Officer
Northbrook, Illinois 60062
Todd Halstead (43) Treasurer (1995-Present), Director, Allstate Life Insurance Company.
3100 Sanders Road
Northbrook, Illinois 60062
John R. Hunter (45) President (1995-Present), Vice President, Allstate Life Insurance
3100 Sanders Road Company.
Northbrook, Illinois 60062
Cynthia Surprise (53) Secretary (1999-Present), Director and Counsel, Investors Bank & .
Investors Bank & Trust Co. Trust Company; (1995-1999), Vice President, State Street
200 Clarendon Street Bank & Trust Company.
Boston, MA 02116
Terry Young (39) Assistant Secretary (1996-Present), Assistant Counsel, Allstate Life Insurance
3100 Sanders Road Company; (1995-1996) Attorney, U.S. Securities and Exchange
Northbrook, Illinois 60062 Commission.
Douglas G. Wolff (34) Vice President, Investments (1995-Present), Director, Allstate Life Insurance Company;
3100 Sanders Road (1993-1995), Consulting Actuary, Ernst & Young.
Northbrook, Illinois 60062
</TABLE>
COMPENSATION OF OFFICERS AND TRUSTEES
The Funds pay no salaries or compensation to any officer or Trustee
affiliated with the Manager or the Administrator. The chart below sets forth the
fees paid by the Funds for the fiscal year ended December 31, 1999 to the
non-interested Trustees and certain other information.
<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>
Robert S. Engelman, Jr. $7,500 -0- -0- $7,500
Karen J. May $7,500 -0- -0- $7,500
Arthur S. Nicholas $7,500 -0- -0- $7,500
</TABLE>
*As of December 31, 1999, there were six Funds in the Trust. Each Non-Interested
Trustee receives an annual fee of $15,000, which is paid quarterly.
Non-Interested Trustees will be compensated an additional $1,000 per fiscal year
for each additional Fund added to the Trust.
B-25
<PAGE>
CODE OF ETHICS
Rule 17j-1 of the Investment Company Act of 1940, as amended, addresses
conflicts of interest that arise from personal trading activities of investment
company personnel. The rule requires funds, their investment advisers and
distributor to adopt a code of ethics and to report periodically to the board on
issues raised under its code of ethics. To implement compliance with these
requirements, the Trust, the Manager and the Distributor have adopted and agreed
to be governed by a joint code of ethics and each of the Advisers have adopted
and agreed to be governed by their individual codes of ethics (the "Code of
Ethics") each containing provisions reasonably necessary to prevent fraudulent,
deceptive or manipulative acts with regard to the personal securities
transactions of their employees. The Codes of Ethics permits personal investing
transactions of the Trust's, the Manager's, the Distributor's and the Adviser's
employees which avoid conflicts of interest with the Trust.
Information about these codes of ethics may be obtained by calling the
Commission's Public Reference Room at 1-202-942-8090. Copies of the codes of
ethics may also be obtained on the EDGAR Database on the Commission's Internet
site at http://www.sec.gov. Alternatively, this information may be obtained,
upon payment of a duplicating fee, by writing the Public Reference Section of
the Commission, Washington D.C. 20549-0102 or by electronic request at the
following e-mail address: [email protected].
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 April 1, 2000, Allstate Life through Allstate Financial Advisors
Separate Account One (Separate Account), 3075 Sanders Road, Northbrook,
Illinois, 60062-7127, owned more than 25% of the shares of the Funds as
indicated below and may be deemed a "control person" of the Funds as such term
is defined in the 1940 Act:
Nature of Percent of
Fund Beneficial Ownership Portfolio
- ---- ------------------- -----------
Emerging Growth Equity Direct Ownership 87.9%
Focused Equity Direct Ownership 89.0%
Growth Equity Direct Ownership 87.4%
Disciplined Equity Direct Ownership 96.6%
Value Equity Direct Ownership 93.2%
Balanced Direct Ownership 90.3%
As of April 1, 2000, Lincoln Benefit Life through Lincoln Life Benefit
Variable Annuity Account (Separate Account), 206 South 13th Street, Suite 100,
Lincoln, NE, 68508, owned 5% or more of the Funds indicated below and may be
deemed a principal holder of those Funds:
B-26
<PAGE>
Nature of Beneficial Percent of
Fund Ownership Portfolio
- ---- -------------------- -----------
Emerging Growth Equity Direct Ownership 12.1%
Focused Equity Direct Ownership 11.0%
Growth Equity Direct Ownership 12.6%
Value Equity Direct Ownership 6.8%
Balanced Direct Ownership 9.7%
The amount of shares of each Fund owned by all the officers and trustees of
each Fund as a group is less than 1% of each Fund's outstanding securities.
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.
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.
B-27
<PAGE>
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 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 following table shows the fees paid by the Trust for each of the Funds
for the fiscal year ended 12/31/99 to the Manager, and the amount of each fee
that was waived:
Amount of
Manager fee
Fund Manager fee waived
- ---- ----------- -------------
Emerging Growth Equity Fund $17,635 $17,635
Focused Equity Fund 12,934 12,934
Growth Equity Fund 11,766 11,766
Disciplined Equity Fund 19,857 19,857
Value Equity Fund 10,401 10,401
Balanced Fund 10,297 10,297
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.
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.
B-28
<PAGE>
Goldman Sachs Asset Management ("GSAM") is a unit of the Investment
Management Division, which was established on September 1, 1999. Goldman Sachs &
Co. registered as an investment adviser in 1981 and serves as the investment
adviser to the Growth Equity Fund. The Goldman Sachs Group, L.P., which
controlled GSAM, merged into the Goldman Sachs Group, Inc. as a result of an
initial public offering. 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.
Salomon Brothers Asset Management Inc ("SBAM") serves as the investment
adviser to the Value Equity Fund. Together with its affiliates, SBAM 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.
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. 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. 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., a NYSE-listed Delaware limited
partnership of which PIMCO Partners, GP is the sole general partner. On October
31, 1999, PIMCO Advisers, PAH and Allianz AG ("Allianz") announced they had
reached an agreement by which Allianz will acquire majority ownership of PIMCO
Advisers and its subsidiaries, including OpCap. Under the terms of the
transaction, Allianz will acquire all of PAH. The transaction will be completed
on or about May 5, 2000. 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.
B-29
<PAGE>
RS Investment Management, L.P. ("RSIM"), 388 Market Street, Suite 200, San
Francisco, California 99111, serves as the Adviser to the Emerging Growth Equity
Fund. RSIM commenced operations in March, 1981. 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
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.
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 the 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.
B-30
<PAGE>
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 may 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 a Fund in a manner an Adviser deems to be fair. Such allocation
and pricing may affect the amount of brokerage commissions paid by a 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).
For the fiscal period ended December 31, 1999. Each of the Advisers placed
orders consistent with each Fund's policy of obtaining the most favorable net
results.
For the fiscal year ended December 31, 1999, the Emerging Growth Equity
Fund paid total brokerage commissions of $3,542.35, of which $1,261 (35.60%)
resulted from orders placed with brokers and dealers who provided supplementary
research, market and statistical information to the Fund or the Adviser.
For the fiscal year ended December 31, 1999, the Focused Equity Fund paid
$1,305 in brokerage commissions to Morgan Stanley Dean Witter & Co., an
affiliate of the Adviser, or 27.89% of the total brokerage commissions paid. For
the fiscal year ended December 31, 1999, the Focused Equity Fund paid total
brokerage commissions of $4,679.00, of which $1,320 (28.21%) resulted from
orders placed with brokers and dealers who provided supplementary research,
market and statistical information to the Fund or the Adviser.
For the fiscal year ended December 31, 1999, the Growth Equity Fund paid
$102 in brokerage commissions to Goldman Sachs Brokerage Services, an affiliate
of the Adviser, or 1.58% of the total brokerage commissions paid. For the fiscal
year ended December 31, 1999, the Growth Equity Fund paid total brokerage
commissions of $6,463.56, of which $174 (2.69%) resulted from orders placed with
brokers and dealers who provided supplementary research, market and statistical
information to the Fund or the Adviser.
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<PAGE>
For the fiscal year ended December 31, 1999, the Disciplined Equity Fund
paid total brokerage commissions of $1,741.63, none of which were from orders
placed with brokers and dealers who provided supplementary research, market and
statistical information to the Fund or the Adviser.
For the fiscal year ended December 31, 1999, the Value Equity Fund paid
total brokerage commissions of $6,205.02, of which $245 (3.95%) resulted from
orders placed with brokers and dealers who provided supplementary research,
market and statistical information to the Fund or the Adviser.
For the fiscal year ended December 31, 1999, the Balanced Fund paid total
brokerage commissions of $6,492.00, of which $276 (4.25%) resulted from orders
placed with brokers and dealers who provided supplementary research, market and
statistical information to the Fund or the Adviser.
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.
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 ("NYSE") on each day that the Exchange is open for business. The NYSE
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,
Jr. 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
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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.
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 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
Total return for the periods ended December 31, 1999. The inception date of
each of the Funds is October 1, 1999.
Total Return since inception
----------------------------
Emerging Growth Equity Fund 74.90%
Focused Equity Fund 20.70%
Growth Equity Fund 20.80%
Disciplined Equity Fund 11.73%
Value Equity Fund 7.56%
Balanced Fund 3.40%
You should not consider this performance data as an indication of future
performance of any Fund or any Adviser. You should note that with some
exceptions 1999 was an exceptionally good year for the stocks of technology
companies and mutual funds that invest in them. You should not expect those
stocks and funds to perform as well every year. Their prices can change
unpredictably and, in fact, they may lose value in some years.
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<PAGE>
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 n = number of years
$1,000, less the maximum sales
load applicable to a Fund
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)
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 materials 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
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<PAGE>
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
Where:
a = net investment income earned c = the average daily number
during the period attributable to of shares of the subject
the subject class class outstanding during
the period that were
entitled to receive
dividends
b = net expenses accrued for the d = the maximum offering
period attributable to the subject price per share of the
class subject
Net investment income will be determined in accordance with rules established
by the SEC.
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.
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<PAGE>
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 Emerging Growth Domestic Equity 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 $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.
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<PAGE>
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
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<PAGE>
the Internal Revenue Code (the "Code"). As such and by complying with the
applicable provisions of the 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
requirements may be corrected, but such a correction would require a payment to
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<PAGE>
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.
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<PAGE>
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 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
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<PAGE>
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.
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. For its services IBT was
paid a total fee of $22,310 for each fund of the Trust for the period October 1,
1999 to December 31, 1999.
DISTRIBUTOR
ALFS, Inc. ("ALFS"), formerly know as Allstate Life Financial Services,
Inc., acts as Distributor ("Distributor") for the Trust pursuant to a
Distribution Agreement, dated as of October 1, 1999. ALFS receives no fee as
distributor. The Distribution Agreement will continue in effect for successive
one-year periods, provided that each such continuance is specifically approved
(i) by the vote of a majority of the Trustees or by a vote of a majority of the
shares of the Fund; and (ii) by a majority of the Trustees who are not parties
to the Distribution Agreement or interested persons (as defined in the 1940 Act)
of any such person, cast in person at a meeting called for the purpose of voting
on such approval. The Distribution Agreement between the Trust and ALFS was
approved by the Trust's Board of Trustees on September 27, 1999.
INDEPENDENT AUDITORS
The financial statements of the Trust are audited by Deloitte and Touche
LLP, Two Prudential Plaza, 180 North Stetson Avenue, Chicago, Illinois, for the
periods indicated in their report.
FINANCIAL STATEMENTS
The Funds' audited Financial Statements, including the Financial
Highlights, for the period ended December 31, 1999 appearing in the Annual
Report to Shareholders and the report thereon of Deloitte and Touche LLP,
independent auditors, appearing therein are hereby incorporated by reference in
B-41
<PAGE>
this Statement of Additional Information. The Annual Report to Shareholders is
delivered with this Statement of Additional Information to shareholders
requesting this Statement of Additional Information.
B-42
<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.
B-43
<PAGE>
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.
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
B-44
<PAGE>
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.
A
B-45
<PAGE>
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.
B-47
<PAGE>
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.
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
B-47
<PAGE>
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.
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
B-48
<PAGE>
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.
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
B-49
<PAGE>
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.
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.
B-50
<PAGE>
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.
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.
B-51
<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 N-1A.
(a) Agreement and Declaration of Trust of LSA Variable Series Trust (previously
filed with Pre-effective Amendment No. 1 to Registrant's Registration
Statement on August 27, 1999 is incorporated by reference herein)
(b) By-Laws of LSA Variable Series Trust (previously filed with Pre-effective
Amendment No. 1 to Registrant's Registration Statement on August 27, 1999
is incorporated by reference herein)
(c) Inapplicable
(d)(1) Investment Management Agreement between the Registrant and LSA Asset
Management LLC, dated October 1, 1999, is filed with this Post-Effective
Amendment No. 1.
(d)(2) (A) Investment Sub-Advisory Agreement with respect to Disciplined
Equity Fund is filed with this Post-Effective Amendment No. 1
(B) Investment Sub-Advisory Agreement with respect to Growth Equity
Fund is filed with this Post-Effective Amendment No. 1
(C) Investment Sub-Advisory Agreement with respect to Value Equity
Fund is filed with this Post-Effective Amendment No. 1
(D) Investment Sub-Advisory Agreement with respect to Focused Equity
Fund is filed with this Post-Effective Amendment No. 1
(E) Investment Sub-Advisory Agreement with respect to Balanced Value
Fund is filed with this Post-Effective Amendment No. 1
(F) Investment Sub-Advisory Agreement with respect to Emerging Growth
Equity Fund is filed with this Post-Effective Amendment No. 1
(e) Distribution Agreement between the Registrant and Allstate Life Financial
Services, Inc. (now known as ALFS, Inc.), dated October 1, 1999 is filed with
this Post-Effective Amendment No. 1
(f) Inapplicable
(g) Custodian Agreement between the Registrant and Investors Bank & Trust
Company, dated October 1, 1999, is filed with this Post-Effective Amendment No.
1
(h) Other Material Contracts
C-1
<PAGE>
(h)(1) Delegation Agreement between the Registrant and Investors Bank & Trust
Company, dated October 1, 1999, is filed with this Post-Effective Amendment No.
1
(2) Administration Agreement between the Registrant and Investors Bank &
Trust Company, dated October 1, 1999, is filed with this Post-Effective
Amendment No. 1
(3) Transfer Agency and Service Agreement between the Registrant and
Investors Bank & Trust Company, dated October 1, 1999, is filed with this
Post-Effective Amendment No. 1
(4) Form of Participation Agreement Among LSA Variable Series Trust,
LSA Asset Management LLC, and Lincoln Benefit Life Company Dated October 1,
1999 is filed with this Post-Effective Amendment No. 1
(5)(A)Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Disciplined Equity Fund is filed
with this Post-Effective Amendment No. 1
(B)Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Growth Equity Fund is filed with
this Post-Effective Amendment No. 1
(C)Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Value Equity Fund is filed with
this Post-Effective Amendment No. 1
(D)Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Focused Equity Fund is filed with
this Post-Effective Amendment No. 1
(E)Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Balanced Value Fund is filed with
this Post-Effective Amendment No. 1
(F)Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Emerging Growth Equity Fund is
filed with this Post-Effective Amendment No. 1
(6)(A)Code of Ethics of the Registrant and LSA Asset Management and ALFS
is filed with this Post-Effective Amendment No. 1
(B)Code of Ethics of Morgan Stanley Dean Witter Institutional is filed
with this Post-Effective Amendment No. 1
(C)Code of Ethics of Goldman Sachs Asset Management is filed with this
Post-Effective Amendment No. 1
(D)Code of Ethics of JP Morgan Investment Management Inc. is filed with
this Post-Effective Amendment No. 1
(E)Code of Ethics of Salomon Brothers Asset Management is filed with this
Post-Effective Amendment No. 1
(F)Code of Ethics of OpCap Advisors is filed with this Post-Effective
Amendment No. 1
(G)Code of Ethics of RS Investment Management is filed with this
Post-Effective Amendment No. 1
C-2
<PAGE>
(i) Opinion of Counsel (previously filed with Pre-effective Amendment No. 1
to Registrant's Registration Statement on August 27, 1999 is
incorporated by reference herein)
(j)(1) Consent of Independent Auditors is filed with this Post-Effective
Amendment No. 1
(2) Powers of Attorney are filed with this Post-Effective Amendment No. 1
(k) Inapplicable
(l) Inapplicable
(m) Inapplicable
(n) Inapplicable
(o) 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 Bank(1)
American Heritage Life Investment Corporation (Delaware)(2)
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)
- ---------------------
(1) A "stock savings association" organized under federal law.
(2) Formerly A.P.L. Acquisition Corporation.
C-3
<PAGE>
General Underwriters Agency, Inc. (Illinois)
The Northbrook Corporation (Nebraska)
Northbrook Indemnity Company (Illinois)
ALLSTATE INTERNATIONAL INSURANCE HOLDINGS, INC.
(Subsidiary of The Allstate Corporation)
Allstate International Holding GmbH (Germany)
Allstate Life Insurance Company of the Philippines, Inc. (Philippines)(3)
Allstate Property and Casualty Insurance Japan Company, Limited (Japan)(4)
Allstate Reinsurance Ltd. (Bermuda)
Allstate Services, Inc. (Japan)(5)
Pafco Underwriting Managers Inc. (Ontario)
Pembridge America Inc. (Florida)
ALLSTATE NON-INSURANCE HOLDINGS, INC.
(Subsidiary of The Allstate Corporation)
Allstate Enterprises, Inc. (Delaware)(6)
Allstate Investment Management Company (Delaware)
Tech-Cor, Inc. (Delaware)
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(Subsidiary of The Allstate Corporation)
American Heritage Life Insurance Company (Florida)
American Heritage Service Company (Florida)
Amherst Investment Company (Florida)
Colonial Reinsurance, Ltd. (British Virgin Islands)
ERJ Insurance Group, Incorporated (Florida)
Florida Associated Services, Inc. (Florida)
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)(7)
- -----------------------
(3) Wholly-owned except for five shares owned by incorporator(s).
(4) Wholly-owned except for one share owned by incorporator.
(5) Wholly-owned except for one share owned by incorporator.
(6) Formerly AEI Group, Inc.
(7) Joint Venture of which Allstate Life Insurance Company controls 50%.
C-4
<PAGE>
Allstate Insurance Company of Canada (Canada)
Allstate Life Financial Services, Inc. (Delaware)(8)
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)
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)(9)
Surety Life Insurance Company (Nebraska)
AFDW, Inc. (formerly The Laughlin Group, Inc. (Oregon))
Allstate Distributors, L.L.C. (Delaware)(10)
AFD, Inc. (Illinois)(11)
Allstate Financial Advisors, LLC (Delaware)(12)
Allstate Financial Services, LLC (Delaware)(13)
Allstate Insurance Company of Canada (Canada)
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)(14)
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)
- -----------------------------
(8) Broker/Dealer
(9) Joint venture of which Allstate Life Insurance Company controls 80%.
(10) Broker/Dealer (Allstate Life Insurance Company controls 50%).
(11) Broker/Dealer (formerly Allstate Financial Distributors, Inc. (DE).
(12) A Registered Investment Advisor
(13) LSA Securities, Inc. merged into Allstate Financial Services, LLC
effective April 1, 2000.
(14) Allstate International Inc. owns only 50%.
C-5
<PAGE>
ALLSTATE INSURANCE COMPANY OF CANADA
(Subsidiary of Allstate Life Insurance Company)
Allstate Life Insurance Company of Canada (Canada)
AMERICAN HERITAGE LIFE INSURANCE COMPANY
(Subsidiary of American Heritage Life Investment Corporation)
Associated Insurance Services, Inc. (Georgia)
First Colonial Insurance Company (Florida)
Fidelity International Company, Ltd. (Bahamian corporation)
St. Johns Bluff Timber Company
AHL Select HMO, Incorporated (Florida)
Columbia Universal Life Insurance Company (Texas)
Columbia Universal Financial Corporatio (Delaware)
Concord Heritage Life Insurance Company Inc. (New Hampshire)
Keystone State Life Insurance Company (Pennsylvania)
FLORIDA ASSOCIATED SERVICES, INC.
(Subsidiary of American Heritage Life Investment Corporation)
Realty Advisors Corporation (Florida)
FIDELITY INTERNATIONAL COMPANY, LTD.
(Subsidiary of American Heritage Life Insurance Company)
Fidelity International Insurance Company, Ltd. (Bahamian corporation)
ALLSTATE INTERNATIONAL HOLDING GMBH
(Subsidiary of Allstate International Insurance Holdings, Inc.)
Allstate Direct Versicherungs-Aktiengesellschaft (Germany)
Allstate Diretto Assicurazioni Danni S.p.A (Italy)(15)
Allstate Werbung und Marketing GmbH (Germany)
PAFCO UNDERWRITING MANAGERS INC.
(Subsidiary of Allstate International Insurance Holdings, Inc.)
Pafco Insurance Company (Ontario)(16)
Pembridge Reinsurance Company Limited (Ireland)
PEMBRIDGE AMERICA INC.
(Subsidiary of Allstate International Insurance Holdings, Inc.)
American Surety and Casualty Company (Florida)
- ---------------------------------
(15) Allstate International Holding GmbH owns 90% of this company and Allstate
International Insurance Holdings, Inc. owns 10%.
(16) Pafco Underwriting Managers Inc. owns all of the common stock except for
directors' qualifying shares.
C-6
<PAGE>
ALLSTATE MOTOR CLUB, INC.
(Subsidiary of Allstate Enterprises,Inc.)
Direct Marketing Center, Inc. (Delaware)
Enterprises Services Corporation (Delaware)
Rescue Express, Inc. (Delaware)
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.
Saison Automobile and Fire Insurance Company, Ltd. (Japan)
5% owned by Allstate International Inc.
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
C-7
<PAGE>
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,
Northbrook, Illinois 60062. Unless otherwise specified, none of the officers and
directors of the Manager serve as officers and Trustees of the Trust.
POSITION AND OFFICES
NAME WITH THE MANAGER
John R. Hunter** President, Member Board of Managers
Jeanette J. Donahue** Vice President, Chief Operating Officer
Todd Halstead** Controller
Michael J. Velotta* Secretary and General Counsel, Member Board
of Managers
James P. Zils Treasurer
David A. Chalpunik Vice President, Investments
Douglas G. Wolff** Vice President, Investments
Kevin R. Slawin Member, Board of Managers
Thomas J. Wilson*** Member, Board of Managers
Terry R. Young** Assistant Secretary and Assistant
General Counsel
Timothy N. VanderPas** Chief Compliance Officer
*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
(a) ALFS, Inc. acts as principal underwriter for the following investment
companies.
(b) The following is a list of the executive officers, directors and partners of
ALFS, Inc.
Name and Principal Position and Office
Business Address Position and Office with the Trust
- ------------------------------------------------------------------------------
John R. Hunter Director, President President
3100 Sanders Road and Chief Executive
Northbrook, Illinois 60062 Officer
C-8
<PAGE>
Kevin R. Slawin Director none
3100 Sanders Road
Northbrook, Illinois 60062
Michael J. Velotta Director and Trustee
3100 Sanders Road Secretary
Northbrook, Illinois 60062
Thomas J. Wilson, II Director Chairman of the Board
3100 Sanders Road
Northbrook, Illinois 60062
Janet M. Albers Vice President none
3075 Sanders Road and Controller
Northbrook, Illinois 60062
Brent H. Hamann Vice President none
3100 Sanders Road
Northbrook, Illinois 60062
Andrea J. Schur Vice President none
3100 Sanders Road
Northbrook, Illinois 60062
Terry Young General Counsel Assistant Secretary
3100 Sanders Road and Assistant
Northbrook, Illinois 60062 Secretary
James P. Zils Treasurer none
3075 Sanders Road
Northbrook, Illinois 60062
Lisa Burnell Assistant Vice none
3100 Sanders Road President and
Northbrook, Illinois 60062 Compliance Officer
Joanne M. Derrig Assistant Secretary none
3100 Sanders Road and Assistant
Northbrook, Illinois 60062 General Counsel
Emma M. Kalaidjian Assistant Secretary none
2775 Sanders Road
Northbrook, Illinois 60062
Carol S. Watson Assistant Secretary none
2920 S. 84th Street,
Suite 1B2
Lincoln, NE 68510
Barry S. Paul Assistant Treasurer none
3075 Sanders Road
Northbrook, Illinois 60062
(c) Inapplicable.
C-9
<PAGE>
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, 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
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirement for effectiveness of this registration statement under rule 485(b)
under the Securities Act of 1933 and has duly caused this registration statement
to be signed on its behalf by the undersigned, duly authorized, in the City of
Northbrook and the State of Illinois on the 20th day of April, 2000.
LSA VARIABLE SERIES TRUST
By /s/ John R.Hunter
John R. Hunter
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement had been signed below by the following
persons in the capacities indicated on the 20th day of April, 2000.
SIGNATURE TITLE
*/s/ Thomas J. Wilson, II
Thomas J. Wilson, II Trustee and Chairman of the Board
*/s/ Robert S. Engelman, Jr.
Robert S. Engelman, Jr. Trustee
*/s/ Karen J. May
Karen J. May Trustee
*/s/ Arthur S. Nicholas
Arthur S. Nicholas Trustee
/s/ Michael J. Velotta
Michael J. Velotta
*Attorney-in-Fact Trustee
/s/ Todd Halstead
Todd Halstead Treasurer and Chief Financial
and Accounting Officer
C-11
<PAGE>
EXHIBIT INDEX
(d)(1) Investment Management Agreement
(d)(2)(A) Investment Sub-Advisory Agreement with respect to Disciplined
Equity Fund
(B) Investment Sub-Advisory Agreement with respect to Growth Equity Fund
(C) Investment Sub-Advisory Agreement with respect to Value Equity Fund
(D) Investment Sub-Advisory Agreement with respect to Focused Equity Fund
(E) Investment Sub-Advisory Agreement with respect to Balanced Value Fund
(F) Investment Sub-Advisory Agreement with respect to Emerging Growth
Equity Fund
(e) Distribution Agreement
(g) Custodian Agreement
(h)(1) Delegation Agreement
(2) Administration Agreement
(3) Transfer Agency and Service Agreement
(4) Form of Participation Agreement
(5) (A) Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Disciplined Equity Fund
(B) Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Growth Equity Fund
(C) Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Value Equity Fund
(D) Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Focused Equity Fund
(E) Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Balanced Value Fund
(F) Expense Limitation Agreement, and Amendment #1 to the Expense
Limitation Agreement, with respect to Emerging Growth Equity Fund
(6) (A) Code of Ethics of the Registrant and LSA Asset Management and ALFS
(B) Code of Ethics of Morgan Stanley Dean Witter Institutional
(C) Code of Ethics of Goldman Sachs Asset Management
(D) Code of Ethics of JP Morgan Investment Management Inc.
(E) Code of Ethics of Salomon Brothers Asset Management Inc
(F) Code of Ethics of OpCap Advisors
(G) Code of Ethics of RS Investment Management
C-12
<PAGE>
(j) (1) Consent of Independent Auditors
(2) Powers of Attorney
C-13
MANAGEMENT AGREEMENT
Management Agreement dated October 1, 1999, 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, as amended ("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:
<PAGE>
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;
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:
2
<PAGE>
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;
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;
1. 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
3
<PAGE>
p. litigation expenses.
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.
4
<PAGE>
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.
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.
5
<PAGE>
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.
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.
6
<PAGE>
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:
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.
7
<PAGE>
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.
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.
8
<PAGE>
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: /s/Barbara Whisler
Name: Barbara Whisler
Title: Secretary and Chief Compliance Officer
[SEAL] LSA ASSET MANAGEMENT LLC
By: /s/John Hunter
Name: John Hunter
Title: President
9
<PAGE>
SCHEDULE 1
1. Focused Equity Fund: 0.95% of the current net assets of the Fund.
2. Growth Equity Fund: 0.85% of the current net assets of the Fund.
3. Disciplined Equity Fund: 0.75% of the current net assets of the Fund.
4. Value Equity Fund: 0.80% of the current net assets of the Fund.
5. Balanced Fund: 0.80% of the current net assets of the Fund.
6. Emerging Growth Equity Fund: 1.05% 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. 10
10
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 30th 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.
2
<PAGE>
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.
3
<PAGE>
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.
4
<PAGE>
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.
5
<PAGE>
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, as
amended (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.
6
<PAGE>
(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, or for Adviser's failing to take any corrective action required to be
taken based on consultations with Manager. 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.
Any tax consequence(s) under variable insurance products funded by the Fund
resulting from the Adviser's negligent failure to comply with its Tax Compliance
Responsibilities as defined in Section 2 of this Agreement, or resulting from
Adviser's failure to take any corrective action required to be taken based on
consultations with Manager, will be considered direct damages.
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.
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<PAGE>
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 "vote 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.
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<PAGE>
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: /s/ John Hunter
---------------
Name: John Hunter
Title: President
Accepted:
J.P. Morgan Investment Management Inc.
By: /s/ Diane Minardi
-----------------
Name: Diane Minardi
Title: Vice President
9
<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 .35% of average daily net
assets of the first $250 million;
and .30% of average daily net
assets in excess of $250 million.
10
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.
<PAGE>
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 "Tax 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.
2
<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: .50% of the first $50 million;
.45% of the next $150 million; .40% of the next $150 million; and .35% in excess
of $350 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.
3
<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(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.
4
<PAGE>
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.
5
<PAGE>
(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 Section15(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.
6
<PAGE>
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.
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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 30th day of September, 1999,
to be effective October 1, 1999.
LSA ASSET MANAGEMENT LLC GOLDMAN, SACHS & CO.
By: /s/John Hunter By: /s/David B. Ford
------------- ----------------
Name: John Hunter Name: David B. Ford
Title: President Title: Managing Director
GOLDMAN SACHS ASSET MANAGEMENT
separate operating division of
GOLDMAN, SACHS & CO.
By: _______________________________
Name: _____________________________
Title: ______________________________
8
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.
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.
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<PAGE>
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.
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
2
<PAGE>
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 .40% of the first $250 million; .35% up
to the next $250 million; and .30% 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 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.
3
<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.
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.
4
<PAGE>
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.
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.
5
<PAGE>
(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.
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.
6
<PAGE>
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. 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.
7
<PAGE>
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 30th day of September,
1999, to be effective as of the 1st day of October, 1999.
LSA ASSET MANAGEMENT LLC
By: /s/ John Hunter
---------------
Name: John Hunter
Title: President
Authorized Officer
SALOMON BROTHERS ASSET MANAGEMENT, INC.
By: /s/ Ross Margolies
------------------
Name: Ross Margolies
Title: Managing Director
Authorized Officer
8
SUB-ADVISORY AGREEMENT
This Sub-Advisory Agreement (the "Agreement") is entered into this 30th day
of September, 1999, to be effective the first day of October, 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 (the "Advisory
Agreement") with LSA Variable Series Trust (the "Trust"), pursuant to which the
Manager provides portfolio management and administrative services to the Focused
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, (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.
1
<PAGE>
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.
2
<PAGE>
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.
3
<PAGE>
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: .50% on the first $150 million; .45% on the next $100
million; .40% up to the next $250 million; and .35% 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.
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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.
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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.
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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.
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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: /s/ John Ford
-------------
Name: John Ford
Title: President
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
By: /s/ Philip W. Friedman
----------------------
Name: Philip W. Friedman
Title: Managing Director
8
SUB-ADVISORY AGREEMENT
THIS AGREEMENT, executed this 30th 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," an executed
copy of which agreement shall be 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.
(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.
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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). 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.
(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.
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<PAGE>
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.
(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
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(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
(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.
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<PAGE>
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.
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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
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(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.
(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.
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(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 VARIABLE SERIES TRUST
By: /s/ John Hunter
---------------
Name: John Hunter
Title: President
OPCAP ADVISORS
By: /s/ James P. McCaughan
----------------------
Name: James P. McCaughan
Title: President
8
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EXHIBIT A
MANAGEMENT AGREEMENT
Management Agreement dated October 1, 1999, 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, as amended ("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;
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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.
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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.
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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.
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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).
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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:
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.
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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.
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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: /s/ John Hunter
---------------
Name: John Hunter
Title: President
[SEAL]
OPCAP ADVISORS
By: /s/ James P. McCaughan
----------------------
Name: James P. McCaughan
Title: President
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SCHEDULE 1
1. Focused Equity Fund: 0.70 of the current net assets of the Fund.
2. Growth Equity Fund: 0.85% of the current net assets of the Fund.
3. Disciplined Equity Fund: 0.75% of the current net assets of the Fund.
4. Value Equity Fund: 0.80% of the current net assets of the Fund.
5. Balanced Fund: 0.80% of the current net assets of the Fund.
6. Emerging Growth Equity Fund: 1.05% 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.
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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 .40% of the first $250 million and .35% in excess of $250
million.
19
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.
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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 or cause to be reviewed 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.
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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. 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.
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 and in accordance with instruction(s)
given to the Custodian by a representative 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 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 (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 "Tax Compliance
Responsibilities").
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<PAGE>
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 will place orders for the
purchase or sale of securities for the Fund with or through brokers and dealers
in conformity with the policy with respect to brokerage as set forth in the
Trust's then-current prospectus and statement of additional information relating
to the Fund, or as the Board of Trustees may direct from time to time.
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: .64% of the first $100 million in assets; .60% of assets
in excess of $100 million, but less than $200 million; and .55% of 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.
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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 ability of the
Adviser to perform 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's separate account investing
in the Fund (including any information relating to any of the life insurance
company's 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.
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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 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 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 Compliance 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 Advisor of any insurance related
restrictions as described in paragraph 2 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.
6
<PAGE>
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. The Manager or Trustees may at any time, terminate this Agreement on
sixty (60) days' written notice to the Adviser. 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. The Adviser on sixty (60) days' written notice to the Manager may
terminate this Agreement.
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.
7
<PAGE>
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."
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused their respective duly
authorized officers to execute this Agreement on this 30th day of September,
1999, effective October 1, 1999.
LSA ASSET MANAGEMENT LLC
By: /s/ John Hunter
---------------
Name: John Hunter
Title: President
RS INVESTMENT MANAGEMENT, L.P.
By: /s/ Steven Cohen
----------------
Name: Steven Cohen
Title: Chief Financial Officer
9
<PAGE>
EXHIBIT A
[MANAGEMENT AGREEMENT BETWEEN LSA VARIABLE SERIES TRUST AND LSA
ASSET MANAGEMENT LLC, EFFECTIVE OCTOBER 1, 1999, IS INCORPORATED
HEREIN BY REFERENCE]
10
DISTRIBUTION AGREEMENT
BETWEEN
LSA VARIABLE SERIES TRUST AND
ALLSTATE LIFE FINANCIAL SERVICES, INC.
AGREEMENT, dated as of October 1, 1999, by and between LSA Variable Series
Trust (the "Trust") and Allstate Life Financial Services, Inc. ("ALFS").
W IT N E S S ET 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") Portfolios; and
WHEREAS, the Trust is registered as an open-end investment company under
the Investment Company Act of 1940, as amended ("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.
2
<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.
3
<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 ease 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.
4
<PAGE>
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.
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.
5
<PAGE>
WHEREOF, the parties hereto have caused this Agreement to be duly executed
as of the day and year first above written.
TRUST
By: /s/Thomas J. Wilson
Chairman of the Board of Trustees
ALLSTATE LIFE FINANCIAL SERVICES, INC.
By: /s/John Hunter
President and Chief Executive Officer
6
<PAGE>
SCHEDULE A
Portfolios of
LSA Variable Series Trust
Focused Equity
Growth Equity
Disciplined Equity
Value Equity
Balanced
Emerging Growth Equity
-7-
CUSTODIAN AGREEMENT
AGREEMENT made as of this 1st day of October, 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.
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.
2
<PAGE>
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.
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.
3
<PAGE>
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. If such
Proper Instructions 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 did not have
discretion in choosing such currency broker or banking institutions, the Bank,
in its capacity as custodian for the Trust, 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, in its capacity as a lending
institution in advancing such payments on behalf of the Fund, 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.
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5.9 TERMINATION. Upon the termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 16 of this Agreement.
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.
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(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.
(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:
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(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
(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;
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(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;
(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
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(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 [RESERVED]
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.
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(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:
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(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;
(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;
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(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;
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(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;
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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;
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.
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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.
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.
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<PAGE>
(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.
(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;
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<PAGE>
(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;
(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").
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(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.
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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, in its capacity as a lending
institution, 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, in its capacity as a lending institution, 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.
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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
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(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.
(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 forty-five (45) days of receipt of
such notice.
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(b) If, during the Initial Term of this Agreement, a state or
Federal statutory or regulatory change shall occur such that the sale of
variable products by insurance companies generally is no longer feasible (and
such change is evidenced by changes in the sales practices for variable products
across the insurance industry) and as a result, the Board of Trustees of the
Fund votes to liquidate the Fund and terminate its registration with the
Securities and Exchange Commission, written notice (the "Liquidation Notice") of
such determination setting forth the reasons for such determination shall be
provided to the Bank. In order to be effective, any Liquidation Notice must be
executed by two officers of the Fund. The Bank shall, within seven days of
receipt of such a Liquidation Notice, reply to the Fund as to whether it agrees
that the terms of the Liquidation Notice meet the requirements of this
paragraph, which agreement shall not be unreasonably withheld. Upon such
agreement, the Fund may terminate this Agreement without additional action by
the Fund's Board upon an additional sixty (60) days written notice.
Should this Agreement be terminated in accordance with the terms of
this paragraph, the Fund shall pay to the Bank, in lieu of the fees for which
the Fund would otherwise be liable to the Bank hereunder through the end of the
Initial Term, the following amounts:
i. If during the first year of the Initial Term the Fund shall pay to the
Bank an amount equal to the fees that would otherwise be due under
this Agreement through the last day of the eighteenth month of the
Initial Term, WITHOUT giving effect to the discount provided on the
first years' fees set forth in Appendix B;
ii. If during the second year of the Initial Term the Fund shall pay to
the Bank an amount equal to the fees that would otherwise be due under
this Agreement through the last day of the second year of the Initial
Term;
iii. If during the third year of the Initial Term the Fund shall pay to the
Bank an amount equal to the fees that would otherwise be due under
this Agreement through the end of the Initial Term.
(c) 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.
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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.
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:
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LSA Variable Series Trust
Allstate Life Insurance Company
3100 Sanders Road, Suite J5B
Northbrook, Illinois 60062
Attention: Jeanette Donahue, Vice President, Chief Operations
Officer
With a copy to: Barbara J. Whisler, Secretary, Chief Compliance
Officer
(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.
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.
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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]
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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: /s/ John R. Hunter
------------------
Name: John R. Hunter
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
---------------------
Name: Robert D. Mancuso
Title: Senior Vice President
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Appendix A
LSA Variable Series Trust
Fund List
IBT
Account Fund Adviser
- ------ ---- -------
255 Focused Equity Morgan Stanley Asset Management
260 Growth Equity Goldman Sachs Asset Management
265 Disciplined Equity JP Morgan Investment Management Inc.
270 Value Equity Salomon Brothees Asset Management Inc.
275 Balanced OpCap Advisors
280 Emerging Growth
Domestic Equity RS Investment Management, L.P.
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Appendix B
LSA Variable Series Trust
Proposed Fee Schedule*
For 6 Mutual Funds
DOMESTIC CUSTODY, FUND ACCOUNTING,
CALCULATION OF N.A.V.,
ADMINISTRATION AND TRANSFER AGENCY
A. DOMESTIC CUSTODY, FUND ACCOUNTING, CALCULATION OF N.A.V., ADMINISTRATION AND
TRANSFER AGENCY
The following fees will apply to all assets for which Investors Bank
provides Custody, Fund Accounting, calculation of N.A.V., Administration and
Transfer Agency services.
Annual Fee
----------
FIRST $500 MILLION OF NET ASSETS 11.0 Basis Points
NEXT $500 MILLION OF NET ASSETS 9.0 Basis Points
NEXT $500 MILLION OF NET ASSETS 6.0 Basis Points
Assets in excess of $1.5 Billion 4.0 Basis Points
There will be an annual minimum fee of $140,000 per fund. However, to
accommodate the start-up period, first year minimums will be as follows: 1st
Quarter 50%, 2nd Quarter 75%, 3rd Quarter 85%, 4th Quarter and beyond 100%.
B. DOMESTIC TRANSACTIONS
o DTC/Fed Book Entry $10**
o Physical Securities 35
o Options and Futures 18
o GNMA Securities 30
o Principal Paydown 5
o Foreign Currency 18***
o Outgoing Wires 7
o Incoming Wires 5
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**This assumes that the trade information will be sent to Investors Bank in the
ISITC/SWIFT format. Manual trades will be billed at $12.00 per trade. There are
no transaction charges for use of the Investors Bank Repo.
***There are no transaction charges for F/X contracts executed by Investors
Bank.
C. FOREIGN SUBCUSTODIAN FEES
o Incremental basis point and transaction fees will be charged for
all foreign assets for which we are custodian. The asset based
fees and transaction fees vary by country, based upon the
attached global custody fee schedule. Local duties, script fees,
registration, reclaims, exchange fees, and other market charges
are additional out-of-pocket fees.
o Investors Bank will require the fund to hold all international
assets at the subcustodian of our choice.
MISCELLANEOUS
A. OUT-OF-POCKET
o These charges consist of:
-Legal Expenses -InvestView
-Printing, Delivery & Postage -Forms and Supplies
-Third Party Review -Micro Rental
-Extraordinary Travel Expenses
-Customized Systems Development/Reporting
-International Verification Services($3/security/month)
-Pricing and Verification Services
-Telecommunications
-Support Equipment Rental
-Data Transmissions
-Non Standard Extract
B. DOMESTIC BALANCE CREDIT
o We allow use of balance credit against fees (excluding
out-of-pocket charges) for fund balances arising out of the
custody relationship. The credit is based on collected balances
reduced by balances required to support the activity charges of
the accounts. The monthly earnings allowance is equal to 75% of
the 90-day T-bill rate.
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C. SECURITIES LENDING, FOREIGN EXCHANGE & CASH MANAGEMENT
o The assumption was made that Investors Bank would perform
securities lending, if applicable, foreign exchange and cash
management for the portfolios. Securities Lending revenue is
split with the funds and Investors Bank on a 60/40% basis: 60%
going to the funds.
D. PAYMENT
o The above fees will be charged against the fund's custodian
checking account five business days after the invoice is mailed.
E. SYSTEMS
o The details of any systems work will be determined after a
thorough business analysis. System's work will be billed on a
time and material basis. Investors Bank provides an allowance of
10 system hours for data extract set up and reporting extract set
up. Additional systems hours will be billed on a time and
material basis.
* A LETTER OF INTENT ACCOMPANIED BY A $25,000 DEPOSIT TO BE CREDITED AGAINST
FUTURE FEES IS REQUIRED TO BEGIN THIS IMPLEMENTATION. THIS FEE SCHEDULE IS VALID
FOR 60 DAYS FROM DATE OF ISSUE AND ASSUMES THE EXECUTION OF OUR STANDARD
CONTRACTUAL AGREEMENTS FOR A MINIMUM OF THREE YEARS.
* THIS FEE SCHEDULE IS CONFIDENTIAL INFORMATION OF THE PARTIES AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY WITHOUT PRIOR WRITTEN CONSENT OF BOTH PARTIES.
3
DELEGATION AGREEMENT
AGREEMENT, dated as of October 1, 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.
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<PAGE>
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.
2
<PAGE>
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. It is
understood that, notwithstanding the Board's (or Trust's investment advisor's)
determination to accept such Country Risk as is incurred by placing and
maintaining Assets in the jurisdictions to which this Agreement applies, the
Delegate will select Eligible Foreign Custodians in each such jurisdiction, exce
that Delegate does not accept any authorization or direction with regard to
Securities Depositories.
3
<PAGE>
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).
4
<PAGE>
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:
5
<PAGE>
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.
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<PAGE>
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.
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: /s/ Robert D. Mancuso
---------------------
Name: Robert D. Mancuso
Title: Senior Vice President
LSA VARIABLE SERIES TRUST
By: /s/ John R. Hunter
------------------
Name: John R. Hunter
Title: President
7
<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
8
<PAGE>
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
A-1
<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:
none
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
---------------------
Name: Robert D. Mancuso
Title: Senior Vice President
LSA VARIABLE SERIES TRUST
By: /s/ John R. Hunter
------------------
Name: John R. Hunter
Title: President
DATE: September 27, 1999
A-2
<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):
____X_____ None
_________ Other (list below):
A-3
<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
A-4
<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
A-5
<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: Jeanette J. Donahue
Vice President, Chief Operations Officer
Phone: (847) 402-6540
Fax: (847) 326-5979
B. DELEGATE
Investors Bank & Trust Company
200 Clarendon Street
P.O. Box 9130
Boston, MA 02117-9130
Attention: Robert C. Conron, 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
A-6
ADMINISTRATION AGREEMENT
AGREEMENT made as of this 1st day of October, 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 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.
2
<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.
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<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 forty-five (45) days of receipt of written notice
from the non-violating party of such violation.
(ii) If, during the Initial Term of this Agreement, a state or Federal
statutory or regulatory change shall occur such that the sale of variable
products by insurance companies generally is no longer feasible (and such change
is evidenced by changes in the sales practices for variable products across the
insurance industry) and as a result, the Board of Trustees of the Fund votes to
liquidate the Fund and terminate its registration with the Securities and
Exchange Commission, written notice (the "Liquidation Notice") of such
determination setting forth the reasons for such determination shall be provided
to the Bank. In order to be effective, any Liquidation Notice must be executed
by two officers of the Fund. The Bank shall, within seven days of receipt of
such a Liquidation Notice, reply to the Fund as to whether it agrees that the
terms of the Liquidation Notice meet the requirements of this paragraph, which
agreement shall not be unreasonably withheld. Upon such agreement, the Fund may
terminate this Agreement without additional action by the Fund's Board upon an
additional sixty (60) days written notice.
Should this Agreement be terminated in accordance with the terms of
this paragraph, the Fund shall pay to the Bank, in lieu of the fees for which
the Fund would otherwise be liable to the Bank hereunder through the end of the
Initial Term, the following amounts:
A. If during the first year of the Initial Term the Fund shall pay to the
Bank an amount equal to the fees that would otherwise be due under
this Agreement through the last day of the eighteenth month of the
Initial Term, WITHOUT giving effect to the discount provided on the
first years' fees set forth in Appendix C;
B. If during the second year of the Initial Term the Fund shall pay to
the Bank an amount equal to the fees that would otherwise be due under
this Agreement through the last day of the second year of the Initial
Term;
4
<PAGE>
C. If during the third year of the Initial Term the Fund shall pay to the
Bank an amount equal to the fees that would otherwise be due under
this Agreement through the end of the Initial Term.
(iii) 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
Attention: Jeanette Donahue, Vice President, Chief Operations
Officer
With a copy to: Barbara J. Whisler, Secretary and Chief
Compliance Officer
5
<PAGE>
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.
6
<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]
7
<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: /s/ John R. Hunter
------------------
Name: John R. Hunter
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
---------------------
Name: Robert D. Mancuso
Title: Senior Vice President
8
<PAGE>
APPENDIX A
LSA Variable Series Trust
Fund List
IBT
Account Fund Adviser
- ------- ---- -------
255 Focused Equity Morgan Stanley Asset Management
260 Growth Equity Goldman Sachs Asset Management
265 Disciplined Equity JP Morgan Investment Management Inc.
270 Value Equity Salomon Brothees Asset Management Inc.
275 Balanced OpCap Advisors
280 Emerging Growth Domestic
Equity RS Investment Management, L.P.
1
<PAGE>
INVESTORS BANK & TRUST
SUMMARY OF ADMINISTRATION FUNCTIONS
LSA VARIABLE SERIES TRUST ("LSA VST")
<TABLE>
<CAPTION>
Suggested Fund
Function Investors Bank & Trust LSA VST Sub-Advisor Auditor or Counsel
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT REPORTING
& TREASURY
ADMINISTRATION
- --------------------
Monitor portfolio Perform tests of certain Monitor testing Continuously monitor A/C - Provide
compliance in specific portfolio activity results and approve portfolio activity and consultation as
accordance with based on provisions of the resolution of Fund operations in needed on
the current Fund's Prospectus and SAI. compliance issues. conjunction with 1940 Act, compliance issues.
Prospectus and SAI. Communicate with LSA VST and Prospectus, SAI and any
follow-up on potential other applicable laws and
violations. Issue daily regulations. Monitor
report of compliance testing results and approve
findings to LSA VST. resolution of compliance
issues.
FREQUENCY: DAILY
Provide compliance Provide a report of Review report. A/C - Provide
summary package. compliance testing results. consultation as
needed.
FREQUENCY: MONTHLY
Perform asset Perform asset diversification Review test results Continuously monitor A - Provide
diversification tests at each tax quarter end. and take any necessary portfolio activity in consultation as
testing to Provide results to LSA LLC and action. Approve tax conjunction with IRS needed in
establish to subadvisors by the 12th positions taken. requirements and alert LSA establishing
qualification as business day after quarter-end. Approve resolution of as necessary. Review test positions to be
a RIC and to meet Follow-up on issues. compliance issues. results and take any taken in tax
requirements of necessary action. treatment of
Section 817(h) of IRC. particular issues.
Review quarter end
tests on a current
basis.
FREQUENCY: QUARTERLY
1
<PAGE>
Suggested Fund
Function Investors Bank & Trust LSA VST Sub-Advisor Auditor or Counsel
- ----------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT REPORTING
& TREASURY
ADMINISTRATION
(CONT.)
- --------------------
Perform qualifying Perform qualifying income Review test results Continuously monitor A- Consult as
income testing to testing (on book basis income, and take any necessary portfolio activity in needed on tax
establish unless material differences action. Approve tax conjunction with IRS accounting
qualification as are anticipated) on quarterly positions taken. requirements. Review positions to be
a RIC. basis and as may otherwise Approve resolution of test results and take taken. Review in
be necessary. Follow-up compliance issues. any necessary action. conjunction with
on issues. year-end audit.
FREQUENCY: QUARTERLY
Prepare the Fund's Prepare preliminary expense Provide asset level
annual expense budget. budget. Notify fund accounting projections. Approve
Establish daily of new accrual rates. expense budget.
accruals.
FREQUENCY: ANNUALLY
Monitor the Fund's Monitor actual expenses Provide asset level
expense budget. updating budgets/ expense projections quarterly.
accruals. Notify Fund Provide vendor
Accounting of any changes. information as
necessary. Review
expense analysis and
approve budget revisions.
FREQUENCY: QUARTERLY
Receive and coordinate Propose allocations of Approve invoices and
payment of fund invoices among Funds and allocations of payments.
expenses. obtain authorized approval Send invoices to IBT in
to process payment. a timely manner.
FREQUENCY: AS OFTEN
AS NECESSARY
2
<PAGE>
Suggested Fund
Function Investors Bank & Trust LSA VST Sub-Advisor Auditor or Counsel
- ----------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT REPORTING
& TREASURY
ADMINISTRATION
(CONT.)
- --------------------
Calculate total Provide total return Review total return
return information calculations. information.
on Funds as defined
in the current
Prospectus and SAI.
FREQUENCY: MONTHLY
Prepare responses to Subject to prior approval by Identify the services to
major industry LSA, prepare, coordinate as which the Funds report.
questionnaires. necessary, and submit Provide information as
responses to the appropriate requested.
agency. Provide copy of all
responses to LSA.
FREQUENCY: AS OFTEN
AS NECESSARY
Prepare disinterested Summarize amounts paid to Provide social security
director/trustee directors/trustees during the numbers and current
Form 1099-Misc. calendar year. Prepare Form mailing addresses for
1099-Misc and send to LSA VST trustees. Review and .
for mailing to Trustees. approve information
provided for Form
1099-Misc
FREQUENCY: ANNUALLY
FINANCIAL REPORTING
3
<PAGE>
Prepare financial Prepare selected portfolio Review financial
information for data (i.e., top X holdings), information.
presentation to financial information (i.e.,
Fund Management financial highlight data),
and Board of and other supporting
Trustees. information (i.e., broker
commissions, compliance
summary, capital stock
activity and 144A schedules)
for quarterly board meetings.
FREQUENCY: QUARTERLY
4
<PAGE>
Suggested Fund
Function Investors Bank & Trust LSA Sub-Advisor Auditor or Counsel
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REPORTING (CONT)
- --------------------------
Coordinate the annual Coordinate the creation of Provide past financial Prepare and coordinate A - Perform audit
audit and semi-annual templates reflecting client- statements and other production of Management and issue opinion
preparation and selected standardized information required to Discussion and Analysis. on annual
printing of financial appearance and text of create templates, Review and approve financial
statements and notes financial statements and including report style portfolio presentation. statements.
with management, fund footnotes. Draft and and graphics. Approve
accounting and the manage production cycle. format and text as A/C - Review
fund auditors. Coordinate with IBT fund standard. Approve reports.
accounting the electronic production cycle and
receipt of portfolio and assist in managing the
general ledger information. cycle. Review and
Assist in resolution of approve entire report.
accounting issues. Using Make appropriate
templates, draft financial representations in
statements, coordinate conjunction with audit.
auditor and management review,
and clear comments. Coordinate
review and approval by portfolio
managers of portfolio listings to
be included in financial statements.
Coordinate, as requested by LSA,
printing of reports and EDGAR
conversion with outside printer
and filing with the SEC via EDGAR.
FREQUENCY: SEMI-ANNUALLY
LEGAL
5
<PAGE>
Prepare agenda and Maintain annual calendar of Review and approve C - Review agenda,
board materials for required quarterly and annual board materials. board material and
quarterly board approvals. Prepare agenda, board and committee
meetings. resolutions and other board meeting minutes.
materials for quarterly board Ensure BOD material
meetings. Prepare supporting contains all
information and materials when required
necessary. Assemble, check, information that
and distribute books in advance the BOD must review
of meeting. Attend board and and/or approve to
committee meetings and perform their
prepare minutes. duties as
directors.
FREQUENCY: QUARTERLY
6
<PAGE>
Suggested Fund
Function Investors Bank & Trust LSA Sub-Advisor Auditor or Counsel
- ----------------------------------------------------------------------------------------------------------------------------------
LEGAL (CONT)
- ------------
Prepare and file Prepare form for filing. Provide appropriate C - Review initial
Form N-SAR. Obtain any necessary responses. Review and filing.
supporting documents. authorize filing. A - Provide annual
File with SEC via EDGAR. audit internal
control letter to
accompany the annual
filing.
FREQUENCY: SEMI-ANNUALLY
Prepare amendments Coordinate the preparation Review and approve. C - Review and
to Registration and filing of post-effective approve filings.
Statement. amendments. Coordinate with A/C - Provide
outside printers the Edgar consents as
conversion, filing with the appropriate.
SEC and printing of prospectus.
FREQUENCY: ANNUAL
UPDATE (INCLUDES UPDATING
FINANCIAL HIGHLIGHTS,
EXPENSE TABLES, RATIOS)
PLUS ONE ADDITIONAL
FILING PER FISCAL YEAR
Prepare Prospectus/ Coordinate, at LSA's request, Review and approve. C - Review and
SAI supplements. the preparation and printing approve filings.
of Prospectus and SAI A/C - Provide
supplements. Coordinate consents as
filing with the SEC via Edgar. appropriate.
FREQUENCY: AS
OFTEN AS REQUIRED
7
<PAGE>
Proxy Material/ Prepare scripts. Attend Review and approve C- Review and
Shareholder Meetings meeting and prepare minutes. proxy. approve proxy.
FREQUENCY: AS NEEDED
8
<PAGE>
Suggested Fund
Function Investors Bank & Trust LSA Sub-Advisor Auditor or Counsel
- ----------------------------------------------------------------------------------------------------------------------------------
LEGAL (CONT)
- ------------
Assist in updating Make annual filing of Obtain required
of fidelity bond fidelity bond insurance. fidelity bond insurance
insurance coverage. material with the SEC coverage. Monitor
level of fidelity bond
insurance maintained
in accordance with
required coverage.
FREQUENCY: ANNUALLY
Respond to Assist LSA VST (as requested) Compile and provide C - Provide
regulatory in resolution of examination documentation pursuant consultation
examinations. inquiries. Provide, with prior to exam requests. as needed.
consent of LSA, documentation Coordinate with
as needed to respond to regulatory auditors to
auditors. provide requested
documentation and
resolutions to
inquiries.
FREQUENCY: AS NEEDED
TAX
- ----
Prepare income Calculate investment company Provide transaction Provide transaction A - Provide
tax provisions. taxable income, net capital information as information as requested. consultation as
gain and spillback dividend requested. Assist with Identify Passive Foreign needed in
requirements. Identify book- the sub- advisors' Investment Companies establishing
tax accounting differences. identification of (PFIC's) to IBT positions to be
Track required information Passive Foreign taken in tax
relating to accounting / Investment Companies . treatment of
tax differences. Coordinate (PFICs) to IBT. Approve particular issues.
review by external auditors. tax accounting Perform review in
positions to be taken. conjunction with
Approve provisions. the year-end audit.
FREQUENCY: ANNUALLY
9
<PAGE>
Suggested Fund
Function Investors Bank & Trust LSA Sub-Advisor Auditor or Counsel
- ----------------------------------------------------------------------------------------------------------------------------------
TAX (CONT)
- ------------
Calculate excise Calculate required Provide transaction Provide transaction A - Provide
tax distributions distributions to avoid information as information as requested. consultation as
imposition of excise tax. requested. Assist with Identify PFIC's to IBT. needed in
- Calculate capital sub advisors' establishing
gain net income and identification of positions to be
foreign currency gain/ Passive Foreign taken in tax
loss through October 31. Investment Companies treatment of
- Calculate ordinary income (PFICs) to IBT. Approve particular issues.
and distributions through tax accounting Review and concur
a specified cut off date. positions to be taken. with proposed
- Project ordinary income Review and approve all distributions per
from cut off date to income and distribution share.
December 31. calculations,
- Ascertain dividend shares. including projected
Identify book-tax accounting income and dividend
differences. Track required shares. Approve
information relating to distribution rates per
accounting differences. share and aggregate
Coordinate review by amounts. Obtain Board
management and fund auditors. approval when required.
Notify custody and transfer
agent of authorized dividend
rates in accordance with
Board approved policy.
Report dividends to Board
as required.
FREQUENCY: ANNUALLY
Prepare tax returns Prepare RIC income tax Review and sign tax A - Review and sign
returns (federal) and return as entity, not tax return as
Excise (if necessary). preparer. preparer.
FREQUENCY: ANNUALLY
10
<PAGE>
Prepare shareholder Obtain yearly Review and approve
character distribution information. information provided.
distribution Calculate dividend
information, if character reclasses.
required.
FREQUENCY: ANNUALLY
11
<PAGE>
Function Investors Bank & Trust LSA Sub-Advisor Auditor or Counsel
- ----------------------------------------------------------------------------------------------------------------------------------
TAX (CONT)
- ------------
Prepare other Obtain yearly income Review and approve A - Provide
year-end tax- distribution information provided. consultation as
related disclosures information. Calculate required.
disclosures (i.e., foreign
tax credits; dividends
deceived deduction; and
interest received from the
US Government and its Agencies)
and communicate such information
to LSA within 60 days of year end.
FREQUENCY: ANNUALLY
</TABLE>
12
<PAGE>
Review and Approval
The attached Summary of Administration Functions has been reviewed and
represents the services currently being provided.
/s/ Donna McArthy September 24, 1999
Signature of Account Manager Date
______________________________________________________________________
Signature of Authorized Client Representative Date
Title: President
Print Name: John R. Hunter
13
<PAGE>
APPENDIX C
LSA VARIABLE SERIES TRUST
PROPOSED FEE SCHEDULE*
FOR 6 MUTUAL FUNDS
DOMESTIC CUSTODY, FUND ACCOUNTING,
CALCULATION OF N.A.V.,
ADMINISTRATION AND TRANSFER AGENCY
A. DOMESTIC CUSTODY, FUND ACCOUNTING, CALCULATION OF N.A.V., ADMINISTRATION AND
TRANSFER AGENCY
The following fees will apply to all assets for which Investors Bank
provides Custody, Fund Accounting, calculation of N.A.V., Administration and
Transfer Agency services.
Annual Fee
----------
FIRST $500 MILLION OF NET ASSETS 11.0 Basis Points
NEXT $500 MILLION OF NET ASSETS 9.0 Basis Points
NEXT $500 MILLION OF NET ASSETS 6.0 Basis Points
Assets in excess of $1.5 Billion 4.0 Basis Points
There will be an annual minimum fee of $140,000 per fund. However, to
accommodate the start-up period, first year minimums will be as follows: 1st
Quarter 50%, 2nd Quarter 75%, 3rd Quarter 85%, 4th Quarter and beyond 100%.
B. DOMESTIC TRANSACTIONS
DTC/Fed Book Entry $10**
Physical Securities 35
Options and Futures 18
GNMA Securities 30
Principal Paydown 5
Foreign Currency 18***
Outgoing Wires 7
Incoming Wires 5
1
<PAGE>
**This assumes that the trade information will be sent to Investors Bank in the
ISITC/SWIFT format. Manual trades will be billed at $12.00 per trade. There are
no transaction charges for use of the Investors Bank Repo.
***There are no transaction charges for F/X contracts executed by Investors
Bank.
C. FOREIGN SUBCUSTODIAN FEES
o Incremental basis point and transaction fees will be charged for
all foreign assets for which we are custodian. The asset based
fees and transaction fees vary by country, based upon the
attached global custody fee schedule. Local duties, script fees,
registration, reclaims, exchange fees, and other market charges
are additional out-of-pocket fees.
o Investors Bank will require the fund to hold all international
assets at the subcustodian of our choice.
MISCELLANEOUS
A. OUT-OF-POCKET
o These charges consist of:
-Legal Expenses -InvestView
-Printing, Delivery & Postage -Forms and Supplies
-Third Party Review -Micro Rental
-Extraordinary Travel Expenses
-Customized Systems Development/Reporting
-International Verification Services($3/security/month)
-Pricing and Verification Services
-Telecommunications
-Support Equipment Rental
-Data Transmissions
-Non Standard Extract
B. DOMESTIC BALANCE CREDIT
o We allow use of balance credit against fees (excluding
out-of-pocket charges) for fund balances arising out of the
custody relationship. The credit is based on collected balances
reduced by balances required to support the activity charges of
the accounts. The monthly earnings allowance is equal to 75% of
the 90-day T-bill rate.
2
<PAGE>
C. SECURITIES LENDING, FOREIGN EXCHANGE & CASH MANAGEMENT
o The assumption was made that Investors Bank would perform
securities lending, if applicable, foreign exchange and cash
management for the portfolios. Securities Lending revenue is
split with the funds and Investors Bank on a 60/40% basis: 60%
going to the funds.
D. PAYMENT
o The above fees will be charged against the fund's custodian
checking account five business days after the invoice is mailed.
E. SYSTEMS
o The details of any systems work will be determined after a
thorough business analysis. System's work will be billed on a
time and material basis. Investors Bank provides an allowance of
10 system hours for data extract set up and reporting extract set
up. Additional systems hours will be billed on a time and
material basis.
* A LETTER OF INTENT ACCOMPANIED BY A $25,000 DEPOSIT TO BE CREDITED AGAINST
FUTURE FEES IS REQUIRED TO BEGIN THIS IMPLEMENTATION. THIS FEE SCHEDULE IS VALID
FOR 60 DAYS FROM DATE OF ISSUE AND ASSUMES THE EXECUTION OF OUR STANDARD
CONTRACTUAL AGREEMENTS FOR A MINIMUM OF THREE YEARS.
* THIS FEE SCHEDULE IS CONFIDENTIAL INFORMATION OF THE PARTIES AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY WITHOUT PRIOR WRITTEN CONSENT OF BOTH PARTIES.
3
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of this 1st day of October, 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") and dividend disbursing
agent.
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:
(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");
<PAGE>
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate account of the Trust's
shareholders ("Shareholders");
(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;
(v) Prepare and transmit payments for dividends and distributions
declared by the Trust on behalf of a Fund;
(vi) 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;
(vii) 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
(viii) 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.
(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 perform all of the
customary services of a transfer agent and dividend disbursing agent; 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, 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, preparing and mailing activity
statements for Shareholders, and providing Shareholder account information. The
Trust shall and hereby does indemnify to the Bank in writing that all
transactions and assets covered hereunder are to be treated as exempt from blue
sky reporting.
2
<PAGE>
(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.
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.
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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. [RESERVED]
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 will maintain all records necessary to reflect the crediting
of dividends which are reinvested in Shares of the Trust, including without
limitation daily dividends.
6.3 The Bank shall not be liable for any improper payments made in
accordance with a resolution of the Board of Trustees of the Trust.
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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.
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.
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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.
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12.4 It is an open-end investment company registered under the 1940 Act.
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).
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(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.
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.
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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.
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<PAGE>
(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.
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 forty-five (45) days of receipt of
such notice.
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(b) If, during the Initial Term of this Agreement, a state or Federal
statutory or regulatory change shall occur such that the sale of variable
products by insurance companies generally is no longer feasible (and such change
is evidenced by changes in the sales practices for variable products across the
insurance industry) and as a result, the Board of Trustees of the Fund votes to
liquidate the Fund and terminate its registration with the Securities and
Exchange Commission, written notice (the "Liquidation Notice") of such
determination setting forth the reasons for such determination shall be provided
to the Bank. In order to be effective, any Liquidation Notice must be executed
by two officers of the Fund. The Bank shall, within seven days of receipt of
such a Liquidation Notice, reply to the Fund as to whether it agrees that the
terms of the Liquidation Notice meet the requirements of this paragraph, which
agreement shall not be unreasonably withheld. Upon such agreement, the Fund may
terminate this Agreement without additional action by the Fund's Board upon an
additional sixty (60) days written notice.
Should this Agreement be terminated in accordance with the terms of this
paragraph, the Fund shall pay to the Bank, in lieu of the fees for which the
Fund would otherwise be liable to the Bank hereunder through the end of the
Initial Term, the following amounts:
i. If during the first year of the Initial Term the Fund shall pay to the
Bank an amount equal to the fees that would otherwise be due under
this Agreement through the last day of the eighteenth month of the
Initial Term, WITHOUT giving effect to the discount provided on the
first years' fees set forth in Appendix B;
ii. If during the second year of the Initial Term the Fund shall pay to
the Bank an amount equal to the fees that would otherwise be due under
this Agreement through the last day of the second year of the Initial
Term;
iii. If during the third year of the Initial Term the Fund shall pay to the
Bank an amount equal to the fees that would otherwise be due under
this Agreement through the end of the Initial Term.
(c) 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.
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17. ASSIGNMENT AND SUBCONTRACTING.
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.
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:
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For the Trust:
LSA Variable Series Trust
Allstate Life Insurance Company
3100 Sanders Road, Suite J5B
Northbrook, Illinois 60062
Attention: Jeanette Donahue, Vice President, Chief Operations Officer
With a copy to: Barbara J. Whisler, Secretary, Chief Compliance
Officer
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]
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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: /s/ John R. Hunter
------------------
Name: John R. Hunter
Title: President
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
---------------------
Name: Robert D. Mancuso
Title: Senior Vice President
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APPENDIX A
LSA Variable Series Trust
Fund List
IBT
Account Fund Adviser
- ------ ---- -------
255 Focused Equity Morgan Stanley Asset Management
260 Growth Equity Goldman Sachs Asset Management
265 Disciplined Equity JP Morgan Investment Management Inc.
270 Value Equity Salomon Brothees Asset Management Inc.
275 Balanced OpCap Advisors
280 Emerging Growth
Domestic Equity RS Investment Management, L.P.
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APPENDIX B
LSA VARIABLE SERIES TRUST
Proposed Fee Schedule*
For 6 Mutual Funds
DOMESTIC CUSTODY, FUND ACCOUNTING,
CALCULATION OF N.A.V.,
ADMINISTRATION AND TRANSFER AGENCY
A. DOMESTIC CUSTODY, FUND ACCOUNTING, CALCULATION OF N.A.V., ADMINISTRATION AND
TRANSFER AGENCY
The following fees will apply to all assets for which Investors Bank
provides Custody, Fund Accounting, calculation of N.A.V., Administration and
Transfer Agency services.
Annual Fee
----------
FIRST $500 MILLION OF NET ASSETS 11.0 Basis Points
NEXT $500 MILLION OF NET ASSETS 9.0 Basis Points
NEXT $500 MILLION OF NET ASSETS 6.0 Basis Points
Assets in excess of $1.5 Billion 4.0 Basis Points
There will be an annual minimum fee of $140,000 per fund. However, to
accommodate the start-up period, first year minimums will be as follows: 1st
Quarter 50%, 2nd Quarter 75%, 3rd Quarter 85%, 4th Quarter and beyond 100%.
B. DOMESTIC TRANSACTIONS
DTC/Fed Book Entry $10**
Physical Securities 35
Options and Futures 18
GNMA Securities 30
Principal Paydown 5
Foreign Currency 18***
Outgoing Wires 7
Incoming Wires 5
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**This assumes that the trade information will be sent to Investors Bank in the
ISITC/SWIFT format. Manual trades will be billed at $12.00 per trade. There are
no transaction charges for use of the Investors Bank Repo.
***There are no transaction charges for F/X contracts executed by Investors
Bank.
C. FOREIGN SUBCUSTODIAN FEES
o Incremental basis point and transaction fees will be charged for all
foreign assets for which we are custodian. The asset based fees and
transaction fees vary by country, based upon the attached global
custody fee schedule. Local duties, script fees, registration,
reclaims, exchange fees, and other market charges are additional
out-of-pocket fees.
o Investors Bank will require the fund to hold all international assets
at the subcustodian of our choice.
MISCELLANEOUS
A. Out-of-Pocket
o These charges consist of:
-Legal Expenses -InvestView
-Printing, Delivery & Postage -Forms and Supplies
-Third Party Review -Micro Rental
-Extraordinary Travel Expenses
-Customized Systems Development/Reporting
-International Verification Services($3/security/month)
-Pricing and Verification Services
-Telecommunications
-Support Equipment Rental
-Data Transmissions
-Non Standard Extract
B. DOMESTIC BALANCE CREDIT
o We allow use of balance credit against fees (excluding out-of-pocket
charges) for fund balances arising out of the custody relationship.
The credit is based on collected balances reduced by balances required
to support the activity charges of the accounts. The monthly earnings
allowance is equal to 75% of the 90-day T-bill rate.
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C. SECURITIES LENDING, FOREIGN EXCHANGE & CASH MANAGEMENT
o The assumption was made that Investors Bank would perform securities
lending, if applicable, foreign exchange and cash management for the
portfolios. Securities Lending revenue is split with the funds and
Investors Bank on a 60/40% basis: 60% going to the funds.
D. PAYMENT
o The above fees will be charged against the fund's custodian checking
account five business days after the invoice is mailed.
E. SYSTEMS
o The details of any systems work will be determined after a thorough
business analysis. System's work will be billed on a time and material
basis. Investors Bank provides an allowance of 10 system hours for
data extract set up and reporting extract set up. Additional systems
hours will be billed on a time and material basis.
* A LETTER OF INTENT ACCOMPANIED BY A $25,000 DEPOSIT TO BE CREDITED AGAINST
FUTURE FEES IS REQUIRED TO BEGIN THIS IMPLEMENTATION. THIS FEE SCHEDULE IS VALID
FOR 60 DAYS FROM DATE OF ISSUE AND ASSUMES THE EXECUTION OF OUR STANDARD
CONTRACTUAL AGREEMENTS FOR A MINIMUM OF THREE YEARS.
* THIS FEE SCHEDULE IS CONFIDENTIAL INFORMATION OF THE PARTIES AND SHALL NOT BE
DISCLOSED TO ANY THIRD PARTY WITHOUT PRIOR WRITTEN CONSENT OF BOTH PARTIES.
3
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;
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (the "SEC"), dated October 4, 1999 (File No. 812-11656)
(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
<PAGE>
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 N1-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 agrees 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.
1.7. Net Asset Value. The Fund shall use its best efforts to inform
the Company of the net asset value per share for each Portfolio available to the
Company by 6:30 p.m. New York Time or as soon as reasonably practicable after
the net asset value per share for such Portfolio is calculated. The Fund shall
calculate such net asset value in accordance with the prospectus for such
Portfolio. In the event that net asset values are not made available to the
Company by such time, the Company agrees to use its best efforts to include the
net asset value when received in its next business cycle for purposes of
<PAGE>
calculating purchase orders and requests for redemption. However, if net asset
values are not available for an inclusion in the next business cycle and
purchase orders/redemptions are not able to be calculated and available to the
Company to execute within the time-frame identified in Section 2.3 (a), the Fund
shall reimburse and make the Company whole for any losses incurred as a result
of such delays.
1.8. Pricing Errors. Any material errors in the calculation of net
asset value, dividends or capital gain information shall be reported immediately
upon discovery to the Company. An error shall be deemed "material" based on our
interpretation of the SEC's position and policy with regard to materiality, as
it may be modified from time to time. Neither the Fund, the Manager, nor any of
their affiliates shall be liable for any information provided to the Company
pursuant to this Agreement which information is based on incorrect information
supplied by or on behalf of the Company or any other Participating Company to
the Trust or the Distributor. The Fund shall make the Company whole for any
payments or adjustments to the number of shares in the Account that are
reasonably demonstrated to be required as a result of pricing errors.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under laws of the State of Nebraska and has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
<PAGE>
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Illinois and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify.
2.4. The Company represents that the Contracts are currently treated
as life insurance policies or annuity contracts, under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Fund immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
<PAGE>
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Illinois and the Fund represents that their respective operations are
and shall at all times remain in material compliance with the laws of the State
of Illinois to the extent required to perform this Agreement.
2.7. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.8. The Manager represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
compliance in all material respects with the laws of its state of domicile and
any applicable state and federal securities laws. The Manager further represents
that it will make reasonable efforts to verify that all subadvisers are
similarly registered.
<PAGE>
2.9. The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid blanket fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less $5 million. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. SALES MATERIAL, PROSPECTUSES AND OTHER REPORTS
3.1. 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 five Business Days
prior to its use. No such material shall be used if the Fund or its designee
reasonably objects to such use within five 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.
3.2. 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.
3.3. For purposes of this Article III, 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.
<PAGE>
3.4. 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.
3.5. 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 IV. FEES AND EXPENSES
4.1. 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.
4.2. 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.
<PAGE>
4.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and statements of additional information, which are
covered in section 3.4) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners. The Fund shall bear the
expense of mailing such proxy materials in the event the proxy vote is a result
of actions initiated by the Fund.
4.4. 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.
4.5 Except as provided in this Section 4.2., all expenses of
preparing, setting in type and printing and distributing Fund
prospectuses and statements of additional information shall be
the expense of the Company. For prospectuses and statements of
additional information provided by the Company to its existing
owners of Contracts who currently own shares of one or more of
the Fund's Portfolios, in order to update disclosure as required
by the 1933 Act and/or the 1940 Act, the cost of printing shall
be borne by the Fund. If the Company chooses to receive
camera-ready film or computer diskettes in lieu of receiving
printed copies of the Fund's prospectus, the Fund shall bear the
cost of typesetting to provide the Fund's prospectus to the
Company in the format in which the Fund is accustomed to
formatting prospectuses, and the Company shall bear the expense
<PAGE>
of adjusting or changing the format to conform with any of its
prospectuses. In such event, the Fund will reimburse the Company
in an amount equal to the product of x and y where x is the
number of such prospectuses distributed to owners of the
Contracts who currently own shares of one or more of the Fund's
Portfolios, and y is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be
followed with respect to the Fund's statement of additional
information. The Company agrees to provide the Fund or its
designee with such information as may be reasonably requested by
the Fund to assure that the Fund's expenses do not include the
cost of printing, typesetting, and distributing any prospectuses
or statements of additional information other than those actually
distributed to existing owners of the Contracts who currently own
shares of one or more of the Fund's Portfolios.
ARTICLE V. CONDITIONS OF THE ORDER; APPLICABLE LAW
5.1. 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.
5.2. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Illinois.
5.3. 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.
<PAGE>
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 817-5. The Fund shall provide the Company
information reasonably requested in relation to Section 817(h) diversification
requirements, including quarterly reports and annual certifications.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by Variable Insurance Product owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
Board shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
each member of the Board and officers, and each Adviser and each director and
officer of each Adviser, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund for use in
the registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund shares; or
<PAGE>
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by the
Company, or persons under its control and other than statements or
representations authorized by the Fund or an Adviser) or unlawful conduct
of the Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or omission was
made in reliance upon and in conformity with information furnished to the
Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
<PAGE>
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Company of any such claim shall not relieve the Company from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
<PAGE>
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Contracts or
the operation of the Fund.
8.2. INDEMNIFICATION BY THE MANAGER
8.2(a). Each Manager agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes
of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent
of the Adviser) or litigation (including legal and other expenses) to which
the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of shares of the Portfolio that it
manages or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
<PAGE>
the Fund by or on behalf of the Company for use in the registration
statement or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Fund or persons under its control and
other than statements or representations authorized by the Company) or
unlawful conduct of the Fund, Manager(s) or Underwriter or persons
under their control, with respect to the sale or distribution of the
Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of
the Fund; or
<PAGE>
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Manager in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Manager; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Manager shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement.
8.2(c). The Manager shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Adviser in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Adviser of any such claim shall not relieve the Adviser from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties, the
Adviser will be entitled to participate, at its own expense, in the defense
<PAGE>
thereof. The Adviser also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Adviser to such party of the Adviser's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Adviser will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Manager of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(hereinafter collectively, the "Indemnified Parties" and individually,
"Indemnified Party," for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Fund) or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence (except for
failure to comply with Section 6.1 of this Agreement for which the standard
is negligence), bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Fund and:
<PAGE>
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including any failure to comply with Section 6.1 of this Agreement);
or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Fund;
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Fund of any such claim shall not relieve the Fund from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Fund will be
<PAGE>
entitled to participate, at its own expense, in the defense thereof. The
Fund also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Fund
to such party of the Fund's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Fund will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Fund of the
commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. TERMINATION
9.1 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 X of this
Agreement; or
(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.
<PAGE>
9.2. 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 X. 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
2940 South 84th Street
Lincoln, Nebraska 68506
Attn: Law Department -1B2
ARTICLE XI. MISCELLANEOUS
11.1. 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.
<PAGE>
11.2. 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.
11.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.4. 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.
11.5. 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.
11.6. 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.
11.7. It is understood by the parties that this Agreement is not an
exclusive arrangement.
11.8. 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.
<PAGE>
11.9. This Agreement shall not be assigned by any party hereto without
the prior written consent of all the parties.
11.10. 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: ________________________________
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT made as of the 27th day of September, 1999, to be
effective October 1, 1999, by and between LSA Variable Series Trust, a Delaware
business trust (the "Trust"), on behalf of the Disciplined Equity Fund (the
"Fund"), and LSA Asset Management LLC, a Delaware limited liability company (the
"Manager").
W I T N E S S E T H
WHEREAS, the Trust, on behalf of the Fund, and the Manager have entered into a
Management Agreement, effective October 1, 1999, pursuant to which the Manager
will render investment management and administration services to the Fund for
compensation based on the value of the average daily net assets of the Fund; and
WHEREAS, the Trust and the Manager have determined that it is appropriate and in
the best interests of the Fund and its shareholders to maintain Fund expenses at
a level below that to which the Fund would normally be subject during the first
year of operation.
NOW THEREFORE, the parties hereto agree as follows:
1. EXPENSE LIMIT.
1.1. LIMITATION. To the extent that the aggregate expense of every
character incurred by the Fund during the first year of operation,
including but not limited to investment management and administration fees
of the Manager (but excluding interest, taxes, brokerage commissions, and
other expenditures which are capitalized in accordance with generally
accepted accounting principles, and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) ("Fund Operating
Expenses"), exceeds the "Expense Limit," which is the lower of (i) the
lowest applicable limit actually enforced by any state in which the Fund's
shares are qualified for sale or (ii) 1.05% of the average daily net assets
of the Fund, such excess amount ("Excess Amount") shall be the liability of
the Manager.
1.2. METHOD OF COMPUTATION. To determine the Manager's liability for
the Excess Amount, the Fund Operating Expenses shall be annualized monthly
as of the last day of the month. If the annualized Fund Operating Expenses
for any month exceed 1/12th of the Expense Limit, the Manager shall first
waive or reduce its investment management and administration fee for such
month, as appropriate, to the extent necessary to pay such Excess Amount.
In the event the Excess Amount exceeds the amount of the investment
management and administration fee for such month, the Manager, in addition
to waiving its entire investment management and administration fee for such
month, shall also remit to the Fund the difference between the Excess
Amount and the amount due as the investment management and administration
fee.
2. TERMINATION OF AGREEMENt. This Agreement shall continue in effect for a
period of one year from the date of execution and may be terminated thereafter
by either party hereto, without payment of any penalty, upon 90 days' prior
notice in writing to the other party at its principal place of business;
provided that, in the case of termination by the Trust, such action shall be
authorized by resolution of the Board of Trustees of the Trust.
<PAGE>
3. MISCELLANEOUS.
3.1. NOTICES. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, (a) if to the
Manager, to LSA Asset Management LLC, 3100 Sanders Road, Suite J5B,
Northbrook, Illinois, 60062, and (b) if to the Trust, at the foregoing
office of the Manager.
3.2. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
3.3. INTERPRETATION. Nothing herein contained shall be deemed to
require the Trust to take any action contrary to its Agreement and
Declaration of Trust or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve
or deprive the Board of Trustees of its responsibility for and control of
the conduct of the affairs of the Trust.
3.4. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
management and administration fee, the computations of net asset values,
and the allocation of expenses, having a counterpart in or otherwise
derived from the terms and provisions of the Management Agreement, shall
have the same meaning as and be resolved by reference to such Agreement.
3.5. GOVERNING LAW. Except insofar as the Investment Company Act of
1940, as amended or other federal laws and regulations may be controlling,
this Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
respective officers thereunto duly authorized, as of the day and year first
above written.
ATTEST: LSA VARIABLE SERIES TRUST ON BEHALF OF
THE DISCIPLINED EQUITY FUND
By: /s/ Barbara Whisler
---------------
Barbara Whisler
Title: Secretary and Chief Compliance Officer
ATTEST: LSA ASSET MANAGEMENT LLC
By: /s/ John Hunter
-----------------
John Hunter
Title: President
<PAGE>
EXPENSE LIMITATION AGREEMENT
AMENDMENT NO.1
The Expense Limitation Agreement made as of 27th day of September, 1999, by and
between LSA Variable Series Trust (the "Trust"), on behalf of the Disciplined
Equity Fund (the "Fund"), and LSA Asset Management LLC (the "Manager") and in
effect until September, 27, 2000 (the "Agreement") is hereby amended solely for
the purpose of extending its duration.
The parties hereto agree that the Agreement and each of its provisions shall
continue in effect until April 30, 2001, and may be terminated thereafter by
either party hereto, without payment of any penalty, upon 90 days' prior notice
in writing to the other party at its principal place of business; provided that,
in the case of termination by the Trust, such action shall be authorized by
resolution of the Board of Trustees of the Trust.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to the
Agreement to be signed by their respective officers thereunto duly authorized,
as of the date and year written below.
ATTEST: LSA VARIABLE SERIES TRUST ON BEHALF OF
THE DISCIPLINED EQUITY FUND
/s/ Terry R. Young
- ------------------
Terry R. Young By: /s/ John Hunter
Assistant Secretary ----------------
John Hunter
Title: President
Date: 3/24/00
ATTEST:
LSA ASSET MANAGEMENT LLC
/s/ Michael Velotta
- -------------------
Michael Velotta By: /s/ Douglas Wolff
Secretary -----------------
Douglas Wolff
Title: Vice President, Investments
Date: 3/24/00
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT made as of the 27th day of September, 1999, to be
effective October 1, 1999, by and between LSA Variable Series Trust, a Delaware
business trust (the "Trust"), on behalf of the Growth Equity Fund (the "Fund"),
and LSA Asset Management LLC, a Delaware limited liability company (the
"Manager").
W I T N E S S E T H
WHEREAS, the Trust, on behalf of the Fund, and the Manager have entered into a
Management Agreement, effective October 1, 1999, pursuant to which the Manager
will render investment management and administration services to the Fund for
compensation based on the value of the average daily net assets of the Fund; and
WHEREAS, the Trust and the Manager have determined that it is appropriate and in
the best interests of the Fund and its shareholders to maintain Fund expenses at
a level below that to which the Fund would normally be subject during the first
year of operation.
NOW THEREFORE, the parties hereto agree as follows:
1. EXPENSE LIMIT.
1.1. LIMITATION. To the extent that the aggregate expense of every
character incurred by the Fund during the first year of operation,
including but not limited to investment management and administration fees
of the Manager (but excluding interest, taxes, brokerage commissions, and
other expenditures which are capitalized in accordance with generally
accepted accounting principles, and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) ("Fund Operating
Expenses"), exceeds the "Expense Limit," which is the lower of (i) the
lowest applicable limit actually enforced by any state in which the Fund's
shares are qualified for sale or (ii) 1.15% of the average daily net assets
of the Fund, such excess amount ("Excess Amount") shall be the liability of
the Manager.
1.2. METHOD OF COMPUTATION. To determine the Manager's liability for
the Excess Amount, the Fund Operating Expenses shall be annualized monthly
as of the last day of the month. If the annualized Fund Operating Expenses
for any month exceed 1/12th of the Expense Limit, the Manager shall first
waive or reduce its investment management and administration fee for such
month, as appropriate, to the extent necessary to pay such Excess Amount.
In the event the Excess Amount exceeds the amount of the investment
management and administration fee for such month, the Manager, in addition
to waiving its entire investment management and administration fee for such
month, shall also remit to the Fund the difference between the Excess
Amount and the amount due as the investment management and administration
fee.
2. TERMINATION OF AGREEMENT. This Agreement shall continue in effect for a
period of one year from the date of execution and may be terminated thereafter
by either party hereto, without payment of any penalty, upon 90 days' prior
notice in writing to the other party at its principal place of business;
provided that, in the case of termination by the Trust, such action shall be
authorized by resolution of the Board of Trustees of the Trust.
<PAGE>
3. MISCELLANEOUS.
3.1. NOTICES. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, (a) if to the
Manager, to LSA Asset Management LLC, 3100 Sanders Road, Suite J5B,
Northbrook, Illinois, 60062, and (b) if to the Trust, at the foregoing
office of the Manager.
3.2. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
3.3. INTERPRETATION. Nothing herein contained shall be deemed to
require the Trust to take any action contrary to its Agreement and
Declaration of Trust or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve
or deprive the Board of Trustees of its responsibility for and control of
the conduct of the affairs of the Trust.
3.4. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
management and administration fee, the computations of net asset values,
and the allocation of expenses, having a counterpart in or otherwise
derived from the terms and provisions of the Management Agreement, shall
have the same meaning as and be resolved by reference to such Agreement.
3.5. GOVERNING LAW. Except insofar as the Investment Company Act of
1940, as amended or other federal laws and regulations may be controlling,
this Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
respective officers thereunto duly authorized, as of the day and year first
above written.
ATTEST: LSA VARIABLE SERIES TRUST ON BEHALF OF
THE GROWTH EQUITY FUND
By: /s/ Barbara Whislser
--------------------
Barbara Whisler
Title: Secretary and Chief Compliance Officer
ATTEST: LSA ASSET MANAGEMENT LLC
By: /s/ John Hunter
---------------
John Hunter
Title: President
<PAGE>
EXPENSE LIMITATION AGREEMENT
AMENDMENT NO.1
The Expense Limitation Agreement made as of 27th day of September, 1999, by and
between LSA Variable Series Trust (the "Trust"), on behalf of the Growth Equity
Fund (the "Fund"), and LSA Asset Management LLC (the "Manager") and in effect
until September, 27, 2000 (the "Agreement") is hereby amended solely for the
purpose of extending its duration.
The parties hereto agree that the Agreement and each of its provisions shall
continue in effect until April 30, 2001, and may be terminated thereafter by
either party hereto, without payment of any penalty, upon 90 days' prior notice
in writing to the other party at its principal place of business; provided that,
in the case of termination by the Trust, such action shall be authorized by
resolution of the Board of Trustees of the Trust.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to the
Agreement to be signed by their respective officers thereunto duly authorized,
as of the date and year written below.
ATTEST:
/s/ Terry R. Young LSA VARIABLE SERIES TRUST ON BEHALF OF
- ------------------ THE GROWTH EQUITY FUND
Terry R. Young
Assistant Secretary
By: /s/ John Hunter
---------------
John Hunter
Title: President
Date: 3/24/00
ATTEST:
LSA ASSET MANAGEMENT LLC
/s/ Michael Velotta
- -------------------
Michael Velotta
Secretary By: /s/ Douglas Wolff
-----------------
Douglas Wolff
Title: Vice President, Investments
Date: 3/24/00
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT made as of the 27th day of September, 1999, to be
effective October 1, 1999, by and between LSA Variable Series Trust, a Delaware
business trust (the "Trust"), on behalf of the Value Equity Fund (the "Fund"),
and LSA Asset Management LLC, a Delaware limited liability company (the
"Manager").
W I T N E S S E T H
WHEREAS, the Trust, on behalf of the Fund, and the Manager have entered into a
Management Agreement, effective October 1, 1999, pursuant to which the Manager
will render investment management and administration services to the Fund for
compensation based on the value of the average daily net assets of the Fund; and
WHEREAS, the Trust and the Manager have determined that it is appropriate and in
the best interests of the Fund and its shareholders to maintain Fund expenses at
a level below that to which the Fund would normally be subject during the first
year of operation.
NOW THEREFORE, the parties hereto agree as follows:
1. EXPENSE LIMIT.
1.1. LIMITATION. To the extent that the aggregate expense of every
character incurred by the Fund during the first year of operation,
including but not limited to investment management and administration fees
of the Manager (but excluding interest, taxes, brokerage commissions, and
other expenditures which are capitalized in accordance with generally
accepted accounting principles, and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) ("Fund Operating
Expenses"), exceeds the "Expense Limit," which is the lower of (i) the
lowest applicable limit actually enforced by any state in which the Fund's
shares are qualified for sale or (ii) 1.10% of the average daily net assets
of the Fund, such excess amount ("Excess Amount") shall be the liability of
the Manager.
1.2. METHOD OF COMPUTATION. To determine the Manager's liability for
the Excess Amount, the Fund Operating Expenses shall be annualized monthly
as of the last day of the month. If the annualized Fund Operating Expenses
for any month exceed 1/12th of the Expense Limit, the Manager shall first
waive or reduce its investment management and administration fee for such
month, as appropriate, to the extent necessary to pay such Excess Amount.
In the event the Excess Amount exceeds the amount of the investment
management and administration fee for such month, the Manager, in addition
to waiving its entire investment management and administration fee for such
month, shall also remit to the Fund the difference between the Excess
Amount and the amount due as the investment management and administration
fee.
2. TERMINATION OF AGREEMENT. This Agreement shall continue in effect for a
period of one year from the date of execution and may be terminated thereafter
by either party hereto, without payment of any penalty, upon 90 days' prior
notice in writing to the other party at its principal place of business;
provided that, in the case of termination by the Trust, such action shall be
authorized by resolution of the Board of Trustees of the Trust.
<PAGE>
3. MISCELLANEOUS.
3.1. NOTICES. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, (a) if to the
Manager, to LSA Asset Management LLC, 3100 Sanders Road, Suite J5B,
Northbrook, Illinois, 60062, and (b) if to the Trust, at the foregoing
office of the Manager.
3.2. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
3.3. INTERPRETATION. Nothing herein contained shall be deemed to
require the Trust to take any action contrary to its Agreement and
Declaration of Trust or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve
or deprive the Board of Trustees of its responsibility for and control of
the conduct of the affairs of the Trust.
3.4. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
management and administration fee, the computations of net asset values,
and the allocation of expenses, having a counterpart in or otherwise
derived from the terms and provisions of the Management Agreement, shall
have the same meaning as and be resolved by reference to such Agreement.
3.5. GOVERNING LAW. Except insofar as the Investment Company Act of
1940, as amended or other federal laws and regulations may be controlling,
this Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
respective officers thereunto duly authorized, as of the day and year first
above written.
ATTEST: LSA VARIABLE SERIES TRUST ON BEHALF OF
THE VALUE EQUITY FUND
By: /s/ Barbara Whisler
-------------------
Barbara Whisler
Title: Secretary and Chief Compliance Officer
ATTEST: LSA ASSET MANAGEMENT LLC
By: /s/ John Hunter
---------------
John Hunter
Title: President
<PAGE>
EXPENSE LIMITATION AGREEMENT
AMENDMENT NO.1
The Expense Limitation Agreement made as of 27th day of September, 1999, by and
between LSA Variable Series Trust (the "Trust"), on behalf of the Value Equity
Fund (the "Fund"), and LSA Asset Management LLC (the "Manager") and in effect
until September, 27, 2000 (the "Agreement") is hereby amended solely for the
purpose of extending its duration.
The parties hereto agree that the Agreement and each of its provisions shall
continue in effect until April 30, 2001, and may be terminated thereafter by
either party hereto, without payment of any penalty, upon 90 days' prior notice
in writing to the other party at its principal place of business; provided that,
in the case of termination by the Trust, such action shall be authorized by
resolution of the Board of Trustees of the Trust.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to the
Agreement to be signed by their respective officers thereunto duly authorized,
as of the date and year written below.
ATTEST:
/s/ Terry R. Young LSA VARIABLE SERIES TRUST ON BEHALF OF
- ------------------ THE VALUE EQUITY FUND
Terry R. Young
Assistant Secretary
By: /s/ John Hunter
---------------
John Hunter
Title: President
Date: 3/24/00
ATTEST:
LSA ASSET MANAGEMENT LLC
/s/ Michael Velotta
- -------------------
Michael Velotta
Secretary By: /s/ Douglas Wolff
-----------------
Douglas Wolff
Title: Vice President, Investments
Date: 3/24/00
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT made as of the 27th day of September, 1999, to be
effective October 1, 1999, by and between LSA Variable Series Trust, a Delaware
business trust (the "Trust"), on behalf of the Focused Equity Fund (the "Fund"),
and LSA Asset Management LLC, a Delaware limited liability company (the
"Manager").
W I T N E S S E T H
WHEREAS, the Trust, on behalf of the Fund, and the Manager have entered into a
Management Agreement, effective October 1, 1999, pursuant to which the Manager
will render investment management and administration services to the Fund for
compensation based on the value of the average daily net assets of the Fund; and
WHEREAS, the Trust and the Manager have determined that it is appropriate and in
the best interests of the Fund and its shareholders to maintain Fund expenses at
a level below that to which the Fund would normally be subject during the first
year of operation.
NOW THEREFORE, the parties hereto agree as follows:
1. EXPENSE LIMIT.
1.1. LIMITATION. To the extent that the aggregate expense of every
character incurred by the Fund during the first year of operation,
including but not limited to investment management and administration fees
of the Manager (but excluding interest, taxes, brokerage commissions, and
other expenditures which are capitalized in accordance with generally
accepted accounting principles, and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) ("Fund Operating
Expenses"), exceeds the "Expense Limit," which is the lower of (i) the
lowest applicable limit actually enforced by any state in which the Fund's
shares are qualified for sale or (ii) 1.25% of the average daily net assets
of the Fund, such excess amount ("Excess Amount") shall be the liability of
the Manager.
1.2. METHOD OF COMPUTATION. To determine the Manager's liability for
the Excess Amount, the Fund Operating Expenses shall be annualized monthly
as of the last day of the month. If the annualized Fund Operating Expenses
for any month exceed 1/12th of the Expense Limit, the Manager shall first
waive or reduce its investment management and administration fee for such
month, as appropriate, to the extent necessary to pay such Excess Amount.
In the event the Excess Amount exceeds the amount of the investment
management and administration fee for such month, the Manager, in addition
to waiving its entire investment management and administration fee for such
month, shall also remit to the Fund the difference between the Excess
Amount and the amount due as the investment management and administration
fee.
2. TERMINATION OF AGREEMENT. This Agreement shall continue in effect for a
period of one year from the date of execution and may be terminated thereafter
by either party hereto, without payment of any penalty, upon 90 days' prior
notice in writing to the other party at its principal place of business;
provided that, in the case of termination by the Trust, such action shall be
authorized by resolution of the Board of Trustees of the Trust.
<PAGE>
3. MISCELLANEOUS.
3.1. NOTICES. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, (a) if to the
Manager, to LSA Asset Management LLC, 3100 Sanders Road, Suite J5B,
Northbrook, Illinois, 60062, and (b) if to the Trust, at the foregoing
office of the Manager.
3.2. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
3.3. INTERPRETATION. Nothing herein contained shall be deemed to
require the Trust to take any action contrary to its Agreement and
Declaration of Trust or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve
or deprive the Board of Trustees of its responsibility for and control of
the conduct of the affairs of the Trust.
3.4. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
management and administration fee, the computations of net asset values,
and the allocation of expenses, having a counterpart in or otherwise
derived from the terms and provisions of the Management Agreement, shall
have the same meaning as and be resolved by reference to such Agreement.
3.5. GOVERNING LAW. Except insofar as the Investment Company Act of
1940, as amended or other federal laws and regulations may be controlling,
this Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
respective officers thereunto duly authorized, as of the day and year first
above written.
ATTEST: LSA VARIABLE SERIES TRUST ON BEHALF OF
THE FOCUSED EQUITY FUND
By: /s/ Barbara Whisler
--------------------
Barbara Whisler
Title: Secretary and Chief Compliance Officer
ATTEST: LSA ASSET MANAGEMENT LLC
By: /s/ John Hunter
---------------
John Hunter
Title: President
<PAGE>
EXPENSE LIMITATION AGREEMENT
AMENDMENT NO.1
The Expense Limitation Agreement made as of 27th day of September, 1999, by and
between LSA Variable Series Trust (the "Trust"), on behalf of the Focused Equity
Fund (the "Fund"), and LSA Asset Management LLC (the "Manager") and in effect
until September, 27, 2000 (the "Agreement") is hereby amended solely for the
purpose of extending its duration.
The parties hereto agree that the Agreement and each of its provisions shall
continue in effect until April 30, 2001, and may be terminated thereafter by
either party hereto, without payment of any penalty, upon 90 days' prior notice
in writing to the other party at its principal place of business; provided that,
in the case of termination by the Trust, such action shall be authorized by
resolution of the Board of Trustees of the Trust.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to the
Agreement to be signed by their respective officers thereunto duly authorized,
as of the date and year written below.
ATTEST:
/s/ Terry R. Young LSA VARIABLE SERIES TRUST ON BEHALF OF
- ----------------- THE FOCUSED EQUITY FUND
Terry R. Young
Assistant Secretary
By:/s/ John Hunter
---------------
John Hunter
Title: President
Date: 3/24/00
ATTEST:
LSA ASSET MANAGEMENT LLC
/s/ Michael Velotta
- --------------------
Michael Velotta
Secretary By: /s/ Douglas Wolff
-----------------
Douglas Wolff
Title: Vice President, Investments
Date: 3/24/00
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT made as of the 27th day of September, 1999, to be
effective October 1, 1999, by and between LSA Variable Series Trust, a Delaware
business trust (the "Trust"), on behalf of the Balanced Fund (the "Fund"), and
LSA Asset Management LLC, a Delaware limited liability company (the "Manager").
W I T N E S S E T H
WHEREAS, the Trust, on behalf of the Fund, and the Manager have entered into a
Management Agreement, effective October 1, 1999, pursuant to which the Manager
will render investment management and administration services to the Fund for
compensation based on the value of the average daily net assets of the Fund; and
WHEREAS, the Trust and the Manager have determined that it is appropriate and in
the best interests of the Fund and its shareholders to maintain Fund expenses at
a level below that to which the Fund would normally be subject during the first
year of operation.
NOW THEREFORE, the parties hereto agree as follows:
1. EXPENSE LIMIT.
1.1. LIMITATION. To the extent that the aggregate expense of every
character incurred by the Fund during the first year of operation,
including but not limited to investment management and administration fees
of the Manager (but excluding interest, taxes, brokerage commissions, and
other expenditures which are capitalized in accordance with generally
accepted accounting principles, and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) ("Fund Operating
Expenses"), exceeds the "Expense Limit," which is the lower of (i) the
lowest applicable limit actually enforced by any state in which the Fund's
shares are qualified for sale or (ii) 1.10% of the average daily net assets
of the Fund, such excess amount ("Excess Amount") shall be the liability of
the Manager.
1.2. METHOD OF COMPUTATION. To determine the Manager's liability for
the Excess Amount, the Fund Operating Expenses shall be annualized monthly
as of the last day of the month. If the annualized Fund Operating Expenses
for any month exceed 1/12th of the Expense Limit, the Manager shall first
waive or reduce its investment management and administration fee for such
month, as appropriate, to the extent necessary to pay such Excess Amount.
In the event the Excess Amount exceeds the amount of the investment
management and administration fee for such month, the Manager, in addition
to waiving its entire investment management and administration fee for such
month, shall also remit to the Fund the difference between the Excess
Amount and the amount due as the investment management and administration
fee.
2. TERMINATION OF AGREEMENT. This Agreement shall continue in effect for a
period of one year from the date of execution and may be terminated thereafter
by either party hereto, without payment of any penalty, upon 90 days' prior
notice in writing to the other party at its principal place of business;
provided that, in the case of termination by the Trust, such action shall be
authorized by resolution of the Board of Trustees of the Trust.
<PAGE>
3. MISCELLANEOUS.
3.1. NOTICES. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, (a) if to the
Manager, to LSA Asset Management LLC, 3100 Sanders Road, Suite J5B,
Northbrook, Illinois, 60062, and (b) if to the Trust, at the foregoing
office of the Manager.
3.2. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
3.3. INTERPRETATION. Nothing herein contained shall be deemed to
require the Trust to take any action contrary to its Agreement and
Declaration of Trust or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve
or deprive the Board of Trustees of its responsibility for and control of
the conduct of the affairs of the Trust.
3.4. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
management and administration fee, the computations of net asset values,
and the allocation of expenses, having a counterpart in or otherwise
derived from the terms and provisions of the Management Agreement, shall
have the same meaning as and be resolved by reference to such Agreement.
3.5. GOVERNING LAW. Except insofar as the Investment Company Act of
1940, as amended or other federal laws and regulations may be controlling,
this Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
respective officers thereunto duly authorized, as of the day and year first
above written.
ATTEST: LSA VARIABLE SERIES TRUST ON BEHALF OF
THE BALANCED FUND
By: /s/ Barbara Whisler
-------------------
Barbara Whisler
Title: Secretary and Chief Compliance Officer
ATTEST: LSA ASSET MANAGEMENT LLC
By: /s/ John Hunter
---------------
John Hunter
Title: President
<PAGE>
EXPENSE LIMITATION AGREEMENT
AMENDMENT NO.1
The Expense Limitation Agreement made as of 27th day of September, 1999, by and
between LSA Variable Series Trust (the "Trust"), on behalf of the Balanced Fund
(the "Fund"), and LSA Asset Management LLC (the "Manager") and in effect until
September, 27, 2000 (the "Agreement") is hereby amended solely for the purpose
of extending its duration.
The parties hereto agree that the Agreement and each of its provisions shall
continue in effect until April 30, 2001, and may be terminated thereafter by
either party hereto, without payment of any penalty, upon 90 days' prior notice
in writing to the other party at its principal place of business; provided that,
in the case of termination by the Trust, such action shall be authorized by
resolution of the Board of Trustees of the Trust.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to the
Agreement to be signed by their respective officers thereunto duly authorized,
as of the date and year written below.
ATTEST:
/s/ Terry R. Young LSA VARIABLE SERIES TRUST ON BEHALF OF
- ------------------ THE BALANCED FUND
Terry R. Young
Assistant Secretary By: /s/ John Hunter
---------------
John Hunter
Title: President
Date: 3/24/00
ATTEST:
LSA ASSET MANAGEMENT LLC
/s/ Michael Velotta
- -------------------
Michael Velotta
Secretary By: /s/ Douglas Wolff
-----------------
Douglas Wolff
Title: Vice President, Investments
Date: 3/24/00
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT made as of the 27th day of September, 1999, to be
effective October 1, 1999, by and between LSA Variable Series Trust, a Delaware
business trust (the "Trust"), on behalf of the Emerging Growth Equity Fund (the
"Fund"), and LSA Asset Management LLC, a Delaware limited liability company (the
"Manager").
W I T N E S S E T H
WHEREAS, the Trust, on behalf of the Fund, and the Manager have entered into a
Management Agreement, effective October 1, 1999, pursuant to which the Manager
will render investment management and administration services to the Fund for
compensation based on the value of the average daily net assets of the Fund; and
WHEREAS, the Trust and the Manager have determined that it is appropriate and in
the best interests of the Fund and its shareholders to maintain Fund expenses at
a level below that to which the Fund would normally be subject during the first
year of operation.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limit.
1.1. LIMITATION. To the extent that the aggregate expense of every
character incurred by the Fund during the first year of operation,
including but not limited to investment management and administration fees
of the Manager (but excluding interest, taxes, brokerage commissions, and
other expenditures which are capitalized in accordance with generally
accepted accounting principles, and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) ("Fund Operating
Expenses"), exceeds the "Expense Limit," which is the lower of (i) the
lowest applicable limit actually enforced by any state in which the Fund's
shares are qualified for sale or (ii) 1.35% of the average daily net assets
of the Fund, such excess amount ("Excess Amount") shall be the liability of
the Manager.
1.2. METHOD OF COMPUTATION. To determine the Manager's liability for
the Excess Amount, the Fund Operating Expenses shall be annualized monthly
as of the last day of the month. If the annualized Fund Operating Expenses
for any month exceed 1/12th of the Expense Limit, the Manager shall first
waive or reduce its investment management and administration fee for such
month, as appropriate, to the extent necessary to pay such Excess Amount.
In the event the Excess Amount exceeds the amount of the investment
management and administration fee for such month, the Manager, in addition
to waiving its entire investment management and administration fee for such
month, shall also remit to the Fund the difference between the Excess
Amount and the amount due as the investment management and administration
fee.
2. TERMINATION OF AGREEMENT. This Agreement shall continue in effect for a
period of one year from the date of execution and may be terminated thereafter
by either party hereto, without payment of any penalty, upon 90 days' prior
notice in writing to the other party at its principal place of business;
provided that, in the case of termination by the Trust, such action shall be
authorized by resolution of the Board of Trustees of the Trust.
<PAGE>
3. MISCELLANEOUS.
3.1. NOTICES. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, (a) if to the
Manager, to LSA Asset Management LLC, 3100 Sanders Road, Suite J5B,
Northbrook, Illinois, 60062, and (b) if to the Trust, at the foregoing
office of the Manager.
3.2. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any
of the provisions hereof or otherwise affect their construction or effect.
3.3. INTERPRETATION. Nothing herein contained shall be deemed to
require the Trust to take any action contrary to its Agreement and
Declaration of Trust or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to relieve
or deprive the Board of Trustees of its responsibility for and control of
the conduct of the affairs of the Trust.
3.4. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
management and administration fee, the computations of net asset values,
and the allocation of expenses, having a counterpart in or otherwise
derived from the terms and provisions of the Management Agreement, shall
have the same meaning as and be resolved by reference to such Agreement.
3.5. GOVERNING LAW. Except insofar as the Investment Company Act of
1940, as amended or other federal laws and regulations may be controlling,
this Agreement shall be governed by, and construed and enforced in
accordance with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their
respective officers thereunto duly authorized, as of the day and year first
above written.
ATTEST: LSA VARIABLE SERIES TRUST ON BEHALF OF
THE EMERGING GROWTH EQUITY FUND
By: /s/ Barbara Whisler
-------------------
Barbara Whisler
Title: Secretary and Chief Compliance Officer
ATTEST: LSA ASSET MANAGEMENT LLC
By: /s/ John Hunter
---------------
John Hunter
Title: President
<PAGE>
EXPENSE LIMITATION AGREEMENT
AMENDMENT NO.1
The Expense Limitation Agreement made as of 27th day of September, 1999, by and
between LSA Variable Series Trust (the "Trust"), on behalf of the Emerging
Growth Equity Fund (the "Fund"), and LSA Asset Management LLC (the "Manager")
and in effect until September, 27, 2000 (the "Agreement") is hereby amended
solely for the purpose of extending its duration.
The parties hereto agree that the Agreement and each of its provisions shall
continue in effect until April 30, 2001, and may be terminated thereafter by
either party hereto, without payment of any penalty, upon 90 days' prior notice
in writing to the other party at its principal place of business; provided that,
in the case of termination by the Trust, such action shall be authorized by
resolution of the Board of Trustees of the Trust.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to the
Agreement to be signed by their respective officers thereunto duly authorized,
as of the date and year written below.
ATTEST:
/s/ Terry R. Young LSA VARIABLE SERIES TRUST ON
------------- BEHALF OF THE EMERGING
Terry R. Young GROWTH EQUITY FUND
Assistant Secretary
By: /s/ John Hunter
----------------
John Hunter
Title: President
Date: 3/24/00
ATTEST:
LSA ASSET MANAGEMENT LLC
/s/Michael Velotta
- ---------------
Michael Velotta By: /s/ Douglas Wolff
Secretary ------------------
Douglas Wolff
Title: Vice President, Investments
Date: 3/24/00
LSA VARIABLE SERIES TRUST
a Delaware Business Trust
and
LSA ASSET MANAGEMENT LLC
a Delaware Limited Liability Company
and
ALLSTATE LIFE FINANCIAL SERVICES, INC.
a Delaware Corporation
AMENDED AND RESTATED
CODE OF ETHICS WITH RESPECT TO
SECURITIES TRANSACTIONS OF ACCESS PERSONS
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act") requires
investment companies, as well as their investment advisers and principal
underwriters, to adopt written codes of ethics containing provisions reasonably
necessary to prevent "access persons" from engaging in any act, practice, or
course of business prohibited under the anti-fraud provisions of Rule 17j-1(b).
Pursuant to the requirements of Rule 17j-1, LSA Variable Series Trust (the
"Trust"), LSA Asset Management LLC (the "Adviser") and Allstate Life Financial
Services, Inc. (the "Distributor") have adopted, or will adopt, and the Board of
Trustees of the Trust (the "Board"), including a majority of the Disinterested
Trustees, has approved, this Code of Ethics (the "Code") with respect to
securities transactions of officers, trustees, directors, managers and certain
of the employees of the Trust, the Adviser and the Distributor that come within
the term "access person," as defined below. The Code also addresses insider
trading policies required by the Investment Advisers Act of 1940 and the
Securities Exchange Act of 1934.
This Code is intended to provide guidance to such Access Persons of the
Trust, the Adviser and the Distributor in the conduct of their investments in
order to eliminate the possibility of securities transactions occurring that
place, or appear to place, such persons in conflict with the interests of the
Trust or the Trust's shareholders.
A. RULE 17j-1 -- GENERAL ANTI-FRAUD PROVISIONS.
Rule 17j-1 under the 1940 Act provides that it is unlawful for any
affiliated person of a registered investment company, or any affiliated person
of such company's investment adviser or principal underwriter, in connection
with any purchase or sale, directly or indirectly, by such person of a Security
Held or to be Acquired by such investment company, to engage in any of the
following acts, practices or courses of business:
<PAGE>
1. employ any device, scheme, or artifice to defraud such investment
company;
2. make to such investment company any untrue statement of a material
fact or omit to state to such investment company a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
3. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any such investment company;
and
4. engage in any manipulative practice with respect to such investment
company.
2
<PAGE>
B. DEFINITIONS.
1. ACCESS PERSONS. The term "Access Person" means (i) any officer,
director, trustee, manager or Advisory Employee of the Trust or the
Adviser and (ii) any Advisory Employee of the Distributor.
2. ADVISORY EMPLOYEE. The term "Advisory Employee" means (a) any employee
of the Trust, the Adviser or the Distributor who, in connection with
his* regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a Covered Security by or
on behalf of the Trust or (b) any employee of the Trust, the Adviser
or the Distributor whose functions relate to the making of any
recommendations with respect to such purchases or sales. In the event
that any individual or company is in a control relationship with the
Trust, the Adviser or the Distributor, the term "Advisory Employee"
would include such an individual or any employee of such a company to
the same extent as an employee of the Trust, the Adviser or the
Distributor.
3. APPROPRIATE COMPLIANCE PERSONNEL. The term "Appropriate Compliance
Personnel" means those persons identified on Schedule A to this Code,
which Schedule may be amended from time to time. There shall be
identified on Schedule A at least one person for each of the Trust,
the Adviser and the Distributor and the date such person became
Appropriate Compliance Personnel. The same person may be identified
for each of the Trust, the Adviser and the Distributor.
4. BENEFICIAL OWNERSHIP. "Beneficial Ownership" has the same meaning as
would be used in determining whether an Access Person is subject to
the provisions of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial interest will apply to
all securities that an Access Person has or acquires. "Beneficial
Ownership" includes accounts of a spouse, minor children who reside in
an Access Person's home and any other relatives (parents, adult
children, brothers, sisters, etc.) whose investments the Access Person
directs or controls, whether the person lives with him or not, as well
as accounts of another person (individual, trustee, corporation,
trust, custodian, or other entity) if, by reason of any contract,
understanding, relationship, agreement or other arrangement, the
Access Person obtains or may obtain therefrom benefits substantially
equivalent to those of ownership. A person does not derive a
beneficial interest by virtue of serving as a trustee or executor
unless he or a member of his immediate family has a vested interest in
the income or corpus of the trust or estate. A copy of a Release
issued by the Securities and Exchange Commission on the meaning of the
term "beneficial ownership" is available upon request, and should be
studied carefully by any Access Person concerned with this definition
before preparing any report required hereunder.
- -------------------
* The use of the masculine pronoun is for convenience of reference only and is
intended to include the feminine in all cases, unless the context requires
otherwise.
3
<PAGE>
5. BEING CONSIDERED FOR PURCHASE OR SALE. A security is "Being Considered
for Purchase or Sale" when a recommendation to purchase or sell such
security has been made and communicated by an Advisory Employee, in
the course of his duties and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
6. CONTROL. The term "Control" has the same meaning as that set forth in
Section 2(a)(9) of the 1940 Act.
7. COVERED SECURITY. The term "Covered Security" has the same meaning as
the term "security" as set forth in Section 2(a)(36) of the 1940 Act,
except that it shall not include shares of registered open-end
investment companies, direct obligations of the Government of the
United States, bankers' acceptances, bank certificates of deposit,
commercial paper, and high quality short-term debt instruments,
including repurchase agreements. For these purposes, "high quality
short-term debt instruments" means any instrument that has a maturity
at issuance of less than 366 days and that is rated in one of the two
highest rating categories by a nationally recognized statistical
rating organization.
8. DISINTERESTED TRUSTEE. The term "Disinterested Trustee" means a
trustee of the Trust who is not an "interested person" of the Trust,
the Adviser, or the Distributor within the meaning of Section 2(a)(19)
of the 1940 Act.
9. INITIAL PUBLIC OFFERING. The term "Initial Public Offering" means an
offering of securities registered under the Securities Act of 1933,
the issuer of which, immediately before the registration, was not
subject to the reporting requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934.
10. INVESTMENT PERSONNEL. The term "Investment Personnel" means (i) any
employee of the Trust or the Adviser (or of any company in a control
relationship to the Trust or the Adviser) who, in connection with his
or her regular functions or duties, makes or participates in making
recommendations regarding the purchase or sale of securities by the
Trust and (ii) any natural person who controls the Trust or the
Adviser and who obtains information concerning recommendations made to
the Trust regarding the purchase or sale of securities by the Trust.
11. LIMITED OFFERING. The term "Limited Offering" means an offering that
is exempt from registration under the Securities Act of 1933 pursuant
to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or
Rule 506 under the Securities Act of 1933.
12. SECURITY HELD OR TO BE ACQUIRED. The phrase "Security Held or to be
Acquired" by the Trust means:
4
<PAGE>
i. any Covered Security which, within the most recent fifteen (15)
calendar days:
a. is or has been held by the Trust; or
b. is being or has been considered by the Trust or the Adviser
for purchase by the Trust; and
ii. any option to purchase or sell, and any security convertible into
or exchangeable for, a Covered Security described in paragraph i.
of this Section B.7.
C. PROHIBITED TRANSACTIONS
1. No Access Person shall purchase or sell, directly or indirectly, any
security in which he has, or by reason of such transaction, acquires
any direct or indirect Beneficial Ownership if the Access Person knows
that such security is Being Considered for Purchase or Sale by the
Trust, provided that this prohibition shall not apply to transactions
that:
i. are exempt under Section D of this Code; or
ii. do not involve a Covered Security.
2. This prohibition shall terminate upon the earlier of the time when (i)
the security is no longer Being Considered for Purchase or Sale by the
Trust or (ii) the security is purchased or sold by the Trust.
D. EXEMPT TRANSACTIONS.
The prohibitions of Section C. of this Code shall not apply to:
1. purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control, or in any
account of the Access Person which is managed on a discretionary basis
by a person other than the Access Person and, with respect to which
the Access Person does not in fact influence or control purchase or
sale transactions;
2. purchases or sales of securities which are not eligible for purchase
or sale by the Trust;
3. purchases or sales which are non-volitional on the part of the Access
Person or the Trust;
4. purchases which are part of an automatic dividend reinvestment plan;
and
5
<PAGE>
5. purchases effected upon the exercise of rights issued by the issuer
pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such rights
so acquired.
E. REPORTING REQUIREMENTS OF ACCESS PERSONS.
1. CONTENT AND TIMING OF ACCESS PERSON REPORTS. Every Access Person shall
make the following reports to the Appropriate Compliance Personnel:
a. INITIAL HOLDINGS REPORT. No later than ten (10) days after
becoming an Access Person, such Access Person shall report the
following information:
i. the title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct
or indirect Beneficial Ownership when the person became an
Access Person;
ii. the name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were
held for the direct or indirect benefit of the Access Person
as of the date the person became an Access Person; and
iii. the date that the report is submitted by the Access Person.
b. QUARTERLY TRANSACTION REPORTS. No later than ten (10) days after
the end of a calendar quarter, the Access Person shall report the
following information:
i. With respect to any transaction during the quarter in a
Covered Security in which the Access Person had any direct
or indirect Beneficial Ownership:
A. the date of the transaction, the title, the interest
rate and maturity date (if applicable), the number of
shares and the principal amount of each Covered
Security involved;
B. the nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition);
C. the price of the Covered Security at which the
transaction was effected;
6
<PAGE>
D. the name of the broker, dealer, or bank with or through
whom the transaction was effected; and
E. the date that the report is submitted by the Access
Person.
ii. With respect to any account established by the Access Person
in which any securities were held during the quarter for the
direct or indirect benefit of the Access Person:
A. the name of the broker, dealer or bank with whom the
Access Person established the Account;
B. the date the account was established; and
C. the date that the report was submitted by the Access
Person.
c. ANNUAL HOLDING REPORTS. No later than thirty (30) days after the
end of every calendar year, the Access Person shall report the
following information (which information must be current as of
December 31 of the calendar year for which the report is being
submitted):
i. the title, number of shares and principal amount of each
Covered Security in which the Access Person has any direct
or indirect beneficial ownership;
ii. the name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities are held
for the direct or indirect benefit of the Access Person; and
iii. the date that the report is being submitted by the Access
Person.
2. NO HOLDINGS OR TRANSACTIONS TO REPORT. If an Access Person has no
holdings to report on either an Initial Holdings Report or any Annual
Holdings Report nor transactions to report on any Quarterly
Transaction Report, that Access Person shall nevertheless submit the
appropriate Report stating that the Access Person had no holdings or
transactions (as appropriate) to report and the date the report is
submitted by the Access Person.
3. COPIES OF CONFIRMATIONS AND PERIODIC ACCOUNT STATEMENTS. Each Access
Person shall direct every broker or dealer through whom the Access
Person effects any securities transactions to deliver to the
Compliance Officer, on a timely basis, duplicate copies of
confirmations of all Access Person securities transactions and copies
of periodic statements for all Access Person securities accounts.
7
<PAGE>
4. EXCEPTIONS FROM REPORTING REQUIREMENTS.
a. A person need not make a report under this Section E. with
respect to transactions for, and Covered Securities held in, any
account over which the person has no direct or indirect influence
or control.
b. A Disinterested Trustee who would be required to make a report
solely by reason of being a trustee of the Trust need not make:
i. An Initial Holdings Report under Section E.1.a or an Annual
Holdings Report under Section E.1.c; and
ii. A Quarterly Transaction Report under Section E.1.b, unless
such Disinterested Trustee knew or, in the ordinary course
of fulfilling his or her official duties as a trustee of the
Trust, should have known that during the 15-day period
immediately before or after the Disinterested Trustee's
transaction in a Covered Security, the Trust purchased or
sold the Covered Security, or the Trust or the Adviser
considered purchasing or selling the Covered Security.
c. An Access Person need not make a Quarterly Transaction Report
under Section E.1.b. if the confirmations or periodic account
statements delivered to the Appropriate Compliance Personnel
under Section E.3 are received within the time period required by
Section E.1.b., provided that all information required by Section
E.1.b. is contained in such confirmations or account statements.
d. An Access Person need not make a Quarterly Transaction Report
with respect to the "exempt transactions" described in Section D.
e. No person who becomes an Access Person before March 1, 2000 shall
be required to make an Initial Holdings Report.
5. REVIEW OF REPORTS. Appropriate Compliance Personnel shall review all
reports submitted pursuant to Section E.1 for the purpose of detecting
and preventing a potential or actual violation of this Code.
a. Appropriate Compliance Personnel shall review an Initial Holdings
Report within fifteen (15) days of the date such Report is
submitted by an Access Person.
b. Appropriate Compliance Personnel shall review all Quarterly
Transaction Reports and all Annual Holding Reports within thirty
(30) days of the date such a Report is submitted by an Access
Person.
8
<PAGE>
c. Appropriate Compliance Personnel shall maintain a record of each
report reviewed and the date such review was completed. Such
record shall indicate whether Appropriate Compliance Personnel
detected a potential or actual violation of this Code. If a
potential or actual material violation of this Code is detected,
Appropriate Compliance Personnel shall promptly inform management
of the Trust, the Adviser or the Distributor (as applicable) in
writing.
d. Appropriate Compliance Personnel, promptly after furnishing such
written notification of a potential or actual material violation
of this Code to the management of the Trust, the Adviser or the
Distributor, shall take those measures deemed necessary and
appropriate to remedy such violation, including, but not limited
to, requiring the Access Person to divest any inappropriate
securities holdings and recommending sanctions to the Board.
6. NOTIFICATION OF REPORTING OBLIGATION. Appropriate Compliance Personnel
shall identify all Access Persons who are required to make reports
under Section E.1. and shall inform those Access Persons of their
reporting obligation. Once informed of the duty to file reports, an
Access Person has a continuing obligation to file such reports in a
timely manner
7. DISCLAIMER OF BENEFICIAL OWNERSHIP. No report required to be made
under Section E.1 shall be construed as an admission by the person
making such report that he or she has any direct or indirect
Beneficial Ownership in the security to which the report relates.
8. FORM OF REPORTS. All reports required to be filed under Section E.1.
shall be prepared by Access Persons using the forms attached to this
Code.
F. ANNUAL CERTIFICATION OF COMPLIANCE.
At the time of submission of Annual Holding Reports, all Access Persons
must certify that they have read, understand and are subject to this Code, and
have complied at all times with this Code. When a person becomes an Access
Person, that person shall be given a copy of the Code. Within five (5) days
after being given the Code, that person shall certify that he or she has had an
opportunity to ask questions, and has read and understands the Code, and agrees
to comply with the Code. All Access Persons shall be given a copy of any
amendment to the Code. Within three months after the amendment becomes
effective, all Access Persons shall certify that they have received a copy of
the amendment, that they have had an opportunity to ask questions, and that they
understand the Amendment and agree to comply with the amendment.
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G. OTHER DUTIES OF AND RESTRICTIONS ON ACCESS PERSONS.
1. INITIAL PUBLIC OFFERINGS AND LIMITED OFFERINGS. Investment Personnel
must obtain approval from Appropriate Compliance Personnel before
directly or indirectly acquiring Beneficial Ownership of any security
made available in an Initial Public Offering or in a Limited Offering.
2. GRATUITIES. No Access Person shall receive any gift or gratuity, other
than one of de minimis value, from any person who does business with
or on behalf of the Trust.
3. SERVICE AS A DIRECTOR OR TRUSTEE. No Access Person shall serve on the
board of a publicly traded company without prior authorization. Any
such authorization shall be supported by a determination that such
service is consistent with the interests of the Trust and the Trust's
shareholders.
4. CONFIDENTIALITY. No Access Person shall reveal to any other person
(except in the normal course of his duties on behalf of the Trust, the
Adviser or the Distributor) any information regarding securities
transactions made or being considered by or on behalf of the Trust.
H. REPORTS TO THE BOARD
1. No less frequently than annually, Appropriate Compliance Personnel
shall furnish to the Board, and the Board shall consider, a written
report that:
a. Describes any issues arising under this Code since the last
report to the Board, including, but not limited to, information
about material violations of this Code and the sanctions, if any,
imposed in response to the material violations; and
b. Certifies that the Trust, the Adviser and the Distributor have
adopted procedures reasonably necessary to prevent Access Persons
from violating the Code.
2. In considering the written report, the Board shall determine whether
any action is required in response to the report.
3. To the extent that immaterial violations of this Code (such as late
filings of required reports) may collectively indicate material
problems with the implementation and enforcement of this Code, the
written report shall describe any violations that are material in the
aggregate.
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I. SANCTIONS.
The Appropriate Compliance Personnel of the Trust shall furnish to the
Audit Committee of the Board reports regarding the administration hereof and
summarizing any forms or reports filed hereunder. If any such report indicates
that any changes hereto are advisable, the Audit Committee shall make an
appropriate recommendation to the Board. The Audit Committee also shall inquire
into any apparent violations of this Code and shall report any apparent material
violations to the Board. Upon finding of a material violation of this Code,
including the filing of false, incomplete, or untimely required reports, or the
failure to obtain prior clearance of personal securities transactions, the Board
may impose such sanctions as it deems appropriate, which may include censure,
suspension, or termination of the employment of the violator. No Trustee shall
participate in a determination of whether he has committed a violation of this
Code or of the imposition of any sanction against himself.
Similarly, it shall be the responsibility of the Adviser's and
Distributor's Appropriate Compliance Personnel to receive and maintain all
reports submitted by Access Persons and to use reasonable diligence and
institute procedures reasonably necessary to monitor the adequacy of such
reports and to otherwise prevent or detect violations of this Code. Upon
discovering a material violation of this Code involving any Access Person, such
as those noted in the prior paragraph, it shall be the responsibility of the
Adviser's and Distributor's Appropriate Compliance Personnel to report such
violation to the management of the Adviser and Distributor, respectively. The
Adviser's or the Distributor's management (as appropriate) may impose such
sanctions against the Access Person determined to have violated this Code as it
deems appropriate, including inter alia, a letter of censure or suspension or
termination of the employment, officership, or other position of the violator
with the Advisor or Distributor. No officer, director or manager of the Adviser
or Distributor shall participate in a determination of whether he has committed
a violation of this Code or of the imposition of any sanction against himself.
J. MATERIAL CHANGES TO THE CODE.
1. The Board, including a majority of the Disinterested Trustees, shall
approve any material change made to this Code no later than the next
regularly scheduled Board meeting after adoption of the material
change.
2. The Board shall base its approval of any material change to the Code
on a determination that the Code contains provisions reasonably
necessary to prevent Access Persons from engaging in any conduct
described in Section A of this Code.
3. An amendment to Schedule A to this Code shall not be a material change
for purposes of this Section J.
K. RECORD RETENTION.
The Adviser shall maintain records for the Trust, the Adviser and the
Distributor to the extent set forth below, which records may be maintained on
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microfilm under the conditions described in Rule 31a-2(f)(1) under the 1940 Act,
and shall be made available for examination by representatives of the Securities
and Exchange Commission:
1. RETENTION OF CODE. A copy of this Code and any Code that was in effect
at any time within the past five years shall be preserved in an easily
accessible place.
2. RECORD OF VIOLATIONS. A record of any violation of this Code and of
any action taken as a result of such violation shall be preserved in
an easily accessible place for a period of not less than five years
following the end of the fiscal year in which the violation occurs.
3. COPY OF FORMS AND REPORTS. A copy of each Initial Holdings Report,
Quarterly Transaction Report and Annual Holdings report prepared and
submitted by an Access Person pursuant to this Code must be preserved
for a period of not less than five years from the end of the fiscal
year in which such report is made, the first two years in an easily
accessible place.
4. LIST OF ACCESS PERSONS. A list of all persons who are, or within the
past five years of business have been, required to file Initial
Holdings Reports, Quarterly Transaction Reports and Annual Holding
Reports pursuant to this Code and a list of those persons who are or
were responsible for reviewing such Reports shall be maintained in an
easily accessible place.
5. WRITTEN REPORTS TO THE BOARD. A copy of each written report furnished
to the Board under Section H. of this Code shall be maintained for at
least five years after the end of the Trust's fiscal year in which it
is made, the first two years in an easily accessible place.
6. RECORDS RELATING TO DECISIONS INVOLVING INITIAL PUBLIC OFFERINGS AND
LIMITED OFFERINGS. The Adviser shall maintain a record of any
decision, and the reasons supporting the decision, to approve the
acquisition by Investment Personnel of securities made available in an
Initial Public Offering or Limited Offering for at least five years
after the end of the Trust's fiscal year in which the approval is
granted.
7. SITES OF RECORDS TO BE KEPT. All such records and/or documents
required to be maintained pursuant to this Code and/or Rule 17j-1
under the 1940 Act shall be kept at the offices of the Trust at 3100
Sanders Road, Northbrook, Illinois 60062.
L. CONFIDENTIAL TREATMENT.
All reports and other records required to be filed or maintained under this
Code shall be treated as confidential.
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M. INTERPRETATION OF PROVISIONS.
The Board and management of the Adviser and the Distributor may, from time
to time, adopt such interpretations of this Code as such Board and management
deem appropriate, provided that the Board approves any material changes to this
Code in accordance with Section J.
N. AMENDMENTS TO THE CODE.
Any amendment to the Code shall be effective thirty (30) calendar days
after written notice of such amendment shall have been received by the President
of the Trust, the Adviser and the Distributor, unless the Board or management of
the Adviser or the Distributor (as appropriate) expressly determines that such
amendment shall become effective on an earlier date or shall not be adopted. Any
material change to this Code shall be approved by the Board in accordance with
Section J.
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SCHEDULE A
APPROPRIATE COMPLIANCE PERSONNEL
As of ___________, 1999, the following persons shall be Appropriate Compliance
Personnel for each of the Trust, the Adviser and the Distributor:
Trust Adviser Distributor
----- ------- -----------
Appropriate
Compliance
Personnel XXXXX XXXXX XXXXX
Date
Responsibilities
Were Assumed 10/01/99 10/01/99 10/01/99
* * * * * *
I have read the above Code and understand it. I agree to comply fully with
all of the above provisions.
Date: Signed:
------------------- ---------------------------
14
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "CLOSED-END FUNDS")
AND
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
(THE "OPEN-END FUNDS", AND TOGETHER WITH THE CLOSED-END FUNDS, THE "FUNDS")
AND
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
("MSDW INVESTMENT MANAGEMENT")
AND
MILLER ANDERSON & SHERRERD, LLP
("MAS", AND TOGETHER WITH MSDW INVESTMENT MANAGEMENT, THE "INVESTMENT MANAGERS")
AND
MORGAN STANLEY & CO. INCORPORATED
("MS&Co.")
CODE OF ETHICS
1. PURPOSES
This Code of Ethics has been adopted by the Funds, the Investment Managers
and MS&Co., the principal underwriter of the Open-End Funds, in accordance with
Rule 17j-1 under the Investment Company Act of 1940, as amended (the "Act").
Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to purchases or sales of securities held or to be
acquired by investment companies, if effected by affiliated persons (as defined
under the Act) of such companies. Specifically, Rule 17j-1 provides that it is
unlawful for any affiliated person of or principal underwriter for a registered
investment company, or any affiliated person of an investment adviser of or
principal underwriter for a registered investment company, in connection with
the purchase or sale, directly or indirectly, by such person of a security held
or to be acquired by such registered investment company:
(a) To employ any device, scheme or artifice to defraud such registered
investment company;
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(b) To make to such registered investment company any untrue statement of
a material fact or omit to state to such registered investment company
a material fact necessary in order to make the statements made, in
light of the circumstances under which they are made, not misleading;
(c) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any such registered
investment company; or
(d) To engage in any manipulative practice with respect to such registered
investment company.
While Rule 17j-1 is designed to protect only the interests of the Funds and
their stockholders, the Investment Managers apply the policies and procedures
described in this Code of Ethics to all employees of the Investment Managers to
protect the interests of their non-Fund clients as well (hereinafter, where
appropriate, non-Fund clients of the Investment Managers are referred to as
"Advisory Clients" and any reference to an Advisory Client(s) relates only to
the activities of employees of the Investment Managers).
The purpose of this Code of Ethics is to (i) ensure that Access Persons
conduct their personal securities transactions in a manner which does not (a)
create an actual or potential conflict of interest with the Funds' or an
Advisory Client's portfolio transactions, (b) place their personal interests
before the interest of the Funds and their stockholders or an Advisory Client or
(c) take unfair advantage of their relationship to the Funds or an Advisory
Client and (ii) provide policies and procedures consistent with the Act and Rule
17j-1 designed to give effect to the general prohibitions set forth in Rule
17j-l.
Among other things, the procedures set forth in this Code of Ethics require
that all (i) Access Persons review this Code of Ethics at least annually, (ii)
Access Persons, unless excepted by Sections 8. (d) or (e) of this Code of
Ethics, report transactions in Covered Securities, (iii) Access Persons refrain
from engaging in certain transactions, and (iv) employees of the Investment
Managers pre-clear with the Compliance Department or the trading desk at MAS any
transactions in Covered Securities.
2. DEFINITIONS
(a) "Access Person" means (i) any director, officer or Advisory Person of
the Funds or of the Investment Managers, and (ii) any director or
officer of MS&Co., who, in the ordinary course of business, makes,
participates in or obtains information regarding the purchase or sale
of Covered Securities by the Funds.
(b) "Advisory Person" means any employee of the Funds, or of the
Investment Managers (or of any company in a control relationship to
the Funds or the Investment Managers), who, in connection with his or
her regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of Covered Securities by
the Funds or an Advisory Client, or whose functions relate to the
making of any recommendations with respect to such purchases or sales.
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(c) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, except that the determination of
direct or indirect beneficial ownership shall apply to all securities
which an Access Person has or acquires.
(d) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act.
(e) "Compliance Department" means the MSDW Investment Management or MAS
Compliance Department.
(f) "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include: (i) shares of registered
open-end investment companies, (ii) direct obligations of the
Government of the United States, and (iii) bankers' acceptances, bank
certificates of deposit, commercial paper, and high quality short-term
debt instruments, including repurchase agreements.
(g) "Disinterested Director" means a director of a Fund who is not an
"interested person" of such Fund within the meaning of Section
2(a)(19) of the Act.
(h) "Purchase or sale (or sell)" with respect to a Covered Security means
any acquisition or disposition of a direct or indirect beneficial
interest in a Covered Security, including, inter alia, the writing or
buying of an option to purchase or sell a Covered Security.
(i) "Security held or to be acquired" means (i) any Covered Security
which, within the most recent 15 days, is or has been held by a Fund
or an Advisory Client, or is being or has been considered by a Fund or
an Advisory Client or the Investment Managers for purchase by a Fund
or an Advisory Client and (ii) any option to purchase or sell, and any
security convertible into or exchangeable for, a Covered Security
described in this paragraph.
3. PROHIBITED TRANSACTIONS
(a) No Access Person or employee of the Investment Managers shall purchase
or sell any Covered Security which to his or her actual knowledge at
the time of such purchase or sale:
(i) is being considered for purchase or sale by a Fund or an Advisory
Client; or
(ii) is being purchased or sold by a Fund or an Advisory Client.
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(b) No employee of the Investment Managers shall purchase or sell a
Covered Security while there is a pending "buy" or "sell" order in the
same or a related security for a Fund or an Advisory Client until that
order is executed or withdrawn.
(c) No Advisory Person shall purchase or sell a Covered Security within
seven calendar days before or after any portfolio(s) of the Funds over
which such Advisory Person exercises investment discretion or an
Advisory Client over which the Advisory Person exercises investment
discretion purchases or sells the same or a related Covered Security.
Any profits realized or unrealized by the Advisory Person on a
prohibited purchase or sale within the proscribed period shall be
disgorged to a charity.
(d) No employee of the Investment Managers shall profit from the purchase
and sale or sale and purchase of the same (or equivalent) Covered
Security within 60 calendar days, except that he or she may sell a
Covered Security for a loss after 30 calendar days. Any profits
realized within 60 calendar days on such purchase or sale shall be
disgorged to a charity.
(e) No employee of the Investment Managers shall purchase any securities
in an initial public offering.
(f) No employee of the Investment Managers shall purchase privately-placed
securities unless such purchase is pre-approved by the Compliance
Department. Any such person who has previously purchased
privately-placed securities must disclose such purchases to the
Compliance Department before such person participates in a Fund's or
an Advisory Client's subsequent consideration of an investment in the
securities of the same or a related issuer. Upon such disclosure, the
Compliance Department shall appoint another person with no personal
interest in the issuer, to conduct an independent review of such
Fund's or such Advisory Client's decision to purchase securities of
the same or a related issuer.
(g) No Access Person or employee of the Investment Managers shall
recommend the purchase or sale of any Covered Securities to a Fund or
to an Advisory Client without having disclosed to the Compliance
Department his or her interest, if any, in such Covered Securities or
the issuer thereof, including without limitation (i) his or her direct
or indirect beneficial ownership of any securities of such issuer,
(ii) any contemplated purchase or sale by such person of such
securities, (iii) any position with such issuer or its affiliates, and
(iv) any present or proposed business relationship between such issuer
or its affiliates, on the one hand, and such person or any party in
which such person has a significant interest, on the other; provided,
however, that in the event the interest of such person in such
securities or the issuer thereof is not material to his or her
personal net worth and any contemplated purchase or sale by such
person in such securities cannot reasonably be expected to have a
material adverse effect on any such purchase or sale by a Fund or an
Advisory Client or on the market for the securities generally, such
person shall not be required to disclose his or her interest in the
securities or the issuer thereof in connection with any such
recommendation.
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(h) No Access Person or employee of the Investment Managers shall reveal
to any other person (except in the normal course of his or her duties
on behalf of a Fund or an Advisory Client) any information regarding
the purchase or sale of any Covered Security by a Fund or an Advisory
Client or consideration of the purchase or sale by a Fund or an
Advisory Client of any such Covered Security.
4. PRE-CLEARANCE OF COVERED SECURITIES TRANSACTIONS AND PERMITTED BROKERAGE
ACCOUNTS
No employee of MSDW Investment Management shall purchase or sell Covered
Securities without prior written authorization from its Compliance Department.
No employee of MAS shall purchase or sell Covered Securities without prior
written authorization from the appropriate trading desk. Unless otherwise
indicated by the Compliance Department, pre-clearance of a purchase or sale
shall be valid and in effect only for the business day in which such
pre-clearance is given; provided, however, that the approval of an unexecuted
purchase or sale is deemed to be revoked when the employee becomes aware of
facts or circumstances that would have resulted in the denial of approval of the
approved purchase or sale were such facts or circumstances made known to the
Compliance Department or MAS trading desk, as appropriate, at the time the
proposed purchase or sale was originally presented for approval. The Investment
Managers require all of their employees to maintain their personal brokerage
accounts at MS&Co. or a broker/dealer affiliated with MS&Co. (hereinafter, a
"Morgan Stanley Account"). Outside personal brokerage accounts are permitted
only under very limited circumstances and only with express written approval by
the Compliance Department. The Compliance Department has implemented procedures
reasonably designed to monitor purchases and sales effected pursuant to the
aforementioned pre-clearance procedures.
5. EXEMPTED TRANSACTIONS
(a) The prohibitions of Section 3 and Section 4 of this Code of Ethics
shall not apply to:
(i) Purchases or sales effected in any account over which an Access
Person or an employee of the Investment Managers has no direct or
indirect influence or control;
(ii) Purchases or sales which are non-volitional;
(iii)Purchases which are part of an automatic purchase plan directly
with the issuer or its agent or which are part of an automatic
dividend reinvestment plan; or
(iv) Purchases effected upon the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its securities and
sales of such rights so acquired, but only to the extent such
rights were acquired from such issuer.
(b) Notwithstanding the prohibitions of Sections 3. (a), (b) and (c) of
this Code of Ethics, the Compliance Department or MAS trading desk, as
appropriate, may approve a purchase or sale of a Covered Security by
employees of the Investment Managers which would appear to be in
contravention of the prohibitions in Sections 3. (a), (b) and (c) if
it is determined that (i) the facts and circumstances applicable at
the time of such purchase or sale do not conflict with the interests
of a Fund or an Advisory Client, or (ii) such purchase or sale is only
remotely potentially harmful to a Fund or an Advisory Client because
it would be very unlikely to affect a highly institutional market, or
because it is clearly not related economically to the securities to be
purchased, sold or held by such Fund or Advisory Client, and (iii) the
spirit and intent of this Code of Ethics is met.
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6. RESTRICTIONS ON RECEIVING GIFTS
No employee of the Investment Managers shall receive any gift or other
consideration in merchandise, service or otherwise of more than de minimis value
from any person, firm, corporation, association or other entity that does
business with or on behalf of the Funds or an Advisory Client.
7. SERVICE AS A DIRECTOR
No employee of the Investment Managers shall serve on the board of
directors of a publicly-traded company without prior written authorization from
the Compliance Department. Approval will be based upon a determination that the
board service would not conflict with the interests of the Funds and their
stockholders or an Advisory Client.
8. REPORTING
(a) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person must disclose all personal holdings in Covered
Securities to the Compliance Department for its review no later than
10 days after becoming an Access Person and annually thereafter. The
initial and annual holdings reports must contain the following
information:
(i) The title, number of shares and principal amount of each Covered
Security in which the Access Person has any direct or indirect
beneficial ownership;
(ii) The name of any broker, dealer or bank with or through whom the
Access Person maintained an account in which any securities were
held for the direct or indirect benefit of the Access Person; and
(iii)The date the report was submitted to the Compliance Department
by the Access Person.
(b) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person and each employee of the Investment Managers must report
to the Compliance Department for its review within 10 days of the end
of a calendar quarter the information described below with respect to
transactions in Covered Securities in which such person has, or by
reason of such transactions acquires any direct or indirect beneficial
interest:
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(i) The date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of each Covered Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(iii)The price of the Covered Security at which the purchase or sale
was effected;
(iv) The name of the broker, dealer or bank with or through which the
purchase or sale was effected; and
(v) The date the report was submitted to the Compliance Department by
such person.
(c) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person and each employee of the Investment Managers must report
to the Compliance Department for its review within 10 days of the end
of a calendar quarter the information described below with respect to
any account established by such person in which any securities were
held during the quarter for the direct or indirect benefit of such
person:
(i) The name of the broker, dealer or bank with whom the account was
established;
(ii) The date the account was established; and
(iii)The date the report was submitted to the Compliance Department
by such person.
(d) An Access Person will not be required to make any reports described in
Sections 8. (a), (b) and (c) above for any account over which the
Access Person has no direct or indirect influence or control. An
Access Person or an employee of the Investment Managers will not be
required to make the annual holdings report under Section 8. (a) and
the quarterly transactions report under Section 8. (b) with respect to
purchases or sales effected for, and Covered Securities held in: (i) a
Morgan Stanley Account, (ii) an account in which the Covered
Securities were purchased pursuant to an automatic purchase plan set
up directly with the issuer or its agent or pursuant to a dividend
reinvestment plan, or (iii) an account for which the Compliance
Department receives duplicate trade confirmations and quarterly
statements. An Access Person or an employee of MSDW Investment
Management will not be required to make a report under Section 8. (c)
for any account in which only shares of open-end registered investment
companies can be purchased or sold. Lastly, an employee of MSDW
Investment Management will no be required to make a report under
Section 8. (c) for any account established with MS&Co. or a
broker/dealer affiliated with MS&Co., or for any account which was
pre-approved by the Compliance Department.
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(e) A Disinterested Director of a Fund, who would be required to make a
report solely by reason of being a Fund director, is not required to
make initial and annual holdings reports. Additionally, such
Disinterested Director need only make a quarterly transactions report
for a purchase or sale of Covered Securities if he or she, at the time
of that transaction, knew or, in the ordinary course of fulfilling his
or her official duties as a Disinterested Director of a Fund, should
have known that, during the 15-day period immediately preceding or
following the date of the Covered Securities transaction by him or
her, such Covered Security is or was purchased or sold by a Fund or
was being considered for purchase or sale by a Fund.
(f) The reports described in Sections 8. (a), (b) and (c) above may
contain a statement that the reports shall not be construed as an
admission by the person making such reports that he or she has any
direct or indirect beneficial ownership in the Covered Securities to
which the reports relate.
9. ANNUAL CERTIFICATIONS
All Access Persons and employees of the Investment Managers must certify
annually that they have read, understood and complied with the requirements of
this Code of Ethics and recognize that they are subject to this Code of Ethics
by signing the certification attached hereto as Exhibit A.
10. BOARD REVIEW
The management of the Funds and representatives or officers of the
Investment Managers and, with respect to the Open-End Funds, MS&Co., shall each
provide each Fund's Board of Directors, at least annually, with the following:
(a) a summary of existing procedures concerning personal investing and any
changes in the procedures made during the past year;
(b) a description of any issues arising under this Code of Ethics or
procedures since the last such report, including, but not limited to,
information about material violations of this Code of Ethics or
procedures and sanctions imposed in response to material violations;
(c) any recommended changes in the existing restrictions or procedures
based upon a Fund's or the Investment Managers' experience under this
Code of Ethics, evolving industry practices or developments in
applicable laws and regulations; and
(d) a certification (attached hereto as Exhibits B, C, D, and E, as
appropriate) that each has adopted procedures reasonably necessary to
prevent its Access Persons from violating this Code of Ethics.
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11. SANCTIONS
Upon discovering a violation of this Code of Ethics, the Board of Directors
of such Fund or of the Investment Managers, as the case may be, may impose such
sanctions as it deems appropriate.
12. RECORDKEEPING REQUIREMENTS
The management of the Funds and representatives or officers of the
Investment Managers and, with respect to the Open-End Funds, MS&Co., each shall
maintain, as appropriate, the following records for a period of five years, the
first two years in an easily accessible place, and shall make these records
available to the Securities and Exchange Commission or any representative of
such during an examination of the Funds or of the Investment Managers:
(a) a copy of this Code of Ethics or any other Code of Ethics which was in
effect at any time within the previous five years;
(b) a record of any violation of this Code of Ethics during the previous
five years, and of any action taken as a result of the violation;
(c) a copy of each report required by Section 8. of this Code of Ethics,
including any information provided in lieu of each such report;
(d) a record of all persons, currently or within the past five years, who
are or were subject to this Code of Ethics and who are or were
required to make reports under Section 8. of this Code of Ethics;
(e) a record of all persons, currently or within the past five years, who
are or were responsible for reviewing the reports required under
Section 8. of this Code of Ethics; and
(f) a record of any decision, and the reasons supporting the decision, to
approve the acquisition of securities described in Sections 3. (e) and
(f) of this Code of Ethics.
9
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EXHIBIT A
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "CLOSED-END FUNDS")
AND
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
(THE "OPEN-END FUNDS", AND TOGETHER WITH THE CLOSED-END FUNDS, THE "FUNDS")
AND
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
("MSDW INVESTMENT MANAGEMENT")
AND
MILLER ANDERSON & SHERRERD, LLP
("MAS", AND TOGETHER WITH MSDW INVESTMENT MANAGEMENT, THE "INVESTMENT MANAGERS")
AND
MORGAN STANLEY & CO., INCORPORATED
("MS&Co.")
CODE OF ETHICS
ANNUAL CERTIFICATION
I hereby certify that I have read and understand the Code of Ethics (the
"Code") which has been adopted by the Funds, the Investment Managers and MS&Co.
and recognize that it applies to me and agree to comply in all respects with the
policies and procedures described therein. Furthermore, I hereby certify that I
have complied with the requirements of the Code in effect, as amended, for the
year ended December 31, ____, and that all of my reportable transactions in
Covered Securities were executed and reflected accurately in a Morgan Stanley
Account (as defined in the Code) or that I have attached a report that satisfies
the annual holdings disclosure requirement as described in Section 8. (a) of the
Code.
Date: Name:
-------------------- ------------------------
Signature:
-------------------------------------
10
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EXHIBIT B
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "FUNDS")
ANNUAL CERTIFICATION UNDER RULE 17j-1
OF THE INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") and pursuant to the Code of Ethics for the Funds, Morgan
Stanley Dean Witter Investment Management, Inc., Miller, Anderson &Sherrerd, LLP
and Morgan Stanley & Co., Incorporated (the "Code of Ethics"), each of the Funds
hereby certifies to such Fund's Board of Directors that such Fund has adopted
procedures reasonably necessary to prevent Access Persons (as defined in the
Code of Ethics) from violating the Code of Ethics.
Date: By:
------------------------- ---------------------
Name: Mary E. Mullin
Title: Secretary
11
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EXHIBIT C
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT, INC.
("MSDW INVESTMENT MANAGEMENT")
ANNUAL CERTIFICATION UNDER RULE 17j-1
OF THE INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") and pursuant to the Code of Ethics for MSDW Investment
Management, the Funds (as defined in the Code of Ethics) and Morgan Stanley &
Co., Incorporated (the "Code of Ethics"), MSDW Investment Management hereby
certifies to the Board of Directors of the Funds that MSDW Investment Management
has adopted procedures reasonably necessary to prevent Access Persons (as
defined in the Code of Ethics) from violating the Code of Ethics.
Date: By:
------------------- -----------------------------
Name: Harold J. Schaaff, Jr.
Title: General Counsel
12
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EXHIBIT D
MILLER, ANDERSON & SHERRERD, LLP ("MAS")
ANNUAL CERTIFICATION UNDER RULE 17j-1
OF THE INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") and pursuant to the Code of Ethics for MAS, the Funds (as
defined in the Code of Ethics) and Morgan Stanley & Co., Incorporated (the "Code
of Ethics"), MAS hereby certifies to the Board of Directors of the Funds that
MAS has adopted procedures reasonably necessary to prevent Access Persons (as
defined in the Code of Ethics) from violating the Code of Ethics.
Date: By:
------------------ ----------------------------
Name: Paul A. Frick
Title: Compliance Officer
13
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EXHIBIT E
MORGAN STANLEY & CO. INCORPORATED
("MS&Co.")
ANNUAL CERTIFICATION UNDER RULE 17j-1
OF THE INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "1940 Act") and pursuant to the Code of Ethics for MS&Co., the Open-End
Funds (as defined in the Code of Ethics), Morgan Stanley Dean Witter Investment
Management Inc., and Miller, Anderson & Sherrerd, LLP (the "Code of Ethics"),
MS&Co. hereby certifies to the Board of Directors of the Open-End Funds that
MS&Co. has adopted procedures reasonably necessary to prevent Access Persons (as
defined in the Code of Ethics) from violating the Code of Ethics.
Date: By:
----------------- --------------------------
Name: Harold J. Schaaff, Jr.
Title: Managing Director
14
GOLDMAN SACHS ASSET MANAGEMENT
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
CODE OF ETHICS
Effective January 23, 1991
(as revised April 1, 2000)
I. DEFINITIONS
A. "Access Person" with respect to Goldman Sachs Asset Management
("GSAM") means (because GSAM is a unit within the Investment
Management Division, a separate operating division, of Goldman, Sachs
& Co., and Goldman, Sach & Co. is primarily engaged in a business
other than advising registered investment companies or other advisory
clients) only those officers, general partners or Advisory Persons (as
defined below) of GSAM who, with respect to any Investment Company (as
defined below), make recommendations or participate in the
determination of which recommendation shall be made to any Investment
Company, or whose principal function or duties relate to the
determination of which recommendation shall be made to any Investment
Company, or who, in connection with their duties, obtain any
information concerning such recommendations on Covered Securities (as
defined below) which are being made to the Investment Company. "Access
Person" with respect to Goldman Sachs Asset Management International
("GSAMI") and Goldman Sachs Funds Management, L.P. ("GSFM") means any
director, officer, general partner or Advisory Person of GSAMI or
GSFM, as the case may be.
B. "Adviser" means each of GSAM, GSAMI and GSFM.
C. "Advisory Person" means (i) any officer or employee of the Adviser or
any company in a control relationship to the Adviser who, in
connection with his or her regular functions or duties, makes,
participates in or obtains information regarding the purchase or sale
of a Covered Security by an Investment Company, or whose functions
relate to the making of any recommendations with respect to such
purchases or sales; and (ii) any natural person in a control
relationship to the Adviser who obtains information concerning the
recommendations made to an Investment Company with regard to the
purchase or sale of a Covered Security.
D. "Beneficial ownership" of a security shall be interpreted in the same
manner as it would be under Rule 16a-1 (a) (2) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), in determining
whether a person is the beneficial owner of a security for purposes of
Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
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E. "Board of Trustees" means the board of trustees or directors,
including a majority of the disinterested trustees/directors, of any
Investment Company for which an Adviser serves as an investment
adviser, sub-adviser or principal underwriter.
F. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"). Section 2(a)(9) generally provides that
"control" means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely the
result of an official position with such company.
G. "Covered Security" means a security as defined in Section 2(a) (36) of
the Investment Company Act, except that it does not include: (i)
direct obligations of the Government of the United States; (ii)
banker's acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments (any instrument having a
maturity at issuance of less than 366 days and that is in one of the
two highest rating categories of a nationally recognized statistical
rating organization), including repurchase agreements; and (iii)
shares of registered open-end investment companies.
H. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Sections 13 or 15(d) of the Exchange Act.
I. "Investment Company" means a company registered as such under the
Investment Company Act, or any series thereof, for which the Adviser
is the investment adviser, sub-adviser or principal underwriter.
J. "Investment Personnel" of the Adviser means (i) any employee of the
Adviser (or of any company in a control relationship to the Adviser)
who, in connection with his or her regular functions or duties, makes
or participates in making recommendations regarding the purchase or
sale of securities by an Investment Company or (ii) any natural person
who controls the Adviser and who obtains information concerning
recommendations made to an Investment Company regarding the purchase
or sale of securities by an Investment Company.
K. A "Limited Offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or Section 4(6) or pursuant to Rule 504, Rule 505 or Rule 506 under
the Securities Act of 1933.
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L. "Purchase or sale of Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security or any
security that is exchangeable for or convertible into another
security.
M. "Review Officer" means the officer of the Adviser designated from time
to time by the Adviser to receive and review reports of purchases and
sales by Access Persons. The term "Alternative Review Officer" shall
mean the officer of the Adviser designated from time to time by the
Adviser to receive and review reports of purchases and sales by the
Review Officer, and who shall act in all respects in the manner
prescribed herein for the Review Officer. It is recognized that a
different Review Officer and Alternative Review Officer may be
designated with respect to each Adviser.
N. A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation. With respect to an analyst of the Adviser, the
foregoing period shall commence on the day that he or she decides to
recommend the purchase or sale of the security to the Adviser for an
Investment Company.
O. A security is "held or to be acquired" if within the most recent 15
days it (1) is or has been held by the Investment Company, or (2) is
being or has been considered by the Adviser for purchase by the
Investment Company.
II. LEGAL REQUIREMENTS
Section 17(j) of the Investment Company Act provides, among other things,
that it is unlawful for any affiliated person of the Adviser to engage in any
act, practice or course of business in connection with the purchase or sale,
directly or indirectly, by such affiliated person of any security held or to be
acquired by an Investment Company in contravention of such rules and regulations
as the Securities and Exchange Commission (the "Commission") may adopt to define
and prescribe means reasonably necessary to prevent such acts, practices or
courses of business as are fraudulent, deceptive or manipulative. Pursuant to
Section 17(j), the Commission has adopted Rule 17j-1 which provides, among other
things, that it is unlawful for any affiliated person of the Adviser in
connection with the purchase or sale, directly or indirectly, by such person of
a Covered Security held or to be acquired by an Investment Company:
(1) To employ any device, scheme or artifice to defraud such
Investment Company;
(2) To make any untrue statement of a material fact to such
Investment Company or omit to state a material fact necessary in
order to make the statements made to such Investment Company, in
light of the circumstances under which they are made, not
misleading;
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(3) To engage in any act, practice, or course of business that
operates or would operate as a fraud or deceit upon any such
Investment Company; or
(4) To engage in any manipulative practice with respect to such
Investment Company.
III. STATEMENT OF POLICY
It is the policy of the Adviser that no Access Person shall engage in any
act, practice or course of conduct that would violate the provisions of Rule
17j-1. The fundamental position of the Adviser is, and has been, that each
Access Person shall place at all times the interests of each Investment Company
and its shareholders first in conducting personal securities transactions.
Accordingly, private securities transactions by Access Persons of the Adviser
must be conducted in a manner consistent with this Code and so as to avoid any
actual or potential conflict of interest or any abuse of an Access Person's
position of trust and responsibility. Further, Access Persons should not take
inappropriate advantage of their positions with, or relationship to, any
Investment Company, the Adviser or any affiliated company.
Without limiting in any manner the fiduciary duty owed by Access Persons to
the Investment Companies or the provisions of this Code, it should be noted that
the Adviser and the Investment Companies consider it proper that purchases and
sales be made by Access Persons in the marketplace of securities owned by the
Investment Companies; provided, however, that such securities transactions
comply with the spirit of, and the specific restrictions and limitations set
forth in, this Code. Such personal securities transactions should also be made
in amounts consistent with the normal investment practice of the person involved
and with an investment, rather than a trading, outlook. Not only does this
policy encourage investment freedom and result in investment experience, but it
also fosters a continuing personal interest in such investments by those
responsible for the continuous supervision of the Investment Companies'
portfolios. It is also evidence of confidence in the investments made. In making
personal investment decisions with respect to any security, however, extreme
care must be exercised by Access Persons to ensure that the prohibitions of this
Code are not violated. Further, personal investing by an Access Person should be
conducted in such a manner so as to eliminate the possibility that the Access
Person's time and attention is being devoted to his or her personal investments
at the expense of time and attention that should be devoted to management of an
Investment Company's portfolio. It bears emphasis that technical compliance with
the procedures, prohibitions and limitations of this Code will not automatically
insulate from scrutiny personal securities transactions which show a pattern of
abuse by an Access Person of his or her fiduciary duty to any Investment
Company.
IV. EXEMPTED TRANSACTIONS
The Statement of Policy set forth above shall be deemed not to be violated
by and the prohibitions of Section V of this Code shall not apply to:
A. Purchases or sales of securities effected for, or held in, any account
over which the Access Person has no direct or indirect influence or
control;
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B. Purchases or sales of securities which are not eligible for purchase
or sale by an Investment Company;
C. Purchases or sales of securities which are non-volitional on the part
of either the Access Person or an Investment Company;
D. Purchases or sales of securities which are part of an automatic
dividend reinvestment, cash purchase or withdrawal plan provided that
no adjustment is made by the Access Person to the rate at which
securities are purchased or sold, as the case may be, under such a
plan during any period in which the security is being considered for
purchase or sale by an Investment Company;
E. Purchases of securities effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its securities, to the
extent such rights were acquired from such issuer, and sales of such
rights so acquired;
F. Tenders of securities pursuant to tender offers which are expressly
conditioned on the tender offer's acquisition of all of the securities
of the same class;
G. Purchases or sales of publicly-traded shares of companies that have a
market capitalization in excess of $10 billion; and
H. Other purchases or sales which, due to factors determined by the
Adviser, only remotely potentially impact the interests of an
Investment Company because the securities transaction involves a small
number of shares of an issuer with a large market capitalization and
high average daily trading volume or would otherwise be very unlikely
to affect a highly institutional market.
V. PROHIBITED PURCHASES AND SALES
A. While the scope of actions which may violate the Statement of Policy
set forth above cannot be exactly defined, such actions would always
include at least the following prohibited activities:
(1) No Access Person shall purchase or sell, directly or indirectly,
any Covered Security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership
and which to his or her actual knowledge at the time of such
purchase or sale the Covered Security:
(i) is being considered for purchase or sale by an Investment
Company; or
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(ii) is being purchased or sold by an Investment Company.
(2) No Access Person shall reveal to any other person (except in the
normal course of his or her duties on behalf of an Investment
Company) any information regarding securities transactions by an
Investment Company or consideration by an Investment Company or
the Adviser of any such securities transaction.
(3) No Access Person shall engage in, or permit anyone within his or
her control to engage in, any act, practice or course of conduct
which would operate as a fraud or deceit upon, or constitute a
manipulative practice with respect to, an Investment Company or
an issuer of a any security owned by an Investment Company.
(4) No Access Person shall enter an order for the purchase or sale of
a Covered Security which an Investment Company is purchasing or
selling or considering for purchase or sale until the later of
(1) the day after the Investment Company's transaction in that
Covered Security is completed or (2) after the Investment Company
is no longer considering the security for purchase or sale,
unless the Review Officer determines that it is clear that, in
view of the nature of the Covered Security and the market for
such Covered Security, the order of the Access Person will not
adversely affect the price paid or received by the Investment
Company. Any securities transactions by an Access Person in
violation of this Subsection D must be unwound, if possible, and
the profits, if any, will be subject to disgorgement based on the
assessment of the appropriate remedy as determined by the
Adviser.
(5) No Access Person shall, in the absence of prior approval by the
Review Officer, sell any Covered Security that was purchased, or
purchase a Covered Security that was sold, within the prior 30
calendar days (measured on a last-in first-out basis).
B. In addition to the foregoing, the following provision will apply to
Investment Personnel of the Adviser:
(1) Investment Personnel must, as a regulatory requirement and as a
requirement of this Code, obtain prior approval before directly
or indirectly acquiring beneficial ownership in any securities in
an Initial Public Offering or in a Limited Offering. In addition,
Investment Personnel must comply with any additional restrictions
or prohibitions that may be adopted by the Adviser from time to
time.
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(2) No Investment Personnel shall accept any gift or personal benefit
valued in excess of such DE MINIMIS amount established by the
Adviser from time to time in its discretion (currently this
amount is $100 annually) from any single person or entity that
does business with or on behalf of an Investment Company. Gifts
of a DE MINIMIS value (currently these gifts are limited to gifts
whose reasonable value is no more than $100 annually from any
single person or entity), and customary business lunches, dinners
and entertainment at which both the Investment Personnel and the
giver are present, and promotional items of DE MINIMIS value may
be accepted. Any solicitation of gifts or gratuities is
unprofessional and is strictly prohibited.
(3) No Investment Personnel shall serve on the board of directors of
any publicly traded company, absent prior written authorization
and determination by the Review Officer that the board service
would be consistent with the interests of the Investment
Companies and their shareholders. Such interested Investment
Personnel may not participate in the decision for any Investment
Company to purchase and sell securities of such company.
VI. BROKERAGE ACCOUNTS
Access Persons are required to direct their brokers to supply for the
Review Officer on a timely basis duplicate copies of confirmations of all
securities transactions in which the Access Person has a beneficial ownership
interest and related periodic statements, whether or not one of the exemptions
listed in Section IV applies. If an Access Person is unable to arrange for
duplicate copies of confirmations and periodic account statements to be sent to
the Review Officer, he or she must immediately notify the Review Officer.
VII. PRECLEARANCE PROCEDURE
With such exceptions and conditions as the Adviser deems to be appropriate
from time to time and consistent with the purposes of this Code (for example,
exceptions based on an issuer's market capitalization, the amount of public
trading activity in a security, the size of a particular transaction or other
factors), prior to effecting any securities transactions in which an Access
Person has a beneficial ownership interest, the Access Person must receive
approval by the Adviser. Any approval is valid only for such number of day(s) as
may be determined from time to time by the Adviser. If an Access Person is
unable to effect the securities transaction during such period, he or she must
re-obtain approval prior to effecting the securities transaction.
The Adviser will decide whether to approve a personal securities
transaction for an Access Person after considering the specific restrictions and
limitations set forth in, and the spirit of, this Code of Ethics, including
whether the security at issue is being considered for purchase or sale for an
Investment Company. The Adviser is not required to give any explanation for
refusing to approve a securities transaction.
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VIII. REPORTING
A. Every Access Person shall report to the Review Officer the information
(1) described in Section VIII-C of this Code with respect to
transactions in any Covered Security in which such Access Person has,
or by reason of such transaction acquires or disposes of, any direct
or indirect beneficial ownership in the Covered Security or (2)
described in Sections VIII-D or VIII-E of this Code with respect to
securities holdings beneficially owned by the Access Person.
B. Notwithstanding Section VIII-A of this Code, an Access Person need not
make a report where the report would duplicate information recorded
pursuant to Rules 204-2(a)(12) or 204-2(a)(13) under the Investment
Advisers Act of 1940 or if the report would duplicate information
contained in broker trade confirmations or account statements received
by the Review Officer and all of the information required by Section
VIII-C, D or E is contained in such confirmations or account
statements. The quarterly transaction reports required under Section
VIII-A(1) shall be deemed made with respect to (1) any account where
the Access Person has made provisions for transmittal of all daily
trading information regarding the account to be delivered to the
designated Review Officer for his or her review or (2) any account
maintained with the Adviser or an affiliate. With respect to
Investment Companies for which the Adviser does not act as investment
adviser or sub-adviser, reports required to be furnished by officers
and trustees of such Investment Companies who are Access Persons of
the Adviser must be made under Section VIII-C of this Code and
furnished to the designated review officer of the relevant investment
adviser.
C. QUARTERLY TRANSACTION REPORTS. Unless quarterly transaction reports
are deemed to have been made under Section VIII-B of this Code, every
quarterly transaction report shall be made not later than 10 days
after the end of the calendar quarter in which the transaction to
which the report relates was effected, and shall contain the following
information:
(1) The date of the transaction, the title, the interest rate and
maturity date (if applicable), class and the number of shares,
and the principal amount of each Covered Security involved;
(2) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(3) The price of the Covered Security at which the transaction was
effected;
(4) The name of the broker, dealer or bank with or through whom the
transaction was effected;
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(5) The date that the report was submitted by the Access Person; and
(6) With respect to any account established by an Access Person in
which any securities were held during the quarter for the direct
or indirect benefit of the Access Person:
(1) The name of the broker, dealer or bank with whom the Access
Person established the account;
(2) The date the account was established; and
(3) The date that the report was submitted by the Access Person.
D. INITIAL HOLDINGS REPORTS. No later than 10 days after becoming an
Access Person, each Access Person must submit a report containing the
following information:
(1) The title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership when the person became an Access Person;
(2) The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held
for the direct or indirect benefit of the Access Person as of the
date the person became an Access Person; and
(3) The date that the report is submitted by the Access Person.
E. ANNUAL HOLDINGS REPORTS. Between January 1st and January 30th of each
calendar year, every Access Person shall submit the following
information (which information must be current as of a date no more
than 30 days before the report is submitted):
(1) The title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership;
(2) The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any Covered Securities are
held for the direct or indirect benefit of the Access Person; and
(3) The date that the report is submitted by the Access Person.
F. If no transactions in any securities required to be reported under
Section VIII-A(1) were effected during a quarterly period by an Access
Person, such Access Person shall report to the Review Officer not
later than 10 days after the end of such quarterly period stating that
no reportable securities transactions were effected.
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G. These reporting requirements shall apply whether or not one of the
exemptions listed in Section IV applies except that an Access Person
shall not be required to make a report with respect to securities
transactions effected for, and any Covered Securities held in, any
account over which such Access Person does not have any direct or
indirect influence or control.
H. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that (1) he
or she has or had any direct or indirect beneficial ownership in the
Covered Security to which the report relates (a "Subject Security") or
(2) he or she knew or should have known that the Subject Security was
being purchased or sold, or considered for purchase or sale, by an
Investment Company on the same day.
IX. APPROVAL OF CODE OF ETHICS AND AMENDMENTS TO THE CODE OF
ETHICS
The Board of Trustees of each Investment Company shall approve this Code of
Ethics. Any material amendments to this Code of Ethics must be approved by the
Board of Trustees of each Investment Company no later than six months after the
adoption of the material change. Before their approval of this Code of Ethics
and any material amendments hereto, the Adviser shall provide a certification to
the Board of Trustees of each such Investment Company that the Adviser has
adopted procedures reasonably necessary to prevent Access Persons from violating
the Code of Ethics.
X. ANNUAL CERTIFICATION OF COMPLIANCE
Each Access Person shall certify to the Review Officer annually on the form
annexed hereto as Form A that he or she (A) has read and understands this Code
of Ethics and any procedures that are adopted by the Adviser relating to this
Code, and recognizes that he or she is subject thereto; (B) has complied with
the requirements of this Code of Ethics and such procedures; (C) has disclosed
or reported all personal securities transactions and beneficial holdings in
Covered Securities required to be disclosed or reported pursuant to the
requirements of this Code of Ethics and any related procedures.
XI. CONFIDENTIALITY
All reports of securities transactions, holding reports and any other
information filed with the Adviser pursuant to this Code shall be treated as
confidential, except that reports of securities transactions and holdings
reports hereunder will be made available to the Investment Companies and to the
Commission or any other regulatory or self-regulatory organization to the extent
required by law or regulation or to the extent the Adviser considers necessary
or advisable in cooperating with an investigation or inquiry by the Commission
or any other regulatory or self-regulatory organization.
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XII. REVIEW OF REPORTS
A. The Review Officer shall be responsible for the review of the
quarterly transaction reports required under VIII-C and VIII-F, and
the initial and annual holdings reports required under Sections VIII-D
and VIII-E, respectively, of this Code of Ethics. In connection with
the review of these reports, the Review Officer or the Alternative
Review Officer shall take appropriate measures to determine whether
each reporting person has complied with the provisions of this Code of
Ethics and any related procedures adopted by the Adviser.
B. On an annual basis, the Review Officer shall prepare for the Board of
Trustees of each Investment Company and the Board of Trustees of each
Investment Company shall consider:
(1) A report on the level of compliance during the previous year by
all Access Persons with this Code and any related procedures
adopted by the Adviser, including without limitation the
percentage of reports timely filed and the number and nature of
all material violations and sanctions imposed in response to
material violations. An Alternative Review Officer shall prepare
reports with respect to compliance by the Review Officer;
(2) A report identifying any recommended changes to existing
restrictions or procedures based upon the Adviser's experience
under this Code, evolving industry practices and developments in
applicable laws or regulations; and
(3) A report certifying to the Board of Trustees that the Adviser has
adopted procedures that are reasonably necessary to prevent
Access Persons from violating this Code of Ethics.
XIII. SANCTIONS
Upon discovering a violation of this Code, the Adviser may impose such
sanction(s) as it deems appropriate, including, among other things, a letter of
censure, suspension or termination of the employment of the violator and/or
restitution to the affected Investment Company of an amount equal to the
advantage that the offending person gained by reason of such violation. In
addition, as part of any sanction, the Adviser may require the Access Person or
other individual involved to reverse the trade(s) at issue and forfeit any
profit or absorb any loss from the trade. It is noted that violations of this
Code may also result in criminal prosecution or civil action. All material
violations of this Code and any sanctions imposed with respect thereto shall be
reported periodically to the Board of Trustees of the Investment Company with
respect to whose securities the violation occurred.
XIV. INTERPRETATION OF PROVISIONS
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The Adviser may from time to time adopt such interpretations of this Code
as it deems appropriate.
XV. IDENTIFICATION OF ACCESS PERSONS AND INVESTMENT PERSONNEL
The Adviser shall identify all persons who are considered to be Access
Persons and Investment Personnel, and shall inform such persons of their
respective duties and provide them with copies of this Code and any related
procedures adopted by the Adviser.
XVI. EXCEPTIONS TO THE CODE
Although exceptions to the Code will rarely, if ever, be granted, a
designated Officer of the Adviser, after consultation with the Review Officer,
may make exceptions on a case by case basis, from any of the provisions of this
Code upon a determination that the conduct at issue involves a negligible
opportunity for abuse or otherwise merits an exception from the Code. All such
exceptions must be received in writing by the person requesting the exception
before becoming effective. The Review Officer shall report any exception to the
Board of Trustees of the Investment Company with respect to which the exception
applies at its next regularly scheduled Board meetings.
XVII. RECORDS
The Adviser shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the conditions
described in Rule 31a-2(f)(1) and Rule 17j-1 under the Investment Company Act
and shall be available for examination by representatives of the Commission.
A. A copy of this Code and any other code which is, or at any time within
the past five years has been, in effect shall be preserved for a
period of not less than five years in an easily accessible place;
B. A record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible
place for a period of not less than five years following the end of
the fiscal year in which the violation occurs;
C. A copy of each initial holdings report, annual holdings report and
quarterly transaction report made by an Access Person pursuant to this
Code (including any brokerage confirmation or account statements
provided in lieu of the reports) shall be preserved for a period of
not less than five years from the end of the fiscal year in which it
is made, the first two years in an easily accessible place;
D. A list of all persons who are, or within the past five years have
been, required to make initial holdings, annual holdings or quarterly
transaction reports pursuant to this Code shall be maintained in an
easily accessible place;
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E. A list of all persons, currently or within the past five years who are
or were responsible for reviewing initial holdings, annual holdings or
quarterly transaction reports shall be maintained in an easily
accessible place;
F. A record of any decision and the reason supporting the decision to
approve the acquisition by Investment Personnel of Initial Public
Offerings and Limited Offerings shall be maintained for at least five
years after the end of the fiscal year in which the approval is
granted; and
G. A copy of each report required by Section XII-B of this Code must be
maintained for at least five years after the end of the fiscal year in
which it was made, the first two years in an easily accessible plan.
XVIII. SUPPLEMENTAL COMPLIANCE AND REVIEW PROCEDURES
The Adviser may establish, in its discretion, supplemented compliance and
review procedures (the "Procedures") that are in addition to those set forth in
this Code in order to provide additional assurance that the purposes of this
Code are fulfilled and/or assist the Adviser in the administration of this Code.
The Procedures may be more, but shall not be less, restrictive than the
provisions of this Code. The Procedures, and any amendments thereto, do not
require the approval of the Board of Trustees of an Investment Company.
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<PAGE>
APRIL 1, 2000
GOLDMAN SACHS ASSET MANAGEMENT
GOLDMAN SACHS FUNDS MANAGEMENT, L.P.
GOLDMAN SACHS ASSET MANAGEMENT INTERNATIONAL
SUPPLEMENTAL COMPLIANCE AND REVIEW PROCEDURES UNDER CODE OF ETHICS
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as
amended, Goldman Sachs Asset Management, Goldman Sachs Funds Management, L.P.,
and Goldman Sachs Asset Management International (each, an "Adviser") have
adopted a Code of Ethics with respect to Investment Companies for which the
Adviser is the investment adviser, sub-adviser or principal underwriter. The
Code of Ethics contemplates that the Adviser may establish, in its discretion,
supplemental compliance and review procedures ("Procedures") that are in
addition to those set forth in the Code of Ethics in order to provide additional
assurance that the purposes of the Code of Ethics are fulfilled and/or assist
the Adviser in the administration of the Code. These Procedures apply to Access
Persons and Investment Personnel of the Adviser as stated below. Terms that are
defined in the Code of Ethics shall have the same meaning in these Procedures.
A. REVIEW PROCEDURES
The Review Officer for each Adviser shall follow the procedures set forth
below in connection with reviewing initial and annual holdings reports and
quarterly transaction reports described in the Adviser's Code of Ethics.
In reviewing the initial and annual holdings reports and the quarterly
transaction reports (including information related to the establishment of any
new accounts during the review period) required to be submitted by Access
Persons under the Adviser's Code, the Review Officer shall compare, or caused to
be compared through an electronic-review process, the reported personal
securities holdings and transactions of each Access Person with completed and
contemplated portfolio transactions and holdings of the Investment Companies for
which an Adviser is the investment adviser or sub-adviser to determine whether
any holdings or transactions that violate the Code may have occurred (a
"Reviewable Holding" or a "Reviewable Transaction"). In the case of reports of
personal securities holdings or transactions of the Review Officer, the
Alternative Review Officer shall perform such comparison. Before making any
determination that a violation has been committed by any Access Person, the
Review Officer (or Alternative Review Officer, as the case may be) shall provide
such Access Person an opportunity to supply additional explanatory material for
the purposes of demonstrating that such holdings or transactions did not violate
this Code. If the Review Officer determines that a Reviewable Transaction may
have occurred, he or she shall submit his or her written determination, together
with the confidential quarterly report and any additional explanatory material
provided by the Access Person to a designated officer of the Adviser, who shall
make an independent determination of whether a violation of this Code has
occurred.
<PAGE>
B. ADDITIONAL COMPLIANCE PROCEDURES
In addition to the compliance procedures set forth in the Adviser's
Code of Ethics, Access Persons, Advisory Persons and Investment Personnel shall
follow the additional compliance procedures set forth below as applicable.
(1) No Access Person shall recommend any securities transaction for
an Investment Company without having disclosed his or her
interest, if any, in such securities or the issuer thereof,
including without limitation (i) his or her direct or indirect
beneficial ownership of any securities or such issuer, (ii) any
contemplated transaction by such person in such securities, (iii)
any position with such issuer or its affiliates and (iv) any
present or proposed business relationship between such issuer or
its affiliates, on the one hand, and such person or any party in
which such person has a significant interest, on the other;
provided, however, that in the event the interest of such Access
Person in such securities or issuer is not material to his or her
personal net worth (as determined by the Review Officer) and any
contemplated transaction by such person in such securities cannot
reasonably be expected to have a material adverse effect on any
such transaction by the company or on the market for the
securities generally, such Access Person shall not be required to
disclose his or her interest in the securities or issuer thereof
in connection with any such recommendation.
(2) No Investment Personnel shall, directly or indirectly, purchase
any security sold in an Initial Public Offering or secondary
public offering of an issuer, regardless of whether the issue is
a "hot issue."
(3) No Investment Personnel shall, directly or indirectly, purchase
any security issued pursuant to a Limited Offering without
obtaining prior written approval from the Review Officer. In
reviewing a request to purchase a security issued pursuant to a
Limited Offering, the Review Officer shall determine whether the
purchase creates or may create a conflict of interest with an
Investment Company warranting that the request be rejected. For
instance, the approval process will take into account whether the
investment opportunity should be reserved for an Investment
Company and whether the opportunity is being offered to the
Investment Personnel by virtue of his or her position with or
relationship to an Investment Company.
(4) No Investment Personnel shall, directly or indirectly, purchase
or sell any Covered Security in which he or she has, or by reason
of such purchase acquires, any beneficial ownership interest
within a period of seven (7) calendar days before and after any
Investment Company advised by such person has purchased or sold
such Covered Security. Any securities transaction by a person in
violation of this Subsection B.4 must be unwound, if possible,
and the profits, if any, must be disgorged to the applicable
Investment Company.
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<PAGE>
C. Preclearance Procedure
Until further change, purchases and sales of publicly-traded common
shares of companies that have a market capitalization in excess of $10 billion
shall not be subject to the Adviser's pre-clearance procedures set forth in
Section VII of the Adviser's Code of Ethics.
D. Sanctions
Upon discovering a violation of the Adviser's Code or these
Procedures, the Adviser may impose such sanction(s) as it deems appropriate,
including, among other things, a letter of censure, suspension or termination of
the employment of the violator and/or restitution to the affected Investment
Company of an amount equal to the advantage that the offending person gained by
reason of such violation. In addition, as part of any sanction, the Adviser may
require the Access Person or other individual involved to reverse the trade(s)
at issue and forfeit any profit or absorb any loss from the trade. It is noted
that violations of the Code or these Procedures may also result in criminal
prosecution or civil action.
E. Amendments
These Procedures may be amended by the Adviser from time to time in
its discretion.
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DRAFT
CODE OF ETHICS
1. PURPOSES
This Code of Ethics (the "Code") has been adopted by the Directors of J.P.
Morgan Investment Management Inc. (the "Adviser"), in accordance with Rule
17j-1(c) promulgated under the Investment Company Act of 1940, as amended (the
"Act"). Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to purchases or sales of securities Held or to be
Acquired (defined in Section 2(k) of this Code) by investment companies, if
effected by associated persons of such companies. The purpose of this Code is to
adopt provisions reasonably necessary to prevent Access Persons from engaging in
any unlawful conduct as set forth in Rule 17j-1(b) as follows:
It is unlawful for any affiliated person of or principal underwriter for a
Fund, or any affiliated person of an investment adviser of or principal
underwriter for a Fund, in connection with the purchase or sale, directly or
indirectly, by the person of a Security Held or to be Acquired by the Fund:
(a) To employ any device, scheme or artifice to defraud the Fund;
(b) To make any untrue statement of a material fact to the Fund or omit to
state a material fact necessary in order to make the statements made
to the Fund, in light of the circumstances under which they are made,
not misleading;
(c) To engage in any act, practice, or course of business that operates or
would operate as a fraud or deceit on the Fund; or
(d) To engage in any manipulative practice with respect to the Fund.
2. DEFINITIONS
(a) "Access Person" means any director, officer, general partner or
Advisory Person of the Adviser.
(b) "Administrator" means Morgan Guaranty Trust Company.
(c) "Advisory Person" means (i) any employee of the Adviser or the
Administrator (or any company in a control relationship to the Adviser) who, in
connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of securities for a Fund,
or whose functions relate to the making of any recommendations with respect to
such purchases or sales; and (ii) any natural person in a control relationship
to the Adviser who obtains information concerning recommendations regarding the
purchase or sale of securities by a Fund.
<PAGE>
(d)"Beneficial ownership" shall be interpreted in the same manner as it
would be under Exchange Act Rule 16a-1(a)(2)in determining whether a person is
subject to the provisions of Section 16 of the Securities Exchange Act of 1934
and the rules and regulations thereunder.
(e)"Control" has the same meaning as in Section 2(a)(9) of the Act.
(f)"Covered Security" shall have the meaning set forth in Section 2(a)(36)
of the Act, except that it shall not include shares of open-end funds, direct
obligations of the United States Government, bankers' acceptances, bank
certificates of deposit, commercial paper and high quality short-term debt
instruments, including repurchase agreements.
(g)"Fund" means an Investment Company registered under the Investment
Company Act of 1940.
(h)"Initial Public Offering" means an offering of Securities registered
under the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act.
(i)"Limited Offering" means an offering that is exempt from registration
under the Securities Act pursuant to Section 4(2) or Section 4(6) or pursuant to
Rule 504, Rule 505, or Rule 506 under the Securities Act.
(j)"Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security.
(k)"Security Held or to be Acquired" by a Adviser means: (i) any Covered
Security which, within the most recent 15 days, is or has been held by a Fund or
other client of the Adviser or is being or has been considered by the Adviser
for purchase by a Fund or other client of the Adviser; and (ii) any option to
purchase or sell, and any security convertible into or exchangeable for, a
Covered Security described in Section 2(k)(i) of this Code.
3. STATEMENT OF PRINCIPLES
It is understood that the following general fiduciary principles govern the
personal investment activities of Access Persons:
(a)the duty to at all times place the interests of shareholders and other
clients of the Adviser first;
(b)the requirement that all personal securities transactions be conducted
consistent with this Code of Ethics and in such a manner as to avoid any actual
or potential conflict of interest or any abuse of an individual's position of
trust and responsibility;
(c)the fundamental standard that Investment Personnel may not take
inappropriate advantage of their position; and
(d)all personal transactions must be oriented toward investment, not
short-term or speculative trading.
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<PAGE>
It is further understood that the procedures, reporting and recordkeeping
requirements set forth below are hereby adopted and certified by the Adviser as
reasonably necessary to prevent Access Persons from violating the provisions of
this Code of Ethics.
4. PROCEDURES TO BE FOLLOWED REGARDING PERSONAL INVESTMENTS BY ACCESS PERSONS
(a)Pre-clearance requirement. Each Access Person must obtain prior written
approval from his or her group head (or designee) and from the Adviser's trading
desk before transacting in any Covered Security based on certain quidelines set
forth from time to time by the Adviser's compliance Department. For details
regarding transactions in mutual funds, see Section 4(e).
(b)Brokerage transaction reporting requirement. Each Access Person working
in the United States must maintain all of his or her accounts and the accounts
of any person of which he or she is deemed to be a beneficial owner with a
broker designated by the Adviser and must direct such broker to provide broker
trade confirmations to the Adviser's legal/compliance department, unless an
exception has been granted by the Adviser's legal/compliance department. Each
Access Person to whom an exception to the designated broker requirement has been
granted must instruct his or her broker to forward all trade confirms and
monthly statements to the Adviser's legal/compliance department. Access Persons
located outside the United States are required to provide details of each
brokerage transaction of which he or she is deemed to be the beneficial owner,
to the Adviser's legal/compliance group, within the customary period for the
confirmation of such trades in that market.
(c)Initial public offerings (new issues). Access Persons are prohibited
from participating in Initial Public Offerings, whether or not J.P. Morgan or
any of its affiliates is an underwriter of the new issue, while the issue is in
syndication.
(d)Minimum investment holding period. Each Access Person is subject to a
60-day minimum holding period for personal transactions in Covered Securities.
An exception to this minimum holding period requirement may be granted in the
case of hardship as determined by the legal/compliance department.
(e)Mutual funds. Each Access Person must pre-clear transactions in shares
of closed-end Funds with the Adviser's trading desk, as they would with any
other Covered Security. See Section 4(a). Each Access Person must obtain
pre-clearance from his or her group head(or designee) before buying or selling
shares in an open-end Fund or a sub-advised Fund managed by the Adviser if such
Access Person or the Access Person's department has had recent dealings or
responsibilities regarding such mutual fund.
(f)Limited offerings. An Access Person may participate in a limited
offering only with written approval of such Access Person's group head (or
designee) and with advance notification to the Adviser's compliance group.
(g)Blackout periods. Advisory Persons are subject to blackout periods 7
calendar days before and after the trade date of a Covered Security where such
Advisory Person makes, participates in, or obtains information regarding the
purchase or sale of such Covered Security for any of their client accounts. In
addition, Access Persons are prohibited from executing a transaction in a
Covered Security during a period in which there is a pending buy or sell order
on the Adviser's trading desk.
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(h)Prohibitions. Short sales are generally prohibited. Transactions in
options, rights, warrants, or other short-term securities and in futures
contracts (unless for bona fide hedging) are prohibited, except for purchases of
options on widely traded indices specified by the Adviser's compliance group if
made for investment purposes.
(i)Securities of J.P. Morgan. No Access Person may buy or sell any security
issued by J.P. Morgan from the 27th of each March, June, September, and December
until the first full business day after earnings are released in the following
month. All transactions in securities issued by J.P. Morgan must be pre-cleared
with the Adviser's compliance group and executed through an approved trading
area. Transactions in options and short sales of J.P. Morgan stock are
prohibited.
(j)Certification requirements. In addition to the reporting requirements
detailed in Sections 6 below, each Access Person, no later than 30 days after
becoming an Access Person, must certify to the Adviser's compliance group that
he or she has complied with the broker requirements in Section 4(b).
5. OTHER POTENTIAL CONFLICTS OF INTEREST
(a)Gifts. No employee of the Adviser or the Administrator may (i)accept
gifts, entertainment, or favors from a client, potential client, supplier, or
potential supplier of goods or services to the Adviser or the Administrator
unless what is given is of nominal value and refusal to accept it would be
discourteous or otherwise harmful to the Adviser or Administrator; (ii)provide
excessive gifts or entertainment to clients or potential clients; and (iii)
offer bribes, kickbacks, or similar inducements.
(b)Outside Business Activities. The prior consent of the Chairman of the
Board of J.P. Morgan, or his or her designee, is required for an officer of the
Adviser or Administrator to engage in any business-related activity outside of
the Adviser or Administrator, whether the activity is intermittent or
continuing, and whether or not compensation is received. For example, such
approval is required such an officer to become:
-An officer, director, or trustee of any corporation (other than a
nonprofit corporation or cooperative corporation owning the
building in which the officer resides);
-A member of a partnership (other than a limited partner in a
partnership established solely for investment purposes);
-An executor, trustee, guardian, or similar fiduciary advisor (other
than for a family member).
6. REPORTING REQUIREMENTS
(a) Every Access Person must report to the Adviser:
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<PAGE>
(i) Initial Holdings Reports. No later than 10 days after the person
becomes an Access Person, the following information: (A) the
title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership when the person became an Access Person; (B)
the name of any broker, dealer or bank with whom the Access
Person maintained an account in which any Covered Securities were
held for the direct or indirect benefit of the Access Person as
of the date the person became an Access Person; and (C) the date
that the report is submitted by the Access Person.
(ii) Quarterly Transaction Reports. No later than 10 days after the
end of a calendar quarter, with respect to any transaction during
the quarter in a Covered Security in which the Access Person had
any direct or indirect Beneficial Ownership: (A) the date of the
transaction, the title, the interest rate and maturity date (if
applicable), the number of shares and principal amount of each
Covered Security involved; (B) the nature of the transaction; (C)
the price of the Covered Security at which the transaction was
effected; (D) the name of the broker, dealer or bank with or
through which the transaction was effected; and (E) the date that
the report is submitted by the Access Person.
(iii)New Account Report. No later than 10 days after the calendar
quarter, with respect to any account established by the Access
Person in which any Covered Securities were held during the
quarter for the direct or indirect benefit of the Access Person:
(A) the name of the broker, dealer or bank with whom the Access
Person established the account; (B) the date the account was
established; and (C) the date that the report is submitted by the
Access Person.
(iv) Annual Holdings Report. Annually, the following information
(which information must be current as of a date no more than 30
days before the report is submitted): (A) the title, number of
shares and principal amount of each Covered Security in which the
Access Person had any direct or indirect beneficial ownership;
(B) the name of any broker, dealer or bank with whom the Access
Person maintains an account in which any Covered Securities are
held for the direct or indirect benefit of the Access Person: and
(C) the date that the report is submitted by the Access Person.
(b) Exceptions from the Reporting Requirements.
(i) Notwithstanding the provisions of Section 6(a), no Access Person
shall be required to make:
A. a report with respect to transactions effected for any
account over which such person does not have any direct or
indirect influence or control;
B. a Quarterly Transaction or New Account Report under Sections
6(a)(ii) or (iii) if the report would duplicate information
contained in broker trade confirmations or account
statements received by the Adviser with respect to the
Access Person no later than 10 days after the calendar
quarter end, if all of the information required by Sections
6(a)(ii) or (iii), as the case may be, is contained in the
broker trade confirmations or account statements, or in the
records of the Adviser.
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(c) Each Access Person shall promptly report any transaction which is, or
might appear to be, in violation of this Code. Such report shall
contain the information required in Quarterly Transaction Reports
filed pursuant to Section 6(a)(ii).
(d) All reports prepared pursuant to this Section 6 shall be filed with
the appropriate compliance personnel designated by the Adviser and
reviewed in accordance with procedures adopted by such personnel.
(e) The Adviser will identify all Access Persons who are required to file
reports pursuant to this Section 6 and will inform them of their
reporting obligation.
(f) The Adviser no less frequently than annually shall furnish to a Fund's
board of directors for their consideration a written report that:
(a) describes any issues under this Code of Ethics or related
procedures since the last report to the board of directors,
including, but limited to, information about material
violations of the Code or procedures and sanctions imposed
in response to the material violations; and
(b) certifies that the Adviser has adopted procedures reasonably
necessary to prevent Access Persons from violating this Code
of Ethics.
7. RECORDKEEPING REQUIREMENTS
The Adviser must at its principal place of business maintain records in the
manner and extent set out in this Section of this Code and must make
available to the Securities and Exchange Commission (SEC) at any time and
from time to time for reasonable, periodic, special or other examination:
(a) A copy of its code of ethics that is in effect, or at any time
within the past five years was in effect, must be maintained in
an easily accessible place;
(b) A record of any violation of the code of ethics, and of any
action taken as a result of the violation, must be maintained in
an easily accessible place for at least five years after the end
of the fiscal year in which the violation occurs;
(c) A copy of each report made by an Access Person as required by
Section 6(a) including any information provided in lieu of a
quarterly transaction report, must be maintained for at least
five years after the end of the fiscal year in which the report
is made or the information is provided, the first two years in an
easily accessible place.
(d) A record of all persons, currently or within the past five years,
who are or were required to make reports as Access Persons or who
are or were responsible for reviewing these reports, must be
maintained in an easily accessible place.
(e) A copy of each report required by 6(f) above must be maintained
for at least five years after the end of the fiscal year in which
it is made, the first two years in an easily accessible place.
(f) A record of any decision and the reasons supporting the decision
to approve the acquisition by Access Persons of securities under
Section 4(f) above, for at least five years after the end of the
fiscal year in which the approval is granted.
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8. SANCTIONS
Upon discovering a violation of this Code, the Directors of the Adviser may
impose such sanctions as they deem appropriate, including, inter alia, financial
penalty, a letter of censure or suspension or termination of the employment of
the violator.
7
PERSONAL INVESTMENT POLICY
FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA
AND CERTAIN REGISTERED INVESTMENT COMPANIES
SSB Citi Asset Management Group ("SSB Citi")(1), and those U.S.-registered
investment companies advised or managed by SSB Citi that have adopted this
policy ("Funds"), have adopted this policy on securities transactions in order
to accomplish two goals: first, to minimize conflicts and potential conflicts of
interest between employees of SSB Citi and SSB Citi's clients (including the
Funds), and between Fund directors or trustees and their Funds, and SECOND, to
provide policies and procedures consistent with applicable law, including Rule
17j-1 under the Investment Company Act of 1940, to prevent fraudulent or
manipulative practices with respect to purchases or sales of securities held or
to be acquired by client accounts. ALL U.S. EMPLOYEES OF SSB CITI, INCLUDING
EMPLOYEES WHO SERVE AS FUND OFFICERS OR DIRECTORS, AND ALL DIRECTORS OR TRUSTEES
("DIRECTORS") OF EACH FUND, ARE COVERED PERSONS UNDER THIS POLICY. OTHER COVERED
PERSONS ARE DESCRIBED IN SECTION II BELOW.
I. STATEMENT OF PRINCIPLES - All SSB Citi employees owe a fiduciary duty to
SSB Citi's clients when conducting their personal investment transactions.
Employees must place the interests of clients first and avoid activities,
interests and relationships that might interfere with the duty to make
decisions in the best interests of the clients. All Fund directors owe a
fiduciary duty to each Fund of which they are a director and to that Fund's
shareholders when conducting their personal investment transactions. At all
times and in all matters Fund directors shall place the interests of their
Funds before their personal interests. The fundamental standard to be
followed in personal securities transactions is that Covered Persons may
not take inappropriate advantage of their positions.
All personal securities transactions by Covered Persons shall adhere to the
requirements of this policy and shall be conducted in such a manner as to
avoid any actual or potential conflict of interest, the appearance of such
a conflict, or the abuse of the person's position of trust and
responsibility. While this policy is designed to address both identified
conflicts and potential conflicts, it cannot possibly be written broadly
enough to cover all potential situations. In this regard, Covered Persons
are expected to adhere not only to the letter, but also the spirit of the
policies contained herein.
Employees are reminded that they also are subject to other Citigroup
policies, including policies on insider trading, the purchase and sale of
securities listed on any applicable SSB Citi restricted list, the receipt
of gifts and service as a director of a publicly traded company. EMPLOYEES
MUST NEVER TRADE IN A SECURITY OR COMMODITY WHILE IN POSSESSION OF
MATERIAL, NON-PUBLIC INFORMATION ABOUT THE ISSUER OR THE MARKET FOR THOSE
SECURITIES OR COMMODITIES, EVEN IF THE EMPLOYEE HAS SATISFIED ALL OTHER
REQUIREMENTS OF THIS POLICY.
The reputation of SSB Citi and its employees for straightforward practices
and integrity is a priceless asset, and all employees have the duty and
obligation to support and maintain it when conducting their personal
securities transactions.
(1) The investment advisory entities of SSB Citi covered by this policy include:
Salomon Brothers Asset Management Inc.; SSB Citi Fund Management LLC; Smith
Barney Asset Management Division of Salomon Smith Barney Inc.; Travelers
Investment Management Company; and the Citibank Global Asset Management Division
of Citibank, N.A. and Citicorp Trust, N.A.-California.
1
<PAGE>
II. APPLICABILITY - SSB CITI EMPLOYEEs - This policy applies to all U.S.
employees of SSB Citi, including part-time employees. Each employee,
including employees who serve as Fund officers or directors, must comply
with all of the provisions of the policy applicable to SSB Citi employees
unless otherwise indicated. Certain employees are considered to be
"investment personnel" (i.e., portfolio managers, traders and research
analysts (and each of their assistants)), and as such, are subject to
certain additional restrictions outlined in the policy. All other employees
of SSB Citi are considered to be "advisory personnel."
Generally, temporary personnel and consultants working in any SSB Citi
business are subject to the same provisions of the policy as full-time
employees, and their adherence to specific requirements will be addressed
on a case-by-case basis.
The personal investment policies, procedures and restrictions referred to
herein also apply to an employee's spouse and minor children. The policies
also apply to any other account over which the employee is deemed to have
beneficial ownership. This includes: accounts of any immediate family
members sharing the same household as the employee; accounts of persons or
other third parties for whom the employee exercises investment discretion
or gives investment advice; a legal vehicle in which the employee has a
direct or indirect beneficial interest and has power over investment
decisions; accounts for the benefit of a third party (e.g., a charity)
which may be directed by the employee (other than in the capacity of an
employee); and any account over which the employee may be deemed to have
control. For a more detailed description of beneficial ownership, see
Exhibit A attached hereto.
These policies place certain restrictions on the ability of an employee to
purchase or sell securities that are being or have been purchased or sold
by an SSB Citi managed fund or client account. The restrictions also apply
to securities that are "related" to a security being purchased or sold by
an SSB Citi managed fund or client account. A "related security" is one
whose value is derived from the value of another security (e.g., a warrant,
option or an indexed instrument).
FUND DIRECTORS - This policy applies to all directors of Funds that have
adopted this policy. The personal investment policies, procedures and
restrictions that specifically apply to Fund directors apply to all
accounts and securities in which the director has direct or indirect
beneficial ownership. See Exhibit A attached hereto for a more detailed
description of beneficial ownership.
SECURITIES are defined as stocks, notes, bonds, closed-end mutual funds,
debentures, and other evidences of indebtedness, including senior debt,
subordinated debt, investment contracts, commodity contracts, futures and
all derivative instruments such as options, warrants and indexed
instruments, or, in general, any interest or instrument commonly known as a
"security."
III. ENFORCEMENT - It is the responsibility of each Covered Person to act in
accordance with a high standard of conduct and to comply with the policies
and procedures set forth in this document. SSB Citi takes seriously its
obligation to monitor the personal investment activities of its employees.
Any violation of this policy by employees will be considered serious, and
may result in disciplinary action, which may include the unwinding of
trades, disgorgement of profits, monetary fine or censure, and suspension
or termination of employment. Any violation of this policy by a Fund
director will be reported to the Board of Directors of the applicable Fund,
which may impose such sanctions as it deems appropriate.
2
<PAGE>
IV. OPENING AND MAINTAINING EMPLOYEE ACCOUNTS - All employee brokerage
accounts, including spouse accounts, accounts for which the employee is
deemed to have beneficial ownership, and any other accounts over which the
employee and/or spouse exercise control, must be maintained either at
Salomon Smith Barney ("SSB") or at Citicorp Investment Services ("CIS").(2)
For spouses or other persons who, by reason of their employment, are
required to conduct their securities, commodities or other financial
transactions in a manner inconsistent with this policy, or in other
exceptional circumstances, employees may submit a written request for an
exemption to the Compliance Department. If approval is granted, copies of
trade confirmations and monthly statements must be sent to the Compliance
Department. In addition, all other provisions of this policy will apply.
V. EXCLUDED ACCOUNTS AND TRANSACTIONS - The following types of
accounts/transactions need not be maintained at SSB or CIS, nor are they
subject to the other restrictions of this policy:
1. Accounts at outside mutual funds that hold only shares of
open-end funds purchased directly from that fund company. Note:
transactions relating to closed-end funds are subject to the
pre-clearance, blackout period and other restrictions of this
policy;
2. Estate or trust accounts in which an employee or related person
has a beneficial interest, but no power to affect investment
decisions. There must be no communication between the account(s)
and the employee with regard to investment decisions prior to
execution. The employee must direct the trustee/bank to furnish
copies of confirmations and statements to the Compliance
Department;
3. Fully discretionary accounts managed by either an internal or
external registered investment adviser are permitted and may be
custodied away from SSB and CIS if (i) the employee receives
permission from the Regional Director of Compliance and the
unit's Chief Investment Officer, and (ii) there is no
communication between the manager and the employee with regard to
investment decisions prior to execution. The employee must
designate that copies of trade confirmations and monthly
statements be sent to the Compliance Department;
4. Employees may participate in direct investment programs which
allow the purchase of securities directly from the issuer without
the intermediation of a broker/dealer provided that the timing
and size of the purchases are established by a pre-arranged,
regularized schedule (e.g., dividend reinvestment plans).
Employees must pre-clear the transaction at the time that the
dividend reinvestment plan is being set up. Employees also must
provide documentation of these arrangements and direct periodic
(monthly or quarterly) statements to the Compliance Department;
and
5. In addition to the foregoing, the following types of securities
are exempted from pre-clearance, blackout periods, reporting and
short-term trading requirements: open-ended mutual funds;
open-end unit investment trusts; U.S. Treasury bills, bonds and
notes; mortgage pass-throughs (e.g. Ginnie Maes) that are direct
obligations of the U.S. government; bankers acceptances; bank
certificates of deposit; commercial paper; and high quality
short-term debt instruments (meaning any instrument that has a
maturity at issuance of less than 366 days and that is rated in
one of the two highest rating categories by a nationally
recognized statistical rating organization, such as S&P or
Moody's), including repurchase agreements.
(2) This requirement will become effective as to all employees on a date to be
determined by the Compliance Department and may be subject to a phase-in
implementation process.
3
<PAGE>
VI. SECURITIES HOLDING PERIOD/SHORT-TERM TRADING - Securities transactions must
be for investment purposes rather than for speculation. Consequently,
employees may not profit from the purchase and sale, or sale and purchase,
of the same or equivalent securities within sixty (60) calendar days,
calculated on a First In, First Out (FIFO) basis (i.e., the security may be
sold on the 61st day). Citigroup securities received as part of an
employee's compensation are not subject to the 60-day holding period. All
profits from short-term trades are subject to disgorgement. However, with
the prior written approval of both a Chief Investment Officer and the
Regional Director of Compliance, and only in rare and/or unusual
circumstances, an employee may execute a short-term trade that results in a
significant loss or in break-even status.
VII. PRE-CLEARANCE - All SSB Citi employees must pre-clear all personal
securities transactions (see Section V for a listing of accounts,
transactions and securities that do not require pre-clearance). A copy of
the pre-clearance form is attached as Exhibit B. IN ADDITION, EMPLOYEES ARE
PROHIBITED FROM ENGAGING IN MORE THAN TWENTY (20) TRANSACTIONS IN ANY
CALENDAR MONTH, EXCEPT WITH PRIOR WRITTEN APPROVAL FROM THEIR CHIEF
INVESTMENT OFFICER, OR DESIGNEE. A transaction must not be executed until
the employee has received the necessary approval. Pre-clearance is valid
only on the day it is given. If a transaction is not executed on the day
pre-clearance is granted, it is required that pre-clearance be sought again
on a subsequent day (i.e., open orders, such as limit orders, good until
cancelled orders and stop-loss orders, must be pre-cleared each day until
the transaction is effected). In connection with obtaining approval for any
personal securities transaction, employees must describe in detail any
factors which might be relevant to an analysis of the possibility of a
conflict of interest. Any trade that violates the pre-clearance process may
be unwound at the employee's expense, and the employee will be required to
absorb any resulting loss and to disgorge any resulting profit.
In addition to the foregoing, the CGAM NA Director of Global Equity
Research, or his designate, must approve all personal securities
transactions for members of the CGAM Research Department prior to
pre-clearance from the Compliance Department as set forth in this section.
Pre-approval by the Director of Research, or his designate, is in addition
to and does not replace the requirement for the pre-clearance of all
personal securities transactions.
VIII.BLACKOUT PERIODS - No Covered Person shall purchase or sell, directly or
indirectly, any security in which he/she has, or by reason of the
transaction acquires, any direct or indirect beneficial ownership if he/she
has knowledge at the time of such transaction that the security is being
purchased or sold, or is being considered for purchase or sale, by a
managed fund or client account or in the case of a Fund director, by the
director's Fund. In addition, the following Blackout Periods apply to the
categories of SSB Citi employees listed below:
1. PORTFOLIO MANAGERS AND PORTFOLIO MANAGER ASSISTANTS - may not buy
or sell any securities for personal accounts seven (7) calendar
days before or after managed funds or client accounts he/she
manages trade in that security.
4
<PAGE>
2. TRADERS AND TRADER ASSISTANTS - may not buy or sell any
securities for personal accounts three (3) calendar days before
or seven (7) calendar days after managed funds or client accounts
he/she executes trades for trade in that security.
3. RESEARCH ANALYSTS AND RESEARCH ASSISTANTS - may not buy or sell
any securities for personal accounts: seven (7) calendar days
before or after the issuance of or a change in any
recommendation; or seven (7) calendar days before or after any
managed fund or client account about which the employee is likely
to have trading or portfolio information (as determined by the
Compliance Department) trades in that security.
4. ADVISORY PERSONNEL (see Section II for details) - may not buy or
sell any securities for personal accounts on the same day that a
managed fund or client account about which the employee is likely
to have trading or portfolio information (as determined by the
Compliance Department) trades in that security.
5. UNIT TRUST PERSONNEL - all employees assigned to the Unit Trust
Department are prohibited from transacting in any security when a
SSB Citi-sponsored Unit Trust portfolio is buying the same (or a
related) security, until seven business days after the later of
the completion of the accumulation period or the public
announcement of the trust portfolio. Similarly, all UIT employees
are prohibited from transacting in any security held in a UIT (or
a related security) seven business days prior to the liquidation
period of the trust.
Employees in categories 1, 2 and 5 above may also be considered Advisory
Personnel for other accounts about which the employee is likely to have
trading or portfolio information (as determined by the Compliance
Department).
Any violation of the foregoing provisions will require the employee's trade
to be unwound, with the employee absorbing any resulting loss and
disgorging any resulting profit. Advisory personnel are subject to the
unwinding of the trade provision; however, they may not be required to
absorb any resulting loss (at the discretion of the Compliance Department
and the employee's supervisor). Please be reminded that, regardless of the
provisions set forth above, all employees are always prohibited from
effecting personal securities transactions based on material, non-public
information.
Blackout period requirements shall not apply to any purchase or sale, or
series of related transactions involving the same or related securities,
involving 500 or fewer shares in the aggregate if the issuer has a market
capitalization (outstanding shares multiplied by the current price per
share) greater than $10 billion and is listed on a U.S. Stock Exchange or
NASDAQ. NOTE: PRE-CLEARANCE IS STILL REQUIRED. Under certain circumstances,
the Compliance Department may determine that an employee may not rely upon
this "Large Cap/De Minimis" exemption. In such a case, the employee will be
notified prior to or at the time the pre-clearance request is made.
IX. PROHIBITED TRANSACTIONS - The following transactions by SSB Citi employees
are prohibited without the prior written approval from the Chief Investment
Officer, or designee, and the Regional Compliance Director:
1. The purchase of private placements; and
2. The acquisition of any securities in an initial public offering
(new issues of municipal debt securities may be acquired subject
to the other requirements of this policy (e.g., pre-clearance).)
5
<PAGE>
X. TRANSACTIONS IN OPTIONS AND FUTURES - SSB Citi employees may buy or sell
derivative instruments such as individual stock options, options and
futures on indexes and options and futures on fixed-income securities, and
may buy or sell physical commodities and futures and forwards on such
commodities. These transactions must comply with all of the policies and
restrictions described in this policy, including pre-clearance, blackout
periods, transactions in Citigroup securities and the 60-day holding
period. However, the 60-day holding period does not apply to individual
stock options that are part of a hedged position where the underlying stock
has been held for more than 60 days and the entire position (including the
underlying security) is closed out.
XI. PROHIBITED RECOMMENDATIONS - No Covered Person shall recommend or execute
any securities transaction by any managed fund or client account, or, in
the case of a Fund director, by the director's Fund, without having
disclosed, in writing, to the Chief Investment Officer, or designee, any
direct or indirect interest in such securities or issuers, except for those
securities purchased pursuant to the "Large Cap/De Minimis" exemption
described in Section VIII above. Prior written approval of such
recommendation or execution also must be received from the Chief Investment
Officer, or designee. The interest in personal accounts could be in the
form of:
1. Any direct or indirect beneficial ownership of any securities of
such issuer;
2. Any contemplated transaction by the person in such securities;
3. Any position with such issuer or its affiliates; or
4. Any present or proposed business relationship between such issuer
or its affiliates and the person or any party in which such
person has a significant interest.
XII. TRANSACTIONS IN CITIGROUP SECURITIES - Unless an SSB Citi employee is a
member of a designated group subject to more restrictive provisions, or is
otherwise notified to the contrary, the employee may trade in Citigroup
securities without restriction (other than the pre-clearance and other
requirements of this policy), subject to the limitations set forth below.
Employees whose jobs are such that they know about Citigroup's
quarterly earnings prior to release may not engage in any transactions
in Citigroup securities during the "blackout periods" beginning on the
first day of a calendar quarter and ending on the second business day
following the release of earnings for the prior quarter. Members of
the SSB Citi Executive Committee and certain other senior SSB Citi
employees are subject to these blackout periods.
Stock option exercises are permitted during a blackout period (but the
simultaneous exercise of an option and sale of the underlying stock is
prohibited). With regard to exchange traded options, no transactions
in Citigroup options are permitted except to close or roll an option
position that expires during a blackout period. Charitable
contributions of Citigroup securities may be made during the blackout
period, but an individual's private foundation may not sell donated
Citigroup common stock during the blackout period. "Good 'til
cancelled" orders on Citigroup stock must be cancelled before entering
a blackout period and no such orders may be entered during a blackout
period.
No employee may engage at any time in any personal transactions in
Citigroup securities while in possession of material non-public
information. Investments in Citigroup securities must be made with a
long-term orientation rather than for speculation or for the
generation of short-term trading profits. In addition, please note
that employees may not engage in the following transactions:
6
<PAGE>
o Short sales of Citigroup securities;
o Purchases or sales of options ("puts" or "calls") on Citigroup
securities, except writing a covered call at a time when the
securities could have been sold under this policy;
o Purchases or sales of futures on Citigroup securities; or
o Any transactions relating to Citigroup securities that might
reasonably appear speculative.
The number of Citigroup shares an employee is entitled to in the
Citigroup Stock Purchase Plan is not treated as a long stock position
until such time as the employee has given instructions to purchase the
shares of Citigroup. Thus, employees are not permitted to use options
to hedge their financial interest in the Citigroup Stock Purchase
Plan.
Contributions into the firm's 401(k) Plan are not subject to the
restrictions and prohibitions described in this policy.
XIII.ACKNOWLEDGEMENT AND REPORTING REQUIREMENTS - SSB CITI EMPLOYEES - All new
SSB Citi employees must certify that they have received a copy of this
policy, and have read and understood its provisions. In addition, all SSB
Citi employees must:
1. Acknowledge receipt of the policy and any modifications thereof,
in writing (see Exhibit C for the form of Acknowledgement);
2. Within 10 days of becoming an SSB Citi employee, disclose in
writing all information with respect to all securities
beneficially owned and any existing personal brokerage
relationships (employees must also disclose any new brokerage
relationships whenever established). Such information should be
provided on the form attached as Exhibit D;
3. Direct their brokers to supply, on a timely basis, duplicate
copies of confirmations of all personal securities transactions
(NOTE: THIS REQUIREMENT MAY BE SATISFIED THROUGH THE TRANSMISSION
OF AUTOMATED FEEDS);
4. Within 10 days after the end of each calendar quarter, provide
information relating to securities transactions executed during
the previous quarter for all securities accounts (NOTE: THIS
REQUIREMENT MAY BE SATISFIED THROUGH THE TRANSMISSION OF
AUTOMATED FEEDS);
5. Submit an annual holdings report containing similar information
that must be current as of a date no more than 30 days before the
report is submitted, and confirm at least annually all brokerage
relationships and any and all outside business affiliations
(NOTE: THIS REQUIREMENT MAY BE SATISFIED THROUGH THE TRANSMISSION
OF AUTOMATED FEEDS OR THE REGULAR RECEIPT OF MONTHLY BROKERAGE
STATEMENTS); and
6. Certify on an annual basis that he/she has read and understood
the policy, complied with the requirements of the policy and that
he/she has pre-cleared and disclosed or reported all personal
securities transactions and securities accounts required to be
disclosed or reported pursuant to the requirements of the policy.
7
<PAGE>
FUND DIRECTORS - Fund Directors shall deliver the information required by
Items 1 through 4 of the immediately preceding paragraph, except that a
Fund director who is not an "interested person" of the Fund within the
meaning of Section 2(a)(19) of the Investment Company Act of 1940, and who
would be required to make reports solely by reason of being a Fund
Director, is not required to make the initial and annual holdings reports
required by Item 2. Also, a "non-interested" Fund Director need not supply
duplicate copies of confirmations of personal securities transactions
required by Item 3, and need only make the quarterly transactions reports
required by Item 3 as to any security if at the time of a transaction by
the Director in that security, he/she knew or in the ordinary course of
fulfilling his/her official duties as a Fund Director should have known
that, during the 15-day period immediately preceding or following the date
of that transaction, that security is or was purchased or sold by that
Director's Fund or was being considered for purchase or sale by that
Director's Fund.
DISCLAIMER OF BENEFICIAL OWNERSHIP - The reports described in Items 2 and 3
above may contain a statement that the reports shall not be construed as an
admission by the person making the reports that he/she has any direct or
indirect beneficial ownership in the securities to which the reports
relate.
XIV. HANDLING OF DISGORGED PROFITS - Any amounts that are paid/disgorged by an
employee under this policy shall be donated by SSB Citi to one or more
charities. Amounts donated may be aggregated by SSB Citi and paid to such
charity or charities at the end of each year.
XV. CONFIDENTIALITY - All information obtained from any Covered Person pursuant
to this policy shall be kept in strict confidence, except that such
information will be made available to the Securities and Exchange
Commission or any other regulatory or self-regulatory organization or to
the Fund Boards of Directors to the extent required by law, regulation or
this policy.
XVI. OTHER LAWS, RULES AND STATEMENTS OF POLICY - Nothing contained in this
policy shall be interpreted as relieving any person subject to the policy
from acting in accordance with the provision of any applicable law, rule or
regulation or, in the case of SSB Citi employees, any statement of policy
or procedure governing the conduct of such person adopted by Citigroup, its
affiliates and subsidiaries.
XVII.RETENTION OF RECORDS - All records relating to personal securities
transactions hereunder and other records meeting the requirements of
applicable law, including a copy of this policy and any other policies
covering the subject matter hereof, shall be maintained in the manner and
to the extent required by applicable law, including Rule 17j-1 under the
1940 Act. The Compliance Department shall have the responsibility for
maintaining records created under this policy.
XVIII. MONITORING - SSB Citi takes seriously its obligation to monitor the
personal investment activities of its employees and to review the periodic
reports of all Covered Persons. Employee personal investment transaction
activity will be monitored by the Compliance Department. All noted
deviations from the policy requirements will be referred back to the
employee for follow-up and resolution (with a copy to be supplied to the
employee's supervisor). Any noted deviations by Fund directors will be
reported to the Board of Directors of the applicable Fund for consideration
and follow-up as contemplated by Section III hereof.
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<PAGE>
XIX. EXCEPTIONS TO THE POLICY - Any exceptions to this policy must have the
prior written approval of both the Chief Investment Officer and the
Regional Director of Compliance. Any questions about this policy should be
directed to the Compliance Department.
XX. BOARD REVIEW - Fund management and SSB Citi shall provide to the Board of
Directors of each Fund, on a quarterly basis, a written report of all
material violations of this policy, and at least annually, a written report
and certification meeting the requirements of Rule 17j-1 under the 1940
Act.
XXI. OTHER CODES OF ETHICS - To the extent that any officer of any Fund is not a
Covered Person hereunder, or an investment subadviser of or principal
underwriter for any Fund and their respective access persons (as defined in
Rule 17j-1) are not Covered Persons hereunder, those persons must be
covered by separate codes of ethics which are approved in accordance with
applicable law.
XXII.AMENDMENTS - SSB CITI EMPLOYEES - Unless otherwise noted herein, this
policy shall become effective as to all SSB Citi employees on March 30,
2000. This policy may be amended as to SSB Citi employees from time to time
by the Compliance Department. Any material amendment of this policy shall
be submitted to the Board of Directors of each Fund for approval in
accordance with Rule 17j-1 under the 1940 Act.
FUND DIRECTORS - This policy shall become effective as to a Fund upon the
approval and adoption of this policy by the Board of Directors of that Fund
in accordance with Rule 17j-1 under the 1940 Act or at such earlier date as
determined by the Secretary of the Fund. Any material amendment of this
policy that applies to the directors of a Fund shall become effective as to
the directors of that Fund only when the Board of Directors of that Fund
has approved the amendment in accordance with Rule 17j-1 or at such earlier
date as determined by the Secretary of the Fund.
March 15, 2000
9
<PAGE>
EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
You are considered to have "Beneficial Ownership" of Securities if you have or
share a direct or indirect "PECUNIARY INTEREST" in the Securities.
You have a "Pecuniary Interest" in Securities if you have the opportunity,
directly or indirectly, to profit or share in any profit derived from a
transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in Securities:
1. Securities held by members of your IMMEDIATE FAMILY sharing the same
household; however, this presumption may be rebutted by convincing
evidence that profits derived from transactions in these Securities
will not provide you with any economic benefit.
"Immediate family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and includes any adoptive relationship.
2. Your interest as a general partner in Securities held by a general or
limited partnership.
3. Your interest as a manager-member in the Securities held by a limited
liability company.
You do NOT have an indirect Pecuniary Interest in Securities held by a
corporation, partnership, limited liability company or other entity in which you
hold an equity interest, unless you are a controlling equityholder or you have
or share investment control over the Securities held by the entity.
The following circumstances constitute Beneficial Ownership by you of Securities
held by a trust:
1. Your ownership of Securities as a trustee where either you or members
of your immediate family have a vested interest in the principal or
income of the trust.
2. Your ownership of a vested interest in a trust.
3. Your status as a settlor of a trust, unless the consent of all of the
beneficiaries is required in order for you to revoke the trust.
THE FOREGOING IS A SUMMARY OF THE MEANING OF "BENEFICIAL OWNERSHIP". FOR
PURPOSES OF THE ATTACHED POLICY, "BENEFICIAL OWNERSHIP" SHALL BE INTERPRETED IN
THE SAME MANNER AS IT WOULD BE IN DETERMINING WHETHER A PERSON IS SUBJECT TO THE
PROVISIONS OF SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934 AND THE RULES
AND REGULATIONS THEREUNDER
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SSB CITI ASSET MANAGEMENT GROUP ("SSB CITI") EXHIBIT B
EMPLOYEE TRADE PRE-APPROVAL FORM
(PAGE 1)
INSTRUCTIONS:
ALL EMPLOYEES ARE REQUIRED TO SUBMIT THIS FORM TO THE COMPLIANCE DEPARTMENT
PRIOR TO PLACING A TRADE. THE COMPLIANCE DEPARTMENT WILL NOTIFY THE EMPLOYEE AS
TO WHETHER OR NOT PRE-APPROVAL IS GRANTED. PRE-APPROVAL IS EFFECTIVE ONLY ON THE
DATE GRANTED.
I. EMPLOYEE INFORMATION
- ------------------------------------------------------------------------------
Employee Name: Phone Number:
- ------------------------------------------------------------------------------
Account Title:
- ------------------------------------------------------------------------------
Account Number:
- ------------------------------------------------------------------------------
Managed Account(s)/Mutual Fund(s) for which employee is a Covered Person:
- ------------------------------------------------------------------------------
II. SECURITY INFORMATION
IPO [] Yes [] No PRIVATE PLACEMENT [] Yes [] No
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Security Name Security Type-e.g., Ticker Buy/Sell If Sale, Date No. Large Cap Stock?2
common stock, etc. First Acquired1 Shares/Units
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
III. YOUR POSITION WITH THE FIRM:
(PLEASE CHECK ONE OF THE [] Portfolio Manager /
FOLLOWING) Portfolio Manager Assistant
[] Research Analyst /
Research Analyst Assistant
[] Trader / Trader Assistant
[] Unit Trust Personnel
[] Other (Advisory Personnel)
NOTE: o All PORTFOLIO MANAGERS must complete the reverse side of this form.
o All RESEARCH ANALYSTS and RESEARCH ANALYST ASSISTANTS located in
CONNECTICUT MUST provide an additional form signed by RAMA
KRISHNA or one of his designees.
IV. CERTIFICATION
I CERTIFY THAT I WILL NOT EFFECT THE TRANSACTION(S) DESCRIBED ABOVE UNLESS AND
UNTIL PRE-CLEARANCE APPROVAL IS OBTAINED FROM THE COMPLIANCE DEPARTMENT. I
FURTHER CERTIFY THAT, EXCEPT AS DESCRIBED ON AN ATTACHED PAGE, TO THE BEST OF MY
KNOWLEDGE, THE PROPOSED TRANSACTION(S) WILL NOT RESULT IN A CONFLICT OF INTEREST
WITH ANY ACCOUNT MANAGED BY SSB CITI (INCLUDING MUTUAL FUNDS MANAGED BY SSB
CITI). I FURTHER CERTIFY THAT, TO THE BEST OF MY KNOWLEDGE, THERE ARE NO PENDING
ORDERS FOR ANY SECURITY LISTED ABOVE OR ANY RELATED SECURITY FOR ANY MANAGED
ACCOUNTS AND/OR MUTUAL FUNDS FOR WHICH I AM CONSIDERED A COVERED PERSON. THE
PROPOSED TRANSACTION(S) ARE CONSISTENT WITH ALL FIRM POLICIES REGARDING EMPLOYEE
PERSONAL SECURITIES TRANSACTIONS.
Signature Date
---------------------------- --------------
<TABLE>
<CAPTION>
FOR USE BY THE COMPLIANCE DEPARTMENT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ARE SECURITIES RESTRICTED? [] Yes [] No PRE-APPROVAL GRANTED? [] Yes [] No Reason not granted:
- ------------------------------------------------------------------------------------------------------------
COMPLIANCE DEPARTMENT SIGNATURE: Date: Time:
- ------------------------------------------------------------------------------------------------------------
</TABLE>
1. All securities sold must have been held for at least 60 days.
2. For purposes of SSB Citi's personal trading policies, a Large Cap Exemption
applies to transactions involving 500 or fewer shares in aggregate and the
stock is one that is listed on a U.S. stock exchange or NASDAQ and whose
issuer has a market capitalization (outstanding shares multiplied by
current price) of more than $10 billion.
11
<PAGE>
SSB CITI ASSET MANAGEMENT GROUP ("SSB CITI")
PAGE 2 - PORTFOLIO MANAGER CERTIFICATION
All portfolio managers must answer the following questions in order to obtain
pre-approval. All questions must be answered or the form will be returned. If a
question is not applicable, please indicate "N/A".
1. Have your client accounts purchased or sold the securities (or related
securities) in the past seven calendar days?
[] Yes [] No (
2. Do you intend to purchase or sell the securities (or related securities)
for any client accounts in the next seven calendar days?
[] Yes [] No (
3. Do any of your client accounts currently own the securities (or related
securities)?
[] Yes [] No
3a. If yes, and you are selling the securities for your personal account,
please explain why the sale of the securities was rejected for client
accounts but is appropriate for your personal account:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
4. Have you, in the past 7 calendar days, considered purchasing the securities
(or related securities) for your client accounts?
[] Yes [] No
4a. If yes, and you are purchasing securities for your personal account,
please explain why the purchase of the securities is appropriate for
your account but has been rejected for your client accounts:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
4b. If no, and you are purchasing securities for your personal account,
please explain why the purchase of the securities has not been
considered for your client accounts:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
CERTIFICATION
I certify that I will not effect the transaction(s) described above unless and
until pre-clearance approval is obtained from the Compliance Department. I
further certify that, except as described on an attached page, to the best of my
knowledge, the proposed transaction(s) will not result in a conflict of interest
with any account managed by SSB Citi (including mutual funds managed by SSB
Citi). I further certify that, to the best of my knowledge, there are no pending
orders for any security listed above or any related securities for any Managed
Accounts and/or Mutual Funds for which I am considered a Covered Person. The
proposed transaction(s) are consistent with all firm policies regarding employee
personal securities transactions.
- ---------------------------- -------------
Signature Date
<TABLE>
<CAPTION>
FOR USE BY THE COMPLIANCE DEPARTMENT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ARE SECURITIES RESTRICTED? [] Yes [] No PRE-APPROVAL GRANTED? [] Yes [] No Reason not granted:
- ------------------------------------------------------------------------------------------------------------
COMPLIANCE DEPARTMENT SIGNATURE: Date: Time:
- ------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
PERSONAL INVESTMENT POLICY EXHIBIT C
FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA
AND CERTAIN REGISTERED INVESTMENT COMPANIES
ACKNOWLEDGMENT
I ACKNOWLEDGE THAT I HAVE RECEIVED AND READ THE PERSONAL INVESTMENT POLICY FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA AND CERTAIN REGISTERED
INVESTMENT COMPANIES DATED MARCH 15, 2000. I UNDERSTAND THE PROVISIONS OF THE
PERSONAL INVESTMENT POLICY AS DESCRIBED THEREIN AND AGREE TO ABIDE BY THEM.
Employee Name (Print):
-----------------------------------
Signature:
------------------------------------
Date:
------------------------------------
- -----------------------------------------------------------------------------
Social Security Number: Date of Hire:
- ------------------------------------------------------------------------------
Job Function & Title: Supervisor:
- ------------------------------------------------------------------------------
Location:
- ------------------------------------------------------------------------------
Floor and/or Zone: Telephone Number:
- ------------------------------------------------------------------------------
NASD REGISTERED EMPLOYEE (Please check one) [] Yes [] No
- ------------------------------------------------------------------------------
If REGISTERED, list Registration \ License:
- ------------------------------------------------------------------------------
THIS ACKNOWLEDGMENT FORM MUST BE COMPLETED AND RETURNED NO LATER THAN MARCH 30,
2000 TO THE COMPLIANCE DEPARTMENT - ATTENTION: VERA SANDUCCI-DENDY, 388
GREENWICH STREET, 23RD FLOOR, NEW YORK, NY 10013.
13
<PAGE>
EXHIBIT D
SSB Citi Asset Management Group - North America Personal Investment Policy
Financial Services Firm Disclosure and Initial Report of Securities Holdings
THIS REPORT MUST BE SIGNED, DATED AND RETURNED WITHIN 10 DAYS OF EMPLOYMENT TO
THE COMPLIANCE DEPARTMENT - ATTENTION: VERA SANDUCCI-DENDY, 388 GREENWICH
STREET, 23RD FLOOR
- ------------------------------------------------------------------------------
Employee Name: Date of Employment:
------------------------ ---------------
- -------------------------------------------------------------------------------
BROKERAGE ACCOUNTS:
[] I do not have a beneficial interest in any account(s) with any financial
services firm.
[] I maintain the following account(s) with the financial services firm(s)
listed below (attach additional information if necessary-e.g., a brokerage
statement). Please include the information required below for any broker,
dealer or bank where an account is maintained which holds securities for
your direct or indirect benefit as of the date you began your employment.
- -------------------------------------------------------------------------------
Name of Financial Service(s)
Firm and Address Account Title Account Number
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES HOLDINGS:
Complete the following (or attach a copy of your most recent statement(s))
listing all of your securities holdings, with the exception of open-ended mutual
funds and U.S Government securities if:
o You own securities which are held by financial services firm(s) as
described above. If you submit a copy of a statement, it must include all
of the information set forth below. Please be sure to include any
additional securities purchased since the date of the brokerage statement
which is attached. Use additional sheets if necessary.
o Your securities are not held with a financial service(s) firm (e.g.,
dividend reinvestment programs).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Title of Security Ticker Symbol # of Shares Principal Amt. Held Since Financial Services Firm
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
[] I have no securities holdings to report.
I CERTIFY THAT I HAVE RECEIVED THE SSB CITI - NORTH AMERICA PERSONAL INVESTMENT
POLICY AND HAVE READ IT AND UNDERSTOOD ITS CONTENTS. I FURTHER CERTIFY THAT THE
ABOVE REPRESENTS A COMPLETE AND ACCURATE DESCRIPTION OF MY BROKERAGE ACCOUNT(S)
AND SECURITIES HOLDINGS AS OF MY DATE OF EMPLOYMENT.
Signature: Date of Signature:
----------------------------- ----------
14
OPPENHEIMER CAPITAL
CODE OF ETHICS
Effective July 1, 1999
INTRODUCTION
This Code of Ethics is based on the principle that you, as an officer or
employee of Oppenheimer Capital (OPCAP), owe a fiduciary duty to the
shareholders of the registered investment companies (the FUNDS) and other
clients (together with the Funds, the ADVISORY CLIENTS) for which OpCap serves
as an adviser or subadviser. Accordingly, you must avoid activities, interests
and relationships that might interfere or appear to interfere with making
decisions in the best interests of our Advisory Clients.
At all times, you must:
1. PLACE THE INTERESTS OF OUR ADVISORY CLIENTS FIRST. In other words, as
a fiduciary you must scrupulously avoid serving your own personal
interests ahead of the interests of our Advisory Clients. You may not
cause an Advisory Client to take action, or not to take action, for
your personal benefit rather than the benefit of the Advisory Client.
For example, you would violate this Code if you caused an Advisory
Client to purchase a Security you owned for the purpose of increasing
the price of that Security. If you are an employee who makes decisions
about investments (each a PORTFOLIO MANAGEr) or provides information
or advice to a Portfolio Manager or helps execute a Portfolio
Manager's decisions (together with Portfolio Managers, each a
PORTFOLIO EMPLOYEE), you would also violate this Code if you made a
personal investment in a Security that might be an appropriate
investment for an Advisory Client without first considering the
Security as an investment for the Advisory Client.
2. CONDUCT ALL OF YOUR PERSONAL SECURITIES TRANSACTIONS IN FULL
COMPLIANCE WITH THIS CODE AND THE PIMCO ADVISORS INSIDER TRADING
POLICY. OpCap encourages you and your family to develop personal
investment programs. However, you must not take any action in
connection with your personal investments that could cause even the
appearance of unfairness or impropriety. Accordingly, you must comply
with the policies and procedures set forth in this Code under the
heading PERSONAL SECURITIES TRANSACTIONS. In addition, you must comply
with the policies and procedures set forth in the PIMCO Advisors
Insider Trading Policy, which is attached to this Code as Appendix I.
Doubtful situations should be resolved against your personal trading.
3. AVOID TAKING INAPPROPRIATE ADVANTAGE OF YOUR POSITION. The receipt of
investment opportunities, gifts or gratuities from persons seeking
business with OpCap directly or on behalf of an Advisory Client could
call into question the independence of your business judgment.
Accordingly, you must comply with the policies and procedures set
forth in this Code under the heading FIDUCIARY DUTIES. Doubtful
situations should be resolved against your personal interest.
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------------------------------------------------------------------------------
PERSONAL SECURITIES TRANSACTIONS 3
Trading in General 3
Securities 3
Exempt Securities 3
Beneficial Ownership 4
Exempt Transactions 5
Preclearance Procedures 6
Initial Public Offerings 6
Private Placements 6
Short-Term Trading Profits 7
Use of Broker-Dealers 7
REPORTING 8
Reporting of Transactions 8
Annual Reports 8
FIDUCIARY DUTIES 8
Gifts 8
Service as a Director 8
COMPLIANCE 9
Certificate of Receipt 9
Certificate of Compliance 9
Remedial Actions 9
REPORTS TO DIRECTORS AND TRUSTEES 9
Reports of Significant Remedial Action 9
Annual Reports 9
APPENDICES: THE FOLLOWING APPENDICES ARE ATTACHED TO AND ARE A PART OF THIS
CODE:
I. PIMCO Advisors Insider Trading Policy and Procedures 11
II. Form for preclearance of Non-Exempt Securities
transactions 18
III. Form for annual report of personal Securities holdings 19
IV. Form for acknowledgment of receipt of this Code 21
V. Form for annual certification of compliance with this
Code 22
VI. Policy Regarding Special Trading Procedures For
Securities of PIMCO Advisors Holdings L.P. 23
QUESTIONS
Questions regarding this Code should be addressed to a Compliance Officer.
As of the effective date of this Code, the Compliance Officers are Deborah
Kaback and Sal Iocolano.
2
<PAGE>
PERSONAL SECURITIES TRANSACTIONS
TRADING IN GENERAL
You may not engage, and you may not permit any other person or entity to engage,
in any purchase or sale of any Security (other than an Exempt Security), of
which you have, or by reason of the transaction will acquire, Beneficial
Ownership, unless (i) the transaction is an Exempt Transaction or (ii) such
transaction is approved by a Compliance Officer and precleared.
SECURITIES
The following are SECURITIES:
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
(including a certificate of deposit) or on any 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 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 purchase, any security.
The following are not SECURITIES:
Commodities, futures and options traded on a commodities exchange, including
currency futures. However, futures and options on any group or index of
Securities are Securities.
EXEMPT SECURITIES
The following are EXEMPT SECURITIES:
1. Securities issued by the Government of the United States.
2. Bankers' acceptances, bank certificates of deposit, commercial paper,
bank repurchase agreements and such other money market instruments as
may be designated from time to time by the committee appointed by
OpCap to administer this Code (THE COMPLIANCE COMMITTEE).
3. Shares of registered open-end investment companies.
3
<PAGE>
BENEFICIAL OWNERSHIP
You are considered to have Beneficial Ownership of Securities if you have or
share a direct or indirect PECUNIARY INTEREST in the Securities.
You have a PECUNIARY INTEREST in Securities if you have the opportunity,
directly or indirectly, to profit or share in any profit derived from a
transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in Securities:
1. Securities held by members of your IMMEDIATE FAMILY sharing the same
household; however, this presumption may be rebutted by convincing
evidence that profits derived from transactions in these Securities
will not provide you with any economic benefit.
IMMEDIATE FAMILY means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and includes any adoptive relationship.
2. Your interest as a general partner in Securities held by a general or
limited partnership.
3. Your interest as a manager-member in the Securities held by a limited
liability company.
You do NOT have an indirect Pecuniary Interest in Securities held by a
corporation, partnership, limited liability company or other entity in which you
hold an equity interest, unless you are a controlling equityholder or you have
or share investment control over the Securities held by the entity.
The following circumstances constitute Beneficial Ownership by you of Securities
held by a trust:
1. Your ownership of Securities as a trustee where either you or members
of your immediate family have a vested interest in the principal or
income of the trust.
2. Your ownership of a vested beneficial interest in a trust.
3. Your status as a settlor of a trust, unless the consent of all of the
beneficiaries is required in order for you to revoke the trust.
4
<PAGE>
EXEMPT TRANSACTIONS
The following are EXEMPT TRANSACTIONS:
1. Any transaction in Securities in an account over which you do not have
any direct or indirect influence or control. There is a presumption
that you can exert some measure of influence or control over accounts
held by members of your immediate family sharing the same household,
but this presumption may be rebutted by convincing evidence.
2. Purchases of Securities under dividend reinvestment plans.
3. Purchases of Securities by exercise of rights issued to the holders of
a class of Securities PRO RATA, to the extent they are issued with
respect to Securities of which you have Beneficial Ownership.
4. Acquisitions or dispositions of Securities as the result of a stock
dividend, stock split, reverse stock split, merger, consolidation,
spin-off or other similar corporate distribution or reorganization
applicable to all holders of a class of Securities of which you have
Beneficial Ownership.
5. Subject to the restrictions on participation in private placements set
forth below under PRIVATE PLACEMENTS, acquisitions or dispositions of
Securities of a PRIVATE ISSUER. A PRIVATE ISSUER is a corporation,
partnership, limited liability company or other entity which has no
outstanding publicly-traded Securities, and no outstanding Securities
which are exercisable to purchase, convertible into or exchangeable
for publicly-traded Securities. However, you will have Beneficial
Ownership of Securities held by a private issuer whose equity
Securities you hold, unless you are not a controlling equityholder and
do not have or share investment control over the Securities held by
the entity.
6. Such other classes of transactions as may be exempted from time to
time by the Compliance Committee based upon a determination that the
transactions are unlikely to violate Rule 17j-1 under the Investment
Company Act of 1940, as amended. The Compliance Committee may exempt
designated classes of transactions from any of the provisions of this
Code except the provisions set forth below under REPORTING.
7. Such other specific transactions as may be exempted from time to time
by a Compliance Officer. On a case-by-case basis when no abuse is
involved a Compliance Officer may exempt a specific transaction from
any of the provisions of this Code except the provisions set forth
below under REPORTING.
5
<PAGE>
PRECLEARANCE PROCEDURES
If a Securities transaction requires preclearance:
1. The Securities may not be purchased or sold if at the time of
preclearance there is a pending BUY or SELL order on behalf of an
Advisory Client in the same Security or an EQUIVALENT SECURITY or if
you knew or should have known that an Advisory Client would be trading
in that security or an EQUIVALENT SECURITY on the same day.
An EQUIVALENT SECURITY of a given Security is (i ) a Security issuable
upon exercise, conversion or exchange of the given Security, or (ii) a
Security exercisable to purchase, convertible into or exchangeable for
the given Security, or (iii) a Security otherwise representing an
interest in or based on the value of the given Security.
2. If you are a Portfolio Manager (or a person identified by the CIO as
having access to the same information), the Securities may not be
purchased or sold during the period which begins seven days before and
ends seven days after the day on which an Advisory Client trades in
the same Security or an equivalent Security; except that you may, if
you preclear the transaction, (i) trade same way to an Advisory Client
after its trading is completed, or (ii) trade opposite way to an
Advisory Client before its trading is commenced.
If you are a Portfolio Manager, and you preclear a Securities
transaction and trade same way to an Advisory Client before its
trading is commenced, the transaction is not a violation of this Code
unless you knew or should have known that the Advisory Client would be
trading in that Security or an EQUIVALENT SECURITY within seven days
after your trade.
3. The Securities may be purchased or sold only if you have asked the
Trading Department to preclear the purchase or sale, the Trading
Department has given you preclearance in writing, and the purchase or
sale is executed by the close of business on the day preclearance is
given. The form for requesting preclearance is attached to this Code
as Appendix II.
INITIAL PUBLIC OFFERINGs
If you are a Portfolio Employee, you may not acquire Beneficial Ownership of any
Securities (other than Exempt Securities) in an initial public offering.
PRIVATE PLACEMENTS
If you are a Portfolio Employee, you may not acquire Beneficial Ownership of any
Securities (other than Exempt Securities) in a private placement, unless you
have received the prior written approval of the Chief Executive Officer or the
General Counsel of PIMCO Advisors. Approval will be not be given unless a
determination is made that the investment opportunity should not be reserved for
one or more Advisory Clients, and that the opportunity to invest has not been
offered to you by virtue of your position.
If you are a Portfolio Employee, and you have acquired Beneficial Ownership of
Securities in a private placement, you must DISCLOSE your investment when you
play a part in any consideration of an investment by an Advisory Client in the
issuer of the Securities, and any decision to make such an investment must be
INDEPENDENTLY REVIEWED by a Portfolio Manager who does not have Beneficial
Ownership of any Securities of the issuer.
6
<PAGE>
SHORT-TERM TRADING PROFITS
If you are a Portfolio Employee, you may not profit from the purchase and sale,
or sale and purchase, within 60 calendar days, of the same Securities or
equivalent Securities (other than Exempt Securities) of which you have
Beneficial Ownership. Any such short-term trade must be unwound, or if that is
not practical, the profits must be contributed to a charitable organization.
You are considered to profit from a short-term trade if Securities of which you
have Beneficial Ownership are sold for more than the purchase price of the same
Securities or equivalent Securities, even though the Securities purchased and
the Securities sold are held of record or beneficially by different persons or
entities.
PUTS, CALLS, STRADDLES AND OPTIONS; SHORT SALES
You may not acquire Beneficial Ownership of any put, call, straddle, option or
privilege on any Securities on the Approved List or any equivalent Securities or
sell any such Securities or equivalent Securities short. You may not acquire
Beneficial Ownership of any put, call, straddle, option or privilege on any
Securities which are not shares of a LARGE-CAP ISSUER.
A LARGE-CAP ISSUER is an issuer with a total market capitalization in excess of
one billion dollars and an average daily trading volume during the preceding
calendar quarter, on the principal securities exchange (including NASDAQ) on
which its shares are traded, in excess of 100,000 shares.
A list of large-cap issuers will be prepared as of the last business day of each
calendar quarter, will be available for review with any Compliance Officer, and
will be effective for the following calendar quarter.
USE OF BROKER-DEALERS
You may not engage, and you may not permit any other person or entity to engage,
in any purchase or sale of publicly-traded Securities (other than Exempt
Securities) of which you have, or by reason of the transaction will acquire,
Beneficial Ownership, except through a registered broker-dealer. You will engage
in purchases or sales of publicly-traded Securities only through Charles Schwab
& Co. or such other registered broker-dealer as may be specified by the
Compliance Committee.
REPORTING
REPORTING OF TRANSACTIONS
You must cause each broker-dealer which maintains an account for Securities of
which you have Beneficial Ownership, to provide to the Compliance Committee, on
a timely basis, duplicate copies of confirmations of all transactions in the
account and of periodic statements for the account, and you must report to the
Compliance Committee, on a timely basis, all transactions effected without the
use of a broker in Securities (other than Exempt Securities) of which you have
Beneficial Ownership.
7
<PAGE>
ANNUAL REPORTS
You must disclose your holdings of all Securities (other than Exempt Securities)
of which you have Beneficial Ownership upon commencement of your employment by
OpCap or the effective date of this Code, whichever occurs later, and annually
thereafter. The form for this purpose is attached to this Code as Appendix III.
FIDUCIARY DUTIES
GIFTS
You may not accept any investment opportunity, gift, gratuity or other thing of
more than nominal value, from any person or entity that does business, or
desires to do business, with OpCap directly or on behalf of an Advisory Client.
You may accept gifts from a single giver so long as their aggregate annual value
does not exceed the equivalent of $100. You may attend business meals, business
related conferences, sporting events and other entertainment events at the
expense of a giver, so long as the expense is reasonable and both you and the
giver are present. You must obtain prior written approval from your supervisor
(the person to whom you report) for all air travel, conferences, and business
events that require overnight accommodations. You must provide a copy of such
written approval to the Compliance Committee.
SERVICE AS A DIRECTOR
If you are a Portfolio Employee, you may not serve on the board of directors or
other governing board of a publicly traded entity, unless you have received the
prior written approval of the Chief Executive Officer or the General Counsel of
PIMCO Advisors. Approval will not be given unless a determination is made that
your service on the board would be consistent with the interests of our Advisory
Clients. If you are permitted to serve on the board of a publicly traded entity,
you will be ISOLATED from those Portfolio Employees who make investment
decisions with respect to the securities of that entity, through a "Chinese
Wall" or other procedures.
8
<PAGE>
COMPLIANCE
CERTIFICATE OF RECEIPT
You are required to acknowledge receipt of your copy of this Code. A form for
this purpose is attached to this Code as Appendix IV.
CERTIFICATE OF COMPLIANCE
You are required to certify upon commencement of your employment or the
effective date of this Code, whichever occurs later, and annually thereafter,
that you have read and understand this Code and recognize that you are subject
to this Code. Each annual certificate will also state that you have complied
with the requirements of this Code during the prior year, and that you have
disclosed, reported, or caused to be reported all transactions during the prior
year in Securities (other than Exempt Securities) of which you had or acquired
Beneficial Ownership. A form for this purpose is attached to this Code as
Appendix V.
REMEDIAL ACTIONS
If you violate this Code, you are subject to remedial actions, which may
include, but are not limited to, disgorgement of profits, imposition of a
substantial fine, demotion, suspension or termination.
REPORTS TO DIRECTORS AND TRUSTEES
REPORTS OF SIGNIFICANT REMEDIAL ACTION
The General Counsel of PIMCO Advisors or his delegate will on a timely basis
inform the directors or trustees of each Fund which is an Advisory Client of
each SIGNIFICANT REMEDIAL action taken in response to a violation of this Code.
A SIGNIFICANT REMEDIAL ACTION means any action that has a significant financial
effect on the violator, such as disgorgement of profits, imposition of a
substantial fine, demotion, suspension or termination.
ANNUAL REPORTS
The General Counsel of PIMCO Advisors or his delegate will report annually to
the Management Board of PIMCO Advisors and the directors or trustees of each
Fund which is an Advisory Client with regard to efforts to ensure compliance by
the officers and employees of OpCap with their fiduciary obligations to our
Advisory Clients.
The annual report will, at a minimum:
1. Summarize existing procedures regarding personal Securities
transactions, and any changes in such procedures during the prior
year;
2. Summarize the violations of this Code, if any, which resulted in
significant remedial action during the prior year; and
9
<PAGE>
3. Describe any recommended changes in existing procedures or
restrictions based upon experience with this Code, evolving industry
practices, or developments in applicable laws or regulations.
10
<PAGE>
APPENDIX I
PIMCO ADVISORS
INSIDER TRADING POLICY AND PROCEDURES
EFFECTIVE AS OF MAY 1, 1995
SECTION I. POLICY STATEMENT ON INSIDER TRADING
A. Policy Statement on Insider Trading
PIMCO Advisors L.P. ("PIMCO Advisors"), its affiliates, PIMCO Partners, G.P.
("PIMCO GP") and PIMCO Fund Distributors LLC ("PFD") collectively the "Company"
or "PIMCO Advisors") forbid any of their officers, directors or employees from
trading, either personally or on behalf of others (such as, mutual funds and
private accounts managed by PIMCO Advisors), on the basis of material non-public
information or communicating material non-public information to others in
violation of the law. This conduct is frequently referred to as "insider
trading". This is a group wide policy.
The term "insider trading" is not defined in the federal securities laws, but
generally is used to refer to the use of material non-public information to
trade in securities or to communications of material non-public information to
others in breach of a fiduciary duty.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(1) trading by an insider, while in possession of material non-public
information, or
(2) trading by a non-insider, while in possession of material non-public
information, where the information was disclosed to the non-insider in
violation of an insider's duty to keep it confidential, or
(3) communicating material non-public information to others in breach of a
fiduciary duty.
This policy applies to every such officer, director and employee and extends to
activities within and outside their duties at the Company. Every officer,
director and employee must read and retain this policy statement. Any questions
regarding this policy statement and the related procedures set forth herein
should be referred to a Compliance Officer of PIMCO Advisors.
The remainder of this memorandum discusses in detail the elements of insider
trading, the penalties for such unlawful conduct and the procedures adopted by
the Company to implement its policy against insider trading.
11
<PAGE>
1. TO WHOM DOES THIS POLICY APPLY?
This Policy applies to all employees, officers and directors (direct or
indirect) of the Company ("Covered Persons"), as well as to any transactions in
any securities participated in by family members, trusts or corporations
controlled by such persons. In particular, this Policy applies to securities
transactions by:
the Covered Person's spouse;
the Covered Person's minor children;
any other relatives living in the Covered Person's household;
a trust in which the Covered Person has a beneficial interest, unless
such person has no direct or indirect control over the trust;
a trust as to which the Covered Person is a trustee;
a revocable trust as to which the Covered Person is a settlor;
a corporation of which the Covered Person is an officer, director or
10% or greater stockholder; or
a partnership of which the Covered Person is a partner (including most
investment clubs) unless the Covered Person has no direct or indirect
control over the partnership.
2. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities.
Although there is no precise, generally accepted definition of materiality,
information is likely to be "material" if it relates to significant changes
affecting such matters as:
dividend or earnings expectations;
write-downs or write-offs of assets;
additions to reserves for bad debts or contingent liabilities;
expansion or curtailment of company or major division operations;
proposals or agreements involving a joint venture, merger,
acquisition, divestiture, or leveraged buy-out;
new products or services;
exploratory, discovery or research developments;
criminal indictments, civil litigation or government investigations;
disputes with major suppliers or customers or significant changes in
the relationships with such parties;
labor disputes including strikes or lockouts;
substantial changes in accounting methods;
major litigation developments;
major personnel changes;
debt service or liquidity problems;
bankruptcy or insolvency;
extraordinary management developments;
public offerings or private sales of debt or equity securities;
12
<PAGE>
calls, redemptions or purchases of a company's own stock;
issuer tender offers; or
recapitalizations.
Information provided by a company could be material because of its expected
effect on a particular class of the company's securities, all of the company's
securities, the securities of another company, or the securities of several
companies. Moreover, the resulting prohibition against the misuses of "material"
information reaches all types of securities (whether stock or other equity
interests, corporate debt, government or municipal obligations, or commercial
paper) as well as any option related to that security (such as a put, call or
index security).
Material information does not have to relate to a company's business. For
example, in CARPENTER v. U.S., 108 U.S. 316 (1987), the Supreme Court considered
as material certain information about the contents of a forthcoming newspaper
column that was expected to affect the market price of a security. In that case,
a reporter for THE WALL STREET JOURNAL was found criminally liable for
disclosing to others the dates that reports on various companies would appear in
the Journal and whether those reports would be favorable or not.
3. WHAT IS NON-PUBLIC INFORMATION?
In order for issues concerning insider trading to arise, information must not
only be "material", it must be "NON-PUBLIC". "Non-public" information is
information which has not been made available to investors generally.
Information received in circumstances indicating that it is not yet in general
circulation or where the recipient knows or should know that the information
could only have been provided by an "insider" is also deemed "non-public"
information.
At such time as material, non-public information has been effectively
distributed to the investing public, it is no longer subject to insider trading
restrictions. However, for "non-public" information to become public
information, it must be disseminated through recognized channels of distribution
designed to reach the securities marketplace.
To show that "material" information is public, you should be able to point to
some fact verifying that the information has become generally available, for
example, disclosure in a national business and financial wire service (Dow Jones
or Reuters), a national news service (AP or UPI), a national newspaper (THE WALL
STREET JOURNAL, THE NEW YORK TIMES or FINANCIAL TIMES), or a publicly
disseminated disclosure document (a proxy statement or prospectus). The
circulation of rumors or "talk on the street", even if accurate, widespread and
reported in the media, does not constitute the requisite public disclosure. The
information must not only be publicly disclosed, there must also be adequate
time for the market as a whole to digest the information. Although timing may
vary depending upon the circumstances, a good rule of thumb is that information
is considered non-public until the third business day after public disclosure.
Material non-public information is not made public by selective dissemination.
Material information improperly disclosed only to institutional investors or to
a fund analyst or a favored group of analysts retains its status as "non-public"
information which must not be disclosed or otherwise misused. Similarly, partial
disclosure does not constitute public dissemination. So long as any material
component of the "inside" information possessed by the Company has yet to be
publicly disclosed, the information is deemed "non-public" and may not be
misused.
13
<PAGE>
INFORMATION PROVIDED IN CONFIDENCE. Occasionally, one or more directors,
officers, or employees of the Company may become temporary "insiders" because of
a fiduciary or commercial relationship. For example, personnel at the Company
may become insiders when an external source, such as a company whose securities
are held by one or more of the accounts managed by the Company, entrusts
material, non-public information to the Company's portfolio managers or analysts
with the expectation that the information will remain confidential.
As an "insider", the Company has a fiduciary responsibility not to breach the
trust of the party that has communicated the "material non-public" information
by misusing that information. This fiduciary duty arises because the Company has
entered or has been invited to enter into a commercial relationship with the
client or prospective client and has been given access to confidential
information solely for the corporate purposes of that client or prospective
client. This obligation remains whether or not the Company ultimately
participates in the transaction.
INFORMATION DISCLOSED IN BREACH OF A DUTY. Analysts and portfolio managers at
the Company must be especially wary of "material non-public" information
disclosed in breach of a corporate insider's fiduciary duty. Even where there is
no expectation of confidentiality, a person may become an "insider" upon
receiving material, non-public information in circumstances where a person
knows, or should know, that a corporate insider is disclosing information in
breach of the fiduciary duty he or she owes the corporation and its
shareholders. Whether the disclosure is an improper "tip" that renders the
recipient a "tippee" depends on whether the corporate insider expects to benefit
personally, either directly or indirectly, from the disclosure. In the context
of an improper disclosure by a corporate insider, the requisite "personal
benefit" may not be limited to a present or future monetary gain. Rather, a
prohibited personal benefit could include a reputational benefit, an expectation
of a "quid pro quo" from the recipient or the recipient's employer by a gift of
the "inside" information.
A person may, depending on the circumstances, also become an "insider" or
"tippee" when he or she obtains apparently material, non-public information by
happenstance, including information derived from social situations, business
gatherings, overheard conversations, misplaced documents, and "tips" from
insiders or other third parties.
4. IDENTIFYING MATERIAL INFORMATION
Before trading for yourself or others, including investment companies or private
accounts managed by the Company, in the securities of a company about which you
may have potential material, non-public information, ask yourself the following
questions:
i. Is this information that an investor could consider important in making his
or her investment decisions? Is this information that could substantially
affect the market price of the securities if generally disclosed?
ii. To whom has this information been provided? Has the information been
effectively communicated to the marketplace by being published in THE
FINANCIAL TIMES, REUTERS, THE WALL STREET JOURNAl or other publications of
general circulation?
14
<PAGE>
Given the potentially severe regulatory, civil and criminal sanctions to which
you the Company and its personnel could be subject, any director, officer and
employee uncertain as to whether the information he or she possesses is
"material non-public" information should immediately take the following steps:
i. Report the matter immediately to a Compliance Officer or the General
Counsel of PIMCO Advisors;
ii. Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by PIMCO
Advisors; and
iii. Do not communicate the information inside or outside the Company, other
than to a Compliance Officer or the General Counsel of PIMCO Advisors.
After the Compliance Officer or General Counsel has reviewed the issue, you will
be instructed to continue the prohibitions against trading and communication or
will be allowed to trade and communicate the information.
5. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material non-public information are
severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
civil injunctions
treble damages
disgorgement of profits
jail sentences
fines for the person who committed the violation of up to three
times the profit gained or loss avoided, whether or not the person
actually benefited, and
fines for the employer or other controlling person of up to the
greater of $1,000,000 or three times the amount of the profit
gained or loss avoided.
In addition, any violation of this policy statement can be expected to result in
serious sanctions by the Company, including dismissal of the persons involved.
15
<PAGE>
SECTION II. PROCEDURES TO IMPLEMENT THE POLICY AGAINST INSIDER TRADING
A. Procedures to Implement the Policy Against Insider Trading
The following procedures have been established to aid the officers, directors
and employees of PIMCO Advisors in avoiding insider trading, and to aid PIMCO
Advisors in preventing, detecting and imposing sanctions against insider
trading. Every officer, director and employee of PIMCO Advisors must follow
these procedures or risk serious sanctions, including dismissal, substantial
personal liability and criminal penalties.
TRADING RESTRICTIONS AND REPORTING REQUIREMENTS
1. No employee, officer or director of PIMCO Advisors who possesses material
non-public information relating to PIMCO Advisors, may buy or sell any
securities of PIMCO Advisors Holdings L.P. or engage in any other action to
take advantage of, or pass on to others, such material non-public
information.
2. No employee, officer or director of PIMCO Advisors who obtains material
non-public information which relates to any other company or entity in
circumstances in which such person is deemed to be an insider or is
otherwise subject to restrictions under the federal securities laws may buy
or sell securities of that company or otherwise take advantage of, or pass
on to others, such material non-public information.
3. No employee, officer or director of PIMCO Advisors shall engage in a
securities transaction with respect to the securities of PIMCO Advisors
Holdings L.P., except in accordance with the specific procedures published
from time to time by PIMCO Advisors.
4. Each employee, officer and director of PIMCO Advisors shall submit reports
of every securities transaction involving securities of PIMCO Advisors
Holdings L.P. (if applicable) to a Compliance Officer in accordance with
the terms of PIMCO Advisors' Code of Ethics as they relate to any other
securities transaction.
5. No employee shall engage in a securities transaction with respect to any
securities of any other company, except in accordance with the specific
procedures set forth in PIMCO Advisors' Code of Ethics.
6. Employees shall submit reports concerning each securities transaction in
accordance with the terms of the Code of Ethics and verify their personal
ownership of securities in accordance with the procedures set forth in the
Code of Ethics.
7. Because even inadvertent disclosure of material non-public information to
others can lead to significant legal difficulties, officers, directors and
employees of PIMCO Advisors should not discuss any potentially material
non-public information concerning PIMCO Advisors or other companies,
including other officers, employees and directors, except as specifically
required in the performance of their duties.
B. Chinese Wall Procedures
16
<PAGE>
The Insider Trading and Securities Fraud Enforcement Act in the US requires the
establishment and strict enforcement of procedures reasonably designed to
prevent the misuse of "inside" information(1). Accordingly, you should not
discuss material non-public information about PIMCO Advisors or other companies
with anyone, including other employees, except as required in the performance of
your regular duties. In addition, care should be taken so that such information
is secure. For example, files containing material non-public information should
be sealed; access to computer files containing material non-public information
should be restricted.
C. Resolving Issues Concerning Insider Trading
The federal securities laws, including the US laws governing insider trading,
are complex. If you have any doubts or questions as to the materiality or
non-public nature of information in your possession or as to any of the
applicability or interpretation of any of the foregoing procedures or as to the
propriety of any action, you should contact your Compliance Officer. Until
advised to the contrary by a Compliance Officer, you should presume that the
information is material and non-public and you should NOT trade in the
securities or disclose this information to anyone.
- ----------------------
(1) The antifraud provisions of United States securities laws reach insider
trading or tipping activity worldwide which defrauds domestic securities
markets. In addition, the Insider Trading and Securities Fraud Enforcement Act
specifically authorizes the SEC to conduct investigations at the request of
foreign governments, without regard to whether the conduct violates United
States law.
17
<PAGE>
APPENDIX II
EMPLOYEE TRADE PRECLEARANCE FORM
PLEASE USE A SEPARATE FORM FOR EACH SECURITY
- -----------------------------------------------------------------------------
Name of Employee (please print)
- ------------------------------------------------------------------------------
Department Supervisor Telephone Date
- ------------------------------------------------------------------------------
Broker Account Number Telephone Sales Representative
( )
- ------------------------------------------------------------------------------
[ ] Buy [ ] Sell Ticker Symbol Price: Limit _______ Market [ ]
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Quantity Issue (Full Security Description)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Special Instructions
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Approvals
- ------------------------------------------------------------------------------
This area reserved for Trading Department use only
- ------------------------------------------------------------------------------
Trade Has Been Date Approved Approved By
[ ] Approved [ ] Not Approved
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Legal / Compliance (if required)
- ------------------------------------------------------------------------------
Approvals are valid until the close of business on the day approval has
been granted. Accordingly, GTC (good till canceled) orders are prohibited.
If a trade is not executed by the close of business resubmitting a new
preclearance form is required. It is each employee's responsibility to
comply with all provisions of the Code. Obtaining preclearance satisfies
the preclearance requirements of the Code and does not imply compliance
with the Code's other provisions.
Preclearance procedures apply to all employees and their immediate family
(as defined by the Code) including: a) all accounts in the name of the
employee or the employee's spouse or minor children; b) all accounts in
which any of such persons have a beneficial interest; and c) all other
accounts over which any such person exercises any investment discretion.
Please see the Code for the complete definition of immediate family.
By signing below the employee certifies the following: The employee agrees
that the above order is in compliance with the Code of Ethics and is not
based on knowledge of an actual client order within the previous seven
calendar days in the security that is being purchased or sold, or knowledge
that the security is being considered for purchase or sale in one or more
specific client accounts, or knowledge of a change or pendency of a change
of an investment management recommendation. The employee also acknowledges
that he/she is not in possession of material, inside information pertaining
to the security or issuer of the security.
- -----------------------------------------------------------------------------
Employee Signature Date
- ------------------------------------------------------------------------------
PLEASE SEND A COPY OF THIS COMPLETED FORM TO THE
COMPLIANCE DEPARTMENT FOR ALL EXECUTED TRADES
18
<PAGE>
APPENDIX III
OPPENHEIMER CAPITAL
PERSONAL SECURITIES HOLDINGS
In accordance with the Code of Ethics, please provide a list of all Securities
(other than Exempt Securities) in which you or any account, in which you have a
Pecuniary Interest, has a Beneficial Interest and all Securities (other than
Exempt Securities) in non-client accounts for which you make investment
decisions. This includes not only securities held by brokers, but also
Securities held at home, in safe deposit boxes, or by an issuer.
(1) Name of employee: ____________________________
(2) If different than #1, name of the
person in whose name the account is held: ____________________________
(3) Relationship of (2) to (1): ____________________________
(4) Broker(s) at which Account is Maintained: ____________________________
____________________________
____________________________
____________________________
(5) Account Number(s): ____________________________
____________________________
____________________________
____________________________
(6) Phone number(s) of Broker: ____________________________
____________________________
____________________________
19
<PAGE>
(7) For each account, attach your most recent account statement listing
Securities in that account. If you own Securities that are not listed in an
attached account statement, list them below:
Name of Security Quantity Value Custodian
1. __________________ ___________ ___________ ______________
2. __________________ ___________ ___________ ______________
3. __________________ ___________ ___________ ______________
4. __________________ ___________ ___________ ______________
5. __________________ ___________ ___________ ______________
(Attached separate sheet if necessary)
I certify that this form and the attached statements (if any) constitute all of
the Securities of which I have Beneficial Ownership as defined in the Code.
______________________________
Signature
______________________________
Print Name
Dated: _________________
20
<PAGE>
APPENDIX IV
OPPENHEIMER CAPITAL
ACKNOWLEDGMENT CERTIFICATION
CODE OF ETHICS
and
INSIDER TRADING POLICY AND PROCEDURES
I hereby certify that I have read and understand the attached Oppenheimer
Capital Code of Ethics and Pimco Advisors Insider Trading Policy and Procedures
(together the "Code"). Pursuant to such Code, I recognize that I must disclose
or report all personal securities transactions required to be disclosed or
reported thereunder and comply in all other respects with the requirements of
the Code. I also agree to cooperate fully with any investigation or inquiry as
to whether a possible violation of the foregoing Code has occurred. I understand
that any failure to comply in all aspects with the foregoing and these policies
and procedures may lead to sanctions including dismissal.
Date: __________________________ ______________________________
Signature
______________________________
Print Name
21
<PAGE>
APPENDIX V
OPPENHEIMER CAPITAL
ANNUAL CERTIFICATION OF COMPLIANCE
I hereby certify that I have complied with the requirements of the Code of
Ethics and the Insider Trading Policy and Procedures, for the year ended
December 31, ____. Pursuant to the Code, I have disclosed or reported all
personal securities transactions required to be disclosed or reported
thereunder, and complied in all other respects with the requirements of the
Code. I also agree to cooperate fully with any investigation or inquiry as to
whether a possible violation of the Code has occurred.
Date: _________________________ ____________________________
Signature
_____________________________
Print Name
22
<PAGE>
APPENDIX VI
PIMCO ADVISORS
POLICY REGARDING SPECIAL TRADING PROCEDURES
FOR SECURITIES OF PIMCO ADVISORS HOLDINGS L.P.
EFFECTIVE AS OF MAY 1, 1996
INTRODUCTION
PIMCO Advisors Holdings L.P. (as defined below) has adopted an Insider Trading
Policy and Procedures applicable to all personnel which prohibits insider
trading in any securities, and prohibits all employees from improperly using or
disclosing material, non-public information, a copy of which has been supplied
to you.
For the purposes of this memorandum, the term the "Company" shall include PIMCO
Advisors Holdings L.P. ("PIMCO Holdings"), PIMCO Advisors L.P. ("PIMCO
Advisors"), PIMCO Partners, G.P. ("PIMCO GP"), PIMCO Funds Distribution LLC
("PFD") (collectively, "PIMCO Advisors") and any entity in relation to which
PIMCO Advisors or one of its subsidiaries acts as a general partner or owns 50%
or more of one the issued and outstanding stock.
PERSONS TO WHOM THIS SPECIAL TRADING POLICY APPLIES
This Policy applies to all employees of the Company, and in the case of PIMCO
Holdings, the members of the Management Board ("Covered Persons"), as well as to
any transactions in securities participated in by family members, trusts or
corporations controlled by a Covered Person. In particular, this Policy applies
to securities transactions by:
the Covered Person's spouse;
the Covered Person's minor children;
any other relatives living in the Covered Person's household;
a trust in which the Covered Person has a beneficial interest, unless
such Covered Person has no direct or indirect control over the trust;
a trust as to which the Covered Person is a trustee;
a revocable trust as to which the Covered Person is a settlor;
a corporation of which the Covered Person is an officer, director or
10% or greater stockholder; or
a partnership of which the Covered Person is a partner (including most
investment clubs), unless the Covered Person has no direct or indirect
control over the partnership.
The family members, trust and corporations listed above are hereinafter referred
to as "Related persons."
23
<PAGE>
SECURITIES TO WHICH THIS SPECIAL TRADING POLICY APPLIES
Unless stated otherwise, the following Special Trading Procedures apply to all
transactions by Covered Persons and their Related Persons involving any class or
series of units of limited partner interest of PIMCO Holdings or other
securities of PIMCO Holdings, including options and other derivative securities
(such as a put, call or index security) in relation to such securities (the
"PIMCO Holdings' Securities").
SPECIAL TRADING PROCEDURES RELATING TO SECURITIES OF PIMCO HOLDINGS
1. TRADING WINDOWS
There are times when the Company may be engaged in a material non-public
development or transaction. Even if you are not aware of this development or
transaction, if you trade PIMCO Holdings' Securities before such development or
transaction is disclosed to the public, you might expose yourself and the
Company to a charge of insider trading that could be costly and difficult to
refute. In addition, such a trade by you could result in adverse publicity to
you or the company.
Therefore, the following rule shall apply: each Covered Person and all of such
person's Related Persons may only purchase or sell PIMCO Holdings' Securities
during four "trading windows" that may occur each year. The four trading windows
are generally during the months of February, May, August and November. A
memorandum detailing the specific dates of the period is sent to each employee
approximately one week prior to the opening of the window.
TRADING ON THE BASIS OF MATERIAL NON-PUBLIC INFORMATION OR COMMUNICATING
MATERIAL NON-PUBLIC INFORMATION TO OTHERS AT ANY TIME, INCLUDING IN A TRADING
WINDOW, IS A VIOLATION OF THE LAW AND A VIOLATION OF THIS POLICY.
In accordance with the procedure for waivers described below, in special
circumstances a waiver may be given to allow a trade to occur outside of a
trading window.
Employees of PIMCO Advisors should be aware that there are potential tax
consequences for such employees resulting from the ownership of PIMCO Holdings'
Securities. Each such employee contemplating purchasing PIMCO Holdings'
Securities should discuss the matter with such employee's tax advisor.
The exercise of options to purchase PIMCO Holdings' Securities for cash are not
covered by the procedures outlined above, but the securities so acquired may not
be sold except during a trading window and after all other requirements of this
policy have been satisfied.
24
<PAGE>
2. POST-TRADE REPORTING
All Covered Persons shall submit to the Compliance Officer a report of every
securities transaction in PIMCO Holdings' Securities in which they and any of
their Related Persons have participated as soon as practicable following the
transaction and in any event not later than the fifth day after the end of the
month in which the transaction occurred. The report shall include: (1) the date
of the transaction and the title and number of shares or principal amount of
each security involved; (2) the nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition); (3) the price at which the
transaction was effected; and (4) the name of the broker/dealer with or through
whom the transaction was effected. In addition, on an annual basis, each Covered
Person must confirm the amount of PIMCO Holdings' Securities which such person
and his her Related Persons beneficially own.
Each Covered Person (and not the Company) is personally responsible for insuring
that his or her transactions comply fully with any and all applicable securities
laws, including, but not limited to, the restrictions imposed under Sections
16(a) and 16(b) of the Securities Exchange Act of 1934 and Rule 144 under the
Securities Act of 1933.
3. RESOLVING ISSUES CONCERNING INSIDER TRADING
If you have any doubts or questions as to whether information is material or
non-public, or as to the applicability or interpretation of any of the foregoing
procedures, or as to the propriety of any action, you should contact the
Compliance Officer before trading or communicating the information to anyone.
Until these doubts or questions are satisfactorily resolved, you should presume
that the information is material and non-public and you should not trade in the
securities or communicate this information to anyone.
4. MODIFICATIONS AND WAIVERS
PIMCO Advisors (with the consent of PIMCO Holdings) reserves the right to amend
or modify this policy statement at any time. Waiver of any provision of this
policy statement in a specific instance may be authorized in writing by the
Compliance Officer and either the General Counsel of PIMCO Holdings or any
member of the Management Board of PIMCO Holdings. Any such waiver shall be
reported to the Management Board of PIMCO Holdings at the next regularly
scheduled meeting of each.
25
APPENDIX II
February 1, 2000
RS INVESTMENT MANAGEMENT CO. LLC
RS INVESTMENT MANAGEMENT, L.P.
RS INVESTMENT MANAGEMENT, INC.
RS GROWTH GROUP LLC
RS VALUE GROUP LLC
RS INVESTMENT TRUST
___________________________
CODE OF ETHICS
including
RSIM POLICY ON PERSONAL TRADING
___________________________
I. SCOPE AND SUMMARY
(a) Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940
Act"), requires every investment company, as well as every investment adviser to
and principal underwriter of an investment company, to have a written Code of
Ethics which specifically deals with trading practices by "Access Persons."
Access Persons are defined to include (1) officers, directors and general
partners of the two mutual fund advisers (RS Investment Management, Inc. and RS
Investment Management, L.P. -- collectively "RSIM"), as well as (2) employees of
RSIM and officers, directors, partners who have substantial responsibility for
or knowledge of the investments of the mutual funds constituting series of the
RS (each, a "Fund"), and (3) each member of the Funds' Board of Trustees. The
Rule also requires that reasonable diligence is used and procedures instituted
to prevent violations of this Code of Ethics.
(b) Sections 21A and 15(f) of the Securities Exchange Act and Section 204A of
the Investment Advisers Act further require all broker-dealers and investment
advisers to establish, maintain and enforce written policies and procedures to
prevent the misuse of material nonpublic information.
(c) Common law fiduciary principles require that an investment adviser (like
RSIM) avoid placing itself in a position of conflict of interest with its
clients. Likewise, RSIM as a general partner to various partnerships, stands in
a fiduciary relationship to the limited partners investing in those
partnerships.
<PAGE>
(d) The "Blue Ribbon" Advisory Group on Personal Investing in its report to the
Investment Company Institute also articulated the following three general
fiduciary principles which the Group believes should govern the personal
investment activities of mutual fund advisory and distributor personnel:
(i) the duty at all times to place the interests of Fund shareholders
first;
(ii) the requirement that all personal securities transactions be
conducted consistent with the Code of Ethics and in such a manner
as to avoid any actual or potential conflict of interest or any
abuse of an individual's position of trust and responsibility;
and
(iii)the fundamental standard that mutual fund advisory and
distributor personnel should not take inappropriate advantage of
their positions.
(e) This Code of Ethics is designed to satisfy the above-referenced legal
requirements and ethical principles as applicable to RSIM in their roles as
adviser to and distributor for the RSIM Funds. It is important that all
partners, officers, directors and employees of RSIM to whom this Code of Ethics
applies observe the ethical standards set forth in the Code.
(f) This Code of Ethics is not intended to cover all possible areas of potential
liability under the 1940 Act or under the federal securities laws in general.
For example, other provisions of Section 17 of the 1940 Act prohibit various
transactions between a registered investment company and affiliated persons,
including the knowing sale or purchase of property to or from a registered
investment company on a principal basis, and joint transactions (E.G., combining
to achieve a substantial position in a security, concerted market activity, or
commingling of funds) between an investment company and an affiliated person.
(g) It is expected that Access Persons will be sensitive to all areas of
potential conflict, even if this Code of Ethics does not address specifically an
area of fiduciary responsibility.
(h) Exceptions to specific provisions of this Code of Ethics may be granted by
the compliance officer or an alternate if warranted by circumstances and if the
exception is requested in a timely manner.
(i) SUMMARY. Under the Code of Ethics, all Access Persons, EXCEPT INDEPENDENT
TRUSTEES of the Funds, are required to:
(i) Pre-clear all trades in individual securities. [Note: certain
securities are excepted: mutual funds, stock index options,
SPDR's and money market instruments are "excepted securities."]
(ii) Reverse trades that involve securities subsequently purchased or
sold by a Fund within the applicable blackout period.
(iii)Observe a minimum 60 day holding period for all securities
(except "excepted securities"). This policy only applies to
profitable trades.
(iv) Avoid IPO's.
(v) Receive special clearance for private placements.
(vi) Avoid directorships of companies in which Fund assets may be
invested. (Unless permission is obtained from the CEO.)
<PAGE>
(vii)Promptly disclose all security transactions and file quarterly
transaction reports and annual ownership reports.
(viii) Avoid security transactions in which they possess material
non-public information with regard to the particular security.
II. DEFINITIONS
(a) "ACCESS PERSON" means: (i) officers, directors and general partners of the
four mutual fund advisers (RS Investment Management, Inc. and RS Investment
Management, L.P., RS Growth Group LLC and RS Value Group LLC -- collectively
"RSIM"), as well as (ii) employees of RSIM and officers, directors, partners who
have substantial responsibility for or knowledge of the investments of the
mutual funds constituting series of the RS Trust (each, a "Fund"), hedge funds
managed by RSIM, institutional accounts where RSIM acts as a sub-adviser,
separate accounts managed by RSIM and (iii) each member of the Funds' Board of
Trustees. Members of the immediate family of an Access Person living in the same
household are covered by this Code of Ethics to the same extent as the Access
Person.
(b) "ADVISORY PERSON" means with respect to (i) the Funds, (ii) an investment
adviser to a Fund or (iii) any company in a control relationship to the Funds or
the investment adviser (i.e., RSIM), (A) any employee who, in connection with
his regular functions or duties, makes, participates in, or obtains information
regarding, the purchase or sale of a security by a Fund, or whose functions
relate to the making of any recommendations with respect to such purchases or
sales; and (B) any natural person in a control relationship to the Funds or an
investment adviser who obtains information concerning recommendations made to a
Fund with regard to the purchase or sale of a security.
(c) A security is "BEING CONSIDERED FOR PURCHASE OR SALE" when a recommendation
to purchase or sell a security has been made and communicated, and, with respect
to a person making a recommendation, when such person seriously considers making
such a recommendation.
(d) "BENEFICIAL OWNERSHIP" shall be interpreted in the same manner as it would
be in determining whether a person is subject to the provisions of Section 16 of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, with the exception that the determination of direct or indirect
beneficial ownership shall apply to all securities which an Access Person has or
acquires.
(e) "CONTROL" means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely the result of
an official position, as further defined in Section 2(a)(9) of the 1940 Act.
(f) "PURCHASE OR SALE OF A SECURITY" includes the writing of an option to
purchase or sell a security.
(g) "SECURITY" shall have the meaning set forth in Section 2(a)(36) of the 1940
Act, and shall include options and warrants, except that it shall not include
excepted securities (as defined below).
(h) "EXCEPTED SECURITIES" include shares of registered open-end investment
companies (except the RSIM Funds), securities issued by the Government of
the United States (including Government agencies), short term debt
securities which are "government securities" within the meaning of Section
2(a)(16) of the 1940 Act, bankers' acceptances, bank certificates of
deposit, commercial paper and other money market instruments. Stock Index
Options and SPDR's are also considered "excepted securities" for all
purposes except the quarterly and annual reporting obligations.
<PAGE>
(i) "MATERIAL NON-PUBLIC INFORMATION" is information relating to dividend
increases or decreases, earnings estimates, changes in previously released
earnings estimates, significant expansion or curtailment of operations, a
significant increase or decline of orders, significant merger or
acquisition proposals or agreements, significant new products or
discoveries, extraordinary borrowing, major litigation, liquidity problems,
extraordinary management developments, purchase or sale of substantial
assets or any information a reasonable investor might consider to be of
importance in making an investment decision to buy, sell or hold.
Information should be deemed non-public if it has not been widely
disseminated by wire service, in one or more newspapers of general
circulation, or by communication from the company involved to its
shareholders or in a press release.
III. PROHIBITED TRADING PRACTICES
(a) GENERAL ANTI-FRAUD PROHIBITION. If a security:
(i) is being considered for purchase or sale by a Fund;
(ii) is in the process of being purchased or sold by a Fund; or
(iii)is or has been held by a Fund within the most recent 15 day
period;
no Access Person shall knowingly purchase, sell or otherwise directly or
indirectly acquire or dispose of any direct or indirect beneficial ownership
interest in that security if such action by such Access Person would defraud a
Fund, operate as a fraud or deceit upon a Fund, or constitute a manipulative
practice with respect to a Fund.
(b) PRE-CLEARANCE. No Access Person shall purchase or sell any individual
security (I.E., any security except an "excepted security") without
pre-clearance. Once pre-clearance has been obtained, the trade must be executed
by the end of the business day or new clearance must be obtained. (See attached
Pre-clearance Form).
(c) BLACKOUT PERIOD. An Access Person may not execute a securities transaction
(other than an "excepted security") on any day during which any Fund in the RSIM
Funds complex has a pending "buy" or "sell" order in that same security or a
related security of the same issuer (e.g., common stock is a related security to
an option on common stock). However, it is not always possible to determine
which orders were executed until the following day. The fact of pre-clearance
does not mean that a trade will not end up being unwound if it is later
ascertained that one of the Funds traded in that security on the same day.
Blackout periods may be extended for certain securities. This policy applies to
all Access people.
Additionally, portfolio managers and others who make investment decisions with
respect to a Fund are prohibited for seven (7) calendar days preceding and
following any Fund purchase or sale of that security and will include the entire
business day on which the last Fund purchase or sale activity occurs. Any
profits realized on a trade effected during the blackout period by a portfolio
manager or other individual with investment decision-making authority will be
disgorged to the appropriate Fund. The blackout period only applies to
securities traded by a Fund or Funds over which the individual exercises
investment decision-making authority. It does not apply to all Funds in the
complex. The fact of pre-clearance and execution within the same day of
pre-clearance is not relevant. Blackout periods may be extended for certain
securities
<PAGE>
(d) TRADES IN SHARES OF RSIM FUNDS. Please note that purchases and sales of
shares of an RS Fund do NOT need pre-clearance, but the possibility of
appearance of conflict of interest in such transactions is high. Accordingly,
all purchases and sales of shares of an RS Fund:
(i) should be made well in advance of the closing price calculation
each day, and
(ii) should not be made when in possession of material nonpublic
information.
(e) NO IPO'S. No Access Person shall acquire any securities offered in an
initial public offering.
(f) PRIVATE PLACEMENTS. No Access Person shall acquire any securities in a
private placement without both pre-clearance and special approval by the CEO.
(g) OTHER RESTRICTIONS. No Access Person shall engage in short term trading or
make other investments in contravention of the general policies that may be
established from time to time as set forth. An Access Person must hold a
security (other than an "excepted security") for a minimum of 60 days. This
policy only applies to profitable trades.
IV. EXEMPTED TRANSACTIONS/SECURITIES
The prohibitions of Section IV of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the Access Person has
no direct or indirect influence or control.
(b) Purchases or sales of securities which are not eligible for purchase or sale
by any Fund.
(c) Purchases or sales which are non-volitional on the part of either the Access
Person or the Trust (E.G., receipt of gifts).
(d) Purchases that are part of an automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer pro rata
to all holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired.
(f) Purchases and sales which have received the prior approval of the Compliance
Officer.
(g) Purchases and sales of securities, which are not included in the definition
of "Security" in Section II.g or are "excepted securities" as defined in Section
II.h. -- I.E., mutual fund shares (but not RS Fund shares), stock index options,
SPDR's, government securities and money market instruments.
V. REPORTING
(a) PRE-CLEARANCE AND IMMEDIATE REPORTING. All RSIM employees are currently
required to report all individual security transactions (and purchase/sales of
RSIM Funds) under rules specifically applicable to advisory and broker-dealer
organizations. Access persons must also seek pre-clearance of individual
security transactions and are required to have a duplicate confirmation of the
transaction sent to the RSIM compliance officer promptly following the
transaction. The only securities for which such pre-clearance and immediate
reporting is not required are "excepted securities" and shares of the RSIM
Funds.
<PAGE>
(b) QUARTERLY REPORTS. In addition to contemporaneous reporting, all Access
Persons are required to review, and if necessary, correct or make additions to
quarterly reports generated within 10 days of the end of each calendar quarter,
listing all securities transactions except transactions in "excepted
securities." See subsection (c) below. Please note that purchases and sales of
shares of an RSIM Fund, which are not subject to pre-clearance and
contemporaneous reporting, are subject to quarterly reporting.
(c) Every quarterly report shall be made not later than ten (10) days after the
end of each calendar quarter and shall contain the following information:
(i) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(ii) The nature of the transaction (i.e., purchase, sale, or any other
type of acquisition or disposition);
(iii) The price at which the transaction was effected; and
(iv) The name of the broker, dealer, or bank with or through whom the
transaction was effected.
(d) Copies of statements or confirmations containing the information specified
in paragraph (c) above may be submitted in lieu of listing the transactions.
Persons submitting statements will be deemed to have satisfied this reporting
requirement, and need only sign off quarterly on having complied.
(e) For periods in which no reportable transactions were effected, the quarterly
report shall contain a representation that no transactions subject to the
reporting requirements were effected during the relevant time period.
(f) ANNUAL REPORT. Annually, in conjunction with the quarterly report for the
quarter ending June 30, each Access Person shall be required to review, and if
necessary, correct or make additions to, an annual report, which lists all
security positions in which such Access Person has a direct or indirect
beneficial interest.
(g) Any quarterly or annual report may contain a statement that the report shall
not be construed as an admission by the person making such report that he has
any direct or indirect beneficial ownership in the security to which the report
relates.
(h) An initial holdings report of all securities beneficially owned by such
person and the name of the broker with whom the Access Person maintained a
securities account must be submitted to Scott Smith or Marianne Clark for review
no later than 10 days after an employee of RSIM becomes an Access Person.
VI. EXCEPTIONS TO REPORTING REQUIREMENTS
<PAGE>
(a) An INDEPENDENT TRUSTEE, I.E., a Trustee of the RS Investment Trust who is
not an "interested person" (as defined in Section 2(a)(19) of the 1940 Act) of
the Funds, is not required to file a report on a transaction in a security
provided such Trustee neither knew nor, in the ordinary course of fulfilling his
or her official duties as a trustee of the Funds, should have known that, during
the 15-day period immediately preceding or after the date of the transaction by
the Trustee, such security is or was purchased or sold by a Fund or is or was
being considered for purchase or sale by a Fund by its investment adviser.
(b) Although an independent Trustee is exempt from the reporting requirements of
this Code, such Trustee may nevertheless voluntarily file a report representing
that he or she did not engage in any securities transactions which, to his or
her knowledge, involved securities that were being purchased or sold or
considered for purchase by any Fund during the 15-day period preceding or after
the date(s) of any transaction(s) by such Trustee. The failure to file such a
report, however, shall not be considered a violation of this Code of Ethics.
(c) Access Persons are not required to make a report with respect to an exempted
transactions/securities as described in Section V of this Code.
(d) Access Persons do not need to file multiple reports. Copies of a single
report can be used to satisfy the personal trading reports required by RSIM.
VII. IMPLEMENTATION
(a) In order to implement this Code of Ethics, a compliance officer and three
alternates have been designated for RSIM and the Funds. These individuals are:
Scott R. Smith
Marianne E. Clark (alternate)
Steven M. Cohen (alternate)
G. Randy Hecht -President and CEO (alternate)
(b) The compliance officer shall create a list of all "Access Persons" and
update the list with reasonable frequency.
(c) The compliance officer shall circulate a copy of this Code of Ethics to each
Access Person, together with an acknowledgment of receipt, which shall be signed
and returned to the Compliance Officer by each Access Person at least once each
year.
(d) The compliance officer or a compliance officer delegate is charged with
responsibility for ensuring that the pre-clearance and reporting requirements of
this Code of Ethics are adhered to by all Access Persons. The compliance officer
or compliance officer delegate shall be responsible for ensuring that the review
requirements of this Code of Ethics (see Section VIII) are performed in a prompt
manner. The compliance officer shall be responsible for enforcing the policies
set forth herein.
VIII. REVIEW
(a) The compliance officer shall review all reports of personal securities
transactions and compare such reports with pre-clearance forms and with
completed and contemplated portfolio transactions of each Fund to determine
whether noncompliance with the Code of Ethics and/or other applicable trading
procedures may have occurred. The compliance officer may delegate this function
to one or more persons.
<PAGE>
(b) No person shall review his or her own reports. Before making any
determination that a non-compliant transaction may have been made by any person,
the compliance officer shall give such person an opportunity to supply
additional explanatory material. If a securities transaction of the compliance
officer is under consideration, an alternate shall act in all respects in the
manner prescribed herein for the designated compliance officer.
(c) If the compliance officer determines that noncompliance with the Code of
Ethics has or may have occurred, he or she shall, following consultation with
counsel, submit his or her written determination, together with the transaction
report, if any, and any additional explanatory material provided by the
individual, to G. Randall Hecht, who shall make an independent determination of
whether a violation has occurred.
(d) The compliance officer shall be responsible for maintaining a current list
of all Access Persons (including all Fund Trustees) and for identifying all
reporting Access Persons on such list, and shall take steps to ensure that all
reporting Access Persons have submitted reports in a timely manner. The
compliance officer may delegate the compilation of this information to
appropriate persons. Failure to submit timely reports will be communicated to G.
Randall Hecht and to the Funds' Board of Trustees.
IX. SANCTIONS
(a) If a material violation of this Code occurs or a preliminary determination
is made that a violation may have occurred, a report of the alleged violation
shall be made to the Board of Trustees.
(b) The Board of Trustees may impose such sanctions as it deems appropriate,
including, a letter of censure, suspension, or termination of employment, and/or
a disgorging of any profits made.
<PAGE>
Please sign and date the attached form.
Detach and return to RSIM Compliance.
- ----------------------------------------------------------------------------
I FULLY UNDERSTAND AND HEREBY SUBSCRIBE TO THIS CODE OF ETHICS.
---------------------------------
NAME
---------------------------------
SIGNATURE
---------------------------------
DATE
- ----------------------------------------------------------------------------
<PAGE>
Appendix III
February 1, 2000
RS INVESTMENT MANAGEMENT CO. LLC
RS INVESTMENT MANAGEMENT, L.P.
RS INVESTMENT MANAGEMENT, INC.
RS GROWTH GROUP LLC
RS VALUE GROUP LLC
RS INVESTMENT TRUST
___________________________
POLICY ON PERSONAL TRADING
___________________________
SUMMARY
The following policy on personal trading, together with the enclosed Code of
Ethics, outlines all existing restrictions on personal securities transactions
for Access Persons of RS Mutual Funds. While it is our belief that personal
investing can lead an individual to be a better, more knowledgeable investor,
these guidelines have been written not only to ensure compliance with relevant
securities laws, but also to protect our investors and prevent any perception of
a potential conflict of interest.
Access Persons are defined as (i) officers, directors and general partners of
the two mutual fund advisers (RS Investment Management, Inc. and RS Investment
Management, L.P. -- collectively "RSIM"), as well as (ii) employees of RSIM and
officers, directors, partners who have substantial responsibility for or
knowledge of the investments of the mutual funds constituting series of the RS
(each, a "Fund"), and (iii) each member of the Funds' Board of Trustees. Members
of the immediate family of an Access Person living in the same household are
covered by this policy to the same extent as the Access Person. The policy also
applies to the immediate families living in the same household of all Access
Persons. The highlights of the policy are as follows:
1) PERSONAL ACCOUNTS
All personal brokerage accounts must be maintained at BancBoston Robertson
Stephens, Charles Schwab or Fidelity Investments. Any exceptions to this policy
must be approved by the Compliance Department.
2) PRE-CLEARANCE
All personal trades for individual securities for all Access Persons must be
pre-cleared by the Compliance Department using the attached form. After
pre-clearance has been granted, the trade must be completed by the end of the
business day, or the approval is void and the form must be resubmitted. Trades
for which pre-clearance is required include ALL SECURITIES EXCEPT, open-end
mutual funds, stock index options, SPDR's, government securities and money
market securities. Obtaining pre-clearance for a trade does not guarantee that
the trade will not be later reversed should a Fund effect a subsequent trade in
the same security.
<PAGE>
3) BLACKOUT PERIODS
An Access Person may not execute a securities transaction (other than an
"excepted securities") on any day during which any Fund in the RSIM Funds
complex has a pending "buy" or "sell" order in that same security or a related
security of the same issuer (e.g., common stock is a related security to an
option on common stock). However, it is not always possible to determine which
orders were executed until the following day. The fact of pre-clearance does not
mean that a trade will not end up being unwound if it is later ascertained that
one of the Funds traded in that security on the same day. Blackout periods may
be extended for certain securities. This policy applies to all Access people.
Additionally, portfolio managers and others who make investment decisions with
respect to a Fund are prohibited for seven (7) calendar days PRECEDING AND
FOLLOWING any Fund purchase or sale of that security and will include the entire
business day on which the last Fund purchase or sale activity occurs. Any
profits realized on a trade effected during the blackout period by a portfolio
manager or other individual with investment decision-making authority will be
disgorged to the Fund. The blackout period only applies to securities traded by
a Fund or Funds over which the individual exercises investment-making authority.
It does not apply to all Funds in the complex. The fact of pre-clearance and
execution within the same day of pre-clearance is not relevant. Blackout periods
may be extended for certain securities.
4) RESTRICTIONS ON SHORT-TERM TRADING
Access Persons are strongly discouraged from entering into securities
transactions for the purpose of achieving short-term gains. In addition to the
general prohibition against acquiring securities in the blackout period before
and immediately following Fund transactions, an Access Person must hold a
security (other than an excepted security, e.g., a stock index option) for a
minimum of 60 days. This policy only applies to profitable trades. Exceptions
may be made in the case of a medical or other emergency, provided that relevant
details are communicated at the time of pre-clearance.
5) INITIAL PUBLIC OFFERINGS
All Access Persons are strictly prohibited from acquiring securities in any
initial public offering.
6) PRIVATE PLACEMENTS
Investments by Access Persons in private placements require both pre-clearance
and special approval from the CEO.
<PAGE>
7) SERVICE AS A DIRECTOR
Portfolio Managers and Access Persons will be permitted to serve as directors of
publicly traded companies and private companies in which the Funds may invest
only if the CEO determines that doing so would be in the best interest and would
not present a conflict of interest. All Fund investment decisions made or
participated in by such Director/Access Persons require pre-clearance from the
CEO.
8) DISCLOSURE
To the extent an Access Person maintains permitted brokerage accounts at
broker/dealers other than BancBoston Robertson Stephens, Charles Schwab & Co.,
or Fidelity Investments that Access Person must ensure that copies of trade
confirmations for their brokerage accounts and accounts of immediate family
living in the same household, are forwarded to the Compliance Department. Trade
confirmations will be cross-referenced against pre-clearance forms to ensure
that approval had been granted. In addition, Access Persons must make required
quarterly reports of securities transactions (or furnish brokerage statements)
and must sign off, at least annually, on receipt of and compliance with the Code
of Ethics.
<PAGE>
[RS INVESTMENT MANAGEMENT LETTERHEAD]
PRE-AUTHORIZATION FOR PERSONAL TRADES
To: RSIM Compliance
Phone: (415) 591-2779
(415) 591-2728
Fax: (415) 591-2851
From: Date:
--------------------- ----------------------
- ----------------------------------------------------------------------------- I
wish to effect the following trade for my personal account, an account in which
I have a beneficial interest, or an account belonging to one of my immediate
relatives living in the same household.
NAME of Security TICKER
-------------------------- -----------
# OF SHARES BUY SELL (CIRCLE ONE) PRICE
-------- ----------
BROKERAGE FIRM & ACCOUNT #
---------------------- ---------------
THE PURCHASE/SALE IS BASED ON PERSONAL RESEARCH YES [ ] NO [ ]
(You may be required to provide documentation should there be a potential
conflict).
I AM AWARE OF AN INTENDED OR POSSIBLE MUTUAL FUND TRADE IN THIS SECURITY
YES [ ] NO [ ]
I AGREE THAT IF I DO NOT EFFECT THE ABOVE TRADE ON THE DAY INDICATED BELOW, THE
APPROVAL IS NULL AND VOID AND THE REQUEST MUST BE RESUBMITTED. I REALIZE THAT IF
I AM AN EMPLOYEE WITH INVESTMENT DECISION MAKING AUTHORITY, AND ANY RS FUNDS
TRANSACTIONS OCCUR WITHIN 7 DAYS OF MY TRANSACTION THAT INVOLVE A FUND OVER
WHICH I HAVE AUTHORITY AND THE ABOVE SECURITY, THE TRADE WILL BE BROKEN AT MY
EXPENSE. I REALIZE THAT IF I DO NOT HAVE SUCH AUTHORITY, AND ANY FUND
TRANSACTIONS OCCUR ON THE SAME DAY AS MY TRANSACTION, THE TRADE WILL BE BROKEN
AT MY EXPENSE. FURTHERMORE, I AFFIRM THAT IF THIS IS A SALE OF STOCK, I HAVE
EITHER HELD IT FOR AT LEAST 60 DAYS OR I AM SELLING THE STOCK AT A LOSS.
---------------------------
AUTHORIZED
- --------------------------------- -------------------------
SIGNED DATE
Exhibit (j)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 1 to Registration Statement No. 333-80845 of LSA Variable Series Trust on
Form N-1A under the Securities Act of 1933, of our report dated February 9,
2000, relating to the LSA Variable Series Trust, and to the references to us
under the headings "Financial Highlights" in the Prospectus and "Independent
Auditors" and "Financial Statements" in the Statement of Additional Information,
which are part of such Registration Statement.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 19, 2000
POWER OF ATTORNEY
WITH RESPECT TO
LSA VARIABLE SERIES TRUST
Know all men by these presents that Thomas J. Wilson, II, whose signature
appears below, constitutes and appoints John R. Hunter and Michael J. Velotta,
his attorneys-in-fact, with power of substitution, and each of them in any and
all capacities, to sign any registration statements and amendments thereto for
LSA Variable Series Trust and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
September 27, 1999
/s/ Thomas J. Wilson, II
Thomas J. Wilson, II
Trustee and Chairman of the Board
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
LSA VARIABLE SERIES TRUST
Know all men by these presents that Robert S. Engelman, Jr., whose signature
appears below, constitutes and appoints John R. Hunter and Michael J. Velotta,
his attorneys-in-fact, with power of substitution, and each of them in any and
all capacities, to sign any registration statements and amendments thereto for
LSA Variable Series Trust and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
October 13, 1999
/s/ Robert S. Engelman, Jr.
Robert S. Engelman, Jr.
Trustee
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
LSA VARIABLE SERIES TRUST
Know all men by these presents that Karen J. May, whose signature appears below,
constitutes and appoints John R. Hunter and Michael J. Velotta, her
attorneys-in-fact, with power of substitution, and each of them in any and all
capacities, to sign any registration statements and amendments thereto for LSA
Variable Series Trust and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
September 27, 1999
/s/ Karen J. May
Karen J. May
Trustee
<PAGE>
POWER OF ATTORNEY
WITH RESPECT TO
LSA VARIABLE SERIES TRUST
Know all men by these presents that Arthur S. Nicholas, whose signature appears
below, constitutes and appoints John R. Hunter and Michael J. Velotta, his
attorneys-in-fact, with power of substitution, and each of them in any and all
capacities, to sign any registration statements and amendments thereto for LSA
Variable Series Trust and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
September 27, 1999
/s/ Arthur S. Nicholas
Arthur S. Nicholas
Trustee
