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Previous: VERTICALBUYER INC, SB-2/A, EX-23.1, 2000-09-15 |
Next: WACHOVIA VARIABLE INSURANCE FUNDS, N-1A/A, EX-99.CODEOFETHICS, 2000-09-15 |
1933 Act File No. 333-33306
1940 Act File No. 811-09873
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933..... X
Pre-Effective Amendment No. 1 ........................... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. __1__......................................... __X__
THE WACHOVIA VARIABLE INSURANCE FUNDS
(Exact name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Gail Cagney
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering As soon as
possible after the effectiveness of the
Registration Statement
Pursuant to the provisions of Rule 24f-2 of the Investment Company Act of 1940,
Registrant hereby elects to register an indefinite number of shares.
Amendment Pursuant to Rule 473
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
Copies To:
Donald W. Smith, Esquire
Kirkpatrick & Lockhart L.L.P.
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1800
WACHOVIA BALANCED FUND II
(A PORTFOLIO OF THE WACHOVIA
VARIABLE INSURANCE FUNDS)
[Graphic Representation Omitted--See Appendix]
<R>
</R>
[Graphic Representation Omitted--See Appendix]
A Portfolio of The Wachovia Variable Insurance Funds
This prospectus offers shares of the Wachovia Balanced Fund II (Fund), which is an investment portfolio of The Wachovia Variable Insurance Funds (Trust), an open-end, management investment company. Shares of the Fund may be sold only to separate accounts of insurance companies to serve as the investment medium for variable life insurance policies and variable annuity contracts issued by the insurance companies.
The separate accounts invest in the Fund in accordance with allocation instructions received from owners of life insurance policies and annuity contracts. Such allocation rights are described further in the prospectus for the separate account. This prospectus contains the information you should read and know before you invest in the Fund through the variable annuity contracts and variable life insurance policies offered by insurance companies which provide for investment in the Trust. Keep this prospectus for future reference.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts. They are subject to investment limitations that do not apply to other mutual funds available directly to the general public. Therefore, any comparison of these two types of mutual funds would be inappropriate. This prospectus should be accompanied by the prospectuses for such variable contracts.
<R>
|
Goal, Strategy and Risks of the Wachovia Balanced Fund II |
1 |
|
Comparative Performance |
2 |
|
What are the Fund's Fees and Expenses? |
3 |
|
What are the Fund's Main Investments and Investment Techniques? |
4 |
|
What are the Risks of Investing in the Fund? |
6 |
|
What do Shares Cost? |
7 |
|
How is the Fund Sold? |
8 |
|
How to Purchase and Redeem Shares |
8 |
|
How to Exchange Shares |
8 |
|
Account and Share Information |
9 |
|
Who Manages the Fund? |
9 |
|
Mixed and Shared Funding |
9 |
</R>
<R>
</R>
Seeks to produce long-term growth of principal and current income.
The Fund pursues its investment objective by investing primarily in a portfolio of equity securities and debt securities. In selecting equity securities, the investment adviser uses a combined growth and value approach, seeking undervalued companies that it believes have improving prospects for growth. In selecting debt securities, the investment adviser seeks to maximize total return (which consists of capital gains and income) available from a diversified portfolio of fixed income securities which provide relative stability of principal and income as compared to other fixed income securities. Under normal market circumstances, the Fund will invest at least 65% of its holdings in equity securities and debt securities. As a matter of operating policy, the asset mix of the Fund will normally range between 50-70% in common stocks and convertible securities, 30-50% in preferred stocks and bonds, and 0-20% in money market instruments. The Fund will maintain at least 25% of its holdings in fixed income senior securities, including convertible senior securities.
All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund.
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by Wachovia Bank, N.A., the Federal Deposit Insurance Corporation or any other government agency.
A more detailed description of these risks can be found in "What are the Risks of Investing in the Fund?" herein.
The Fund is subject to fluctuations in the stock market which has periods of increasing and decreasing values. These fluctuations can be caused by many events, including changes to domestic or international economic conditions.
Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Further, growth stocks may not pay dividends or may pay lower dividends than value stocks. Growth stocks may be more adversely affected in a down market compared to value stocks that pay higher dividends and may lag behind growth stocks in an up market.
Prices of fixed-rate debt securities generally move in the opposite direction of the interest rates. The interest payments on fixed-rate debt securities do not change when interest rates change. Therefore, the price of these securities can be expected to decrease when interest rates increase and the Fund's net asset value may go down.
When homeowners prepay their mortgages in response to lower interest rates, the Fund will be required to reinvest the proceeds at the lower interest rates available. Also, when interest rates fall, the price of mortgage backed securities may not rise to as great an extent as that of other fixed income securities.
Because the Fund invests in securities issued by foreign companies, the Fund's share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.
Since any investment can be adversely affected by changes in tax laws, the Fund is subject to this risk.
Various investment strategies involve agreements to purchase or sell securities or currencies in amounts that exceed the amount the Fund has invested in the underlying securities or currencies.
The successful use of futures, options, and other derivative instruments is based on the investment adviser's ability to correctly anticipate market movements.
When lending securities, the Fund may not be able to get them back from the borrower on a timely basis, thereby exposing the Fund to a loss of investment opportunities.
Asset-backed and mortgage-backed securities are subject to risks of prepayment which generally occurs when interest rates fall.
<R>
The Fund is a new fund that is just commencing operations, and therefore, has no performance history.
</R>
<R>
These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund.
</R>
<R>
|
Shareholder Fees |
|
Balanced |
|
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
|
None |
|
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price
or |
|
None |
|
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) |
|
None |
|
Redemption Fee (as a percentage of amount redeemed, if applicable) |
|
None |
|
Exchange Fee |
|
None |
|
|
|
|
|
Annual Fund Operating Expenses1 |
|
|
|
Management Fee |
|
0.70% |
|
Distribution (12b-1) Fee2 |
|
0.25% |
|
Shareholder Services Fee |
|
None |
|
Other Expenses |
|
0.75% |
|
Total Annual Operating Expenses (Before Waiver)1 |
|
1.70% |
|
Waiver of Fund Expenses |
|
0.69% |
|
Total Annual Fund Operating Expenses (After Waiver) |
|
1.01% |
|
1 Pursuant to an agreement between the Adviser and The Wachovia Variable Insurance Funds, the Adviser agrees during the period from June 1, 2000 through May 31, 2001 to waive its fees, and/or make reimbursements to the Funds, so that each Fund's net operating expenses, in the aggregate, do not exceed the Fund's Total Actual Annual Operating Expenses listed above. The Adviser agrees that this obligation shall constitute a contractual commitment enforceable by the Trusts and that the Adviser shall not assert any right to reimbursement of amounts so waived or reimbursed. |
||
|
2 The Fund has no present intention of paying or accruing the distribution (12b-1) fee during the year ended January 31, 2001. |
||
</R>
<R>
The following Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that each Fund's operating expenses are based upon the current expense limitation as shown above in the table. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
</R>
<R>
|
|
|
1 Year |
|
3 Years |
|---|---|---|---|---|
|
Balanced Fund II |
|
$103 |
|
$322 |
</R>
The Fund invests a substantial portion of its assets in equity securities. Equity securities are the fundamental unit of ownership in a company. They represent a share of the issuer's earnings and assets, after the issuer pays its liabilities. Generally, issuers have discretion as to the payment of any dividends or distributions. As a result, investors cannot predict the income they will receive from equity securities. However, equity securities offer greater potential for appreciation than many other types of securities, because their value increases directly with the value of the issuer's business. The following describes the types of equity securities in which the Fund may invest.
Common stocks are the most prevalent type of equity security. Common stocks receive the issuer's earnings after the issuer pays its creditors and any preferred stockholders. As a result, changes in an issuer's earnings directly influence the value of its common stock.
Preferred stocks have the right to receive specified dividends or distributions before the issuer makes payments on its common stock. Some preferred stocks also participate in dividends and distributions paid on common stock. Preferred stocks may also permit the issuer to redeem the stock. The Fund may treat such redeemable preferred stock as a fixed income security.
Warrants give the Fund the option to buy the issuer's equity securities at a specified price (the exercise price) at a specified future date (the expiration date). The Fund may buy the designated securities by paying the exercise price before the expiration date. Warrants may become worthless if the price of the stock does not rise above the exercise price by the expiration date. This increases the market risks of warrants as compared to the underlying security. Rights are the same as warrants, except companies typically issue rights to existing stockholders.
The Fund invests a substantial portion of its assets in fixed income securities. Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities. However, the returns on fixed income securities are limited and normally do not increase with the issuer's earnings. This limits the potential appreciation of fixed income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
Derivative contracts are financial instruments that require payments based upon changes in the values of designated (or underlying) securities, currencies, commodities, financial indices or other assets. Some derivative contracts (such as futures, forwards and options) require payments relating to a future trade involving the underlying asset. Other derivative contracts (such as swaps) require payments relating to the income or returns from the underlying asset. The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Investors make payments due under their contracts through the exchange. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. Parties to the contract make (or collect) daily payments to the margin accounts to reflect losses (or gains) in the value of their contracts. This protects investors against potential defaults by the counterparty. Trading contracts on an exchange also allows investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a future date by entering into an offsetting contract to sell the same asset on the same date. If the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. Exchanges may limit the amount of open contracts permitted at any one time. Such limits may prevent the Fund from closing out a position. If this happens, the Fund will be required to keep the contract open (even if it is losing money on the contract), and to make any payments required under the contract (even if it has to sell portfolio securities at unfavorable prices to do so). Inability to close out a contract could also harm the Fund by preventing it from disposing of or trading any assets it has been using to secure its obligations under the contract. The Fund may also trade derivative contracts over-the-counter (OTC) in transactions negotiated directly between the Fund and the counterparty. OTC co ntracts do not necessarily have standard terms, so they cannot be directly offset with other OTC contracts. In addition, OTC contracts with more specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset, derivative contracts may increase or decrease the Fund's exposure to market and currency risks, and may also expose the Fund to liquidity and leverage risks. OTC contracts also expose the Fund to credit risks in the event that a counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date, and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts. Futures contracts traded OTC are frequently referred to as forward contracts.
The Fund may buy and sell the following type of futures contracts: stock index futures.
Instead of a buy-and-hold strategy, the Fund will actively trade its portfolio securities in an attempt to achieve the Fund's investment objective. Active trading will cause the Fund to have an increased portfolio turnover rate, which is likely to generate shorter-term gains (losses) for its shareholders, which are taxed at a higher rate than longer-term gains (losses). Actively trading portfolio securities increases the Fund's trading costs and may have an adverse impact on the Fund's performance.
When the Fund invests in debt securities or convertible securities most will be rated BBB or better by Standard & Poor's or Baa or better by Moody's Investors Service at the time of purchase. Unrated securities will be determined by the investment adviser to be of like quality and may have greater risk but a higher yield than comparable rated securities.
Securities rated BBB by Standard and Poor's or Baa by Moody's Investors Service have speculative characteristics.
The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.
The Fund is subject to fluctuations in the stock market which has periods of increasing and decreasing values. These fluctuations can be caused by many events, including changes to domestic or international economic conditions. Because the Fund invests substantially in stocks, it is more subject to stock market risks than funds with portfolios that do not invest in stocks. Stocks have greater volatility than debt securities. While greater volatility increases risk, it offers the potential for greater reward.
Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. For instance, the price of a growth stock may experience a larger decline on a forecast of lower earnings, a negative fundamental development, or an adverse market development. Further, growth stocks may not pay dividends or may pay lower dividends than value stocks. This means they depend more on price changes for returns and may be more adversely affected in a down market compared to value stocks that pay higher dividends. The price of a value stock may experience a smaller increase on a forecast of higher earnings, a positive fundamental development, or positive market development. Value stocks depend less on price changes for returns and may lag behind growth stocks in an up market.
Prices of fixed-rate debt securities generally move in the opposite direction of the interest rates. The interest payments on fixed-rate debt securities do not change when interest rates change. Therefore, the price of these securities can be expected to decrease when interest rates increase and the Fund's net asset value may go down. While the investment adviser attempts to anticipate interest rate movements, there is no guarantee that it will be able to correctly predict them.
In addition, debt securities with longer maturities or durations will experience greater price volatility than those with shorter maturities or durations, and the Fund's net asset value can be expected to fluctuate accordingly.
The credit quality of a debt security is based upon the ability of the issuer to repay the security. If the credit quality of securities held by Fund declines, the Fund's net asset value could go down.
Principal and interest payments on a security may not be paid when due. If interest rates are declining, an issuer may repay a debt security held in the portfolio prior to its maturity. If this occurs, the investment adviser may have to reinvest the proceeds in debt securities paying lower interest rates resulting in lower yields to the Fund.
The Fund is subject to prepayment risks. Principal on a fixed income security may be repaid before its scheduled maturity. This may reduce the security's value and require the Fund to reinvest the prepayment at a lower yield. In addition, the Fund may buy a fixed income security with an expectation of early prepayment. If the prepayment does not occur, the security will decline in value. This is known as Extension Risk.
Since any investment can be adversely affected by changes in tax laws, the Fund is subject to this risk. For example, the value of stocks can be affected by changes in capital gains tax rates.
Various investment strategies involve agreements to purchase or sell securities or currencies in amounts that exceed the amount the Fund has invested in the underlying securities or currencies. The excess exposure increases the risks associated with the underlying securities or currencies on the Fund's investment performance.
The Fund may invest in foreign securities. Foreign securities pose additional risks because foreign economic or political conditions may be less favorable than those of the United States. Securities in foreign markets may also be subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than United States companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and Wachovia Asset Management, the Fund's investment adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect the liquidity of the Fund's investments.
Asset-backed and mortgage-backed securities are subject to risks of prepayment which generally occurs when interest rates fall. Reinvesting these prepayments in a lower interest rate environment reduces the Fund's income. Asset-backed securities may have a higher level of default and recovery risk than mortgage-backed securities.
The successful use of futures, options, and other derivative instruments is based on the investment adviser's ability to correctly anticipate market movements. When the direction of the prices of the Fund's securities does not correlate with the changes in the value of these transactions, or when the trading market for derivatives becomes illiquid, the Fund could lose money.
The Fund may lend securities. When the Fund lends its portfolio securities, it may not be able to get them back from the borrower on a timely basis, thereby exposing the Fund to a loss of investment opportunities.
Shares may be purchased or redeemed by participating insurance companies any day Wachovia Bank, N.A. (Wachovia Bank), the New York Stock Exchange (NYSE) and the Federal Reserve Wire System are open for business. When the Fund receives the insurance company's transaction request in proper form, it is processed at the next calculated net asset value (NAV).
NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market). The Fund generally values fixed income securities at the last sale price on a national securities exchange, if available, otherwise, as determined by an independent pricing service. However, the Trust's Board of Trustees may determine in good faith that another method of valuing investments is necessary to appraise their fair market value when a market price is unavailable.
<R>
Shares of the Fund are sold at their NAV next determined after an order is received. Shares are not subject to any sales or distribution charges.
</R>
The Fund's distributor, Federated Securities Corp. (Distributor), markets the Shares described in this prospectus to your insurance company as a funding vehicle for variable annuity contracts and variable life insurance policies issued by your insurance company.
When the Distributor receives marketing fees, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
The Fund has adopted a Rule 12b-1 Plan, which allows the Fund to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Shares at an annual rate of up to 0.25% of the average daily NAV of the Fund's Shares. The Fund has no present intention of accruing or paying marketing fees.
<R>
Because Rule 12b-1 fees are paid out of the Fund's assets on an on-going basis, over time these fees would increase the cost of an investment and may cost investors more than paying other types of sales charges.
</R>
Shares are used solely as the investment vehicle for separate accounts of your insurance company offering variable annuity contracts and variable life insurance policies. The general public has access to the Fund only by purchasing a variable annuity contract or variable life insurance policy (thus becoming a contract owner). Shares are not sold directly to the general public.
Purchase orders are placed by your insurance company when your funds are credited to that insurance company's accounts. Purchase orders received from your insurance company by 4:00 p.m. (Eastern time) will be processed at the NAV calculated on that day. If the Fund receives a purchase order from your insurance company after 4:00 p.m. (Eastern time), that purchase will receive the NAV computed on the next business day.
Your insurance company is responsible for properly transmitting purchase orders and federal funds to the Fund.
<R>
The Fund is only available as an investment option in variable annuity contracts, variable life insurance contracts and certain qualified pension plans. Please consult the accompanying separate account prospectus or qualified plan document for information about the terms of an investment in a contract.
</R>
You may instruct your insurance company to exchange Shares of the Fund into shares of the same class of another portfolio of the Trust offered by your insurance company at NAV. Contact your insurance company to find out what portfolios of the Trust are available for exchange. To exchange Shares, you must:
<R>
An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction. Signatures must be guaranteed if you request that your insurance company exchange Shares of the Fund for another portfolio of the Trust with a different shareholder registration. Please consult your tax adviser concerning potential tax consequences.
</R>
The Fund may modify or terminate the exchange privilege at any time. Shareholders will be notified of the modification or termination of the exchange privilege. The Fund's management or investment adviser may determine from the amount, frequency and pattern of exchanges that a shareholder is engaged in excessive trading which is detrimental to the Fund and other shareholders. If this occurs, the Fund may terminate the availability of exchanges to that shareholder and may bar that shareholder from purchasing other portfolios of the Trust.
The Fund declares and pays any dividends annually.
Shares of the Fund will begin earning dividends if owned on the record date. Dividends of the Fund are automatically reinvested in additional Shares.
The Fund will seek to comply with asset diversification regulations applicable to registered investment companies under the Investment Company Act of 1940 and the Internal Revenue Code. The variable insurance accounts that invest in the Fund will be affected by the Fund's compliance with applicable diversification tests. If the Fund fails to comply with these regulations, separate accounts owning shares of the Fund may not be treated as annuity, endowment, or life insurance contracts under the Internal Revenue Code. For more information concerning the consequences of the Fund failing to meet the asset diversification regulations, consult your separate account prospectus.
Contract owners should review the applicable contract prospectus for information concerning the federal income tax treatment of their contracts and distributions from the Fund to the separate accounts.
Contract owners are urged to consult their own tax advisers regarding the status of their contracts under state and local tax laws.
The Board of Trustees governs the Fund. The Board selects and oversees the investment adviser for the Fund, Wachovia Asset Management, a business unit of Wachovia Bank. The investment adviser manages the Fund's assets, including buying and selling portfolio securities. The investment adviser's address is 100 North Main Street, Winston-Salem, NC 27101. Wachovia Asset Management is the investment adviser for two other registered investment companies, The Wachovia Funds and The Wachovia Municipal Funds.
Wachovia Bank has been managing trust assets for over 100 years, with over $41 billion in managed assets as of December 31, 1999.
The investment adviser is entitled to receive an annual investment advisory fee equal to 0.70% of the Fund's average daily net assets. The investment adviser may voluntarily choose to waive a portion of its fees or reimburse the Fund for certain expenses.
Wachovia Asset Management manages the Fund using eight teams of investment professionals.
<R>
</R>
<R>
Shares of the Funds will be used for funding of variable annuity contracts, variable life insurance policies and certain qualified retirement plans. This is called "mixed funding." Shares of the Funds may be used in the future for investments by unaffiliated insurance companies. This is referred to as "shared funding." Although the Funds do not currently foresee any disadvantage to contract owners or qualified plan participants due to differences in redemption rates, tax treatment, or other considerations resulting from mixed funding or shared funding, the Trustees will closely monitor the operation of mixed funding and shared funding and will consider appropriate action to avoid material conflicts and take appropriate action in response to any material conflicts that occur. Such action could result in one or more investors withdrawing all or a portion of their investments in the Funds.
</R>
<R>
The following documents contain further details about the Fund and are available upon request and without charge:
</R>
Statement of Additional Information (SAI)--The SAI includes additional information about the Fund. The SAI is incorporated by reference into this prospectus, making it legally a part of this prospectus.
Shareholder Reports--The Fund will publish annual and semi-annual reports to shareholders which include information about the Fund's investments. The annual report discusses market conditions and investment strategies that significantly affected each Fund's performance during its last fiscal year.
To obtain the SAI, the annual and semi-annual reports and other information without charge call your insurance company or the Fund at 1-800-994-4414.
You can obtain information about the Fund (including the SAI) by writing to
or visiting the Public Reference Room of the Securities and Exchange Commission
in Washington, DC. You may also access fund information from the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. You can purchase copies of
this information by contacting the SEC by e-mail at [email protected] or by
writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call
1-202-942-8090 for information on the Public Reference Room's operations and
copying fees.
WACHOVIA BALANCED FUND II
(A PORTFOLIO OF THE WACHOVIA
VARIABLE INSURANCE FUNDS)
<R>
| WACHOVIA BALANCED FUND II |
101 Greystone Boulevard |
|
DISTRIBUTOR |
Federated Securities Corp. |
|
INVESTMENT ADVISER |
Wachovia Asset Management |
|
TRANSFER AGENT, |
Federated Shareholder |
|
COUNSEL TO |
Kirkpatrick &Lockhart LLP |
|
COUNSEL TO |
Bell Boyd & Lloyd |
|
INDEPENDENT AUDITORS |
Ernst & Young LLP |
</R>
<R>
</R>
<R>
Investment Company Act File No. 811-09873
Cusip 929775302
25732 (9/00)
</R>
WACHOVIA EQUITY FUND II
(A PORTFOLIO OF THE WACHOVIA
VARIABLE INSURANCE FUNDS)
[Graphic Representation Omitted--See Appendix]
<R>
</R>
[Graphic Representation Omitted--See Appendix]
A Portfolio of the Wachovia Variable Insurance funds
This prospectus offers shares of the Wachovia Equity Fund II (Fund), which is an investment portfolio of The Wachovia Variable Insurance Funds (Trust), an open-end, management investment company. Shares of the Fund may be sold only to separate accounts of insurance companies to serve as the investment medium for variable life insurance policies and variable annuity contracts issued by the insurance companies.
The separate accounts invest in the Fund in accordance with allocation instructions received from owners of life insurance policies and annuity contracts. Such allocation rights are described further in the prospectus for the separate account. This prospectus contains the information you should read and know before you invest in the Fund through the variable annuity contracts and variable life insurance policies offered by insurance companies which provide for investment in the Trust. Keep this prospectus for future reference.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts. They are subject to investment limitations that do not apply to other mutual funds available directly to the general public. Therefore, any comparison of these two types of mutual funds would be inappropriate. This prospectus should be accompanied by the prospectuses for such variable contracts.
<R>
|
Goal, Strategy and Risks of the Wachovia Equity Fund II |
1 |
|
Comparative Performance |
1 |
|
What are the Fund's Fees and Expenses? |
2 |
|
What are the Fund's Main Investments and Investment Techniques? |
3 |
|
What are the Risks of Investing in the Fund? |
4 |
|
What do Shares Cost? |
5 |
|
How is the Fund Sold? |
6 |
|
How to Purchase and Redeem Shares |
6 |
|
How to Exchange Shares |
6 |
|
Account and Share Information |
7 |
|
Who Manages the Fund? |
7 |
|
Mixed and Shared Funding |
7 |
</R>
<R>
</R>
Seeks to produce growth of principal and income.
The Fund pursues its investment objective by investing primarily in a portfolio of common stocks. Under normal market conditions, the Fund intends to invest at least 65% of its assets in stocks. The Fund's investment adviser selects securities based on a number of factors, incorporating both growth and value measures. A combination of fundamental analysis, quantitative modeling, strategic outlook, and relative price performance trends are used to select stocks perceived to be undervalued with prospects for improving fundamentals.
All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund.
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by Wachovia Bank, N.A., the Federal Deposit Insurance Corporation or any other government agency.
A more detailed description of these risks can be found in "What are the Risks of Investing in the Fund?" herein.
The Fund is subject to fluctuations in the stock market which has periods of increasing and decreasing values. These fluctuations can be caused by many events, including changes to domestic or international economic conditions. Stocks have greater volatility than debt securities.
Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. Further, growth stocks may not pay dividends or may pay lower dividends than value stocks. Growth stocks may be more adversely affected in a down market compared to value stocks that pay higher dividends and may lag behind growth stocks in an up market.
Because the Fund invests in securities issued by foreign companies, the Fund's share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.
Since any investment can be adversely affected by changes in tax laws, the Fund is subject to this risk.
Various investment strategies involve agreements to purchase or sell securities or currencies in amounts that exceed the amount the Fund has invested in the underlying securities or currencies.
The successful use of futures, options, and other derivative instruments is based on the investment adviser's ability to correctly anticipate market movements.
When lending securities, the Fund may not be able to get them back from the borrower on a timely basis, thereby exposing the Fund to a loss of investment opportunities.
<R>
</R>
The Fund is a new fund that is just commencing operations, and therefore, has no performance history.
<R>
These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund.
</R>
<R>
|
Shareholder Fees |
|
Equity |
|---|---|---|
|
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
|
None |
|
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or |
|
None |
|
Maximum Deferred Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions) |
|
None |
|
Redemption Fee (as a percentage of amount redeemed, if applicable) |
|
None |
|
Exchange Fee |
|
None |
|
|
|
|
|
Annual Fund Operating Expenses1 |
|
|
|
Management Fee |
|
0.70% |
|
Distribution (12b-1) Fee2 |
|
0.25% |
|
Shareholder Services Fee |
|
None |
|
Other Expenses |
|
0.75% |
|
Total Annual Operating Expenses (Before Waiver)1 |
|
1.70% |
|
Waiver of Fund Expenses |
|
0.55% |
|
Total Annual Fund Operating Expenses (After Waiver) |
|
1.15% |
|
1 Pursuant to an agreement between the Adviser and The Wachovia Variable Insurance Funds, the Adviser agrees during the period from June 1, 2000 through May 31, 2001 to waive its fees, and/or make reimbursements to the Funds, so that each Fund's net operating expenses, in the aggregate, do not exceed the Fund's Total Actual Annual Operating Expenses listed above. The Adviser agrees that this obligation shall constitute a contractual commitment enforceable by the Trusts and that the Adviser shall not assert any right to reimbursement of amounts so waived or reimbursed. |
||
|
2 The Fund has no present intention of paying or accruing the distribution (12b-1) fee during the year ended January 31, 2001. |
||
</R>
<R>
The following Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that each Fund's operating expenses are based upon the current expense limitation as shown above in the table. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
</R>
<R>
|
|
|
1 Year |
|
3 Years |
|---|---|---|---|---|
|
Equity Fund II |
|
$117 |
|
$365 |
</R>
The Fund invests primarily in equity securities. Equity securities are the fundamental unit of ownership in a company. They represent a share of the issuer's earnings and assets, after the issuer pays its liabilities. Generally, issuers have discretion as to the payment of any dividends or distributions. As a result, investors cannot predict the income they will receive from equity securities. However, equity securities offer greater potential for appreciation than many other types of securities, because their value increases directly with the value of the issuer's business. The following describes the types of equity securities in which the Fund may invest.
Common stocks are the most prevalent type of equity security. Common stocks receive the issuer's earnings after the issuer pays its creditors and any preferred stockholders. As a result, changes in an issuer's earnings directly influence the value of its common stock.
Preferred stocks have the right to receive specified dividends or distributions before the issuer makes payments on its common stock. Some preferred stocks also participate in dividends and distributions paid on common stock. Preferred stocks may also permit the issuer to redeem the stock. The Fund may treat such redeemable preferred stock as a fixed income security.
Warrants give the Fund the option to buy the issuer's equity securities at a specified price (the exercise price) at a specified future date (the expiration date). The Fund may buy the designated securities by paying the exercise price before the expiration date. Warrants may become worthless if the price of the stock does not rise above the exercise price by the expiration date. This increases the market risks of warrants as compared to the underlying security. Rights are the same as warrants, except companies typically issue rights to existing stockholders.
Derivative contracts are financial instruments that require payments based upon changes in the values of designated (or underlying) securities, currencies, commodities, financial indices or other assets. Some derivative contracts (such as futures, forwards and options) require payments relating to a future trade involving the underlying asset. Other derivative contracts (such as swaps) require payments relating to the income or returns from the underlying asset. The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Investors make payments due under their contracts through the exchange. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. Parties to the contract make (or collect) daily payments to the margin accounts to reflect losses (or gains) in the value of their contracts. This protects investors against potential defaults by the counterparty. Trading contracts on an exchange also allows investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a future date by entering into an offsetting contract to sell the same asset on the same date. If the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. Exchanges may limit the amount of open contracts permitted at any one time. Such limits may prevent the Fund from closing out a position. If this happens, the Fund will be required to keep the contract open (even if it is losing money on the contract), and to make any payments required under the contract (even if it has to sell portfolio securities at unfavorable prices to do so). Inability to close out a contract could also harm the Fund by preventing it from disposing of or trading any assets it has been using to secure its obligations under the contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in transactions negotiated directly between the Fund and the counterparty. OTC contracts do not necessarily have standard terms, so they cannot be directly offset with other OTC contracts. In addition, OTC contracts with more specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset, derivative contracts may increase or decrease the Fund's exposure to market and currency risks, and may also expose the Fund to liquidity and leverage risks. OTC contracts also expose the Fund to credit risks in the event that a counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date, and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts. Futures contracts traded OTC are frequently referred to as forward contracts.
The Fund may buy and sell the following type of futures contracts: stock index futures.
Instead of a buy-and-hold strategy, the Fund will actively trade its portfolio securities in an attempt to achieve the Fund's investment objective. Active trading will cause the Fund to have an increased portfolio turnover rate, which is likely to generate shorter-term gains (losses) for its shareholders, which are taxed at a higher rate than longer-term gains (losses). Actively trading portfolio securities increases the Fund's trading costs and may have an adverse impact on the Fund's performance.
The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.
The Fund is subject to fluctuations in the stock market which has periods of increasing and decreasing values. These fluctuations can be caused by many events, including changes to domestic or international economic conditions. Because the Fund invests primarily in stocks it is more subject to equity risks than funds with portfolios that do not invest in stocks. Stocks have greater volatility than debt securities. While greater volatility increases risk, it offers the potential for greater reward.
Equity risk is also related to the size of the company issuing stock. Companies may be categorized as having a small, medium, or large capitalization (market value). The Fund generally invests in large capitalization companies, which are considered to pose less equity risk than medium or small capitalization companies.
Due to their relatively high valuations, growth stocks are typically more volatile than value stocks. For instance, the price of a growth stock may experience a larger decline on a forecast of lower earnings, a negative fundamental development, or an adverse market development. Further, growth stocks may not pay dividends or may pay lower dividends than value stocks. This means they depend more on price changes for returns and may be more adversely affected in a down market compared to value stocks that pay higher dividends. The price of a value stock may experience a smaller increase on a forecast of higher earnings, a positive fundamental development, or positive market development. Value stocks depend less on price changes for returns and may lag behind growth stocks in an up market.
Since any investment can be adversely affected by changes in tax laws, the Fund is subject to this risk. For example, the value of stocks can be affected by changes in capital gains tax rates.
Various investment strategies involve agreements to purchase or sell securities or currencies in amounts that exceed the amount the Fund has invested in the underlying securities or currencies. The excess exposure increases the risks associated with the underlying securities or currencies on the Fund's investment performance.
The Fund may invest in foreign securities. Foreign securities pose additional risks because foreign economic or political conditions may be less favorable than those of the United States. Securities in foreign markets may also be subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than United States companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and Wachovia Asset Management, the Fund's investment adviser, from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect the liquidity of the Fund's investments.
The successful use of futures, options, and other derivative instruments is based on the investment adviser's ability to correctly anticipate market movements. When the direction of the prices of the Fund's securities does not correlate with the changes in the value of these transactions, or when the trading market for derivatives becomes illiquid, the Fund could lose money.
The Fund may lend securities. When the Fund lends its portfolio securities, it may not be able to get them back from the borrower on a timely basis, thereby exposing the Fund to a loss of investment opportunities.
Shares may be purchased or redeemed by participating insurance companies any day Wachovia Bank, N.A. (Wachovia Bank), the New York Stock Exchange (NYSE) and the Federal Reserve Wire System are open for business. When the Fund receives the insurance company's transaction request in proper form, it is processed at the next calculated net asset value (NAV).
NAV is determined at the end of regular trading (normally 4 p.m. Eastern time) each day the NYSE is open. The Fund generally values equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market). However, the Trust's Board of Trustees may determine in good faith that another method of valuing investments is necessary to appraise their fair market value when a market price is unavailable.
<R>
Shares of the Fund are sold at their NAV next determined after an order is received. Shares are not subject to any sales or distribution charges.
</R>
The Fund's distributor, Federated Securities Corp. (Distributor), markets the Shares described in this prospectus to your insurance company as a funding vehicle for variable annuity contracts and variable life insurance policies issued by your insurance company.
When the Distributor receives marketing fees, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
The Fund has adopted a Rule 12b-1 Plan, which allows the Fund to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Shares at an annual rate of up to 0.25% of the average daily NAV of the Fund's Shares. The Fund has no present intention of accruing or paying marketing fees.
<R>
Because Rule 12b-1 fees are paid out of the Fund's assets on an on-going basis, over time these fees would increase the cost of an investment and may cost investors more than paying other types of sales charges.
</R>
Shares are used solely as the investment vehicle for separate accounts of your insurance company offering variable annuity contracts and variable life insurance policies. The general public has access to the Fund only by purchasing a variable annuity contract or variable life insurance policy (thus becoming a contract owner). Shares are not sold directly to the general public.
Purchase orders are placed by your insurance company when your funds are credited to that insurance company's accounts. Purchase orders received from your insurance company by 4:00 p.m. (Eastern time) will be processed at the NAV calculated on that day. If the Fund receives a purchase order from your insurance company after 4:00 p.m. (Eastern time), that purchase will receive the NAV computed on the next business day.
Your insurance company is responsible for properly transmitting purchase orders and federal funds to the Fund.
<R>
The Fund is only available as an investment option in variable annuity contracts, variable life insurance contracts and certain qualified pension plans. Please consult the accompanying separate account prospectus or qualified plan document for information about the terms of an investment in a contract.
</R>
You may instruct your insurance company to exchange Shares of the Fund into shares of the same class of another portfolio of the Trust offered by your insurance company at NAV. Contact your insurance company to find out what portfolios of the Trust are available for exchange. To exchange Shares, you must:
<R>
An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction. Signatures must be guaranteed if you request that your insurance company exchange Shares of the Fund for another portfolio of the Trust with a different shareholder registration. Please consult your tax adviser concerning potential tax consequences.
<R>
The Fund may modify or terminate the exchange privilege at any time. Shareholders will be notified of the modification or termination of the exchange privilege. The Fund's management or investment adviser may determine from the amount, frequency and pattern of exchanges that a shareholder is engaged in excessive trading which is detrimental to the Fund and other shareholders. If this occurs, the Fund may terminate the availability of exchanges to that shareholder and may bar that shareholder from purchasing other portfolios of the Trust.
The Fund declares and pays any dividends annually.
Shares of the Fund will begin earning dividends if owned on the record date. Dividends of the Fund are automatically reinvested in additional Shares.
The Fund will seek to comply with asset diversification regulations applicable to registered investment companies under the Investment Company Act of 1940 and the Internal Revenue Code. The variable insurance accounts that invest in the Fund will be affected by the Fund's compliance with applicable diversification tests. If the Fund fails to comply with these regulations, separate accounts owning shares of the Fund may not be treated as annuity, endowment, or life insurance contracts under the Internal Revenue Code. For more information concerning the consequences of the Fund failing to meet the asset diversification regulations, consult your separate account prospectus.
Contract owners should review the applicable contract prospectus for information concerning the federal income tax treatment of their contracts and distributions from the Fund to the separate accounts.
Contract owners are urged to consult their own tax advisers regarding the status of their contracts under state and local tax laws.
The Board of Trustees governs the Fund. The Board selects and oversees the investment adviser for the Fund, Wachovia Asset Management, a business unit of Wachovia Bank. The investment adviser manages the Fund's assets, including buying and selling portfolio securities. The investment adviser's address is 100 North Main Street, Winston-Salem, NC 27101. Wachovia Asset Management is the investment adviser for two other registered investment companies, The Wachovia Funds and The Wachovia Municipal Funds.
Wachovia Bank has been managing trust assets for over 100 years, with over $41 billion in managed assets as of December 31, 1999.
The investment adviser is entitled to receive an annual investment advisory fee equal to 0.70% of the Fund's average daily net assets. The investment adviser may voluntarily choose to waive a portion of its fees or reimburse the Fund for certain expenses.
Wachovia Asset Management manages the Fund using seven teams of investment professionals.
<R>
Shares of the Funds will be used for funding of variable annuity contracts, variable life insurance policies and certain qualified retirement plans. This is called "mixed funding." Shares of the Funds may be used in the future for investments by unaffiliated insurance companies. This is referred to as "shared funding." Although the Funds do not currently foresee any disadvantage to contract owners or qualified plan participants due to differences in redemption rates, tax treatment, or other considerations resulting from mixed funding or shared funding, the Trustees will closely monitor the operation of mixed funding and shared funding and will consider appropriate action to avoid material conflicts and take appropriate action in response to any material conflicts that occur. Such action could result in one or more investors withdrawing all or a portion of their investments in the Funds.
</R>
<R>
The following documents contain further details about the Fund and are available upon request and without charge:
</R>
Statement of Additional Information (SAI)--The SAI includes additional information about the Fund. The SAI is incorporated by reference into this prospectus, making it legally a part of this prospectus.
Shareholder Reports--The Fund will publish annual and semi-annual reports to shareholders which include information about the Fund's investments. The annual report will discuss market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year.
To obtain the SAI, the annual and semi-annual reports and other information without charge call your insurance company or the Fund at 1-800-994-4414.
You can obtain information about the Fund (including the SAI) by writing to or visiting the Public Reference Room of the Securities and Exchange Commission in Washington, DC. You may also access fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at [email protected] or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.
WACHOVIA EQUITY FUND II
(A PORTFOLIO OF THE WACHOVIA
VARIABLE INSURANCE FUNDS)
<R>
|
WACHOVIA EQUITY FUND II |
101 Greystone Boulevard |
|
DISTRIBUTOR |
Federated Securities Corp. |
|
INVESTMENT ADVISER |
Wachovia Asset Management |
|
TRANSFER AGENT, |
Federated Shareholder |
|
COUNSEL TO THE WACHOVIA |
Kirkpatrick &Lockhart LLP |
|
COUNSEL TO |
Bell Boyd & Lloyd |
|
INDEPENDENT AUDITORS |
Ernst & Young LLP |
</R>
<R>
Investment Company Act File No. 811-09873
Cusip 92977510
25733 (9/00)
</R>
WACHOVIA SPECIAL
VALUES FUND II
(A PORTFOLIO OF THE WACHOVIA
VARIABLE INSURANCE FUNDS)
[Graphic Representation Omitted--See Appendix]
<R>
</R>
[Graphic Representation Omitted--See Appendix]
A Portfolio of The Wachovia Variable Insurance Funds
This prospectus offers shares of the Wachovia Special Values Fund II (the Fund), which is an investment portfolio of The Wachovia Variable Insurance Funds (the Trust), an open-end, management investment company. Shares of the Fund may be sold only to separate accounts of insurance companies to serve as the investment medium for variable life insurance policies and variable annuity contracts issued by the insurance companies.
The separate accounts invest in the Fund in accordance with allocation instructions received from owners of life insurance policies and annuity contracts. Such allocation rights are described further in the prospectus for the separate account. This prospectus contains the information you should read and know before you invest in the Fund through the variable annuity contracts and variable life insurance policies offered by insurance companies which provide for investment in the Trust. Keep this prospectus for future reference.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Fund shares are available exclusively as a funding vehicle for life insurance companies writing variable life insurance policies and variable annuity contracts. They are subject to investment limitations that do not apply to other mutual funds available directly to the general public. Therefore, any comparison of these two types of mutual funds would be inappropriate. This prospectus should be accompanied by the prospectuses for such variable contracts.
<R>
|
Goal, Strategy and Risks of the Wachovia Special Values Fund II |
1 |
|
Comparative Performance |
1 |
|
What are the Fund's Fees and Expenses? |
2 |
|
What are the Fund's Main Investments and Investment Techniques? |
3 |
|
What are the Risks of Investing in the Fund? |
4 |
|
What do Shares Cost? |
5 |
|
How is the Fund Sold? |
6 |
|
How to Purchase and Redeem Shares |
6 |
|
How to Exchange Shares |
6 |
|
Account and Share Information |
7 |
|
Who Manages the Fund? |
7 |
|
Mixed and Shared Funding |
8 |
</R>
<R>
</R>
Seeks to produce growth of principal.
<R>
The Fund pursues its investment objective by investing primarily in a portfolio of stocks of small U.S. companies. The investment adviser looks for significantly undervalued companies that it believes have the potential for above-average growth commensurate with increased risk. Typical investments are in stocks of companies that have low price-to-earnings ratios, are generally out of favor in the marketplace, are selling significantly below their stated or replacement book value or are undergoing a reorganization or other corporate action that may create above-average price appreciation. Under normal market conditions, the Fund intends to invest at least 65% of its assets in stocks of companies that have a market value capitalization of $1.5 billion or less. The Fund may invest up to 30% of total assets in securities of foreign issuers, (including American Depositary Receipts).
</R>
All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund.
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by Wachovia Bank, N.A., the Federal Deposit Insurance Corporation or any other government agency.
A more detailed description of these risks can be found in "What are the Risks of Investing in the Fund?" herein.
The Fund is subject to fluctuations in the stock market which has periods of increasing and decreasing values. These fluctuations can be caused by many events, including changes to domestic or international economic conditions. Stocks have greater volatility than debt securities.
Due to the Fund's value style of investing, the Fund's share price may lag that of other funds using a different investment style.
Because the Fund invests in securities issued by foreign companies, the Fund's share price may be more affected by foreign economic and political conditions, taxation policies and accounting and auditing standards than would otherwise be the case.
Since any investment can be adversely affected by changes in tax laws, the Fund is subject to this risk.
Various investment strategies involve agreements to purchase or sell securities or currencies in amounts that exceed the amount the Fund has invested in the underlying securities or currencies.
The successful use of futures, options, and other derivative instruments is based on the investment adviser's ability to correctly anticipate market movements.
When lending securities, the Fund may not be able to get them back from the borrower on a timely basis, thereby exposing the Fund to a loss of investment opportunities.
<R>
The Fund is a new fund that is just commencing operations, and therefore, has no performance history.
</R>
<R>
These tables describe the fees and expenses that you may pay if you buy and hold shares of the Fund.
</R>
<R>
|
|
|
Special |
|
Maximum Sales Charge (Load) Imposed on Purchases |
|
None |
|
Maximum Deferred Sales Charge (Load) |
|
None |
|
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions) |
|
None |
|
Redemption Fee (as a percentage of amount redeemed, if applicable) |
|
None |
|
Exchange Fee |
|
None |
|
|
|
|
|
Annual Fund Operating Expenses1 |
||
|
Management Fee |
|
0.80% |
|
Distribution (12b-1) Fee2 |
|
0.25% |
|
Shareholder Services Fee |
|
None |
|
Other Expenses |
|
1.65% |
|
Total Annual Operating Expenses (Before Waiver)1 |
|
2.70% |
|
Waiver of Fund Expenses |
|
1.45% |
|
Total Annual Fund Operating Expenses (After Waiver) |
|
1.25% |
|
1 Pursuant to an agreement between the Adviser and The Wachovia Variable Insurance Funds, the Adviser agrees during the period from June 1, 2000 through May 31, 2001 to waive its fees, and/or make reimbursements to the Funds, so that each Fund's net operating expenses, in the aggregate, do not exceed the Fund's Total Actual Annual Operating Expenses listed above. The Adviser agrees that this obligation shall constitute a contractual commitment enforceable by the Trusts and that the Adviser shall not assert any right to reimbursement of amounts so waived or reimbursed. |
||
|
2 The Adviser has no present intention of paying or accruing the distribution (12b-1) fee during the year ended January 31, 2001. |
||
</R>
<R>
The following Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that each of the Fund's operating expenses are based upon the current expense limitation as shown above in the table. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
</R>
<R>
|
|
|
1 Year |
|
3 Years |
|---|---|---|---|---|
|
Special Values Fund II |
|
$127 |
|
$397 |
</R>
The Fund invests primarily in equity securities. Equity securities are the fundamental unit of ownership in a company. They represent a share of the issuer's earnings and assets, after the issuer pays its liabilities. Generally, issuers have discretion as to the payment of any dividends or distributions. As a result, investors cannot predict the income they will receive from equity securities. However, equity securities offer greater potential for appreciation than many other types of securities, because their value increases directly with the value of the issuer's business. The following describes the types of equity securities in which the Fund may invest.
Common stocks are the most prevalent type of equity security. Common stocks receive the issuer's earnings after the issuer pays its creditors and any preferred stockholders. As a result, changes in an issuer's earnings directly influence the value of its common stock.
Preferred stocks have the right to receive specified dividends or distributions before the issuer makes payments on its common stock. Some preferred stocks also participate in dividends and distributions paid on common stock. Preferred stocks may also permit the issuer to redeem the stock. The Fund may treat such redeemable preferred stock as a fixed income security.
Warrants give the Fund the option to buy the issuer's equity securities at a specified price (the exercise price) at a specified future date (the expiration date). The Fund may buy the designated securities by paying the exercise price before the expiration date. Warrants may become worthless if the price of the stock does not rise above the exercise price by the expiration date. This increases the market risks of warrants as compared to the underlying security. Rights are the same as warrants, except companies typically issue rights to existing stockholders.
<R>
</R>
Derivative contracts are financial instruments that require payments based upon changes in the values of designated (or underlying) securities, currencies, commodities, financial indices or other assets. Some derivative contracts (such as futures, forwards and options) require payments relating to a future trade involving the underlying asset. Other derivative contracts (such as swaps) require payments relating to the income or returns from the underlying asset. The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Investors make payments due under their contracts through the exchange. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. Parties to the contract make (or collect) daily payments to the margin accounts to reflect losses (or gains) in the value of their contracts. This protects investors against potential defaults by the counterparty. Trading contracts on an exchange also allows investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a future date by entering into an offsetting contract to sell the same asset on the same date. If the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. Exchanges may limit the amount of open contracts permitted at any one time. Such limits may prevent the Fund from closing out a position. If this happens, the Fund will be required to keep the contract open (even if it is losing money on the contract), and to make any payments required under the contract (even if it has to sell portfolio securities at unfavorable prices to do so). Inability to close out a contract could also harm the Fund by preventing it from disposing of or trading any assets it has been using to secure its obligations under the contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in transactions negotiated directly between the Fund and the counterparty. OTC contracts do not necessarily have standard terms, so they cannot be directly offset with other OTC contracts. In addition, OTC contracts with more specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset, derivative contracts may increase or decrease the Fund's exposure to market and currency risks, and may also expose the Fund to liquidity and leverage risks. OTC contracts also expose the Fund to credit risks in the event that a counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date, and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts. Futures contracts traded OTC are frequently referred to as forward contracts.
The Fund may buy and sell the following type of futures contracts: stock index futures.
Instead of a buy-and-hold strategy, the Fund will actively trade its portfolio securities in an attempt to achieve the Fund's investment objective. Active trading will cause the Fund to have an increased portfolio turnover rate, which is likely to generate shorter-term gains (losses) for its shareholders, which are taxed at a higher rate than longer-term gains (losses). Actively trading portfolio securities increases the Fund's trading costs and may have an adverse impact on the Fund's performance.
The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.
The Fund is subject to fluctuations in the stock market which has periods of increasing and decreasing values. These fluctuations can be caused by many events, including changes to domestic or international economic conditions. Because the Fund invests primarily in stocks it is more subject to equity risks than portfolios that do not invest in stocks. Stocks have greater volatility than debt securities. While greater volatility increases risk, it offers the potential for greater reward.
Equity risk is also related to the size of the company issuing stock. Companies may be categorized as having a small, medium, or large capitalization (market value). The potential risks are higher with small capitalization companies and lower with large capitalization companies. Therefore, you should expect that investments in the Fund will be more volatile than broad stock market indices such as the S&P 500 or other funds that invest in large-capitalization companies.
Due to their relatively low valuations, value stocks are typically less volatile than growth stocks. For instance, the price of a value stock may experience a smaller increase on a forecast of higher earnings, a positive fundamental development or positive market development. Further, value stocks tend to have higher dividends than growth stocks. This means they depend less on price changes for returns and may lag behind growth stocks in an up market.
Since any investment can be adversely affected by changes in tax laws, the Fund is subject to this risk. For example, the value of stocks can be affected by changes in capital gains tax rates.
Various investment strategies involve agreements to purchase or sell securities or currencies in amounts that exceed the amount the Fund has invested in the underlying securities or currencies. The excess exposure increases the risks associated with the underlying securities or currencies on the Fund's investment performance.
The Fund may invest in foreign securities. Foreign securities pose additional risks because foreign economic or political conditions may be less favorable than those of the United States. Securities in foreign markets may also be subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than United States companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and Wachovia Asset Management, the Fund's investment adviser, from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect the liquidity of the Fund's investments.
The successful use of futures, options, and other derivative instruments is based on the investment adviser's ability to correctly anticipate market movements. When the direction of the prices of the Fund's securities does not correlate with the changes in the value of these transactions, or when the trading market for derivatives becomes illiquid, the Fund could lose money.
The Fund may lend securities. When the Fund lends its portfolio securities, it may not be able to get them back from the borrower on a timely basis, thereby exposing the Fund to a loss of investment opportunities.
Shares may be purchased or redeemed by participating insurance companies any day Wachovia Bank, N.A. (Wachovia Bank), the New York Stock Exchange (NYSE) and the Federal Reserve Wire System are open for business. When the Fund receives the insurance company's transaction request in proper form, it is processed at the next calculated net asset value (NAV).
NAV is determined at the end of regular trading (normally 4 p.m. Eastern time) each day the NYSE is open. The Fund generally values equity securities according to the last sale price in the market in which they are primarily traded (either a national securities exchange or the over-the-counter market). However, the Trust's Board of Trustees may determine in good faith that another method of valuing investments is necessary to appraise their fair market value when a market price is unavailable.
<R>
Shares of the Fund are sold at their NAV next determined after an order is received. Shares are not subject to any sales or distribution charges.
</R>
The Fund's distributor, Federated Securities Corp. (Distributor), markets the Shares described in this prospectus to your insurance company as a funding vehicle for variable annuity contracts and variable life insurance policies issued by your insurance company.
When the Distributor receives marketing fees, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
The Fund has adopted a Rule 12b-1 Plan, which allows the Fund to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Shares at an annual rate of up to 0.25% of the average daily NAV of the Fund's Shares. The Fund has no present intention of accruing or paying marketing fees.
<R>Because Rule 12b-1 fees are paid out of the Fund's assets on an on-going basis, over time these fees would increase the cost of an investment and may cost investors more than paying other types of sales charges.
</R>
Shares are used solely as the investment vehicle for separate accounts of your insurance company offering variable annuity contracts and variable life insurance policies. The general public has access to the Fund only by purchasing a variable annuity contract or variable life insurance policy (thus becoming a contract owner). Shares are not sold directly to the general public.
Purchase orders are placed by your insurance company when your funds are credited to that insurance company's accounts. Purchase orders received from your insurance company by 4:00 p.m. (Eastern time) will be processed at the NAV calculated on that day. If the Fund receives a purchase order from your insurance company after 4:00 p.m. (Eastern time), that purchase will receive the NAV computed on the next business day.
Your insurance company is responsible for properly transmitting purchase orders and federal funds to the Fund.
<R>
The Fund is only available as an investment option in variable annuity contracts, variable life insurance contracts and certain qualified pension plans. Please consult the accompanying separate account prospectus or qualified plan document for information about the terms of an investment in a contract.
</R>
You may instruct your insurance company to exchange Shares of the Fund into shares of the same class of another portfolio of the Trust offered by your insurance company at NAV. Contact your insurance company to find out what portfolios of the Trust are available for exchange. To exchange Shares, you must:
<R>
An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction. Signatures must be guaranteed if you request that your insurance company exchange Shares of the Fund for another portfolio of the Trust with a different shareholder registration. Please consult your tax adviser concerning potential tax consequences.
</R>
The Fund may modify or terminate the exchange privilege at any time. Shareholders will be notified of the modification or termination of the exchange privilege. The Fund's management or investment adviser may determine from the amount, frequency and pattern of exchanges that a shareholder is engaged in excessive trading which is detrimental to the Fund and other shareholders. If this occurs, the Fund may terminate the availability of exchanges to that shareholder and may bar that shareholder from purchasing other portfolios of the Trust.
The Fund declares and pays any dividends annually.
Shares of the Fund will begin earning dividends if owned on the record date. Dividends of the Fund are automatically reinvested in additional Shares.
The Fund will seek to comply with asset diversification regulations applicable to registered investment companies under the Investment Company Act of 1940 and the Internal Revenue Code. The variable insurance accounts that invest in the Fund will be affected by the Fund's compliance with applicable diversification tests. If the Fund fails to comply with these regulations, separate accounts owning shares of the Fund may not be treated as annuity, endowment, or life insurance contracts under the Internal Revenue Code. For more information concerning the consequences of the Fund failing to meet the asset diversification regulations, consult your separate account prospectus.
Contract owners should review the applicable contract prospectus for information concerning the federal income tax treatment of their contracts and distributions from the Fund to the separate accounts.
Contract owners are urged to consult their own tax advisers regarding the status of their contracts under state and local tax laws.
The Board of Trustees governs the Fund. The Board selects and oversees the investment adviser for the Fund, Wachovia Asset Management, a business unit of Wachovia Bank. The investment adviser manages each Fund's assets, including buying and selling portfolio securities. The investment adviser's address is 100 North Main Street, Winston-Salem, NC 27101. Wachovia Asset Management is the investment adviser for two other registered investment companies, The Wachovia Funds and The Wachovia Municipal Funds.
Wachovia Bank has been managing trust assets for over 100 years, with over $41 billion in managed assets as of December 31, 1999.
The investment adviser is entitled to receive an annual investment advisory fee equal to 0.80% of the Fund's average daily net assets. The investment adviser may voluntarily choose to waive a portion of its fees or reimburse the Fund for certain expenses.
Roger L. Glenski is a vice president with Wachovia Asset Management and is a co-manager of the Wachovia Special Values Fund. He is responsible for equity analysis and portfolio allocation decisions for the Fund. Prior to joining Wachovia Asset Management, Mr. Glenski was an accountant with the national accounting firm Deloitte & Touche. He received a bachelor's degree from the University of Missouri and a master's degree in Business Administration from the University of Chicago.
James M. Tringas is a vice president with Wachovia Asset Management and is a co-manager of the Wachovia Special Values Fund. He is responsible for equity analysis and portfolio allocation decisions for the Fund. Before joining Wachovia Asset Management, Mr. Tringas was a senior consultant in the Personal Financial Consulting Group of Ernst & Young. He received a bachelor's degree in Accounting and a master's degree in Tax from the University of Florida. Mr. Tringas is a member of the Association for Investment Management and Research and the Atlanta Society of Financial Analysts.
<R>
Shares of the Funds will be used for funding of variable annuity contracts, variable life insurance policies and certain qualified retirement plans. This is called "mixed funding." Shares of the Funds may be used in the future for investments by unaffiliated insurance companies. This is referred to as "shared funding." Although the Funds do not currently foresee any disadvantage to contract owners or qualified plan participants due to differences in redemption rates, tax treatment, or other considerations resulting from mixed funding or shared funding, the Trustees will closely monitor the operation of mixed funding and shared funding and will consider appropriate action to avoid material conflicts and take appropriate action in response to any material conflicts that occur. Such action could result in one or more investors withdrawing all or a portion of their investments in the Funds.
</R>
<R>
The following documents contain further details about the Fund and are available upon request and without charge:
</R>
Statement of Additional Information (SAI)--The SAI includes additional information about the Fund. The SAI is incorporated by reference into this prospectus, making it legally a part of this prospectus.
Shareholder Reports--The Fund will publish annual and semi-annual reports to shareholders which include information about the Fund's investments. The annual report will discuss market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year.
To obtain the SAI, the annual and semi-annual reports and other information without charge call your insurance company or the Fund at 1-800-994-4414.
You can obtain information about the Fund (including the SAI) by writing to or visiting the Public Reference Room of the Securities and Exchange Commission in Washington, DC. You may also access fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at [email protected] or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.
<R>
</R>
WACHOVIA SPECIAL
VALUES FUND II
(A PORTFOLIO OF THE WACHOVIA
VARIABLE INSURANCE FUNDS)
<R>
|
WACHOVIA SPECIAL VALUES FUND II |
101 Greystone Boulevard |
|
DISTRIBUTOR |
Federated Securities Corp. |
|
INVESTMENT ADVISER |
Wachovia Asset Management |
|
TRANSFER AGENT, |
Federated Shareholder |
|
COUNSEL TO |
Kirkpatrick &Lockhart LLP |
|
COUNSEL TO |
Bell Boyd & Lloyd |
|
INDEPENDENT AUDITORS |
Ernst & Young LLP |
</R>
<R>
Investment Company Act File No. 811-09873
Cusip 929775203
25734 (9/00)
</R>
15
THE WACHOVIA VARIABLE INSURANCE FUNDS
WACHOVIA BALANCED FUND II
WACHOVIA EQUITY FUND II
WACHOVIA SPECIAL VALUES FUND II
<R>
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 20, 2000
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses of The Wachovia Variable
Insurance Funds dated September 20, 2000. Obtain the prospectuses without
charge by calling 1-800-994-4414.
CONTENTS
HOW ARE THE FUNDS
ORGANIZED?..........................................1
SECURITIES IN WHICH THE FUNDS
INVEST..................................1
WHAT DO SHARES
COST?..................................................13
HOW ARE THE FUNDS
SOLD?...............................................14
REDEMPTION IN
KIND....................................................14
ACCOUNT AND SHARE
INFORMATION.........................................15
TAX
INFORMATION.......................................................15
WHO MANAGES AND PROVIDES SERVICES TO THE
FUNDS?.......................16
HOW DO THE FUNDS MEASURE
PERFORMANCE?.................................18
INVESTMENT
RATINGS....................................................25
ADDRESSES.............................................................BACK
COVER
Federated Securities Corp.,
Distributor,
subsidiary of Federated
Investors, Inc.
25855 (9/00)
</R>
HOW ARE THE FUNDS ORGANIZED?
The Wachovia Variable Insurance Funds (the Trust) is an open-end, management
investment company that was established under the laws of the Commonwealth of
Massachusetts on March 3, 2000. The Trust may offer separate series of shares
representing interests in separate portfolios of securities. The Trust currently
offers interests in three professionally managed, diversified series (together
referred to as the Funds): Wachovia Balanced Fund II; Wachovia Equity Fund II;
and Wachovia Special Values Fund II.
SECURITIES IN WHICH THE FUNDS INVEST
The following table indicates which types of securities are a:
o Principal = PRINCIPAL investment of a Fund (shaded in chart);
o Acceptable = ACCEPTABLE (but not principal) investment of a Fund;
or
o Not Acceptable = NOT AN ACCEPTABLE investment of a Fund.
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SECURITIES BALANCED EQUITY FUND SPECIAL
FUND II II VALUES FUND
II
-----------------------------------------
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AMERICAN DEPOSITORY Acceptable Acceptable Acceptable
RECEIPTS1
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ASSET-BACKED SECURITIES2 Acceptable NOT NOT
ACCEPTABLE ACCEPTABLE
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BANKING INSTRUMENTS Acceptable Acceptable Acceptable
-----------------------------------------
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COMMERCIAL PAPER3 Acceptable Acceptable Acceptable
-----------------------------------------
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COMMON STOCKS PRINCIPAL PRINCIPAL PRINCIPAL
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-----------------------------------------
CONVERTIBLE SECURITIES Acceptable Acceptable Acceptable
-----------------------------------------
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CORPORATE DEBT OBLIGATIONS4 PRINCIPAL Acceptable Acceptable
-------------------------------------------------------
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CREDIT ENHANCEMENT ACCEPTABLE ACCEPTABLE ACCEPTABLE
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DEMAND MASTER NOTES Acceptable NOT NOT
ACCEPTABLE ACCEPTABLE
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-----------------------------------------
EUROPEAN DEPOSITORY ACCEPTABLE Acceptable Acceptable
RECEIPTS
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FOREIGN BANK INSTRUMENTS ACCEPTABLE ACCEPTABLE ACCEPTABLE
----------------------------------------- -------------
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FOREIGN CURRENCY NOT Not Not
TRANSACTIONS ACCEPTABLE Acceptable Acceptable
----------------------------------------- -------------
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FOREIGN SECURITIES1 Acceptable Acceptable Acceptable
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FUTURES AND OPTIONS Acceptable Acceptable Acceptable
TRANSACTIONS
--------------------------------------------------------------------
----------------------------------------- -------------
FUTURES ON FOREIGN Acceptable NOT NOT
GOVERNMENT DEBT ACCEPTABLE ACCEPTABLE
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----------------------------------------- -------------
GLOBAL DEPOSITORY RECEIPTS ACCEPTABLE Acceptable Acceptable
--------------------------------------------------------------------
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HIGH-YIELD SECURITIES5 NOT Not Acceptable
ACCEPTABLE Acceptable
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LENDING OF PORTFOLIO ACCEPTABLE Acceptable Acceptable
SECURITIES
--------------------------------------------------------------------
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MASTER LIMITED PARTNERSHIPS NOT Not Acceptable
ACCEPTABLE Acceptable
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MONEY MARKET INSTRUMENTS ACCEPTABLE Acceptable Acceptable
--------------------------------------------------------------------
--------------------------------------------------------------------
OPTIONS ON FINANCIAL ACCEPTABLE Acceptable Acceptable
FUTURES
--------------------------------------------------------------------
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OVER-THE-COUNTER OPTIONS ACCEPTABLE Acceptable Acceptable
--------------------------------------------------------------------
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PREFERRED STOCKS Acceptable Acceptable Acceptable
--------------------------------------------------------------------
--------------------------------------------------------------------
REPURCHASE AGREEMENTS Acceptable Acceptable Acceptable
--------------------------------------------------------------------
--------------------------------------------------------------------
RESTRICTED AND ILLIQUID Acceptable Acceptable Acceptable
SECURITIES6
--------------------------------------------------------------------
--------------------------------------------------------------------
REVERSE REPURCHASE Acceptable Acceptable Acceptable
AGREEMENTS
--------------------------------------------------------------------
--------------------------------------------------------------------
SECURITIES OF OTHER Acceptable Acceptable Acceptable
INVESTMENT COMPANIES
--------------------------------------------------------------------
--------------------------------------------------------------------
STOCK INDEX FUTURES AND Acceptable Acceptable Acceptable
OPTIONS7
--------------------------------------------------------------------
--------------------------------------------------------------------
STRIPPED MORTGAGE-BACKED Acceptable NOT NOT
SECURITIES ACCEPTABLE ACCEPTABLE
--------------------------------------------------------------------
--------------------------------------------------------------------
TEMPORARY INVESTMENTS Acceptable Acceptable Acceptable
--------------------------------------------------------------------
--------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS PRINCIPAL Acceptable Acceptable
-----------------------------------------
--------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES Acceptable Acceptable Acceptable
--------------------------------------------------------------------
----------------------------------------- -------------
WARRANTS Acceptable Acceptable Acceptable
--------------------------------------------------------------------
WHEN-ISSUED AND DELAYED Acceptable Acceptable Acceptable
DELIVERY TRANSACTIONS
--------------------------------------------------------------------
1. The Balanced Fund II, Equity Fund II and Special Values Fund II may not
invest more than 20% of its assets in ADRs and not more than 10% of its assets
in other securities of foreign issuers (non-ADRs).
2. Rated A or better by Moody's or S&P.
3. Rated Prime-1 by Moody's or A-1 by S&P or of comparable quality as
determined by the investment adviser.
4. Rated A or better by Moody's or S&P or of comparable quality as determined by
the investment adviser. The Balanced Fund II may invest up to 5% of its assets
in obligations rated Baa by Moody's or BBB by S&P or of comparable quality as
determined by the investment adviser.
5. Securities are rated Baa or lower by Moody's or BBB or lower by S&P. The
Special Values Fund II swill not invest more than 35% of their total assets in
such securities.
6. The Balanced Fund II, Equity Fund II and the Special Values Fund II will
limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, over-the-counter options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.
7. Not more than 20% of each Fund's assets will be invested in stock index
futures and options. Each Fund will not purchase options to the extent that more
than 5% of the value of the Fund's total assets would be invested in premiums on
open put option positions or margin deposits on open positions, as applicable.
SECURITIES DESCRIPTIONS AND TECHNIQUES
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Funds cannot predict the income they will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which a Fund may invest.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
PREFERRED STOCKS
Preferred stocks have the right to receive specified dividends or
distributions before the issuer makes payments on its common stock. Some
preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the
stock. A Fund may also treat such redeemable preferred stock as a fixed
income security.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
REAL ESTATE INVESTMENT TRUSTS (REITS)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial
real estate market.
WARRANTS
Warrants give a Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). The Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
MASTER LIMITED PARTNERSHIPS
A master limited partnership is a publicly owned limited partnership whose
shares are bought and sold on an organized stock exchange.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which a Fund may
invest.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest
credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The
United States supports some GSEs with its full, faith and credit. Other GSEs
receive support through federal subsidies, loans or other benefits. A few
GSEs have no explicit financial support, but are regarded as having implied
support because the federal government sponsors their activities. Investors
regard agency securities as having low credit risks, but not as low as
treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does
not reduce the interest rate and prepayment risks of these mortgage backed
securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. A Fund may also purchase interests in bank loans
to companies. The credit risks of corporate debt securities vary widely
amount issuers.
The credit risk of an issuer's debt security may also vary based on its
priority for repayment. For example, higher ranking (senior) debt securities
have a higher priority than lower ranking (subordinated) securities. This
means that the issuer might not make payments on subordinated securities
while continuing to make payments on senior securities. In addition, in the
event of bankruptcy, holders of senior securities may receive amounts
otherwise payable to the holders of subordinated securities. Some
subordinated securities, such as trust preferred and capital securities
notes, also permit the issuer to defer payments under certain circumstances.
For example, insurance companies issue securities known as surplus notes that
permit the insurance company to defer any payment that would reduce its
capital below regulatory requirements.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and
use the proceeds (or bank loans) to repay maturing paper. If the issuer
cannot continue to obtain liquidity in this fashion, its commercial paper
may default. The short maturity of commercial paper reduces both the
market and credit risks as compared to other debt securities of the same
issuer.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must
repay upon demand. Other demand instruments require a third party, such as
a dealer or bank, to repurchase the security for its face value upon
demand. The Fund treats demand instruments as short-term securities, even
though their stated maturity may extend beyond one year.
MORTGAGE BACKED SECURITIES
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable interest
rates. Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer
deducts its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates
receive a pro rata share of all payments and pre-payments from the underlying
mortgages. As a result, the holders assume all the prepayment risks of the
underlying mortgages.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed
income assets (including other fixed income securities) may be used to create
an asset backed security. Asset backed securities may take the form of
commercial paper, notes, or pass through certificates. Asset backed
securities have prepayment risks. Asset backed securities may be structured
in multiple classes.
Historically, borrowers are more likely to refinance their mortgage than any
other type of consumer or commercial debt. In addition, some asset backed
securities use prepayment to buy additional assets, rather than paying off
the securities. Therefore, while asset backed securities may have some
prepayment risks, they generally do not present the same degree of risk as
mortgage backed securities.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred
to as a coupon payment). Investors buy zero coupon securities at a price
below the amount payable at maturity. The difference between the purchase
price and the amount paid at maturity represents interest on the zero coupon
security. An investor must wait until maturity to receive interest and
principal, which increases the interest rate and credit risks of a zero
coupon security. A zero coupon step-up security converts to a coupon security
before final maturity.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. The most common forms of
stripped zero coupon securities include Treasury STRIPs, interest-only
securities and principal-only securities. In addition, some securities give
the issuer the option to deliver additional securities in place of cash
interest payments, thereby increasing the amount payable at maturity. These
are referred to as pay-in-kind or PIK securities.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with
banks. Bank instruments include bank accounts, time deposits,
certificates of deposit and banker's acceptances. Yankee
instruments are denominated in U.S. dollars and issued by U.S.
branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign
banks.
INSURANCE CONTRACTS
Insurance contracts include guaranteed investment contracts, funding
agreements and annuities. A Fund may treat these contracts as fixed income
securities.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally,
the credit enhancer has greater financial resources and liquidity than the
issuer. For this reason, the investment adviser may evaluate the credit risk
of a fixed income security based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit,
bond insurance and surety bonds. Credit enhancement also includes
arrangements where securities or other liquid assets secure payment of a
fixed income security. Following a default, these assets may be sold and the
proceeds paid to security's holders. Either form of credit enhancement
reduces credit risks by providing another source of payment for a fixed
income security.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
A Fund may treat convertible securities as both fixed income and equity
securities for purposes of its investment policies and limitations, because of
their unique characteristics.
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to regular federal income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a
variable rate intended to cause the securities to trade at their face value.
A Fund treats demand instruments as short-term securities, because their
variable interest rate adjusts in response to changes in market rates, even
though their stated maturity may extend beyond thirteen months.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States. A
Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office
located in, another country;
o the principal trading market for its securities is in another
country; or
o it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are not traded in the United States. ADRs provide a way to
buy shares of foreign-based companies in the United States rather than in
overseas markets. ADRs are also traded in U.S. dollars, eliminating the need
for foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside the
United States. Depositary Receipts involve many of the same risks of
investing directly in foreign securities, including currency risks and risks
of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a foreign
security into U.S. dollars, a Fund may enter into spot currency trades. In a
spot trade, the Fund agrees to exchange one currency for another at the
current exchange rate. The Fund may also enter into derivative contracts in
which a foreign currency is an underlying asset. The exchange rate for
currency derivative contracts may be higher or lower than the spot exchange
rate. Use of these derivative contracts may increase or decrease the Fund's
exposure to currency risks.
FOREIGN GOVERNMENT SECURITIES
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government
agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit.
Further, foreign government securities include mortgage-related securities
issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
DERIVATIVE CONTRACTS
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In
this case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a
future date by entering into an offsetting contract to sell the same asset on
the same date. If the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss.
Exchanges may limit the amount of open contracts permitted at any one time. Such
limits may prevent the Fund from closing out a position. If this happens, the
Fund will be required to keep the contract open (even if it is losing money on
the contract), and to make any payments required under the contract (even if it
has to sell portfolio securities at unfavorable prices to do so). Inability to
close out a contract could also harm the Fund by preventing it from disposing of
or trading any assets it has been using to secure its obligations under the
contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in
transactions negotiated directly between the Fund and the counterparty. OTC
contracts do not necessarily have standard terms, so they cannot be directly
offset with other OTC contracts. In addition, OTC contracts with more
specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships
between the market value of a derivative contract and the underlying asset,
derivative contracts may increase or decrease the Fund's exposure to interest
rate and currency risks, and may also expose the Fund to liquidity and leverage
risks. OTC contracts also expose the Fund to credit risks in the event that a
counterparty defaults on the contract.
A Fund may trade in the following types of derivative contracts.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset is
commonly referred to as buying a contract or holding a long position in the
asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures contracts
traded OTC are frequently referred to as forward contracts.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period. A call
option gives the holder (buyer) the right to buy the underlying asset from
the seller (writer) of the option. A put option gives the holder the right to
sell the underlying asset to the writer of the option. The writer of the
option receives a payment, or premium, from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
A Fund may engage in one or more of the following:
Buy call options on securities, securities indices and futures contracts in
anticipation of an increase in the value of the underlying asset.
Buy put options on securities, securities indices and futures contracts in
anticipation of a decrease in the value of the underlying asset.
Write call options on securities, securities indices and futures contracts to
generate income from premiums, and in anticipation of a decrease or only
limited increase in the value of the underlying asset. If a call written by
the Fund is exercised, the Fund foregoes any possible profit from an increase
in the market price of the underlying asset over the exercise price plus the
premium received.
Write put options on securities, securities indices and futures contracts (to
generate income from premiums, and in anticipation of an increase or only
limited decrease in the value of the underlying asset). In writing puts,
there is a risk that the Fund may be required to take delivery of the
underlying asset when its current market price is lower than the exercise
price.
When the Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Buy or write options to close out existing options positions.
HYBRID INSTRUMENTS
Hybrid instruments combine elements of derivative contracts with those of
another security (typically a fixed income security). All or a portion of the
interest or principal payable on a hybrid security is determined by reference
to changes in the price of an underlying asset or by reference to another
benchmark (such as interest rates, currency exchange rates or indices).
Hybrid instruments also include convertible securities with conversion terms
related to an underlying asset or benchmark.
The risks of investing in hybrid instruments reflect a combination of the
risks of investing in securities, options, futures and currencies, and depend
upon the terms of the instrument. Thus, an investment in a hybrid instrument
may entail significant risks in addition to those associated with traditional
fixed income or convertible securities. Hybrid instruments are also
potentially more volatile and carry greater interest rate risks than
traditional instruments. Moreover, depending on the structure of the
particular hybrid, it may expose the Fund to leverage risks or carry
liquidity risks.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest
rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such
as securities dealers, deemed creditworthy by the investment adviser.
The Funds' custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The investment adviser or subcustodian will
monitor the value of the underlying security each day to ensure that the
value of the security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is
the seller (rather than the buyer) of the securities, and agrees to
repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by the Fund. Reverse
repurchase agreements are subject to credit risks. In addition, reverse
repurchase agreements create leverage risks because the Fund must repurchase
the underlying security at a higher price, regardless of the market value of
the security at the time of repurchase.
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions are arrangements in which the Fund buys
securities for a set price, with payment and delivery of the securities
scheduled for a future time. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest
accrues to the Fund. The Fund records the transaction when it agrees to buy
the securities and reflects their value in determining the price of its
shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit
risks in the event of a counterparty default.
TO BE ANNOUNCED SECURITIES (TBAS)
As with other when issued transactions, a seller agrees to issue a TBA
security at a future date. However, the seller does not specify the
particular securities to be delivered. Instead, the Fund agrees to accept
any security that meets specified terms. For example, in a TBA mortgage
backed transaction, the Fund and the seller would agree upon the issuer,
interest rate and terms of the underlying mortgages. However, the seller
would not identify the specific underlying mortgages until it issues the
security. TBA mortgage backed securities increase interest rate risks
because the underlying mortgages may be less favorable than anticipated by
the Fund.
SECURITIES LENDING
A Fund may lend portfolio securities to borrowers that the investment adviser
deems creditworthy. In return, the Fund receives cash or liquid securities
from the borrower as collateral. The borrower must furnish additional
collateral if the market value of the loaned securities increases. Also, the
borrower must pay the Fund the equivalent of any dividends or interest
received on the loaned securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to
the borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower.
The Fund will not have the right to vote on securities while they are on
loan, but it will terminate a loan in anticipation of any important vote. The
Fund may pay administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash collateral to
a securities lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks. These transactions create leverage risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, a Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations entering into an offsetting derivative contract or terminating
a special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
INVESTMENT RISKS
STOCK MARKET RISKS
o The value of equity securities in a Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. A Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline and you could lose money.
o The investment adviser attempts to manage market risk by limiting the amount
a Fund invests in each company's equity securities. However, diversification
will not protect the Fund against widespread or prolonged declines in the
stock market.
SECTOR RISKS
o Companies with similar characteristics may be grouped together in broad
categories called sectors. Sector risk is the possibility that a certain
sector may underperform other sectors or the market as a whole. As the
investment adviser allocates more of the Fund's portfolio holdings to a
particular sector, the Fund's performance will be more susceptible to any
economic, business or other developments which generally affect that sector.
LIQUIDITY RISKS
o Trading opportunities are more limited for equity securities that are not
widely held and for fixed income securities that have not received any credit
ratings, have received ratings below investment grade or are not widely held.
This may make it more difficult to sell or buy a security at a favorable
price or time. Consequently, a Fund may have to accept a lower price to sell
a security, sell other securities to raise cash or give up an investment
opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.
o Liquidity risk also refers to the possibility that a Fund may not be able to
sell a security or close out a derivative contract when it wants to. If this
happens, the Fund will be required to continue to hold the security or keep
the position open, and the Fund could incur losses.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts.
RISKS RELATED TO COMPANY SIZE
o Generally, the smaller the market capitalization of a company, the fewer the
number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
o Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than companies with larger market capitalizations.
CURRENCY RISKS
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets more
volatile than securities traded exclusively in the U.S.
o The investment adviser attempts to manage currency risk by limiting the
amount the Fund invests in securities denominated in a particular currency.
However, diversification will not protect the Fund against a general increase
in the value of the U.S. dollar relative to other currencies.
RISKS OF FOREIGN INVESTING
o The Funds may invest in foreign securities. Foreign securities pose
additional risks because foreign economic or political conditions may be less
favorable than those of the United States. Securities in foreign markets may
also be subject to taxation policies that reduce returns for U.S. investors.
o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the United
States. Foreign companies may also receive less coverage than United States
companies by market analysts and the financial press. In addition, foreign
countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent a Fund and its investment adviser from
obtaining information concerning foreign companies that is as frequent,
extensive and reliable as the information available concerning companies in
the United States.
o Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of a Fund's
investments.
LEVERAGE RISKS
o Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
INTEREST RATE RISKS
o Prices of fixed income securities rise and fall in response to interest rate
changes in the interest rate paid by similar securities. Generally, when
interest rates rise, prices of fixed income securities fall. However, market
factors, such as the demand for particular fixed income securities, may cause
the price of certain fixed income securities to fall while the prices of
other securities rise or remain unchanged.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of
a fixed income security to changes in interest rates.
CREDIT RISKS
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, a Fund
will lose money.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the investment adviser's
credit assessment.
o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable maturity
(the spread) measures the additional interest paid for risk. Spreads may
increase generally in response to adverse economic or market conditions. A
security's spread may also increase if the security's rating is lowered, or
the security is perceived to have an increased credit risk. An increase in
the spread will cause the price of the security to decline.
o Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying
other securities to implement its investment strategy.
CALL RISKS
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market price.
An increase in the likelihood of a call may reduce the security's price.
o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
PREPAYMENT RISKS
o Unlike traditional fixed income securities, which pay a fixed rate of
interest until maturity (when the entire principal amount is due) payments on
mortgage backed securities include both interest and a partial payment of
principal. Partial payment of principal may be comprised of scheduled
principal payments as well as unscheduled payments from the voluntary
prepayment, refinancing, or foreclosure of the underlying loans. These
unscheduled prepayments of principal create risks that can adversely affect a
Fund holding mortgage backed securities.
For example, when interest rates decline, the values of mortgage backed
securities generally rise. However, when interest rates decline, unscheduled
prepayments can be expected to accelerate, and the Fund would be required to
reinvest the proceeds of the prepayments at the lower interest rates then
available. Unscheduled prepayments would also limit the potential for capital
appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed
securities generally fall. Since rising interest rates typically result in
decreased prepayments, this could lengthen the average lives of mortgage
backed securities, and cause their value to decline more than traditional
fixed income securities.
o Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional interest
paid for risk is measured by the difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread). An increase in the spread will cause the price of the
mortgage backed security to decline. Spreads generally increase in response
to adverse economic or market conditions. Spreads may also increase if the
security is perceived to have an increased prepayment risk or is perceived to
have less market demand.
RISKS ASSOCIATED WITH NONINVESTMENT GRADE SECURITIES
o The Balanced Fund may invest in securities rated below investment grade.
These securities, also known as junk bonds, generally entail greater market,
credit and liquidity risks than investment grade securities. For example,
their prices are more volatile, economic downturns and financial setbacks may
affect their prices more negatively, and their trading market may be more
limited.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any securities on
margin, other than in connection with buying stock index futures
contracts, put options on stock index futures, put options on financial
futures and portfolio securities, and writing covered call options, but
may obtain such short-term credits as are necessary for the clearance of
purchases and sales of portfolio securities.
The deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or related options
transactions is not considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities, except that a Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed
and except, with respect to the Balanced Funds, as permitted by its
investment objective and policies.
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The Funds will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling a
Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. Each Fund will
not purchase any securities while borrowings in excess of 5% of the value
of its total assets are outstanding.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, a Fund may mortgage, pledge,
or hypothecate assets to secure such borrowings having a market value not
exceeding the lesser of the dollar amounts borrowed or 15% of the value of
total assets at the time of the borrowing. For purposes of this
limitation, the following are not deemed to be pledges: margin deposits
for the purchase and sale of futures contracts and related options, and
segregation or collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis.
INVESTING IN REAL ESTATE
The Funds will not buy or sell real estate, including limited partnership
interests, although a Fund may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.
INVESTING IN COMMODITIES
The Funds will not buy or sell commodities, commodity contracts, or
commodities futures contracts, except however, to the extent that each
Fund may engage in transactions involving futures contracts and related
options.
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UNDERWRITING
The Funds will not underwrite any issue of securities, except as each Fund
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which the Fund may purchase
pursuant to its investment objective, policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, each Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if, as a result,
more than 5% of the value of the Fund's total assets would be invested in
the securities of that issuer. Also, a Fund will not acquire more than 10%
of the outstanding voting securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Funds will not invest 25% or more of the value of their total assets
in any one industry, except that a Fund may invest 25% or more of the
value of its total assets in cash, cash items, or securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities.
LENDING CASH OR SECURITIES
The Funds will not lend any of their assets except portfolio securities,
the market values of which do not exceed one-third of the value of a
Fund's total assets.
This shall not prevent the Funds from purchasing or holding U.S.
government obligations, money market instruments, demand master notes,
bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by each Fund's investment objective,
policies, and limitations.
THE ABOVE INVESTMENT LIMITATIONS CANNOT BE CHANGED BY THE BOARD OF TRUSTEES
(BOARD) UNLESS AUTHORIZED BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Funds will limit
their investment in other investment companies to not more than 3% of the
total outstanding voting stock of any investment company, will invest no
more than 5% of their total assets in any one investment company, and will
invest no more than 10% of their total assets in investment companies in
general, unless, they are permitted to exceed these limitations by action
of the SEC. The Funds will purchase securities of closed-end investment
companies only in open market transactions involving only customary
brokers' commissions. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation, reorganization, or
acquisition of assets. It should be noted that investment companies incur
certain expenses such as custodian and transfer agency fees, and
therefore, any investment by a Fund in shares of another investment
company would be subject to such duplicate expenses. The Funds will invest
in other investment companies primarily for the purpose of investing their
short-term cash on a temporary basis.
INVESTING IN RESTRICTED SECURITIES
The Funds will not invest more than 10% of their total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for certain restricted securities which meet the criteria for
liquidity as established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of their net assets in securities
which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter options,
non-negotiable time deposits with maturities over seven days, and certain
securities not determined under guidelines established by the Trustees to
be liquid.
INVESTING IN PUT OPTIONS
The Funds will not purchase put options on securities, other than put
options on stock indices, unless the securities are held in a Fund's
portfolio and not more than 5% of the value of the Fund's total assets
would be invested in premiums on open put option positions.
WRITING COVERED CALL OPTIONS
The Funds will not write call options on securities unless the securities
are held in a Fund's portfolio or unless a Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment.
INVESTING IN WARRANTS
The Funds will not invest more than 5% of their net assets in warrants. No
more than 2% of a Fund's net assets, to be included within the overall 5%
limit on investments in warrants, may be warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Funds will not purchase securities of a company for purposes of
exercising control or management.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
For purposes of its policies and limitations, the Funds consider certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association, having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of deposit, to be "cash items."
WHAT DO SHARES COST?
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Funds' portfolio securities are determined as follows:
o for equity securities, according to the last sale price in the market in
which they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
o in the absence of recorded sales for equity securities, according
to the mean between the last closing bid and asked prices;
o for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
o for all other securities, at fair value as determined in good
faith by the Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
The Funds value futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges. Options traded in the over-the-counter market are valued according to
the mean between the last bid and the last asked price for the option as
provided by an investment dealer or other financial institution that deals in
the option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value.
TRADING IN FOREIGN SECURITIES. Trading in foreign securities may be completed at
times which vary from the closing of the New York Stock Exchange (NYSE). In
computing its net asset value (NAV), the Fund values foreign securities at the
latest closing price on the exchange on which they are traded immediately prior
to the closing of the NYSE. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the NYSE. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
NYSE. If such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Fund's Board, although the actual calculation may be done by others.
Each Fund's NAV per Share fluctuates and is based on the market value of all
securities and other assets of the Fund. The NAV for each class of Shares may
differ due to the variance in daily net income realized by each class. Such
variance will reflect only accrued net income to which the shareholders of a
particular class are entitled.
<R>
HOW ARE THE FUNDS SOLD?
Under the Distributor's Contract with the Trust, the Distributor
(Federated Securities Corp.) offers Shares on a continuous,
best-efforts basis.
</R>
RULE 12B-1 PLAN
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professional such as banks,
broker/dealers, trust departments of bank, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professional) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Funds achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Funds' service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.
The Funds may compensate the Distributor more or less than its actual marketing
expenses. In no event will a Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
SUBACCOUNTING SERVICES
Certain participating insurance companies may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Participating insurance companies holding Shares in a fiduciary,
agency, custodial, or similar capacity may charge or pass through subaccounting
fees as part of or in addition to normal trust or agency account fees. They may
also charge fees for other services that may be related to the ownership of
Shares. This information should, therefore, be read together with any agreement
between the customer and the participating insurance company about the services
provided, the fees charged for those services, and any restrictions and
limitations imposed.
REDEMPTION IN KIND
Although the Funds intend to pay Share redemptions in cash, they reserve the
right, as described below, to pay the redemption price in whole or in part by a
distribution of a Fund's portfolio securities.
Because the Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Funds are obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Board determines that payment should be in kind. In such a case, a
Fund will pay all or a portion of the remainder of the redemption in portfolio
securities, valued in the same way as the Fund determines its NAV. The portfolio
securities will be selected in a manner that the Trust's Board deems fair and
equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
The insurance company separate accounts, as shareholders of the Funds, will vote
the Fund Shares held in their separate accounts at meetings of the shareholders.
Voting will be in accordance with instructions received from contract owners of
the separate accounts, as more fully outlined in the prospectus of the separate
account.
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All classes of each Fund in
the Trust have equal voting rights, except that in matters affecting only a
particular Fund or class, only Shares of that Fund or class are entitled to
vote.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders will be called by the Trustees upon the
written request of shareholders who own at least 10% of the Trust's outstanding
shares of all series entitled to vote.
<R>
As of September 20, 2000, which was prior to the public offering of any of the
Funds' shares, Federated Administrative Services was the holder of 100% of each
Fund's shares, and there were otherwise no control persons or principal holders
of securities of the Funds.
</R>
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
Each Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, the Funds will not receive special tax treatment and will pay federal
income tax.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trusts' other portfolios will be separate from those realized by the Fund.
Each Fund must, and intends to, comply with the diversification requirements
imposed by Section 817(h) of the Internal Revenue Code. For information
concerning the consequence of a Fund not meeting the Section 817(h)
requirements, see the prospectus of the separate account.
FOREIGN INVESTMENTS
If a Fund purchases foreign securities, its investment income may be subject to
foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of fixed
income securities denominated in foreign currencies, it is difficult to project
currency effects on an interim basis. Therefore, to the extent that currency
fluctuations cannot be anticipated, a portion of distributions to shareholders
could later be designated as a return of capital, rather than income, for income
tax purposes, which may be of particular concern to simple trusts.
If a Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all of the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes the following
data: name, birthdate, address, present position(s) held with the Trust,
principal occupations for the past five years, and total compensation received
as a Trustee from the Fund Complex (as defined below) for the most recent fiscal
year. Each of the Trustees and officers listed below holds an identical position
with The Wachovia Funds and The Wachovia Municipal Funds, two other registered
investment companies in the Fund Complex. Because the Trust has not had
operations prior to the date of this SAI, the aggregate compensation figures
provided in the table below represent the compensation that the Trustees
received from The Wachovia Funds and The Wachovia Municipal Funds for their last
fiscal years. The Trust is comprised of three Funds, The Wachovia Funds are
comprised of seventeen series and The Wachovia Municipal Funds are comprised of
four series, and together they form the Fund Complex.
<R>
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
------------------------------------------------------------------------ --------------
NAME AGGREGATE
BIRTHDATE COMPENSATION
ADDRESS FROM FUND
POSITION WITH TRUST OCCUPATIONS FOR PAST 5 YEARS COMPLEX
------------------------------------------------------------------------ --------------
------------------------------------------------------------------------ --------------
JAMES A. HANLEY Retired; Vice President and Treasurer, Abbott $33,200 August 13,
1931 Laboratories (health care products) (until 4272 Sanctuary Way 1992).
Bonita Springs, FL
Trustee
------------------------------------------------------------------------ --------------
------------------------------------------------------------------------ --------------
SAMUEL E. HUDGINS Hudgins Consulting, LLC (independent $33,200
March 4, 1929 consultant); President, Percival Hudgins &
715 Whitemere Court, Company, LLC (investment bankers/financial
N.W. consultants) (until September 1997); Director,
Atlanta, GA Atlantic American Corporation (insurance
Trustee holding company).
------------------------------------------------------------------------ --------------
------------------------------------------------------------------------ --------------
D. DEAN KAYLOR Retired; Executive Vice President and Chief $26,000
June 29, 1930 Financial Officer, NBD Bank, N.A. and NBD
2835 Greenbriar Bancorp, Inc. (bank and bank holding company)
Harbor Springs, MI (until 1990).
Trustee
------------------------------------------------------------------------ --------------
------------------------------------------------------------------------ --------------
ALVIN J. SCHEXNIDER, Director, Office of Health Policy Development, $26,000
PH.D. Wake Forest University School of Medicine;
May 26, 1945 formerly, Chancellor, Winston-Salem State
3174 Turkey Hill Road University
Winston-Salem, NC 27106
Trustee
------------------------------------------------------------------------ --------------
------------------------------------------------------------------------ --------------
CHARLES S. WAY, JR.* President and CEO, The Beach Company (real $26,000
December 18, 1937 estate development) and its various affiliated
211 King Street companies and partnerships.
Suite 300
Charleston, SC
Trustee
------------------------------------------------------------------------ --------------
------------------------------------------------------------------------ --------------
JOHN W. MCGONIGLE Executive Vice President and Secretary of the $0
October 26, 1938 Federated Fund Complex; Executive Vice
Federated Investors President, Secretary and Director, Federated
Tower Investors, Inc.; Trustee, Federated Investment
Pittsburgh, PA Management Company and Federated Investment
President and Treasurer Counseling; Director, Federated Global
Investment Management Corp, Federated Services
Company and Federated Securities Corp.
------------------------------------------------------------------------ --------------
------------------------------------------------------------------------ --------------
JAMES OSTROWSKI Assistant Vice President and Client Services $0 November 13,
1959 Officer, Mutual Fund Services Division, Federated Investors Federated
Services Company; formerly, Client Tower Services Officer, Federated Services
Company.
Pittsburgh, PA
Vice President and
Assistant Treasurer
------------------------------------------------------------------------ --------------
------------------------------------------------------------------------ --------------
R. EDWARD BOWLING Senior Vice President, Wachovia Bank, N.A. and $0
March 25, 1958 Product Manager of the Trust, The Wachovia
100 N. Main Street Funds, and The Wachovia Municipal Funds.
Winston-Salem, NC
Vice President
------------------------------------------------------------------------ --------------
------------------------------------------------------------------------ --------------
GAIL CAGNEY Corporate Counsel and Vice President, $0
October 26, 1953 Federated Services Company.
Federated Investors
Tower
Pittsburgh, PA
Secretary
------------------------------------------------------------------------ --------------
</R>
INVESTMENT ADVISER
The investment adviser conducts investment research and makes investment
decisions for the Funds. The investment adviser is a business unit of Wachovia
Bank, N.A.
The investment adviser shall not be liable to the Trust, the Funds, or any Fund
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Funds, their Adviser, and their Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, the Funds' Trustees, and certain other employees. Although
they do permit these people to trade in securities, including those that the
Funds could buy, they also contain significant safeguards designed to protect
the Funds and their shareholders from abuses in this area, such as requirements
to obtain prior approval for, and to report, particular transactions.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the investment adviser looks for prompt execution of the order at a
favorable price. The investment adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The investment adviser may
select brokers and dealers based on whether they also offer research services
(as described below). In selecting among firms believed to meet these criteria,
the investment adviser may give consideration to those firms which have sold or
are selling Shares of the Funds and other funds distributed by the Distributor
and its affiliates. The investment adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the Trust's
Board.
RESEARCH SERVICES. Research services may include advice as to the advisability
of investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services may be used by the investment adviser or by
affiliates of Federated in advising other accounts. To the extent that receipt
of these services may replace services for which the investment adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
The investment adviser and its affiliates exercise reasonable business judgment
in selecting those brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Investment decisions for the Funds are made independently from those of other
accounts managed by the investment adviser. When a Fund and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the investment adviser to be equitable. While the
coordination and ability to participate in volume transactions may benefit the
Funds, it is possible that this procedure could adversely impact the price paid
or received and/or the position obtained or disposed of by the Funds.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Funds. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
the Funds in the Trust as specified below:
--------------------------------------------------------------------------------
MAXIMUM AVERAGE AGGREGATE DAILY NET
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ADMINISTRATIVE FEE ASSETS OF THE FUNDS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
.10 of 1% on the first $3.5 billion
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
.06 of 1% on assets in excess of
$3.5 billion
--------------------------------------------------------------------------------
CUSTODIAN
Wachovia Bank, N.A., is custodian (the Custodian) for the securities and cash of
the Funds. Under the Custodian Agreement, the Custodian holds the Funds'
portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. For the services to be provided to the Trust
pursuant to the Custodian Agreement, the Trust pays the Custodian an annual fee
based upon the average daily net assets of the Funds and which is payable
monthly. The Custodian will also charge transaction fees and out-of-pocket
expenses. Foreign instruments purchased by the Funds are held by foreign banks
participating in a network coordinated by State Street Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, also provides certain accounting and
recordkeeping services with respect to the Funds' portfolio investments.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountant for the Trust, Ernst & Young LLP, plans and
performs its audit so that it may provide an opinion as to whether the Funds'
financial statements and financial highlights are free of material misstatement.
SHAREHOLDER SERVICES
The Funds may pay Federated Administrative Services, a subsidiary of Federated,
for providing shareholder services and maintaining shareholder accounts.
Federated Administrative Services may select others to perform these services
for their customers and may pay them fees.
HOW DO THE FUNDS MEASURE PERFORMANCE?
The Funds may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings and
offering price per Share fluctuate daily. Both net earnings and offering price
per Share are factors in the computation of yield and total return.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent investment professional and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications
and/or performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
o information about the mutual fund industry from sources such as
the Investment Company Institute.
A Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
A Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in maximum offering price over a specific period of
time. From time to time, a Fund will quote its Lipper ranking in advertising and
sales literature.
DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations. The DJIA indicates daily changes in the
average price of stock of these corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market as a whole.
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS (THE "S&P
INDEX"), is a composite index of common stocks in industry, transportation, and
financial and public utility companies. In addition, the S&P Index assumes
reinvestment of all dividends paid by stocks listed on the S&P Index. Taxes due
on any of these distributions are not included, nor are brokerage or other fees
calculated in the S&P Index figures.
RUSSELL 2000 INDEX is a broadly diversified index consisting of approximately
2,000 small capitalization common stocks that can be used to compare the total
returns of funds whose portfolios are invested primarily in small capitalization
common stocks.
RUSSELL 2000 VALUE INDEX measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth values.
MERRILL LYNCH COMPOSITE 1-3 YEAR TREASURY INDEX is an unmanaged index tracking
short-term U.S. government securities with maturities between 1 and 2.99 years.
The index is produced by Merrill Lynch, Pierce, Fenner & Smith.
MERRILL LYNCH COMPOSITE 1-5 YEAR TREASURY INDEX is comprised of approximately 66
issues of U.S. Treasury securities maturing between 1 and 4.99 years, with
coupon rates of 4.25% or more. These total return figures are calculated for
one, three, six, and twelve month periods and year-to-date and include the value
of the bond plus income and any price appreciation or depreciation.
SALOMON BROTHERS 3-5 YEAR GOVERNMENT INDEX quotes total returns for U.S.
Treasury issues (excluding flower bonds) which have maturities of three to five
years. These total returns are year-to-date figures which are calculated each
month following January 1.
MERRILL LYNCH 3-5 YEAR TREASURY INDEX is comprised of approximately 24 issues of
intermediate-term U.S. government and U.S. Treasury securities with maturities
between 3 and 4.99 years and coupon rates above 4.25%. Index returns are
calculated as total returns for periods of one, three, six and twelve months as
well as year-to-date.
MERRILL LYNCH 3-YEAR TREASURY YIELD CURVE INDEX is an unmanaged index comprised
of the most recently issued 3-year U.S. Treasury notes. Index returns are
calculated as total returns for periods of one, three, six, and twelve months as
well as year-to-date.
LEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of all publicly
issued, non-convertible domestic debt of the U.S. government, or any agency
thereof, or any quasi-federal corporation and of corporate debt guaranteed by
the U.S. government. Only notes and bonds with a minimum outstanding principal
of $1 million and a minimum maturity of one year are included.
LEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index measuring both the
capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Lehman Brothers Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Farm Credit System, including the National
Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Farmers
Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation; Fannie Mae; Government National Mortgage Association and Student
Loan Marketing Association; foreign obligations; and U.S. investment-grade
corporate debt and mortgage-backed obligations. All corporate debt included in
the Aggregate Bond Index has a minimum S&P rating of BBB or a minimum Moody's
rating of Baa.
MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX includes issues which must be in
the form of publicly placed, nonconvertible, coupon-bearing domestic debt and
must carry a term of maturity of at least one year. Par amounts outstanding must
be no less than $10 million at the start and at the close of the performance
measurement period. Corporate instruments must be rated by S&P or by Moody's as
investment grade issues (i.e., BBB/Baa or better).
MERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must be in the form of
publicly placed, nonconvertible, coupon-bearing domestic debt and must carry a
term to maturity of at least one year. Par amounts outstanding must be no less
than $10 million at the start and at the close of the performance measurement
period. The Domestic Master Index is a broader index than the Merrill Lynch
Corporate and Government Index and includes, for example, mortgage-related
securities. The mortgage market is divided by agency, type of mortgage and
coupon and the amount outstanding in each agency/type/coupon subdivision must be
no less than $200 million at the start and at the close of the performance
measurement period. Corporate instruments must be rated by S&P or by Moody's as
investment-grade issues (i.e. BBB/Baa or better).
S&P 500/LEHMAN BROTHERS GOVERNMENT/CORPORATE (WEIGHTED INDEX) and the S&P
500/LEHMAN BROTHERS GOVERNMENT (WEIGHTED INDEX) combine the components of a
stock-oriented index and a bond-oriented index to obtain results which can be
compared to the performance of a managed fund. The indices' total returns will
be assigned various weights depending upon a Fund's current asset allocation.
SALOMON BROTHERS AAA-AA CORPORATE index calculates total returns of
approximately 775 issues which include long-term, high grade domestic corporate
taxable bonds, rated AAA-AA with maturities of twelve years or more and
companies in industry, public utilities, and finance.
LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years. Total
return is based on price appreciation/depreciation and income as a percentage of
the original investment. Indices are rebalanced monthly by market
capitalization.
SEI BALANCED UNIVERSE is composed of 916 portfolios managed by 390 managers
representing $86 billion in assets. To be included in the universe, a portfolio
must contain a 5% minimum commitment in both equity and fixed-income securities.
Consulting universes may be composed of pension, profit-sharing, commingled,
endowment/foundation and mutual funds.
LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) index is comprised of approximately
5,000 issues which include: non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed rate, non-convertible
domestic bonds of companies in industry, public utilities, and finance. The
average maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, the index calculates total returns for one-month, three-month,
twelve-month, and ten-year periods and year-to-date.
MERRILL LYNCH CORPORATE MASTER is an unmanaged index comprised of approximately
4,356 corporate debt obligations rated BBB or better. These quality parameters
are based in composites of ratings assigned by S&P and Moody's. Only bonds with
a minimum maturity of one year are included.
MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
SALOMON BROTHERS ONE-MONTH TAX-EXEMPT COMMERCIAL PAPER is an index of
selected tax-exempt commercial paper issues, maturing in one month,
whose yields are chosen as representative of this particular market.
Calculations are made weekly and monthly. Ehrlich-Bober & Co., Inc.
also tracks this Salomon Brothers index.
<R>
WACHOVIA BALANCED FUND II
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 15, 2000
ASSETS:
Cash 35,150
Total assets 35,150
Net Assets for 3,515 shares outstanding 35,150 $
NET ASSETS CONSIST OF:
Paid in capital 35,150 $
Total Net Assets 35,150 $
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$35,150 / 3,515 shares outstanding $10.00
WACHOVIA EQUITY FUND II
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 15, 2000
ASSETS:
Cash 35,150
Total assets 35,150
Net Assets for 3,515 shares outstanding $ 35,150
NET ASSETS CONSIST OF:
Paid in capital $35,150
Total Net Assets $35,150
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$35,150 / 3,515 shares outstanding $10.00
WACHOVIA SPECIAL VALUES FUND II
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 15, 2000
ASSETS:
Cash 30,150
Total assets 30,150
Net Assets for 3,015 shares outstanding $30,150
NET ASSETS CONSIST OF:
Paid in capital $30,150
Total Net Assets $30,150
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$30,150 / 3,015 shares outstanding $10.00
The accompanying notes to the financial statement are an integral part of this
statement.
THE WACHOVIA VARIABLE INSURANCE FUNDS
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 15, 2000
1. ORGANIZATION
The Wachovia Variable Insurance Funds (the Trust) is an open-end, management
investment company that was established under the laws of the Commonwealth of
Massachusetts on March 3, 2000. The Trust may offer separate series of shares
representing interests in separate portfolios of securities. The Trust currently
offers interests in three professionally managed, diversified series (together
referred to as the Funds): Wachovia Balanced Fund II; Wachovia Equity Fund II;
and Wachovia Special Values Fund II.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Organization Expenses
Expenses incurred by the Trust in connection with the organization and initial
public offering were assumed by Wachovia Asset Management ("WAM"), the Fund's
Adviser, a subsidiary of Wachovia Bank, NA.
b. Federal Income Taxes
The Fund intends to comply with the requirements of the Internal
Revenue Code necessary to qualify as a regulated investment
company
and to make the requisite distributions of income and capital
gains
to its shareholders sufficient to relieve it from all or
substantially
all Federal income taxes.
3.INVESTMENT ADVISER FEE
Wachovia Asset Management, a subsidiary of Wachovia Bank, N.A. and the
Funds' investment adviser (the "Adviser "), receives for its services
an annual investment adviser fee based on a percentage
of each Fund's average daily net assets as listed below.
ANNUAL RATE PER FUND
Balanced Fund II 0.70%
Equity Fund II 0.70%
Special Values Fund II 0.80%
</R>
INVESTMENT RATINGS
STANDARD & POOR'S CORPORATE BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits 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
debt in this category than in higher rated categories.
BB, B, CCC, CC -- Debt rated "BB", "B", "CCC", and "CC" is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposure to adverse
conditions.
C -- The rating "C" is reserved for income bonds on which no interest is being
paid.
D -- Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
S&P may apply a plus (+) sign or minus (-) sign to the above rating
classifications to show relative standing within the classifications.
MOODY'S INVESTORS SERVICE CORPORATE BOND RATING
AAA--Bonds which are rated "AAA" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA--Bonds which are rated "AA" are judged to be of high quality by all
standards. Together with the "AAA" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "AAA" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "AAA"
securities.
A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
BAA--Bonds which are rated "BAA" are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are "BA" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA -- Bonds which are rated "CAA" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated "CA" represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated "C" are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects or ever attaining any
real investment standing.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from "AA" through "B" in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
A-3--Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B--Issues rated "B" are regarded as having only speculative capacity for timely
payment.
C--This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D--Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATING DEFINITIONS
PRIME-1--Issuers rated "PRIME-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. "PRIME-1"
repayment capacity will normally be evidenced by many of the following
characteristics:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate
reliance on debt and ample asset protection;
o Broad margins in earnings coverage of fixed financial
charges and high internal cash generation; or
o Well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2--Issuers rated "PRIME-2" (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
MOODY'S INVESTORS SERVICE SHORT-TERM DEBT RATINGS
PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on
debt and ample asset protection;
o Broad margins in earning coverage of fixed financial charges and
high internal cash generation; and
o Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
PRIME-3--Issuers rated PRIME-3 (or related supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME--Issuers rated NOT PRIME do not fall within any of the Prime rating
categories.
MOODY'S INVESTORS SERVICE SHORT TERM LOAN RATINGS
MIG 1/VMIG 1--This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad based access to the market for refinancing.
MIG 2/VMIG 2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3/VMIG 3--This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
ADDRESSES
THE WACHOVIA VARIABLE INSURANCE FUNDS
101 Greystone Boulevard
SC-9215
Columbia, SC 29226
Distributor
FEDERATED SECURITIES CORP. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania
15222-3779
Investment Adviser
WACHOVIA ASSET MANAGEMENT 100 North Main Street
Winston-Salem, NC 27101
Custodian
WACHOVIA BANK, N.A. 100 North Main Street
Winston-Salem, NC 27101
Transfer Agent and Dividend Disbursing Agent
FEDERATED SHAREHOLDER SERVICES COMPANY Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Independent Auditors
ERNST & YOUNG LLP 200 Clarendon Street
Boston, MA 02116
PART C. OTHER INFORMATION.
Item 23.
(a) Conformed Copy of Declaration of Trust of the
Registrant; 1
(b) Copy of By-Laws of the Registrant; 1
(c) Not applicable;
(d) Conformed Copy of Investment Advisory Contract of the Registrant; +
(e) (i) Conformed Copy of Distributor's Contract of the
Registrant; +
(f) Not applicable;
(g) Conformed Copy of Custodian Agreement of the Registrant; +
(h) Conformed Copy of Agreement for Fund Accounting Services,
Administrative Services and Transfer Agency Services; +
(i) Conformed Copy of Opinion and Consent of Counsel as to
legality of shares being registered; + (j) Conformed
copy of Consent of Independent Auditors; + (k) Not
applicable; (l) Not applicable; (m) (i) Conformed Copy of
Distribution Plan; +
(ii) Form of Mutual Funds Sales and Service Agreement;
+ (n) Not applicable; (o) Conformed copy of Power of
Attorney; 1 (p) Copy of Code of Ethics. +
Item 24. Persons Controlled by or Under Common Control with Registrant:
None
-----------------------------------------------
+ All exhibits have been filed electronically
1. Response is incorporated by reference to Registrant's Initial Registration Statement
filed March 27, 2000. (File Nos. 333-33306 and 811-09873)
Item 25. Indemnification:
Indemnification is provided to Officers and Trustees of the
Registrant pursuant to Section 2 of Article XI of Registrant's
Declaration of Trust. The Investment Advisory Contract between the
Registrant and Wachovia Bank, N.A. ("Adviser") provides that, in the
absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the obligations or duties under the Investment
Advisory Contract on the part of Adviser, Adviser shall not be
liable to the Registrant or to any shareholder for any act or
omission in the course of or connected in any way with rendering
services or for any losses that may be sustained in the purchase,
holding, or sale of any security. Registrant's Trustees and Officers
are covered by an Investment Trust Errors and Omissions Policy.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, Officers, and
controlling persons of the Registrant by the Registrant pursuant to
the Declaration of Trust or otherwise, the Registrant is aware that
in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act
and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by Trustees, Officers,
or controlling persons of the Registrant in connection with the
successful defense of any act, suit, or proceeding) is asserted by
such Trustees, Officers, or controlling persons in connection with
the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy
as expressed in the Act and will be governed by the final
adjudication of such issues.
Insofar as indemnification for liabilities may be permitted pursuant
to Section 17 of the Investment Company Act of 1940 for Trustees,
Officers, and controlling persons of the Registrant by the
Registrant pursuant to the Declaration of Trust or otherwise, the
Registrant is aware of the position of the Securities and Exchange
Commission as set forth in Investment Company Act Release No.
IC-11330. Therefore, the Registrant undertakes that in addition to
complying with the applicable provisions of the Declaration of Trust
or otherwise, in the absence of a final decision on the merits by a
court or other body before which the proceeding was brought, that an
indemnification payment will not be made unless in the absence of
such a decision, a reasonable determination based upon factual
review has been made (i) by a majority vote of a quorum of non-party
Trustees who are not interested persons of the Registrant or (ii) by
independent legal counsel in a written opinion that the indemnitee
was not liable for an act of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duties. The Registrant further
undertakes that advancement of expenses incurred in the defense of a
proceeding (upon undertaking for repayment unless it is ultimately
determined that indemnification is appropriate) against an Officer,
Trustee, or controlling person of the Registrant will not be made
absent the fulfillment of at least one of the following conditions:
(i) the indemnitee provides security for his undertaking; (ii) the
Registrant is insured against losses arising by reason of any lawful
advances; or (iii) a majority of a quorum of disinterested non-party
Trustees or independent legal counsel in a written opinion makes a
factual determination that there is reason to believe the indemnitee
will be entitled to indemnification.
Item 26. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment adviser,
see the section entitled "Who Manages the Funds?" in Part A. The
Officers of the investment adviser are: Chief Executive Officer, L.
M. Baker, Jr.; President and Chief Operating Officer, G. Joseph
Prendergast; Vice Chairman, Robert S. McCoy, Jr.; Vice Chairman,
Walter E. Leonard, Jr.; State Chief Executive Officer, Lewis N.
Miller, Jr. (Virginia); State Chief Executive Officer, Will B.
Spence (North Carolina/South Carolina); State Chief Executive
Officer, D. Gary Thompson (Florida/Georgia); State President, James
C. Cherry (Virginia Banking); State President, J. Kenneth Coppedge
(Florida Banking); State President, Isaiah Tidwell (Georgia
Banking); Senior Executive Vice President, Jean E. Davis; Senior
Executive Vice President, Mickey W. Dry; Senior Executive Vice
President, Stanhope A. Kelly; Senior Executive Vice President,
Kenneth W. McAllister; Senior Executive Vice President, John C.
McLean, Jr.; and Senior Executive Vice President, Donald K. Truslow.
The business address of each of the Officers of the investment
adviser is Wachovia Bank, N.A., 100 North Main Street,
Winston-Salem, N.C. 27101.
The Directors of the investment adviser are: L.M. Baker, Jr.; James
S. Balloun; Peter C. Browning; John T. Casteen, III; John L.
Clendenin; Thomas K. Hearn, Jr.; George W. Henderson, III; W. Hayne
Hipp; Robert A. Ingram; George R. Lewis; Elizabeth Valk Long; John
G. Medlin, Jr.; Lloyd U. Noland, III; Morris W. Offit; G. Joseph
Prendergast; Sherwood H. Smith, Jr.; and John C. Whitaker, Jr.
Item 27. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following open-end
investment companies, including the Registrant:
Cash Trust Series II; Cash Trust Series, Inc.; CCB Funds; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated
American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated
Equity Funds; Federated Equity Income Fund, Inc.; Federated Fixed Income Securities,
Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated High Income Bond Fund, Inc.; Federated
High Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated International Series, Inc.; Federated Investment Series Funds, Inc.;
Federated Managed Allocation Portfolios; Federated Municipal Opportunities Fund,
Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Securities
Income Trust; Federated Short-Term Municipal Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; Federated World Investment Series,
Inc.; FirstMerit Funds; Hibernia Funds; Independence One Mutual Funds; Intermediate
Municipal Trust; Marshall Funds, Inc.; Money Market Obligations Trust; Regions Funds;
RIGGS Funds; SouthTrust Funds; Tax-Free Instruments Trust; The Wachovia Funds; The
Wachovia Municipal Funds; and Vision Group of Funds, Inc.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Chairman, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Arthur L. Cherry Director, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales --
Federated Investors Tower and Director,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Executive Vice --
Federated Investors Tower Vice President and Assistant
1001 Liberty Avenue Secretary,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
James F. Getz President-Broker/Dealer and --
Federated Investors Tower Director,
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ronald M. Petnuch Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John M. Albert Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew W. Brown Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark Carroll Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Steven R. Cohen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert J. Deuberry Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy Franklin Vice President, --
Federated Investors Tower Federated Securities Corp
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark A. Gessner Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Tad Gullickson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Scott Gundersen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dayna C. Haferkamp Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Anthony J. Harper Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ed Koontz Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher A. Layton Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael H. Liss Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Amy Michalisyn Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peter III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raleigh Peters Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Segura Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terence Wiles Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert W. Bauman Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charles L. Davis, Jr. Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Donald C. Edwards Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John T. Glickson Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Lynn Sherwood-Long Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kirk A. Montgomery Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley, III Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy S. Johnson Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Victor R. Siclari Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 28. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant
The Wachovia Variable Insurance 5800 Corporate Drive
Funds Pittsburgh, PA 15237-7010
Federated Services Company Federated Investors Tower
(Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper)
Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
(Administrator)
Wachovia Bank, N.A. 100 North Main Street
(Adviser) Winston-Salem, NC 27101
Wachovia Bank, N.A. 100 North Main Street
(Custodian) Winston-Salem, NC 27101
Item 29. Management Services: Not applicable.
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE WACHOVIA VARIABLE INSURANCE
FUNDS, has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 15th day of September, 2000.
THE WACHOVIA VARIABLE INSURANCE FUNDS
BY: /s/Gail Cagney
Gail Cagney, Secretary
Attorney in Fact for John W. McGonigle
September 15, 2000
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Gail Cagney
Gail Cagney Attorney In Fact September 15, 2000
SECRETARY For the Persons
Listed Below
NAME TITLE
John W. McGonigle* President and Treasurer
(Chief Executive Officer and Principal
Financial and Accounting Officer)
James A. Hanley* Trustee
Samuel E. Hudgins* Trustee
D. Dean Kaylor* Trustee
Alvin J. Schexnider, Ph.D.* Trustee
Charles S. Way, Jr.* Trustee
* By Power of Attorney
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