<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. _________ [_]
Post-Effective Amendment No. 28 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
Amendment No. 29 [X]
(Check Appropriate Box or Boxes)
New England Zenith Fund
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
501 Boylston Street, Boston, Massachusetts 02116
- --------------------------------------------- ----------------
(Address of Principal Executive Offices) (Zip Code)
(617)578-1388
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Thomas M. Lenz
New England Investment Management, Inc.
501 Boylston Street
Boston, Massachusetts 02116
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Copy to:
John M. Loder
Ropes & Gray
One International Place
Boston, Massachusetts 02110
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On May 1, 2000 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] On (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] On (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
NEW ENGLAND ZENITH FUND
New England Zenith Fund (the "Fund") is a mutual fund that provides a range of
investment options through the following sixteen separate investment portfolios
(the "Series").
<TABLE>
<S> <C>
MONEY MARKET SERIES EQUITY SERIES
Back Bay Advisors Money Market Series Alger Equity Growth Series
Capital Growth Series
FIXED-INCOME SERIES Davis Venture Value Series
Harris Oakmark Mid Cap Value
Back Bay Advisors Bond Income Series Series
Salomon Brothers Strategic Loomis Sayles Small Cap Series
Bond Opportunities Series MFS Investors Series
Salomon Brothers U.S. Government Series MFS Research Managers Series
Westpeak Growth and Income Series
EQUITY AND FIXED-INCOME SERIES Westpeak Stock Index Series
Back Bay Advisors Managed Series INTERNATIONAL EQUITY SERIES
Balanced Series
Morgan Stanley International
Magnum Equity Series
</TABLE>
This Prospectus is designed to help you decide whether to invest in the Fund
and which Series best match your investment objectives. The Prospectus is
divided into four Sections:
I A brief overview of the structure of the Fund and the Series.
II Summaries of each Series, including investment objectives and principal
investment strategies and risks.
III More detailed descriptions of each Series, including the investment
process and additional investment risks.
IV Other information about the Fund, including information on purchases and
redemptions, portfolio valuation, securities pricing and financial
highlights.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
MAY 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section I--Overview of New England Zenith Fund............................. B-3
Section II--Summary Information about each Series ......................... B-5
Section III--Additional Information about each Series ..................... B-33
Section IV--Other Information about the Fund............................... B-72
Financial Highlights....................................................... B-74
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL
SERIES SUMMARY INFORMATION
------ ------- -----------
<S> <C> <C>
Back Bay Advisors Money Market Series....................... B-5 B-34
Back Bay Advisors Bond Income Series........................ B-7 B-35
Salomon Brothers Strategic Bond Opportunities Series........ B-9 B-38
Salomon Brothers U.S. Government Series..................... B-11 B-41
Back Bay Advisors Managed Series............................ B-13 B-43
Balanced Series............................................. B-15 B-47
Alger Equity Growth Series.................................. B-17 B-51
Capital Growth Series....................................... B-18 B-52
Davis Venture Value Series.................................. B-20 B-55
Harris Oakmark Mid Cap Value Series......................... B-21 B-57
Loomis Sayles Small Cap Series.............................. B-23 B-61
MFS Investors Series........................................ B-25 B-64
MFS Research Managers Series................................ B-26 B-66
Westpeak Growth and Income Series........................... B-27 B-68
Westpeak Stock Index Series................................. B-29 B-69
Morgan Stanley International Magnum Equity Series........... B-31 B-70
</TABLE>
B-2
<PAGE>
SECTION I--OVERVIEW OF NEW ENGLAND ZENITH FUND
A SEPARATE ACCOUNT is a pool of assets set aside by an insurance company to
fund payments under a specified group of insurance policies or contracts.
A DIVIDEND is a payment made by a company to a shareholder that typically is
based on the company's performance. A dividend may be paid as cash or
additional securities.
ORGANIZATION
The Fund is a mutual fund consisting of multiple investment portfolios, the
Series. New England Investment Management, Inc. ("NEIM") is the investment
adviser to all the Series except Capital Growth, which is managed by Capital
Growth Management Limited Partnership ("CGM"). NEIM has contracted with
subadvisers to make the day-to-day investment decisions for all Series except
Capital Growth. NEIM is responsible for overseeing these subadvisers and for
making recommendations to the Board of Trustees of the Fund relating to hiring
and replacing subadvisers. CGM makes the day-to-day investment decisions for
Capital Growth.
Each Series of the Fund other than the Harris Oakmark Mid Cap Value Series is
a "diversified" fund. As a "non-diversified" fund, the Harris Oakmark Mid Cap
Value Series may hold fewer securities than the other Series. If the stocks
held by the Harris Oakmark Mid Cap Value Series perform poorly, the Series
could incur greater losses than if it had invested in a greater number of
stocks.
INVESTORS
Fund shares are offered only to SEPARATE ACCOUNTS established by New England
Life Insurance Company ("New England Financial"), Metropolitan Life Insurance
Company ("Metropolitan Life"), General American Life Insurance Company
("General American"), Security First Life Insurance Company ("SFG Group") or
other insurance companies affiliated with any of these insurance companies
(the "Separate Accounts"). The Fund serves as the investment vehicle for
variable life insurance, variable annuity and group annuity products of these
insurance companies. The general public may not directly purchase Fund shares.
The performance information in this Prospectus does not reflect charges
associated with the Separate Accounts or variable contracts that an investor
in the Fund may pay under insurance or annuity contracts.
TYPES OF INVESTMENTS
Each Series invests in a variety of securities. Securities generally fall into
two main categories: equity and fixed-income.
Equity Securities
Equity securities include common stocks, preferred stocks and other
instruments related to common and preferred stocks. Generally, common and
preferred stocks represent ownership interests in a corporation, which may be
referred to as the "issuer" of the stock. Stocks often pay a DIVIDEND.
Investment advisers often characterize stocks as "growth stocks" or "value
stocks." Generally, an investment adviser considers a stock to be a growth
stock if it expects the company's earnings to grow more rapidly than earnings
of other companies. An investment adviser using a "growth" style of investing
will be more likely than an adviser using a "value" style to buy a stock which
is considered
B-3
<PAGE>
The MATURITY DATE is the date on which a fixed-income security "matures." This
is the date on which the borrower must pay back the borrowed amount, the
principal.
relatively expensive, when compared to other stocks, in terms of traditional
measures of stock valuation. Generally, value stocks are the stocks of
companies that an investment adviser believes are inexpensive relative to other
stocks under current market conditions. A stock may display characteristics of
both classifications. Therefore, it is possible that a stock may be
characterized as a growth stock by some investment professionals and as a value
stock by other investment professionals.
The prices of growth stocks may be more sensitive to changes in current or
expected earnings than the prices of other stocks. The prices of value stocks
may fall, or simply may not increase as much as it would have otherwise, if the
market does not agree with the subadviser's view of the value of the stock.
Stocks are also often categorized according to the market capitalization of the
issuer. Market capitalization is calculated by multiplying the total number of
outstanding shares of an issuer by the market price of those shares. Some
mutual funds invest primarily in stocks of issuers with larger capitalizations,
while other mutual funds invest primarily in stocks of issuers with medium or
small capitalizations.
Stock markets tend to move in cycles with periods of rising prices and periods
of falling prices. Like the stock market generally, the investment performance,
or "total return," of the Series which invest in stocks and other equity
securities will fluctuate within a wide range, so an investor may lose money
over short or even long periods.
Each type of stock, such as stocks in different market capitalization
categories, including "small cap," "mid cap," and "large cap," and in different
investment style categories, such as value or growth, tend to go through cycles
of doing better or worse than the stock market in general. These periods in the
past have lasted for as long as several years.
Fixed-income Securities
Fixed-income securities, including bonds, notes, and U.S. and other government
securities, represent an obligation of a company or other issuer to repay money
that it has borrowed. Generally, the issuer agrees to pay the investor interest
in return for the use of the money until the MATURITY DATE, as set forth in the
terms of the security. The rate of interest may be fixed or variable.
The value of fixed-income securities (and of the shares of a Series invested in
fixed-income securities) will generally rise when interest rates fall and drop
when interest rates increase. A bond with a longer remaining maturity or
duration will tend to lose or gain more value in response to interest rate
changes than a shorter-term bond. While presenting more risk of loss, longer-
term bonds tend to pay higher rates of interest or "yields." Falling interest
rates will cause the yield of a portfolio of bonds to decrease over time.
B-4
<PAGE>
SECTION II--
SUMMARY INFORMATION ABOUT EACH SERIES
BACK BAY ADVISORS MONEY MARKET SERIES
INVESTMENT OBJECTIVE
The investment objective of the Back Bay Advisors Money Market Series ("Money
Market") is the highest possible level of current income consistent with
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
Back Bay Advisors, L.P. ("Back Bay Advisors") invests Money Market's assets in
a managed portfolio of MONEY MARKET INSTRUMENTS.
PRINCIPAL INVESTMENT RISKS
AN INVESTMENT IN MONEY MARKET IS NOT INSURED OR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH MONEY
MARKET SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $100.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN MONEY MARKET.
Factors that could harm the investment performance of Money Market include:
. A general decline in fixed-income security markets.
. Poor performance of individual fixed-income securities held by Money
Market, which may be due to interest rate risk or credit risk.
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of Money Market for the last
ten full calendar years. The table following the bar chart compares the average
annual total returns of Money Market to the returns of a relevant broad-based
securities market index. This information helps illustrate the volatility of
Money Market's returns. These returns do not reflect charges associated with
the Separate Accounts or variable contracts that an investor in the Fund may
pay under insurance or annuity contracts.
[GRAPH APPEARS HERE]
YEAR TOTAL RETURN
- ---- ------------
1990 8.2%
1991 6.2%
1992 3.8%
1993 3.0%
1994 4.0%
1995 5.6%
1996 5.1%
1997 5.3%
1998 5.3%
1999 5.0%
A money market fund is a type of mutual fund that only invests in certain types
of high quality securities with short maturities. These securities are
sometimes referred to as MONEY MARKET INSTRUMENTS. Please see Section III for
more information on money market instruments.
B-5
<PAGE>
During the period shown above, the highest quarterly return was 2.00% for each
of the second and third quarters of 1990, and the lowest quarterly return was
0.72% for the second quarter of 1993. Past performance of a Series does not
necessarily indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS
------------- --------------- --------------
<S> <C> <C> <C>
Money Market....................... 5.0% 5.3% 5.1%
91 day T-Bill Rate................. 4.8% 5.0% 4.9%
</TABLE>
B-6
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES
INVESTMENT OBJECTIVE
The investment objective of the Back Bay Advisors Bond Income Series ("Bond
Income") is a high level of current income consistent with protection of
capital.
PRINCIPAL INVESTMENT STRATEGIES
Back Bay Advisors, L.P. ("Back Bay Advisors") invests Bond Income's assets
primarily in U.S. corporate bonds. Back Bay Advisors will invest at least 80%
of Bond Income's total assets in INVESTMENT GRADE securities. Back Bay Advisors
may also invest Bond Income's assets in foreign corporate and government
securities, U.S. government securities, and mortgage-backed securities. Up to
20% of Bond Income's total assets may be invested in HIGH YIELD DEBT.
PRINCIPAL INVESTMENT RISKS
Investing in Bond Income involves risks. Bond Income may not perform as well as
other investments, and it is possible for investors to lose money. Factors that
could harm the investment performance of Bond Income include:
. A general decline in U.S. or foreign fixed-income security markets.
. Poor performance of individual fixed-income securities held by Bond
Income, which may be due to interest rate risk or credit risk.
. The risks associated with investments in foreign securities. Foreign
securities may be subject to less regulation and additional regional,
national and currency risks. These risks are increased for emerging
market securities. The risks of foreign investing are discussed more
fully in Section III.
INVESTMENT GRADE: Moody's and Standard & Poor's are rating agencies that assign
a "credit rating" to fixed-income securities and issuers based on the agency's
evaluation of the risk that the issuer will default on its obligations.
Securities or issuers that earn one of the top four ratings from Moody's or
Standard & Poor's are considered "investment grade." In this Prospectus,
unrated securities that, in the subadviser's judgment, are of similar quality
to other securities rated investment grade are also referred to as investment
grade.
Fixed-income securities that are below investment grade quality are referred to
as HIGH YIELD DEBT (commonly known as "junk bonds"). High yield debt is
typically riskier than investment grade securities.
B-7
<PAGE>
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of Bond Income for the last
ten full calendar years. The table following the bar chart compares the average
annual total returns of Bond Income to the returns of a relevant broad-based
securities market index and to returns of a group of other similar mutual funds
underlying variable insurance products. This information helps illustrate the
volatility of Bond Income's returns. These returns do not reflect charges
associated with the Separate Accounts or variable contracts that an investor in
the Fund may pay under insurance or annuity contracts.
[GRAPH APPEARS HERE]
YEAR TOTAL RETURN
- ---- ------------
1990 8.1%
1991 18.0%
1992 8.2%
1993 12.6%
1994 -3.4%
1995 21.2%
1996 4.6%
1997 10.9%
1998 9.0%
1999 -0.5%
During the period shown above, the highest quarterly return was 7.65% for the
second quarter of 1995 and the lowest quarterly return was -3.05% for the first
quarter of 1994. Past performance of a Series does not necessarily indicate how
that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS
------------- --------------- --------------
<S> <C> <C> <C>
Bond Income....................... -0.5% 8.8% 8.6%
Lehman Brothers Intermediate
Government/Corporate Bond Index.. 0.4% 7.1% 7.3%
Lipper Variable Products
Intermediate Investment Grade
Debt Fund Average................ -0.5% 7.1% 7.1%
</TABLE>
B-8
<PAGE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
INVESTMENT OBJECTIVE
The investment objective of the Salomon Brothers Strategic Bond Opportunities
Series ("Strategic Bond") is a high level of total return consistent with
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
Salomon Brothers Asset Management Inc ("SBAM") invests substantially all of
Strategic Bond's assets in three classes of fixed-income securities: (1) U.S.
INVESTMENT GRADE securities (including U.S. Government obligations), (2) U.S.
and foreign HIGH YIELD DEBT, and (3) foreign government securities.
PRINCIPAL INVESTMENT RISKS
Investing in Strategic Bond involves risks. Strategic Bond may not perform as
well as other investments, and it is possible for investors to lose money.
Factors that could harm the investment performance of Strategic Bond include:
. A general decline in U.S. or foreign fixed-income security markets.
. Poor performance of the classes of fixed-income securities held by
Strategic Bond.
. Poor performance of individual fixed-income securities held by Strategic
Bond, which may be due to interest rate risk or credit risk.
. The risks associated with investments in foreign securities, which may
be subject to less regulation and additional regional, national and
currency risk. These risks are increased for emerging market securities.
The risks of foreign investing are discussed more fully in Section III.
INVESTMENT GRADE: Moody's and Standard & Poor's are rating agencies that assign
a "credit rating" to fixed-income securities and issuers based on the agency's
evaluation of the risk that the issuer will default on its obligations.
Securities or issuers that earn one of the top four ratings from Moody's or
Standard & Poor's are considered "investment grade." In this Prospectus,
unrated securities that, in the subadviser's judgment, are of similar quality
to other securities rated investment grade are also referred to as investment
grade.
Fixed-income securities that are below investment grade quality are referred to
as HIGH YIELD DEBT (commonly known as "junk bonds"). High yield debt is
typically riskier than investment grade securities.
B-9
<PAGE>
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of Strategic Bond for each
full calendar year since the Series began operations. The table following the
bar chart compares the average annual total returns of Strategic Bond to the
returns of a relevant broad-based securities market index and to returns of a
group of other similar mutual funds underlying variable insurance products.
This information helps illustrate the volatility of Strategic Bond's returns.
These returns do not reflect charges associated with the Separate Accounts or
variable contracts that an investor in the Fund may pay under insurance or
annuity contracts.
[SALOMON BROTHERS CHART APPEARS HERE]
YEAR TOTAL RETURN
- ---- ------------
1995 19.4%
1996 14.4%
1997 11.1%
1998 2.0%
1999 1.4%
During the period shown above, the highest quarterly return was 9.84% for the
second quarter of 1995, and the lowest quarterly return was -2.44% for the
third quarter of 1998. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
LIFE OF THE SERIES
PAST ONE YEAR PAST FIVE YEARS (OCTOBER 31, 1994)
------------- --------------- -----------------------
<S> <C> <C> <C>
Strategic Bond........... 1.4% 9.4% 8.8%
Lehman Brothers Aggregate
Bond Index.............. -0.8% 7.7% 7.6%
Lipper Variable Products
General Bond Fund Data only available for
Average................. 0.8% 7.9% full one-year periods
</TABLE>
B-10
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SERIES
INVESTMENT OBJECTIVE
The investment objective of the Salomon Brothers U.S. Government Series (the
"U.S. Government Series") is a high level of current income consistent with
preservation of capital and maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES
Salomon Brothers Asset Management Inc ("SBAM") generally invests at least 80%
of the total assets of the U.S. Government Series in fixed-income securities
issued or guaranteed by the U.S. Government or its agencies, authorities or
instrumentalities ("U.S. Government Securities"), including repurchase
agreements collateralized by U.S. Government Securities, and collateralized
mortgage obligations ("CMOs") that relate to U.S. Government Securities. The
U.S. Government Series may also invest up to 20% of its total assets in
INVESTMENT GRADE fixed-income securities that are not U.S. Government
Securities.
PRINCIPAL INVESTMENT RISKS
Investing in the U.S. Government Series involves risks. The U.S. Government
Series may not perform as well as other investments, and it is possible for
investors to lose money. Factors that could harm the investment performance of
the U.S. Government Series include:
. A general decline in fixed-income security markets.
. Poor performance of the types of fixed-income securities in which U.S.
Government Series invests relative to other fixed-income securities.
. Poor performance of individual fixed-income securities held by the U.S.
Government Series, which may be due to interest rate risk or credit
risk.
INVESTMENT GRADE: Moody's and Standard & Poor's are rating agencies that assign
a "credit rating" to fixed-income securities and issuers based on the agency's
evaluation of the risk that the issuer will default on its obligations.
Securities or issuers that earn one of the top four ratings from Moody's or
Standard & Poor's are considered "investment grade." In this Prospectus,
unrated securities that, in the subadviser's judgment, are of similar quality
to other securities rated investment grade are also referred to as investment
grade.
B-11
<PAGE>
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of the U.S Government Series
for each full calendar year since the Series began operations. The table
following the bar chart compares the average annual total returns of the U.S
Government Series to the returns of a relevant broad-based securities market
index and to returns of a group of other similar mutual funds underlying
variable insurance products. This information helps illustrate the volatility
of the returns of the U.S. Government Series. These returns do not reflect
charges associated with the Separate Accounts or variable contracts that an
investor in the Fund may pay under insurance or annuity contracts.
[GRAPH APPEARS HERE]
YEAR TOTAL RETURN
- ---- ------------
1995 15.0%
1996 3.3%
1997 8.6%
1998 7.5%
1999 0.2%
During the period shown above, the highest quarterly return was 5.52% for the
second quarter of 1995, and the lowest quarterly return was -1.45% for the
first quarter of 1996. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
LIFE OF THE SERIES
PAST ONE YEAR PAST FIVE YEARS (OCTOBER 31, 1994)
------------- --------------- -----------------------
<S> <C> <C> <C>
U.S. Government Series... 0.2% 6.8% 6.7%
Lehman Brothers
Intermediate Government
Bond Index.............. 0.5% 6.9% 6.7%
Lipper Variable Products
U.S. Mortgage and GNMA 0.4% 7.2% Data only available for
Fund Average (a)........ full one-year periods
</TABLE>
(a) Includes all funds in the Lipper Variable Products U.S. Mortgage Fund
Average and the Lipper Variable Products GNMA Fund Average.
B-12
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
INVESTMENT OBJECTIVE
The investment objective of the Back Bay Advisors Managed Series (the "Managed
Series") is a favorable total return through investment in a diversified
portfolio.
PRINCIPAL INVESTMENT STRATEGIES
Back Bay Advisors, L.P. ("Back Bay Advisors") invests the assets of the Managed
Series in a portfolio of U.S. common stocks and U.S. and foreign fixed-income
securities. Back Bay Advisors will generally invest more of the assets of
Managed Series in common stocks than in fixed-income securities. The Managed
Series will generally invest in the stocks included in the S&P 500 Index and
may invest in INVESTMENT GRADE fixed-income securities, HIGH YIELD DEBT and
fixed-income securities of foreign issuers.
PRINCIPAL INVESTMENT RISKS
Investing in the Managed Series involves risks. The Managed Series may not
perform as well as other investments, and it is possible for investors to lose
money. Factors that could harm the investment performance of the Managed Series
include:
. A general decline in the stocks included in the S&P 500 Index or U.S. or
foreign fixed-income security markets.
. Poor performance of individual equity securities or of fixed-income
securities held by the Managed Series, which may be due to interest rate
risk or credit risk.
. Poor performance of equity securities relative to fixed-income
securities when Back Bay Advisors emphasizes investment in equity
securities, or poor performance of fixed-income securities relative to
equity securities when Back Bay Advisors emphasizes investment in fixed-
income securities.
. Potentially rapid price changes (volatility) of equity securities.
. The risks associated with investments in foreign securities. Foreign
securities may be subject to less regulation and additional regional,
national and currency risk. These risks are increased for emerging
market securities. The risks of foreign investing are discussed more
fully in Section III.
INVESTMENT GRADE: Moody's and Standard & Poor's are rating agencies that assign
a "credit rating" to fixed-income securities and issuers based on the agency's
evaluation of the risk that the issuer will default on its obligations.
Securities or issuers that earn one of the top four ratings from Moody's or
Standard & Poor's are considered "investment grade." In this Prospectus,
unrated securities that, in the subadviser's judgment, are of similar quality
to other securities rated investment grade are also referred to as investment
grade.
Fixed-income securities that are below investment grade quality are referred to
as HIGH YIELD DEBT (commonly known as "junk bonds"). High yield debt is
typically riskier than investment grade securities.
B-13
<PAGE>
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of the Managed Series for the
last ten full calendar years. The table following the bar chart compares the
average annual total returns of the Managed Series to the returns of two
relevant broad-based securities market indexes and to returns of a group of
other similar mutual funds underlying variable insurance products. This
information helps illustrate the volatility of the returns of the Managed
Series. These returns do not reflect charges associated with the Separate
Accounts or variable contracts that an investor in the Fund may pay under
insurance or annuity contracts.
[CHART]
YEAR TOTAL RETURN
- ---- ------------
1990 3.2%
1991 20.2%
1992 6.7%
1993 10.6%
1994 -1.1%
1995 31.3%
1996 15.0%
1997 26.6%
1998 19.7%
1999 10.0%
During the period shown above, the highest quarterly return was 14.88% for the
fourth quarter of 1998, and the lowest quarterly return was -7.39% for the
third quarter of 1998. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS
------------- --------------- --------------
<S> <C> <C> <C>
Managed Series.................... 10.0% 20.3% 13.8%
S&P 500 Index..................... 21.0% 28.6% 18.2%
Lehman Brothers
Government/Corporate Bond Index.. -2.2% 7.6% 7.7%
Lipper Variable Products Flexible
Portfolio Fund Average........... 12.0% 17.1% 13.0%
</TABLE>
B-14
<PAGE>
BALANCED SERIES
INVESTMENT OBJECTIVE
The investment objective of the Balanced Series is long-term total return from
a combination of capital appreciation and current income.
PRINCIPAL INVESTMENT STRATEGIES
Wellington Management Company, LLP ("Wellington Management") invests the
Balanced Series' assets in a balanced portfolio of stocks and bonds. The
"neutral position" of the Balanced Series portfolio consists of 60% stocks and
other equity securities and 40% U.S. and foreign bonds. In response to current
market conditions, Wellington Management may vary the percentage of the
Balanced Series invested in equity securities from 50% to 70% of the Balanced
Series' total assets and the fixed-income investments from 30% to 50% of the
Series' total assets. Wellington Management will invest the equity portion of
the Balanced Series primarily in stocks of U.S. companies with larger market
capitalizations (generally greater than $6 billion), using a blend of top-down
sector analysis and bottom-up security selection. Wellington Management will
invest the fixed-income portion of the Balanced Series in INVESTMENT GRADE U.S.
corporate and U.S. government fixed-income securities and, to a lesser extent,
U.S. HIGH YIELD DEBT and fixed-income securities of foreign issuers, including
companies and governments of emerging market countries.
PRINCIPAL INVESTMENT RISKS
Investing in the Balanced Series involves risk. The Balanced Series may not
perform as well as other investments, and it is possible for investors to lose
money. Factors that could harm the investment performance of the Balanced
Series include:
. A general decline in U.S. stock or U.S. or foreign fixed-income markets.
. Poor performance of individual equity securities held by the Balanced
Series or of large capitalization stocks in general.
. Poor performance of fixed-income securities held by the Balanced Series,
which may be due to interest rate risk or credit risk.
. Poor performance of equity securities relative to fixed-income
securities when Wellington Management emphasizes investment in equity
securities, or poor performance of fixed-income securities relative to
equity securities when Wellington Management invests relatively more of
the Balanced Series' assets in fixed-income securities.
. Potentially rapid price changes (volatility) of equity securities.
. The risks associated with investments in foreign securities. Foreign
securities may be subject to less regulation and additional regional,
national and currency risk. These risks are increased for emerging
market securities. The risks of foreign investing are discussed more
fully in Section III.
INVESTMENT GRADE: Moody's and Standard & Poor's are rating agencies that assign
a "credit rating" to fixed- income securities and issuers based on the agency's
evaluation of the risk that the issuer will default on its obligations.
Securities or issuers that earn one of the top four ratings from Moody's or
Standard & Poor's are considered "investment grade." In this Prospectus,
unrated securities that, in the subadviser's judgement, are of similar quality
to other securities rated investment grade are also referred to as investment
grade.
Fixed-income securities that are below investment grade quality are referred to
as HIGH YIELD DEBT (commonly known as "junk bonds"). High yield debt is
typically riskier than investment grade securities.
B-15
<PAGE>
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of the Balanced Series for
each full calendar year since the Series began operations. The table following
the bar chart compares the average annual total returns of the Balanced Series
to the returns of two relevant broad-based securities market indexes and to
returns of a group of other similar mutual funds underlying variable insurance
products. This information helps illustrate the volatility of the returns of
the Balanced Series. These returns do not reflect charges associated with the
Separate Accounts or variable contracts that an investor in the Fund may pay
under insurance or annuity contracts. On May 1, 2000, Wellington Management
succeeded Loomis Sayles & Company, L.P. ("Loomis") as subadviser to the
Balanced Series. The performance information set forth below relates to the
life of the Series and, therefore, reflects the management of Loomis.
[GRAPH]
<TABLE>
<CAPTION>
YEAR TOTAL RETURN
- ---- ------------
<S> <C>
1995 24.8%
1996 16.9%
1997 16.2%
1998 9.1%
1999 -5.1%
</TABLE>
During the period shown above, the highest quarterly return was 9.65% for the
fourth quarter of 1998, and the lowest quarterly return was -8.60% for the
third quarter of 1999. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
LIFE OF THE SERIES
PAST ONE YEAR PAST FIVE YEARS (OCTOBER 31, 1994)
------------- --------------- -----------------------
<S> <C> <C> <C>
Balanced Series.......... -5.1% 11.9% 11.5%
S&P 500 Index............ 21.0% 28.6% 27.0%
Lehman Brothers
Government/Corporate
Bond Index.............. -2.2% 7.6% 7.5%
Lipper Variable Products Data only available for
Balanced Fund Average... 8.7% 16.3% full one-year periods
</TABLE>
B-16
<PAGE>
ALGER EQUITY GROWTH SERIES
INVESTMENT OBJECTIVE
The investment objective of the Alger Equity Growth Series ("Equity Growth") is
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Fred Alger Management, Inc. ("Alger") invests Equity Growth's assets primarily
in growth stocks. Alger will ordinarily invest at least 65% of Equity Growth's
total assets in equity securities of issuers with a market capitalization of $1
billion or greater.
PRINCIPAL INVESTMENT RISKS
Investing in Equity Growth involves risks. Equity Growth may not perform as
well as other investments, and it is possible for investors to lose money.
Factors that could harm the investment performance of Equity Growth include:
. A general decline in U.S. stock markets.
. Poor performance of individual stocks held by Equity Growth or of growth
stocks in general.
. Potentially rapid price changes (volatility) of equity securities.
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of Equity Growth for each
full calendar year since the Series began operations. The table following the
bar chart compares the average annual total returns of Equity Growth to the
returns of a relevant broad-based securities market index and to returns of a
group of other similar mutual funds underlying variable insurance products.
This information helps illustrate the volatility of Equity Growth's returns.
These returns do not reflect charges associated with the Separate Accounts or
variable contracts that an investor in the Fund may pay under insurance or
annuity contracts.
[CHART]
YEAR TOTAL RETURN
- ---- ------------
1995 48.8%
1996 13.2%
1997 25.6%
1998 47.8%
1999 34.1%
During the period shown above, the highest quarterly return was 26.06% for the
fourth quarter of 1998, and the lowest quarterly return was -6.95% for the
third quarter of 1998. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
LIFE OF SERIES
PAST ONE YEAR PAST FIVE YEARS (OCTOBER 31, 1994)
------------- --------------- -----------------------
<S> <C> <C> <C>
Equity Growth............ 34.1% 33.2% 30.9%
S&P 500 Index............ 21.0% 28.6% 27.0%
Lipper Variable Products Data only available for
Growth Fund Average..... 31.7% 26.9% full one-year periods
</TABLE>
B-17
<PAGE>
CAPITAL GROWTH SERIES
INVESTMENT OBJECTIVE
The investment objective of the Capital Growth Series ("Capital Growth") is the
long-term growth of capital through investment primarily in equity securities
of companies whose earnings are expected to grow at a faster rate than the
United States economy.
PRINCIPAL INVESTMENT STRATEGIES
Capital Growth Management invests Capital Growth's assets primarily in the
common stocks of large capitalization U.S. companies whose earnings CGM expects
will grow at a faster rate than the United States economy. When market
conditions warrant, however, CGM may select stocks on the basis of overall
economic factors such as the general economic outlook, the level and direction
of interest rates and the potential impact of inflation. Capital Growth invests
primarily in equity securities of U.S. companies but may also invest in equity
securities of foreign issuers. Over time, Capital Growth has held larger
positions in a smaller number of issuers than many other mutual funds. CGM does
not consider income as a significant factor when selecting investments for
Capital Growth.
PRINCIPAL INVESTMENT RISKS
Investing in Capital Growth involves risks. Capital Growth may not perform as
well as other investments, and it is possible for investors to lose money.
Factors that could harm the investment performance of Capital Growth include:
. A general decline in U.S. or foreign stock markets.
. Poor performance of individual stocks held by Capital Growth.
. Potentially rapid price changes (volatility) of equity securities.
. The risks associated with investment in foreign securities. Foreign
securities may be subject to less regulation and additional regional,
national and currency risk. These risks are discussed more fully in
Section III.
B-18
<PAGE>
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of Capital Growth for the
last ten full calendar years. The table following the bar chart compares the
average annual total returns of Capital Growth to the returns of a relevant
broad-based securities market index and to returns of a group of other similar
mutual funds underlying variable insurance products. This information helps
illustrate the volatility of Capital Growth's returns. These returns do not
reflect charges associated with the Separate Accounts or variable contracts
that an investor in the Fund may pay under insurance or annuity contracts.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
YEAR TOTAL RETURN
- ---- ------------
<S> <C>
1990 -3.5%
1991 54.0%
1992 -6.1%
1993 15.0%
1994 -7.1%
1995 38.0%
1996 21.1%
1997 23.5%
1998 34.1%
1999 15.7%
</TABLE>
During the period shown above, the highest quarterly return was 28.53% for the
fourth quarter of 1998, and the lowest quarterly return was -24.46% for the
third quarter of 1990. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS
------------- --------------- --------------
<S> <C> <C> <C>
Capital Growth.................... 15.7% 26.2% 16.9%
S&P 500 Index..................... 21.0% 28.6% 18.2%
Lipper Variable Products Growth
Fund Average..................... 31.7% 26.9% 18.2%
</TABLE>
B-19
<PAGE>
DAVIS VENTURE VALUE SERIES
INVESTMENT OBJECTIVE
The investment objective of the Davis Venture Value Series ("Venture Value") is
growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Davis Selected Advisers, L.P. ("Davis Selected") invests Venture Value's assets
primarily in U.S. common stocks of companies that have a market capitalization
of at least $5 billion and that it believes are of high quality and are selling
at attractive prices. Davis Selected generally selects stocks with the
intention of holding them for the long term. Davis Selected believes that
managing risk is the key to delivering superior long-term investment results;
therefore, it considers how much could potentially be lost on an investment
before considering how much might be gained.
PRINCIPAL INVESTMENT RISKS
Investing in Venture Value involves risks. Venture Value may not perform as
well as other investments, and it is possible for investors to lose money.
Factors that could harm the investment performance of Venture Value include:
. A general decline in the U.S. stock market.
. Poor performance of individual stocks held by Venture Value or of value
stocks in general.
. Potentially rapid price changes (volatility) of equity securities.
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of Venture Value for each
full calendar year since the Series began operations. The table following the
bar chart compares the average annual total returns of Venture Value to the
returns of a relevant broad-based securities market index and to returns of a
group of other similar mutual funds underlying variable insurance products.
This information helps illustrate the volatility of Venture Value's returns.
These returns do not reflect charges associated with the Separate Accounts or
variable contracts that an investor in the Fund may pay under insurance or
annuity contracts.
[CHART]
<TABLE>
<CAPTION>
YEAR TOTAL RETURN
- ---- ------------
<S> <C>
1995 39.3%
1996 25.8%
1997 33.5%
1998 14.4%
1999 17.5%
</TABLE>
During the period shown above, the highest quarterly return was 21.20% for the
fourth quarter of 1998, and the lowest quarterly return was -14.47% for the
third quarter of 1998. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
LIFE OF THE SERIES
PAST ONE YEAR PAST FIVE YEARS (OCTOBER 31, 1994)
------------- --------------- -----------------------
<S> <C> <C> <C>
Venture Value............ 17.5% 25.8% 24.0%
S&P 500 Index............ 21.0% 28.6% 27.0%
Lipper Variable Products Data only available for
Growth Fund Average..... 31.7% 26.9% full one-year periods
</TABLE>
B-20
<PAGE>
HARRIS OAKMARK MID CAP VALUE SERIES
INVESTMENT OBJECTIVE
The investment objective of the Harris Oakmark Mid Cap Value Series ("Mid Cap
Value") is long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Harris Associates L.P. ("Harris") invests Mid Cap Value's assets primarily in
common stocks of U.S. companies. Mid Cap Value is a "non-diversified fund,"
which means that it may hold at any one time securities of fewer issuers
compared to a "diversified fund." Mid Cap Value could own as few as 12
securities, but generally will have 15 to 20 securities in its portfolio.
Harris will normally invest at least 65% of Mid Cap Value's total assets in
equity securities of companies with public stock market capitalizations within
the range of the market capitalization of companies considered to be midcap
stocks by Morningstar, Inc. Harris may invest up to 25% of Mid Cap Value's
total assets in fixed-income securities, including INVESTMENT GRADE securities
and HIGH YIELD DEBT.
Harris uses a value investment style in selecting equity securities for Mid Cap
Value. Harris believes that, over time, a company's stock price converges with
its true business value. Harris believes that investing in equity securities
priced significantly below what Harris believes is the true business value
presents the best opportunity to achieve Mid Cap Value's investment objective.
PRINCIPAL INVESTMENT RISKS
Investing in Mid Cap Value involves risks. Mid Cap Value may not perform as
well as other investments, and it is possible for investors to lose money.
Factors that could harm the investment performance of Mid Cap Value include:
. A general decline in the U.S. stock markets or fixed-income securities
markets.
. Poor performance of individual stocks held by Mid Cap Value, of midcap
stocks, or of value stocks in general.
. Potentially rapid price changes (volatility) of equity securities.
. Poor performance of fixed-income securities held by Mid Cap Value, which
may be due to interest rate risk or credit risk.
. The risks associated with a "non-diversified" fund. If the stocks in
which a "non-diversified" fund invests perform poorly, Mid Cap Value
could incur greater losses than if it had invested in a larger number of
stocks.
INVESTMENT GRADE: Moody's and Standard & Poor's are rating agencies that assign
a "credit rating" to fixed- income securities and issuers based on the agency's
evaluation of the risk that the issuer will default on its obligations.
Securities or issuers that earn one of the top four ratings from Moody's or
Standard & Poor's are considered "investment grade." In this Prospectus,
unrated securities that, in the subadviser's judgment, are of similar quality
to other securities rated investment grade are also referred to as investment
grade.
Fixed-income securities that are below investment grade quality are referred to
as HIGH YIELD DEBT (commonly known as "junk bonds"). High yield debt is
typically riskier than investment grade securities.
B-21
<PAGE>
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of Mid Cap Value for each
full calendar year since the Series began operations. The table following the
bar chart compares the average annual total returns of Mid Cap Value to the
returns of a relevant broad-based securities market index and to returns of a
group of other similar mutual funds underlying variable insurance products.
This information helps illustrate the volatility of Mid Cap Value's returns.
These returns do not reflect charges associated with the Separate Accounts or
variable contracts that an investor in the Fund may pay under insurance or
annuity contracts. On May 1, 2000, Harris succeeded Goldman Sachs Asset
Management ("GSAM"), a separate operating division of Goldman, Sachs & Co., as
subadviser to Mid Cap Value. On May 1, 1998, GSAM succeeded Loomis Sayles &
Company, L.P. ("Loomis Sayles") as subadviser to Mid Cap Value. The performance
information set forth below relates to the life of the Series and, therefore,
reflects the management of GSAM and Loomis Sayles.
[CHART]
<TABLE>
<CAPTION>
YEAR TOTAL RETURN
- ---- ------------
<S> <C>
1994 -0.3%
1995 30.4%
1996 17.6%
1997 17.4%
1998 -5.5%
1999 0.3%
</TABLE>
During the period shown above, the highest quarterly return was 20.42% for the
second quarter of 1999, and the lowest quarterly return was -19.83% for the
third quarter of 1998. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
LIFE OF THE SERIES
PAST ONE YEAR PAST FIVE YEARS (APRIL 30, 1993)
------------- --------------- -----------------------
<S> <C> <C> <C>
Mid Cap Value............ 0.3% 11.3% 10.6%
Russell Midcap Index..... 18.2% 21.9% 17.5%
Lipper Variable Products
Midcap Fund Average..... 44.5% 23.0% Data only available for
full one-year periods
</TABLE>
B-22
<PAGE>
LOOMIS SAYLES SMALL CAP SERIES
INVESTMENT OBJECTIVE
The investment objective of the Loomis Sayles Small Cap Series ("Small Cap") is
long-term capital growth from investments in common stocks or their
equivalents.
PRINCIPAL INVESTMENT STRATEGIES
Loomis, Sayles & Company, L.P. ("Loomis Sayles") will invest, under normal
market conditions, at least 65% of Small Cap's total assets in equity
securities of U.S. companies with market capitalizations that fall within the
capitalization range of those companies constituting the Russell 2000 Index.
Loomis Sayles may also invest up to 20% of Small Cap's total assets in foreign
securities, including emerging markets. Small Cap invests in both value and
growth stocks.
PRINCIPAL INVESTMENT RISKS
Investing in Small Cap involves risks. Small Cap may not perform as well as
other investments, and it is possible for investors to lose money. Factors that
could harm the investment performance of Small Cap include:
. A general decline in U.S. or foreign stock markets.
. Poor performance of individual stocks held by Small Cap.
. Potentially rapid price changes (volatility) of equity securities.
. Poor performance of small capitalization issuers relative to the
performance of issuers with larger capitalizations.
. The risks associated with investments in foreign securities. Foreign
securities may be subject to less regulation and additional regional,
national and currency risk. These risks are increased for emerging market
securities. The risks of foreign investing are discussed more fully in
Section III.
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of Small Cap for each full
calendar year since the Series began operations. The table following the bar
chart compares the average annual total returns of Small Cap to the returns of
a relevant broad-based securities market index and to returns of a group of
other similar mutual funds underlying variable insurance products. This
information helps illustrate the volatility of Small Cap's returns. These
returns do not reflect charges associated with the Separate Accounts or
variable contracts that an investor in the Fund may pay under insurance or
annuity contracts.
[GRAPH]
YEAR TOTAL RETURN
---- ------------
1995 28.9%
1996 30.7%
1997 24.9%
1998 -1.7%
1999 31.8%
B-23
<PAGE>
During the period shown above, the highest quarterly return was 29.19% for the
fourth quarter of 1999, and the lowest quarterly return was -18.53% for the
third quarter of 1998. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
LIFE OF THE SERIES
PAST ONE YEAR PAST FIVE YEARS (MAY 2, 1994)
------------- --------------- -----------------------
<S> <C> <C> <C>
Small Cap................ 31.8% 22.2% 18.6%
Russell 2000 Index....... 21.3% 16.7% 14.7%
Lipper Variable Products
Small Company Fund 38.4% 21.1% Data only available for
Average................. full one-year periods
</TABLE>
B-24
<PAGE>
MFS INVESTORS SERIES
INVESTMENT OBJECTIVE
The investment objective of the MFS Investors Series (the "Investors Series")
is reasonable current income and long-term growth of capital and income.
PRINCIPAL INVESTMENT STRATEGIES
Massachusetts Financial Services Company ("MFS") ordinarily invests at least
65% of the total assets of the Investors Series in equity securities. Although
the Series may invest in companies of any size, the Series focuses on companies
with large market capitalizations (greater than $5 billion) that MFS believes
have sustainable growth prospects and attractive valuations based on current
and expected earnings or cash flow. The Series will also seek to generate gross
income equal to approximately 90% of the dividend yield on the S&P 500 Index.
MFS may also invest up to 20% of the assets of the Investors Series in foreign
securities, including American Depositary Receipts ("ADRs"), through which it
may have exposure to foreign currencies.
PRINCIPAL INVESTMENT RISKS
Investing in the Investors Series involves risks. The Investors Series may not
perform as well as other investments, and it is possible for investors to lose
money. Factors that could harm the investment performance of the Investors
Series include:
. A general decline in U.S. or foreign stock markets.
. Poor performance of individual equity securities held by the Investors
Series or of large capitalization stocks in general.
. Potentially rapid price changes (volatility) of equity securities.
. The risks associated with investments in foreign securities. Foreign
securities may be subject to less regulation and additional regional,
national and currency risk. These risks are discussed more fully in
Section III.
INVESTMENT PERFORMANCE RECORD
As of the date of this Prospectus, the Investors Series does not yet have a
full calendar year of investment performance.
B-25
<PAGE>
MFS RESEARCH MANAGERS SERIES
INVESTMENT OBJECTIVE
The investment objective of the MFS Research Managers Series (the "Research
Managers Series") is long-term growth of capital.
PRINCIPAL INVESTMENT STRATEGIES
Massachusetts Financial Services Company ("MFS") invests at least 80% of the
total assets of the Research Managers Series in equity securities. The Series
invests primarily in companies that MFS believes possess better than average
prospects for long-term growth and attractive valuations. MFS may also invest
up to 20% of the net assets of the Series in foreign securities (including
emerging markets).
PRINCIPAL INVESTMENT RISKS
Investing in the Research Managers Series involves risks. The Research Managers
Series may not perform as well as other investments, and it is possible for
investors to lose money. Factors that could harm the investment performance of
the Research Managers Series include:
. A general decline in U.S. or foreign stock markets.
. Poor performance of individual equity securities held by the Research
Managers Series.
. Potentially rapid price changes (volatility) of equity securities.
. The risks associated with investments in foreign securities. Foreign
securities may be subject to less regulation and additional regional,
national and currency risk. These risks are increased for emerging market
securities. The risks of foreign investing are discussed more fully in
Section III.
INVESTMENT PERFORMANCE RECORD
As of the date of this Prospectus, the Research Managers Series does not yet
have a full calendar year of investment performance.
B-26
<PAGE>
WESTPEAK GROWTH AND INCOME SERIES
INVESTMENT OBJECTIVE
The investment objective of the Westpeak Growth and Income Series ("Growth and
Income") is long-term total return through investment in equity securities.
PRINCIPAL INVESTMENT STRATEGIES
Westpeak Investment Advisors, L.P. ("Westpeak") may invest Growth and Income's
assets using both a growth and a value style of investing. Westpeak sometimes
invests more of Growth and Income's assets in value stocks, and sometimes
invests more heavily in growth stocks. Growth and Income invests primarily in
stocks of large capitalization U.S. companies, such as those included in the
S&P 500 Index, but it may also invest in securities of other large
capitalization companies, as well as mid capitalization companies, such as
those included in the Russell 1000 Index. Westpeak emphasizes individual stock
selection rather than targeting particular industries or sectors that it
believes may outperform other sectors.
PRINCIPAL INVESTMENT RISKS
Investing in Growth and Income involves risks. Growth and Income may not
perform as well as other investments, and it is possible for investors to lose
money. Factors that could harm the investment performance of Growth and Income
include:
. A general decline in the U.S. stock market.
. Poor performance of individual stocks held by Growth and Income or of
the stocks included in the S&P 500 Index or of larger capitalization
stocks in general.
. Potentially rapid price changes (volatility) of equity securities.
. Poor performance of growth stocks relative to value stocks when Westpeak
emphasizes investment in growth stocks, or poor performance of value
stocks relative to growth stocks when Westpeak emphasizes investment in
value stocks.
B-27
<PAGE>
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of Growth and Income for each
full calendar year since the Series began operations. The table following the
bar chart compares the average annual total returns of Growth and Income to the
returns of a relevant broad-based securities market index and to returns of a
group of other similar mutual funds underlying variable insurance products.
This information helps illustrate the volatility of Growth and Income's
returns. These returns do not reflect charges associated with the Separate
Accounts or variable contracts that an investor in the Fund may pay under
insurance or annuity contracts.
[CHART OF TOTAL RETURNS APPEARS HERE]
<TABLE>
<CAPTION>
YEAR TOTAL RETURN
- ---- ------------
<S> <C>
1994 -1.2%
1995 36.5%
1996 18.1%
1997 33.5%
1998 24.4%
1999 9.4%
</TABLE>
During the period shown above, the highest quarterly return was 19.53% for the
fourth quarter of 1998, and the lowest quarterly return was -12.33% for the
third quarter of 1998. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
LIFE OF THE SERIES
PAST ONE YEAR PAST FIVE YEARS (APRIL 30, 1993)
------------- --------------- -----------------------
<S> <C> <C> <C>
Growth & Income.......... 9.4% 24.0% 19.7%
S&P 500 Index............ 21.0% 28.6% 22.4%
Lipper Variable Products
Growth and Income Fund 14.8% 22.2% Data only available for
Average................. full one-year periods
</TABLE>
B-28
<PAGE>
WESTPEAK STOCK INDEX SERIES
INVESTMENT OBJECTIVE
The investment objective of the Westpeak Stock Index Series ("Stock Index") is
investment results that correspond to the composite price and yield performance
of the S&P 500 Index.
PRINCIPAL INVESTMENT STRATEGIES
Westpeak Investment Advisors, L.P. ("Westpeak") attempts to replicate the
composite price and yield performance, before expenses, of the S&P 500 Index.
Westpeak will ordinarily invest Stock Index's assets in all of the 500 stocks
included in the S&P 500 Index. Each month, Westpeak purchases and sells stocks
as necessary to replicate the proportions of stocks included in the S&P 500
Index.
PRINCIPAL INVESTMENT RISKS
Investing in Stock Index involves risks. Stock Index may not perform as well as
other investments, and it is possible for investors to lose money. Factors that
could harm the investment performance of Stock Index include:
. A general decline in the value of stocks included in the S&P 500 Index.
. Potentially rapid price changes (volatility) of equity securities.
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of Stock Index for the last
ten full calendar years. The table following the bar chart compares the average
annual total returns of Stock Index to the returns of a relevant broad-based
securities market index and to returns of a group of other similar mutual funds
underlying variable insurance products. This information helps illustrate the
volatility of the returns of Stock Index. These returns do not reflect charges
associated with the Separate Accounts or variable contracts that an investor in
the Fund may pay under insurance or annuity contracts. On August 1, 1993,
Westpeak succeeded Back Bay Advisors as subadviser to Stock Index. The
performance information set forth below relates to the life of the Series and,
therefore, reflects the management of both Westpeak and Back Bay Advisors.
[GRAPH APPEARS HERE]
YEAR TOTAL RETURN
- ---- ------------
1990 -4.1%
1991 30.4%
1992 7.3%
1993 9.7%
1994 1.1%
1995 36.9%
1996 22.5%
1997 32.5%
1998 27.9%
1999 20.4%
During the period shown above, the highest quarterly return was 21.08% for the
fourth quarter of 1998, and the lowest quarterly return was -13.69% for the
third quarter of 1990. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
B-29
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS
------------- --------------- --------------
<S> <C> <C> <C>
Stock Index....................... 20.4% 27.9% 17.7%
S&P 500 Index..................... 21.0% 28.6% 18.2%
Lipper Variable Products S&P 500
Fund Average..................... 20.5% 28.1% 17.7%
</TABLE>
B-30
<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES
INVESTMENT OBJECTIVE
The investment objective of the Morgan Stanley International Magnum Equity
Series ("International Equity") is long-term capital appreciation through
investment primarily in international equity securities.
PRINCIPAL INVESTMENT STRATEGIES
Morgan Stanley Asset Management ("MSAM") is International Equity's subadviser.
On December 1, 1998, Morgan Stanley Asset Management Inc. changed its name to
Morgan Stanley Dean Witter Investment Management Inc. but continues to do
business in certain instances (including as subadviser to International Equity)
using the name Morgan Stanley Asset Management. MSAM invests International
Equity's assets in a diversified portfolio of equity securities of foreign
issuers domiciled in EAFE COUNTRIES. MSAM may also invest up to 5% of the
Series' total assets in non-EAFE countries, including emerging markets. MSAM
seeks to achieve superior long-term returns by creating a diversified portfolio
of stocks that MSAM believes are undervalued. To achieve this goal, MSAM
implements a combination of strategic geographic asset allocation and
fundamental, value-oriented stock selection implemented by regional experts
around the globe.
PRINCIPAL INVESTMENT RISKS
Investing in International Equity involves risks. International Equity may not
perform as well as other investments, and it is possible for investors to lose
money. Factors that could harm the investment performance of International
Equity include:
. A general decline in foreign stock markets.
. Poor performance of the stock markets in which International Equity
invests relative to the performance of other stock markets.
. Poor performance of individual stocks held by International Equity or of
value stocks in general.
. Potentially rapid price changes (volatility) of equity securities.
. The risks associated with investments in foreign securities. Foreign
securities may be subject to less regulation and additional regional,
national and currency risk. These risks are increased for emerging market
securities. The risks of foreign investing are discussed more fully in
Section III.
EAFE COUNTRIES are countries included in the Morgan Stanley Capital
International EAFE Index. This index consists of companies headquartered in
approximately 20 countries, including Australia, New Zealand, many nations in
Western Europe and the more developed nations of Asia, such as Japan, Hong Kong
and Singapore.
B-31
<PAGE>
INVESTMENT PERFORMANCE RECORD
The bar chart below shows the annual total return of International Equity for
each full calendar year since the Series began operations. The table following
the bar chart compares the average annual total returns of International Equity
to the returns of a relevant broad-based securities market index and to returns
of a group of other similar mutual funds underlying variable insurance
products. This information helps illustrate the volatility of International
Equity's returns. These returns do not reflect charges associated with the
Separate Accounts or variable contracts that an investor in the Fund may pay
under insurance or annuity contracts. On May 1, 1997, MSAM succeeded Draycott
Partners, Ltd. as subadviser to International Equity. The performance
information set forth below relates to the life of the Series and, therefore,
reflects the management of both MSAM and Draycott Partners, Ltd.
[GRAPH APPEARS HERE]
YEAR TOTAL RETURN
---- ------------
1995 6.0%
1996 6.9%
1997 -1.3%
1998 7.3%
1999 24.6%
During the period shown above, the highest quarterly return was 14.82% for the
first quarter of 1998, and the lowest quarterly return was -17.12% for the
third quarter of 1998. Past performance of a Series does not necessarily
indicate how that Series will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31
<TABLE>
<CAPTION>
LIFE OF THE SERIES
PAST ONE YEAR PAST FIVE YEARS (OCTOBER 31, 1994)
------------- --------------- -----------------------
<S> <C> <C> <C>
International Equity..... 24.6% 8.4% 8.6%
Morgan Stanley Capital
International EAFE
Index................... 27.0% 12.8% 11.5%
Lipper Variable Products
International Fund Data only available for
Average................. 43.2% 17.7% full one-year periods
</TABLE>
B-32
<PAGE>
SECTION III--ADDITIONAL INFORMATION ABOUT EACH SERIES
This Section discusses the principal investment strategies and risks of
investing in each Series. However, each Series may invest in securities and
engage in certain investment practices not discussed below or in the Summary.
For more information about these securities, strategies and related risks,
please see the Fund's Statement of Additional Information (the "SAI"). Please
call the toll-free number listed on the back cover of the Prospectus to receive
a free copy of the SAI.
INVESTMENT OBJECTIVES
The investment objective of each Series may be changed without shareholder
approval.
TEMPORARY DEFENSIVE POSITIONS
Each Series other than Money Market and Stock Index may, for temporary
defensive purposes, hold all or a substantial portion of its assets in cash or
fixed-income investments. The types of securities in which a Series may invest
include U.S. Government securities, investment grade fixed-income securities,
money market instruments and REPURCHASE AGREEMENTS. No estimate can be made as
to when or for how long a Series may employ a defensive strategy. Although a
defensive strategy may help insulate a Series from a downturn in securities
markets, it could prevent the Series from capturing the gains it would
otherwise achieve if the Series did not employ a defensive strategy.
PORTFOLIO TURNOVER
Each Series may engage in active and frequent trading of portfolio securities
to achieve its principal investment strategies. As a result, the Series may
experience high portfolio turnover. High portfolio turnover results in higher
brokerage and other transaction costs.
INVESTMENT PERCENTAGE REQUIREMENTS AND CAPITALIZATION
Several of the Series have adopted policies that set minimum or maximum
percentages of their assets to be allocated to certain types of investments or
to certain ranges of market capitalization. These percentage requirements and
capitalization ranges apply at the time an investment is made; a change in the
value of an investment after it is acquired is not treated as a violation of
these policies or ranges.
REPURCHASE AGREEMENTS are agreements under which a Series purchases one or more
securities from another party, usually a bank or a brokerage firm, with the
understanding that the counterparty will buy the securities back from the
Series at a later date. Repurchase agreements allow a Series to earn a return
on available cash at relatively low credit risk.
B-33
<PAGE>
BACK BAY ADVISORS MONEY MARKET SERIES
PRINCIPAL INVESTMENT STRATEGIES
Back Bay Advisors invests Money Market's assets in a managed portfolio of money
market instruments.
Investment selection
Money market instruments are short term fixed-income investments that include
the following:
. Obligations backed by the full faith and credit of the United States
Government, and other obligations issued or guaranteed by the United
States Government or its agencies, authorities or instrumentalities.
. Commercial paper and other corporate debt obligations rated in the
highest rating category by S&P or Moody's (or, if unrated, of comparable
quality).
. REPURCHASE AGREEMENTS.
. Obligations of banks or savings and loan associations with net assets of
more than $100 million.
PRINCIPAL INVESTMENT RISKS
Fixed-income Securities
Because of the short maturity and high credit quality of money market
instruments, the risks associated with these instruments is generally lower
than the risks associated with other fixed-income securities.
Fixed-income securities involve both CREDIT RISK and MARKET RISK, which
includes INTEREST RATE RISK. Some fixed-income securities also involve the risk
that an issuer will repay the principal or repurchase the security before it
matures. If this happens, the holder will no longer receive any interest on
that security. The holder could buy another security, but that other security
might pay a lower interest rate. Also, if the holder paid a PREMIUM when it
bought the security, the holder may receive less from the issuer than it paid
for the security.
PORTFOLIO MANAGEMENT
As of December 31, 1999, Back Bay Advisors managed approximately $5 billion in
assets. In addition to Series of the Fund, Back Bay Advisors advises 10 mutual
funds and several institutional accounts. Back Bay Advisors is located at 399
Boylston Street, Boston, Massachusetts 02116.
During the year ended December 31, 1999, Money Market paid 0.35% of its average
net assets in investment advisory fees.
REPURCHASE AGREEMENTS are agreements under which a Series purchases one or more
securities from another party, usually a bank or a brokerage firm, with the
understanding that the counterparty will buy the securities back from the
Series at a later date. Repurchase agreements allow a Series to earn a return
on available cash at relatively low credit risk.
CREDIT RISK is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.
MARKET RISK is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.
INTEREST RATE RISK reflects the fact that the values of fixed- income
securities tend to fall as interest rates rise. When interest rates go down,
interest earned on fixed- income securities will tend to decline.
Some securities pay a higher interest rate than the current market rate. An
investor may have to pay more than the security's principal to compensate the
seller for the value of the higher interest rate. This additional payment is a
PREMIUM.
B-34
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES
PRINCIPAL INVESTMENT STRATEGIES
Back Bay Advisors invests Bond Income's assets primarily in U.S. corporate
bonds. Back Bay Advisors will invest at least 80% of Bond Income's assets in
investment grade securities. Back Bay Advisors may also invest Bond Income's
assets in foreign corporate and government securities, U.S. government
securities, and mortgage-backed securities. Up to 20% of Bond Income's total
assets may be invested in high yield debt.
Investment Selection
Back Bay Advisors evaluates potential investments for Bond Income in several
steps.
Back Bay Advisors first allocates the assets of Bond Income that are available
for investment among four principal areas: U.S. corporate securities, mortgage-
backed securities, U.S. Government securities, and foreign securities. Back Bay
Advisors makes this allocation based on its analysis of current and future
interest rate trends and market indicators. Once Back Bay Advisors makes this
allocation, it searches for investment opportunities in each area.
When evaluating domestic and foreign corporate fixed-income securities, Back
Bay Advisors first considers the relative attractiveness of corporate
securities in four different sectors: industrial, financial, utilities, and
YANKEE BOND. Back Bay Advisors allocates assets among the four sectors based on
its evaluation of the relative merits of each sector and its market outlook.
Back Bay Advisors next analyzes the credit quality of specific issuers and the
market prices of securities of those issuers.
When evaluating mortgage-backed securities, Back Bay Advisors reviews the
creditworthiness and likelihood of prepayment on the mortgages underlying those
securities.
When evaluating U.S. Treasury securities, Back Bay Advisors considers the
difference between the interest rates on U.S. Treasury securities of various
maturities and the interest rates on other fixed-income securities.
Back Bay Advisors generally attempts to maintain a DURATION for the Bond Income
portfolio that is within 1 1/2 years of the duration of the Lehman Aggregate
Bond Index. As of December 31, 1999, the duration of this Index was 4.92 years.
During 1999, the duration of this Index ranged from 4.4 years to 5.0 years.
PRINCIPAL INVESTMENT RISKS
Fixed-income Securities
Fixed-income securities involve both CREDIT RISK and MARKET RISK, which
includes INTEREST RATE RISK. Some fixed-income securities also involve the risk
that an issuer will repay the principal or
YANKEE BONDS are fixed-income securities issued by foreign companies in U.S.
dollars.
DURATION is an estimate of how much a bond fund's share price will fluctuate in
response to a change in interest rates. To see how the price could shift,
multiply the Series' duration by the change in rates. If interest rates rise by
one percentage point, the share price of a fund with an average duration of
five years would decline by about 5%. If rates decrease by a percentage point,
the fund's share price would rise by 5%.
CREDIT RISK is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.
MARKET RISK is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.
INTEREST RATE RISK reflects the fact that the values of fixed- income
securities tend to fall as interest rates rise. When interest rates go down,
interest earned on fixed- income securities will tend to decline.
B-35
<PAGE>
repurchase the security before it matures. If this happens, the holder will no
longer receive any interest on that security. The holder could buy another
security, but that other security might pay a lower interest rate. Also, if the
holder paid a PREMIUM when it bought the security, the holder might receive
less from the issuer than it paid for the security.
High yield debt
High yield debt has a higher credit risk and market risk than investment grade
fixed-income securities. Issuers could have high credit risk for many reasons,
including problems with product development or distribution, reductions in
market share or overall sales, competition in their markets or a high degree of
LEVERAGE. High yield debt has higher market risk for a variety of reasons,
including greater sensitivity to interest rate changes and economic downturns,
and the difficulty some issuers may have when trying to obtain additional
financing. Also, high yield debt may be difficult to value, and if other
investors believe that a certain issuer's securities are overvalued, the holder
may be unable to sell those securities for what it believes is an adequate
price.
Foreign Securities
In addition to the risks associated with equity securities generally, foreign
securities present additional risks.
Regulation and Access to Information. Changes in foreign countries' laws may
harm the performance and liquidity of the Series' investments in those
countries. Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.
Regional and National Risk. News and events unique to particular regions and
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner. As a result, movements in the prices of foreign securities
may not correlate with the prices of U.S. securities.
Currency Risk. As many investments in foreign countries are denominated in
foreign currencies, changes in the value of those countries' currencies
relative to the U.S. dollar may affect the value of those investments. These
changes may occur in response to events unrelated to the value of the security
in the issuer's home country. Back Bay Advisors may use certain techniques,
such as FORWARD CONTRACTS or FUTURES CONTRACTS, to manage these risks. However,
Back Bay Advisors cannot assure that these techniques will be effective.
Emerging Markets
Bond Income may invest in emerging markets, which are generally located in the
Asia-Pacific Region, Eastern Europe, Latin and
Some securities pay a higher interest rate than the current market rate. An
investor may have to pay more than the security's principal to compensate the
seller for the value of the higher interest rate. This additional payment is
called a PREMIUM.
LEVERAGE in this context is a measure of how much a company has borrowed in
relation to its shareholders' equity.
A FORWARD CONTRACT is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.
A FUTURES CONTRACT is an obligation to buy or sell an asset on a specified
future date or an obligation to pay or receive money based on the value of some
securities index or currency or interest rate on a specified future date.
Typically, futures contracts are traded on an exchange (rather than entered
into between two parties). Futures contracts are one kind of DERIVATIVE.
A DERIVATIVE is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.
B-36
<PAGE>
South America and Africa. In addition to the risks of foreign securities
described above (which are potentially greater for emerging markets securities
than for other foreign securities), emerging markets securities may be subject
to other risks, including increased risks of reduced liquidity, high inflation
rates, political uncertainty, high administrative and regulatory costs,
repatriation of income and less advantageous investment terms relative to
foreign nationals.
Forward Contracts and Futures
The Series may seek to avoid the risk of an unfavorable shift in currency or
interest rates by entering into forward contracts or buying or selling futures
contracts or options on futures contracts. In so doing, the Series will also
give up the opportunity for gain from a favorable shift in currency or interest
rates.
PORTFOLIO MANAGEMENT
As of December 31, 1999, Back Bay Advisors managed approximately $5 billion in
assets. In addition to Series of the Fund, Back Bay Advisors manages 10 mutual
funds and several institutional accounts. Back Bay Advisors is located at 399
Boylston Street, Boston, Massachusetts 02116.
Peter Palfrey, CFA and Richard Raczkowski, MBA are the portfolio managers of
the Series. Mr. Palfrey, the lead portfolio manager of the Series, is a Senior
Vice President of Back Bay Advisors. He joined the company in 1993. Mr. Palfrey
has 17 years of investment experience. Mr. Raczkowski, a Vice President of Back
Bay Advisors, joined the company in 1998. Previously, he was a senior
consultant at Hagler Bailly Consulting. Mr. Raczkowski has 16 years of
financial and economic consulting experience.
During the fiscal year ended December 31, 1999, Bond Income paid 0.40% of its
average net assets in investment advisory fees.
B-37
<PAGE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
PRINCIPAL INVESTMENT STRATEGIES
SBAM invests substantially all of Strategic Bond's assets in three classes of
fixed-income securities: (1) U.S. investment grade securities (including U.S.
Government obligations), (2) U.S. and foreign high yield debt, and (3) foreign
government securities.
Investment Selection
SBAM determines how to invest Strategic Bond assets in several steps:
SBAM has an investment committee consisting of senior portfolio managers which
analyzes current interest rate trends and their impact on potential economic
scenarios. This committee meets every month to revise its estimate of interest
rate and general market trends. Based on this analysis, Strategic Bond's
portfolio managers allocate assets among the various classes of securities in
which the Series invests. Once this allocation is set, SBAM focuses on specific
investment opportunities within those areas.
SBAM considers many factors when selecting individual fixed-income securities,
including the interest rate of the security, the interval at which the interest
rate adjusts, the date of maturity of the security and the creditworthiness of
the issuer. SBAM also considers Strategic Bond's likely need for liquidity,
which can be influenced by redemptions (and opportunities for purchases of
other securities), and the DURATION of the portfolio, which will generally be
approximately 4.5 years.
PRINCIPAL INVESTMENT RISKS
Fixed-income Securities
Fixed-income securities involve both CREDIT RISK and MARKET RISK, which
includes INTEREST RATE RISK. Some fixed-income securities also involve the risk
that an issuer will repay the principal or repurchase the security before it
matures. If this happens, the holder will no longer receive any interest on
that security. The holder could buy another security, but that other security
might pay a lower interest rate. Also, if the holder paid a PREMIUM when it
bought the security, the holder may receive less from the issuer than it paid
for the security.
Mortgage Dollar Roll Transactions. The Series may also enter into mortgage
dollar roll transactions to earn additional income. In these transactions, the
Series sells a U.S. mortgage-backed security and agrees to repurchase another
U.S. mortgage-backed security with the same interest rate and maturity date,
but generally backed by a different pool of mortgages. The Series earns
interest on the proceeds of the sale and may receive a fee or a lower
repurchase price. The benefits from these transactions depend upon the
subadviser's ability to forecast mortgage prepayment patterns on different
mortgage pools.
DURATION is an estimate of how much a bond fund's share price will fluctuate in
response to a change in interest rates. To see how the price could shift,
multiply the Series' duration by the change in rates. If interest rates rise by
one percentage point, the share price of a fund with an average duration of
five years would decline by about 5%. If rates decrease by a percentage point,
the fund's share price would rise by 5%.
CREDIT RISK is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.
MARKET RISK is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.
INTEREST RATE RISK reflects the fact that the values of fixed-income securities
tend to fall as interest rates rise. When interest rates go down, interest
earned on fixed-income securities will tend to decline.
Some securities pay a higher interest rate than the current market rate. An
investor may have to pay more than the security's principal to compensate the
seller for the value of the higher interest rate. This additional payment is a
PREMIUM.
B-38
<PAGE>
Foreign Securities
In addition to the risks associated with fixed-income securities generally,
foreign securities present additional risks.
Regulation and Access to Information. Changes in foreign countries' laws may
harm the performance and liquidity of the Series' investments in those
countries. Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.
Regional and National Risk. News and events unique to particular regions and
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner. As a result, movements in the prices of foreign securities
may not correlate with the prices of U.S. securities.
Currency Risk. As many investments in foreign countries are denominated in
foreign currencies, changes in the value of those countries' currencies
relative to the U.S. dollar may affect the value of those investments. These
changes may occur in response to events unrelated to the value of the security
in the issuer's home country. SBAM may use certain techniques, such as FORWARD
CONTRACTS or FUTURES CONTRACTS, to manage these risks. However, SBAM cannot
assure that these techniques will be effective.
Emerging Markets
Strategic Bond may invest in emerging markets, which are generally located in
the Asia-Pacific Region, Eastern Europe, Latin and South America and Africa. In
addition to the risks of foreign securities described above (which are
potentially greater for emerging markets securities than for other foreign
securities), emerging markets securities may be subject to other risks,
including increased risks of reduced liquidity, high inflation rates, political
uncertainty, high administrative and regulatory costs, repatriation of income
and less advantageous investment terms relative to foreign nationals.
Forward Contracts and Futures
The Series may seek to avoid the risk of an unfavorable shift in currency or
interest rates by entering into forward contracts or buying or selling futures
contracts or options on futures contracts. In so doing, the Series will also
give up the opportunity for gain from a favorable shift in currency or interest
rates.
A FORWARD CONTRACT is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.
A FUTURES CONTRACT is an obligation to buy or sell an asset on a specified
future date or an obligation to pay or receive money based on the value of some
securities index or currency or interest rate on a specified future date.
Typically, futures contracts are traded on an exchange (rather than entered
into between two parties). Futures contracts are one kind of DERIVATIVE.
A DERIVATIVE is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.
B-39
<PAGE>
High Yield Debt
High yield debt has a higher credit risk and market risk than investment grade
fixed-income securities. Issuers could have high credit risk for many reasons,
including problems with product development, distribution or competition in
their markets or a high degree of LEVERAGE. High yield debt has higher market
risk for a variety of reasons, including greater sensitivity to interest rate
changes and economic downturns, and the difficulty some issuers may have when
trying to obtain additional financing. Also, high yield debt may be difficult
to value, and if other investors believe that a certain issuer's securities are
overvalued, the holder may be unable to sell those securities for what it
believes is an adequate price.
High Yield, High Risk Foreign Securities
SBAM may invest up to 100% of Strategic Bond's total assets in high yield, high
risk foreign securities. High yield, high risk foreign securities are typically
issued by emerging countries, and will therefore be subject to emerging market
risks in addition to risks of foreign securities described above. Other risks
may include high interest rates and under collateralization.
PORTFOLIO MANAGEMENT
As of December 31, 1999, SBAM managed approximately $28.7 billion in assets.
SBAM is located at 7 World Trade Center, New York, New York 10048.
SBAM may delegate to its affiliate, Salomon Brothers Asset Management Limited
("SBAM Ltd."), any of its responsibilities with respect to transactions of
Strategic Bond in foreign currencies and debt securities denominated in foreign
currencies. SBAM Ltd. is located at Victoria Plaza, 111 Buckingham Palace Road,
London SW1W OSB, England.
Roger Lavan is primarily responsible for the day-to-day management of the
investment grade portion of Strategic Bond's portfolio. Mr. Lavan joined SBAM
as the Director and Portfolio Manager in 1990.
Peter Wilby is primarily responsible for the day-to-day management of the high
yield and foreign sovereign securities portion of Strategic Bond's portfolio.
Mr. Wilby joined SBAM in 1989 and is a Managing Director of SBAM.
David Scott is primarily responsible for the day-to-day management of currency
transactions and certain non-dollar denominated debt securities investments of
Strategic Bond's portfolio. Mr. Scott joined SBAM in 1994 and is a Managing
Director of SBAM.
During the year ended December 31, 1999, Strategic Bond paid 0.65% of its
average net assets in investment advisory fees.
LEVERAGE in this context is a measure of how much a company has borrowed in
relation to its shareholders' equity.
B-40
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SERIES
PRINCIPAL INVESTMENT STRATEGIES
SBAM generally invests at least 80% of the assets of the U.S. Government Series
in U.S. Government Securities including repurchase agreements collateralized by
U.S. Government Securities and CMOs that relate to U.S. Government Securities.
The U.S. Government Series may also invest up to 20% of its assets in investment
grade fixed-income securities that are not U.S. Government Securities.
Investment Selection
SBAM determines how to invest assets of the U.S. Government Series in several
steps.
SBAM has an investment committee consisting of senior portfolio managers which
analyzes current interest rate trends and their impact on potential economic
scenarios. This committee meets every month to revise its estimate of interest
rate and general economic trends. Based on this analysis, portfolio managers of
the Series allocate assets among various classes of securities, including U.S.
Treasury securities and securities of agencies or instrumentalities of the U.S.
Government, mortgage-backed assets and investment grade fixed-income securities.
The mortgage-backed assets in which the Series invests include GNMA and FNMA
mortgage-backed securities as well as privately issued mortgage-backed
securities, including CMOs.
SBAM considers many factors when selecting individual fixed-income securities,
including the interest rate of the security, the interval at which that
interest rate adjusts, the date of maturity of the security and the
creditworthiness of the issuer. SBAM also considers the U.S. Government Series'
likely need for liquidity, which can be influenced by redemptions and
opportunities for purchases of other securities, and the DURATION of the
portfolio, which SBAM will normally maintain between 2.5 and 5 years.
PRINCIPAL INVESTMENT RISKS
Fixed-income Securities
Fixed-income securities involve both CREDIT RISK and MARKET RISK, which
includes INTEREST RATE RISK. Some fixed-income securities also involve the risk
that an issuer will repay the principal or repurchase the security before it
matures. If this happens, the holder will no longer receive any interest on
that security. The holder could buy another security, but that other security
might pay a lower interest rate. Also, if the holder paid a PREMIUM when it
bought the security, the holder may receive less from the issuer than it paid
for the security.
DURATION is an estimate of how much a bond fund's share price will fluctuate in
response to a change in interest rates. To see how the price could shift,
multiply the Series' duration by the change in rates. If interest rates rise by
one percentage point, the share price of a fund with an average duration of
five years would decline by about 5%. If rates decrease by a percentage point,
the fund's share price would rise by 5%.
CREDIT RISK is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.
MARKET RISK is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.
INTEREST RATE RISK reflects the fact that the values of fixed-income securities
tend to fall as interest rates rise. When interest rates go down, interest
earned on fixed-income securities will tend to decline.
Some securities pay a higher interest rate than the current market rate. An
investor may have to pay more than the security's principal to compensate the
seller for the value of the higher interest rate. This additional payment is
called a PREMIUM.
B-41
<PAGE>
Collateralized Mortgage Obligations (CMOs). One type of security in which the
U.S. Government Series can invest is a CMO. CMOs are fixed-income securities
that are collateralized by a portfolio of mortgages or mortgage securities. The
underlying mortgages or mortgage securities of the CMOs purchased by the U.S.
Government Series are issued or guaranteed by the U.S. Government or one of its
agencies or instrumentalities, but the CMOs themselves may not be so issued or
guaranteed. Therefore, CMOs are often riskier than other U.S. Government
Securities.
Mortgage Dollar Roll Transactions. The Series may also enter into mortgage
dollar roll transactions to earn additional income. In these transactions, the
Series sells a U.S. mortgage-backed security and agrees to repurchase another
U.S. mortgage-backed security with the same interest rate and maturity date,
but generally backed by a different pool of mortgages. The Series earns
interest on the proceeds of the sale and may receive a fee or a lower
repurchase price. The benefits from these transactions depend upon the
subadviser's ability to forecast mortgage prepayment patterns on different
mortgage pools.
PORTFOLIO MANAGEMENT
As of December 31, 1999, SBAM managed approximately $28.7 billion in assets.
SBAM is located at 7 World Trade Center, New York, New York 10048.
Roger Lavan has been primarily responsible for the day-to-day management of
U.S. Government since its inception. Mr. Lavan joined SBAM as Director and
Portfolio Manager in 1990 and served as a co-portfolio manager of U.S.
Government Bond from its inception until 1997.
During the year ended December 31, 1999, U.S. Government paid 0.55% of its
average net assets in investment advisory fees.
B-42
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
PRINCIPAL INVESTMENT STRATEGIES
Back Bay Advisors invests the assets of the Managed Series in a portfolio of
U.S. common stocks and U.S. and foreign fixed-income securities. Back Bay
Advisors will generally invest more of the assets of Managed Series in common
stocks than in fixed-income securities. The Managed Series will generally
invest in the stocks included in the S&P 500 Index and may invest in investment
grade fixed-income securities, high yield debt and fixed-income securities of
foreign issuers.
Investment Selection
Back Bay Advisors evaluates potential investments for the Managed Series in
several steps.
Back Bay Advisors uses a quantitative model to evaluate and adjust the Managed
Series' allocation of assets between equity and fixed-income securities. This
model analyzes U.S. Government monetary policy, the relative valuation of stock
markets relative to fixed-income markets and the flow of funds between stock
markets and fixed-income markets.
Equity Securities. Back Bay Advisors generally invests all of the Managed
Series' equity portfolio in stocks included in the S&P 500. Back Bay Advisors
uses quantitative analysis to invest approximately 20% of this portfolio in
stocks which Back Bay believes have favorable price/earnings ratios. Back Bay
Advisors invests the remaining 80% of this portfolio to reflect individual
stock and industry sector weightings of the S&P 500.
Fixed-Income Securities. Back Bay Advisors first allocates the assets of the
Managed Series that will be invested in fixed-income securities among four
areas: U.S. corporate securities, mortgage-backed securities, U.S. Government
securities, and foreign securities. Back Bay Advisors makes this allocation
based on its analysis of current and future interest rate trends and market
indicators. Once Back Bay Advisors makes this allocation, it searches for
investment opportunities in each area.
When evaluating corporate fixed-income securities, Back Bay Advisors first
considers the relative attractiveness of domestic and foreign corporate
securities in four different sectors: industrial, financial, utilities, and
YANKEE BOND. Back Bay Advisors allocates assets among the four sectors based on
its evaluation of the relative merits of each sector and its market outlook.
Back Bay Advisors next analyzes the credit quality of specific issuers and the
market prices of securities of those issuers.
When evaluating mortgage-backed securities, Back Bay Advisors reviews the
creditworthiness and likelihood of prepayment on the mortgages underlying those
securities.
When evaluating U.S. Treasury securities, Back Bay Advisors considers the
difference between the interest rates on U.S. Treasuries of various maturities
and the interest rates on other fixed-income securities.
YANKEE BONDS are fixed-income securities issued by foreign companies in U.S.
dollars.
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The DURATION of the fixed-income securities portfolio of the Managed Series may
vary widely; generally, the duration will range from 5 to 10 years.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
Investment Style Risk. The stocks included in the S&P 500 Index may not perform
as well as other stocks or the stock market in general.
Fixed-income Securities
The value of most fixed-income securities generally will rise when interest
rates decline and fall when interest rates rise. Fixed-income securities
involve both CREDIT RISK and MARKET RISK, which includes INTEREST RATE RISK.
Some fixed-income securities also involve the risk that an issuer will repay
the principal or repurchase the security before it matures. If this happens,
the holder will no longer receive any interest on that security. The holder
could buy another security, but that other security might pay a lower interest
rate. Also, if the holder paid a PREMIUM when it bought the security, the
holder might receive less from the issuer than it paid for the security.
High yield debt
High yield debt has a higher credit risk and market risk than investment grade
fixed-income securities. Issuers could have high credit risk for many reasons,
including problems with product development or distribution, reductions in
market share or overall sales, competition in their markets or a high degree of
LEVERAGE. High yield debt has higher market risk for a variety of reasons,
including greater sensitivity to interest rate changes and economic downturns,
and the difficulty some issuers may have when trying to obtain additional
financing. Also, high yield debt may be difficult to value, and if other
investors believe that a certain issuer's securities are overvalued, the holder
may be unable to sell those securities for what it believes is an adequate
price.
Foreign Securities
In addition to the risks associated with equity securities generally, foreign
securities present additional risks.
Regulation and Access to Information. Changes in foreign countries' laws may
harm the performance and liquidity of the Series' investments in those
countries. Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.
DURATION is an estimate of how much a bond fund's share price will fluctuate in
response to a change in interest rates. To see how the price could shift,
multiply the Series' duration by the change in rates. If interest rates rise by
one percentage point, the share price of a fund with an average duration of
five years would decline by about 5%. If rates decrease by a percentage point,
the fund's share price would rise by 5%.
CREDIT RISK is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.
MARKET RISK is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.
INTEREST RATE RISK reflects the fact that the values of fixed-income securities
tend to fall as interest rates rise. When interest rates go down, interest
earned on fixed-income securities will tend to decline.
Some securities pay a higher interest rate than the current market rate. An
investor may have to pay more than the security's principal to compensate the
seller for the value of the higher interest rate. This additional payment is
called a PREMIUM.
LEVERAGE in this context is a measure of how much a company has borrowed in
relation to its shareholders' equity.
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Regional and National Risk. News and events unique to particular regions and
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner.
As a result, movements in the prices of foreign securities may not correlate
with the prices of U.S. securities.
Currency Risk. As many investments in foreign countries are denominated in
foreign currencies, changes in the value of those countries' currencies
relative to the U.S. dollar may affect the value of those investments. These
changes may occur in response to events unrelated to the value of the security
in the issuer's home country. Back Bay Advisors may use certain techniques,
such as FORWARD CONTRACTS or FUTURES CONTRACTS, to manage these risks. However,
Back Bay Advisors cannot assure that these techniques will be effective.
Emerging Markets
The Managed Series may invest in emerging markets, which are generally located
in the Asia-Pacific Region, Eastern Europe, Latin and South America and Africa.
In addition to the risks of foreign securities described above (which are
potentially greater for emerging markets securities than for other foreign
securities), emerging markets securities may be subject to other risks,
including increased risks of reduced liquidity, high inflation rates, political
uncertainty, high administrative and regulatory costs, repatriation of income
and less advantageous investment terms relative to foreign nationals.
Forward Contracts and Futures
The Series may seek to avoid the risk of an unfavorable shift in currency or
interest rates by entering into forward contracts or buying or selling futures
contracts or options on futures contracts. In so doing, the Series will also
give up the opportunity for gain from a favorable shift in currency or interest
rates.
PORTFOLIO MANAGEMENT
As of December 31, 1999, Back Bay Advisors managed approximately $5 billion in
assets. In addition to Series of the Fund, Back Bay Advisors advises 10 mutual
funds and several institutional accounts. Back Bay Advisors is located at 399
Boylston Street, Boston, Massachusetts 02116.
Peter Palfrey, CFA; Danny Chan, CFA; and Richard Raczkowski, MBA are the
portfolio managers of the Series. Mr. Palfrey, the lead portfolio manager of
the Series, is a Senior Vice President of Back Bay Advisors. He joined the
company in 1993 and has 17 years of investment experience. Mr. Chan, a
portfolio manager on the equity side, is a Vice President of Back Bay Advisors.
He joined the company in 1999. Previously, he was a director and a portfolio
A FORWARD CONTRACT is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.
A FUTURES CONTRACT is an obligation to buy or sell an asset on a specified
future date, or to pay or receive money based on the value of some securities
index or currency or interest rate on a specified future date. Typically,
futures contracts are traded on an exchange (rather than entered into between
two parties). Futures contracts are one kind of DERIVATIVE.
A DERIVATIVE is a security, the value of which is based on (derived from) the
movement of an underlying instrument. This instrument could be the price of
another security or other asset or an interest rate, among other things.
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manager in the Private Banking Division of UBS AG. Mr. Chan has seven years of
investment experience. Mr. Raczkowski, a portfolio manager on the fixed income
side, is a Vice President of Back Bay Advisors. He joined the company in 1998.
Previously,he was a senior consultant at Hagler Bailly Consulting.
Mr. Raczkowski has 16 years of financial and economic consulting experience.
During the year ended December 31, 1999, the Managed Series paid 0.50% of its
average net assets in investment advisory fees.
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BALANCED SERIES
PRINCIPAL INVESTMENT STRATEGIES
Wellington Management invests the Balanced Series' assets in a balanced
portfolio of stocks and bonds. The "neutral position" of the Balanced Series
portfolio consists of 60% stocks and other equity securities and 40% U.S. and
foreign bonds. In response to current market conditions, Wellington Management
may vary the percentage of the Balanced Series invested in equity securities
from 50% to 70% of the Balanced Series' total assets and the fixed-income
investments from 30% to 50% of the Series' total assets. Wellington Management
will invest the equity portion of the Balanced Series primarily in stocks of
U.S. companies with larger market capitalizations (generally greater than $6
billion), using a blend of top-down sector analysis and bottom-up security
selection. Wellington Management will invest the fixed-income portion of the
Balanced Series in investment grade U.S. corporate and U.S. government fixed-
income securities and, to a lesser extent, U.S. high yield debt and fixed-
income securities of foreign issuers, including companies and governments of
emerging market countries.
Investment Selection
Asset Allocation. Wellington Management invests 50% to 70% of the Balanced
Series' total assets in equity securities and 30% to 50% of the Series' total
assets in fixed-income securities. Wellington Management will divide the
Balanced Series' assets between equity and fixed income securities based on
Wellington Management's judgement of the projected investment environment for
financial assets, relative fundamental values, the attractiveness of each asset
category, and expected future returns of each asset category.
Equity Securities. Wellington Management invests the equity portfolio of the
Balanced Series using a combination of top-down industry and sector analysis
and bottom-up stock selection. Macro-economic data, such as changes in the
Gross Domestic Product (GDP), rates of employment, and interest rates, are
considered to identify sectors of the economy and industries which Wellington
Management believes will grow faster than the U.S. economy. Wellington
Management also attempts to identify long-term broad "themes" based on, for
example, demographic trends, technological developments, and political and
social developments in the U.S. and abroad.
Wellington Management selects stocks for the Balanced Series which Wellington
Management believes have the following attributes:
. leadership position within an industry;
. a strong balance sheet;
. a high return on equity;
. sustainable or increasing dividends;
. a strong management team;
. a globally competitive position.
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Wellington Management may also consider general investor opinion as to whether
a stock will continue to gain in value when evaluating stocks priced at
historically high levels.
Wellington Management continually monitors each stock in the Series' portfolio
and considers selling a stock when:
.fundamentals deteriorate;
.the stock appears overpriced.
Fixed-income Securities. Wellington Management also uses a blend of top-down
market analysis and bottom-up security analysis when making selections for the
Balanced Series' fixed-income portfolio, which may consist of a variety of
securities, including, but not limited to:
.U.S. government bonds
.mortgage-backed securities
.ASSET-BACKED SECURITIES
.YANKEE BONDS
.investment grade U.S. corporate bonds
.high yield U.S. corporate bonds
.foreign government and SUPRANATIONAL BONDS
.emerging market debt
Wellington Management combines quantitative modeling and subjective judgement
first to determine the fixed-income portfolio's average DURATION and industry
sector weightings. Under normal market conditions, the duration of the Series'
fixed-income portfolio will be within one year of the average duration of the
Lehman Aggregate Bond Index. As of December 31, 1999, the average duration of
this Index was 4.92 years. During 1999, the duration of this Index ranged from
4.4 years to 5.0 years.
Wellington Management may invest up to 25% of the Balanced Series' fixed-income
portfolio in high yield and non-U.S. dollar bonds and up to 10% of the fixed-
income portfolio in emerging market debt. For a description of the risks
associated with investing in emerging markets, and foreign markets generally,
see "Principal Investment Risks" below.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
ASSET-BACKED SECURITIES are bonds and notes backed by certain assets, such as
anticipated car loan or credit card payments.
YANKEE BONDS are fixed-income securities issued by foreign companies in U.S.
dollars.
SUPRANATIONAL BONDS are issued by organizations governed by representatives
from different countries (e.g., the World Bank) to finance reconstruction and
development projects around the world.
DURATION is an estimate of how much a bond fund's share price will fluctuate in
response to a change in interest rates. To see how the price could shift,
multiply the Series' duration by the change in rates. If interest rates rise by
one percentage point, the share price of a fund with an average duration of
five years would decline by about 5%. If rates decrease by a percentage point,
the fund's share price would rise by 5%.
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Market Capitalization. The stocks of large capitalization companies do not
always have as much growth potential as smaller and medium capitalization
stocks.
Fixed-income Securities
Fixed-income securities involve both CREDIT RISK and MARKET RISK, which
includes INTEREST RATE RISK. Some fixed-income securities also involve the risk
that an issuer will repay the principal or repurchase the security before it
matures. If this happens, the holder will no longer receive any interest on
that security. The holder could buy another security, but that other security
might pay a lower interest rate. Also, if the holder paid a PREMIUM when it
bought the security, the holder may receive less from the issuer than it paid
for the security.
Foreign Securities
In addition to the risks associated with securities generally, foreign
securities present additional risks.
Regulation and Access to Information. Changes in foreign countries' laws may
harm the performance and liquidity of the Series' investments in those
countries. Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.
Regional and National Risk. News and events unique to particular regions and
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner. As a result, movements in the prices of foreign securities
may not correlate with the prices of U.S. securities.
Currency Risk. As many investments in foreign countries are denominated in
foreign currencies, changes in the value of those countries' currencies
relative to the U.S. dollar may affect the value of those investments. These
changes may occur in response to events unrelated to the value of the security
in the issuer's home country. Wellington Management may use certain techniques,
such as FORWARD CONTRACTS or FUTURES CONTRACTS, to manage these risks. However,
Wellington Management cannot assure that these techniques will be effective.
Emerging Markets
The Balanced Series may invest in emerging markets, which are generally located
in the Asia-Pacific Region, Eastern Europe, Latin and South America and Africa.
In addition to the risks of foreign securities described above (which are
potentially greater for emerging markets securities than for other foreign
securities), emerging markets securities may be subject to other risks,
including increased risks of reduced liquidity, high inflation rates, political
uncertainty, high administrative and regulatory costs, repatriation of income
and less advantageous investment terms relative to foreign nationals.
CREDIT RISK is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.
MARKET RISK is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.
INTEREST RATE RISK reflects the fact that the values of fixed-income securities
tend to fall as interest rates rise. When interest rates go down, interest
earned on fixed-income securities will tend to decline.
Some securities pay a higher interest rate than the current market rate. An
investor may have to pay more than the security's principal to compensate the
seller for the value of the higher interest rate. This additional payment is a
PREMIUM.
A FORWARD CONTRACT is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.
A FUTURES CONTRACT is an obligation to buy or sell an asset on a specified
future date, or to pay or receive money based on the value of some securities
index or currency or interest rate on a specified future date. Typically,
futures contracts are traded on an exchange (rather than entered into between
two parties). Futures contracts are one kind of DERIVATIVE.
A DERIVATIVE is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.
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Forward Contracts and Futures Contracts
The Series may attempt to avoid the risk of an unfavorable shift in currency or
interest rates by entering into forward contracts or buying or selling futures
contracts or options on futures contracts. In so doing, the Series will also
give up the opportunity for gain from a favorable shift in currency or interest
rates. The Series may also purchase futures contracts (or options on futures
contracts) to maintain exposure to the broad equity or fixed income markets.
If the price of a futures contract changes more than the price of the security
or index on which the contract is based, the Series could make or lose more
money than if it had invested directly in the underlying security or index.
This added volatility increases the risk of these investments. In addition,
investors may be unwilling to buy or sell futures contracts under some market
conditions. If this happens, the Series might not be able to close out futures
transactions without incurring substantial losses.
PORTFOLIO MANAGEMENT
Wellington Management has been in the investment management business since
1928. As of December 31, 1999, the company managed over $235 billion in assets.
Wellington Management's address is 75 State Street, Boston, Massachusetts
02109.
Maya K. Bittar, CFA, manages the equity portion of the Series and Thomas L.
Pappas, CFA, manages the fixed income portion of the Series. Ms. Bittar is a
Vice President of Wellington Management and has been a Portfolio Manager there
since she joined Wellington Management in 1998. From 1993 until she joined
Wellington Management, Ms. Bittar was employed by Firstar Investment Research
and Management Company. Mr. Pappas is a Senior Vice President and Partner of
Wellington Management. He has been employed by Wellington Management since
1987.
During the year ended December 31, 1999, the Balanced Series paid 0.70% of its
average net assets in investment advisory fees.
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ALGER EQUITY GROWTH SERIES
PRINCIPAL INVESTMENT STRATEGIES
Alger invests Equity Growth's assets primarily in growth stocks. Alger will
ordinarily invest at least 65% of Equity Growth's total assets in equity
securities of issuers with a market capitalization of $1 billion or greater.
Stock Selection
Alger seeks out and invests primarily in companies that are traded on domestic
stock exchanges or in the domestic over-the-counter market. The companies Alger
chooses for the portfolio of the Series may still be in the development stage,
may be older companies that appear to be entering a new stage of growth
progress due to factors like management changes or development of new
technologies, products or markets, or may be companies providing products or
services with a high unit volume growth rate. Alger focuses on fundamental
characteristics of individual companies and does not allocate assets based on
specific industry sectors.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
Investment Style Risk. The prices of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. Growth
stocks may not perform as well as value stocks or the stock market in general.
PORTFOLIO MANAGEMENT
As of December 31, 1999, Alger managed approximately $19 billion in assets for
seven mutual funds and other institutional investors. Alger's address is One
World Trade Center, Suite 9333, New York, New York 10048.
David D. Alger and Ron Tartaro have served as Equity Growth's portfolio
managers since its inception in October 1994. Mr. Alger became Alger's
President in 1995 and served as Executive Vice President and Director of
Research before 1995. Mr. Tartaro has been employed by Alger since 1990 and has
been a Senior Vice President since 1995.
During the year ended December 31, 1999, Equity Growth paid 0.75% of its
average net assets in investment advisory fees.
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CAPITAL GROWTH SERIES
PRINCIPAL INVESTMENT STRATEGIES
CGM invests Capital Growth's assets primarily in the common stocks of large
capitalization U.S. companies whose earnings CGM expects will grow at a faster
rate than the United States economy. When market conditions warrant, however,
CGM may select stocks on the basis of overall economic factors such as the
general economic outlook, the level and direction of interest rates and the
potential impact of inflation. Capital Growth invests primarily in equity
securities of U.S. companies but may also invest in equity securities of
foreign issuers. Over time, Capital Growth has held larger positions in a
smaller number of issuers than many other mutual funds. CGM does not consider
income as a significant factor when selecting investments for Capital Growth.
Stock Selection
In general, CGM seeks companies with the following characteristics:
. A well-established record of above-average growth.
. The prospect of maintaining market leadership.
. The potential to benefit from internal revitalization or innovations,
changes in consumer demand or basic economic forces.
Although CGM searches for these types of companies, not every company in which
Capital Growth invests will have all of these characteristics. Rather than
strictly following a growth style, CGM may also invest in attractive value
stocks. In making an investment decision, CGM will generally:
. Use a top-down approach to analyze the overall economic factors that may
affect a potential investment.
. Thoroughly analyze certain industries and companies, evaluate the
fundamentals of each and focus on attractively valued companies.
. Purchase a security only after a thorough assessment of all information
that CGM deems to be relevant at the time of investment.
. Sell a stock if CGM's investment expectations are not being met, if CGM
identifies better opportunities or if CGM has attained its price
objective.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities in general
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CREDIT RISK is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.
MARKET RISK is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.
will rise and fall in response to events that affect entire financial markets.
The values of stocks of companies in a particular industry or sector of the
economy tend to increase or decrease in response to events affecting that
industry or sector (changes in inflation or consumer demand, for example). The
price of any individual stock will increase or decrease in response to events
that affect that particular company (news about the success or failure of a new
product, for example).
Market Capitalization. The stocks of large capitalization companies do not
always have as much growth potential as smaller and medium capitalization
stocks.
Real Estate Investment Trusts (REITs). One category of equity securities in
which Capital Growth invests is REITs. REITs are generally categorized as
equity REITs or mortgage REITs, although some REITs have characteristics of
both classifications. Equity REITs invest directly in real property and receive
income from rent collection and sale of those properties. These REITs may
decline in value when the property they own declines in value. Mortgage REITs
invest in real estate mortgages and receive income from interest payments on
those mortgages. These REITs are particularly subject to CREDIT RISK and MARKET
RISK, although equity REITs are also subject to market risk.
Foreign Securities
In addition to the risks associated with securities generally, foreign
securities present additional risks.
Regulation and Access to Information. Changes in foreign countries' laws may
harm the performance and liquidity of the Series' investments in those
countries. Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.
Regional and National Risk. News and events unique to particular regions and
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner. As a result, movements in the prices of foreign securities
may not correlate with the prices of U.S. securities.
Currency Risk. As many investments in foreign countries are denominated in
foreign currencies, changes in the value of those countries' currencies
relative to the U.S. dollar may affect the value of those investments. These
changes may occur in response to events unrelated to the value of the security
in the issuer's home country.
PORTFOLIO MANAGEMENT
As of December 31, 1999, CGM managed approximately $8.0 billion in assets and
currently serves as investment adviser to eight additional mutual funds and to
other institutional investors. CGM's address is One International Place,
Boston, Massachusetts 02110.
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Kenneth Heebner has managed Capital Growth since it was established in 1983.
Mr. Heebner co-founded and is currently Senior Portfolio Manager of CGM.
During the year ended December 31, 1999, Capital Growth paid 0.62% of its
average net assets in investment advisory fees.
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DAVIS VENTURE VALUE SERIES
PRINCIPAL INVESTMENT STRATEGIES
Davis Selected invests Venture Value's assets primarily in U.S. common stocks
of companies that have a market capitalization of at least $5 billion and that
Davis Selected believes are of high quality and are selling at attractive
prices. Davis Selected generally selects stocks with the intention of holding
them for the long term. Davis Selected believes that managing risk is the key
to delivering superior long-term investment results; therefore, it considers
how much could potentially be lost on an investment before considering how much
might be gained.
Stock selection
Davis Selected has developed a list of ten characteristics that it believes
allow companies to sustain long-term growth and minimize risks to enhance their
potential for superior long-term returns. Although few companies exhibit all
ten characteristics, Davis Selected searches for companies that possess:
. Excellent management.
. Managers who own stock in their own company.
. Strong returns on investments of an issuer's capital.
. A lean expense structure.
. A dominant or growing market share in a growing market.
. A proven record as an acquirer.
. A strong balance sheet.
. Products or services that are not likely to become obsolete.
. Successful international operations.
. Innovation in all aspects of operations.
Davis Selected does not have particular allocation strategies, and emphasizes
individual stock selection rather than industry sectors. Davis Selected relies
heavily on its evaluation of the management of potential investments, and will
ordinarily visit the managers at their place of business to gain insight into
the relative value of different companies.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
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Investment Style Risk. The price of value stocks may fall, or simply may not
increase very much, if the market does not agree with the subadviser's view of
the value of the stock. Value stocks may not perform as well as growth stocks
or as the stock market in general.
Market Capitalization. The stocks of large capitalization companies do not
always have as much growth potential as smaller and medium capitalization
stocks.
PORTFOLIO MANAGEMENT
As of December 31, 1999, Davis Selected, together with its affiliated
institutional asset management companies, managed approximately $27.6 billion
in assets. Davis Selected's address is 2949 East Elvira Road, Suite 101,
Tucson, AZ 85706. Davis Selected may delegate to Davis Selected Advisers-NY,
Inc. any of its responsibilities related to Venture Value. Davis Selected
Advisers-NY, Inc. is a wholly owned subsidiary of Davis Selected and is located
at 609 Fifth Avenue, New York, New York 10017.
Christopher C. Davis and Kenneth C. Feinberg are co-portfolio managers of
Venture Value. Christopher Davis has been the portfolio manager for Venture
Value and other equity funds managed by Davis Selected since February 1997.
Christopher Davis was co-portfolio manager of Venture Value with Shelby M.C.
Davis from October 1995 until February 1997. Prior to co-managing Venture
Value's portfolio, Christopher Davis worked as Shelby Davis' assistant
portfolio manager and research analyst. Mr. Feinberg has co-managed other
equity funds for Davis Selected since May 1998 and became co-portfolio manager
of Venture Value in April 1999. Mr. Feinberg was a research analyst at Davis
Selected from December 1994 until May 1998, and before that he was an Assistant
Vice President of Investor Relations for Continental Corp.
As Chief Investment Officer, Shelby Davis provides investment themes and
strategies to, and helps select individual stocks for, Venture Value.
During the year ended December 31, 1999, Venture Value paid 0.75% of its
average net assets in investment advisory fees.
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HARRIS OAKMARK MID CAP VALUE SERIES
PRINCIPAL INVESTMENT STRATEGIES
Harris invests Mid Cap Value's assets primarily in common stocks of U.S.
companies. Mid Cap Value is a "non-diversified" fund, which means that it may
hold at any one time securities of fewer issuers compared to a "diversified"
fund. Mid Cap Value could own as few as 12 securities, but generally will have
15 to 20 securities in its portfolio. Harris will normally invest at least 65%
of Mid Cap Value's total assets in equity securities of companies with public
stock market capitalizations within the range of the market capitalization of
companies considered to be midcap by Morningstar, Inc. As of January 31, 2000,
this capitalization range was $1.67 billion to $10.54 billion. This
capitalization range will change over time due to changes in the value of U.S.
stocks. Harris may invest up to 25% of Mid Cap Value's total assets in fixed-
income securities, including high-yield debt.
Harris uses a value investment style in selecting equity securities for Mid Cap
Value. Harris believes that, over time, a company's stock price converges with
its true business value. By "true business value," Harris means its estimate of
the price a knowledgeable buyer would pay to acquire the entire business.
Harris believes that by investing in equity securities priced significantly
below what Harris believes is the true business value presents the best
opportunity to achieve Mid Cap Value's investment objective.
Harris' value strategy also emphasizes investing for the long-term, which means
that Mid Cap Value will generally own the stock of companies in which it
invests for at least two to three years, although Harris may use short-term
trading strategies as well.
Stock Selection
Harris uses this value philosophy to identify companies that it believes have
discounted stock prices compared to the companies' true business values.
In assessing such companies, Harris looks for the following characteristics,
although not all of the companies selected will have these attributes:
. free cash flows and intelligent investment of excess cash.
. earnings that are growing and reasonably predictable.
. high level of manager ownership.
Harris focuses on individual companies in making its investment decisions
rather than on specific economic factors or specific industries. In order to
select those companies that meet the criteria described above, Harris uses in-
house research to analyze each company. As part of this selection process, its
analysts typically visit companies and talk to various industry sources.
B-57
<PAGE>
The chief consideration in the selection of stocks is the size of the discount
of a company's stock price compared to Harris' view of the company's true
business value. Once Harris determines that a stock is selling at a significant
discount (typically 60%) to Harris' view of its estimated worth, and the
company has certain of the additional qualities mentioned above, Harris
generally will consider buying that stock. Harris usually sells when the
company's stock price approaches 90% of Harris' view of its estimated worth.
This process allows Harris to set specific "buy" and "sell" targets for each
stock held by Mid Cap Value. Harris also monitors Mid Cap Value's holdings,
and, if warranted, adjusts a stock's price target to reflect changes in a
company's characteristics.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
Investment Style Risk. The price of value stocks may fall, or simply may not
increase very much, if the market does not agree
with the subadviser's view of the value of the stock. Value stocks may not
perform as well as growth stocks or as the stock market in general.
Market Capitalization. The stocks of midcap companies involve potentially
greater risks and higher volatility than those of larger companies. Midcap
stocks do not always have as much growth potential as smaller capitalization
stocks.
Non-Diversification. Investing in a limited number of stocks may increase the
volatility of Mid Cap Value's investment performance as compared to funds that
invest in a larger number of stocks. If the stocks in which Mid Cap Value
invests perform poorly, Mid Cap Value could incur greater losses than if it had
invested in a larger number of stocks.
Fixed-income Securities
Fixed-income securities involve both CREDIT RISK and MARKET RISK, which
includes INTEREST RATE RISK. Some fixed-income securities also involve the risk
that an issuer will repay the principal or repurchase the security before it
matures. If this happens, the holder will no longer receive any interest on
that security. The holder could buy another security, but that other security
might pay a lower interest rate. Also, if the holder paid a PREMIUM when it
bought the security, the holder may receive less from the issuer than it paid
for the security.
CREDIT RISK is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.
MARKET RISK is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.
INTEREST RATE RISK reflects the fact that the values of fixed-income securities
tend to fall as interest rates rise. When interest rates go down, interest
earned on fixed-income securities will tend to decline.
Some securities pay a higher interest rate than the current market rate. An
investor may have to pay more than the security's principal to compensate the
seller for the value of higher interest rate. This additional payment is a
PREMIUM.
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High Yield Debt
High yield debt has a higher credit risk and market risk than investment grade
fixed-income securities. Issuers could have high credit risk for many reasons,
including problems with product development, distribution or competition in
their markets or a high degree of LEVERAGE. High yield debt has higher market
risk for a variety of reasons, including greater sensitivity to interest rate
changes and economic downturns, and the difficulty some issuers may have when
trying to obtain additional financing. Also, high yield debt may be difficult
to value, and if other investors believe that a certain issuer's securities are
overvalued, the holder may be unable to sell those securities for what it
believes is an adequate price.
PAST PERFORMANCE OF SIMILARLY MANAGED FUNDS
The total returns shown below are based on performance data furnished by Harris
for Class I shares of The Oakmark Select Fund, a mutual fund which has the same
investment objective as that of Mid Cap Value and which has been managed using
investment policies and strategies substantially similar, though not
necessarily identical, to those of Mid Cap Value. The Oakmark Select Fund is
managed by William C. Nygren, and Mid Cap Value is managed by William C. Nygren
and Floyd J. Bellman. The following information does not represent Mid Cap
Value's performance and should not be considered a prediction of future
performance of Mid Cap Value. Mid Cap Value's performance may be higher or
lower than the performance of The Oakmark Select Fund shown below. THE
PERFORMANCE OF THE OAKMARK SELECT FUND SHOWN BELOW DOES NOT REFLECT ANY OF THE
CHARGES ASSESSED AGAINST THE INSURANCE COMPANY SEPARATE ACCOUNTS OR VARIABLE
LIFE INSURANCE OR VARIABLE ANNUITY PRODUCTS FOR WHICH MID CAP VALUE SERVES AS
AN INVESTMENT VEHICLE. THESE CHARGES HAVE THE EFFECT OF LOWERING THE
PERFORMANCE OF A VARIABLE INSURANCE PRODUCT.
<TABLE>
<CAPTION>
THE OAKMARK SELECT RUSSELL
FUND--CLASS I MIDCAP INDEX
------------------ ------------
<S> <C> <C>
Total Return for the Year Ended December 31,
1999.......................................... 14.49% 18.2%
Average Annual Total Return Since Inception of
The Oakmark Select Fund (November 1, 1996).... 31.07% 19.6%
</TABLE>
The Russell Midcap Index is an unmanaged index of the 800 smallest companies in
the Russell 1000 Index. The Russell 1000 Index represents the largest 1000 U.S.
companies.
LEVERAGE in this context is a measure of how much a company has borrowed in
relation to its shareholders' equity.
B-59
<PAGE>
PORTFOLIO MANAGEMENT
Harris also serves as investment adviser to individuals, trusts, retirement
plans, endowments and foundations, and manages numerous private partnerships.
Together with a predecessor, Harris has advised and managed mutual funds since
1970. As of December 31, 1999, Harris manages approximately $12.6 billion in
assets. Harris' address is Two North LaSalle Street, Chicago, Illinois 60602-
3790.
William C. Nygren, CFA, Henry Berghoef, CFA and Floyd J. Bellman, CFA are Mid
Cap Value's portfolio managers. Mr. Nygren joined Harris as an analyst in 1983,
and was Harris' Director of Research from September 1990 to April 1998.
Previously, he was an analyst with Northwestern Mutual Life Insurance Company.
Mr. Berghoef has been a senior analyst at Harris since 1994. He was an analyst
at Kirr, Marbach & Co. from 1990 to 1993 and an analyst at Geico Corporation
from 1985 to 1990. Mr. Bellman joined Harris in 1995 and has over 19 years of
investment experience. Prior to joining Harris, he was a Vice President and
Senior Portfolio Manager at Harris Trust and Savings Bank.
During the year ended December 31, 1999, Mid Cap Value paid 0.75% of its
average net assets in investment advisory fees.
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<PAGE>
LOOMIS SAYLES SMALL CAP SERIES
PRINCIPAL INVESTMENT STRATEGIES
Loomis Sayles, under normal market conditions, will invest at least 65% of
Small Cap's total assets in equity securities of U.S. companies with market
capitalizations that fall within the capitalization range of those companies
constituting the Russell 2000 Index. Loomis Sayles may also invest up to 20% of
Small Cap's total assets in foreign securities, including emerging markets.
Small Cap invests in both value and growth stocks.
Stock Selection
Loomis Sayles begins with a universe of approximately 3000 companies that
generally fall within the market capitalization range of the Russell 2000
Index.
Value Stocks. Loomis Sayles may invest in stocks of companies which it believes
have reasonable growth prospects and are attractively priced in relation to the
companies' earnings. Small Cap may also invest in companies that have
experienced significant business problems but that Loomis Sayles believes have
favorable prospects for recovery.
Growth Stocks. When investing in growth stocks, Loomis Sayles seeks companies
that have distinctive products, technologies, or services; dynamic earnings
growth; prospects for a high level of profitability; and outstanding
management.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
Investment Style Risk. The prices of growth stocks may be more sensitive to
changes in current or expected earnings than the prices of other stocks. The
price of a value stock may fall, or simply may not increase very much, if the
market does not agree with the subadviser's view of the value of the stock.
Small Cap may not perform as well as a fund which invests in only value or
growth stocks.
Market Capitalization. The stocks of small capitalization companies may
underperform the broad equity markets and may be more volatile than other
stocks.
Real Estate Investment Trusts (REITs). One category of equity securities in
which Small Cap invests is REITs. REITs are generally categorized as equity
REITs or mortgage REITs, although some REITs have characteristics of both
classifications. Equity REITs invest directly in real property and receive
income from rent collection and sale of those properties. These REITs may
decline in value when the property they own declines in value. Mortgage REITs
invest in real estate mortgages and receive income
B-61
<PAGE>
from interest payments on those mortgages. These REITs are particularly subject
to CREDIT RISK and MARKET RISK, although equity REITs are also subject to
market risk.
Foreign Securities
In addition to the risks associated with securities generally, foreign
securities present additional risks.
Regulation and Access to Information. Changes in foreign countries' laws may
harm the performance and liquidity of the Series' investments in those
countries. Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.
Regional and National Risk. News and events unique to particular regions and
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner. As a result, movements in the prices of foreign securities
may not correlate with the prices of U.S. securities.
Currency Risk. As many investments in foreign countries are denominated in
foreign currencies, changes in the value of those countries' currencies
relative to the U.S. dollar may affect the value of those investments. These
changes may occur in response to events unrelated to the value of the security
in the issuer's home country. Loomis Sayles may use certain techniques, such as
FORWARD CONTRACTS or FUTURES CONTRACTS, to manage these risks. However, Loomis
Sayles cannot assure that these techniques will be effective.
Emerging Markets
Small Cap may invest in emerging markets, which are generally located in the
Asia-Pacific Region, Eastern Europe, Latin and South America and Africa. In
addition to the risks of foreign securities described above (which are
potentially greater for emerging markets securities than for other foreign
securities), emerging markets securities may be subject to other risks,
including increased risks of reduced liquidity, high inflation rates, political
uncertainty, high administrative and regulatory costs, repatriation of income
and less advantageous investment terms relative to foreign nationals.
Forward Contracts and Futures Contracts
The Series may attempt to avoid the risk of an unfavorable shift in currency
rates by entering into forward contracts or buying or selling futures contracts
or options on futures contracts. In so doing, the Series will also give up the
opportunity for gain from a favorable shift in currency or interest rates. The
Series may also purchase futures contracts (or options on futures contracts) to
maintain exposure to the broad equity markets.
CREDIT RISK is the risk that the security's issuer will not pay the interest,
dividends or principal that it has promised to pay.
MARKET RISK is the risk that the value of the security will fall because of
changes in market rates of interest or other factors.
A FORWARD CONTRACT is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.
A FUTURES CONTRACT is an obligation to buy or sell an asset on a specified
future date, or to pay or receive money based on the value of some securities
index or currency or interest rate on a specified future date. Typically,
futures contracts are traded on an exchange (rather than entered into between
two parties). Futures contracts are one kind of DERIVATIVE.
A DERIVATIVE is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.
B-62
<PAGE>
If the price of a futures contract changes more than the price of the security
or index on which the contract is based, the Series could make or lose more
money than if it had invested directly in the underlying security or index.
This added volatility increases the risk of these investments. In addition,
investors may be unwilling to buy or sell futures contracts under some market
conditions. If this happens, the Series might not be able to close out futures
transactions without incurring substantial losses.
PORTFOLIO MANAGEMENT
Loomis Sayles has been in the investment management business since 1926. As of
December 31, 1999, Loomis Sayles managed approximately $67.6 billion in assets.
Loomis Sayles' address is One Financial Center, Boston, Massachusetts 02110.
Christopher R. Ely and Joseph R. Gatz are the lead Portfolio Managers of Small
Cap. The other Portfolio Managers are Dawn Alston Paige, Philip C. Fine and
David L. Smith.
Mr. Gatz, Vice President of Loomis Sayles, joined Loomis Sayles as a Portfolio
Manager in 1999. From 1993 until he joined Loomis Sayles, Mr. Gatz was a
Portfolio Manager at Banc One Investment Advisers Corporation and certain of
its corporate predecessors. Mr. Ely, a Vice President of Loomis Sayles, has co-
managed the Series since April 1999 and joined Loomis Sayles in 1996. Before
joining Loomis Sayles, Mr. Ely was a Senior Vice President and Portfolio
Manager at Keystone Investment Management Company, Inc. Ms. Paige has been a
Portfolio Manager at Loomis Sayles since 1998. She has been employed by Loomis
Sayles since 1992. Mr. Fine, a Vice President of Loomis Sayles, has co-managed
the Series since April 1999 and joined Loomis Sayles in 1996. Before joining
Loomis Sayles, Mr. Fine was a Vice President and Portfolio Manager at Keystone
Investment Management Company, Inc. Mr. Smith, a Vice President of Loomis
Sayles, has co-managed the Series since April 1999 and joined Loomis Sayles in
1996. Before joining Loomis Sayles, Mr. Smith was a Vice President and
Portfolio Manager at Keystone Investment Management Company, Inc.
During the year ended December 31, 1999, Small Cap paid 1.00% of its average
net assets in investment advisory fees.
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<PAGE>
MFS INVESTORS SERIES
PRINCIPAL INVESTMENT STRATEGIES
MFS ordinarily invests at least 65% of the total assets of the Investors Series
in equity securities. Although the Series may invest in companies of any size,
the Series focuses on companies with large market capitalizations (greater than
$5 billion) that MFS believes have sustainable growth prospects and attractive
valuations based on current and expected earnings or cash flow. The Series will
also seek to generate gross income equal to approximately 90% of the dividend
yield on the S&P 500 Index. MFS may also invest up to 20% of the assets of the
Investors Series in foreign securities (including ADRs), through which it may
have exposure to foreign currencies.
Stock Selection
MFS uses a bottom-up, as opposed to a top-down, investment style in managing
the Investors Series. This means that MFS selects securities based upon
fundamental analysis (such as an analysis of earnings, cash flows, competitive
position and management's abilities) performed by the portfolio manager and
MFS' large group of equity research analysts.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
Market Capitalization. The stocks of large capitalization companies do not
always have as much growth potential as smaller and medium capitalization
stocks.
Foreign Securities
In addition to the risks associated with securities generally, foreign
securities present additional risks.
Regulation and Access to Information. Changes in foreign countries' laws may
harm the performance and liquidity of the Series' investments in those
countries. Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.
Regional and National Risk. News and events unique to particular regions and
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner. As a result, movements in the prices of foreign securities
may not correlate with the prices of U.S. securities.
B-64
<PAGE>
Currency Risk. As many investments in foreign countries are denominated in
foreign currencies, changes in the value of those countries' currencies
relative to the U.S. dollar may affect the value of those investments. These
changes may occur in response to events unrelated to the value of the security
in the issuer's home country. MFS may use certain techniques, such as FORWARD
CONTRACTS or FUTURES CONTRACTS, to manage these risks. However, MFS cannot
assure that these techniques will be effective.
Forward Contracts and Futures Contracts
The Series may attempt to avoid the risk of an unfavorable shift in currency
rates by entering into forward contracts or buying or selling futures
contracts. In so doing, the Series will also give up the opportunity for gain
from a favorable shift in currency rates. The Series may also purchase futures
contracts to maintain exposure to the broad equity markets.
If the price of a futures contract changes more than the price of the security
or index on which the contract is based, the Investors Series could make or
lose more money than if it had invested directly in the underlying security or
index. This added volatility increases the risk of these investments. In
addition, investors may be unwilling to buy or sell futures contracts under
some market conditions. If this happens, the Investors Series might not be able
to close out futures transactions without incurring substantial losses.
PORTFOLIO MANAGEMENT
As of December 31, 1999, MFS managed approximately $136.7 billion in assets on
behalf of over 4.2 million investors worldwide. MFS is located at 500 Boylston
Street, Boston, Massachusetts 02116.
John D. Laupheimer and Mitchell D. Dynan are the portfolio managers of
Investors Series and each is a Senior Vice President of MFS. Mr. Laupheimer has
been employed by MFS in the investment management area since 1981. Mr. Dynan
has been employed in the investment management area since 1986.
During the period ended December 31, 1999, the Investors Series paid 0.75% of
its average daily net assets in investment advisory fees.
A FORWARD CONTRACT is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.
A FUTURES CONTRACT is an obligation to buy or sell an asset on a specified
future date, or to pay or receive money based on the value of some securities
index or currency or interest rate on a specified future date. Typically,
futures contracts are traded on an exchange (rather than entered into between
two parties). Futures contracts are one kind of DERIVATIVE.
A DERIVATIVE is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.
B-65
<PAGE>
MFS RESEARCH MANAGERS SERIES
PRINCIPAL INVESTMENT STRATEGIES
MFS invests at least 80% of the total assets of the Research Managers Series in
equity securities. The Series invests primarily in companies that MFS believes
possess better than average prospects for long-term growth and attractive
valuations. MFS may also invest up to 20% of the net assets of the Series in
foreign securities (including emerging markets).
Stock Selection
A committee of investment research analysts selects portfolio securities for
the Research Managers Series. This committee includes investment analysts
employed by MFS and MFS investment advisory affiliates. The committee first
allocates assets among various industries. Individual analysts are then
responsible for selecting what they view as the securities best suited to meet
the investment objective of the Series from within their assigned industry
responsibility. Analysts focus on companies that they believe have favorable
prospects for long-term growth, attractive valuations based on current and
expected earnings or cash flow, dominant or growing market share and superior
management. The Series may invest in companies of any size and its investments
may include securities traded on securities exchanges or in the over-the-
counter markets.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
Foreign Securities
In addition to the risks associated with securities generally, foreign
securities present additional risks.
Regulation and Access to Information. Changes in foreign countries' laws may
harm the performance and liquidity of the Series' investments in those
countries. Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.
Regional and National Risk. News and events unique to particular regions and
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner. As a result, movements in the prices of foreign securities
may not correlate with the prices of U.S. securities.
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<PAGE>
Currency Risk. As many investments in foreign countries are denominated in
foreign currencies, changes in the value of those countries' currencies
relative to the U.S. dollar may affect the value of those investments. These
changes may occur in response to events unrelated to the value of the security
in the issuer's home country. MFS may use certain techniques, such as FORWARD
CONTRACTS, to manage these risks. However, MFS cannot assure that these
techniques will be effective.
Emerging Markets
Research Managers may invest in emerging markets, which are generally located
in the Asia-Pacific Region, Eastern Europe, Latin and South America and Africa.
In addition to the risks of foreign securities described above (which are
potentially greater for emerging markets securities than for other foreign
securities), emerging markets securities may be subject to other risks,
including increased risks of reduced liquidity, high inflation rates, political
uncertainty, high administrative and regulatory costs, repatriation of income
and less advantageous investment terms relative to foreign nationals.
Forward Contracts
The Series may attempt to avoid the risk of an unfavorable shift in currency
rates by entering into forward contracts. In so doing, the Series will also
give up the opportunity for gain from a favorable shift in currency rates.
PORTFOLIO MANAGEMENT
As of December 31, 1999, MFS managed approximately $136.7 billion in assets on
behalf of over 4.2 million investors worldwide. MFS is located at 500 Boylston
Street, Boston, Massachusetts 02116.
The Research Managers Series is currently managed by a committee of various
equity research analysts employed by MFS and its affiliates.
During the period ended December 31, 1999, the Research Managers Series paid
0.75% of its average daily net assets in investment advisory fees.
A FORWARD CONTRACT is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.
B-67
<PAGE>
WESTPEAK GROWTH AND INCOME SERIES
PRINCIPAL INVESTMENT STRATEGIES
Westpeak may invest the assets of Growth and Income using both the growth or
value style of investing. Westpeak sometimes invests more of Growth and
Income's assets in value stocks and sometimes invests more heavily in growth
stocks. Growth and Income invests primarily in stocks of large capitalization
U.S. companies, such as those included in the S&P 500 Index, but it may also
invest such assets in securities of other large capitalization companies, as
well as mid capitalization companies, such as those included in the Russell
1000 Index. Westpeak emphasizes individual stock selection rather than
targeting particular industries or sectors which it believes may outperform
other sectors.
Stock Selection
Westpeak uses the following procedure to select stocks for Growth and Income:
. Westpeak collects extensive amounts of information on a large universe
of companies.
. Westpeak then develops a profile of characteristics that Westpeak
believes Growth and Income's portfolio should possess to best achieve
the investment objective of the Series. Westpeak considers many factors
when developing this profile, including historic earnings and other
fundamentals, market expectations for corporate earnings and overall
growth prospects. Westpeak regularly revises the profile in response to
changing market conditions.
. Westpeak then ranks each of the companies in a variety of categories
based on the information it has collected about those companies.
. Westpeak then uses fundamental research, quantitative analysis and
judgment to select stocks that, when assembled in a single portfolio,
will most closely fit the profile Westpeak has developed given existing
market conditions.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
Investment Style Risk. Growth and Income may not perform as well as a fund
which invests in only value or only growth stocks.
Market Capitalization. The stocks of large capitalization companies do not
always have as much growth potential as smaller and mid capitalization stocks.
PORTFOLIO MANAGEMENT
As of December 31, 1999, Westpeak managed approximately $10 billion in assets.
Westpeak manages several other mutual funds as well as equity portfolios for
corporate and public retirement plans, insurance and trust companies, and other
large institutional investors. Westpeak is located at 1011 Walnut Street,
Boulder, Colorado 80302.
Gerald H. Scriver is Westpeak's President, Chief Executive Officer and Chief
Investment Officer, and Philip J. Cooper, CFA, is its Executive Vice President,
Director of Portfolio Management. Mr. Scriver and Mr. Cooper have both served
as the portfolio managers of Growth and Income since its inception in 1993 and
both have been with Westpeak since it was established in 1991.
During the year ended December 31, 1999, Growth and Income paid 0.68% of its
average net assets in investment advisory fees.
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<PAGE>
WESTPEAK STOCK INDEX SERIES
PRINCIPAL INVESTMENT STRATEGIES
Westpeak attempts to replicate the composite price and yield performance,
before expenses, of the S&P 500 Index,* which is dominated by large
capitalization stocks.
Westpeak will ordinarily invest Stock Index's assets in all of the 500 stocks
included in the S&P 500 Index. Each month, Westpeak adjusts the proportions of
stocks included in Stock Index to replicate the proportions of stocks included
in the S&P 500 Index.
Stock Selection
Westpeak collects data each day on the proportions of the 500 stocks included
in the S&P 500. Each month, Westpeak purchases and sells stocks as necessary to
replicate the proportions of stocks included in the S&P 500 Index.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
Investment Style Risk. Stock Index may not perform as well as a fund which is
more actively managed and does not seek to replicate the performance of the S&P
500 Index. The stocks included in the S&P 500 Index may not perform as well as
other stocks or the stock market in general.
Market Capitalization. The stocks of large capitalization companies do not
always have as much growth potential as smaller and mid capitalization stocks.
PORTFOLIO MANAGEMENT
As of December 31, 1999, Westpeak managed approximately $10 billion in assets.
Westpeak manages several other mutual funds as well as equity portfolios for
corporate and public retirement plans, insurance and trust companies, and other
large institutional investors. Westpeak is located at 1011 Walnut Street,
Boulder, Colorado 80302.
Gerald H. Scriver is Westpeak's President, Chief Executive Officer and Chief
Investment Officer, and Philip J. Cooper, CFA, is its Executive Vice President,
Director of Portfolio Management. Mr. Scriver and Mr. Cooper have both served
as the portfolio managers of Stock Index since 1993 and both have been with
Westpeak since it was established in 1991.
During the year ended December 31, 1999, Stock Index paid 0.25% of its average
net assets in investment advisory fees.
- --------
* "S&P 500(R)" and "500" are trademarks of The McGraw-Hill Companies, Inc. and
references thereto have been made with permission. The Series is not
sponsored, endorsed, sold or promoted by Standard & Poor's and Standard &
Poor's makes no representation regarding the advisability of investing in
the Series.
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<PAGE>
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES
PRINCIPAL INVESTMENT STRATEGIES
MSAM invests International Equity's assets in a diversified portfolio of equity
securities of foreign issuers domiciled in EAFE countries. MSAM may also invest
up to 5% of the Series' total assets in non-EAFE countries, including emerging
markets. MSAM seeks to achieve superior long-term returns by creating a
diversified portfolio of stocks that MSAM believes are undervalued. To achieve
this goal, MSAM implements a combination of strategic geographic asset
allocation and fundamental, value-oriented stock selection implemented by
regional experts around the globe.
Stock Selection
MSAM evaluates potential investments for International Equity in several steps.
The New York-based portfolio management team decides upon the appropriate
allocation of International Equity's assets among Europe, Japan and developed
Asia (including Australia and New Zealand). This regional allocation is based
on a variety of factors, including relative valuations, earnings expectations,
macroeconomic factors and input from the regional stock selection teams and
from MSAM's Asset Allocation Group, which is made up of several of MSAM's most
senior investment officers.
Once the allocations to Europe, Asia and Japan have been determined, overseas
investment teams in London (for European stocks), Tokyo (for Japanese stocks)
and Singapore (for Asian stocks) decide which stocks International Equity
should purchase in their respective geographic regions. These three regional
portfolio management teams look for stocks that they believe to be undervalued
by the market. The regional specialists analyze each company's finances,
products and management, typically meeting with a company's management before
its stock is purchased.
PRINCIPAL INVESTMENT RISKS
Equity Securities
In general, equity securities are considered more volatile than fixed-income
securities. The prices of equity securities will rise and fall in response to
events that affect entire financial markets or industries (changes in inflation
or consumer demand, for example) and to events that affect particular companies
(news about the success or failure of a new product, for example).
Foreign stocks in general, or stocks of companies in a particular country or
region, may not perform as well as U.S. stocks or the world stock markets in
general.
Investment Style Risk. The price of value stocks may fall, or simply may not
increase very much, if the market does not agree with the subadviser's view of
the value of the stock. Value stocks may not perform as well as growth stocks
or the stock market in general.
Foreign Securities
In addition to the risks associated with equity securities generally, foreign
securities present additional risks.
Regulation and Access to Information. Changes in foreign countries' laws may
harm the performance and liquidity of the Series' investments in those
countries.
Additionally, many countries have less stringent financial reporting
requirements than the United States, so it may be difficult to obtain
information to evaluate the business potential of foreign issuers.
Regional and National Risk. News and events unique to particular regions and
foreign countries will affect non-U.S. markets and issuers. These same events
may not affect the U.S. economy or similar issuers located in the United States
in the same manner. As a result, movements in the prices of foreign securities
may not correlate with the prices of U.S. securities.
B-70
<PAGE>
Currency Risk. As many investments in foreign countries are denominated in
foreign currencies, changes in the value of those countries' currencies
relative to the U.S. dollar may affect the value of those investments. These
changes may occur in response to events unrelated to the value of the security
in the issuer's home country. MSAM may use certain techniques, such as FORWARD
CONTRACTS or FUTURES CONTRACTS, to manage these risks. However, MSAM cannot
assure that these techniques will be effective.
Emerging Markets
International Equity may invest in emerging markets, which are generally
located in the Asia-Pacific Region, Eastern Europe, Latin and South America and
Africa. In addition to the risks of foreign securities described above (which
are potentially greater for emerging markets securities than for other foreign
securities), emerging markets securities may be subject to other risks,
including increased risks of reduced liquidity, high inflation rates, political
uncertainty, high administrative and regulatory costs, repatriation of income
and less advantageous investment terms relative to foreign nationals.
Forward Contracts and Futures
The Series may attempt to avoid the risk of an unfavorable shift in currency
rates by entering into forward contracts or buying or selling futures contracts
or options on futures contracts. In so doing, the Series will also give up the
opportunity for gain from a favorable shift in currency rates. The Series may
also purchase futures contracts (or options on futures contracts) to maintain
exposure to the broad equity markets.
If the price of a futures contract changes more than the price of the security
or index on which the contract is based, International Equity could make or
lose more money than if it had invested directly in the underlying security or
index. This added volatility increases the risk of these investments. In
addition, investors may be unwilling to buy or sell futures contracts under
some market conditions. If this happens, International Equity might not be able
to close out futures transactions without incurring substantial losses.
PORTFOLIO MANAGEMENT
As of December 31, 1999, MSAM, together with its affiliated institutional asset
management companies, managed approximately $184.9 billion in assets. MSAM's
address is 1221 Avenue of the Americas, New York, New York 10020.
Francine J. Bovich, a Managing Director of Morgan Stanley & Co. Incorporated
and MSAM, joined MSAM in 1993. She is primarily responsible for managing
International Equity's portfolio. Prior to joining MSAM, Ms. Bovich was a
Principal and Executive Vice President of Westwood Management Corp., a
registered investment adviser.
During the year ended December 31, 1999, International Equity paid 0.90% of its
average net assets in investment advisory fees.
A FORWARD CONTRACT is an agreement to buy or sell securities or currencies on a
specified future date at a specific price.
A FUTURES CONTRACT is an obligation to buy or sell an asset on a specified
future date, or to pay or receive money based on the value of some securities
index or currency or interest rate on a specified future date. Typically,
futures contracts are traded on an exchange (rather than entered into between
two parties). Futures contracts are one kind of DERIVATIVE.
A DERIVATIVE is a financial instrument whose value is based on (derived from)
changes in the value of something else, such as a currency, an interest rate or
a security.
B-71
<PAGE>
SECTION IV--OTHER INFORMATION ABOUT THE FUND
INVESTMENT ADVISORY SERVICES
All Series except Capital Growth
NEIM was organized in 1994 by New England Financial to serve as the investment
adviser of the Fund. NEIM is located at 501 Boylston Street, Boston,
Massachusetts 02116. Each Series pays NEIM an investment advisory fee. NEIM has
contracted with subadvisers to make the day-to-day investment decisions for
these Series and NEIM pays each subadviser's fees. NEIM is responsible for
overseeing these subadvisers and for making recommendations to the Board of
Trustees of the Fund relating to hiring and replacing subadvisers. NEIM also
provides a full range of administrative and accounting services to these
Series.
Capital Growth
CGM makes the day-to-day investment decisions for Capital Growth. CGM receives
an investment advisory fee from the Fund for its services to Capital Growth.
CGM has subcontracted with and pays NEIM for providing administrative and
accounting services to Capital Growth.
ADVISER/SUBADVISER RELATIONSHIP
The Fund has received an exemptive order from the Securities and Exchange
Commission that permits NEIM to enter into new subadvisory agreements with
either a current or a new subadviser that is not an affiliate of the Fund or
NEIM, without obtaining shareholder approval. The Fund's Board of Trustees must
approve any new subadvisory agreements under this order, and the Fund must
comply with certain other conditions.
The exemptive order also permits the Fund to continue to employ an existing
subadviser without shareholder approval after events that would otherwise cause
an automatic termination of a subadvisory agreement (and the need for a
shareholder vote). This continuation must be approved by the Board of Trustees.
The Fund will notify shareholders of any subadviser changes and any other event
of which notification is required under the order.
PURCHASE AND REDEMPTION OF SHARES
The Separate Accounts may purchase or redeem shares of a Series on each day
that the New York Stock Exchange (the "NYSE") is open for business. The Fund
sells and redeems shares of each Series at the net asset value for that Series
calculated at the close of regular trading on the NYSE, ordinarily 4:00 p.m.
Eastern time each day. These transactions are made on the same day that the
purchase order or redemption request is received by the Fund from the Separate
Accounts. No transactions occur on those days that the NYSE is closed for
trading.
The Fund may suspend the right of redemption for any Series and may postpone
payment for any period when the NYSE is closed for other than weekends or
holidays. The Fund may also postpone payment when trading on the NYSE is
restricted or during an emergency in which disposing of securities or fairly
determining the value of net assets is impracticable. The Fund may also suspend
redemption rights when the SEC permits such suspension for the protection of
investors.
SHARE VALUATION AND PRICING
Net Asset Value
Each Series determines the net asset value of its shares as of the close of
regular trading on each day that the NYSE is open. The net asset value per
share for each Series is calculated by dividing the Series' total net assets by
its number of outstanding shares.
Because foreign exchanges are not always closed at the same time that the NYSE
is closed, the price of securities primarily traded on foreign exchanges may
increase or decrease when the
B-72
<PAGE>
NYSE is closed. Therefore, the net asset value of Series that hold these
securities may change on days that Separate Accounts will not be able to
purchase or redeem Fund shares.
Securities Valuation
The entire Money Market investment portfolio and any fixed-income securities
with remaining maturities of 60 days or less held by any other Series are
valued at amortized cost. Other portfolio securities of each Series normally
are valued at market value. On the rare occasions when no current market value
is available for a portfolio security, the Fund's Board of Trustees is
responsible for making a good faith determination of fair value, although the
Board has delegated responsibility for day-to-day fair value calculations to
CGM, NEIM or the subadvisers of the Series.
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Money Market
Money Market declares its net investment income daily and pays these amounts
monthly as a dividend. Money Market does not expect to realize any long-term
capital gains, but if it does, these gains will be distributed once a year.
Other Series
Currently, each Series other than Money Market annually pays as dividends
substantially all net investment income (including any short-term capital
gains). These Series also annually distribute all net realized capital gains,
if any, after offsetting any capital loss carryovers. Each Series, other than
Money Market, may pay dividends from net investment income more or less often
if the Fund's Board of Trustees deems it appropriate and if such change would
not cause such Series to fail to qualify as a regulated investment company
under the Internal Revenue Code.
Federal income tax law requires each Series to distribute prior to calendar
year-end virtually all of its ordinary income for such year. Also, each Series
must distribute virtually all of its capital gain net income realized but not
previously distributed in the one-year period ending October 31 (or December
31, if the Series so elects) of such year.
Dividends and distributions of each Series are automatically reinvested in
additional shares of that Series.
TAXES
Each Series is a separate entity for federal income tax purposes and intends to
qualify as a regulated investment company under the Internal Revenue Code. So
long as a Series distributes all of its net investment income and net capital
gains to its shareholders, the Series itself does not pay any federal income
tax. Although each Series intends to operate so that it will have no federal
income tax liability, if any such liability is incurred, the investment
performance of such Series will be adversely affected. In addition, Series
investing in foreign securities and currencies may be subject to foreign taxes.
These taxes could reduce the investment performance of such Series.
In order for contract holders to receive the favorable tax treatment that is
generally available to holders of variable annuity and variable life contracts,
the separate accounts underlying such contracts, as well as the Series in which
such accounts invest, must meet certain diversification requirements. Each
Series intends to comply with these requirements. If a Series does not meet
such requirements, income allocable to the variable annuity and variable life
contracts, including accumulated investment earnings, would be taxable
immediately to the holders of such contracts. For a description of the tax
consequences for variable annuity and variable life contract owners, see the
prospectus for those contracts.
B-73
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each Series'
financial performance for the past 5 years (or the life of the Series, for
those Series that have not been in existence for 5 years). Certain information
reflects financial results for a single share of the relevant Series. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Series (assuming reinvestment of all dividends
and distributions). The information for the years ended December 31, 1997
through December 31, 1999 has been audited by Deloitte & Touche, LLP, whose
report for 1999, along with the Fund's financial statements, are included in
the annual report which is available upon request. Prior to 1997,
PricewaterhouseCoopers LLP acted as the Fund's independent accountants and
provided reports which accompanied the financial statements for those periods.
BACK BAY ADVISORS MONEY MARKET SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 100.00 $ 100.00 $ 100.00 $ 100.00 $100.00
-------- -------- -------- -------- -------
Income From Investment
Operations
Net Investment Income....... 4.85 5.13 5.08 4.99 5.50
-------- -------- -------- -------- -------
Total From Investment
Operations................. 4.85 5.13 5.08 4.99 5.50
-------- -------- -------- -------- -------
Less Distributions
Distributions From Net
Investment Income.......... (4.85) (5.13) (5.08) (4.99) (5.50)
-------- -------- -------- -------- -------
Total Distributions......... (4.85) (5.13) (5.08) (4.99) (5.50)
-------- -------- -------- -------- -------
Net Asset Value, End of Year. $ 100.00 $ 100.00 $ 100.00 $ 100.00 $100.00
======== ======== ======== ======== =======
Total Return (%)............. 5.0 5.3 5.3 5.1 5.6
Ratio of Operating Expenses
to Average Net Assets
(%)(a)...................... 0.40 0.45 0.45 0.50 0.50
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 4.89 5.15 5.21 4.99 5.50
Net Assets, End of Year
(000)....................... $307,712 $203,597 $111,009 $116,999 $90,148
The Ratios of Operating
Expenses to Average Net
Assets without giving effect
to a voluntary expense
agreement would have
been (%).................... -- -- -- 0.50 0.51
</TABLE>
- --------
(a) During the fiscal years presented, NEIM voluntarily agreed to bear the
Series' operating expenses (other than advisory fees; "operating expenses"
does not include brokerage costs, interest, taxes, or extraordinary
expenses) in excess on an annual basis of 0.15% of the Series' average
daily net assets. This expense arrangement is no longer in effect.
B-74
<PAGE>
BACK BAY ADVISORS BOND INCOME SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 109.89 $ 108.52 $ 105.63 $ 108.67 $ 95.53
-------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income....... 7.67 6.76 7.43 7.72 7.34
Net Realized and Unrealized
Gain (Loss) on Investments. (8.18) 3.00 4.05 (2.70) 12.85
-------- -------- -------- -------- --------
Total From Investment
Operations................. (0.51) 9.76 11.48 5.02 20.19
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income.......... (7.72) (6.64) (7.51) (7.74) (7.05)
Distributions From Net
Realized Capital Gains..... (0.16) (1.75) (1.08) (0.32) 0.00
In Excess of Net Realized
Gain....................... (0.10) 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total Distributions......... (7.98) (8.39) (8.59) (8.06) (7.05)
-------- -------- -------- -------- --------
Net Asset Value, End of Year. $ 101.40 $ 109.89 $ 108.52 $ 105.63 $ 108.67
======== ======== ======== ======== ========
Total Return (%)............. (0.5) 9.0 10.9 4.6 21.2
Ratio of Operating Expenses
to Average Net Assets (%)... 0.48 0.48 0.52 0.52 0.55
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 7.12 6.66 6.97 7.22 7.22
Portfolio Turnover Rate (%).. 77 82 40 98 73
Net Assets, End of Year (000)
............................ $283,856 $267,791 $202,888 $180,359 $167,712
</TABLE>
B-75
<PAGE>
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $ 11.43 $ 12.01 $ 11.62 $ 10.85 $ 9.74
------- ------- ------- ------- ------
Income From Investment Operations
Net Investment Income............. 0.95 0.80 0.75 0.51 0.58
Net Realized and Unrealized Gain
(Loss) on Investments............ (0.78) (0.56) 0.54 1.05 1.30
------- ------- ------- ------- ------
Total From Investment
Operations................... 0.17 0.24 1.29 1.56 1.88
------- ------- ------- ------- ------
Less Distributions
Distributions From Net Investment
Income........................... (0.93) (0.79) (0.76) (0.60) (0.55)
Distributions From Net Realized
Capital Gains.................... 0.00 (0.02) (0.14) (0.19) (0.22)
Distributions in Excess of Net
Realized Capital Gains........... 0.00 (0.01) 0.00 0.00 0.00
------- ------- ------- ------- ------
Total Distributions........... (0.93) (0.82) (0.90) (0.79) (0.77)
------- ------- ------- ------- ------
Net Asset Value, End of Year...... $ 10.67 $ 11.43 $ 12.01 $ 11.62 $10.85
======= ======= ======= ======= ======
Total Return (%).................. 1.4 2.0 11.1 14.4 19.4
Ratio of Operating Expenses to
Average Net Assets (%)(a)........ 0.81 0.85 0.85 0.85 0.85
Ratio of Net Investment Income to
Average Net Assets (%)........... 8.15 7.20 7.32 7.79 8.39
Portfolio Turnover Rate (%)....... 224 283 258 176 202
Net Assets, End of Year (000) .... $94,910 $95,450 $71,202 $35,808 $9,484
The Ratios of Operating Expenses
to Average Net Assets without
giving effect to the voluntary
expense agreement would have
been (%)......................... -- -- 0.87 1.19 2.44
</TABLE>
- --------
(a) During the fiscal years presented, NEIM voluntarily agreed to reduce its
fees or to bear the operating expenses (does not include brokerage costs,
interest, taxes, or extraordinary expenses) of the Series in excess of an
annual expense limit of 0.85% of the Series' average daily net assets,
subject to the obligation of the Series to repay NEIM such expenses in
future years, if any, when the Series' total operating expenses fall below
this stated expense limit; such deferred expenses may be charged to the
Series in a subsequent year to the extent the charge does not cause the
total operating expenses in such subsequent year to exceed the 0.85%
expense limit; provided, however, that the Series is not obligated to repay
any expense paid by NEIM more than two years after the end of the fiscal
year in which such expense was incurred. This expense arrangement is no
longer in effect.
B-76
<PAGE>
SALOMON BROTHERS U.S. GOVERNMENT SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $ 11.47 $ 11.14 $ 10.83 $ 11.04 $ 9.96
------- ------- ------- ------- ------
Income From Investment Operations
Net Investment Income............. 0.65 0.47 0.53 0.58 0.33
Net Realized and Unrealized Gain
(Loss) on Investments............ (0.62) 0.37 0.40 (0.21) 1.16
------- ------- ------- ------- ------
Total From Investment
Operations................... 0.03 0.84 0.93 0.37 1.49
------- ------- ------- ------- ------
Less Distributions
Distributions From Net Investment
Income........................... (0.66) (0.45) (0.53) (0.56) (0.33)
Distributions From Net Realized
Capital Gains.................... (0.03) (0.06) (0.05) (0.02) (0.08)
Distributions in Excess of Net
Realized Capital Gains........... 0.00 0.00 (0.04) 0.00 0.00
------- ------- ------- ------- ------
Total Distributions........... (0.69) (0.51) (0.62) (0.58) (0.41)
------- ------- ------- ------- ------
Net Asset Value, End of Year...... $ 10.81 $ 11.47 $ 11.14 $ 10.83 $11.04
======= ======= ======= ======= ======
Total Return (%).................. 0.2 7.5 8.6 3.3 15.0
Ratio of Operating Expenses to
Average Net Assets (%)(a)........ 0.70 0.70 0.70 0.70 0.70
Ratio of Net Investment Income to
Average Net Assets (%)........... 5.89 5.70 6.42 6.13 5.62
Portfolio Turnover Rate (%)....... 530 496 572 388 415
Net Assets, End of Year (000)..... $50,967 $45,807 $22,143 $13,211 $7,542
The Ratios of Operating Expenses
to Average Net Assets without
giving effect to the voluntary
expense agreement would have been
(%).............................. 0.72 0.77 0.98 1.37 2.90
</TABLE>
- --------
(a) During the fiscal years presented, NEIM voluntarily agreed to reduce its
fees or to bear the operating expenses (does not include brokerage costs,
interest, taxes, or extraordinary expenses) of the Series in excess of an
annual expense limit of 0.70% of the Series' average daily net assets,
subject to the obligation of the Series to repay NEIM such expenses in
future years, if any, when the Series' total operating expenses fall below
this stated expense limit; such deferred expenses may be charged to the
Series in a subsequent year to the extent the charge does not cause the
total operating expenses in such subsequent year to exceed the 0.70%
expense limit; provided, however, that the Series is not obligated to repay
any expense paid by NEIM more than two years after the end of the fiscal
year in which such expense was incurred.
B-77
<PAGE>
BACK BAY ADVISORS MANAGED SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year........................ $ 207.76 $ 189.85 $ 170.37 $ 163.52 $ 130.30
-------- -------- -------- -------- --------
Income From Investment
Operations
Net Investment Income........ 6.98 6.56 6.38 6.43 6.34
Net Realized and Unrealized
Gain (Loss) on Investments.. 13.48 30.50 38.47 18.21 34.33
-------- -------- -------- -------- --------
Total From Investment
Operations.............. 20.46 37.06 44.85 24.64 40.67
-------- -------- -------- -------- --------
Less Distributions
Distributions From Net
Investment Income........... (6.83) (6.51) (6.42) (6.34) (6.34)
Distributions in Excess of
Net Investment Income....... 0.00 0.00 0.00 0.00 (0.23)
Distributions From Net
Realized Capital Gains...... (24.57) (12.64) (18.95) (11.45) (0.88)
-------- -------- -------- -------- --------
Total Distributions...... (31.40) (19.15) (25.37) (17.79) (7.45)
-------- -------- -------- -------- --------
Net Asset Value, End of Year. $ 196.82 $ 207.76 $ 189.85 $ 170.37 $ 163.52
======== ======== ======== ======== ========
Total Return (%)............. 10.0 19.7 26.6 15.0 31.3
Ratio of Operating Expenses
to Average Net Assets (%)... 0.58 0.58 0.61 0.62 0.64
Ratio of Net Investment
Income to Average Net Assets
(%)......................... 3.16 3.15 3.20 3.64 4.06
Portfolio Turnover Rate (%).. 49 25 65 72 51
Net Assets, End of Year
(000)....................... $218,881 $213,639 $188,783 $160,888 $147,536
</TABLE>
B-78
<PAGE>
BALANCED SERIES(a)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 15.51 $ 14.86 $ 13.55 $ 11.95 $ 9.94
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income......... 0.43 0.38 0.28 0.27 0.26
Net Realized and Unrealized
Gain (Loss) on Investments... (1.21) 0.97 1.90 1.73 2.20
-------- -------- -------- ------- -------
Total From Investment
Operations............... (0.78) 1.35 2.18 2.00 2.46
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (0.43) (0.38) (0.27) (0.27) (0.26)
Distributions From Net
Realized Capital Gains....... (0.26) (0.32) (0.60) (0.13) (0.19)
Distributions in Excess of Net
Realized Capital Gains....... (0.19) 0.00 0.00 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions....... (0.88) (0.70) (0.87) (0.40) (0.45)
-------- -------- -------- ------- -------
Net Asset Value, End of Year.. $ 13.85 $ 15.51 $ 14.86 $ 13.55 $ 11.95
======== ======== ======== ======= =======
Total Return (%).............. (5.1) 9.1 16.2 16.9 24.8
Ratio of Operating Expenses to
Average Net Assets (%)(b).... 0.77 0.82 0.85 0.85 0.85
Ratio of Net Investment Income
to Average Net Assets (%).... 2.83 2.72 2.79 3.08 4.03
Portfolio Turnover Rate (%)... 63 72 60 59 72
Net Assets, End of Year (000). $192,666 $190,577 $137,443 $58,525 $18,823
The Ratios of Operating
Expenses to Average Net
Assets without giving effect
to the voluntary expense
agreement would have been
(%).......................... -- -- 0.86 0.99 1.85
</TABLE>
- --------
(a) On May 1, 2000, Wellington succeeded Loomis Sayles as subadviser to the
Series.
(b) During the fiscal years presented, NEIM voluntarily agreed to reduce its
fees or to bear the operating expenses (does not include brokerage costs,
interest, taxes, or extraordinary expenses) of the Series in excess of an
annual expense limit of 0.85% of the Series' average daily net assets,
subject to the obligation of the Series to repay NEIM such expenses in
future years, if any, when the Series' total operating expenses fall below
this stated expense limit; such deferred expenses may be charged to the
Series in a subsequent year to the extent the charge does not cause the
total operating expenses in such subsequent year to exceed the 0.85%
expense limit; provided, however, that the Series is not obligated to repay
any expense paid by NEIM more than two years after the end of the fiscal
year in which such expense was incurred. This expense arrangement is no
longer in effect.
B-79
<PAGE>
ALGER EQUITY GROWTH SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 25.11 $ 17.62 $ 15.58 $ 13.80 $ 9.56
-------- -------- -------- -------- -------
Income From Investment
Operations
Net Investment Income (Loss).. (0.01) 0.04 0.02 0.04 0.01
Net Realized and Unrealized
Gain (Loss) on Investments... 8.34 8.37 3.92 1.78 4.65
-------- -------- -------- -------- -------
Total From Investment
Operations............... 8.33 8.41 3.94 1.82 4.66
-------- -------- -------- -------- -------
Less Distributions
Distributions From Net
Investment Income............ 0.00 (0.04) (0.02) (0.04) (0.01)
Distributions in Excess of Net
Investment Income ........... (0.01) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains....... (4.09) (0.88) (1.88) 0.00 (0.41)
-------- -------- -------- -------- -------
Total Distributions....... (4.10) (0.92) (1.90) (0.04) (0.42)
-------- -------- -------- -------- -------
Net Asset Value, End of Year.. $ 29.34 $ 25.11 $ 17.62 $ 15.58 $ 13.80
======== ======== ======== ======== =======
Total Return (%).............. 34.1 47.8 25.6 13.2 48.8
Ratio of Operating Expenses to
Average Net Assets (%)(a).... 0.80 0.83 0.87 0.90 0.85
Ratio of Net Investment Income
to Average Net Assets (%).... (0.03) 0.19 0.12 0.24 0.14
Portfolio Turnover Rate (%)... 128 119 137 78 107
Net Assets, End of Year (000). $841,053 $410,726 $205,318 $120,456 $46,386
The Ratios of Operating
Expenses to Average Net
Assets without giving effect
to the voluntary expense
agreement
would have been (%).......... -- -- -- 0.90 2.45
</TABLE>
- --------
(a) During the fiscal years presented, NEIM voluntarily agreed to reduce its
fees or to bear the operating expenses (does not include brokerage costs,
interest, taxes, or extraordinary expenses) of the Series in excess of an
annual expense limit of 0.95% (0.85% prior to January 1, 1996) of the
Series' average daily net assets, subject to the obligation of the Series
to repay NEIM such expenses in future years, if any, when the Series'
operating expenses fall below this stated expense limit; such deferred
expenses may be charged to the Series in a subsequent year to the extent
the charge does not cause the total operating expenses in such subsequent
year to exceed the 0.90% expense limit; provided, however, that the Series
is not obligated to repay any expense paid by NEIM more than two years
after the end of the fiscal year in which such expense was incurred. This
expense arrangement is no longer in effect.
B-80
<PAGE>
CAPITAL GROWTH SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year...... $ 468.03 $ 399.60 $ 427.08 $ 374.62 $ 312.30
---------- ---------- ---------- ---------- --------
Income From Investment
Operations
Net Investment Income... 3.35 5.29 2.52 3.08 3.47
Net Realized and
Unrealized Gain (Loss)
on Investments......... 68.25 130.40 95.67 74.80 114.91
---------- ---------- ---------- ---------- --------
Total From
Investment
Operations......... 71.60 135.69 98.19 77.88 118.38
---------- ---------- ---------- ---------- --------
Less Distributions
Distributions From Net
Investment Income...... (3.33) (5.31) (2.52) (3.08) (3.48)
Distributions From Net
Realized Capital Gains. (101.18) (61.73) (123.15) (22.34) (52.58)
Distributions in Excess
of Net Realized Capital
Gains.................. (0.38) (0.22) 0.00 0.00 0.00
---------- ---------- ---------- ---------- --------
Total Distributions. (104.89) (67.26) (125.67) (25.42) (56.06)
---------- ---------- ---------- ---------- --------
Net Asset Value, End of
Year................... $ 434.74 $ 468.03 $ 399.60 $ 427.08 $ 374.62
========== ========== ========== ========== ========
Total Return (%)........ 15.7 34.1 23.5 21.1 38.0
Ratio of Operating
Expenses to Average Net
Assets (%)............. 0.66 0.66 0.67 0.69 0.71
Ratio of Net Investment
Income to Average Net
Assets (%)............. 0.67 1.18 0.52 0.79 0.92
Portfolio Turnover Rate
(%).................... 206 204 214 207 242
Net Assets, End of Year
(000) ................. $2,064,016 $1,895,748 $1,425,719 $1,142,660 $921,444
</TABLE>
B-81
<PAGE>
DAVIS VENTURE VALUE SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 23.15 $ 20.80 $ 16.09 $ 13.10 $ 9.62
-------- -------- -------- -------- -------
Income From Investment
Operations
Net Investment Income......... 0.12 0.16 0.18 0.13 0.10
Net Realized and Unrealized
Gain (Loss) on Investments... 3.93 2.84 5.20 3.26 3.68
-------- -------- -------- -------- -------
Total From Investment
Operations............... 4.05 3.00 5.38 3.39 3.78
-------- -------- -------- -------- -------
Less Distributions
Distributions From Net
Investment Income............ (0.12) (0.16) (0.14) (0.13) (0.10)
Distributions From Net
Realized Capital Gains....... (0.32) (0.49) (0.53) (0.27) (0.20)
Distribution in Excess of Net
Realized Capital Gain ....... (0.09) 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------
Total Distributions....... (0.53) (0.65) (0.67) (0.40) (0.30)
-------- -------- -------- -------- -------
Net Asset Value, End of Year.. $ 26.67 $ 23.15 $ 20.80 $ 16.09 $ 13.10
======== ======== ======== ======== =======
Total Return (%).............. 17.5 14.4 33.5 25.8 39.3
Ratio of Operating Expenses to
Average Net Assets (%)(a).... 0.81 0.83 0.90 0.90 0.90
Ratio of Net Investment Income
to Average Net Assets (%).... 0.55 0.82 0.94 1.25 1.39
Portfolio Turnover Rate (%)... 22 25 17 18 20
Net Assets, End of Year (000)
............................. $655,599 $440,351 $280,448 $108,189 $35,045
The Ratios of Operating
Expenses to Average Net
Assets without giving effect
to the voluntary expense
agreement would have been
(%).......................... -- -- 0.90 0.96 1.51
</TABLE>
- --------
(a) During the fiscal years presented, NEIM voluntarily agreed to reduce its
fees or to bear the operating expenses (does not include brokerage costs,
interest, taxes, or other extraordinary expenses) of the Series in excess
of an annual expense limit of 0.90% of the Series' average daily net
assets, subject to the obligation of the Series to repay NEIM such expenses
in future years, if any, when the Series' total operating expenses fall
below this stated expense limit; such deferred expenses may be charged to
the Series in a subsequent year to the extent the charge does not cause the
total operating expenses in such subsequent year to exceed the 0.90%
expense limit; provided, however, that the Series is not obligated to repay
any expense paid by NEIM more than two years after the end of the fiscal
year in which such expense was incurred. This expense arrangement is no
longer in effect.
B-82
<PAGE>
HARRIS OAKMARK MID CAP VALUE SERIES(a)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 122.85 $ 170.59 $ 157.88 $142.44 $112.77
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income......... 1.36 1.09 0.00 0.11 0.42
Net Realized and Unrealized
Gain (Loss) on Investments... (0.97) (11.41) 27.12 24.88 33.80
-------- -------- -------- ------- -------
Total From Investment
Operations............... 0.39 (10.32) 27.12 24.99 34.22
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (1.36) (1.09) 0.00 (0.13) (0.40)
Distributions in Excess of net
investment income............ (0.17) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains....... 0.00 (36.08) (14.41) (9.42) (4.15)
Distributions in Excess of Net
Realized Capital Gains....... 0.00 (0.25) 0.00 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions....... (1.53) (37.42) (14.41) (9.55) (4.55)
-------- -------- -------- ------- -------
Net Asset Value, End of Year.. $ 121.71 $ 122.85 $ 170.59 $157.88 $142.44
======== ======== ======== ======= =======
Total Return (%).............. 0.3 (5.5) 17.4 17.6 30.4
Ratio of Operating Expenses to
Average Net Assets (%)(b).... 0.88 0.88 0.85 0.85 0.85
Ratio of Net Investment Income
to Average Net Assets (%).... 1.08 0.66 (0.16) 0.08 0.37
Portfolio Turnover Rate (%)... 119 171 49 65 58
Net Assets, End of Year (000). $109,280 $112,997 $114,617 $82,667 $48,832
The Ratios of Operating
Expenses to Average Net
Assets without giving effect
to the voluntary expense
agreement would have been
(%).......................... -- 0.90 0.86 0.92 1.06
</TABLE>
- --------
(a) On May 1, 2000, Harris succeeded GSAM as subadviser to the Series. On May
1, 1998, GSAM succeeded Loomis, Sayles & Company, L.P. as subadviser to the
Series.
(b) Prior to May 1, 1998, NEIM voluntarily agreed to bear the operating
expenses (other than the advisory fees; "operating expenses" does not
include brokerage costs, interest, taxes or extraordinary expenses) of the
Series in excess on an annual basis of 0.15% of the Series' average daily
net assets. Commencing May 1, 1998, NEIM voluntarily agreed to reduce its
fees or to bear operating expenses of the Series in excess of an annual
expense limit of 0.90% of the Series' average daily net assets, subject to
the obligation of the Series to repay NEIM such expenses in future years,
if any, when the Series' total operating expenses fall below this stated
expense limit; such deferred expenses may be charged to the Series in a
subsequent year to the extent that the charge does not cause the total
operating expenses in such subsequent year to exceed the 0.90% expense
limit; provided, however, that the Series is not obligated to repay any
expense paid by NEIM more than two years after the end of the fiscal year
in which such expense was incurred.
B-83
<PAGE>
LOOMIS SAYLES SMALL CAP SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 153.52 $ 158.92 $ 144.29 $118.80 $ 96.61
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income......... 0.51 1.24 1.22 1.05 0.85
Net Realized and Unrealized
Gain (Loss) on Investments... 48.23 (4.01) 34.11 35.03 26.93
-------- -------- -------- ------- -------
Total From Investment
Operations............... 48.74 (2.77) 35.33 36.08 27.78
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (0.53) (1.24) (1.21) (1.03) (0.78)
Distributions From Net
Realized Capital Gains....... 0.00 (1.32) (19.49) (9.56) (4.81)
Distributions in Excess of Net
Realized Capital Gains....... 0.00 (0.07) 0.00 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions....... (0.53) (2.63) (20.70) (10.59) (5.59)
-------- -------- -------- ------- -------
Net Asset Value, End of Year.. $ 201.73 $ 153.52 $ 158.92 $144.29 $118.80
======== ======== ======== ======= =======
Total Return (%).............. 31.8 (1.7) 24.9 30.7 28.9
Ratio of Operating Expenses to
Average Net Assets (%)(a).... 1.00 1.00 1.00 1.00 1.00
Ratio of Net Investment Income
to Average Net Assets (%).... 0.34 0.88 0.97 1.15 1.26
Portfolio Turnover Rate (%)... 146 111 87 62 98
Net Assets End of Year (000).. $322,318 $238,589 $200,105 $89,194 $27,741
The Ratios of Operating
Expenses to Average Net
Assets without giving effect
to the voluntary expense
agreement would have been
(%).......................... 1.10 1.10 1.14 1.29 1.91
</TABLE>
- --------
(a) During the fiscal years presented, NEIM voluntarily agreed to reduce its
fees or to bear operating expenses of the Series in order to limit the
Series' total operating expenses (does not include brokerage costs,
interest, taxes, or extraordinary expenses) to an annual rate of 1.00% of
the Series' average daily net assets.
B-84
<PAGE>
MFS INVESTORS SERIES
<TABLE>
<CAPTION>
APRIL 30, 1999(a)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
Net Asset Value, Beginning
of Period.................. $10.00
------
Income From Investment
Operations
Net Investment Income....... 0.02
Net Realized and Unrealized
Gain (Loss) on Investments. 0.26
------
Total From Investment
Operations............. 0.28
------
Less Distributions
Distributions From Net
Investment Income.......... (0.02)
------
Total Distributions..... (0.02)
------
Net Asset Value, End of
Period..................... $10.26
======
Total Return (%)............ 2.9 (b)
Ratio of Operating Expenses
to Average Net Assets
(%)(d)..................... 0.90 (c)
Ratio of Net Investment
Income to Average Net
Assets (%)................. 0.45 (c)
Portfolio Turnover Rate (%). 60
Net Assets, End of Period
(000)........................ $6,841
The Ratios of Operating
Expenses to Average Net
Assets without giving
effect to the voluntary
expense agreement would
have been (%).............. 2.03 (c)
</TABLE>
- --------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) During the period presented, NEIM voluntarily agreed to reduce its fees or
to bear the operating expenses (does not include brokerage costs, interest,
taxes, or extraordinary expenses) of the Series in excess of an annual
expense limit of 0.90% of the Series' average daily net assets, subject to
the obligation of the Series to repay NEIM such expenses in future years,
if any, when the Series' total operating expenses fall below this stated
expense limit; such deferred expenses may be charged to the Series in a
subsequent year to the extent the charge does not cause the total operating
expenses in such subsequent year to exceed the 0.90% expense limit;
provided, however, that the Series is not obligated to repay any expense
paid by NEIM more than three years after the end of the fiscal year in
which such expense was incurred.
B-85
<PAGE>
MFS RESEARCH MANAGERS SERIES
<TABLE>
<CAPTION>
APRIL 30, 1999(a)
THROUGH
DECEMBER 31,
1999
-----------------
<S> <C>
Net Asset Value, Beginning of Period......................... $10.00
------
Income From Investment Operations
Net Investment Income........................................ 0.00
Net Realized and Unrealized Gain (Loss) on Investments....... 1.98
------
Total From Investment Operations......................... 1.98
------
Net Asset Value, End of Period............................... $11.98
======
Total Return (%)............................................. 19.8 (b)
Ratio of Operating Expenses to Average Net Assets (%)........ 0.90 (c)
Ratio of Net Investment Income to Average Net Assets (%)..... (0.06)(c)
Portfolio Turnover Rate (%).................................. 84
Net Assets, End of Period (000).............................. $6,872
The Ratios of Operating Expenses to Average Net Assets
without giving effect to the voluntary expense agreement
would have been (%)......................................... 2.03 (c)
</TABLE>
- --------
(a) Commencement of operations.
(b) Not computed on an annualized basis.
(c) Computed on an annualized basis.
(d) During the period presented, NEIM voluntarily agreed to reduce its fees or
to bear the operating expenses (does not include brokerage costs, interest,
taxes, or extraordinary expenses) of the Series in excess of an annual
expense limit of 0.90% of the Series' average daily net assets, subject to
the obligation of the Series to repay NEIM such expenses in future years,
if any, when the Series' total operating expenses fall below this stated
expense limit; such deferred expenses may be charged to the Series in a
subsequent year to the extent the charge does not cause the total operating
expenses in such subsequent year to exceed the 0.90% expense limit;
provided, however, that the Series is not obligated to repay any expense
paid by NEIM more than three years after the end of the fiscal year in
which such expense was incurred.
B-86
<PAGE>
WESTPEAK GROWTH AND INCOME SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 208.34 $ 179.98 $ 151.77 $141.31 $109.03
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income......... 1.78 1.30 1.37 1.78 1.77
Net Realized and Unrealized
Gain (Loss) on Investments... 17.51 42.44 48.76 23.69 37.91
-------- -------- -------- ------- -------
Total From Investment
Operations............... 19.29 43.74 50.13 25.47 39.68
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (1.78) (1.31) (1.35) (1.82) (1.71)
Distributions From Net
Realized Capital Gains....... (27.36) (14.07) (20.57) (13.19) (5.69)
-------- -------- -------- ------- -------
Total Distributions....... (29.14) (15.38) (21.92) (15.01) (7.40)
-------- -------- -------- ------- -------
Net Asset Value, End of Year.. $ 198.49 $ 208.34 $ 179.98 $151.77 $141.31
======== ======== ======== ======= =======
Total Return (%).............. 9.4 24.4 33.5 18.1 36.5
Ratio of Operating Expenses to
Average Net Assets (%)(a).... 0.74 0.78 0.82 0.85 0.85
Ratio of Net Investment Income
to Average Net Assets (%).... 0.94 0.80 0.91 1.40 1.63
Portfolio Turnover Rate (%)... 115 100 93 104 92
Net Assets, End of Year (000). $417,540 $281,557 $152,738 $82,330 $48,129
The Ratios of Operating
Expenses to Average Net
Assets without giving effect
to a voluntary expense
agreement would have been
(%).......................... -- -- -- 0.91 1.06
</TABLE>
- --------
(a) During the fiscal years presented, NEIM voluntarily agreed to bear the
operating expenses of the Series (other than the advisory fees; "operating
expenses" does not include brokerage costs, interest, taxes or
extraordinary expenses) in excess of 0.15% of the Series' average daily net
assets. This expense arrangement is no longer in effect.
B-87
<PAGE>
WESTPEAK STOCK INDEX SERIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year......................... $ 196.33 $ 155.76 $ 119.62 $100.09 $ 75.35
-------- -------- -------- ------- -------
Income From Investment
Operations
Net Investment Income......... 1.94 1.92 1.86 1.91 1.88
Net Realized and Unrealized
Gain (Loss) on Investments... 38.00 41.60 36.95 20.58 25.89
-------- -------- -------- ------- -------
Total From Investment
Operations............... 39.94 43.52 38.81 22.49 27.77
-------- -------- -------- ------- -------
Less Distributions
Distributions From Net
Investment Income............ (1.94) (1.91) (1.86) (1.93) (1.85)
Distributions in Excess of Net
Investment Income............ (0.01) 0.00 0.00 0.00 0.00
Distributions From Net
Realized Capital Gains....... (3.48) (1.04) (0.67) (1.03) (1.18)
Distributions in Excess of Net
Realized Capital Gains....... 0.00 0.00 (0.14) 0.00 0.00
-------- -------- -------- ------- -------
Total Distributions....... (5.43) (2.95) (2.67) (2.96) (3.03)
-------- -------- -------- ------- -------
Net Asset Value, End of Year.. $ 230.84 $ 196.33 $ 155.76 $119.62 $100.09
======== ======== ======== ======= =======
Total Return (%).............. 20.4 27.9 32.5 22.5 36.9
Ratio of Operating Expenses to
Average Net Assets (%)(a).... 0.35 0.37 0.40 0.40 0.40
Ratio of Net Investment Income
to Average Net Assets (%).... 0.99 1.16 1.41 1.84 2.20
Portfolio Turnover Rate (%)... 3 3 3 4 5
Net Assets, End of Year (000)
............................. $269,751 $186,278 $126,584 $80,764 $58,671
The Ratios of Operating
Expenses to Average Net
Assets without giving effect
to a voluntary expense
agreement would have been
(%).......................... -- -- 0.43 0.50 0.54
</TABLE>
- --------
(a) During the fiscal years presented, NEIM voluntarily agreed to bear the
operating expenses (other than advisory fees; "operating expenses" does not
include brokerage costs, interest, taxes or extraordinary expenses) of the
Series in excess on an annual basis of 0.15% of the Series' average daily
net assets. This expense arrangement is no longer in effect.
B-88
<PAGE>
MORGAN STANLEY INTERNATIONAL EQUITY MAGNUM SERIES(a)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $ 11.40 $ 10.86 $ 11.29 $ 10.73 $ 10.23
------- ------- ------- ------- -------
Income From Investment Operations
Net Investment Income............. 0.10 0.14 0.08 0.06 0.09
Net Realized and Unrealized Gain
(Loss) on Investments............ 2.70 0.66 (0.23) 0.68 0.53
------- ------- ------- ------- -------
Total From Investment
Operations................... 2.80 0.80 (0.15) 0.74 0.62
------- ------- ------- ------- -------
Less Distributions
Distributions From Net Investment
Income........................... (0.05) (0.12) (0.09) (0.02) (0.09)
Distributions in Excess of Net
Investment Income................ 0.00 (0.03) 0.00 0.00 (0.03)
Distributions From Net Realized
Capital Gains.................... 0.00 (0.11) (0.08) (0.16) 0.00
Distributions in Excess of Net
Realized Capital Gains........... 0.00 0.00 (0.11) 0.00 0.00
------- ------- ------- ------- -------
Total Distributions........... (0.05) (0.26) (0.28) (0.18) (0.12)
------- ------- ------- ------- -------
Net Asset Value, End of Year...... $ 14.15 $ 11.40 $ 10.86 $ 11.29 $ 10.73
======= ======= ======= ======= =======
Total Return (%).................. 24.6 7.3 (1.3) 6.9 6.0
Ratio of Operating Expenses to
Average Net Assets (%)(b)........ 1.30 1.30 1.30 1.30 1.30
Ratio of Net Investment Income to
Average Net Assets (%)........... 0.84 1.07 0.96 0.67 1.29
Portfolio Turnover Rate (%)....... 59 40 115 64 89
Net Assets, End of Year (000) $99,460 $68,169 $53,035 $39,392 $16,268
The Ratios of Operating Expenses
to Average Net Assets
without giving effect to the
voluntary expense
agreement would have been (%).... 1.30 1.40 1.59 1.66 3.12
</TABLE>
- --------
(a) On May 1, 1997, MSAM succeeded Draycott Partners, Ltd. as investment
subadviser of the Series.
(b) During the fiscal years presented, NEIM voluntarily agreed to reduce its
fees or to bear the operating expenses (does not include brokerage costs,
interest, taxes or extraordinary expenses) of the Series in excess of an
annual expense limit of 1.30% of the Series' average daily net assets,
subject to the obligation of the Series to repay NEIM such expenses in
future years, if any, when the Series' total operating expenses fall below
this stated expense limit; such deferred expenses may be charged to the
Series in a subsequent year to the extent the charge does not cause the
Series' total operating expenses in such subsequent year to exceed the
1.30% expense limit; provided, however, that the Series is not obligated to
repay any expense paid by NEIM more than two years after the end of the
fiscal year in which such expense was incurred.
B-89
<PAGE>
NEW ENGLAND ZENITH FUND
501 BOYLSTON STREET, BOSTON, MASSACHUSETTS 02116
(800) 356-5015
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The Fund's SAI contains more detailed information about the Fund. The SAI is
incorporated by reference into this prospectus, which means that it is a part
of this prospectus for legal purposes.
SHAREHOLDER REPORTS
The Fund's annual and semi-annual reports to shareholders contain additional
information about each Series. The Fund's annual report discusses the market
conditions and investment strategies that significantly affected each Series'
performance during its last fiscal year. The financial statements in the
Fund's most recent annual report to shareholders are incorporated by reference
into this prospectus.
TO OBTAIN COPIES OF THESE MATERIALS:
You may obtain free copies of the SAI or shareholder reports, request other
information about a Series, or make shareholder inquiries by calling toll free
(800) 356-5015 or by writing to New England Securities Corporation, 399
Boylston Street, Boston, Massachusetts 02116.
You may review and copy information about the Fund, including the SAI and
shareholder reports, at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. You may call 1-202-942-8090 for information
about the operation of the Public Reference Room. You may also access reports
and other information about the Fund on the Internet at http://www.sec.gov.
You may get copies of this information, upon payment of a duplication fee, by
electronic request at the following E-mail address: [email protected], or by
writing the Public Reference Station of the Securities and Exchange
Commission, Washington, D.C. 20549-6009.
New England Zenith Fund's Investment Company Act file number is 811-3728.
B-90
<PAGE>
NEW ENGLAND ZENITH FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
This Statement of Additional Information is not a prospectus. This Statement of
Additional Information relates to the prospectuses of New England Zenith Fund
dated May 1, 2000, as any prospectus may be supplemented or amended from time to
time (the "Prospectus"), and should only be read, with respect to a Series,
along with the Prospectus for that Series. A copy of the Prospectus may be
obtained from New England Securities Corporation, 399 Boylston Street, Boston,
Massachusetts 02116.
<PAGE>
TABLE OF CONTENTS
Page
General......................................................................3
Investment Objectives and Policies...........................................3
Investment Restrictions.....................................................12
Investment Practices........................................................14
Resolving Material Conflicts................................................33
Determination of Net Asset Values...........................................34
Fund Performance............................................................36
Expense Deferrals and Limits................................................40
Trustees and Officers.......................................................41
Advisory Arrangements.......................................................43
Distribution Agreement......................................................49
Other Services..............................................................49
Portfolio Transactions and Brokerage........................................50
Code of Ethics..............................................................52
Description of the Fund.....................................................52
Taxes.......................................................................53
Transfer Agent..............................................................54
Financial Statements........................................................55
Appendix A-1 (Description of Bond Ratings)..................................56
Appendix A-2 (Description of Commercial Paper Ratings)......................59
Appendix B..................................................................60
-2-
<PAGE>
GENERAL
Defined terms used in this Statement of Additional Information, but not
defined herein, are used as they are defined in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and principal investment strategies of each
Series (collectively and individually the "Series") of New England Zenith Fund
(the "Fund") are set forth in Sections II and III of the Prospectus. There can
be no assurance that a Series will achieve its investment objective. The
investment policies of each Series set forth in the Prospectus and in this
Statement of Additional Information may be changed without shareholder approval,
except for any policy as to which the Prospectus or this Statement of Additional
Information explicitly indicates that such approval is required.
The terms "shareholder approval" and "approval of a majority of the
outstanding voting securities," as used in the Prospectus and this Statement of
Additional Information, mean, with respect to a Series, approval by the lesser
of (i) 67% of the shares of the Series represented at a meeting at which more
than 50% of the outstanding shares of such Series are represented or (ii) more
than 50% of the outstanding shares of such Series.
MORGAN STANLEY INTERNATIONAL MAGNUM EQUITY SERIES
International Equity seeks long-term capital appreciation through
investment primarily in international equity securities. The production of any
current income is incidental to this objective. Morgan Stanley Asset Management
("MSAM") is subadviser to International Equity. On December 1, 1998, Morgan
Stanley Asset Management Inc. changed its name to Morgan Stanley Dean Witter
Investment Management Inc. but continues to do business under certain
circumstances (including as subadviser to International Equity) using the name
Morgan Stanley Asset Management.
MSAM seeks to achieve International Equity's investment objective by
investing the Series' assets primarily in common and preferred stocks,
convertible securities, rights or warrants to purchase common stocks and other
equity securities of non-U.S. issuers, in accordance with the EAFE country (as
defined below) weightings determined by MSAM. The equity securities in which the
Series may invest may be denominated in any currency.
The countries in which the Series will primarily invest are those
comprising the Morgan Stanley Capital International EAFE Index (the "EAFE
Index"), which include Australia, Japan, New Zealand, most nations located in
Western Europe and certain developed countries in Asia, such as Hong Kong and
Singapore (each an "EAFE country," and collectively the "EAFE countries"). The
Series may invest up to 5% of its assets in non-EAFE countries, including
emerging markets. Under normal circumstances, at least 65% of the total assets
of the Series will be invested in equity securities of issuers in at least three
different EAFE countries.
Although the Series intends to invest primarily in equity securities
listed on a stock exchange in an EAFE country, the Series may invest without
limit in equity securities that are traded over the counter or that are not
admitted to listing on a stock exchange or dealt in on a regulated market. As a
result of the absence of a public trading market, such securities may pose
liquidity risks.
MSAM uses a combination of strategic geographic asset allocation and
fundamental, value-oriented stock selection. Regional allocation decisions are
based on a variety of factors, including relative valuations, earnings
expectations, macroeconomic factors and input from the regional stock selection
teams and from MSAM's Asset AllocationGroup, which is made up of several of
MSAM's most senior investment officers. MASM develops projections that are used
to establish regional allocation strategies. Within these regional allocations,
MSAM then selects equity securities among issuers of a region.
MSAM's approach in selecting among equity securities within a region
comprised of EAFE countries is oriented towards individual stock selection and
is value driven. MSAM identifies those equity securities which it believes to be
undervalued. MSAM's regional specialists analyze each company's finances,
products and management, typically meeting with a company's management before
purchasing that company's stock.
Although the Series anticipates being fully invested in equity securities
of EAFE countries, the Series may invest, under normal circumstances for cash
management purposes, up to 35% of its total assets in certain short-term (less
than twelve months to maturity) and medium-term (not greater than five years to
maturity) debt securities or hold cash.
Although the Series' objective is long-term capital appreciation, it
frequently sells securities to reflect changes in market, industry or individual
company conditions or outlook even though it may only have held those securities
for a short period. As a result of these policies, the Series, under certain
market conditions, may experience high portfolio turnover, although
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specific portfolio turnover rates are impossible to predict. In recent years,
the portfolio turnover rate of the Series has fluctuated considerably as a
result of strategic shifts in portfolio holdings designed to maintain an optimum
portfolio structure in view of general market conditions and movements in
individual stock prices.
ALGER EQUITY GROWTH SERIES
Equity Growth's investment objective is to seek long-term capital
appreciation. The Series' assets will be invested primarily in a diversified,
actively managed portfolio of equity securities, primarily of companies having a
total market capitalization of $1 billion or greater. These companies may still
be in the developmental stage, may be older companies that appear to be entering
a new stage of growth progress, or may be companies providing products or
services with a high unit volume growth rate.
The Series' subadviser, Fred Alger Management, Inc. ("Alger Management"),
seeks to achieve the Series' investment objective by investing in equity
securities, such as common or preferred stocks or securities convertible into or
exchangeable for equity securities, including warrants and rights. Except for
temporary or defensive purposes, the Series invests at least 65% of its total
assets in equity securities of companies that, at the time of purchase of the
securities, have total market capitalization of $1 billion or greater; the
Series may invest up to 35% of its total assets in equity securities of
companies that, at the time of purchase, have total market capitalization of
less than $1 billion. The Series anticipates that it will invest primarily in
companies whose securities are traded on domestic stock exchanges or in the
over-the-counter market.
The Series may invest in bank and thrift obligations, obligations issued
or guaranteed by the U.S. Government or by its agencies or instrumentalities,
foreign bank obligations and obligations of foreign branches of domestic banks,
and variable rate master demand notes.
The Series (with respect to 35% of its total assets) may also purchase
money market instruments and repurchase agreements. With respect to 15% of its
net assets, the Series may purchase restricted securities, including illiquid
securities (but excluding Rule 144A securities deemed liquid by Alger
Management), and may enter into short sales "against the box."
The Series may lend securities it owns so long as such loans do not exceed
331/3% of the Series' total assets.
Although Equity Growth's objective is long-term capital appreciation, it
frequently sells securities to reflect changes in market, industry or individual
company conditions or outlook even though it may only have held those securities
for a short period. As a result of these policies, the Series, under certain
market conditions, may experience high portfolio turnover, although specific
portfolio turnover rates are impossible to predict. In recent years, the
portfolio turnover rate of the Series has fluctuated considerably as a result of
strategic shifts in portfolio holdings designed to maintain an optimum portfolio
structure in view of general market conditions and movements in individual stock
prices.
CAPITAL GROWTH SERIES
Capital Growth seeks long-term growth of capital through investment
primarily in equity securities of companies whose earnings are expected to grow
at a faster rate than the United States economy. Most of the Series' investments
are normally in common stocks, although the Series may invest in any type of
equity securities. Equity securities include common stocks and securities
convertible into common stocks. Equity securities are volatile investments,
subject to price declines as well as advances, and involve greater risks than
some other investment media.
The selection of common stocks for Capital Growth's investment portfolio is
based on the assessment of the Series' adviser, Capital Growth Management
Limited Partnership ("CGM"), that the common stock is attractively priced
relative to its earnings and growth potential.
The Series does not consider current income as a significant factor in
selecting its investments. However, during periods when management considers
that economic or market conditions make it desirable, the Series may take a
defensive position by investing a substantial portion of its assets in cash or
fixed-income securities (bonds, notes and money market instruments). No estimate
can be made as to when or for how long the Series will employ such defensive
strategies; however, in the past, such periods have been as long as one year.
The Series does not currently intend to invest in restricted securities,
options or warrants although, subject to its investment restrictions, it may do
so in the future. See "Investment Restrictions."
Although the Series' objective is long-term capital growth, it frequently
sells securities to reflect changes in market, industry or individual company
conditions or outlook even though it may only have held those securities for a
short period.
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As a result of these policies, the Series, under certain market conditions, may
experience high portfolio turnover, although specific portfolio turnover rates
are impossible to predict. In recent years, the portfolio turnover rate of the
Series has fluctuated considerably as a result of strategic shifts in portfolio
holdings designed to maintain an optimum portfolio structure in view of general
market conditions and movements in individual stock prices.
DAVIS VENTURE VALUE SERIES
Venture Value's investment objective is growth of capital. The Series seeks
to achieve its objective by investing primarily in domestic common stocks that
its subadviser, Davis Selected Advisers, L.P. ("Davis Selected"), believes have
capital growth potential due to factors such as undervalued assets or earnings
potential, product development and demand, favorable operating ratios, resources
expansion, management abilities, reasonableness of market price, and favorable
overall business prospects. The Series will generally invest predominantly in
equity securities of companies with market capitalizations of at least $5
billion. It may also invest in issuers with smaller capitalizations.
The Series may invest in foreign securities, and may hedge currency
fluctuation risks related thereto. The Series may invest in U.S. registered
investment companies that primarily invest in foreign securities, provided that
no such investment may cause more than 10% of the Series' total assets to be
invested in such companies. The Series may invest in restricted securities,
which may include Rule 144A securities.
The Series may write covered call options on its portfolio securities, but
currently intends to write such options only to the extent that less than 5% of
its net assets would be subject to the options.
The Series may lend securities it owns so long as such loans do not exceed
33 1/3% of the Series' net assets.
HARRIS OAKMARK MID CAP VALUE SERIES (FORMERLY GOLDMAN SACHS MIDCAP VALUE SERIES)
Mid Cap Value seeks to provide investors with long-term capital
appreciation. Harris Associates L.P. ("Harris"), Mid Cap Value's subadviser,
invests Mid Cap Value's assets primarily in common stocks of U.S. companies,
although it may invest up to 25% of its total assets (valued at the time of
investment) in non-U.S. dollar-denominated securities of U.S. or foreign
companies (other than securities represented by American Depositary Receipts (as
defined in "Investment Practices - Foreign Equity Depositary Receipts").
Although securities represented by American Depositary Receipts are not subject
to the above referenced 25% restriction, Harris has no present intention to
invest more than 25% of Mid Cap Value's total assets in American Depositary
Receipts and securities of foreign issuers.
Harris may invest Mid Cap Value's assets in debt securities, including
high yield debt (as defined in "Investment Practices - Lower Rated Fixed-income
Securities (High Yield Debt)") and securities that are not rated. There are no
restrictions as to the ratings of debt securities Harris may acquire or the
portion of Mid Cap Value's assets that Harris may invest in debt securities in a
particular ratings category except that Harris will not invest more than 25% of
Mid Cap Value's total assets in high yield debt.
Harris may also invest up to 10% of Mid Cap Value's total assets in the
aggregate in shares of other investment companies and up to 5% of its total
assets in any one investment company, as long as no investment represents more
than 3% of the outstanding voting stock of the acquired investment company at
the time of investment.
Harris may engage in lending of portfolio securities (as defined in
"Investment Practices - Lending of Portfolio Securities") with up to 33 % of Mid
Cap Value's total assets and in short sales (as defined in "Investment Practices
- - Short Sales `Against the Box' ") with up to 20% of its total assets.
Harris may purchase and sell both call options and put options on
securities (as defined in "Investment Practices - Purchasing and Selling Options
on Securities") for Mid Cap Value. Harris does not expect to purchase a call
option or a put option if the aggregate value of all call and put options held
by Mid Cap Value would exceed 5% of its assets. Harris will write call options
and put options for Mid Cap Value only if such options are "covered" (as defined
in Investment Practices - Writing Covered Options").
Harris has the flexibility to respond promptly to changes in market and
economic conditions. In the interest of preserving shareholders' capital, Harris
may employ a temporary defensive investment strategy if it determines such a
strategy to be warranted. Pursuant to such a defensive strategy, Harris may hold
Mid Cap Value's assets in cash (U.S. dollars, foreign currencies, or
multinational currency units) and/or invest up to 100% of its assets in high
quality debt securities or money market instruments of U.S. or foreign issuers.
It is impossible to predict whether, when or for how long Harris will employ
defensive strategies.
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In addition, pending investment of proceeds from new sales of Mid Cap
Value's shares or to meet ordinary daily cash needs, Harris may temporarily hold
Mid Cap Value's assets in cash (U.S. dollars, foreign currencies, or
multinational currency units) and may invest any portion of its assets in money
market instruments.
LOOMIS SAYLES SMALL CAP SERIES
Small Cap's investment objective is long-term capital growth from
investments in common stocks or their equivalents.
Loomis, Sayles & Company, L.P. ("Loomis Sayles") manages the Series by
investing primarily in stocks of small capitalization companies. Normally the
Series will invest 65% of its assets in companies with market capitalization, at
the time of investment, in the range of the market capitalization of those
companies which make up the Russell 2000 Index. The capitalization range of the
Russell 2000 Index will vary due to the market value fluctuations of the stocks
in the Index. The index is reconstituted annually, normally in June. Just
following this reconstitution, the capitalization range of the Index may be
significantly different than it was prior to the reconstitution. (See "Fund
Performance--Fund Comparisons")
Under unusual market conditions as determined by Loomis Sayles, all or
any portion of the Series may be invested, for temporary, defensive purposes, in
short-term debt instruments or in cash. In addition, under normal conditions, a
portion of the Series' assets may be invested in short-term assets for liquidity
purposes or pending investment in other securities. Short-term investments may
include U.S. Government securities, certificates of deposit, commercial paper
and other obligations of corporate issuers rated in the top two rating
categories by a major rating agency or, if unrated, determined to be of
comparable quality by the subadviser, and repurchase agreements that are fully
collateralized by cash, U.S. Government securities or high-quality money market
instruments.
MFS INVESTORS SERIES
The Investors Series' investment objective is to provide reasonable
current income and long-term growth of capital and income.
Under normal conditions, Massachusetts Financial Services Company
("MFS") will invest at least 65% of the Series' total assets in equity
securities of companies that are believed to have long-term prospects for growth
and income.
Consistent with its investment objective and policies described above,
the Series may also invest up to 20% of its net assets in foreign securities
(including ADRs) which are not traded on a U.S. exchange.
MFS RESEARCH MANAGERS SERIES
The Research Managers Series' investment objective is to provide
long-term growth of capital and future income.
The portfolio securities of the Series are selected by a committee of
investment research analysts. This committee includes investment analysts
employed by MFS and its affiliates. The Series' assets are allocated among
industries by the analysts acting together as a group. Individual analysts are
then responsible for selecting what they view as the securities best suited to
meet the Series' investment objective with their assigned industry
responsibility.
The Series policy is to invest a substantial proportion of its assets
in equity securities of companies believed to possess better than average
prospects for long term growth. A small proportion of the assets may be invested
in bonds, short-term obligations, preferred stocks or common stocks whose
principal characteristic is income production rather than growth. Such
securities may also offer opportunities for growth of capital as well as income.
In the case of both growth stocks and income issues, emphasis is placed on
selection on progressive, well-managed companies. The Series' non-convertible
debt investments, if any, may consist of "investment grade" securities (rated
Baa or better by Moody's or better by S&P or by Fitch), and, with respect to no
more than 10% of the Series' net assets, securities in the lower rated
categories (rated Ba or lower by Moody's or BB or lower by S&P, by Fitch or by
Duff & Phelps) or securities which the adviser believes to be of similar quality
to these lower rated securities (commonly known as "junk bonds"). For a
description of bond ratings, see Appendix A to this SAI.
Consistent with this investment objective and policies described above, the
Series may also invest up to 20% of its net assets in foreign securities
(including ADRs and emerging market securities) which are not traded on a U.S.
exchange.
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WESTPEAK GROWTH AND INCOME SERIES
As disclosed in the Prospectus, Growth and Income seeks long-term total
return (capital appreciation and dividend income) through investment in equity
securities, both in securities that the Series' subadviser, Westpeak Investment
Advisors, L.P. ("Westpeak"), believes are undervalued ("value" style) and
securities of companies that Westpeak believes have growth potential ("growth"
style). Growth and Income will ordinarily invest substantially all of its assets
in equity securities.
The Series may engage in transactions in futures contracts solely for the
purpose of maintaining full exposure of the portfolio to the movements of broad
equity markets at times when the Series holds a cash position pending investment
in stocks or in anticipation of redemptions.
Although Growth and Income's objective is long-term total return, it may
sell securities to reflect changes in Westpeak's assessment of the relative
attractiveness of particular investments. As a result, Growth and Income, under
certain market conditions, may experience high portfolio turnover. High
portfolio turnover involves correspondingly higher brokerage commissions than
would be experienced by a similar fund with lower turnover.
The assets of Growth and Income that are not invested in equity securities
will be held in cash or invested as described below under "Investment
Practices--Money Market Instruments."
WESTPEAK STOCK INDEX SERIES
As disclosed in the Prospectus, Stock Index is designed to replicate the
performance of the S&P 500 Index.
The S&P 500 Index is composed of 500 common stocks, most of which are
listed on the New York Stock Exchange. Standard & Poor's, which is not a sponsor
of or in any other way affiliated with the Series, chooses the 500 stocks
included in the S&P 500 Index on the basis of market value and industry
diversification. The S&P 500 Index assigns relative values to the stocks
included in the index, weighted according to each stock's total market value
relative to the total market value of the other stocks included in the index.
The stocks included in the S&P 500 Index may change from time to time.
Stock Index is not managed through traditional methods of investment
management, which typically attempt to use economic, financial and market
analysis to select undervalued stocks or stocks of companies that may experience
above-average growth, nor will the adverse financial situation of a company
necessarily result in the elimination of its stock from Stock Index's portfolio.
As described in the Prospectus, stocks will be selected in an attempt to mirror
the performance of the S&P 500 Index. From time to time, adjustments may be made
in Stock Index's investment portfolio, but such changes should be infrequent
compared to those of most management investment companies. Westpeak currently
expects that such adjustments will ordinarily be made on a monthly basis, but
such adjustments could be made more or less frequently, depending on changes in
the size of Stock Index, among other factors. As a consequence of the relative
infrequency of portfolio adjustments, brokerage and other transaction costs are
expected to be relatively low. However, these costs and other expenses may cause
the return of Stock Index to be lower than the return of the S&P 500 Index. In
addition, the relative infrequency of portfolio adjustments may result in
increased tracking error, to the extent that new cash that has come into the
Series is held, or invested in money market instruments and repurchase
agreements, pending the next portfolio adjustment, rather than invested
immediately in common stocks included in the S&P 500.
It is Stock Index's policy to be fully invested in common stocks. However,
Stock Index may hold a portion of its assets, which will not exceed 5% (not
including additional cash that has come into the Series and is pending
investment in common stocks), in cash to meet redemptions and other day-to-day
operating expenses. The Series may also engage in futures transactions to reduce
tracking error. ("Tracking error" is a statistical measure of the difference
between the investment results of the Series, before taking into account the
Series' expenses, and the investment results of the S&P 500 Index.) In addition,
the Stock Index may invest cash temporarily in money market instruments and
repurchase agreements, as described below under "Investment Practices -- Money
Market Instruments". Such temporary investments will only be made with cash held
to maintain liquidity or pending investment, and will not be made for defensive
purposes in the event or in anticipation of a general decline in the market
prices of stocks in which the Series invests. A defensive investment posture is
precluded by the Stock Index's investment objective to provide investment
results that correspond to the composite price and yield performance of the S&P
500 Index. Investors in Stock Index therefore bear the risk of a general decline
in the value of the S&P 500 Index.
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Stock Index is not sponsored, endorsed, sold or promoted by Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no
representation or warranty, express or implied, to the owners of Stock Index or
any member of the public regarding the advisability of investing in securities
generally or in Stock Index particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to the
Metropolitan Life Insurance Company (the "Licensee") is S&P's grant of
permission to Licensee to use the S&P 500 Index which is determined, composed
and calculated by S&P without regard to the Licensee or Stock Index. S&P has no
obligation to take the needs of the Licensee or the owners of Stock Index into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of Stock Index or the timing of the issuance or sale of Stock Index
or in the determination or calculation of the equation by which Stock Index is
to be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of Stock Index.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WRRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF STOCK INDEX, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
BALANCED SERIES (FORMERLY LOOMIS SAYLES BALANCED SERIES)
The Balanced Series' investment objective is long-term total return from a
combination of capital appreciation and current income.
No more than 5% of the fixed income portfolio will be invested in non-U.S.
dollar denominated securities (other than investment positions hedged back into
the U.S. dollar).
BACK BAY ADVISORS MANAGED SERIES
The investment objective of the Managed Series is to provide a favorable
total investment return through investment in a diversified portfolio. The
Series portfolio is expected to include a mix of common stocks and notes and
bonds. These investments will be made in proportions that Back Bay Advisors
deems appropriate for an investor who wishes to invest in a portfolio containing
a diversified mix of assets.
It is expected that more often than not the investment portfolio of the
Series will contain a higher proportion of common stocks than of notes and
bonds. However, Back Bay Advisors will make variations in the proportions of
each investment category in accordance with its assessment of the outlook for
the economy and the financial markets and its judgment about the relative
attractiveness of each asset type in light of economic conditions. The Series
may also engage in futures transactions to manage its portfolio exposure to the
risks of investment in common stocks or notes and bonds.
The investment practices with respect to the common stock portion of the
Series center upon selecting a portfolio of securities, drawn from the S&P 500
Index, which taken as a group can be characterized as high capitalization growth
issues. A proprietary quantitative model is used to achieve an industry
sector-neutral investment approach. In addition, as conditions warrant, a
portion of the stock portfolio may be invested in low P/E situations, as
identified by Back Bay Advisors' quantitative model. In the future, however, the
Series may, without shareholder approval, select a stock index other than the
S&P 500 Index as the standard of comparison for the Series' common stock
investments, or discontinue the practice of using a stock index as the standard
of comparison for the common stock portion of the Series' portfolio. The Series
may invest a limited portion of its assets in securities of foreign issuers and
may invest in convertible securities.
The portion of Managed Series' investment portfolio consisting of notes and
bonds will be invested in bonds of the types in which Bond Income is permitted
to invest. These investments may include bonds rated B or higher by S&P or
Moody's (or unrated bonds of similar quality). The risks associated with lesser
rated and unrated bonds, commonly known as "high yield debt" or "junk bonds,"
are described under the heading "Investment Practices." The Series will purchase
and sell securities for the bond portion of its portfolio in anticipation of or
in response to changes in yield relationships, markets or
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economic conditions. The bond portion of the Series' investment portfolio will
also be invested to take advantage of temporary disparities in the relative
values of certain sectors of the market for fixed-income securities. As a result
of these policies, the bond portion of the Series' portfolio, under certain
market conditions, may experience high portfolio turnover.
Because the securities in its portfolio are subject to price declines as
well as price advances, at times the net asset value per Managed Series share
may be less than a shareholder's original cost. There can be no assurance that
the Managed Series' investment objective will be attained.
SALOMON BROTHERS STRATEGIC BOND OPPORTUNITIES SERIES
The investment objective of Strategic Bond is to seek a high level of
total return consistent with preservation of capital.
Based upon the assessment by Salomon Brothers Asset Management Inc
("SBAM") of the relative risks and opportunities available in various market
segments, assets will be allocated among U.S. Government obligations, mortgage
backed securities, domestic and foreign corporate debt and sovereign debt
securities rated investment grade (BBB or higher by S&P or Baa or higher by
Moody's), or if unrated, but deemed to be of comparable quality in the
subadviser's judgment, and domestic and foreign corporate debt and sovereign
debt securities rated below investment grade. The Series may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
foreign sovereign entity and one or more financial institutions, in the form of
participation in such Loans and assignments of all or a portion of such loans
from third parties. See "Investment Practices--Loan Participations and
Assignments" below.
Depending on market conditions, the Series may invest without limit in
high yield debt, which involve significantly greater risks, including price
volatility and risk of default in the payment of interest and principal, than
investments in higher-quality securities. Although SBAM does not anticipate
investing in excess of 75% of the Series' assets in domestic and developing
country debt securities that are rated below investment grade, the Series may
invest a greater percentage in such securities when, in the opinion of the
subadviser, the yield available from such securities outweighs their additional
risks. Certain of the debt securities in which the Series may invest may be
rated as low as "C" by Moody's or "D" by S&P or, if unrated, determined to be of
comparable quality to securities so rated. Securities rated below investment
grade quality are considered high yield, high risk securities and are commonly
known as "high yield debt" or "junk bonds." See "Investment Practices--Lower
Rated Fixed-Income Securities" below. See Appendix A for more complete
information on bond ratings.
In addition, the Series may invest in securities issued or guaranteed as
to principal or interest by the U.S. Government or its agencies or
instrumentalities, including mortgage backed securities, and may also invest in
preferred stocks, convertible securities (including those issued in the
Euromarket), securities carrying warrants to purchase equity securities,
privately placed debt securities, stripped mortgage securities, zero coupon
securities and inverse floaters.
The Series may, and SBAM anticipates that under certain market conditions
it will, invest up to 100% of its assets in foreign securities, including Brady
Bonds. Brady Bonds are debt obligations created through the exchange of
commercial bank loans for new obligations under a plan introduced by former U.S.
Treasury Secretary Nicholas Brady. See "Investment Practices--High Yield/High
Risk Foreign Sovereign Debt Securities" below. There is no limit on the value of
the Series' assets that may be invested in the securities of any one country or
in assets denominated in any one country's currency.
The Series may also invest in debt obligations issued or guaranteed by a
foreign sovereign government or one of its agencies or political subdivisions
and debt obligations issued or guaranteed by supranational entities.
Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the European Coal and Steel Community, the Asian
Development Bank and the Inter-American Development Bank. Such supranational
issued instruments may be denominated in multi-national currency units.
The Series currently intends to invest substantially all of its assets in
fixed-income securities. In order to maintain liquidity, the Series may invest
up to 20% of its assets in high-quality short-term money market instruments,
provided, however, that short-term investment in securities for the forward
settlement of trades is not included in this 20%.
The Series' subadviser has the discretion to select the range of
maturities of the various fixed-income securities in which the Series will
invest. The weighted average maturity and the duration of the Series may vary
substantially from time to time depending on economic and market conditions.
The Series may purchase and sell (or write) exchange-listed and
over-the-counter put and call options on securities, financial futures
contracts, fixed-income indices and other financial instruments, enter into
financial futures contracts, enter
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into interest rate transactions and enter into currency transactions. Interest
rate transactions may take the form of swaps, structured notes, caps, floors and
collars, and currency transactions may take the form of currency forward
contracts, currency futures contracts, currency swaps and options on currencies
or currency futures contracts.
The Series may lend securities it owns so long as such loans do not
represent more than 20% of the Series' assets.
Although the Series' investment objective is a high level of total return
consistent with the preservation of capital, it frequently sells securities to
reflect changes in market, industry or individual company conditions or outlook
even though it may only have held those securities for a short period. As a
result of these policies, the Series, under certain market conditions, may
experience high portfolio turnover, although specific portfolio turnover rates
are impossible to predict. In recent years, the portfolio turnover rate of the
Series has fluctuated considerably as a result of strategic shifts in portfolio
holdings designed to maintain an optimum portfolio structure in view of general
market conditions and movements in individual stock prices. The Series' use of
reverse repurchase agreements and dollar rolls leads to higher portfolio
turnover rates, which involve higher expenses.
BACK BAY ADVISORS BOND INCOME SERIES
The investment objective of the Series is to provide a high level of
current income consistent with protection of capital. In general, fixed-income
securities, such as the bonds in which the Series may invest, are subject to
credit risk (the risk that the obligor will default in the payment of principal
and/or interest) and to market risk (the risk that the market value of the
securities will change as a result of changes in market rates of interest). The
Series may also invest in convertible securities and Rule 144A securities.
At least 80% of the Series' assets will consist of securities rated AAA,
AA, A, or BBB by S&P or Aaa, Aa, A or Baa by Moody's, or unrated but determined
by Back Bay Advisors, the Series' subadviser, to be of comparable quality to
securities in those rating categories. The Series may not invest more than 10%
of its total assets in non-dollar obligations of foreign issuers. The Series
will invest in these securities only when Back Bay Advisors believes the
associated risks are minimal.
Securities rated B or lower by S&P or Moody's (or unrated but determined
to be of comparable quality by Back Bay Advisors) are considered high yield,
high risk securities and are commonly known as "high yield debt" or "junk
bonds." If a security held by the Series is downgraded below B, Back Bay
Advisors will determine at that time whether the Series will continue to hold
the security, taking into account the current conditions. See Appendix A for
more complete information on bond ratings.
The Series may lend securities it owns so long as such loans do not exceed
15% of the Series' assets.
Although the Series' investment objective is a high level of total return
consistent with protection of capital, it frequently sells securities to reflect
changes in market, industry or individual company conditions or outlook even
though it may only have held those securities for a short period. As a result of
these policies, the Series, under certain market conditions, may experience high
portfolio turnover, although specific portfolio turnover rates are impossible to
predict. In recent years, the portfolio turnover rate of the Series has
fluctuated considerably as a result of strategic shifts in portfolio holdings
designed to maintain an optimum portfolio structure in view of general market
conditions and movements in individual stock prices.
SALOMON BROTHERS U.S. GOVERNMENT SERIES
The U.S. Government Series' investment objective is to provide a high
level of current income consistent with preservation of capital and maintenance
of liquidity.
SBAM seeks to achieve the Series' investment objective by investing
primarily in debt obligations (including mortgage backed securities) issued or
guaranteed by the U.S. Government or its agencies, authorities or
instrumentalities, or repurchase agreements or derivative securities (such as
collateralized mortgage obligations) backed by such securities.
At least 80% of the total assets of the Series will be invested in:
(1) mortgage backed securities guaranteed by the Government National
Mortgage Association ("GNMA") which are supported by the full faith and
credit of the U.S. Government. Such securities entitle the holder to
receive all interest and principal payments when due, whether or not
payments are actually made on the underlying mortgages;
(2) U.S. Treasury obligations;
-10-
<PAGE>
(3) debt obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government which are backed by their own
credit but are not necessarily backed by the full faith and credit of the
U.S. Government;
(4) mortgage-related securities guaranteed by agencies or
instrumentalities of the U.S. Government which are supported by their own
credit but not the full faith and credit of the U.S. Government, such as
the Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association ("FNMA");
(5) repurchase agreements collateralized by any of the above; and
(6) collateralized mortgage obligations issued by private issuers for
which the underlying mortgage backed securities serving as collateral are
backed (i) by the credit of the U.S. Government agency or instrumentality
which issues or guarantees the mortgage backed securities, or (ii) by the
full faith and credit of the U.S. Government.
Under normal market conditions, at least 65% of the Series' assets will be
invested in securities issued or guaranteed by the U.S. Government or an agency,
authority or instrumentality thereof. For purposes of this policy, securities
(including repurchase agreements and collateralized mortgage obligations) that
are not issued or guaranteed by the U.S. Government or an agency, authority or
instrumentality will not count toward the 65% minimum, even if they are backed
by mortgages (or other collateral) that are so guaranteed.
Any guarantee of the securities in which the Series invests runs only to
principal and interest payments on the securities and not to the market value of
such securities or the principal and interest payments on the underlying
mortgages. In addition, the guarantee runs to the portfolio securities held by
the Series and not to the purchase of shares of the Series.
The Series may purchase or write options on securities, options on
securities indices and options on futures contracts and may buy or sell futures
on financial instruments and securities indices.
Up to 20% of the assets of the Series may be invested in marketable debt
securities of domestic issuers and of foreign issuers (payable in U.S. dollars)
rated at the time of purchase Baa or higher by Moody's or BBB or higher by S&P,
or, if unrated, deemed by SBAM to be of comparable quality, convertible
securities (including those issued in the Euromarket), securities carrying
warrants to purchase equity securities and privately placed debt securities.
The Series may lend securities it owns so long as such loans do not
represent more than 20% of the Series' assets.
Although the Series' objective is a high level of total return consistent
with the preservation of capital, it frequently sells securities to reflect
changes in market, industry or individual company conditions or outlook even
though it may only have held those securities for a short period. As a result of
these policies, the Series, under certain market conditions, may experience high
portfolio turnover, although specific portfolio turnover rates are impossible to
predict. In recent years, the portfolio turnover rate of the Series has
fluctuated considerably as a result of strategic shifts in portfolio holdings
designed to maintain an optimum portfolio structure in view of general market
conditions and movements in individual stock prices.
BACK BAY ADVISORS MONEY MARKET SERIES
Money Market seeks the highest possible level of current income
consistent with preservation of capital through investment in a managed
portfolio of high quality money market instruments including: (1) obligations
backed by the full faith and credit of the United States Government, such as
bills, notes and bonds issued by the U.S. Treasury or by such government
agencies as the Farmers' Home Administration or the Small Business
Administration; (2) other obligations issued or guaranteed by the United States
Government or its agencies, authorities or instrumentalities, such as
obligations of the Tennessee Valley Authority, Federal Land Banks and FNMA
(together with full faith and credit obligations, "U.S. Government Securities");
(3) commercial paper and other corporate debt obligations rated in the highest
rating category by S&P or Moody's or, if unrated, of comparable quality as
determined by Back Bay Advisors, the Series' subadviser, under guidelines
approved by the Fund's Trustees; (4) repurchase agreements relating to any of
the above and (5) obligations of banks or savings and loan associations (such as
bankers' acceptances and certificates of deposit, including Eurodollar
obligations of foreign branches of U.S. banks and U.S. dollar denominated
obligations of U.S. and United Kingdom branches of foreign banks) whose net
assets exceed $100,000,000.
The Series may invest up to 100% of its assets in certificates of deposit,
bankers' acceptances and other bank obligations.
-11-
<PAGE>
By investing only in high quality, short-term securities, the Series seeks
to minimize credit risk and market risk. Credit risk is the risk that the
obligor will default in the payment of principal and/or interest. In a
repurchase agreement transaction, credit risk relates to the performance by the
other party of its obligation to repurchase the underlying security from the
Series. If the other party defaults on that obligation, the Series may face
various delays and risks of loss. Market risk is the risk that the market value
of the securities will change as a result of changes in market rates of interest
or other factors. The Series expects that those changes will be relatively small
and that the Series will be able to maintain the net asset value of its shares
at a constant level of $100, although this cannot be assured.
The U.S. dollar-denominated obligations of foreign branches of U.S. banks
and U.S. and United Kingdom branches of foreign banks in which the Series may
invest may be subject to certain risks which do not apply to investments in
obligations of domestic branches of U.S. banks. These risks may relate to
foreign economic, political and legal developments and to the fact that foreign
banks and foreign branches of U.S. banks may be subject to different regulatory
requirements.
For a fuller description of those money market instruments and some of
the risks relating thereto, see "Investment Practices - Money Market
Instruments" below. Money Market will invest only in securities which the
Series' subadviser acting pursuant to guidelines established by the Fund's Board
of Trustees, has determined are of high quality and present minimal credit risk.
All the Series' investments mature in less than 397 days and the average
maturity of the Series' portfolio securities based on their dollar value will
not exceed 90 days at the time of each investment. Money market instruments
maturing in less than 397 days, tend to yield less than obligations of
comparable quality having longer maturities. See "Determination of Net Asset
Values" and "Fund Performance." Where obligations of greater than one year are
used to secure the Series' repurchase agreements, the repurchase agreements
themselves will have very short maturities. If the disposition of a portfolio
security results in a dollar-weighted average portfolio maturity in excess of 90
days, the Series will invest its available cash in such a manner as to reduce
its dollar-weighted average portfolio maturity to 90 days or less as soon as
reasonably practicable.
In seeking to provide the highest possible level of current income
consistent with preservation of capital, the Series may not necessarily invest
in money market instruments paying the highest available yield at a particular
time. The Series, consistent with its investment objective, attempts to maximize
income by engaging in portfolio trading and by buying and selling portfolio
investments in anticipation of or in response to changing economic and money
market conditions and trends. The Series may also invest to take advantage of
what are believed to be temporary disparities in the yields of different
segments of the high grade money market or among particular instruments within
the same segment of the market. These policies, as well as the relatively short
maturity of obligations to be purchased by the Series, may result in frequent
changes in the Series' investment portfolio of money market instruments.The
value of the securities in the Series' investment portfolio can be expected to
vary inversely to changes in prevailing interest rates. Thus, if interest rates
increase after a security is purchased, that security, if sold, might be sold at
less than cost. Conversely, if interest rates decline after purchase, the
security, if sold, might be sold at a profit. In either instance, if the
security were held to maturity, no gain or loss would normally be realized as a
result of these fluctuations. Substantial redemptions of shares of the Series
could require the sale of portfolio investments at a time when a sale might not
be desirable.
INVESTMENT RESTRICTIONS
The following is a description of fundamental and nonfundamental
restrictions on the investments to be made by the sixteen Series. Fundamental
restrictions may not be changed without the approval of a majority of the
-------
outstanding voting securities of the relevant Series. Nonfundamental
restrictions may be changed without such vote. Percentage tests regarding any
---
investment restriction apply only at the time of a Series is making that
investment. State insurance laws and regulations may impose additional
limitations on a Series' investments, including its ability to borrow, lend, and
use options, futures, and other derivative instruments. In addition, these laws
may require that a Series' investments meet additional diversification or other
requirements.
FUNDAMENTAL INVESTMENT RESTRICTIONS
NO SERIES WILL:
1. Borrow money, except to the extent permitted by applicable law,
regulation or order;
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<PAGE>
2. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under certain federal securities laws;
3. Purchase or sell real estate, except that, consistent with its
investment policies, the Series may purchase securities of issuers which deal in
real estate, securities which are secured by interests in real estate, and
securities which represent interests in real estate, and it may acquire and
dispose of real estate or interests in real estate acquired through the exercise
of its rights as a holder of debt obligations secured by real estate or
interests therein;
4. Purchase or sell commodities or commodity contracts, except that,
consistent with its investment policies, the Series may purchase and sell
financial futures contracts and options and may enter into swap agreements,
foreign exchange contracts and other financial transactions not requiring the
delivery of physical commodities;
5. Make loans, except by purchasing debt obligations in which the
Series may invest consistent with its investment policies, by entering into
repurchase agreements, by lending its portfolio securities, or as otherwise
permitted by applicable law, regulation or order;
6. Purchase securities (other than (i) securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities, (ii) securities of a
registered investment company, and (iii) in the case of Money Market, bank
instruments issued by domestic banks and U.S. branches of foreign banks) if, as
a result of such purchase, more than 25% of the total assets of the Series (as
of the time of investment) would be invested in any one industry, except to the
extent permitted by applicable law, regulation or order; or
7. Issue any senior securities except to the extent permitted by
applicable law, regulation or order. (For purposes of this restriction,
collateral arrangements with respect to any type of swap, option, forward
contract or future contract and collateral arrangements with respect to initial
and variation margin are not deemed to involve the issuance of a senior
security).
NONFUNDAMENTAL INVESTMENT RESTRICTIONS
NO SERIES WILL:
1. Invest in securities of other investment companies except to the
extent permitted by applicable law, regulation or order;
2. Invest more than 15% (10% in the case of Money Market) of the value
of the net assets of the Series in illiquid securities (as of the time of
investment), including variable amount master demand notes (if such notes
provide for prepayment penalties) and repurchase agreements with remaining
maturities in excess of seven days. (If, through a change in security values or
net assets, or due to other circumstances, the value of illiquid securities held
by the Series exceeds 15% (10% in the case of Money Market) of the value of the
net assets of the Series, the Series shall consider appropriate steps to protect
liquidity);
3. Sell securities short or purchase any securities on margin, except
to the extent permitted by applicable law, regulation or order;
4.* With respect to 75% of its total assets, invest in the securities
of any issuer if, immediately after such investment, more than 5% of the total
assets of the Series would be invested in the securities of such issuer;
provided that this limitation does not apply to obligations issued or guaranteed
as to interest or principal by the U.S. government or its agencies or
instrumentalities, or to securities of any registered investment company; or
5.* With respect to 75% of its total assets, acquire more than 10% of
the outstanding voting securities of any issuer (as of the time of acquisition).
*Does not apply to Harris Oakmark Mid Cap Value Series.
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<PAGE>
VARIABLE CONTRACT RELATED INVESTMENT RESTRICTIONS
Separate accounts supporting variable life insurance and variable annuity
contracts are subject to certain diversification requirements imposed by
regulations adopted under the Code. Because the Fund is intended as an
investment vehicle for variable life insurance and variable annuity separate
accounts, Section 817(h) of the Internal Revenue Code requires that the Fund's
investments, and accordingly the investments of each Series, be "adequately
diversified" in accordance with regulations promulgated by the Department of the
Treasury. Failure to do so means the variable life insurance and variable
annuity contracts would cease to qualify as life insurance and annuities for
federal tax purposes. Regulations specifying the diversification requirements
have been issued by the Department of the Treasury. The Fund intends to comply
with these requirements.
INVESTMENT PRACTICES
The following information relates to some of the investment practices in
which certain Series may engage. The table indicates which Series may engage in
each of these practices.
<TABLE>
<CAPTION>
Practices Series
- --------- ------
<S> <C>
Equity Securities Small Cap, International Equity, Equity Growth, Capital Growth,
Mid Cap Value, Venture Value, Growth and Income, Stock Index,
Balanced, Managed, Investors, Research Managers
Convertible Securities International Equity, Equity Growth, Capital Growth, Mid Cap
Value, Balanced, Managed, Strategic Bond, Bond Income,
Investors, Research Managers
Fixed-income Securities All Series except Stock Index
Money Market Instruments All Series except Stock Index
U.S. Government Securities All Series except Investors
Privately Issued Mortgage Securities Strategic Bond, U.S. Government, Balanced
Adjustable Rate Mortgage Securities Balanced, Strategic Bond, U.S. Government,
Collateralized Mortgage Obligations Balanced, Managed, Strategic Bond, Bond Income
Stripped Mortgage Securities Balanced, Strategic Bond, U.S. Government
Asset-backed Securities Balanced, Strategic Bond, U.S. Government
Zero Coupon Securities Balanced, Managed, Strategic Bond, U.S. Government, Investors
Lower Rated Fixed Income Securities Mid Cap Value, Balanced, Managed, Strategic Bond, Bond Income,
(High Yield Debt) Research Managers
Foreign Securities All Series except Stock Index
High Yield/High Risk Foreign Sovereign Debt Mid Cap Value, Strategic Bond, Investors, Balanced, Managed,
Securities Bond Income
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Practices Series
- --------- ------
<S> <C>
Brady Bonds All Series except Stock Index
Foreign Equity Depositary Receipts Small Cap, International Equity, Equity Growth, Capital Growth,
Mid Cap Value, Venture Value, Growth and Income, Balanced,
Managed, Investors, Research Managers
Foreign Currency Transactions, including Forward All series except Stock Index (Research Managers may not
Contracts, Futures and Options engage in futures or purchase or write options)
Emerging Markets Mid Cap Value, Strategic Bond, Investors, Research Managers,
International Equity, Balanced, Managed, Bond Income
Obligations of Supranational Agencies All Series except Stock Index
Illiquid Securities All Series except Stock Index
Rule 144A Securities All Series except Stock Index
Real Estate Investment Trusts Small Cap, International Equity, Equity Growth, Capital Growth,
Mid Cap Value, Venture Value, Growth and Income, Stock Index,
Balanced, Managed
Investment Company Securities All Series except Money Market
Domestic Equity Depositary Receipts Small Cap, International Equity, Equity Growth, Capital Growth,
Venture Value, Growth and Income, Stock Index, Balanced,
Managed, Investors, Research Managers
Repurchase Agreements All Series
Reverse Repurchase Agreements and Dollar Rolls Strategic Bond, U.S. Government, Balanced
Purchasing and Selling Options on Securities All Series except Money Market, Investors, Research Managers
Purchasing and Selling Futures (and options thereon) All Series except Money Market, Research Managers, Mid Cap Value
(Investors may not engage in options on futures)
Eurodollar Futures and Options Strategic Bond, U.S. Government, Balanced
Loan Participations and Assignments Strategic Bond
Swaps, Caps, Floors, Collars, Etc. Strategic Bond, Balanced
Inverse Floaters Balanced, Strategic Bond, U.S. Government
Structured Notes Strategic Bond
When Issued Securities Small Cap, International Equity, Equity Growth, Mid Cap Value,
Venture Value, Managed, Balanced, Bond Income, U.S Government,
Strategic Bond, Investors, Research Managers
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Practices Series
- --------- ------
<S> <C>
Forward Commitments Mid Cap Value, Investors, Research Managers,
International Equity, Balanced
Short Sales "Against the Box" International Equity, Equity Growth, Mid Cap Value, Investors
Lending of Portfolio Securities All Series
</TABLE>
Equity Securities -- The Series listed above may invest in equity securities.
- -----------------
Equity securities are more volatile and more risky than some other forms of
investment. Therefore, the value of your investment in a Series may sometimes
decrease instead of increase. Investments in companies with relatively small
capitalization may involve greater risk than is usually associated with more
established companies. These companies often have sales and earnings growth
rates which exceed those of companies with larger capitalization. Such growth
rates may in turn be reflected in more rapid share price appreciation. However,
companies with smaller capitalization often have limited product lines, markets
or financial resources and they may be dependent upon a relatively small
management group. The securities may have limited marketability and may be
subject to more abrupt or erratic movements in price than securities of
companies with larger capitalization or the market averages in general. The net
asset value of a Series that invests in companies with smaller capitalization,
therefore, may fluctuate more widely than market averages.
Convertible Securities -- The Series listed above may invest in convertible
- ----------------------
securities, including corporate bonds, notes or preferred stocks of U.S. or
foreign issuers that can be converted into (that is, exchanged for) common
stocks or other equity securities. Convertible securities also include other
securities, such as warrants, that provide an opportunity for equity
participation. Because convertible securities can be converted into equity
securities, their values will normally vary in some proportion with those of the
underlying equity securities. Convertible securities usually provide a higher
yield than the underlying equity, however, so that the price decline of a
convertible security may sometimes be less substantial than that of the
underlying equity security. The value of convertible securities that pay
dividends or interest, like the value of other fixed-income securities,
generally fluctuates inversely with changes in interest rates. Warrants have no
voting rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. They do not represent ownership of the securities
for which they are exercisable, but only the right to buy such securities at a
particular price.
Fixed-income Securities -- The Series listed above may invest in fixed-income
- -----------------------
securities. Fixed-income securities include a broad array of short, medium and
long term obligations issued by the U.S. or foreign governments, government or
international agencies and instrumentalities, and corporate issuers of various
types. Some fixed-income securities represent uncollateralized obligations of
their issuers; in other cases, the securities may be backed by specific assets
(such as mortgages or other receivables) that have been set aside as collateral
for the issuer's obligation. Fixed-income securities generally involve an
obligation of the issuer to pay interest or dividends on either a current basis
or at the maturity of the security, as well as the obligation to repay the
principal amount of the security at maturity.
Fixed-income securities involve both credit risk and market risk.
Credit risk is the risk that the security's issuer will fail to fulfill its
obligation to pay interest, dividends or principal on the security. Market risk
is the risk that the value of the security will fall because of changes in
market rates of interest or other factors. Except to the extent values are
affected by other factors such as developments relating to a specific issuer,
generally the value of a fixed-income security can be expected to rise when
interest rates decline and conversely, the value of such a security can be
expected to fall when interest rates rise. Some fixed-income securities also
involve prepayment or call risk. This is the risk that the issuer will repay a
Series the principal on the security before it is due, thus depriving the Series
of a favorable stream of future interest or dividend payments. In addition, many
fixed-income securities contain call or buy-back features that permit their
issuers to call or repurchase the securities from their holders. Such securities
may present risks based on payment expectations. Although a Series would
typically receive a premium if an issuer were to redeem a security, if an issuer
were to exercise a "call option" and redeem the security during times of
declining interest rates, a Series may realize a capital loss on its investment
if the security was purchased at a premium and a Series may be forced to replace
the called security with a lower yielding security.
-16-
<PAGE>
The short-term and medium-term fixed-income securities in which
International Equity may invest consist of (a) obligations of governments,
agencies or instrumentalities of any member state of the Organization for
Economic Cooperation and Development ("OECD"), including the United States; (b)
bank deposits and bank obligations (including certificates of deposit, time
deposits and bankers' acceptances) of banks organized under the laws of any
member states of the OECD, including the United States, denominated in any
currency; (c) finance company and corporate commercial paper and other
short-term corporate debt obligations of corporations organized under the laws
of any member states of the OECD, including the United States, meeting the
Series' credit quality standards, provided that no more than 20% of the Series'
assets is invested in any one of such issuers. The short-term and medium-term
securities in which the Series may invest will be rated investment grade, or if
unrated, determined to be of comparable quality by MSAM.
Because interest rates vary, it is impossible to predict the income for
any particular period of a Series that invests in fixed-income securities.
Fluctuations in the value of a Series' investments in fixed-income securities
will cause a Series' net asset value to increase or decrease.
Duration is a measure of the price volatility of a bond equal to the
weighted average term to maturity of the bond's cash flows. The weights are the
present values of each cash flow as a percentage of the present value of all
cash flows. The greater the duration of a bond, the greater its percentage price
volatility. Only a pure discount bond -- that is, one with no coupon or
sinking-fund payments -- has a duration equal to the remaining maturity of the
bond, because only in this case does the present value of the final redemption
payment represent the entirety of the present value of the bond. For all other
bonds, duration is less then maturity.
The difference between duration and maturity depends on: (a) the size
of the coupon, (b) whether or not there are to be sinking-fund payments, and (c)
the yield to maturity represented by the bond's current market value. The higher
the coupon the shorter the duration. This is because the final redemption
payment accounts for a smaller percentage of the bond's current value. The
higher the yield the shorter the duration. This is because the present values of
the distant payments become less important relative to the present values of the
nearer payments. A typical sinking fund reduces duration by about 1.5 years. For
bonds of less than five years to maturity, duration expands rapidly as maturity
expands. From 5 to 15 years remaining maturity, duration continues to expand as
maturity lengthens, but as a considerably slower rate. Beyond 15 years'
maturity, increments to duration are quite small, and only a bond with very low
(or no) coupon would have a duration of more than 15 years.
There is a close relationship between duration and the price
sensitivity of a bond to changes in interest rates. The relationship is
approximately as follows:
Percent change in bond price = -(Duration x Absolute change in yield).
For example, a bond with 10 years' duration will decline (or rise) in
price by approximately 5 percent when yield increases (or decreases) by one half
percent. Similarly, a yield increase of 2 percent will produce a price decline
of about 24percent for a bond with 12 years' duration; but the same 2 percent
yield increase will produce a price decline of only some 10 percent for a bond
with five-years' duration. This same relationship holds true for the duration
and price of the entire portfolio of a Series.
Money Market Instruments -- Obligations of foreign branches of U.S. banks and
- ------------------------
other foreign securities are subject to risks of foreign political, economic and
legal developments, which include foreign governmental restrictions adversely
affecting payment of principal and interest on the obligations, foreign
withholding and other taxes on interest income, and difficulties in obtaining
and enforcing a judgment against a foreign branch of a domestic bank. With
respect to bank obligations, different risks may result from the fact that
foreign banks are not necessarily subject to the same or similar regulatory
requirements that apply to domestic banks. For instance, such branches may not
be subject to the types of requirements imposed on domestic banks with respect
to mandatory reserves, loan limitations, examinations, accounting, auditing,
recordkeeping and the public availability of information. Obligations of such
branches will be purchased by the Series only when the Series' adviser or
subadviser believes the risks are minimal.
The following constitutes a description of the money market instruments
which may be purchased by the Back Bay Advisors Money Market Series, and by any
of the Series, some of which may only invest for temporary defensive purposes.
U.S. Government Securities -- are bills, certificates of indebtedness,
notes and bonds issued by agencies, authorities and instrumentalities of the
U.S. Government. Some obligations, such as those issued by the U.S. Treasury,
the Government National Mortgage Association, the Farmers' Home Administration
and the Small Business Administration, are backed by
-17-
<PAGE>
the full faith and credit of the U.S. Treasury. Other obligations are backed by
the right of the issuer to borrow from the U.S. Treasury or by the credit of the
agency, authority or instrumentality itself. Such obligations include, but are
not limited to, obligations issued by the Tennessee Valley Authority, the Bank
for Cooperatives, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Land Banks and the Federal National Mortgage Association.
Certificates of Deposit -- are certificates issued against funds
deposited in a bank, are for a definite period of time, earn a specified rate of
return and are normally negotiable.
Bankers' Acceptances -- are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed "accepted"
when a bank guarantees their payment at maturity.
Eurodollar Obligations -- are obligations of foreign branches of U.S.
banks.
Commercial Paper -- refers to promissory notes issued by corporations in
order to finance their short-term credit needs. For a description of commercial
paper ratings see Appendix A-2.
U.S. Government Securities -- The Series may invest in some or all of the
- --------------------------
following U.S. Government Securities, as well as in other types of securities
issued or guaranteed by the U.S. Government or its agencies, authorities or
instrumentalities:
U.S. Treasury Bills -- Direct obligations of the United States Treasury
which are issued in maturities of one year or less. No interest is paid on
Treasury bills; instead, they are issued at a discount and repaid at full face
value when they mature. They are backed by the full faith and credit of the
United States Government.
U.S. Treasury Notes and Bonds -- Direct obligations of the United States
Treasury issued in maturities that vary between one and 40 years, with interest
normally payable every six months. These obligations are backed by the full
faith and credit of the United States Government.
"Ginnie Maes" -- Debt securities issued by a mortgage banker or other
mortgagee which represent an interest in a pool of mortgages insured by the
Federal Housing Administration or the Farmer's Home Administration or guaranteed
by the Veterans Administration. The Government National Mortgage Association
("GNMA") guarantees the timely payment of principal and interest when such
payments are due, whether or not these amounts are collected by the issuer of
these certificates on the underlying mortgages. Mortgages included in single
family or multi-family residential mortgage pools backing an issue of Ginnie
Maes have a maximum maturity of up to 30 years. Scheduled payments of principal
and interest are made to the registered holders of Ginnie Maes (such as the
Fund) each month. Unscheduled prepayments may be made by homeowners, or as a
result of a default. Prepayments are passed through to the registered holder
(such as the Fund, which reinvests any prepayments) of Ginnie Maes along with
regular monthly payments of principal and interest.
"Fannie Maes" -- The Federal National Mortgage Association ("FNMA") is a
government-sponsored corporation owned entirely by private stockholders that
purchases residential mortgages from a list of approved seller/servicers. Fannie
Maes are pass-through securities issued by FNMA that are guaranteed as to timely
payment of principal and interest by FNMA but are not backed by the full faith
and credit of the United States Government.
"Freddie Macs" -- The Federal Home Loan Mortgage Corporation ("FHLMC") is a
corporate instrumentality of the United States Government. Freddie Macs are
participation certificates issued by FHLMC that represent an interest in
residential mortgages from FHLMC's National Portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but Freddie
Macs are not backed by the full faith and credit of the United States
Government.
U.S. Government Securities often do not involve the same credit risks
associated with investments in other types of fixed-income securities, although,
as a result, the yields available from U.S. Government Securities are generally
lower than the yields available from corporate fixed-income securities. Like
other fixed-income securities, however, the values of U.S. Government Securities
change as interest rates fluctuate. Fluctuations in the value of portfolio
securities will not affect interest income on existing portfolio securities but
will be reflected in the Series' net asset value. Since the magnitude of these
fluctuations will generally be greater at times when the Series' average
maturity is longer, under certain market conditions, a Series may, for temporary
defensive purposes, accept lower current income from short-term investments
rather than investing in higher yielding long-term securities.
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<PAGE>
Privately Issued Mortgage Securities -- The Series listed above may invest in
- ------------------------------------
privately-issued pass through securities that provide for the monthly principal
and interest payments made by individual borrowers to pass through to investors
on a corporate basis, and in privately issued collateralized mortgage
obligations ("CMOs"; see the general description below). Privately-issued
mortgage securities are issued by private originators of, or investors in,
mortgage loans, including mortgage bankers, commercial banks, investment banks,
savings and loan associations and special purpose subsidiaries of the foregoing.
Since privately-issued mortgage certificates are not guaranteed by an entity
having the credit status of GNMA or FHLMC, such securities generally are
structured with one or more types of credit enhancement. For a description of
the types of credit enhancements that may accompany privately-issued mortgage
securities, see "Types of Credit Support" below. A Series will not limit its
investments to asset-backed securities with credit enhancements.
Adjustable Rate Mortgage Securities -- The Series listed above may invest in
- -----------------------------------
Adjustable Rate Mortgage Securities ("ARM"). An ARM, like a traditional mortgage
security, is an interest in a pool of mortgage loans that provides investors
with payments consisting of both principal and interest as mortgage loans in the
underlying mortgage pool are paid off by the borrowers. Unlike fixed rate
mortgage securities, ARMs are collateralized by or represent interests in
mortgage loans with variable rates of interest. These interest rates are reset
at periodic intervals, usually by reference to some interest rate index or
market interest rate. Although the rate adjustment feature may act as a buffer
to reduce sharp changes in the value of adjustable rate securities, these
securities are still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness. Because the interest
rates are reset only periodically, changes in the interest rate on ARMs may lag
changes in prevailing market interest rates. Also, some ARMs (or the underlying
mortgages) are subject to caps or floors that limit the maximum change in
interest rate during a specified period or over the life of the security. As a
result, changes in the interest rate on an ARM may not fully reflect changes in
prevailing market interest rates during certain periods. Because of the
resetting of interest rates, ARMs are less likely than non-adjustable rate
securities of comparable quality and maturity to increase significantly in value
when market interest rates fall.
Collateralized Mortgage Obligations -- The Series listed above may invest in
- -----------------------------------
collateralized mortgage obligations (a "CMO"). A CMO is a debt security
collateralized by a portfolio of mortgages or mortgage securities held under a
trust indenture. In some cases, the underlying mortgages or mortgage securities
are issued or guaranteed by the U.S. Government or an agency or instrumentality
thereof, but the obligations purchased by a Series will in many cases not be so
issued or guaranteed. The issuer's obligation to make interest and principal
payments is secured by the underlying portfolio of mortgages or mortgage
securities. CMOs are issued with a number of classes or series which have
different maturities and which may represent interests in some or all of the
interest or principal on the underlying collateral or a combination thereof. In
the event of sufficient early prepayments on such mortgages, the class or series
of CMO first to mature generally will be retired prior to its maturity. The
early retirement of a particular class or series of CMO held by a Series would
have the same effect as the prepayment of mortgages underlying a mortgage
pass-through security.
Stripped Mortgage Securities -- Stripped mortgage securities are derivative
- ----------------------------
multiclass mortgage securities. Stripped mortgage securities may be issued by
agencies or instrumentalities of the U.S. Government, or by private issuers,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
mortgage securities have greater volatility than other types of mortgage
securities in which the Series invest. Stripped mortgage securities may not be
as liquid as other securities in which the Series may invest.
Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive not only to changes in prevailing
interest rates but also the rate of principal payments (including prepayments)
on the related underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on the Series' yield to maturity. If
the underlying mortgage assets experience greater than anticipated prepayments
of principal, the Series may fail to fully recoup its initial investment in
these securities even if the securities are rated in a top rating category.
As interest rates rise and fall, the value of IOs tends to move in the same
direction as interest rates. The value of other mortgage securities, like other
debt instruments, will tend to move in the opposite direction of interest rates.
Accordingly,
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<PAGE>
investing in IOs, in conjunction with the other mortgage securities described
herein, may reduce fluctuations in a Series' net asset value.
In addition to the stripped mortgage securities described above, the Series
listed above may invest in similar securities such as "Super POs," "Levered IOs"
and "IOettes," all of which are more volatile than conventional POs or IOs.
Risks associated with instruments such as Super POs are similar in nature to
those risks related to investments in POs. Risks connected with Levered IOs and
IOettes are similar in nature to those associated with IOs. The Series may also
invest in other similar instruments developed in the future that are deemed
consistent with the investment objectives, policies and restrictions of the
Series.
Under the Internal Revenue Code of 1986, as amended (the "Code"), POs may
generate taxable income from the current accrual of original issue discount,
without a corresponding distribution of cash to the portfolio.
Asset-backed Securities -- As with mortgage securities, asset-backed securities
- -----------------------
are often backed by a pool of assets representing the obligation of a number of
different parties and use similar credit enhancement techniques. For a
description of the types of credit enhancement that may accompany
privately-issued mortgage securities, see "Types of Credit Support" below. A
Series will not limit its investments to asset-backed securities with credit
enhancements. Although asset-backed securities are not generally traded on a
national securities exchange, many such securities are widely traded by brokers
and dealers, and in such cases will not be deemed by that Series' subadviser (or
by CGM, in the case of Capital Growth) to be illiquid securities for the
purposes of the investment policy that limits a Series' investments in illiquid
securities to 15% of net assets (10% in the case of Money Market).
Types of Credit Support -- Mortgage securities and asset-backed securities
are often backed by a pool of assets representing the obligations of a number of
different parties. To lessen the effect of failure by obligors on underlying
assets to make payments, such securities may contain elements of credit support.
Such credit support falls into two categories: (i) liquidity protection and (ii)
protection against losses resulting from ultimate default by an obligor on the
underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pool of assets, to ensure that the
pass-through of payments due on the underlying pool occurs in a timely fashion.
Protection against losses resulting from ultimate default enhances the
likelihood of ultimate payment of the obligations on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained by the issuer or sponsor from
third parties, through various means of structuring the transaction or through a
combination of such approaches. A Series will not pay any additional fees for
such credit support, although the existence of credit support may increase the
price of a security.
The ratings of mortgage securities and asset-backed securities for which
third-party credit enhancement provides liquidity protection or protection
against losses from default are generally dependent upon the continued
creditworthiness of the provider of the credit enhancement. The ratings of such
securities could be subject to reduction in the event of deterioration in the
creditworthiness of the credit enhancement provider even in cases where the
delinquency and loss experience on the underlying pool of assets is better than
expected.
Examples of credit support arising out of the structure of the transaction
include "senior subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal and
interest, with the result that defaults on the underlying assets are borne first
by the holders of the subordinated class), creation of "reserve funds" (where
cash or investments, sometimes funded from a portion of the payments on the
underlying assets, are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such security.
Zero Coupon Securities -- The Series listed above may invest in zero coupon
- ----------------------
securities. Zero coupon securities involve special risk considerations. Zero
coupon securities include debt securities that pay no cash income but are sold
at substantial discounts from their value at maturity. When such a zero coupon
security is held to maturity, its entire return (other than the return of the
principal upon maturity), consists of the amortization of discount and comes
from the difference between its purchase price and its maturity value. The
difference is known at the time of purchase, so that investors holding zero
coupon securities until maturity know at the time of their investment what the
return on their investment will be. Certain other zero
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<PAGE>
coupon securities which also are sold at substantial discounts from their
maturity value, provide for the commencement of regular interest payments at a
deferred date.
Zero coupon securities tend to be subject to greater price fluctuations
in response to changes in interest rates than are ordinary interest-paying debt
securities with similar maturities. The values of zero coupon securities
appreciate more during periods of declining interest rates and depreciates more
during periods of rising interest rates. Zero coupon securities may be issued by
a wide variety of corporate and governmental issuers. Although zero coupon
securities are generally not traded on a national securities exchange, many such
securities are widely traded by brokers and dealers and, if so, will not be
considered illiquid.
Current federal income tax law requires the holder of a zero coupon
security (as well as the holders of other securities, such as Brady Bonds, which
may be acquired at a discount) to accrue income with respect to these securities
prior to the receipt of cash payments. To maintain its qualification as a
regulated investment company and avoid liability for federal income and excise
taxes, the Series may be required to distribute income accrued with respect to
these securities and may have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.
Lower Rated Fixed-income Securities (High Yield Debt) -- Each Series listed
- ----------------------------------------------------
above may invest in high yield debt. The Managed Series and Strategic Bond may
each invest 100% of its total assets in high yield debt. Balanced and Mid Cap
Value may each invest up to 25% of its total assets, Bond Income may invest 20%
of its total assets, and Research Managers may invest 10% of its total assets,
in high yield debt. Fixed-income securities rated BB or lower by S&P or Ba or
lower by Moody's (and comparable unrated securities) are of below "investment
grade" quality, are considered high yield, high risk securities and are commonly
known as "high yield debt" or "junk bonds". Lower quality fixed-income
securities generally provide higher yields, but are subject to greater credit
and market risk than higher quality fixed-income securities. Lower quality
fixed-income securities are considered predominantly speculative with respect to
the ability of the issuer to meet principal and interest payments. The ability
of a Series investing in lower quality fixed-income securities to achieve its
investment objective may be more dependent on the relevant adviser's or
subadviser's own credit analysis than it would be for a Series investing in
higher quality bonds. The market for lower quality fixed-income securities may
be more severely affected than some other financial markets by economic
recession or substantial interest rate increases, by changing public perceptions
of this market or by legislation that limits the ability of certain categories
of financial institutions to invest in these securities. In addition, the
secondary market may be less liquid for lower rated fixed-income securities.
This lack of liquidity at certain times may affect the valuation of these
securities and may make the valuation and sale of these securities more
difficult. For more information, including a detailed description of the ratings
assigned by S&P and Moody's, please refer to "Appendix A-1--Description of Bond
Ratings."
Foreign Securities -- Each of the Series listed above may invest in securities
- ------------------
of issuers organized or headquartered outside the United States or primarily
traded outside the United States ("foreign securities").
Although investing in foreign securities may increase a Series'
diversification and reduce portfolio volatility, foreign securities may present
risks not associated with investments in comparable securities of U.S. issuers.
There may be less information publicly available about a foreign corporate or
governmental issuer than about a U.S. issuer, and foreign corporate issuers are
not generally subject to accounting, auditing and financial reporting standards
and practices comparable to those in the United States. The securities of some
foreign issuers are less liquid and at times more volatile than securities of
comparable U.S. issuers. Foreign brokerage commissions and securities custody
costs are often higher than in the United States. With respect to certain
foreign countries, there is a possibility of governmental expropriation of
assets, confiscatory taxation, political or financial instability and diplomatic
developments that could affect the value of investments in those countries. A
Series' receipt of interest on foreign government securities may depend on the
availability of tax or other revenues to satisfy the issuer's obligations.
A Series' investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special considerations associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement procedures.
Since most foreign securities are denominated in foreign currencies or
trade primarily in securities markets in which settlements are made in foreign
currencies, the value of these investments and the net investment income
available for
-21-
<PAGE>
distribution to shareholders of a Series investing in these securities may be
affected favorably or unfavorably by changes in currency exchange rates or
exchange control regulations. Changes in the value relative to the U.S. dollar
of a foreign currency in which a Series' holdings are denominated will result in
a change in the U.S. dollar value of the Series' assets and the Series' income
available for distribution.
In addition, although part of a Series' income may be received or
realized in foreign currencies, the Series will be required to compute and
distribute its income in U.S. dollars. Therefore, if the value of a currency
relative to the U.S. dollar declines after a Series' income has been earned in
that currency, translated into U.S. dollars and declared as a dividend, but
before payment of the dividend, the Series could be required to liquidate
portfolio securities to pay the dividend. Similarly, if the value of a currency
relative to the U.S. dollar declines between the time a Series accrues expenses
in U.S. dollars and the time such expenses are paid, the amount of such currency
required to be converted into U.S. dollars will be greater than the equivalent
amount in such currency of such expenses at the time they were incurred.
Each Series listed above may also purchase shares of investment
companies investing primarily in foreign securities, including shares of funds
that invest primarily in securities of issuers located in one foreign country or
region. Each Series may, subject to the limitations stated above, invest in
World Equity Benchmark Shares ("WEBS") and similar securities that invest in
securities included in foreign securities indices. See "Investment Practices -
Foreign Equity Depositary Receipts."
High Yield/High Risk Foreign Sovereign Debt Securities -- The Series listed
- ------------------------------------------------------
above (up to 75% of the net assets of Investors Series) may invest in these
bonds, which are typically issued by developing or emerging market countries.
Such countries' ability to pay principal and interest may be adversely affected
by many factors, including high rates of inflation, high interest rates,
currency exchange rate fluctuations or difficulties, political uncertainty or
instability, the country's cash flow position, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, the policy of the International
Monetary Fund (the "IMF"), the World Bank and other international agencies, the
obligor's balance of payments, including export performance, its access to
international credit and investments, fluctuations in the international prices
of commodities which it imports or exports and the extent of its foreign
reserves and access to foreign exchange. Currency devaluations may also
adversely affect the ability of a sovereign obligor to obtain sufficient foreign
exchange to service its external debt.
If a foreign sovereign obligor cannot generate sufficient earnings from
foreign trade to service its external debt, it may need to depend on continuing
loans and aid from foreign governments, commercial banks and multilateral
organizations, and inflows of foreign investment. The commitment on the part of
these entities to make such disbursements may be conditioned on the government's
implementation of economic reforms or other requirements. Failure to meet such
conditions may result in the cancellation of such third parties' commitments to
lend funds, which may further impair the obligor's ability or willingness to
timely service its debts.
A Series may invest in the sovereign debt of foreign countries which have
issued or have announced plans to issue Brady Bonds, and expect that a
substantial portion of their investments in sovereign debt securities will
consist of Brady Bonds.
Brady Bonds -- Brady Bonds are debt securities issued under the framework of the
- -----------
Brady Plan, an initiative announced by then U.S. Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for debtor nations to restructure their outstanding
external commercial bank indebtedness. In restructuring its external debt under
the Brady Plan framework, a debtor nation negotiates with its existing bank
lenders as well as multilateral institutions such as the World Bank and the IMF.
The Brady Plan framework, as it has developed, contemplates the exchange of
commercial bank debt for newly issued bonds (Brady Bonds). Brady Bonds may also
be issued in respect of new money being advanced by existing lenders in
connection with the debt restructuring. The World Bank and/or the IMF support
the restructuring by providing funds pursuant to loan agreements or other
arrangements which enable the debtor nation to collateralize the new Brady Bonds
or to repurchase outstanding bank debt at a discount. Under these arrangements
with the World Bank or the IMF, debtor nations have been required to agree to
the implementation of certain domestic monetary and fiscal reforms. Such reforms
have included the liberalization of trade and foreign investment, the
privatization of state-owned enterprises and the setting of targets for public
spending and borrowing. These policies and programs seek to promote the debtor
country's economic growth and development. Investors should recognize that the
Brady Plan only sets forth general guiding principles for economic reform and
debt reduction, emphasizing that solutions must be negotiated on a case-by-case
basis between debtor nations and their creditors.
Agreements implemented under the Brady Plan to date are designed to achieve
debt and debt-service reduction through specific options negotiated by a debtor
nation with its creditors. As a result, the financial packages offered by each
country differ. The types of options have included the exchange of outstanding
commercial bank debt for bonds issued at 100% of face value of such debt, which
carry a below-market stated rate of interest (generally known as par bonds),
bonds issued at a discount from face value of such debt (generally known as
discount bonds), bonds bearing an interest rate which increases
-22-
<PAGE>
over time and bonds issued in exchange for the advancement of new money by
existing lenders. Regardless of the stated face amount and stated interest rate
of the various types of Brady Bonds, a Series will purchase Brady Bonds in
secondary markets, as described below, in which the price and yield to the
investor reflect market conditions at the time of purchase. Brady Bonds issued
to date have traded at a deep discount from their face value. Certain Brady
Bonds have been collateralized as to principal due at maturity (typically 30
years from the date of issuance) by U.S. Treasury zero coupon bonds with a
maturity equal to the final maturity of such Brady Bonds, although the
collateral is not available to investors until the final maturity of the Brady
Bonds. Collateral purchases are financed by the IMF, the World Bank and the
debtor nations' reserves. In addition, interest payments on certain types of
Brady Bonds may be collateralized by cash or high-grade securities in amounts
that typically represent between 12 and 18 months of interest accruals on these
instruments with the balance of the interest accruals being uncollateralized. A
Series may purchase Brady Bonds with no or limited collateralization, and will
be relying for payment of interest and (except in the case of principal
collateralized Brady Bonds) principal primarily on the willingness and ability
of the foreign government to make payment in accordance with the terms of the
Brady Bonds. Brady Bonds issued to date are purchased and sold in secondary
markets through U.S. securities dealers and other financial institutions and are
generally maintained through European transnational securities depositories.
In the event of a default with respect to collateralized Brady Bonds
as a result of which the payment obligations of the issuer are accelerated, the
U.S. Treasury zero coupon obligations held as collateral for the payment of
principal will not be distributed to investors, nor will such obligations be
sold and the proceeds distributed. The collateral will be held by the collateral
agent to the scheduled maturity of the defaulted Brady Bonds, which will
continue to be outstanding, at which time the face amount of the collateral will
equal the principal payments which would have then been due on the Brady Bonds
in the normal course. In light of the residual risk of the Brady Bonds and,
among other factors, the history of default with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative.
Sovereign obligors in developing and emerging market countries have in
the past experienced substantial difficulties in servicing their external debt
obligations, which has led to defaults on certain obligations and the
restructuring of certain indebtedness including among other things, reducing and
rescheduling interest and principal payments by negotiating new or amended
credit agreements or converting outstanding principal and unpaid interest to
Brady Bonds and obtaining new credit to finance interest payments. There can be
no assurance that the Brady Bonds and other foreign sovereign debt securities in
which a Series may invest will not be subject to similar restructuring
arrangements or to requests for new credit which may adversely affect the
Series' holdings. Brady Bonds involving an emerging market country are included
in any Series' limitation on investments in emerging markets.
Foreign Equity Depositary Receipts -- In addition to purchasing foreign
- ----------------------------------
securities directly, each Series listed above may invest in foreign equity
securities by purchasing Foreign Equity Depositary Receipts. Foreign Equity
Depositary Receipts are instruments issued by a bank that represent an interest
in equity securities held by arrangement with the bank, and include American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global
Depositary Receipts ("GDRs"). ADRs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a correspondent bank. ADRs are
traded on domestic exchanges or in the U.S. over-the-counter market and,
generally, are in registered form. EDRs and GDRs are receipts evidencing an
arrangement with a non-U.S. bank similar to that for ADRs and are designed for
use in the non-U.S. securities markets. EDRs and GDRs are not necessarily quoted
in the same currency as the underlying security.
Foreign Equity Depositary Receipts can be either "sponsored" or
"unsponsored." Sponsored Foreign Equity Depositary Receipts are issued by banks
in cooperation with the issuer of the underlying equity securities. Unsponsored
Foreign Equity Depositary Receipts are arranged without involvement by the
issuer of the underlying equity securities. Less information about the issuer of
the underlying equity securities may be available in the case of unsponsored
Foreign Equity Depositary Receipts.
To the extent a Series acquires Foreign Equity Depositary Receipts
through banks that do not have a contractual relationship with the foreign
issuer of the security underlying the Foreign Equity Depositary Receipts to
issue and service such Foreign Equity Depositary Receipts (unsponsored), there
may be an increased possibility that such Series would not become aware of and
be able to respond to corporate actions such as stock splits or rights offerings
involving the foreign issuer in a timely manner. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
Investment in Foreign Equity Depositary Receipts does not eliminate the risks
inherent in investing in securities of non-U.S. issuers. The market value of
Foreign Equity Depositary Receipts is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Foreign Equity Depositary receipts and the underlying securities
are quoted. However, by investing in Foreign Equity Depositary Receipts, such as
ADRs, that are quoted in U.S. dollars, a Series may avoid currency risks during
the settlement period for purchases and sales.
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<PAGE>
Foreign Currency Transactions, including Forward Contracts, Futures and
- -----------------------------------------------------------------------
Options -- The Series listed above may engage in foreign currency transactions
- -------
to protect against a change in the foreign currency exchange rate between the
date on which a Series contracts to purchase or sell a security that settles in
a foreign currency and the settlement date for the purchase or sale. In order to
"lock in" the equivalent of a dividend or interest payment in another currency,
the Series may purchase or sell a foreign currency on a spot (or cash) basis at
the prevailing spot rate. If conditions warrant, a Series may also enter into
contracts with banks or broker-dealers to purchase or sell foreign currencies at
a future date ("forward contracts"). The Series will maintain cash or other
liquid assets in a segregated account with the custodian in an amount at least
equal to (i) the difference between the current value of the Series' liquid
holdings that settle in the relevant currency and the Series' outstanding net
obligations under currency forward contracts in that currency, or (ii) the
current amount, if any, that would be required to be paid to enter into an
offsetting forward currency contract which would have the effect of closing out
the original forward contract. The Series may also purchase or sell foreign
currency futures contracts traded on futures exchanges. Foreign currency futures
contract transactions involve risks similar to those of other futures
transactions. Each series may also purchase options on foreign currencies. See
"Futures and Options on Futures" and "Risks related to Futures and Options"
above. Each Series may use foreign currency transactions for hedging purposes
only. The Series' use of such transactions may be limited by tax considerations.
Emerging Markets -- The Series listed above may invest in the securities of
- ----------------
issuers in emerging market countries (up to the limit of each Series' ability to
invest in foreign securities, except that International Equity may invest up to
5% of its total assets in securities of issuers in emerging market countries
that are not EAFE countries). Investing in securities of issuers in emerging
market countries involves risks in addition to those discussed in the Prospectus
under "Foreign Securities." Emerging market countries are generally located in
the Asia-Pacific region, Eastern Europe, Latin and South America and Africa. The
Series' purchase and sale of portfolio securities in certain emerging market
countries may be constrained by limitations as to daily changes in the prices of
listed securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of the Series, the subadviser,
its affiliates and their respective clients and other service providers. The
Series may not be able to sell securities in circumstances where price, trading
or settlement volume limitations have been reached.
Foreign investment in the securities markets of certain emerging market
countries is restricted or controlled to varying degrees which may limit
investment in such countries or increase the administrative costs of such
investments. For example, certain Asian countries require governmental approval
prior to investments by foreign countries or limit investment by foreign
countries to only a specified percentage of an issuer's outstanding securities
or a specific class of securities which may have less advantageous terms
(including price) than securities of the issuer available for purchase by
nationals. In addition, certain countries may restrict or prohibit investment
opportunities in issuers or industries deemed important to national interests.
Such restrictions may affect the market price, liquidity and rights of
securities that may be purchased by the Series. The repatriation of both
investment income and capital from certain emerging market countries is subject
to restrictions such as the need for governmental consents. Due to restrictions
on direct investment in equity securities in certain Asian countries, such as
Taiwan, it is anticipated that the Series may invest in such countries only
through other investment funds in such countries. See "Investment Company
Securities" below.
Obligations of Supranational Agencies - The Series listed above may also invest
- -------------------------------------
in obligations issued by supranational agencies such as the International Bank
for Reconstruction and Development (commonly known as the World Bank) which was
chartered to finance development projects in developing member countries; the
European Community, which is a twelve-nation organization engaged in cooperative
economic activities; the European Coal and Steel Community, which is an economic
union of various European nations' steel and coal industries; and the Asian
Development Bank, which is an international development bank established to lend
funds, promote investment and provide technical assistance to member nations in
the Asian and Pacific regions. Debt obligations of supranational agencies are
not considered U.S. Government Securities and are not supported, directly or
indirectly, by the U.S. Government.
Illiquid Securities -- Each Series except Stock Index may invest up to 15% of
- -------------------
its net assets (10% in the case of Money Market) in "illiquid securities," that
is, securities which in the opinion of the subadviser may not be resalable at
the price at which the Series is valuing the security, within seven days, except
as qualified below, including securities whose disposition is restricted by
federal securities laws (other than Rule 144A securities deemed liquid by the
Series' adviser or subadviser) and certificates of deposit and repurchase
agreements of more than seven days duration or any time deposit with a
withdrawal penalty. If through the appreciation of illiquid securities or the
depreciation of liquid securities, a Series is in a position where more than 15%
(10% in the case of Money Market) of the value of its net assets are invested in
illiquid assets,
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<PAGE>
the Series is not required to immediately sell any illiquid securities if to do
so would not be in the best interest of the Series' shareholders.
Rule 144A Securities -- Each Series except Stock Index may purchase Rule 144A
- --------------------
securities. These are privately offered securities that can be resold only to
certain qualified institutional buyers. Rule 144A securities are treated as
illiquid, unless the Series' adviser or subadviser has determined, under
guidelines established by the Fund's trustees, that the particular issue of Rule
144A securities is liquid.
Real Estate Investment Trusts ("REITs") -- The Series listed above may invest in
- ---------------------------------------
REITs, which are pooled investment vehicles which invest primarily in investment
in income-producing real estate or real estate related loans or interest. REITs
are generally classified as equity REITs, mortgage REITs or a combination of
equity and mortgage REITs. Equity REITs invest the majority of their assets
directly in real property and derive income primarily from the collection of
rents. Equity REITs can also realize capital gains by selling properties that
have appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments. Like regulated investment companies such as the Series, REITs are not
taxed on income distributed to shareholders provided that they comply with
certain requirements under the Code. The Series will indirectly bear its
proportionate share of any expenses paid by REITs in which it invests in
addition to the expenses paid by the Series.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risk of financing projects.
REITs are subject to heavy cash flow dependency, defaults by borrowers,
self-liquidation, and the possibility of failing to qualify for the exemption
from tax for distributed income under the Code and failing to maintain their
exemption from the Investment Company Act of 1940 (the "1940 Act.") REITs, and
mortgage REITs in particular, are also subject to interest rate risk.
Investment Company Securities -- The Series listed above may invest in other
- -----------------------------
investment companies to the extent permitted by the 1940 Act. Because of
restrictions on direct investment by U.S. entities in certain countries, a
Series may choose to invest indirectly in such countries by purchasing shares of
another investment company that is permitted to invest in such countries, which
may be the most practical or efficient way for the Series to invest in such
countries. In other cases, where the Series' adviser or subadviser desires to
make only a relatively small investment in a particular country, investing
through an investment company that holds a diversified portfolio in that country
may be more effective than investing directly in issuers in that country. As an
investor in another investment company, a Series will bear its share of the
expenses of that investment company. These expenses are in addition to the
Series' own costs of operations. In some cases, investing in an investment
company may involve the payment of a premium over the value of the assets held
in that investment company's portfolio.
Venture Value may only invest in securities of investment companies
investing primarily in foreign securities.
Domestic Equity Depositary Receipts (see below) are investment company
securities; therefore, investments therein are subject to a Series' limitation
on investment in other investment companies.
Domestic Equity Depositary Receipts -- Each of the Series listed above may
- -----------------------------------
invest in Domestic Equity Depositary Receipts, subject to the restrictions on
the percentage of such Series' assets that may be represented by Investment
Company Securities. Domestic Equity Depositary Receipts are interests in a unit
investment trust ("UIT") that holds a portfolio of common stocks that is
intended to track the price and dividend performance of a particular index.
Common examples of Domestic Equity Depositary Receipts include S&P Depositary
Receipts ("SPDRs") and Nasdaq 100 Shares, which may be obtained from the UIT
issuing the securities or purchased in the secondary market (SPDRs and Nasdaq
100 Shares are listed on the American Stock Exchange).
Domestic Equity Depositary Receipts are issued in aggregations known as
"Creation Units" in exchange for a "Portfolio Deposit" consisting of (a) a
portfolio of securities substantially similar to the component securities
("Index Securities") of the relevant index (the "Target Index"), (b) a cash
payment equal to a pro rata portion of the dividends accrued on the UIT's
portfolio securities since the last dividend payment by the UIT, net of expenses
and liabilities, and (c) a cash payment or credit ("Balancing Amount") designed
to equalize the net asset value of the Target Index and the net asset value of a
Portfolio Deposit.
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<PAGE>
Domestic Equity Depositary Receipts are not individually redeemable,
except upon termination of the UIT that issued them. To redeem, a Series must
accumulate enough Domestic Equity Depositary Receipts to reconstitute a Creation
Unit. The liquidity of small holdings of Domestic Equity Depositary Receipts,
therefore, will depend upon the existence of a secondary market. Upon redemption
of a Creation Unit, a Series will receive Index Securities and cash identical to
the Portfolio Deposit required of an investor wishing to purchase a Creation
Unit that day.
The redemption price (and therefore the sale price) of Domestic Equity
Depositary Receipts is derived from and based upon the securities held by the
UIT that issued them. Accordingly, the level of risk involved in the purchase or
redemption or sale of a Domestic Equity Depositary Receipt is similar to the
risk involved in the purchase or sale of traditional common stock, with the
exception that the price of Domestic Equity Depositary Receipts is based on the
value of a basket of stocks. Disruptions in the markets for the securities
underlying Domestic Equity Depositary Receipts purchased or sold by a Series
could result in losses on Domestic Equity Depositary Receipts.
Repurchase Agreements - Each of the Series may enter into these agreements by
- ---------------------
which a Series purchases a security (usually a U.S. Government Security) and
obtains a simultaneous commitment from the seller (a member bank of the Federal
Reserve System or, to the extent permitted by the 1940 Act, a recognized
securities dealer) to repurchase the security at an agreed upon price and date.
Each Series, through the custodian or subcustodian, receives delivery of the
underlying securities collateralizing repurchase agreements. It is the Fund's
policy that the market value of the collateral be at least equal to 100% of the
repurchase price in the case of a repurchase agreement of one day duration and
102% on all other repurchase agreements. Each Series' adviser or subadviser is
responsible for determining that the value of the collateral is at all times at
least equal to the repurchase price.
The resale price is in excess of the purchase price and reflects an
agreed upon market rate unrelated to the coupon rate on the purchased security.
Such transactions afford the Series the opportunity to earn a return on
temporarily available cash at minimal market risk. While the underlying security
may be a bill, certificate of indebtedness, note or bond issued by an agency,
authority or instrumentality of the United States Government, the obligation of
the seller is not guaranteed by the U.S. Government and there is a risk that the
seller may fail to repurchase the underlying security, or the seller may enter
insolvency, thereby delaying or limiting realization of collateral. In such
event, the Series may be able to exercise rights with respect to the underlying
security, including possible disposition of the security in the market. However,
the Series may be subject to various delays and risks of loss, including (a)
possible declines in the value of the underlying security during the period
while the Series seeks to enforce its rights thereto, (b) possible reduced
levels of income and lack of access to income during this period and (c)
inability to enforce rights and the expenses involved in attempted enforcement.
Reverse Repurchase Agreements and Dollar Rolls -- The Series listed above may
- ----------------------------------------------
enter into reverse repurchase agreements and dollar rolls with qualified
institutions to seek to enhance returns.
Reverse repurchase agreements involve sales by a Series of portfolio assets
concurrently with an agreement by that Series to repurchase the same assets at a
later date at a fixed price. During the reverse repurchase agreement period, the
Series continues to receive principal and interest payments on these securities.
The Series may enter into dollar rolls in which a Series sells securities
for delivery in the current month and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Series forgoes principal and interest paid on
the securities. The Series is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale.
The Series will establish a segregated account with its custodian in which
it will maintain high quality liquid assets equal in value to its obligations in
respect of reverse repurchase agreements and dollar rolls. Reverse repurchase
agreements and dollar rolls involve the risk that the market value of the
securities retained by the Series may decline below the price of the securities
the Series has sold but is obligated to repurchase under the agreement. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, the Series' use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Series' obligation to repurchase the
securities. Although reverse repurchase agreements and dollar rolls have certain
characteristics similar to borrowings, these investment techniques are not
considered borrowings by the Series for purposes of determining the limitations
on each Series' borrowings described under the heading "Investment
Restrictions".
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<PAGE>
Purchasing and Selling Options on Securities -- An option on a security entitles
- --------------------------------------------
the holder to receive (in the case of a call option) or to sell (in the case of
a put option) a particular security at a specified exercise price. An "American
style" option allows exercise of the option at any time during the term of the
option. A "European style" option allows an option to be exercised only at the
end of its term. Options on securities may be traded on or off a national
securities exchange. For a discussion of additional risks related to futures and
options, see the discussion below.
Risks Related to Futures and Options -- The purchase and sale of futures
contracts, options on futures, and options on securities or indexes and options
involves risks. One risk arises because of the imperfect correlation between
movements in the price of futures contracts or options and movements in the
price of the underlying securities or index. The Series' use of futures
contracts or options will not be fully effective unless the Series can
compensate for such imperfect correlation. There is no assurance that the Series
will be able to effect such compensation.
The correlation between the price movement of a futures contract or option
and the related security (or index) may be distorted due to differences in the
nature of the markets. If the price of the futures contract or option moves more
than the price of the security or index, the Series would experience either a
loss or a gain on the future or option that is not completely offset by
movements in the price of the security or index. In an attempt to compensate for
imperfect price movement correlations, a Series may purchase or sell futures
contracts or options in a greater amount than the related securities or index
position if the volatility of the related securities or index is historically
greater than the volatility of the futures contracts or options. Conversely, the
Series may purchase or sell fewer contracts or options if the volatility of the
price of the securities or index is historically less than that of the contracts
or options.
There are many reasons why changes in the values of futures contracts or
options may not correlate perfectly with changes in the value of the underlying
security or index. For example, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal relationship
between the index and futures markets. Secondly, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators than
does the securities market. In addition, trading hours for index futures or
options may not correspond perfectly to hours of trading on the exchange where
the underlying securities trade. This may result in a disparity between the
price of futures or options and the value of the underlying security or index
due to the lack of continuous arbitrage between the futures or options price and
the value of the underlying security or index. Hedging transactions using
securities indices also involve the risk that movements in the price of the
index may not correlate with price movements of the particular portfolio
securities being hedged (since a Series will typically not own all of the
securities included in a particular index.)
Price movement correlation also may be distorted by the limited liquidity
of certain futures or options markets and the participation of speculators in
such markets. If an insufficient number of contracts are traded, commercial
users may not deal in futures contracts or options because they do not want to
assume the risk that they may not be able to close out their positions within a
reasonable amount of time. In such instance, futures and options market prices
may be driven by different forces than those driving the market in the
underlying securities, and price spreads between these markets may widen. The
participation of speculators in the market generally enhances its liquidity.
Nonetheless, speculative trading spreads between futures markets may create
temporary price distortions unrelated to the market in the underlying
securities.
Positions in futures contracts and related options are established or
closed out only on an exchange or board of trade regulated by the Commodity
Futures Trading Commission. There is no assurance that a liquid market on an
exchange or board of trade will exist for any particular contract or at any
particular time. The liquidity of markets in futures contracts may be adversely
affected by "daily price fluctuation limits" established by commodity exchanges
which limit the amount of fluctuation in a futures price during a single trading
day. Once the daily limit has been reached in a contract, no trades may be
entered into at a price beyond the limit, which may prevent the liquidation of
open futures positions. Prices have in the past exceeded the daily limit on a
number of consecutive trading days. If there is not a liquid market at a
particular time, it may not be possible to close a futures position at such
time, and, in the event of adverse price movements, the Series would continue to
be required to make daily cash payments of variation margin. However, if futures
or options are used to hedge portfolio securities, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract.
An exchange-traded option may be closed out only on a national securities
or commodities exchange which generally provides a liquid secondary market for
an option of the same series. If a liquid secondary market for an
exchange-traded option does not exist, it might not be possible to effect a
closing transaction with respect to a particular option, with the result
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<PAGE>
that the Series would have to exercise the option in order to realize any
profit. If the Series that has written an option is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise. Reasons for the absence of a liquid secondary market on
an exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Options Clearing Corporation or other clearing
organization may not at all times be adequate to handle current trading volume
and (vi) one or more exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
Because the specific procedures for trading foreign futures and options on
futures exchanges are still evolving, additional or different margin
requirements as well as settlement procedures may be applicable to foreign
futures and options at the time the Series purchases foreign futures or options.
The successful use of transactions in futures and options depends in part
on the ability of the Series to forecast correctly the direction and extent of
interest rate or securities price movements within a given time frame. To the
extent interest rates or securities prices move in a direction opposite to that
anticipated, a Series may realize a loss that is not fully or partially offset
by an increase in the value of portfolio securities. In addition, whether or not
interest rates or securities prices move during the period that the Series holds
futures or options positions, the Series will pay the cost of taking those
positions (i.e., brokerage costs). As a result, the Series' total return for
such period may be less than if it had not engaged in the futures or option
transaction.
Future Developments -- The above discussion relates to the Series' proposed
use of futures contracts, options and options on futures contracts and swap
transactions currently available. The relevant markets and related regulations
are constantly evolving. In the event of future regulatory or market
developments, the Series may also use additional types of futures contracts or
options and other similar or related investment techniques.
Writing Covered Options -- The Series listed above may write covered call or put
- -----------------------
options. A call option on a futures contract written by a Series is considered
by the Series to be covered if the Series owns the security subject to the
underlying futures contract or other securities whose values are expected to
move in tandem with the values of the securities subject to such futures
contract, based on historical price movement volatility relationships. A call
option on a security written by a Series is considered to be covered if the
Series owns a security deliverable under the option. A written call option is
also covered if the Series holds a call on the same futures contract or security
as the call written where the exercise price of the call held (a) is equal to or
less than the exercise price of the call written or (b) is greater than the
exercise price of the call written if the difference is maintained by the Series
in liquid assets in a segregated account with its custodian.
A put option on a futures contract written by a Series, or a put option on
a security written by a Series, is covered if the Series maintains cash, or
other liquid assets with a value equal to the exercise price in a segregated
account with the Series' custodian, or else holds a put on the same futures
contract (or security, as the case may be) as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written.
If the writer of an option wishes to terminate its position, it may effect
a closing purchase transaction by buying an option identical to the option
previously written. The effect of the purchase is that the writer's position
will be canceled. Likewise, the holder of an option may liquidate its position
by selling an option identical to the option previously purchased.
Closing a written call option will permit the Series to write another call
option on the portfolio securities used to cover the closed call option. Closing
a written put option will permit the Series to write another put option secured
by the segregated cash or other liquid assets used to secure the closed put
option. Also, effecting a closing transaction will permit the cash or proceeds
from the concurrent sale of any futures contract or securities subject to the
option to be used for other Series investments. If a Series desires to sell
particular securities covering a written call option position, it will close out
its position or will designate from its portfolio comparable securities to cover
the option prior to or concurrent with the sale of the covering securities.
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<PAGE>
The Series will realize a profit from closing out an option if the price of
the offsetting position is less than the premium received from writing the
option or is more than the premium paid to purchase the option; the Series will
realize a loss from closing out an option transaction if the price of the
offsetting option position is more than the premium received from writing the
option or is less than the premium paid to purchase the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the covering securities, any loss resulting from the
closing of a written call option position is expected to be offset in whole or
in part by appreciation of such covering securities.
Since premiums on options having an exercise price close to the value of
the underlying securities or futures contracts usually have a time value
component (i.e. a value that diminishes as the time within which the option can
be exercised grows shorter) an option writer may profit from the lapse of time
even though the value of the futures contract (or security in some cases)
underlying the option (and of the security deliverable under the futures
contract) has not changed. Consequently, profit from option writing may or may
not be offset by a decline in the value of securities covering the option. If
the profit is not entirely offset, the Series will have a net gain from the
options transaction, and the Series' total return will be enhanced. Likewise,
the profit or loss from writing put options may or may not be offset in whole or
in part by changes in the market value of securities acquired by the Series when
the put options are closed.
Over-the-Counter Options -- An over-the-counter option (an option not
traded on a national securities exchange) may be closed out only with the other
party to the original option transaction. While a Series will seek to enter into
over-the-counter options only with dealers who agree to and are expected to be
capable of entering into closing transactions with the Series, there can be no
assurance that the Series will be able to liquidate an over-the-counter option
at a favorable price at any time prior to its expiration. Accordingly, the
Series might have to exercise an over-the-counter option it holds in order to
realize any profit thereon and thereby would incur transactions costs on the
purchase or sale of the underlying assets. If the Series cannot close out a
covered call option written by it, it will not be able to sell the underlying
security until the option expires or is exercised. Furthermore, over-the-counter
options are not subject to the protections afforded purchasers of listed options
by the Options Clearing Corporation or other clearing organizations.
The staff of the Securities and Exchange Commission (the "SEC") has taken
the position that over-the-counter options on U.S. Government Securities and the
assets used as cover for written over-the-counter options on U.S. Government
Securities should generally be treated as illiquid securities. However, if a
dealer recognized by the Federal Reserve Bank of New York as a "primary dealer"
in U.S. Government Securities is the other party to an option contract written
by a mutual fund such as a Series, and such Series has the absolute right to
repurchase the option from the dealer at a formula price established in a
contract with the dealer, the SEC staff has agreed that the Series only needs to
treat as illiquid that amount of the "cover" assets equal to the amount by which
(i) the formula price exceeds (ii) any amount by which the market value of the
securities subject to the options exceeds the exercise price of the option (the
amount by which the option is "in-the-money").
Purchasing and Selling Futures (and options thereon) -- The Series listed above
- ----------------------------------------------------
may purchase and sell futures and options on futures.
Futures Contracts -- A futures contract is an agreement between two
parties to buy and sell a commodity or financial instrument (e.g., an
interest-bearing security, a currency or, in the case of futures contracts on
the S&P 500 Index, the value of the basket of securities comprising the Index)
for a specified price on a specified future date. In the case of futures on an
index, the seller and buyer agree to settle in cash, at a future date, based on
the difference in value of the contract between the date it is opened and the
settlement date. The value of each contract is equal to the value of the index
from time to time multiplied by a specified dollar amount. For example,
long-term municipal bond index futures trade in contracts equal to $1000
multiplied by the Bond Buyer Municipal Bond Index.
When a trader, such as a Series, enters into a futures contract, it is
required to deposit with (or for the benefit of) its broker, as "initial
margin," an amount of cash or short-term high-quality securities (such as U.S.
Treasury Bills) equal to approximately 2% to 20% of the delivery or settlement
price of the contract (depending on applicable exchange rules). Initial margin
is held to secure the performance of the holder of the futures contract. As the
value of the contract changes, the value of futures contract positions increases
or declines. At the end of each trading day, the amount of such increase or
decline is received or paid respectively by and to the holders of these
positions. The amount received or paid is known as "variation margin" or
"maintenance margin." A Series with a long position in a futures contract will
establish a segregated account with the Series' custodian containing liquid
assets equal to the purchase price of the contract (less any margin on deposit).
For short positions in futures contracts, a Series will establish a segregated
account with the custodian with liquid
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<PAGE>
assets that, when added to the amounts deposited as margin, equal the market
value of the instruments or currency underlying the futures contracts.
Although futures contracts by their terms may require actual delivery and
acceptance of securities, in most cases the contracts are closed out before
settlement. Closing out a futures sale is effected by purchasing a futures
contract for the same aggregate amount of the specific type of financial
instrument or commodity and with the same delivery date. Similarly, the closing
out of a futures purchase is effected by the purchaser selling an offsetting
futures contract.
Gain or loss on a futures position is equal to the net variation margin
received or paid over the time the position is held, plus or minus the amount
received or paid when the position is closed, minus brokerage commissions.
Stock Index may purchase and sell futures contracts on the S&P 500 Index
solely for the purpose of reducing the risk of tracking error arising from
holding cash from new investments in the Series or in anticipation of
shareholder redemptions. The Managed Series may purchase and sell futures
contracts on interest-bearing securities or indices thereof, or on indices of
stock prices (such as the S&P 500 Index), to increase or decrease its portfolio
exposure to common stocks or to increase or decrease its portfolio exposure to
notes and bonds. Growth and Income may engage in transactions in futures
contracts solely for the purpose of maintaining full exposure of the portfolio
to the movements of broad equity markets at times when the Series holds a cash
position pending investment in stocks or in anticipation of redemptions.
Options on Futures -- An option on a futures contract obligates the writer,
in return for the premium received, to assume a position in a futures contract
(a short position if the option is a call and a long position if the option is a
put), at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the futures position by the writer
of the option to the holder of the option generally will be accompanied by
delivery of the accumulated balance in the writer's futures margin account,
which represents the amount by which the market price of the futures contract,
at exercise, exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option. The premium paid by the purchaser of an
option will reflect, among other things, the relationship of the exercise price
to the market price and volatility of the underlying contract, the remaining
term of the option, supply and demand and interest rates. Options on futures
contracts traded in the United States may only be traded on a United States
board of trade licensed by the Commodity Futures Trading Commission.
The Fund, on behalf of each of the Series, has notified the Commodities
Futures Trading Commission, pursuant to Rule 4.5 under the Commodity Exchange
Act, that it desires to claim exclusion from the definition of the term
"Commodity Pool Operator". In connection with such exclusion, the Fund has
represented, on behalf of each Series, that the Fund will operate the Series in
a manner such that the Series:
(i) Will use commodity futures or commodity options contracts solely for
bona fide hedging purposes within the meaning and intent of Commission Rule
1.3(z)(1); provided, however, that, in addition, with respect to positions in
commodity futures or commodity option contracts which do not come within the
meaning and intent of Rule 1.3(z)(1), the Series may enter into commodity
futures and commodity options contracts for which the aggregate initial margin
and premiums required to establish such positions will not exceed 5 percent of
the liquidation value of the Series' assets, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into; provided, further, that in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount as defined in Commission Rule
190.01(x) may be excluded in computing such 5%;
(ii) Will not be, and has not been, marketing participation to the public
as or in a commodity pool or otherwise as or in a vehicle for trading in the
commodity futures or commodity options markets;
(iii) Will disclose in writing to each prospective participant the purpose
of and the limitations on the scope of the commodity futures and commodity
options trading in which the Series intends to engage; and
(iv) Will submit to such special calls as the under the Commodity Futures
Trading Commission may make to require the Fund on behalf of the Series to
demonstrate compliance with the provisions of Rule 4.5(c) under the Commodity
Exchange Act.
For a discussion of additional risks related to futures and options, see
the discussion below.
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<PAGE>
Eurodollar Futures and Options -- The Series listed above may make investments
- ------------------------------
in Eurodollar instruments, which are typically dollar-denominated futures
contracts or options on those contracts that are linked to the London Interbank
Offered Rate ("LIBOR"), although foreign currency denominated instruments are
available from time to time. Eurodollar futures contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. A Series might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.
Loan Participations and Assignments -- Strategic Bond may invest in fixed and
- -----------------------------------
floating rate loans ("Loans") arranged through private negotiations between a
foreign sovereign entity and one or more financial institutions ("Lenders"). The
Series may invest in such Loans in the form of participations in Loans
("Participations") and assignments of all or a portion of Loans from third
parties ("Assignments"). Participations typically will result in the Series
having a contractual relationship only with the Lender, not with the borrower.
The Series will have the right to receive payments of principal, interest and
any fees to which it is entitled only from the Lender selling the Participation
and only upon receipt by the Lender of the payments from the borrower. In
connection with purchasing Participations, the Series generally will have no
right to enforce compliance by the borrower with the terms of the loan agreement
relating to the Loan, nor any rights of set-off against the borrower, and the
Series may not benefit directly from any collateral supporting the Loan in which
it has purchased the Participation. As a result, the Series will assume the
credit risk of both the borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Series may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. When the
Series purchases Assignments from Lenders, the Series will acquire direct rights
against the borrower on the Loan, except that under certain circumstances such
rights may be more limited than those held by the assigning Lender.
The Series may have difficulty disposing of Assignments and
Participations. Because the market for such instruments is not highly liquid,
the Series anticipates that such instruments could be sold only to a limited
number of institutional investors. The lack of a highly liquid secondary market
may have an adverse impact on the value of such instruments and will have an
adverse impact on the Series' ability to dispose of particular Assignments or
Participations in response to a specific economic event, such as deterioration
in the creditworthiness of the borrower. The Series currently intends to treat
all investments in Participations and Assignments as illiquid.
Swaps, Caps, Floors, Collars, Etc. -- The Series listed above may enter into
- ----------------------------------
interest rate, currency and index swaps, the purchase or sale of related caps,
floors and collars and other derivatives. A Series will enter into these
transactions primarily to seek to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a portfolio anticipates purchasing at a
later date. A Series will not sell interest rate caps or floors if it does not
own securities or other instruments providing the income the portfolio may be
obligated to pay. Interest rate swaps involve the exchange by a Series with
another party of their respective commitments to pay or receive interest (for
example, an exchange of floating rate payments for fixed rate payments with
respect to a notional amount of principal). The purchase of an interest rate cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling the cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of an interest rate floor
entitles the purchaser to receive payments of interest on a notional principal
amount from the party selling the interest rate floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values. A currency swap is an agreement
to exchange cash flows on a notional amount based on changes in the values of
the reference currencies.
A Series will usually enter into interest rate swaps on a net basis, that
is, two payment streams are netted out in a cash settlement on the payment date
or dates specified in the instrument, with the portfolio receiving or paying, as
the case may be, only the net amount of the two payments. To the extent that a
Series maintains in a segregated account with its custodian liquid assets
sufficient to meet its obligations under swaps, caps, floors, collars and other
similar derivatives (see below) these investments will not constitute senior
securities under the 1940 Act , as amended, and, thus, will not be treated as
being subject to the Series' borrowing restrictions. A Series will not enter
into any swap, cap, floor, collar or other derivative transaction unless the
counterparty is deemed creditworthy by that Series' adviser or subadviser. If a
counterparty defaults, the Series may have contractual remedies pursuant to the
agreements related to the transaction. Caps, floors and collars may not be as
liquid as swaps.
The liquidity of such agreements will be determined by a Series' adviser or
subadviser based on various factors, including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender
-31-
<PAGE>
features), and (5) the nature of the marketplace for trades (including the
ability to assign or offset a portfolio's rights and obligations relating to the
investment). Such determination will govern whether a swap will be deemed to be
within the 15% restriction on investments in illiquid securities.
Each Series will maintain cash and appropriate liquid assets in a
segregated custodial account to cover its current obligations under swap
agreements. If a Series enters into a swap agreement on a net basis, it will
segregate assets with a daily value at least equal to the excess, if any, of the
Series' accrued obligations under the swap agreement over the accrued amount the
Series is entitled to receive under the agreement. If a Series enters into a
swap agreement on other than a net basis, it will segregate assets with a value
equal to the full amount of the Series' accrued obligations under the agreement.
Inverse Floaters -- The Series listed above may invest in inverse floaters,
- ----------------
which are derivative mortgage securities. Inverse floaters are structured as a
class of security that receives distributions on a pool of mortgage assets and
whose yields move in the opposite direction of short-term interest rates,
sometimes at an accelerated rate. Inverse floaters may be issued by agencies or
instrumentalities of the U.S. Government, or by private issuers, including
savings and loan associations, mortgage banks, commercial banks, investment
banks and special purpose subsidiaries of the foregoing. Inverse floaters have
greater volatility than other types of mortgage securities in which the Series
invest (with the exception of stripped mortgage securities). Inverse floaters
may not be as liquid as other securities in which the Series may invest.
Structured Notes -- The Series listed above may invest in a broad category of
- ----------------
instruments known as "structured notes." These instruments are debt obligations
issued by industrial corporations, financial institutions or governmental or
international agencies. Traditional debt obligations typically obligate the
issuer to repay the principal plus a specified rate of interest. Structured
notes, by contrast, obligate the issuer to pay amounts of principal or interest
that are determined by reference to changes in some external factor or factors.
For example, the issuer's obligations could be determined by reference to
changes in the value of a commodity (such as gold or oil), a foreign currency,
an index of securities (such as the S&P 500 Index) or an interest rate (such as
the U.S. Treasury bill rate). In some cases, the issuer's obligations are
determined by reference to changes over time in the difference (or "spread")
between two or more external factors (such as the U.S. prime lending rate and
the LIBOR). In some cases, the issuer's obligations may fluctuate inversely with
changes in an external factor or factors (for example, if the U.S. prime lending
rate goes up, the issuer's interest payment obligations are reduced). In some
cases, the issuer's obligations may be determined by some multiple of the change
in an external factor or factors (for example, three times the change in the
U.S. Treasury bill rate). In some cases, the issuer's obligations remain fixed
(as with a traditional debt instrument) so long as an external factor or factors
do not change by more than the specified amount (for example, if the U.S.
Treasury bill rate does not exceed some specified maximum); but if the external
factor or factors change by more than the specified amount, the issuer's
obligations may be sharply increased or reduced.
Structured notes can serve many different purposes in the management of
the Series. For example, they can be used to increase the Series' exposure to
changes in the value of assets that the Series would not ordinarily purchase
directly (such as gold or oil). They can also be used to hedge the risks
associated with other investments the Series hold. For example, if a structured
note has an interest rate that fluctuates inversely with general changes in
market interest rates, the value of the structured note would generally move in
the opposite direction to the value of traditional debt obligations, thus
moderating the effect of interest rate changes in the value of a Series'
portfolio as a whole.
Structured notes involve special risks. As with any debt obligation,
structured notes involve the risk that the issuer will become insolvent or
otherwise default on its payment obligations. The risk is in addition to the
risk that the issuer's obligations (and thus the value of a Series' investment)
will be reduced because of changes in the external factor or factors to which
the obligations are linked. The value of structured notes will in many cases be
more volatile (that is, will change more rapidly or severely) than the value of
traditional debt instruments. Volatility will be especially high if the issuer's
obligations are determined by reference to some multiple of the change in the
external factor or factors. Many structured notes have limited or no liquidity,
so that a Series would be unable to dispose of the investment prior to maturity.
(Each Series is not permitted to invest more than 15% of its net assets in
illiquid investments.) As with all investments, successful use of structured
notes depends in significant part on the accuracy of the subadviser's analysis
of the issuer's creditworthiness and financial prospects, and of the
subadviser's forecast as to changes in relevant economic and financial market
conditions and factors. In instances where the issuer of a structured note is a
foreign entity, the usual risks associated with investments in foreign
securities (described above) apply.
When-Issued Securities -- The Series listed above may invest in when-issued
- ----------------------
securities. If the value of a "when-issued" security being purchased falls
between the time a Series commits to buy it and the payment date, the Series may
sustain a loss. The risk of this loss is in addition to the Series' risk of loss
on the securities actually in its portfolio at the time. In
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<PAGE>
addition, when the Series buys a security on a when-issued basis, it is subject
to the risk that market rates of interest will increase before the time the
security is delivered, with the result that the yield on the security delivered
to the Series may be lower than the yield available on other, comparable
securities at the time of delivery or lost investment opportunity with respect
to liquid assets in the event the counter-party defaults on its obligation to
deliver the security on the settlement date. The Series will maintain assets in
a segregated account in an amount sufficient to satisfy its outstanding
obligations to buy securities on a "when-issued" basis.
Forward Commitments -- The Series listed above may purchase securities on a
- -------------------
forward commitment basis; that is, make contracts to purchase securities for a
fixed price at a future date beyond the customary three-day settlement period. A
Series is required to hold and maintain in a segregated account with the
custodian, until three-days prior to settlement date, cash or other liquid
assets in amount sufficient to meet the purchase price. Alternatively, a Series
may enter into offsetting contracts for the forward sale of other securities it
owns. The purchase of securities on a forward commitment basis involves risk of
loss if the value of the security to be purchased declines prior to the
settlement date or lost investment opportunity with respect to liquid assets in
the event the counter-party defaults on its obligation to deliver the security
on the settlement date. Although a Series will generally purchase securities on
a forward commitment basis with the intention of acquiring such securities for
its portfolio, a Series may dispose of forward commitments prior to settlement
if the subadviser deems it appropriate to do so.
Short Sales "Against the Box" -- The Series listed above may engage in short
- -----------------------------
sales "against the box." A short sale is a transaction in which a party borrows
a security and then sells the borrowed security to another party. The Series may
engage in short sales, but only if the Series owns (or has the right to acquire
without further consideration) the security it has sold short, a practice known
as selling short "against the box." Short sales against the box may protect the
Series against the risk of losses in the value of its portfolio securities
because any unrealized losses with respect to such securities should be wholly
or partially offset by a corresponding gain in the short position. However, any
potential gains in such securities should be wholly or partially offset by a
corresponding loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or otherwise, a
subadviser does not want to sell the security.
Lending of Portfolio Securities - Each Series may lend its portfolio securities
- -------------------------------
to broker-dealers under contracts calling for cash collateral equal to at least
the market value of the securities loaned, marked to market on a daily basis.
The Series will continue to benefit from interest or dividends on the securities
loaned and will also receive interest through investment of the cash collateral
in short-term liquid investments, which may include shares of money market funds
subject to any investment restriction described herein. Any voting rights, or
rights to consent, relating to securities loaned pass to the borrower. However,
if a material event affecting the investment occurs, such loans may be called so
that the securities may be voted by the Series. A Series pays various fees in
connection with such loans, including shipping fees and reasonable custodian and
placement fees.
RESOLVING MATERIAL CONFLICTS
Currently, shares in the Fund are available only to separate accounts
established by New England Financial ("NEF"), Metropolitan Life Insurance
Company ("MetLife"), General American Life Insurance Company ("General
American"), Security First Life Insurance Company ("Security First Group") and
their affiliates or their subsidiaries as an investment vehicle for variable
life insurance or variable annuity products. In the future, however, such shares
may be offered to separate accounts of insurance companies unaffiliated with
NEF, MetLife, General American, or Security First Group.
A potential for certain conflicts of interest exists between the interests
of variable life insurance contract owners and variable annuity contract owners.
Pursuant to conditions imposed in connection with related regulatory relief
granted by the SEC, the Fund's Board of Trustees has an obligation to monitor
events to identify conflicts that may arise from the sale of shares to both
variable life insurance and variable annuity separate accounts or to separate
accounts of insurance companies not affiliated with NEF, MetLife, General
American, or Security First Group. Such events might include changes in state
insurance law or federal income tax law, changes in investment management of any
Series of the Fund or differences between voting instructions given by variable
life insurance and variable annuity contract owners. Insurance companies
investing in the Fund will be responsible for proposing and executing any
necessary remedial action and the Board of Trustees has an obligation to
determine whether such proposed action adequately remedies any such conflicts.
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<PAGE>
DETERMINATION OF NET ASSET VALUES
The net asset value per share of each Series is determined as of the close
of regular trading on the New York Stock Exchange on each day the New York Stock
Exchange is open. The New York Stock Exchange is currently expected to be closed
on weekend days and on the following holidays each year: New Year's Day, Martin
Luther King Day, Presidents Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Because foreign exchanges are not
always closed at the same time that the New York Stock Exchange is closed, the
price of securities primarily traded on foreign exchanges may increase or
decrease when the New York Stock Exchange is closed. Therefore, the net assets
value of Series that hold these securities may change on days that separate
accounts will not be able to purchase or redeem Fund shares.
Expenses of each Series are paid or accrued each day.
ALL SERIES (OTHER THAN MONEY MARKET)
Each Series other than Money Market values its securities in the manner set
forth below.
Equity securities traded on a national securities exchange or exchanges or
the NASDAQ National Market System are valued at their last sale price on the
principal trading market. Equity securities traded on a national securities
exchange or exchanges or on the NASDAQ National Market System for which there is
no reported sale during the day, and equity securities not so traded, are valued
at the last reported bid price. Equity securities traded over-the-counter are
valued at the last reported bid price or at the average of the last reported bid
and asked price, according to the subadviser's valuation policies. Equity
securities for which current market quotations are not readily available
(including restricted securities, if any) are valued at fair value, as described
below.
Exchange traded and other fixed-income securities are valued at the last
reported sale price. Other fixed-income securities (other than short term
obligations maturing in 60 days or less, which are valued using the amortized
cost method which approximates market value) are valued on the basis of market
valuations furnished by a pricing service selected by the Series' adviser or
subadviser, pursuant to the authorization of the Board of Trustees. The pricing
service employed will be one that determines valuations of normal
institutional-sized trading units of long-term debt securities.
An option purchased by a Series generally will be valued at the last sale
price or, in the absence of the last sale price, the last offer price.
A futures contract will generally be valued at the unrealized gain or loss
on the contract to the current settlement price, but this valuation method may
not be used if the market makes a limit move with respect to a particular
futures contract or if the securities underlying the futures contract experience
significant price fluctuations after determination of the settlement price. When
settlement price is not used, futures contracts will be valued at fair value as
described below.
Securities traded primarily on an exchange outside the United States which
closes before the close of the New York Stock Exchange generally will be valued
for purposes of calculating a Series' net asset value at the last sale price on
that non-U.S. exchange, except that when an occurrence after the closing of that
exchange may materially change such security's value, the respective adviser or
subadviser may value the security at fair value, as described below.
The value of any assets for which the market price is expressed in terms of
foreign currency will be translated into U.S. dollars at the prevailing market
rate on the date of net asset value computation, or, if no such rate is quoted
at such time , at such other appropriate rate as may be determined by the
Series' adviser or subadviser acting under the supervision of the Fund's Board
of Trustees. The U.S. dollar value of forward foreign currency contracts is
determined using forward currency exchange rates supplied by a quotation
service. All contracts are "marked-to-market" daily at the applicable
transaction rates, and any gains or losses are recorded for financial statement
purposes as unrealized until settlement date.
Fair Value. As noted above, certain securities and assets of each Series
may be valued at their fair market value. Fair market value is determined in
good faith by the adviser or subadviser of that Series acting under the
supervision of the Fund's Board of Trustees although the actual calculations may
be made by a pricing service selected by the Series' adviser or subadviser and
approved by the Board. Such valuations are determined by using methods based on
market transactions for comparable securities and on various relationships
between securities that are generally recognized by institutional traders.
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<PAGE>
MONEY MARKET
The portfolio securities of Money Market will be valued at amortized cost.
Under the amortized cost method of valuation, securities are valued at cost on
the date of purchase. Thereafter the values of securities purchased at a
discount or premium are increased or decreased incrementally each day so that at
maturity the purchase discount or premium is fully amortized and the value of
the security is equal to its principal amount. Due to fluctuations in interest
rates, the amortized cost value of the securities of the Money Market may at
times be more or less than their market value.
By using amortized cost valuation, the Money Market seeks to maintain a
constant net asset value of $100 per share despite minor shifts in the market
value of its portfolio securities. The yield on a shareholder's investment may
be more or less than that which would be recognized if the net asset value per
share of the Money Market were not constant and were permitted to fluctuate with
the market value of the portfolio securities of the Series. However, as a result
of the following procedures, the Fund believes any difference will normally be
minimal. Quarterly, the Fund's Trustees monitor the deviation between the net
asset value per share of the Series as determined by using available market
quotations and its amortized cost price per share. Back Bay Advisors makes such
comparisons at least weekly and will advise the Trustees promptly in the event
of any significant deviation. If the deviation exceeds 0.50% the Board of
Trustees will consider what action, if any, should be initiated to provide fair
valuation of the portfolio securities of Money Market and prevent material
dilution or other unfair results to shareholders. Such action may include
selling portfolio securities prior to maturity, withholding dividends or
utilizing a net asset value per share as determined by using available market
quotations.
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<PAGE>
FUND PERFORMANCE
Information about the performance of the Series is set forth below and,
from time to time, the Fund may use this information in advertisements.
Performance information about a Series is based on that Series' past performance
- --------------------------------------------------------------------------------
and is not intended to indicate future performance. The Fund serves as the
- --------------------------------------------------
underlying investment vehicle for variable life insurance and variable annuity
products and its shares cannot be purchased directly. Therefore, such
performance information does not reflect any of the charges assessed against the
insurance company separate accounts or the variable life insurance or variable
annuity products for which the Fund serves as an investment vehicle.
Each Series may include its total return in advertisements or other
written material. Total return is measured by comparing the value of a
hypothetical $1,000 investment in the Series at the beginning of the relevant
period to the value of the investment at the end of the period (assuming
immediate reinvestment of any dividends or capital gains distributions). Total
return reflects the bearing or deferral of certain expenses in the past or
currently by NEF or NEIM. If these arrangements had not been in effect, certain
Series' total return would have been lower (see "Effect of Expense Deferrals and
Limits" below).
<TABLE>
<CAPTION>
AVERAGE AVERAGE AVERAGE
ANNUAL ANNUAL ANNUAL
AVERAGE TOTAL TOTAL TOTAL
ANNUAL RETURN RETURN RETURN
TOTAL FOR THE FOR THE SINCE
RETURN FOR FIVE TEN COMMENCEMENT
THE YEAR YEARS YEARS OF OFFERING
ENDING ENDING ENDING THROUGH
12/31/99 12/31/99 12/31/99 12/31/99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Series
Small Cap 31.8% 22.2% 18.6% (1)
International Equity (2) 24.6% 8.4% 8.6%
Equity Growth 34.1% 33.2% 30.9%
Capital Growth 15.7% 26.2% 16.9% 23.3% (3)
Mid Cap Value(4) 0.3% 11.3% 10.6%
Venture Value 17.5% 25.8% 24.0%
Growth and Income 9.4% 24.0% 19.7%
Stock Index 20.4% 27.9% 17.7% 16.3%
Balanced Series (5) -5.1% 11.9% 11.5%
Managed Series 10.0% 20.3% 13.8% 13.0%
Strategic Bond Series 1.4% 9.4% 8.8%
Bond Income -0.5% 8.8% 8.6% 9.6% (3)
U.S. Government Series 0.2% 6.8% 6.7%
Money Market 5.0% 5.3% 5.1% 6.3% (3)
Investors 2.9% (6)
Research Managers 19.8% (6)
</TABLE>
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<PAGE>
(1) Represents unannualized total return for the period May 2, 1994, when Small
Cap commenced operations, to December 31, 1994. The Series was not
available through variable insurance or variable annuity products until
October 31, 1994.
(2) Effective May 1, 1997, MSAM began managing the Series, succeeding Draycott
Partners, Ltd.
(3) Capital Growth, Bond Income and Money Market commenced operations on August
26, 1983 and their Average Annual Total Returns From Commencement of
Offering have been calculated for the period beginning with that date.
These returns would not change if they had been calculated for the period
beginning with September 1, 1983, which is the period for which the Average
Annual Total Returns Since Commencement of Offering have been calculated
for the S&P 500, Lehman Intermediate Government/Corporate Bond Index,
Consumer Price Index and Dow Jones Industrial Average (unless otherwise
indicated).
(4) On May1, 2000, Harris Associates became subadviser to the Series,
succeeding Goldman Sachs Asset Management ("GSAM"). On May 1, 1998, GSAM
became subadviser to the Series, succeeding Loomis Sayles.
(5) On May 1, 2000, Wellington Management became subadviser to the Series,
succeeding Loomis Sayles.
(6) Represents unannualized total return for the period April 30, 1999, when
the Series commenced operations, to December 31, 1999.
Calculations of Yield and Total Return
- --------------------------------------
Yield and Effective Yield of Money Market. Money Market's yield represents
-----------------------------------------
the net change, exclusive of capital changes, in the value of a hypothetical
account having a balance of one share at the beginning of the period for which
yield is determined (the "base period"). Current yield for the base period (for
example, seven calendar days) is calculated by dividing (i) the net change in
the value of the account for the base period by (ii) the number of days in the
base period. The resulting number is then multiplied by 365 in order to
determine such net change on an annualized basis. This amount is divided by the
value of the account as of the beginning of the base period, normally $100, in
order to state the current yield as a percentage. Yield may also be calculated
on an "effective" or a "compound" basis, which assumes continual reinvestment
throughout an entire year of net income earned at the same rate as net income is
earned by the account for the base period. Yield is calculated without regard to
realized and unrealized gains and losses. The yield of Money Market will vary
depending on prevailing interest rates, the operating expenses of Money Market
and the quality, maturity and type of instruments held in the portfolio of Money
Market. Yield information may be useful in reviewing Money Market's performance
and providing a basis for comparison with other investment alternatives,
although the yield of Money Market does not take into account any of the fees
imposed in connection with the purchase of variable insurance policies or
variable annuity contracts offered by NEF, MetLife, General American, Security
First Group or their affiliates. However, unlike certain bank deposits or other
investments which pay a fixed yield for a stated period of time, money market
fund yields fluctuate. Consequently no yield quotation should be considered as
representative of what the yield of Money Market may be for any specified period
in the future.
For the seven day period ending December 31, 1999, Money Market had a yield of
5.47% and an effective yield of 5.62%.
Calculation of Total Return. Total return is a measure of the change in
---------------------------
value of an investment in a Series over the period covered, which assumes that
any dividends or capital gain distributions are automatically reinvested in the
Series rather than paid to the investor in cash. Total return may be higher or
lower than past performance, and there can be no assurance that any historical
results will continue.
The formula for total return used by a Series includes three steps: (1)
adding to the total number of shares purchased by a hypothetical $1,000
investment in a Series all additional shares that would have been purchased if
all dividends and distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the value of the hypothetical initial
investment as of the end of the period by multiplying the total number of shares
owned at the end of the period by the net asset value per share on the last
trading day of the period; and (3) dividing this account value for the
hypothetical investor by the amount of the initial investment and annualizing
the result for periods of less than one year. Total return reflects the bearing
or deferral of certain expenses by NEIM. Total return would be lower for these
Series if these expense arrangements had not been in effect. Total return does
not reflect charges assessed against the insurance company separate accounts or
the variable life insurance or variable annuity products for which the Fund
serves as an investment vehicle. Total return of a Series should only be
considered along with investment return information for those separate accounts
or the variable life insurance or variable annuity products.
-37-
<PAGE>
Performance Comparisons
- -----------------------
Total Return. Each Series may, from time to time, include its total return
------------
in advertisements or in other written information furnished to present and
prospective owners of the variable life insurance and variable annuity contracts
supported by the Fund. In addition, each Series may, from time to time, provide
a ranking of such performance figures relative to similar figures for mutual
funds whose performance has been monitored by Lipper Analytical Services, Inc.
("Lipper") or Morningstar, Inc. Performance information about a Series is based
on the Series' past performance and is not intended to indicate future
performance.
Total return may also be used to compare the performance of a Series
against certain widely acknowledged standards or indices for stock and bond
market performance, including, but not limited to, the S&P 500 Index, the Dow
Jones Industrial Average, the Lehman Government/Corporate Bond Index, the Lehman
Intermediate Government/Corporate Bond Index, the S&P/BARRA Growth Index, the
S&P/BARRA Value Index, the Lipper Variable Products Balanced Fund Average, the
Lipper Variable Products Growth and Income Average, the Lipper Variable Products
A-Rated Corporate Bond Fund Average, the Lipper Variable Products Flexible
Portfolio Fund Average, the Lipper Variable Products General Bond Fund Average,
the Lipper Variable Products Growth Fund Average, the Lipper Variable Products
International Fund Average, the Lipper Variable Products Intermediate Investment
Grade Debt Fund Average, the Lipper Variable Small Company Fund Average, the
Lipper Variable S&P 500 Index Fund Average, the Lipper Variable U.S. Mortgage
and GNMA Fund Average, the Russell 2000 Index, the Russell 1000 Index, the
Russell Mid Cap Index, the Lehman Brothers Aggregate Bond Index, the Lehman
Brothers Intermediate Government Bond Index and the Morgan Stanley Capital
International Europe, AustraAsia, Far East Index, or against the U.S. Bureau of
Labor Statistics' Consumer Price Index.
The S&P 500 Index is a market value-weighted and unmanaged index showing
the changes in the aggregate market value of 500 stocks relative to the base
period 1941-43. The S&P 500 Index is composed almost entirely of common stocks
of companies listed on the New York Stock Exchange, although the common stocks
of a few companies listed on the American Stock Exchange or traded
over-the-counter are included.
The Dow Jones Industrial Average ("DJIA") is a market value-weighted and
unmanaged index of 30 large industrial stocks traded on the New York Stock
Exchange.
The Lehman Government/Corporate Bond Index is a measure of the market value
of approximately 5,300 bonds. To be included in the Lehman Government/Corporate
Bond Index, an issue must have amounts outstanding in excess of $100 million,
have at least one year to maturity and be rated "Baa" or higher ("investment
grade") by a nationally recognized rating agency.
The Lehman Intermediate Government/Corporate Bond Index is an unmanaged
index of investment grade bonds issued by the U.S. Government and U.S.
corporations having maturities between one and ten years.
The Consumer Price Index, published by the U.S. Bureau of Labor Statistics,
is a statistical measure of changes, over time, in the prices of goods and
services in major expenditure groups.
The S&P/BARRA Growth Index is an unmanaged index of more than 150 large
capitalization stocks that have high historical earnings growth and predicted
above average earnings growth. The S&P/BARRA Value Index is an unmanaged index
of more than 300 large capitalization stocks characterized by low price-to-book
ratios, high yield and low price-to-earnings ratios. Both the S&P/BARRA Growth
Index and the S&P/BARRA Value Index are compiled by BARRA.
The Lipper International Fund Index is an index of 30 international funds
which are determined to reflect the general movement of the entire universe of
international funds tracked by Lipper Analytical Services.
The Lipper Variable Products Balanced Fund Average is a measure of the
performance of the largest open-end balanced mutual funds that underlie variable
contracts.
The Lipper Variable Products Growth and Income Average represents a
grouping of funds underlying variable contracts which have growth and income as
their investment objectives.
The Lipper Variable Products A-Rated Corporate Bond Fund Average represents
a grouping of funds underlying variable contracts which have similar investment
objectives as calculated by Lipper Analytical Services.
Lipper Variable Products Flexible Portfolio Fund Average represents a
grouping of funds underlying variable contracts which have similar investment
objectives as calculated by Lipper Analytical Services.
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<PAGE>
The Lipper Variable Products General Bond Fund Average represents a
grouping of funds underlying variable contracts which have similar investment
objectives as calculated by Lipper Analytical Services.
Lipper Variable Products Growth Fund Average represents a grouping of funds
underlying variable contracts which have similar investment objectives as
calculated by Lipper Analytical Services.
The Lipper Variable Products International Fund Average represents a
grouping of funds underlying variable contracts which have similar investment
objectives as calculated by Lipper Analytical Services.
The Lipper Variable Products Intermediate Investment Grade Debt Fund
Average represents a grouping of funds underlying variable contracts which have
similar investment objectives as calculated by Lipper Analytical Services.
The Lipper Variable Products Small Company Fund Average represents a
grouping of funds underlying variable contracts which have similar investment
objectives as calculated by Lipper Analytical Services.
The Lipper Variable Products S&P 500 Index Fund Average represents a
grouping of funds underlying variable contracts which have similar investment
objectives as calculated by Lipper Analytical Services.
The Lehman Brothers Aggregate Bond Index is an index which includes most
obligations of the U.S. Treasury, agencies and quasi-federal corporations, most
publicly issued investment grade corporate bonds, and most bonds backed by
mortgage pools of GNMA, FNMA and FHLMC.
The Lehman Brothers Intermediate Government Bond Index is an index which
includes most obligations of the U.S. Treasury, agencies and quasi-federal
corporations having maturities of one to ten years.
The Russell 2000 Index is an unmanaged index which consists of 2000 small
market capitalization stocks having an average market cap of $526.4 million as
of its last reconstitution date, June 30, 1999. The market capitalization of the
companies comprising the Index will vary during the year. The Index is
reconstituted annually.
The Russell Midcap Index is an unmanaged index which measures the
performance of the 800 smallest companies in the Russell 1000 Index. The Russell
1000 Index represents the largest 1000 U.S. companies. As of the latest
reconstitution on June 30, 1999, the average market capitalization of companies
in the Russell Midcap Index was $12.1 billion. The market capitalization of the
companies comprising the Index will vary during the year. The Index is
reconstituted annually.
The Morgan Stanley Capital International Europe, AustralAsia, Far East
Index is an arithmetical average (weighted by market value) of the performance
(in U.S. dollars) of over 1,000 companies representing the stock markets of
Europe, Australia, New Zealand and the Far East.
From time to time, articles about a Series regarding performance, rankings
and other Series characteristics may appear in national publications including,
but not limited to, The Wall Street Journal, Forbes, Fortune, CDA Investment
Technologies and Money Magazine. In particular, some or all of these
publications may publish their own rankings or performance reviews of mutual
funds, including the Fund. References to or reprints or portions of reprints of
such articles, which may be include rankings that list the names of other funds
and their performance, may be used as Fund or variable contract sales literature
or advertising material. (See Appendix B - Advertising and Promotional
Literature.)
-39-
<PAGE>
EXPENSE DEFERRALS AND LIMITS
VOLUNTARY EXPENSE AGREEMENT
Pursuant to the voluntary expense agreement relating to Small Cap, NEIM
bears all the operating expenses (does not include amortization of expenses,
brokerage costs, interest, taxes or extraordinary expenses) of the Series in
excess of 1.00% of the Series' average daily net assets. NEIM may terminate this
expense agreement at any time without notice to or consent of shareholders of
the Series.
EXPENSE DEFERRAL ARRANGEMENT
Pursuant to an expense deferral arrangement relating to the International
Equity, Mid Cap Value, U.S. Government, Investors and Research Managers Series,
NEIM has agreed to pay the operating expenses (does not include amortization of
expenses, brokerage costs, interest, taxes, or extraordinary expenses) in excess
of stated annual expense limits (based on a Series' then-current fiscal year,
which limits vary from Series to Series, subject to the obligation of the Series
to repay NEIM such expenses in future years, if any, when a Series' expenses
fall below the stated expense limit that pertains to that Series; such deferred
expenses may be charged to a Series in a subsequent year to the extent that the
charge does not cause the total expenses in such subsequent year to exceed the
Series' stated expense limit; provided, however, that no Series is obligated to
repay any expense paid by NEIM more than two years (three in the case of
Investors Series and Research Managers Series) after the end of the fiscal year
in which such expense was incurred. The expense deferral arrangements can be
prospectively discontinued by NEIM but any expenses that were deferred while a
Series' expense limit was in place can never be charged to that Series unless
that Series' expenses fall below the limit within the prescribed time period.
The expense limits (annual rates as a percentage of each Series' net average
daily net assets) are as follows:
SERIES DEFERRAL ARRANGEMENT EXPENSE LIMIT
- --------------------------------- -------------------------------------
International Equity 1.30%
Mid Cap Value 0.90%
U.S. Government 0.70%
Investors 0.90%
Research Managers 0.90%
ADDITIONAL INFORMATION ABOUT EXPENSES
Each Series pays all expenses not borne by its adviser or subadviser or
New England Securities, including, but not limited to, the charges and expenses
of each Series' custodian, independent auditors and legal counsel for the Fund
and its independent trustees, all brokerage commissions and transfer taxes in
connection with portfolio transactions, all taxes and filing fees, the fees and
expenses for registration or qualification of its shares under federal and state
securities laws, all expenses of shareholders' and trustees' meetings and
preparing, printing and mailing prospectuses and reports to shareholders, and
the compensation of trustees of the Fund who are not directors, officers or
employees of NEF or its affiliates, other than affiliated registered investment
companies.
The table below sets forth the total expenses incurred by each Series
during the year ended December 31, 1999 and what the Series' expenses would have
been without the voluntary expense agreement or expense deferral arrangement for
the same period.
<TABLE>
<CAPTION>
TOTAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY
TOTAL OPERATING EXPENSES NET ASSETS) WITHOUT VOLUNTARY
SERIES (AS OF A PERCENTAGE OF AVERAGE DAILY EXPENSE AGREEMENT OR EXPENSE
NET ASSETS) FOR THE YEAR ENDED DEFERRAL ARRANGEMENT FOR THE YEAR
DECEMBER 31, 1999 ENDED DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Small Cap 1.00% 1.10%
International Equity 1.30% 1.30%(a)
Mid Cap Value 0.88% *
U.S. Government 0.70% 0.72%
Investors 0.90%(b) 2.03%(b)
Research Managers 0.90%(b) 2.03%(b)
</TABLE>
-40-
<PAGE>
(a) Subject to expense deferral arrangement, deferred operating
expenses were .001% of average daily net assets. (b) Computed on an
annualized basis.
*Voluntary expense agreement or expense deferral agreement had no
effect for the period presented.
These expense figures do not include portfolio brokerage commissions,
which are not deducted from the Series' assets in the same manner as other
charges and expenses; rather, brokerage commissions are part of the purchase
price paid for portfolio securities and reduce the proceeds received on the sale
of portfolio securities.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees supervises the affairs of the Fund as
conducted by the Series' advisers and subadvisers. Pursuant to separate advisory
agreements, and subject in each case to the supervision of the Fund's Board of
Trustees, NEIM is the investment adviser of each of the Series except Capital
Growth, for which CGM serves as investment adviser.
Trustees and officers of the Fund (ages in parentheses) and their principal
occupations during the past five years or more are as follows:
NANCY HAWTHORNE (49) -- Trustee; 60 Hyslop Road, Brookline, MA 02146; formerly,
-------
Chief Executive Officer and Managing Partner, Hawthorne, Krauss and
Associates (corporate financial advisor); Executive Vice President,
Enterprise Transformation MediaOne, Inc.(a cable television company);
Director, Perini Corporation (construction); Director, Avid Technologies
(computer software company); Director, CGU (property and casualty
insurance company).
DALE ROGERS MARSHALL (63) -- Trustee; 26 East Main Street, Norton, MA 02766;
-------
President, Wheaton College; formerly, Academic Dean, Wellesley College.
JOHN J. ARENA (62) -- Trustee; 330 Beacon Street, Boston, MA 02116; Retired;
-------
formerly, Vice Chairman of the Board of Directors of Bay Banks, Inc. and
President of Bay Banks Investment Management.
JOHN W. FLYNN (60) -- Trustee; 791 Main Street, Warren, RI 02885; Retired;
-------
formerly, Vice Chairman, Chief Financial Officer, Fleet Financial Group.
JOHN T. LUDES (63) -- Trustee; 1700 E. Putnam Avenue, Old Greenwich, CT 06870;
-------
Vice Chairman, formerly, President and Chief Operating Officer, American
Brands (global conglomerate); formerly, President and CEO, Acushnet
Company.
EDWARD A. BENJAMIN* (61) -- 71 Sierra Rosa Loop, Santa Fe, NM 87501; Retired;
formerly, Partner, Ropes & Gray (law firm); Director, Precision Optics
Corporation (optics manufacturer).
MARY ANN BROWN* (47) -- President, New England Products and Services, New
England Financial; formerly, President and Chief Executive officer,
Atlantic International Reinsurance Company; formerly, Director, Swiss
Reinsurance Company; formerly, Principal, Tillinghast/Towers Perrin
(consulting).
ANNE M. GOGGIN* (51) -- Chairman of the Board, Senior Vice President and
-------------------------
Trustee; Senior Vice President and Associate General Counsel, NEF; Vice
-------
President, General Counsel, Secretary and Clerk, New England Securities
Corp.
JOHN F. GUTHRIE (56) -- Senior Vice President; Vice President, NEF; Senior
---------------------
Vice President, NEIM.
ALAN C. LELAND (47) -- Senior Vice President; Senior Vice President, NEF;
---------------------
Chief Financial Officer, NEIM.
PETER DUFFY (44) -- Treasurer; Second Vice President, NEF; Senior Vice
---------
President, NEIM, since December 1998; formerly, Senior Vice President,
New England Funds, L.P.
THOMAS M. LENZ (41) -- Secretary; Counsel, NEF; Secretary, Clerk and General
---------
Counsel, NEIM (since December 1998); formerly, Vice President, State
Street Bank and Trust Company from 1996 until December 1998; Senior Vice
President U.S./Offshore Product Development and Associate General
Counsel, Signature Financial Group, Inc. prior to 1996.
* Denotes trustee who is an "interested person" (as defined in 1940 Act) of the
Fund. Edward A. Benjamin is currently an "interested person" of the Fund due to
his former position as counsel to the Fund. He is expected to cease to be
considered such an "interested person" on January 1, 2001.
-41-
<PAGE>
Messrs. Arena and Flynn and Ms. Goggin serve as members of the Executive
Committee of the Board of Trustees. The Executive Committee is authorized to
exercise broad decision-making responsibility on behalf of the Fund's Board of
Trustees with respect to issues that require immediate response and for which it
is difficult or impractical to contact all of the members of the Board within
the time frame required for the decision.
Previous positions during the past five years with NEF or its predecessor,
New England Mutual Life Insurance Company, or New England Funds, L.P. are
omitted, if not materially different. The Fund's trustees also serve as managers
of New England Variable Annuity Fund I ("NEVA"), for which New England
Securities Corporation acts as a principal underwriter and CGM acts as
investment adviser.
The address of each trustee and officer of the Fund affiliated with NEF is
New England Financial, 501 Boylston Street, Boston, Massachusetts 02116.
The officers and trustees of the Fund who are affiliates of CGM, NEIM, any
subadviser of the Fund or NES receive no compensation from the Fund, for their
services in such capacities, although they may receive compensation from NEF or
NEIM for services rendered in other capacities.
Trustees Fees
- -------------
The Fund pays no compensation to its officers or to its trustees who are
directors, officers, or employees of NEF and/or NEIM.
Each trustee who is not an interested person of the Fund (and Mr. Benjamin)
receives for serving as Trustee of the Fund and on the Board of Managers of NEVA
a retainer fee at an annual rate of $20,000, and meeting attendance fees of
$2,500 for each board meeting attended. In addition, the chairman of the
Contract Review and Governance Committee receives a retainer at the annual rate
of $6,000, and the chairman of the Audit Committee receives a retainer at the
annual rate of $4,000. The compensation is allocated among the Series and NEVA
based on a formula that takes into account, among other factors, the assets of
each Series and NEVA.
During the fiscal year ended December 31, 1999, the persons who were then
trustees of the Fund received the amounts set forth below for serving as a
trustee of the Fund and for also serving on the Board of Managers of NEVA.
Aggregate Compensation Total Compensation from the
from the Fund Fund and NEVA
Name of Trustee in 1999($) in 1999($)
- --------------- ---------- ----------
Nancy Hawthorne 36,067 37,500
Joseph M. Hinchey (a) 35,339 36,500
Robert B. Kittredge (a) 36,067 37,500
Dale Rogers Marshall 36,067 37,500
John J. Arena 41,975 43,500
John W. Flynn 34,720 36,000
John T. Ludes 33,734 35,000
Edward A. Benjamin 7,284 7,500
----------------
(a) Retired from service as a trustee of the Fund effective
December 31, 1999.
-42-
<PAGE>
The Fund provides no pension or retirement benefits to trustees, but has
adopted a deferred payment arrangement under which each trustee may elect not to
receive fees from the Fund on a current basis but to receive in a subsequent
period an amount equal to the value that such fees would have if they had been
invested in each Series on the normal payment date for such fees. As a result of
this method of calculating the deferred payments, each Series, upon making the
deferred payments, will be in the same financial position as if the fees had
been paid on the normal payment dates.
At March 31, 2000, the officers and trustees of the Fund as a group owned
less than 1% of the outstanding shares of the Fund or any Series.
ADVISORY ARRANGEMENTS
Advisory Structure. Pursuant to separate advisory agreements, each dated
------------------
August 30, 1996 (May 1, 1997 in the case of International Equity; May 1, 1998 in
the case of Mid Cap Value; April 28, 1999 in the case of Investors and Research
Managers; and January 1, 2000 in the case of Small Cap, Growth and Income, Bond
Income and Money Market), NEIM has agreed to manage the investment and
reinvestment of assets of each Series other than Capital Growth. NEIM has
delegated certain of these responsibilities, including responsibility for
determining what investments such Series should purchase, hold or sell and
directing all trading for the Series' account, for each of the Series to
subadvisers under subadvisory agreements described below. Pursuant to an
advisory agreement dated August 30, 1996, CGM has agreed to manage the
investment and reinvestment of the assets of Capital Growth.
In each case, advisory services are provided subject to the supervision and
control of the Fund's trustees. Each advisory agreement also provides that the
relevant investment adviser will furnish or pay the expenses of the applicable
Series for office space, facilities and equipment, services of executive and
other personnel of the Fund and certain administrative services. CGM, in the
case of Capital Growth, has subcontracted with NEIM to provide such services to
that Series at no extra cost to the Series.
NEIM (formerly named TNE Advisers, Inc.) is a wholly-owned subsidiary of
New England Life Holdings, Inc., which is a wholly-owned subsidiary of NEF,
which in turn is a wholly owned subsidiary of MetLife New England Holdings, Inc.
("MetLife Holdings"). MetLife Holdings is wholly owned by MetLife, which is
wholly-owned by MetLife, Inc., a publicly traded company. NEIM oversees,
evaluates and monitors the subadvisers' provision of investment advisory
services to all of the Series (except Capital Growth) and provides general
business management and administration to all of the Series (except Capital
Growth).
Subject to the supervision of NEIM, each subadviser, pursuant to
Subadvisory Agreements dated August 30, 1996 (December 16, 1996 in the case of
the Davis Venture Value Series, May 31, 1997 in the case of the Morgan Stanley
International Magnum Equity Series, November 28, 1997 in the case of the Salomon
Brothers Strategic Bond Opportunities and Salomon Brothers U. S. Government
Series, April 28, 1999 in the case of Investors and Research Managers Series and
May 1, 2000 in the case of the Harris Oakmark Mid Cap Value Series and the
Balanced Series), manages the assets of its Series in accordance with that
Series' investment objective and policies, makes investment decisions for that
Series and employs professional advisers and securities analysts who provide
research services to that Series. The Series pay no direct fees to any of the
subadvisers.
Back Bay Advisors, formed in 1986, is a limited partnership whose sole
general partner, Back Bay Advisors, Inc., is a wholly-owned subsidiary of Nvest
Holdings, Inc. which in turn is a wholly owned subsidiary of Nvest Companies,
L.P. ("Nvest Companies"). Nvest Companies owns the entire limited partnership
interest in Back Bay Advisors. Nvest Companies managing general partner, Nvest
Corporation, is a wholly owned subsidiary of MetLife New England Holdings, Inc.,
which in turn is a wholly owned subsidiary of MetLife. MetLife owns
approximately 48% of the outstanding limited partnership interest in Nvest
Companies. Nvest Companies' advising general partner, Nvest, L.P., is a
publicly-traded company listed on the New York Stock Exchange. Nvest Corporation
is the sole general partner of Nvest, L.P. Nvest Companies' 18 principal
subsidiary or affiliated asset management firms, collectively, had more than
$133 billion of assets under management as of December 31, 1999. Back Bay
Advisors provides investment management services to institutional clients,
including other registered investment companies and accounts of NEF and its
affiliates. Back Bay Advisors specializes in fixed-income management and
currently manages over $5 billion in total assets; it is subadviser to the
Managed, Bond Income and Money Market Series.
Loomis Sayles, subadviser to Small Cap, was organized in 1926 and is one of
the oldest and largest investment counsel firms in the country. An important
feature of the Loomis Sayles investment approach is its emphasis on investment
research. Recommendations and reports of the Loomis Sayles research department
are circulated throughout the Loomis Sayles organization and are available to
the individuals in the Loomis Sayles organization who have been assigned the
responsibility
-43-
<PAGE>
for making investment decisions for the Series' portfolios. Loomis Sayles
provides investment advice to numerous other institutional and individual
clients. These clients include other registered investment companies and some
accounts of NEF and its affiliates ("New England Accounts"). Loomis Sayles is a
limited partnership whose sole general partner is Loomis, Sayles & Company,
Incorporated is a wholly owned subsidiary of Nvest Holdings, Inc. Nvest
Companies owns the entire limited partnership interest in Loomis Sayles.
Wellington Management, subadviser to Balanced, is a professional investment
counseling firm that provides services to investment companies, employee benefit
plans, endowments, foundations and other institutions and individuals.
Wellington Management and its predecessor organizations have provided investment
advisory services since 1928. As of December 31, 1999, Wellington Management had
over $235 billion in total assets under management. Wellington Management is a
Massachusetts limited liability partnership. The three managing partners of
Wellington Management are Laurie A. Gabriel, Duncan M. McFarland and John R.
Ryan.
MSAM, subadviser to International Equity, conducts a worldwide investment
management business, providing a broad range of portfolio management services to
customers in the United States and abroad. MSAM is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co., which is a preeminent financial services firm
that maintains leading market positions in each of its three primary businesses
- - securities, asset management and credit services. MSAM serves as adviser to
numerous open-end and closed-end investment companies.
Fred Alger Management, Inc. ("Alger Management"), provides investment
management services to mutual funds and to other institutions and individuals;
it is subadviser to the Equity Growth. Alger Management is a wholly-owned
subsidiary of Fred Alger Company, Inc., which in turn is a wholly-owned
subsidiary of Alger Associates, Inc., a financial services holding company. Fred
M. Alger III and his brother, David D. Alger are majority owners of Alger
Associates, Inc. and may be deemed to control that company and its subsidiaries.
CGM is a limited partnership whose general partner, Kenbob, Inc., is a
corporation controlled equally by Robert L. Kemp and G. Kenneth Heebner, both
employees of CGM. In addition to advising Capital Growth, CGM acts as investment
adviser of CGM Capital Development Fund, CGM Trust, NEVA and Nvest Growth Fund
of the Nvest Funds. CGM also provides investment advice to other institutional
and individual clients.
Westpeak Investment Advisors, L.P. ("Westpeak") is a limited partnership
whose sole general partner, Westpeak Investment Advisors, Inc., is a
wholly-owned subsidiary of Nvest Holdings, Inc. Nvest Companies owns the entire
limited partnership interest in Westpeak. Organized in 1991, Westpeak provides
investment management services to mutual fund and other institutional clients,
including accounts of MetLife and its affiliates; it is subadviser to Growth and
Income and Stock Index.
Davis Selected Advisers, L.P. ("Davis Selected") provides investment
advisory services for mutual funds and other clients; it is subadviser to
Venture Value. Venture Advisers, Inc., the general partner of Davis Selected, is
controlled by Shelby M.C. Davis, President of Davis Selected. Davis Selected may
also delegate any of its responsibilities to its wholly-owned subsidiary Davis
Selected - NY, Inc. ("DSA-NY").
Salomon Brothers Asset Management Inc ("SBAM") provides investment advisory
services for individuals, other mutual funds and institutional clients; it is
subadviser to the U.S. Government Series and together with its affiliate,
Salomon Brothers Asset Management Limited ("SBAM Ltd."), to Strategic Bond.
SBAM is a corporation organized under the laws of Delaware on December 24,
1987 and is a registered investment adviser pursuant to the Investment Advisers
Act of 1940, as amended. As of February 28, 1999, SBAM and its worldwide
affiliates managed approximately $28.7 billion of assets. SBAM is a wholly owned
subsidiary of Salomon Brothers Holding Company Inc. ("SBHC"). SBHC is a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc.("SSBH"), which in turn is
a wholly owned subsidiary of Travelers Group, Inc.
("Travelers")
SBAM Ltd. is a company organized under the laws of England. SBAM Limited
provides certain advisory services to SBAM relating to currency transactions and
investments in non-dollar denominated debt securities for the benefit of the
Strategic Bond Series. SBAM Ltd. is a wholly owned subsidiary of Salomon
Brothers Europe Limited, which is a wholly-owned by Salomon (International)
Finanz AG,(25%) and Salomon International Limited (75%) which in turn is a
wholly owned subsidiary of SBHC. SBHC is a wholly-owned subsidiary of SSBH which
in turn is wholly owned by Travelers. The principal address of SBAM Ltd. and
Salomon Brothers Europe Limited is Victoria Plaza, 111 Buckingham Palace Road,
London SW1W OSB, England, and the principal address of Salomon (International)
Finanz AG is Schipfe 2, 8001 Zurich,
-44-
<PAGE>
Switzerland. SBAM Limited is a member of the Investment Management Regulatory
Organization Limited in the United Kingdom and is registered as an investment
adviser pursuant to the Investment Advisers Act of 1940, as amended.
Harris is a limited partnership managed by its general partner, Harris
Associates Inc. ("HAI"), whose directors are David G. Herro, Robert M. Levy,
Roxanne M. Martino, Victor A. Morgenstern, Anita M. Nagler, William C. Nygren,
Neal Litvack, Robert J. Sanborn and Peter S. Voss. Mr. Levy is the president and
chief executive officer of HAI. HAI is a wholly-owned subsidiary of Nvest. Nvest
owns all of the limited partnership interests in Harris Associates.
MFS, subadviser to the Investors and Research Managers Series, and its
predecessor organizations have a history of money management dating from 1924.
MFS is an indirect subsidiary of Sun Life Assurance Company of Canada ("Sun
Life").
Advisory Fees. Each Series pays its adviser compensation at the annual
-------------
percentage rates of the corresponding levels of that Series' average daily net
asset values, subject to any fee reductions or deferrals as described under
"Expense Deferral and Limits."
<TABLE>
<CAPTION>
Annual Average Daily Net
Series Percentage Rate Asset Value Levels
- ------ --------------- ------------------
<S> <C> <C>
Small Cap 0.90% the first $500 million
0.85% amounts in excess of $500 million
International Equity (a) 0.90% all assets
Equity Growth 0.75% all assets
Capital Growth (b) 0.70% the first $200 million
0.65% the next $300 million
0.60% the next $1.5 billion
0.55% amounts in excess of $2 billion
Mid Cap Value (c) 0.75% all assets
Venture Value 0.75% all assets
Growth and Income (d) 0.70% the first $200 million
0.65% the next $1.3 billion
0.60% amounts in excess of $1.5billion
Stock Index 0.25% all assets
Balanced Series (e) 0.70% the first $200 million
0.675% amounts in excess of $200 million
Managed Series 0.50% all assets
Strategic Bond 0.65% all assets
Bond Income (f) 0.40% the first $1 billion
0.35% the next $1 billion
0.30% the next $1 billion
0.25% amounts in excess of $3 billion
U.S. Government Series 0.55% all assets
Money Market (g) 0.35% the first $1 billion
0.30% the next $1 billion
0.25% amounts in excess of $2 billion
Investors 0.75% all assets
Research Managers 0.75% all assets
</TABLE>
(a) Prior to January 1, 2000, the advisory fee payable by Small Cap Series was
at the annual rate of 1.00% of the Series' average daily net assets.
-45-
<PAGE>
(b) Prior to June 18, 1998, the advisory fee payable by Capital Growth Series
was at the annual rate of 0.70% of the first $200 million of the Series' average
daily net assets; 0.65% of the next $300 million of such assets; and 0.60% of
such assets in excess of $500 million.
(c) Prior to May 1, 1998 the advisory fee payable by Mid Cap Value was at the
annual rate of 0.70% of the first $200 million of the Series' average daily net
asset; 0.65% of the next $300 million of such assets; and 0.60% of such assets
in excess of $500 million.
(d) Prior to January 1, 2000, the advisory fee payable by Growth and Income
Series was at the annual rate of 0.70% of the first $200 million of the Series'
average daily net assets; 0.65% of the next $300 million of such assets; and
0.60% of such assets in excess of $500 million.
(e) Prior to May 1, 2000, the advisory fee payable by Balanced Series was at the
annual rate of 0.70% of the Series average daily net assets.
(f) Prior to January 1, 2000, the advisory fee payable by Bond Income Series was
at the annual rate of 0.40% of the first $400 million of the Series' average
daily net assets; 0.35% of the next $300 million of such assets; 0.30% of the
next $300 million of such assets; and 0.25% of such assets in excess of $1
billion.
(g) Prior to January 1, 2000, the advisory fee payable by Money Market Series
was at the annual rate of 0.35% of the first $500 million of the Series' average
daily net assets; 0.30% of the next $500 million of such assets; and 0.25% of
such assets in excess of $1 billion.
SUBADVISORY FEES. NEIM pays each sub-adviser at the following rates for
providing subadvisory services to the following Series:
<TABLE>
<CAPTION>
Annual Percentage Rates Paid Average Daily Net Asset
Series by NEIM to the Subadvisers Value Levels
- ------ -------------------------- ------------
<S> <C> <C>
Small Cap 0.55% of the first $25 million
0.50% of the next $75 million
0.45% of the next $100 million
0.40% of amounts in excess of $200 million
International Equity * 0.75% of the first $30 million
0.60% of the next $40 million
0.45% of the next $30 million
0.40% of amounts in excess of $100 million
Equity Growth 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Mid Cap Value** 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
</TABLE>
-46-
<PAGE>
<TABLE>
<S> <C> <C>
Venture Value 0.45% of the first $100 million
0.40% of the next $400 million
0.35% of amounts in excess of $500 million
Growth and Income 0.50% of the first $25 million
0.40% of the next $75 million
0.35% of the next $100 million
0.30% of amounts in excess of $200 million
Stock Index 0.10% of all assets
Balanced Series*** 0.325% of the first $100 million
0.275% of the next $100 million
0.25% of amounts in excess of $200 million
Managed Series 0.25% of the first $50 million
0.20% of amounts in excess of $50 million
Strategic Bond 0.35% of the first $50 million
0.30% of the next $150 million
0.25% of the next $300 million
0.20% of amounts in excess of $500 million
Bond Income 0.25% of the first $50 million
0.20% of the next $200 million
0.15% of amounts in excess of $250 million
U.S. Government Series 0.225% of the first $200 million
0.150% of the next $300 million
0.100% of amounts in excess of $500 million
Money Market
0.15% of the first $100 million
0.10% of amounts in excess of $100 million
Investors 0.40% of the first $150 million
0.375%
0.350% of amounts in excess of $300 million
Research Managers 0.40% of the first $150 million
0.375% of the next $150 million
0.350% of amounts in excess of $300 million
</TABLE>
*Prior to May 1, 1997 the subadviser of International Equity was Draycott
Partners Ltd. and the subadvisory fee rate payable for the Series was 0.75% of
the first $10 million of the Series' average net assets, .60% of the next $40
million of such assets, 0.45% of such assets in excess of $50 million.
**From May 1, 1998 to April 30, 2000, the subadviser of Mid Cap Value was
Goldman Sachs Asset Management. Prior to May 1, 1998, the subadviser of Mid Cap
Value was Loomis Sayles, and the subadvisory fee rate payable for the Series was
0.50% of the first $25 million of average daily net assets, 0.40% of the next
$75 million of such assets, 0.35% of the next $100 million of such assets, and
0.30% of such assets in excess of $200 million.
***Prior to May 1, 2000, the subadviser of Balanced was Loomis Sayles, and the
subadvisory fee rate payable for the Series was 0.50% of the first $25 million
of average daily net assets, 0.40% of the next $75 million of such assets, and
0.30% of such assets in excess of $100 million.
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In connection with SBAM's service as subadviser to Strategic Bond, SBAM's
London based affiliate, SBAM Ltd. serves as subadviser to SBAM relating to
currency transactions and investments in non-dollar denominated debt securities
for the benefit of the Salomon Brothers Strategic Bond Opportunities Series. For
these services, SBAM has agreed to pay SBAM Ltd. one-third of the compensation
that SBAM receives for serving as subadviser to the Series.
In connection with Davis Selected's service as subadviser to Venture Value,
Davis Selected may delegate any and all responsibilities to its New York based
subsidiary, DSA-NY. As compensation to DSA-NY, Davis Selected will compensate
DSA-NY for all reasonable direct and indirect costs associated with DSA-NY's
performance of services provided to Davis Selected.
For the fiscal years ended December 31, 1997, 1998, and 1999 each Series
(except Capital Growth) paid the following amounts in advisory fees to NEIM.
Amount Paid to NEIM ($)
--------------------------
Series 1997 1998 1999
- ------ ---- ---- ----
Small Cap 1,404,831 2,178,725 2,368,856
International Equity 422,850 566,848 691,945
Equity Growth 1,246,269 2,115,106 4,418,196
Mid Cap Value 711,667 859,331 834,843
Venture Value 1,425,245 2,706,162 4,032,970
Growth and Income 808,891 1,462,154 2,410,327
Stock Index 261,396 381,940 560,987
Balanced Series 607,641 1,144,390 1,386,037
Managed Series 878,632 1,003,695 1,083,736
Strategic Bond 353,611 560,007 618,506
Bond Income 747,372 917,376 1,121,515
U.S. Government Series 92,762 169,287 270,607
Money Market 405,959 463,281 796,250
For the fiscal years ended December 31, 1997, 1998 and 1999, Capital Growth
paid CGM a total of $8,434,722, $10,272,927, and $11,792,608, respectively, in
advisory fees.
NEIM may pay a significant amount of its profits to insurance companies (or
their affiliates), which invest in the Fund, as fees in consideration of the
administrative services and beneficial owner services provided by such insurance
companies to their customers.
Each advisory and subadvisory agreement provides that it will continue in
effect after two years from the date of its execution only if it is approved at
least annually thereafter (i) by the trustees of the Fund or by vote of a
majority of the outstanding voting securities of the applicable Series and (ii)
by vote of a majority of the trustees who are not interested persons of (i) the
Fund or (ii) the applicable Series' investment adviser or subadviser. Except in
the case of the Strategic Bond, U.S. Government, Balanced, Equity Growth,
Investors Series, and Research Managers Series, any amendment to any advisory or
subadvisory agreement must be approved by vote of a majority of the outstanding
voting securities of the applicable Series and by vote of a majority of the
trustees who are not interested persons of (i) the Fund or (ii) the applicable
Series' investment adviser or subadviser. Each agreement may be terminated
without penalty by the trustees or by the shareholders of the applicable Series,
upon sixty days' written notice, or by the applicable Series' investment
adviser, upon ninety days' written notice, and each terminates automatically in
the event of its "assignment" as defined in the 1940 Act. In addition, each
subadvisory agreement may be terminated without penalty upon either ninety or
sixty days' written notice by the relevant subadviser. Each advisory agreement
will automatically terminate if the Fund shall at any time be required by New
England Securities to eliminate all reference to the words "New England" in its
name, unless the continuance of such agreement after such change of name is
approved by a majority of the outstanding voting securities of the applicable
Series and by a majority of the trustees who are not interested persons of (i)
the Fund or (ii) the applicable Series' investment adviser or subadviser.
Each advisory agreement provides that if the total ordinary business expenses
of a particular Series for any fiscal year exceed the lowest applicable
limitations (based on a percentage of average net assets or income) prescribed
by any state in which shares of that Series are qualified for sale, the
applicable Series' investment adviser shall pay such excess. Each
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advisory agreement provides, however, that the advisory fee shall not be reduced
nor shall any of such expenses be paid to an extent or under circumstances which
might result in the inability of any Series or of the Fund, taken as a whole, to
qualify as a regulated investment company under the Code. The term "expenses"
for this purpose excludes brokerage commissions, taxes, interest and
extraordinary expenses.
Each advisory and subadvisory agreement provides that the relevant investment
adviser or subadviser shall not be subject to any liability in connection with
the performance of its services thereunder in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. In addition, the subadvisory agreements between NEIM and
Harris and NEIM and Wellington provide that Harris or Wellington, as the case
may be, shall be liable for violations of law.
Certain officers and employees of subadvisers or CGM have responsibility for
portfolio management of other advisory accounts and clients (including other
Series of the Fund and other registered investment companies, and accounts of
affiliates) that may invest in securities in which the respective Series may
invest. Where the subadviser or CGM determines that an investment purchase or
sale opportunity is appropriate and desirable for more than one advisory
account, purchase and sale orders may be executed separately or may be combined
and, to the extent practicable, allocated to the participating accounts.
Where advisory accounts have competing interests in a limited investment
opportunity, a subadviser or CGM will allocate an investment purchase
opportunity based on the relative time that competing accounts have had funds
available for investment, and the relative amounts of available funds, and will
allocate an investment sale opportunity based on relative cash requirements and
the time that the competing accounts have had investments available for sale. It
is each subadviser's or CGM's policy to allocate, to the extent practicable,
investment opportunities to each client over a period of time on a fair and
equitable basis relative to its other clients.
It is believed that the ability of a Series to participate in larger volume
transactions in this manner will in some cases produce better executions for the
Series. However, in some cases, this procedure could have a detrimental effect
on the price and amount of a security available to a Series or the price at
which a security may be sold. The trustees of the Fund are of the view that the
benefits to the respective Series of retaining each subadviser or CGM outweigh
the disadvantages, if any, that might result from participating in such
transactions.
DISTRIBUTION AGREEMENT
Under an agreement with the Fund, New England Securities, a Massachusetts
corporation, serves as the general distributor of shares of each Series, which
are sold at net asset value without any sales charge. The offering of each
Series' shares is continuous. Shares are offered for sale only to certain
insurance company separate accounts. New England Securities receives no
compensation from the Fund or purchasers of Fund shares for acting as
distributor. The agreement does not obligate New England Securities to sell a
specific number of shares. New England Securities is an indirect wholly-owned
subsidiary of NEF.
New England Securities controls the words "New England" in the Fund's name and
if it should cease to be the Fund's distributor, the Fund may be required to
change its name and delete these words. New England Securities also acts as
general distributor for New England Retirement Investment Account, NEVA, The New
England Variable Account, New England Variable Annuity Separate Account and New
England Variable Life Separate Account.
OTHER SERVICES
Custodial Arrangements. State Street Bank and Trust Company ("State Street
----------------------
Bank"), 225 Franklin Street, Boston, Massachusetts 02110, is the Fund's
custodian and fund accounting agent. As such, State Street Bank holds in
safekeeping certificated securities and cash belonging to each Series and, in
such capacity, is the registered owner of securities held in book-entry form
belonging to the Series. Upon instruction, State Street Bank receives and
delivers cash and securities of the Series in connection with Series
transactions and collects all dividends and other distributions made with
respect to Series portfolio securities. State Street Bank also maintains certain
accounts and records of the Fund and calculates the total net asset value, total
net income and net asset value per share of each Series on a daily basis.
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<PAGE>
Independent Accountants. The Fund's independent accountants are Deloitte &
-----------------------
Touche LLP. Deloitte & Touche LLP conducts an annual audit of each Series,
assists in the preparation of federal and state income tax returns and consults
with the Fund as to matters of accounting and federal and state income taxation.
A table of selected per share data and ratios for each of the Series appears in
the Prospectus. Prior to January 1, 1997 PricewaterhouseCoopers L.L.P. acted as
the Fund's independent accountants, and the financial highlights included in the
Prospectus are included in reliance on the reports of PricewaterhouseCoopers
L.L.P. for the years prior to 1997.
CGM Service Agreement. Under a service agreement between New England Funds,
---------------------
L.P. and CGM, CGM paid Nvest Services Co., Inc. (formerly, New England Funds,
L.P.) ("Nvest Services") $1,061,801 and $704,558, respectively, for the Fund's
fiscal years ended December 31, 1997 and 1998, and paid NEIM $704,705 for the
Fund's fiscal year ended December, 31 1998, relating to Capital Growth. As of
January 1, 1999, CGM and Nvest Services terminated their service agreement, and
CGM and NEIM entered a new service agreement under which NEIM provides certain
administrative services to CGM. Under that new service agreement, CGM paid NEIM
$1,675,615 for the Fund's fiscal year ended December 31, 1999.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Some of the Fund's portfolio transactions are placed with brokers and
dealers who provide the investment advisers or subadvisers with supplementary
investment and statistical information or furnish market quotations to the Fund
or other investment companies advised by the investment advisers or subadvisers.
Although it is not possible to assign an exact dollar value to these services,
they may, to the extent used, tend to reduce the expenses of the investment
advisers or subadvisers. The services may also be used by the investment
advisers or subadvisers in connection with their other advisory accounts and in
some cases may not be used with respect to the Fund.
Certain Portfolio Transactions of Balanced, Managed, Bond Income, Strategic
- ---------------------------------------------------------------------------
Bond, U.S. Government and Money Market Series
- ---------------------------------------------
It is expected that the portfolio transactions of Balanced, Managed, Bond
Income, Strategic Bond, U.S. Government, and Money Market in bonds, notes and
money market instruments will generally be with issuers or dealers on a net
basis without a stated commission.
Portfolio turnover for the fiscal years ended December 31, 1997, 1998 and
1999 was 40%, 82% and 77%, respectively, for Bond Income; 65%, 25% and 49%
respectively, for Managed; 60%, 72%, and 63% respectively, for Balanced; 258%,
283% and 224%, respectively, for Strategic Bond; and 572%, 496% and 530%,
respectively, for U.S. Government.
Capital Growth, Stock Index, Managed, International Equity, Venture Value,
- --------------------------------------------------------------------------
Equity Growth, Mid Cap Value, Growth and Income, Small Cap, Balanced, Investors
- -------------------------------------------------------------------------------
and Research Managers (Common Stock Transactions)
- -------------------------------------------------
In placing orders for the purchase and sale of portfolio securities, CGM,
in the case of Capital Growth Series, Harris, in the case of the Mid Cap Value
Series, Loomis Sayles, in the case of the Small Cap Series, Wellington
Management, in the case of the Balanced Series, Back Bay Advisors, in the case
of investments in common stocks by the Managed Series, MSAM, in the case of the
International Equity Series, Davis Selected, in the case of the Venture Value
Series, Alger Management, in the case of Equity Growth and MFS, in the case of
the Investors and Research Managers Series, each selects only brokers which it
believes are financially responsible, will provide efficient and effective
services in executing, clearing and settling an order and will charge commission
rates or prices which, when combined with the quality of the foregoing services,
will produce best price and execution for the transaction. In the case of equity
securities, this does not necessarily mean that the lowest available brokerage
commission will be paid. However, the commissions are believed to be competitive
with generally prevailing rates. The Series' advisers or subadvisers will use
their best efforts to obtain information as to the general level of commission
rates being charged by the brokerage community from time to time and will
evaluate the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account.
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<PAGE>
A subadviser or CGM may cause a Series it manages to pay a broker-dealer
that provides brokerage and research services an amount of commission for
effecting a securities transaction for a Series in excess of the amount another
broker-dealer would have charged effecting that transaction. The subadviser or
CGM must determine in good faith that such greater commission is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker-dealer viewed in terms of that particular transaction or the
subadviser's or CGM's overall responsibilities to the Fund and its other
clients. A subadviser's or CGM's authority to cause a Series it manages to pay
such greater commissions is also subject to such policies as the trustees of the
Fund may adopt from time to time.
For the fiscal years ending December 31, 1997, 1998 and 1999, Capital
Growth paid brokerage commissions of $4,245,443, $6,104,694 and $8,032,383,
respectively; Stock Index paid brokerage commissions of $12,015, $18,326 and
$23,478, respectively; the Managed Series paid brokerage commissions of $31,499,
$22,789 and $39,559, respectively; International Equity paid brokerage
commissions of $146,747, $163,946 and $213,177, respectively; Venture Value paid
brokerage commissions of $148,966, $280,522 and $365,429, respectively; Equity
Growth paid brokerage commissions of $489,199, $694,292 and $1,183,662,
respectively; Mid Cap Value paid brokerage commissions of $74,700, $371,572 and
$531,030, respectively; Growth and Income paid brokerage commissions of
$163,690, $323,816 and $512,659, respectively; Small Cap paid brokerage
commissions of $394,066, $711,187 and $643,676, respectively; and the Balanced
Series paid brokerage commissions of $115,075, $225,014 and $224,823,
respectively. For the fiscal period April 30, 1999 through December 31, 1999,
the Investors Series paid brokerage commissions of $8,022 and the Research
Managers Series paid brokerage commissions of $9,202.
For the fiscal year ending December 31, 1999, the following series paid
commissions to brokers because of research services provided: Capital Growth
paid $1,096,820, based on related transactions of $979,418,164; Growth and
Income paid $112,978, based on related transactions of $121,364,271; Stock Index
paid $780, based on related transactions of $700,991; Small Cap paid $27,326,
based on related transactions of $12,188,281; Balanced paid $149,234, based on
related transactions of $114,559,162; Venture Value paid $8,796, based on
related transactions of $8,116,982; Mid Cap Value paid $59,725; and
International Equity paid $211,219.
Affiliated Brokerage
- --------------------
A Series may pay brokerage commissions to an affiliated broker for acting
as the respective Series' agent on purchases and sales of securities for the
portfolio of the Series. SEC rules require that commissions paid to an
affiliated broker of a mutual fund for portfolio transactions not exceed "usual
and customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair" compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees of the Fund, including those who are not "interested
persons" of the Fund, have adopted procedures for evaluating the reasonableness
of commissions paid to affiliated brokers and will review these procedures
periodically. Equity Growth paid $489,199, $694,292 and $1,183,662 in brokerage
commissions to Fred Alger and Company, Inc., an affiliated broker, for the
fiscal years ended December 31, 1997, 1998 and 1999, respectively. The amount
paid by Equity Growth represents approximately all of that Series' aggregate
brokerage commissions for the years ended December 31, 1997, 1998 and 1999. For
the fiscal years ending December 31, 1997, 1998 and 1999, Venture Value paid a
total of $54,840, $40,044 and $0, respectively, in brokerage commissions to
Shelby Cullom Davis & Co., L.P., an affiliated broker. This amount represents
36%, 14% and 0%, respectively, of such Series aggregate brokerage commissions
for such fiscal years. For the fiscal years ended December 31, 1997, 1998 and
1999, International Equity paid a total of $2,395, $1,539 and $819,
respectively, in brokerage commissions to Morgan Stanley & Co. Incorporated,
Morgan Stanley & Co. Limited, Morgan Stanley Securities Limited and Dean Witter
Reynolds Inc., each an affiliated broker, representing 1.6%, 0.9% and 0.38%,
respectively, of the total brokerage commissions paid by such Series during such
fiscal years. Mid Cap Value paid no brokerage commissions to affiliates for the
year ended December 31, 1997. For the years ended December 31, 1998 and 1999,
Mid Cap Value paid $20,815 and $17,056, respectively, in brokerage commissions
to Goldman, Sachs & Co., an affiliated broker of the former subadviser to Mid
Cap Value, Goldman Sachs Asset Management, which represents 2.7% and 3.21%,
respectively, of the total brokerage commissions paid by such Series during such
fiscal years.
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<PAGE>
CODE OF ETHICS
The Fund, NEIM, CGM, the subadvisers, and New England Securities have each
adopted a Code of Ethics which establishes procedures for the detection and
prevention of certain conflicts of interest, including activities by which
persons having knowledge of the investments and investment intentions of the
Fund might take advantage of that knowledge for their own benefit. Although each
Code of Ethics does not prohibit employees who have knowledge of the investments
and investment intentions of any Series of the Fund from engaging in personal
securities investing, it does regulate such personal securities investing so
that conflicts of interest may be avoided.
DESCRIPTION OF THE FUND
The Fund is an open-end management investment company registered under the
1940 Act and was organized as a Massachusetts business trust under the laws of
Massachusetts pursuant to an Agreement and Declaration of Trust (the
"Declaration of Trust") dated December 16, 1986, as amended. Each Series is
classified under the 1940 Act as diversified except Harris Oakmark Mid Cap Value
Series, which is non-diversified. On February 27, 1987, the Fund succeeded to
the operations of The New England Zenith Fund, Inc., a Massachusetts corporation
incorporated on January 7, 1983 as NEL Series Fund, Inc. On November 1, 1985,
the name of that corporation was changed to Zenith Fund, Inc. and on July 17,
1986 it was changed again to The New England Zenith Fund, Inc. Capital Growth,
Bond Income and Money Market all commenced investment operations in 1983. Stock
Index commenced operations on March 30, 1987. The Managed Series commenced
investment operations on May 1, 1987. Harris Oakmark Mid Cap Value (prior to May
1, 1998, known as Loomis Sayles Avanti Growth Series, and from May 1, 1998 to
April 30, 2000, known as Goldman Sachs Midcap Value Series) and Growth and
Income (prior to August 30, 1996 the Series was named Westpeak Value Growth
Series) commenced investment operations in April 1993. Small Cap commenced
investment operations on May 1, 1994. Equity Growth, International Equity (prior
to May 1, 1997 the Series was named the Draycott International Equity Series),
Venture Value, Balanced Series (prior to May 1, 2000, known as the Loomis Sayles
Balanced Series), Strategic Bond and the U.S. Government Series commenced
investment operations on October 31, 1994.
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of each of the Series. Interests in the Fund
portfolios described in the Prospectus and in this Statement of Additional
Information are represented by shares of such Series. Each share of a Series
represents an equal proportionate interest in such Series with each other share
and is entitled to a proportionate interest in the dividends and distributions
from such Series. The shares of the Series do not have any preemptive rights.
Upon liquidation of any Series, whether pursuant to liquidation of the Fund or
otherwise, shareholders of such Series are entitled to share pro rata in the net
assets of such Series available for distribution to shareholders. The
Declaration of Trust also permits the trustees to charge shareholders directly
for custodial, transfer agency and servicing expenses.
The Declaration of Trust also permits the Trustees, without shareholder
approval, to subdivide any series of shares into various sub-series or classes
of shares with such dividend preferences and other rights as the trustees may
designate. While the trustees have no current intention to exercise this power,
it is intended to allow them to provide for an equitable allocation of the
impact of any future regulatory requirements which might affect various classes
of shareholders differently. The trustees may also, without shareholder
approval, establish one or more additional separate portfolios for investments
in the Fund or merge two or more existing portfolios. Shareholders' investments
in such a portfolio would be evidenced by a separate series of shares.
The Declaration of Trust provides for the perpetual existence of the Fund.
The Fund or any Series, however, may be terminated at any time by vote of at
least two-thirds of the outstanding shares of each Series affected. The
Declaration of Trust further provides that the Trustees may terminate the Fund
or any Series upon written notice to the shareholders thereof.
The assets received by the Fund for the issue or sale of shares of each
Series and all income, earnings, profits, losses and proceeds therefrom, subject
only to the rights of creditors, are allocated to that Series, and constitute
the underlying assets of the Series. The underlying assets of each Series are
segregated and are charged with the expenses in respect of that Series and with
a share of the general expenses of the Fund. Any general expenses of the Fund
not readily identifiable as belonging to a particular Series are allocated by or
under the direction of the Trustees in such manner as the trustees determine to
be fair and equitable. While the expenses of the Funds are allocated to the
separate books of account of each Series, certain expenses may be legally
chargeable against the assets of all Series.
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<PAGE>
As of March 31, 2000, 100% of the outstanding voting securities of the Fund
were owned by separate accounts of MetLife and/or NEF, and may, from time to
time, be owned by those separate accounts or the separate accounts and general
accounts of General American, Security First Group (or any affiliate of any such
company). Therefore, as of March 31, 2000, MetLife and NEF were each presumed to
be in control (as that term is defined in the 1940 Act) of the Fund. However,
the staff of the SEC is presently of the view that MetLife and NEF (as well as
General American, SFG Group or any other affiliated or unaffiliated insurance
company) are each required to vote their Fund shares that are held in a
registered separate account (and, to the extent voting privileges are granted by
the issuing insurance company, in unregistered separate accounts) in the same
proportion as the voting instructions received from owners of the variable life
insurance or variable annuity contracts issued by the separate account, and that
each such insurance company is required to vote any shares held in its general
account (or in any unregistered separate account for which voting privileges
were not extended) in the same proportion as all other Fund shares are voted
(including all insurance companies, taken together, as record owners). Each such
insurance company currently intends to vote their shares in a manner consistent
with this view.
Voting Rights
- -------------
Fund shareholders are entitled to one vote for each full share held (with
fractional votes for fractional shares held). Each insurance company is the
legal owner of shares attributable to variable life insurance and variable
annuity contracts issued by its separate accounts, and has the right to vote
those shares. Pursuant to the current view of the SEC staff, each insurance
company will vote its shares in accordance with instructions received from
owners of variable life insurance and variable annuity contracts issued by
separate accounts that are registered under the 1940 Act. All Fund shares held
by separate accounts registered with the SEC (and, to the extent voting
privileges are granted by the issuing insurance company, by unregistered
separate accounts) for which no timely instructions are received will be voted
for, voted against, or withheld from voting on any proposition in the same
proportion as the shares held in that separate account for all contracts for
which voting instructions are received. All Fund shares held by the general
investment account (or any unregistered separate account for which voting
privileges are not extended) of each insurance company will be voted in the same
proportion as the aggregate (all insurance company record owners taken together)
of (i) the shares for which voting instructions are received and (ii) the shares
that are voted in proportion to such voting instructions are received.
There will normally be no meetings of shareholders for the purpose of
electing trustees except that in accordance with the 1940 Act (i) the Fund will
hold a shareholders' meeting for the election of trustees at such time as less
than a majority of the trustees holding office have been elected by shareholders
and (ii) if there is a vacancy on the Board of Trustees, unless, after filling
such vacancy, at least two-thirds of the trustees holding office will have been
elected by the shareholders, such vacancy may only be filled by a vote of the
shareholders. In addition, trustees may be removed from office by a written
consent signed by the holders of two-thirds of the outstanding shares at a
meeting duly called for the purpose, which meeting shall be held upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon written request by the holders of shares having a net asset value
constituting 1% of the outstanding shares stating that such shareholders wish to
communicate with the other shareholders for the purpose of obtaining the
signatures necessary to demand a meeting to consider removal of a trustee, the
Fund has undertaken to provide a list of shareholders or to disseminate
appropriate materials (at the expense of the requesting shareholders). Except as
set forth above, the trustees shall continue to hold office and may appoint
successor trustees.
No amendment may be made to the Declaration of Trust without the
affirmative vote of a majority of the outstanding shares of the Fund except (i)
to change the Fund's name or to cure technical problems in the Declaration of
Trust and (ii) to establish, designate or modify new and existing series of Fund
shares or other provisions relating to Fund shares in response to applicable
laws or regulations.
TAXES
The following discussion of federal income tax consequences is based on the
Code and the regulations issued thereunder as in effect on the date of this SAI.
New legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein and may have a retroactive
effect with respect to the transactions contemplated herein.
Each of the Series intends to qualify as a "regulated investment company"
("RIC") under Subchapter M of the Code. A Series that is a RIC and distributes
to its shareholders at least 90% of its taxable net investment income
(including, for this purpose, its net realized short-term capital gains) and 90%
of its tax-exempt interest income (reduced by certain expenses),
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will not be liable for federal income taxes to the extent its taxable net
investment income and its net realized long-term and short-term capital gains,
if any, are distributed to its shareholders. Series investing in foreign
securities, however, may be subject to foreign taxes. These taxes could reduce
the investment performance of such Series.
A number of technical rules are prescribed for computing net investment
income and net capital gains. For example, a Series is generally treated as
certain foreign currency losses and capital losses arising after October 31 of a
given year may be treated as if they arise on the first day of the next taxable
year.
In order to qualify as a RIC under the Code, in addition to satisfying the
distribution requirement described above, each Series must (a) derive at least
90% of its gross income each taxable year from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock, securities, or foreign currencies, and certain other related income,
including generally, certain gains from options, futures, and forward contracts;
and (b) diversify its holdings so that, at the end of each fiscal quarter of the
Series' taxable year, (i) at least 50% of the market value of the Series' assets
is represented by cash and cash items, U.S. Government Securities, securities of
other RICs, and other securities, with such other securities limited, in respect
of any one issuer, to an amount that does not exceed 10% of the voting
securities of such issuer or 5% of the value of the Series' total assets; and
(ii) not more than 25% of the value of its assets is invested in the securities
(other than U.S. Government Securities and securities of other RICs) of any one
issuer or two or more issuers which the Series controls and which are engaged in
the same, similar or related trades or businesses.
If a Series fails to qualify as a RIC for any year, all of its income will
be subject to tax at corporate rates, and its distributions (including capital
gain distributions) will be taxable as ordinary income dividends to its
shareholders to the extent of the Series' current and accumulated earnings and
profits.
In addition to qualifying under Subchapter M by meeting the requirements
described above, each Series intends to meet the diversification requirements of
Subchapter L of the Code so that non-qualified variable annuity contracts funded
by each Series will not fail to qualify as annuities for tax purposes. In
general, for a Series to meet the investment diversification requirements of
Subchapter L of the Code, Treasury regulation 1.817-5 requires that, as of the
end of each fiscal quarter, no more than 55% of the total value of the assets of
the Series be represented by any one investment, no more than 70% by any two
investments, no more than 80% by three investments and no more than 90% by four
investments. Generally, for purposes of the regulations, all securities of the
same issuer are treated as one investment. In the context of U.S. Government
securities (including any security that is issued, guaranteed or insured by the
United States or an instrumentality of the United States), each U.S. Government
agency or instrumentality is treated as a separate issuer. In the context of
shares of registered investment companies, each series, fund or portfolio is
treated as a separate issuer.
Notwithstanding the distribution requirement described above, which only
requires a Series to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gain, a RIC is generally subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year at least 98% of its
ordinary income for the one-year period ending on October 31 of that year, plus
certain other amounts.
The excise tax is inapplicable to any RIC all of the shareholders of which
are either tax-exempt pension trusts or separate accounts of life insurance
companies funding variable contracts. Although each Series believes that it is
not subject to the excise tax, , each Series intends to make the distributions
required to avoid the imposition of the tax, provided such payments and
distributions are determined to be in the best interest of such Series'
shareholders.
Dividends declared by each Series in October, November, or December of any
year and payable to shareholders of record on a date in such month will be
deemed to have been paid by the Series and received by the shareholders on
December 31 of that year if paid by the Series at any time during the following
January.
TRANSFER AGENT
The transfer agent and the dividend paying agent for the Fund, NEF,
located 501 Boylston Street, Boston, Massachusetts 02116, receives no
remuneration from the Fund in connection with its services as such.
Shareholder and Trustee Liability
- ---------------------------------
Under Massachusetts law shareholders could, under certain circumstances, be
held personally liable for the obligations of the Fund. However, the Declaration
of Trust disclaims shareholder liability for acts or obligations of the Fund and
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requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by the Fund or the trustees. The
Declaration of Trust provides for indemnification out of the relevant Series'
property for all loss and expense of any shareholder held personally liable for
the obligations of the Series in which the shareholder owns shares. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is considered remote since it is limited to circumstances in which the
disclaimer is inoperative and a Series itself would be unable to meet its
obligations. For purposes of such liability, the Fund's shareholders are the
separate accounts investing directly in the Fund and not the owners of variable
life insurance or variable annuity contracts or purchasers of other insurance
products.
The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law. However, nothing in
the Declaration of Trust protects a trustee against any liability to which the
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office. The By-Laws of the Fund provide for indemnification by the
Fund of the trustees and officers of the Fund except with respect to any matter
as to which any such person did not act in good faith in the reasonable belief
that his or her action was in or not opposed to the best interests of the Fund.
Such person may not be indemnified against any liability to the Fund or the
Fund's shareholders to which he or she would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office.
FINANCIAL STATEMENTS
The financial statements of the Fund and the related reports of independent
accountants included in the Fund's annual report for the year ended December 31,
1999 are incorporated herein by reference to the Fund's Annual Report as filed
with the Securities and Exchange Commission on February 29, 2000.
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APPENDIX A-1
DESCRIPTION OF BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
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 edge".
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what 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 fluctuations 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. See Note 1.
A
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future. See Note 1.
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. See Note 1.
Ba
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often, the protection of interest and
principal payments may be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
Should no rating be assigned by Moody's, the reason may be one of the following:
(1) An application for rating was not received or accepted.
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(2) The issue or issuer belongs to a group of securities that are not rated
as a matter of policy.
(3) There is a lack of essential data pertaining to the issue or issuer.
(4) The issue was privately placed, in which case the rating is not
published in Moody's publications.
- -----------------
Note 1: This rating may include the numerical modifier 1, 2 or 3 to provide a
more precise indication of relative debt quality within the category, with 1
indicating the high end of the category, 2 the mid-range and 3 nearer the low
end.
STANDARD & POOR'S RATINGS GROUP
AAA
This is the highest rating assigned by Standard & Poor's Corporation ("S&P") to
a debt obligation and indicates an extremely strong capacity to pay principal
and interest.
AA
Bonds rated AA also qualify as high quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A
Bonds rated A have strong capacity to pay principal and interest although they
are somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions.
BBB
Bonds rated BBB are regarded as having an adequate capacity to pay principal and
interest. Whereas they normally exhibit protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for bonds
in the A category.
BB, B, CCC, CC
Bonds rated BB, B, CCC and CC are 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 bonds will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
C
The rating C is reserved for income bonds on which no interest is being paid.
D
Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DUFF & PHELPS CREDIT RATING CO.
AAA
Highest credit quality. The risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt.
AA+, AA, AA-
High credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.
A+, A, A-
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Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
BBB+, BBB, BBB-
Below-average protection factors but still considered sufficient for prudent
investment. Considerable variability in risk during economic cycles.
BB+, BB, BB-
Below investment grade but deemed likely to meet obligations when due. Present
or prospective financial protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may move up or down frequently
within this category.
B+, B, B-
Below investment grade and possessing risk that obligations will not be met when
due. Financial protection factors will fluctuate widely according to economic
cycles, industry conditions and/or company fortunes. Potential exists for
frequent changes in the rating within this category or into a higher or lower
rating grade.
CCC
Well below investment grade securities. Considerable uncertainty exists as to
timely payment of principal, interest or preferred dividends. Protection factors
are narrow and risk can be substantial with unfavorable economic/industry
conditions, and/or with unfavorable company developments.
DD
Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
DP
Preferred stock with dividend arrearages.
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APPENDIX A-2
DESCRIPTION OF COMMERCIAL PAPER RATINGS
STANDARD & POOR'S CORPORATION
A-1
Commercial paper rated A-1 by S&P has the following characteristics: Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated
"A" or better. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Commercial paper within the A-1 category
which has overwhelming safety characteristics is denoted "A-1+."
A-2
Capacity for timely payment on issues with this designation is strong. However,
the relative degree of safety is not as overwhelming as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC.
P-1
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following:
(1) evaluation of the management of the issuer;
(2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;
(3) evaluation of the issuer's products in relation to competition and
customer acceptance;
(4) liquidity;
(5) amount and quality of long-term debt;
(6) trend of earnings over a period of ten years;
(7) financial strength of a parent company and the relationships which
exist with the issuer; and
(8) recognition by the management of obligations which may be present or
may arise as a result of public interest questions and preparations to meet such
obligations.
P-2
Issuers rated P-2 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
alternative liquidity is maintained.
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APPENDIX B
ADVERTISING AND PROMOTIONAL LITERATURE
Advertising and promotional literature prepared by each insurance
company which is a record shareholder for products it issues or administers may
include references to its affiliates, NEIM, CGM and any subadviser. Reference
also may be made to other Funds sponsored by CGM or any subadviser.
Each such insurance company's advertising and promotional material may
include, but is not limited to, discussions of the following information (in the
case of corporate information, about both affiliated and unaffiliated entities:
- -- Specific and general assessments and forecasts regarding the U.S. economy,
world economies, the economics of specific nations and their impact on the
Series.
- -- Specific and general investment emphasis, specialties, fields of expertise,
competencies, operations and functions.
- -- Specific and general investment philosophies, strategies, processes,
techniques and types of analysis.
- -- Specific and general sources of information, economic models, forecasts and
data services utilized, consulted or considered in the course of providing
advisory or other services.
- -- The corporate histories, founding dates and names of founders of the
entities.
- -- Awards, honors and recognition given to the firms.
- -- The names of those with ownership interest and the percentage of ownership.
- -- The industries and sectors from which clients are drawn and specific client
names and background information on current individual, corporate and
institutional clients, including pension and profit sharing plans.
- -- Current capitalization, levels of profitability and other financial and
statistical information.
- -- Identification of portfolio managers, researchers, economists, principals
and other staff members and employees.
- -- The specific credentials of the above individuals, including, but not
limited to, previous employment, current and past positions, titles and
duties performed, industry experience, educational background and degrees,
awards and honors.
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<PAGE>
- -- Current and historical statistics about:
-total dollar amount of assets managed -NEIM assets managed in total
and/or by Series
-Asset managed by CGM in total and/or by Series
-the growth of assets
-asset types managed -number and location of offices
-numbers of principal parties and employees, and the length of their
tenure, including officers, portfolio managers, researchers,
economists, technicians and support staff
-the above individuals' total and average number of years of industry
experience and the total and average length of their service to the
adviser or the subadviser
- -- The general and specific strategies applied by the advisers in the
management of the New England Zenith Fund's portfolios including, but not
limited to:
-the pursuit of growth, value, income oriented, risk management or
other strategies
-the manner and degree to which the strategy is pursued
-whether the strategy is conservative, moderate or extreme and an
explanation of other features, attributes
-the types and characteristics of investments sought and specific
portfolio holdings
-the actual or potential impact and result from strategy implementation
-through its own areas of expertise and operations, the value added by
subadvisers to the management process
-the disciplines it employs and goals and benchmarks that it
establishes in management
-the systems utilized in management, the features and characteristics
of those systems and the intended results from such computer analysis
-- Specific and general references to portfolio managers and funds that
they serve as portfolio manager of, other than Series of the Fund, and
those families of funds, other than the Fund. Any such references will
indicate that the Fund and the other funds of the managers differ as
to performance, objectives, investment restrictions and limitations,
portfolio composition, asset size and other characteristics, including
fees and expenses. References may also be made to industry rankings
and ratings of Series and other funds managed by the Series' adviser
and subadvisers, including, but not limited to, those provided by
Morningstar, Lipper Analytical Services, Forbes and Worth.
In addition, communications and materials developed by NEF or its
affiliates may make reference to any of the above information about Nvest
Companies and its affiliates.
New England Securities Corporation, an indirect subsidiary of NEF, may
be referenced in Fund advertising and promotional literature concerning the
marketing services it provides to Nvest Companies-affiliated fund groups
including, but not limited to: Nvest, Loomis Sayles Funds, Oakmark Funds and
Reich & Tang Funds.
Additional information contained in advertising and promotional
literature may include: rankings and ratings of the Series including, but not
limited to, those of Morningstar and Lipper Analytical Services; statistics
about the advisers', fund groups' or a specific fund's assets under management;
the histories of the advisers and biographical references to portfolio managers
and other staff including, but not limited to, background, credentials, honors,
awards and recognition received by the advisers and their personnel; and
commentary about the advisers, their funds and their personnel from third-party
sources including newspapers, magazines, periodicals, radio, television or other
electronic media.
Advertising may include all of the top portfolio holdings of a Series
or sector or industry breakdowns.
References to the Series may be included in any such insurance
company's advertising and promotional literature about its 401(k) and retirement
plans. The information may include, but is not limited to:
- -- Specific and general references to industry statistics regarding 401(k) and
retirement plans including historical information and industry trends and
forecasts regarding the growth of assets, numbers of plans, funding
vehicles, participants, sponsors and other demographic data relating to
plans, participants and sponsors, third party and other administrators,
benefits consultants and firms including, but not limited to, DC Xchange,
William Mercer and other
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<PAGE>
organizations involved in 401(k) and retirement programs with whom the
insurance company may or may not have a relationship.
- -- Specific and general reference to comparative ratings, rankings and other
forms of evaluation as well as statistics regarding the insurance company
as a 401(k) or retirement plan funding vehicle produced by, including, but
not limited to, Access Research, Dalbar, Investment Company Institute and
other industry authorities, research organizations and publications.
- -- Specific and general discussion of economic, legislative, and other
environmental factors affecting 401(k) and retirement plans, including, but
not limited to, statistics, detailed explanations or broad summaries of:
- -past, present and prospective tax regulation, Internal Revenue Service
requirements and rules, including, but not limited to, reporting
standards, minimum distribution notices, Form 5500, Form 1099R and other
relevant forms and documents, Department of Labor rules and standards and
other regulation. This includes past, current and future initiatives,
interpretive releases and positions of regulatory authorities about the
past, current or future eligibility, availability, operations,
administration, structure, features, provisions or benefits of 401(k) and
retirement plans
- -information about the history, status and future trends of Social Security and
similar government benefit programs including, but not limited to,
eligibility and participation, availability, operations and
administration, structure and design, features, provisions, benefits and
costs
- -current and prospective ERISA regulation and requirements.
- -- Specific and general discussion of the benefits of 401(k) investment and
retirement plans, and, in particular, the NEF 401(k) and retirement plans,
to the participant and plan sponsor, including explanations, statistics and
other data, about:
- -increased employee retention
- -reinforcement or creation of morale
- -deductibility of contributions for participants -deductibility of expenses for
employers -tax deferred growth, including illustrations and charts -loan
features and exchanges among accounts
- -educational services materials and efforts, including, but not limited to,
videos, slides, presentation materials, brochures, an investment
calculator, payroll stuffers, quarterly publications, releases and
information on a periodic basis and the availability of wholesalers and
other personnel.
- -- Specific and general reference to the benefits of investing in mutual funds
for 401(k) and retirement plans, and, in particular, the Fund and investing
in the insurance company's 401(k) and retirement plans, including, but not
limited to:
- -the significant economies of scale experienced by mutual fund companies in the
401(k) and retirement benefits arena
- -broad choice of investment options and competitive fees
- -plan sponsor and participant statements and notices
- -the plan prototype, summary descriptions and board resolutions
- -plan design and customized proposals
- -trusteeship, record keeping and administration
- -the services of State Street Bank, including, but not limited to, trustee
services and tax reporting
- -the services of DST and BFDS, including, but not limited to, mutual fund
processing support, participant 800 numbers and participant 401(k)
statements
- -the services of Trust Consultants Inc., including, but not limited to, sales
support, plan record keeping, document service support, plan sponsor
support, compliance testing and Form 5500 preparation.
- -- Specific and general reference to the role of the investment dealer and the
benefits and features of working with a financial professional including:
- -access to expertise on investments
- -assistance in interpreting past, present and future market trends and economic
events
- -providing information to clients including participants during enrollment and
on an ongoing basis after participation
- -promoting and understanding thebenefits of investing, including mutual fund
diversification and professional management.
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<PAGE>
NEW ENGLAND ZENITH FUND
-----------------------
PART C. OTHER INFORMATION
-----------------
Item 23 Exhibits:
--------
a.
(1) Agreement and Declaration of Trust is incorporated herein by
reference to Post-Effective Amendment No. 22 (File No. 2-83538)
filed on February 28, 1997.
(2) Amendment No. 1 to Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment No.
22 (File No. 2-83538) filed on February 28, 1997.
(3) Amendment No. 2 to Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment No.
22 (File No. 2-83538) filed on February 28, 1997.
(4) Amendment No. 3 to Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment No.
22 (File No. 2-83538) filed on February 28, 1997.
(5) Amendment No. 4 to Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment
No. 22 (File No. 2-83538) filed on February 28, 1997.
(6) Amendment No. 5 to the Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment No.
22 (File No. 2-83538) filed on February 28, 1997.
(7) Amendment No. 6 to the Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment No.
22 (File No. 2-83538) filed on February 28, 1997.
(8) Amendment No. 7 to Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment No.
22 (File No. 2-83538) filed on February 28, 1997.
(9) Amendment No. 8 to the Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment
No. 24 (File No. 2-83538) filed on May 1, 1998.
(10) Amendment No. 9 to the Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment
No. 24 (File No. 2-83538) filed on May 1, 1998.
(11) Amendment No. 10 to the Agreement and Declaration of Trust is
incorporated herein by reference to Post-Effective Amendment
No. 26 (File No. 2-83538) filed on April 29, 1999.
*(12) Amendment No. 11 to Agreement and Declaration of Trust.
<PAGE>
Registration Nos. 2-83538
811-3728
b.
(1) By-Laws, as amended, are incorporated herein by reference to
Post-Effective Amendment No. 23 (File No. 2-83538) filed on
March 2, 1998.
(2) Amendment to By-Laws relating to Electronic Proxy Voting is
incorporated herein by reference to Post-Effective Amendment
No. 23 (File No. 2-83538) filed on March 2, 1998.
c. None.
d.
(1) Advisory Agreements by and between New England Investment
Management, Inc. (formerly TNE Advisers, Inc.) and the Fund, on
behalf of each of its Loomis Sayles Small Cap, Alger Equity
Growth, Davis Venture Value, Westpeak Growth and Income, Westpeak
Stock Index, Back Bay Advisors Managed, Salomon Brothers
Strategic Bond Opportunities, Back Bay Advisors Bond Income,
Salomon Brothers U.S. Government, Back Bay Advisors Money Market
and Morgan Stanley International Magnum Equity Series are
incorporated herein by reference to Post-Effective Amendment No.
24 (File No. 2-83538) filed on May 1, 1998 as Exhibits 5(a) as
follows:
(i) Loomis Sayles Small Cap Series
(ii) Alger Equity Growth Series
(iii) Davis Venture Value Series
(iv) Westpeak Growth and Income Series
(v) Westpeak Stock Index Series
(vii) Back Bay Advisors Managed Series
(viii) Salomon Brothers Strategic Bond Opportunities Series
(ix) Back Bay Advisors Bond Income Series
(x) Salomon Brothers U.S. Government Series
(xi) Back Bay Advisors Money Market Series
(xii) Morgan Stanley International Magnum Equity Series
(2) Advisory Agreement between the Fund on behalf of its Harris
Oakmark Mid Cap Value Series (formerly Goldman Sachs MidCap Value
Series) and New England Investment Management, Inc. (formerly TNE
Advisers, Inc.) is incorporated herein by reference to Post-
Effective Amendment No. 26 (File No. 2-83538) filed on April 29,
1999.
(3) Advisory Agreements by and between the Fund, on behalf of each of
its MFS Investors Series and MFS Research Managers Series, and
New England Investment Management, Inc. (formerly TNE Advisers,
Inc.) are incorporated herein by reference to Post-Effective
Amendment No. 26 (File No. 2-83538) filed on April 29, 1999.
(4) Advisory Agreement between the Fund, on behalf of its Capital
Growth Series and Capital Growth Management Limited Partnership
is incorporated herein by reference to Post-Effective Amendment
No. 23 (File No. 2-83538) filed on March 2, 1998.
*(5) Amended and Restated Advisory Agreement between the Fund, on
behalf of its Balanced Series (formerly Loomis Sayles Balanced
Series) and New England Investment Management, Inc. (formerly TNE
Advisers, Inc.)
(6) Subadvisory Agreements relating to the following Series of the
Registrant, by and between New England Investment Management,
Inc. (formerly TNE Advisers, Inc.) and the subadvisers indicated
in parentheses, are incorporated herein to Post-Effective
Amendment No. 23 (File No. 2-83538) filed on March 2, 1998 as
Exhibits 5(b) as follows:
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<PAGE>
(i) Loomis Sayles Small Cap Series (Loomis, Sayles & Company,
L.P. ["Loomis Sayles"]
(ii) Alger Equity Growth Series (Fred Alger Management Inc.)
(iii) Westpeak Growth and Income Series (Westpeak Investment
Advisors, L.P.["Westpeak"])
(iv) Westpeak Stock Index Series (Westpeak)
(v) Back Bay Advisors Managed Series (Back Bay Advisors, L.P.
["Back Bay Advisors"])
(vi) Salomon Brothers Strategic Bond Opportunities Series
(Salomon Brothers Asset Management Inc. [SBAM] and
Salomon Brothers Asset Management Limited [SBAM Ltd].)
(vii) Back Bay Advisors Bond Income Series (Back Bay Advisors)
(viii) Salomon Brothers U.S. Government Series (SBAM)
(ix) Back Bay Advisors Money Market Series (Back Bay Advisors)
(7) Sub-Advisory Agreement for the Davis Venture Value Series
by and among New England Investment Management, Inc. (formerly TNE
Advisers, Inc.), Davis Selected Advisers, L.P. and Davis Selected
Advisers - NY, Inc. is incorporated herein by reference to Post-
Effective Amendment No. 22 on Form N-1A (File No. 2-83538) filed on
February 28, 1997.
(8) Sub-Advisory Agreement for the Morgan Stanley International Magnum
Equity Series by and between New England Investment Management,
Inc. (formerly TNE Advisers, Inc.) and Morgan Stanley Asset
Management Inc. ("MSAM") is incorporated herein by reference to
Post- Effective Amendment No. 25 (File No. 2-83538) filed on
February 11, 1999.
(9) Sub-Advisory Agreements for the MFS Investors Series and the MFS
Research Managers Series are incorporated herein by reference to
Post-Effective Amendment No. 26 (File No. 2-83538) filed on
April 29, 1999.
*(10) Sub-Advisory Agreement for the Harris Oakmark Mid Cap Value Series
between New England Investment Management, Inc. and Harris
Associates L.P.
*(11) Sub-Advisory Agreement for the Balanced Series between New England
Investment Management, Inc. and Wellington Management Company, LLP.
e.
(1) Distribution Agreement by and between New England Securities
Corporation and the Fund, dated as of April 28, 1999 is
incorporated herein by reference to Post-Effective Amendment
No. 26 (File No. 2-83538) filed on April 29, 1999.
f. None.
g.
(1) Amended and Restated Custodian Contract among the Fund, New England
Mutual Life Insurance Company ("The New England"), and State
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<PAGE>
Street Bank and Trust Company ("State Street"), dated September
24, 1992, is incorporated herein by reference to Post-Effective
No. 24 (File No. 2-83538) filed on May 1, 1998.
(2) Amendment No. 1, dated April 29, 1993, to the Amended and
Restated Custodian Contract, among the Fund, The New England and
State Street relating to the applicability of the Custodian
Contract to the Westpeak Growth and Income and Loomis Sayles
Avanti Growth Series, is incorporated herein by reference to
Post-Effective No. 24 (File No. 2-83538) filed on May 1, 1998.
(3) Amendment No. 2, dated April 29, 1994, to the Amended and
Restated Custodian Contract, among the Fund, The New England and
State Street relating to the applicability of the Custodian
Contract to the Loomis Sayles Small Cap Series is incorporated
herein by reference to Post-Effective No. 24 (File No. 2-83538)
filed on May 1, 1998.
(4) Amendment No. 3, dated October 31, 1994, to the Amended and
Restated Custodian Contract, among the Fund, The New England and
State Street relating to the applicability of the Custodian
Contract to each of the Loomis Sayles Balanced Series, Draycott
International Equity Series, Salomon Brothers U.S. Government
Series, Salomon Brothers Strategic Bond Opportunities Series,
Davis Venture Value Series, Alger Equity Growth Series and CS
First Boston Strategic Equity Opportunities Series is
incorporated herein by reference to Post-Effective No. 24 (File
No. 2-83538) filed on May 1, 1998.
(5) Amendment No. 4, dated as of April 28, 1999, to the Amended and
Restated Custodian Contract, among the Fund, NELICO and State
Street relating to the applicability of the Custodian Contract to
each of the MFS Investors Series and the MFS Research Managers
Series, is incorporated herein by reference to Post-Effective
Amendment No. 26 (File No. 2-83538) filed on April 29, 1999.
(6) Amendment, dated as of November 17, 1999, to Amended and Restated
Custodian Agreement among the Fund, State Street and Metropolitan
Life Insurance Company is incorporated herein by reference to
Post-Effective Amendment No. 27 (File No. 2-83538) filed on March
2, 2000.
h.
(1) Transfer Agency Agreement by and between the Fund and The New
England is incorporated herein by reference to Post-Effective No.
24 (File No. 2-83538) filed on May 1, 1998.
(2) Amendment to Transfer Agency Agreement relating to the
applicability of the Agreement to the Westpeak Growth and Income
and the Loomis Sayles Avanti Growth Series (renamed Goldman Sachs
Midcap Value Series) is incorporated herein by reference to
Post-Effective No. 24 (File No. 2-83538) filed on May 1, 1998.
(3) Amendment to Transfer Agency Agreement relating to the
applicability of the Agreement to the Loomis Sayles Small Cap
Series is incorporated herein by reference to Post-Effective No.
24 (File No. 2-83538) filed on May 1, 1998.
(4) Amendment to Transfer Agency Agreement relating to the
applicability of the Agreement to each of the Loomis Sayles
Balanced Series, Draycott International Equity Series, Salomon
Brothers U.S. Government, Salomon Brothers Strategic Bond
Opportunities, Davis Venture Value Series, Alger Equity Growth
Series and CS First Boston Strategic Equity Opportunities Series
is incorporated herein by reference to Post-Effective No. 24
(File No. 2- 83538) filed on May 1, 1998.
(5) Amendment to the Transfer Agency Agreement relating to the
applicability of the Agreement to each of the MFS Investors
Series and the MFS Research Managers Series, dated as of April
28, 1999, is incorporated herein by reference to Post-Effective
Amendment No. 26 (File No. 2-83538) filed on April 29, 1999.
*(6) Assignment and Assumption of Transfer Agency Agreement of the
Fund between Metropolitan Life Insurance Company and New England
Life Insurance Company.
-4-
<PAGE>
*(7) Amended and Restated Expense Agreement between the Fund and
New England Investment Management, Inc., dated as of May 1, 2000.
(8) Powers of Attorney are incorporated herein by reference to
Post-Effective Amendment No. 27 (File No. 2-83538) filed on
March 2, 2000.
(9) Form of Participation Agreement Among the Fund, New England
Investment Management, Inc., New England Securities Corporation,
and Participating Insurance Company.
i.
*(1) Opinion and Consent of counsel relating to the Series dated
April 25, 2000.
-5-
<PAGE>
Registration Nos. 2-83538
811-3728
j.
*(1) Consent of Deloitte & Touche, L.L.P.
*(2) Consent of PricewaterhouseCoopers LLP.
k. None.
l. None.
m. None.
-6-
<PAGE>
Registration Nos. 2-83538
811-3728
n. None.
*p. (1) New England Zenith Fund Code of Ethics
(2) New England Investment Management, Inc. Code of Ethics
(3) Wellington Management Company, LLP Code of Ethics
(4) Westpeak Investment Advisors, L.P. Code of Ethics
(5) Morgan Stanley Dean Witter Investment Management Inc. Code of
Ethics
(6) Capital Growth Management Limited Partnership Code of Ethics
(7) Fred Alger Management, Inc. Code of Ethics
(8) Back Bay Advisors, L.P. Code of Ethics
(9) Loomis Sayles and Company, L.P. Code of Ethics
(10) Massachusetts Financial Services Company Code of Ethics
(11) Salomon Brothers Asset Management Inc. Code of Ethics
(12) Harris Associates L.P. Code of Ethics
(13) Davis Selected Advisers, L.P. Code of Ethics
(14) New England Securities Corporation Code of Ethics
-------------
* Filed herewith
Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None.
-7-
<PAGE>
Item 25. Indemnification
---------------
See Article 4 of the Fund's By-Laws, as amended, filed as Exhibit 1 to
Post-Effective Amendment No. 23 on Form N-1A (File No. 2-83538) which
Exhibit is incorporated herein by reference. In addition, the Fund
maintains a trustees and officers liability insurance policy with a
maximum coverage of $15 million under which the Fund and its trustees
and officers are named insureds.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the Fund's
By-Laws, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the successful
defense of any action, suit of proceeding) is asserted by such
trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
-8-
<PAGE>
Item 26. Business and other Connections of Investment Adviser
----------------------------------------------------
(a) New England Investment Management, Inc. ("NEIM"), which
prior to May 1, 1999 had the name TNE Advisers, Inc., is the
adviser of the Back Bay Advisors Money Market, Back Bay
Advisers Bond Income, Back Bay Advisors Managed, Westpeak
Growth and Income, Harris/Oakmark Midcap Value, Westpeak
Stock Index, Loomis Sayles Small Cap, Balanced, MFS
Investors, MFS Research Managers, Morgan Stanley
International Magnum Equity, Salomon Brothers U.S.
Government, Salomon Brothers Strategic Bond Opportunities,
Davis Venture Value and the Alger Equity Growth Series and
has entered into subadvisory agreements for these Series
with Back Bay Advisors, Westpeak Investment Advisors, L.P.,
Harris Associates L.P., Loomis, Sayles & Company, L.P.,
Wellington Management Company, LLP, Massachusetts Financial
Services Company, Morgan Stanley Dean Witter Investment
Management Inc., Salomon Brothers Asset Management Inc. and
Salomon Brothers Management Limited, Davis Selected
Advisers, L.P. and Fred Alger Management, Inc.,
respectively. NEIM, a wholly-owned subsidiary of New England
Life Insurance Company ("NELICO"), was organized in 1994 and
oversees, evaluates and monitors the subadvisers' provision
of investment advisory services to the Series and provides
general management and administration to the Series.
The list required by this Item 26 regarding any other
business, profession, vocation or employment of a
substantial nature engaged in by officers and directors of
NEIM during the past two years is incorporated by reference
to Schedules A and D of Form ADV filed by NEIM pursuant to
the Investment Advisers Act of 1940, as amended
(SEC File No. 801-47459).
(b) Capital Growth Management Limited Partnership, the adviser
of the Capital Growth Series, provides investment advice to
a number of other registered investment companies and to
other organizations and individuals.
The list required by this Item 26 regarding any other
business, profession, vocation or employment of a
substantial nature engaged in by officers and directors of
Capital Growth Management Limited Partnership ("CGM") during
the past two years is incorporated by reference to Schedules
A and D of Form ADV filed by CGM pursuant to the Advisers
Act (SEC File No. 801-35935).
(c) Back Bay Advisors, L.P., the subadviser of the Back Bay
Advisors Money Market, Back Bay Advisors Bond Income Series
and Back Bay Advisors Managed Series, is a wholly-owned
subsidiary of Nvest Companies, L. P. ("Nvest Companies").
Its sole general partner is Back Bay Advisors, Inc.
The list required by this Item 26 regarding any other
business, profession, vocation or employment of a
substantial nature engaged in by officers and directors of
Back Bay Advisors during the past two years is incorporated
by reference to Schedules A and D of Form ADV filed by Back
Bay Advisors pursuant to the Advisers Act (SEC File
No. 801-27694).
(d) Westpeak Investment Advisors, L.P. ("Westpeak"), the
subadviser of the Westpeak Growth and Income and Westpeak
Stock Index Series, is a wholly-
-9-
<PAGE>
owned subsidiary of Nvest Companies. Its sole general
partner is Westpeak Investment Advisors, Inc.
The list required by this Item 26 regarding any other
business, profession, vocation or employment of a
substantial nature engaged in by officers and directors of
Westpeak during the past two years is incorporated by
reference to Schedules A and D of Form ADV filed by Westpeak
pursuant to the Advisers Act (SEC File No. 801-39554).
(e) Loomis Sayles & Company, L. P. ("Loomis Sayles"), the
subadviser to the Loomis Sayles Small Cap, is a wholly-owned
subsidiary of Nvest Companies. Its sole general partner is
Loomis Sayles & Company, Inc.
The list required by this Item 26 regarding any other
business, profession, vocation or employment of a
substantial nature engaged in by officers and directors of
Loomis Sayles during the past two years is incorporated by
reference to Schedules A and D of Form ADV filed by Loomis
Sayles pursuant to the Advisers Act (SEC File No. 801-170).
(f) Fred Alger Management, Inc., the subadviser of Alger Equity
Growth Series, provides investment advice to a number of
other registered investment companies and to other
organizations and individuals.
The list required by this Item 26 regarding any other
business, profession, vocation or employment of a
substantial nature engaged in by officers and directors of
Alger Management during the past two years is incorporated
by reference to Schedules A and D of Form ADV filed by Fred
Alger Management pursuant to the Advisers Act (SEC File No.
801-06709).
(g) Davis Selected Advisers, L.P., the subadviser of the Venture
Value Series, provides investment advice to a number of
other registered investment companies and to other
organizations and individuals.
The list required by this Item 26 regarding any other
business, profession, vocation or employment of a
substantial nature engaged in by officers and directors of
Davis Selected during the past two years is incorporated by
reference to Schedules A and D of Form ADV filed by Fred
Alger Management pursuant to the Advisers Act (SEC File No.
801-31648).
(h) SBAM Subadviser to the Salomon Brothers U.S. Government
Series and along with SBAM, Ltd., subadviser to the Salomon
Brothers Strategic Bond Series, provides investment advise
to a number of other registered investment companies and to
other organizations.
The list required by this Item 26 of officers and directors
of SBAM, SBAM Limited together with information as to any
other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to
Schedules A and D of their respective Form ADV filed by SBAM
and SBAM Limited, respectively, pursuant to the Advisers Act
(SEC File Nos.801-32046 and 801-43335, respectively).
-10-
<PAGE>
(i) Morgan Stanley Dean Witter Investment Management,Inc.
provides investment advice to a number of other registered
investment companies and to other organizations.
The list required by Item 26 of the officers and directors
of Morgan Stanley Dean Witter Investment Management Inc.
("MSDW") together with information as to any other business,
profession, vocation, or employment of a substantial nature
engaged in by the Chairman, President and Directors during
the past two fiscal years, is incorporated by reference to
Schedules A and D of Form ADV filed by MSDW pursuant to the
Advisers Act (SEC File No. 801-15757).
(j) MFS provides investment advice to a number of other
registered investment companies and to other organizations.
The list required by Item 26 of the officers and directors
of MFS together with information as to any other business,
profession, vocation, or employment of a substantial nature
engaged in by the Chairman, President and Directors during
the past two fiscal years, is incorporated by reference to
Schedules A and D for Form ADV filed by MFS pursuant to the
Advisers Act (SEC. File No. 801-17352).
(k) Wellington Management Company, LLP ("Wellington"), the
subadviser of the Balanced Series, provides investment
advice to a number of other registered investment companies
and to other organizations.
The list required by Item 26 of the officers and directors
of Wellington together with information as to any other
business, profession, vocation, or employment of a
substantial nature engaged in by the Chairman, President and
Directors during the past two fiscal years, is incorporated
by reference to Schedules A and D of Form ADV filed by
Wellington pursuant to the Advisers Act (SEC File
No. 801-15908).
(l) Harris Associates L.P. ("Harris"), the subadviser of the
Harris Oakmark Mid Cap Value Series, is a wholly-owned
subsidiary of Nvest Companies. Its sole general partner is
Harris Associates, Inc.
The list required by Item 26 of the officers and directors
of Harris together with information as to any other
business, profession, vocation, or employment of a
substantial nature engaged in by the Chairman, President and
Directors during the past two fiscal years, is incorporated
by reference to Schedules A and D of Form ADV filed by
Harris pursuant to the Advisers Act (SEC File
No. 801-50333).
Item 27. Principal Underwriters
----------------------
(a) New England Securities Corporation also serves as principal
underwriter for:
New England Variable Life Separate Account
New England Variable Annuity Fund I
New England Retirement Investment Account
The New England Variable Account
New England Variable Annuity Separate Account
(b) The directors and officers of the Registrant's principal
underwriter, New England Securities Corporation, and their
addresses are as follows:
(c) Not applicable.
<TABLE>
<CAPTION>
Positions and
Positions and Offices Offices with
Name with Principal Underwriter Registrant
---- -------------------------- -------------
<S> <C> <C>
Thomas W. McConnell (2) Chairman of the Board, President None
and Chief Executive Officer
Mary M. Diggins (1) Vice President, General Counsel, None
Secretary and Clerk
</TABLE>
-11-
<PAGE>
<TABLE>
<S> <C> <C>
Mark Greco (2) Vice President and Chief None
Operating Officer
Michael E. Toland (1) Vice President, Chief Financial None
Officer, Treasurer, Chief
Compliance Officer, Assistant
Secretary, and Assistant Clerk
Bradley Anderson (2) Vice President None
Mitchell A. Karman (1) Vice President None
Laura A. Hutner (2) Vice President None
Robert F. Regan (3) Vice President None
Jonathan M. Rozek (2) Vice President None
Andrea Ruesch (2) Vice President None
Joanne Logue (1) Vice President None
Genevieve Martin (2) Field Vice President None
Rebecca Kovatch (2) Field Vice President None
John Peruzzi (2) Assistant Vice President and None
Controller
Steven J. Brash (4) Assistant Treasurer None
Leo R. Brown (4) Assistant Treasurer None
Ronald Mare (4) Assistant Treasurer None
Gregory M. Harrison (4) Assistant Treasurer None
</TABLE>
- --------------------
(1) New England Financial, 501 Boylston Street, Boston, MA 02116
(2) New England Financial, 399 Boylston Street, Boston, MA 02116
(3) New England Financial, 500 Boylston Street, Boston, MA 02116
(4) Metropolitan Life Insurance Company, One Madison Avenue, New York, NY 10010
Item 28. Location of Accounts and Records
--------------------------------
The following companies maintain possession of the documents required
by the specified rules:
(a) Registrant
Rule 31a-1(a)(4)
Rule 31a-2(a)
(b) State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Rule 31a-1(a)
Rule 31a-1(b)(1), (2), (3), (5), (6), (7), (8)
Rule 31a-2(a)
(c) For the Back Bay Advisors Money Market Series, the Back Bay
Advisors Bond Income Series and the Back Bay Advisors Managed
Series:
-12-
<PAGE>
Back Bay Advisors, L.P.
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Westpeak Growth and Income and Westpeak Stock Index
Series:
Westpeak Investment Advisors, L.P.
1011 Walnut St. Suite 400
Boulder, Colorado 80302
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Loomis Sayles Small Cap Series:
Loomis Sayles & Company, L.P.
One Financial Center
Boston, Massachusetts 02110
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Morgan Stanley International Magnum Equity Series:
Morgan Stanley Asset Management
1221 Avenue of the Americas
New York, New York 10021
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Salomon Brothers U. S. Government Series and the Salomon
Brothers Strategic Bond Opportunities Series:
Salomon Brothers Asset Management Inc.
7 World Trade Center
New York, New York 10048
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Davis Venture Value Series:
Davis Selected Advisers, L.P.
124 East Marcy Street
Santa Fe, NM 87501
-13-
<PAGE>
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Alger Equity Growth Series:
Fred Alger Management, Inc.
75 Maiden Lane
New York, New York 10038
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the MFS Investors Series and the MFS Research Managers Series:
Massachusetts Financial Services Company
501 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Capital Growth Series:
Capital Growth Management Limited Partnership
One Financial Center
Boston, Massachusetts 02111
Rule 31a-1(a); 31a-1(b)(9), (10), (11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Balanced Series:
Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109
Rule 31a-1(a); 31a-1(b)(9),(10),(11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
For the Harris Oakmark Mid Cap Value Series:
Harris Associates L.P.
2 North LaSalle Street
Chicago, IL 60602
Rule 31a-1(a); 31a-1(b)(9),(10),(11);
31a-1(f)
Rule 31a-2(a); 31a-2(e)
(d) New England Securities Corporation
399 Boylston Street
Boston, Massachusetts 02116
Rule 31a-1(d)
Rule 31a-2(c)
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
(a) The Registrant undertakes to provide the Fund's annual
report to any person who receives a Fund prospectus and
who requests the annual report.
********
A copy of the Agreement and Declaration of Trust establishing New England Zenith
Fund is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby
-14-
<PAGE>
given that this Registration Statement is executed on behalf of the Fund by
officers of the Fund as officers and not individually and that the obligations
of or arising out of this Registration Statement are not binding upon any of the
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Fund.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund has duly caused this amendment to its registration
statement to be signed on its behalf by the undersigned, duly authorized, in the
city of Boston and the Commonwealth of Massachusetts on the 27th day of April,
2000, and the Fund hereby certifies that the amendment meets all the
requirements for effectiveness under Section (b) of Rule 485 under the
Securities Act of 1933.
New England Zenith Fund
By: /s/ ANNE GOGGIN
---------------------------
Anne Goggin
President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following person in the capacities and as
of the date indicated.
/s/ ANNE GOGGIN Chairman of the Board; April 27, 2000
- --------------------------- Chief Executive Officer;
Anne Goggin President and Trustee
/s/ PETER DUFFY Treasurer April 27, 2000
- --------------------------- Principal Financial and
Peter Duffy Accounting Officer
JOHN J. ARENA* Trustee April 27, 2000
- ---------------------------
John J. Arena
JOHN W. FLYNN* Trustee April 27, 2000
- ---------------------------
John W. Flynn
/s/ MARY ANN BROWN* Trustee April 27, 2000
- ---------------------------
Mary Ann Brown
NANCY HAWTHORNE* Trustee April 27, 2000
- ---------------------------
Nancy Hawthorne
-16-
<PAGE>
- ---------------------------
EDWARD A. BENJAMIN* Trustee April 27, 2000
- ---------------------------
Edward A. Benjamin
JOHN T. LUDES* Trustee April 27, 2000
- ---------------------------
John T. Ludes
DALE ROGERS MARSHALL* Trustee April 27, 2000
- ---------------------------
Dale Rogers Marshall
*By: /s/ THOMAS M. LENZ
------------------------------------------
Thomas M. Lenz
Attorney-in-Fact
April 27, 2000
-17-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
(a)(12) Amendment No. 11 to Agreement and Declaration of Trust
(d)(5) Advisory Agreement for Balanced Series
(d)(10) Subadvisory Agreement for the Harris Oakmark Mid Cap
Value Series
(d)(11) Subadvisory Agreement for the Balanced Series
(h)(6) Assignment and Assumption of Transfer Agency Agreement
(h)(7) Expense Agreement
(h)(9) Form of Participation Agreement
(i)(1) Opinion and Consent of Counsel
(j)(1) Consent of Deloitte & Touche, L.L.P.
(j)(2) Consent of PricewaterhouseCoopers LLP
(p)(1) New England Zenith Fund Code of Ethics
(p)(2) New England Investment Management, Inc. Code of Ethics
(p)(3) Wellington Management Company, LLP Code of Ethics
(p)(4) Westpeak Investment Advisors, L.P. Code of Ethics
(p)(5) Morgan Stanley Dean Witter Investment Management Inc.
Code of Ethics
(p)(6) Capital Growth Management Limited Partnership Code of
Ethics
(p)(7) Fred Alger Management, Inc. Code of Ethics
(p)(8) Back Bay Advisors, L.P. Code of Ethics
(p)(9) Loomis Sayles and Company, L.P. Code of Ethics
(p)(10) Massachusetts Financial Services Company Code of Ethics
(p)(11) Salomon Brothers Asset Management Inc. Code of Ethics
(p)(12) Harris Associates L.P. Code of Ethics
(p)(13) Davis Selected Advisers, L.P. Code of Ethics
(p)(14) New England Securities Corporation Code of Ethics
</TABLE>
<PAGE>
EX-99.(a)(12)
NEW ENGLAND ZENITH FUND
Amendment No. 11 to Agreement and Declaration of Trust
The undersigned, being at least a majority of the Trustees of New England
Zenith Fund (the "Trust"), hereby consent to and adopt the following amendment
to the Trust's Agreement and Declaration of Trust (as amended through Amendment
No. 10 thereto, the "Declaration of Trust"), a copy of which is on file in the
office of the Secretary of State of The Commonwealth of Massachusetts:
The undersigned Trustees having determined it to be consistent with the
fair and equitable treatment of all shareholders of the Trust, the first
sentence of Section 6 of Article III of the Declaration of Trust is hereby
amended to read in its entirety as follows:
Without limiting the authority of the Trustees set forth in Section 5,
inter alia, to establish and designate any further Series or classes or to
----- ----
modify the rights and preferences of any Series or class, each of the
following Series shall be, and is hereby, established and designated: (1)
the "Back Bay Advisors Money Market Series," (2) the "Back Bay Advisors
Bond Income Series," (3) the "Capital Growth Series," (4) the "Westpeak
Stock Index Series," (5) the "Back Bay Advisors Managed Series," (6) the
"Westpeak Growth and Income Series," (7) the "Harris Oakmark Mid Cap Value
Series" (formerly the "Goldman Sachs Midcap Value Series"), (8) the "Loomis
Sayles Small Cap Series," (9) the "Balanced Series" (formerly the "Loomis
Sayles Balanced Series"), (10) the "Morgan Stanley International Magnum
Equity Series," (11) the "Salomon Brothers U.S. Government Series," (12)
the "Salomon Brothers Strategic Bond Opportunities Series," (13) the "Davis
Venture Value Series," (14) the "Alger Equity Growth Series," (15) the "MFS
Investors Series," and (16) the "MFS Research Managers Series."
The foregoing amendment shall become effective as of the time it is filed
with the Secretary of State of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, we have hereunder set our hands for ourselves and for
our successors and assigns this 27th day of April 2000.
/s/ John J. Arena /s/ Edward A. Benjamin
- ----------------------------- ---------------------------
John J. Arena Edward A. Benjamin
/s/ Mary Ann Brown /s/ John W. Flynn
- ----------------------------- -----------------------------
Mary Ann Brown John W. Flynn
/s/ Anne M. Goggin /s/ Nancy Hawthorne
- ----------------------------- -----------------------------
Anne M. Goggin Nancy Hawthorne
/s/ John T. Ludes /s/ Dale Rogers Marshall
- ----------------------------- -----------------------------
John T. Ludes Dale Rogers Marshall
<PAGE>
EX-99.(d)(5)
AMENDED AND RESTATED ADVISORY AGREEMENT
NEW ENGLAND ZENITH FUND
(BALANCED SERIES)
AGREEMENT entered into on the 30th day of August, 1996, and amended and
restated as of May 1, 2000, by and between NEW ENGLAND ZENITH FUND, a
Massachusetts business trust (the "Fund") with respect to its Balanced Series
(formerly the Loomis Sayles Balanced Series) (the "Series"), and NEW ENGLAND
INVESTMENT MANAGEMENT, INC. (formerly TNE Advisers, Inc.), a Massachusetts
corporation (the "Manager").
WITNESSETH:
WHEREAS, the Fund and the Manager wish to enter into an agreement setting
forth the terms upon which the Manager (or certain other parties acting pursuant
to delegation from the Manager) will perform certain services for the Series;
NOW THEREFORE, in consideration of the premises and covenants hereinafter
contained, the parties agree as follows:
1.(a) The Fund hereby employs the Manager to furnish the Fund with
Portfolio Management Services (as defined in Section 2 hereof) and
Administrative Services (as defined in Section 3 hereof), subject to the
authority of the Manager to delegate any or all of its responsibilities
hereunder to other parties as provided in Sections 1(b) and (c) hereof. The
Manager hereby accepts such employment and agrees, at its own expense, to
furnish such services (either directly or pursuant to delegation to other
parties as permitted by Sections 1(b) and (c) hereof) and to assume the
obligations herein set forth, for the compensation herein provided. The Manager
shall, unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed an agent of the
Fund.
(b) The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Portfolio Management Services (and assumption
of related expenses) to one or more other parties (each such party, a "Sub-
Adviser"), pursuant in each case to a written agreement with such Sub-Adviser
that meets the requirements of Section 15 of the Investment Company Act of 1940
and the rules thereunder (the "1940 Act") applicable to contracts for service as
investment adviser of a registered investment company (including without
limitation the requirements for approval by the trustees of the Fund and the
shareholders of the Series), subject, however, to such exemptions as may be
granted by the Securities and Exchange Commission. Any Sub-Adviser may (but
need not) be affiliated with the Manager. If different Sub-Advisers are engaged
to provide Portfolio Management Services with respect to different segments of
the portfolio of the Series, the Manager shall determine, in the manner
described in the prospectus of the Series from time to time in effect, what
portion of the assets belonging to the Series shall be managed by each Sub-
Adviser.
-1-
<PAGE>
(c) The Manager may delegate any or all of its responsibilities hereunder
with respect to the provision of Administrative Services to one or more other
parties (each such party, an "Administrator") selected by the Manager. Any
Administrator may (but need not) be affiliated with the Manager.
2. As used in this Agreement, "Portfolio Management Services" means
management of the investment and reinvestment of the assets belonging to the
Series, consisting specifically of the following:
(a) obtaining and evaluating such economic, statistical and financial
data and information and undertaking such additional investment research as
shall be necessary or advisable for the management of the investment and
reinvestment of the assets belonging to the Series in accordance with the
Series' investment objectives and policies;
(b) taking such steps as are necessary to implement the investment
policies of the Series by purchasing and selling of securities, including
the placing of orders for such purchase and sale; and
(c) regularly reporting to the Board of Trustees of the Fund with
respect to the implementation of the investment policies of the Series.
3. As used in this Agreement, "Administrative Services" means the
provision to the Fund, by or at the expense of the Manager, of the following:
(a) office space in such place or places as may be agreed upon from
time to time by the Fund and the Manager, and all necessary office
supplies, facilities and equipment;
(b) necessary executive and other personnel for managing the affairs
of the Series, including personnel to perform clerical, bookkeeping,
accounting, stenographic and other office functions (exclusive of those
related to and to be performed under contract for custodial, transfer,
dividend and plan agency services by the entity or entities selected to
perform such services;
(c) compensation, if any, of trustees of the Fund who are directors,
officers or employees of the Adviser, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company) of
the Manager, any Sub-Adviser or any Administrator;
(d) all services, other than services of counsel, required in
connection with the preparation of registration statements and
prospectuses, including amendments and revisions thereto, all annual,
semiannual and periodic reports, and notices and proxy solicitation
material furnished to shareholders of the Fund or regulatory authorities,
to the extent that any such materials relate to the business of the Series,
to the shareholders thereof or otherwise to the Series, the Series to be
treated for these purposes as a separate legal entity and fund; and
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<PAGE>
(e) supervision and oversight of the Portfolio Management Services
provided by each Sub-Adviser, and oversight of all matters relating to
compliance by the Fund with applicable laws and with the Fund's investment
policies, restrictions and guidelines, if the Manager has delegated to one
or more Sub-Advisers any or all of its responsibilities hereunder with
respect to the provision of Portfolio Management Services.
4. Nothing in section 3 hereof shall require the Manager to bear, or to
reimburse the Fund for:
(a) any of the costs of printing and mailing the items referred to in
sub-section (d) of this section 3;
(b) any of the costs of preparing, printing and distributing sales
literature;
(c) compensation of trustees of the Fund who are not directors,
officers or employees of the Manager, any Sub-Adviser or any Administrator
or of any affiliated person (other than a registered investment company) of
the Manager, any Sub-Adviser or any Administrator;
(d) registration, filing and other fees in connection with
requirements or regulatory authorities;
(e) the charges and expenses of any entity appointed by the Fund for
custodial, paying agent, shareholder servicing and plan agent services;
(f) charges and expenses of independent accountants retained by the
Fund;
(g) charges and expenses of any transfer agents and registrars
appointed by the Fund;
(h) brokers' commissions and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the Fund is a
party;
(i) taxes and fees payable by Fund to federal, state or other
governmental agencies;
(j) any cost of certificates representing shares of the Fund;
(k) legal fees and expenses in connection with the affairs of the Fund
including registering and qualifying its shares with Federal and State
regulatory authorities;
(l) expenses of meetings of shareholders and trustees of the Fund; and
(m) interest, including interest on borrowings by the Fund.
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<PAGE>
5. All activities undertaken by the Manager or any Sub-Adviser or
Administrator pursuant to this Agreement shall at all times be subject to the
supervision and control of the Board of Trustees of the Fund, any duly
constituted committee thereof or any officer of the Fund acting pursuant to like
authority.
6. The services to be provided by the Manager and any Sub-Adviser or
Administrator hereunder are not to be deemed exclusive and the Manager and any
Sub-Adviser or Administrator shall be free to render similar services to others,
so long as its services hereunder are not impaired thereby.
7. As full compensation for all services rendered, facilities furnished
and expenses borne by the Manager hereunder, the Fund shall pay the Manager
compensation at the annual rate of .70% of the first $200 million of the
average daily net assets of the Series, and .675% of such assets in excess of
$200 million. Such compensation shall be payable monthly in arrears or at such
other intervals, not less frequently than quarterly, as the Board of Trustees of
the Fund may from time to time determine and specify in writing to the Manager.
The Manager hereby acknowledges that the Fund's obligation to pay such
compensation is binding only on the assets and property belonging to the Series.
8. If the total of all ordinary business expenses of the Fund as a whole
(including investment advisory fees but excluding taxes and portfolio brokerage
commissions) for any fiscal year exceeds the lowest applicable percentage of
average net assets or income limitations prescribed by any state in which shares
of the Series are qualified for sale, the Manager shall pay such excess. Solely
for purposes of applying such limitations in accordance with the foregoing
sentence, the Series and the Fund shall each be deemed to be a separate fund
subject to such limitations. Should the applicable state limitation provisions
fail to specify how the average net assets of the Fund or belonging to the
Series are to be calculated, that figure shall be calculated by reference to the
average daily net assets of the Fund or the Series, as the case may be.
9. It is understood that any of the shareholders, trustees, officers,
employees and agents of the Fund may be a shareholder, director, officer,
employee or agent of, or be otherwise interested in, the Manager, any affiliated
person of the Manager, any organization in which the Manager may have an
interest or any organization which may have an interest in the Manager; that the
Manager, any such affiliated person or any such organization may have an
interest in the Fund; and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided in the agreement and declaration of trust of the Fund, the articles of
organization of the Manager or specific provisions of applicable law.
10. This Agreement shall become effective as of the date of its execution,
and
(a) unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Series, and (ii) by vote of a
majority of the trustees of the Fund who are not interested persons of the
Fund
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<PAGE>
or the Manager, cast in person at a meeting called for the purpose of
voting on, such approval;
(b) this Agreement may at any time be terminated on sixty days'
written notice to the Manager either by vote of the Board of Trustees of
the Fund or by vote of a majority of the outstanding voting securities of
the Series;
(c) this Agreement shall automatically terminate in the event of its
assignment;
(d) this Agreement may be terminated by the Manager on ninety days'
written notice to the Fund;
(e) if New England Securities Corporation, the Fund's principal
underwriter, requires the Fund or the Series to change its name so as to
eliminate all references to the words "New England" or the letters "TNE"
pursuant to the provisions of the Fund's Distribution Agreement relating to
the Series with said principal underwriter, this Agreement shall
automatically terminate at the time of such change unless the continuance
of this Agreement after such change shall have been specifically approved
by vote of a majority of the outstanding voting securities of the Series
and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
Termination of this Agreement pursuant to this section 10 shall be without
the payment of any penalty.
11. This Agreement may be amended at any time by mutual consent of the
parties, provided that such consent on the part of the Fund shall have been
approved by vote of a majority of the outstanding voting securities of the
Series and by vote of a majority of the trustees of the Fund who are not
interested persons of the Fund or the Manager, cast in person at a meeting
called for the purpose of voting on such approval.
12. For the purpose of this Agreement, the terms "vote of a majority of
the outstanding voting securities," "interested person," "affiliated person" and
"assignment" shall have their respective meanings defined in the 1940 Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission under the 1940 Act. References in this Agreement to any
assets, property or liabilities "belonging to" the Series shall have the meaning
defined in the Fund's agreement and declaration of trust as amended from time to
time.
13. In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Manager, or reckless disregard of its obligations and duties
hereunder, the Manager shall not be subject to any liability to the Fund, to any
shareholder of the Fund or to any other person, firm or organization, for any
act or omission in the course of, or connected with, rendering services
hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
NEW ENGLAND ZENITH FUND, NEW ENGLAND INVESTMENT
on behalf of its Balanced Series MANAGEMENT, INC.
By /s/ ANNE M. GOGGIN By /s/ JOHN F. GUTHRIE
------------------ --------------------
Anne M. Goggin John F. Guthrie, Jr.
President Senior Vice President
NOTICE
A copy of the Agreement and Declaration of Trust establishing New England
Zenith Fund (the "Fund") is on file with the Secretary of The Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed with
respect to the Fund's Balanced Series (the "Series") on behalf of the Fund by
officers of the Fund as officers and not individually and that the obligations
of or arising out of this Agreement are not binding upon any of the trustees,
officers or shareholders individually but are binding only upon the assets and
property belonging to the Series.
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<PAGE>
EX-99.(d)(10)
NEW ENGLAND ZENITH FUND
SUBADVISORY AGREEMENT
(HARRIS OAKMARK MID CAP VALUE SERIES)
This Subadvisory Agreement (this "Agreement") is entered into as of May 1,
2000 by and between New England Investment Management, Inc., a Massachusetts
corporation (the "Manager"), and Harris Associates L.P. (the "Subadviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated May 1,
1998 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Harris Oakmark Mid Cap Value Series of the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more subadvisers;
WHEREAS, the Manager desires to retain the Subadviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Subadviser agree as follows:
1. Subadvisory Services.
--------------------
a. The Subadviser shall, subject to the supervision of the Manager
and in cooperation with the Manager, as administrator, or with any other
administrator appointed by the Manager (the "Administrator"), manage the
investment and reinvestment of the assets of the Series. The Subadviser shall
manage the Series in conformity with (1) the investment objective, policies and
restrictions of the Series set forth in the Trust's prospectus and statement of
additional information, as revised or supplemented from time to time, relating
to the Series (the "Prospectus"), (2) any additional policies or guidelines
established by the Manager or by the Trust's trustees that have been furnished
in writing to the Subadviser and (3) the provisions of the Internal Revenue Code
(the "Code") applicable to "regulated investment companies" (as defined in
Section 851 of the Code) and "segregated asset accounts" (as defined in Section
817 of the Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") the rules and regulations thereunder and the interpretive opinions
thereof of the staff of the Securities and Exchange Commission ("SEC") ("SEC
Positions"); provided, however, that the Manager agrees to inform the Subadviser
of any and all applicable state insurance law restrictions that operate to limit
or restrict the investments the Series might otherwise make ("Insurance
Restrictions"), and to inform the Subadviser promptly of any changes in such
Insurance Restrictions. Subject to the foregoing, the Subadviser is authorized,
in its discretion and without prior consultation with the Manager, to buy, sell,
lend
-1-
<PAGE>
and otherwise trade in any stocks, bonds and other securities and investment
instruments on behalf of the Series, without regard to the length of time the
securities have been held and the resulting rate of portfolio turnover or any
tax considerations; and the majority or the whole of the Series may be invested
in such proportions of stocks, bonds, other securities or investment
instruments, or cash, as the Subadviser shall determine. Notwithstanding the
foregoing provisions of this Section 1.a, however, the Subadviser shall, upon
written instructions from the Manager, effect such portfolio transactions for
the Series as the Manager shall determine are necessary in order for the Series
to comply with the Policies.
b. The Subadviser shall furnish the Manager and the Administrator
daily, weekly, monthly, quarterly and/or annual reports concerning portfolio
transactions and the investment performance of the Series in such form as may be
mutually agreed upon, and agrees to review the Series and discuss the management
of the Series with representatives or agents of the Manager, the Administrator
or the Trust at their reasonable request. The Subadviser shall permit all books
and records with respect to the Series to be inspected and audited by the
Manager and the Administrator at all reasonable times during normal business
hours, upon reasonable notice. The Subadviser shall also provide the Manager,
the Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the Trustees of the Trust pursuant to Section 15(c) of the 1940
Act. The Subadviser shall furnish the Manager (which may also provide it to the
Trust's Board of Trustees) with copies of all comment letters relevant to the
Series received from the SEC following routine or special SEC examinations or
inspections.
c. The Subadviser shall provide to the Manager a copy of the
Subadviser's Form ADV as filed with the SEC and any amendments or restatements
thereof in the future and a list of the persons whom the Subadviser wishes to
have authorized to give written and/or oral instructions to custodians of assets
of the Series.
d. Unless the Manager gives the Subadviser written instructions to
the contrary, the Subadviser shall use its good faith judgment in a manner which
it reasonably believes best serves the interest of the Series' shareholders to
vote or abstain from voting all proxies solicited by or with respect to the
issuers of securities in which assets of the Series are invested.
2. Obligations of the Manager.
--------------------------
a. The Manager shall provide (or cause the Trust's custodian to
provide) timely information to the Subadviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Subadviser to perform its responsibilities hereunder.
b. The Manager has furnished the Subadviser a copy of the Prospectus
and agrees during the continuance of this Agreement to furnish the Subadviser
copies of any
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<PAGE>
revisions or supplements thereto at, or, if practicable, before the time the
revisions or supplements become effective. The Manager agrees to furnish the
Subadviser with relevant sections of minutes of meetings of the Trustees of the
Trust applicable to the Series to the extent they may affect the duties of the
Subadviser, and with copies of any financial statements or reports of the Trust
with respect to the Series to its shareholders, and any further materials or
information which the Subadviser may reasonably request to enable it to perform
its functions under this Agreement, including, but not limited to, timely
information relating to any Insurance Restrictions.
3. Custodian. The Manager shall provide the Subadviser with a copy of the
---------
Series' agreement with the custodian designated to hold the assets of the Series
(the "Custodian") and any modifications thereto (the "Custody Agreement"). The
assets of the Series shall be maintained in the custody of the Custodian
identified in, and in accordance with the terms and conditions of, the Custody
Agreement (or any sub-custodian properly appointed as provided in the Custody
Agreement). The Subadviser shall provide timely instructions directly to the
Trust's custodian, in the manner and form as required by the Trust's Custody
Agreement (including with respect to exchange offerings and other corporate
actions) necessary to effect the investment and reinvestment of the Series'
assets. Any assets added to the Series shall be delivered directly to the
Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the
------------------
Subadviser is the sole owner of the name and trade or service mark "Harris" or
"Oakmark" and that all use of any designation consisting in whole or part of
either such trade or service mark under this Agreement shall inure to the
benefit of the Subadviser.
5. Expenses. Except for expenses specifically assumed or agreed to be
--------
paid by the Subadviser pursuant hereto, the Subadviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Subadviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
6. Purchase and Sale of Assets. Absent instructions from the Manager to
---------------------------
the contrary, the Subadviser shall place all orders for the purchase and sale of
securities for the Series with brokers or dealers selected by the Subadviser,
which may include brokers or dealers affiliated with the Subadviser, provided
such orders comply with Rule 17e-1 (or any successor or other relevant
regulations) under the 1940 Act in all respects. To the extent consistent with
applicable law and then-current SEC positions, purchase or sell orders for the
Series may be aggregated with contemporaneous purchase or sell orders of other
clients of the Subadviser. The Subadviser shall use its best efforts to obtain
execution of transactions for the Series at prices which are advantageous to the
Series and at commission rates that are reasonable in relation to the benefits
received. However, the Subadviser may select brokers or dealers on the basis
that they provide brokerage, research or other services or products to the
Series and/or other accounts serviced by the Subadviser. Not all such services
or products need to be used by the Subadviser in managing the Series.
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<PAGE>
7. Compensation of the Subadviser. As full compensation for all services
------------------------------
rendered, facilities furnished and expenses borne by the Subadviser hereunder,
the Manager shall pay the Subadviser compensation at the annual rate of 0.45% of
the first $100 million of the average daily net assets of the Series during the
Series' then-current fiscal year, 0.40% of the next $400 million of such assets
and 0.35% of such assets in excess of $500 million. Such compensation shall be
payable monthly in arrears or at such other intervals, not less frequently than
quarterly, as the Manager is paid by the Series pursuant to the Advisory
Agreement. If the Subadviser shall serve for less than the whole of any month
or other agreed-upon interval, the foregoing compensation shall be prorated.
The Manager may from time to time waive the compensation it is entitled to
receive from the Trust; however, any such waiver will have no effect on the
Manager's obligation to pay the Subadviser the compensation provided for herein.
8. Non-Exclusivity. The Manager agrees that the services of the
---------------
Subadviser are not to be deemed exclusive and that the Subadviser and its
affiliates are free to act as investment manager and provide other services to
various investment companies and other managed accounts, except as the
Subadviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Subadviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Subadviser of its
duties and obligations under this Agreement. The Manager recognizes and agrees
that the Subadviser may provide advice to or take action with respect to other
clients, which advice or action, including the timing and nature of such action,
may differ from or be identical to advice given or action taken with respect to
the Series. The Subadviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager.
9. Liability and Indemnification. Except as may otherwise be provided by
-----------------------------
the 1940 Act or other federal securities laws, neither the Subadviser nor any of
its officers, partners, managing directors, employees, affiliates or agents (the
"Indemnified Parties") shall be subject to any liability to the Manager, the
Trust, the Series or any shareholder of the Series for any error of judgment, or
any loss arising out of any investment or other act or omission in the course
of, connected with, or arising out of any service to be rendered under this
Agreement, except by reason of a violation of law, willful misfeasance, bad
faith or gross negligence in the performance of any Indemnified Party's duties
or by reason of reckless disregard by any Indemnified Party of its obligations
and duties. The Manager shall hold harmless and indemnify the Subadviser for
any loss, liability, cost, damage or expense (including reasonable attorneys
fees and costs) arising (i) from any claim or demand by any past or present
shareholder of the Series that is not based upon the obligations of the
Subadviser with respect to the Series under this Agreement or (ii) resulting
from the failure of the Manager to inform the Subadviser of any applicable
Insurance Restrictions or any changes therein. The Subadviser agrees to
indemnify the Manager for any loss, liability, cost, damage or expense
(including reasonable attorney's fees) resulting from a material misstatement or
omission in the Series' Prospectus with respect to disclosure of the Series'
investment objectives, policies and risks. The Manager acknowledges
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<PAGE>
and agrees that the Subadviser makes no representation or warranty, express or
implied, that any level of performance or investment results will be achieved by
the Series or that the Series will perform comparably with any standard or
index, including other clients of the Subadviser, whether public or private.
10. Effective Date and Termination. This Agreement shall become effective
------------------------------
as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Subadviser, cast in person at a meeting called for the purpose of
voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Subadviser either by vote of the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Series;
c. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
d. this Agreement may be terminated by the Subadviser on sixty days'
written notice to the Manager and the Trust, or, if approved by the Board of
Trustees of the Trust, by the Manager on sixty days' written notice to the
Subadviser; and
e. if the Subadviser requires the Series to change its name so as to
eliminate all references to the words "Harris" or "Oakmark," then this Agreement
shall automatically terminate at the time of such change unless the continuance
of this Agreement after such change shall have been specifically approved by
vote of a majority of the outstanding voting securities of the Series and by
vote of a majority of the Trustees of the Trust who are not interested persons
of the Trust or the Subadviser, cast in person at a meeting called for the
purpose of voting on such approval.
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty. In the event of termination of this Agreement, all
compensation due to the Subadviser through the date of termination will be
calculated on a pro rata basis through the date of termination and paid on the
first business day after the next succeeding month end.
11. Amendment. This Agreement may be amended at any time by mutual
---------
consent of the Manager and the Subadviser, provided that, if required by law (as
may be modified by any exemptions received by the Manager), such amendment shall
also have been approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the trustees of the Trust
who are not interested persons of the Trust, the Manager or the Subadviser, cast
in person at a meeting called for the purpose of voting on such approval.
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<PAGE>
12. Certain Definitions. For the purpose of this Agreement, the terms
-------------------
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the SEC under the 1940 Act.
13. General.
-------
a. The Subadviser may perform its services through any employee,
officer or agent of the Subadviser, and the Manager shall not be entitled to the
advice, recommendation or judgment of any specific person; provided, however,
that the persons identified in the Prospectus of the Series shall perform the
portfolio management duties described therein until the Subadviser notifies the
Manager that one or more other employees, officers or agents of the Subadviser,
identified in such notice, shall assume such duties as of a specific date. The
Subadviser shall use commercially reasonable efforts to inform the Manager of
any such events enough time prior to the event taking effect such that allows
the Manager sufficient time to prepare and file any necessary supplement to the
Prospectus.
b. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
c. This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts.
NEW ENGLAND INVESTMENT MANAGEMENT, INC.
By: /s/ JOHN F. GUTHRIE
--------------------------------
John F. Guthrie, Jr.
Senior Vice President
HARRIS ASSOCIATES L.P.
By: /s/ ROBERT M. LEVY
--------------------------------
Name: Robert M. Levy
Title: President
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<PAGE>
EX-99.(d)(11)
NEW ENGLAND ZENITH FUND
SUBADVISORY AGREEMENT
(BALANCED SERIES)
This Subadvisory Agreement (this "Agreement") is entered into as of May 1,
2000 by and between New England Investment Management, Inc., a Massachusetts
corporation (the "Manager"), and Wellington Management Company, LLP (the
"Subadviser").
WHEREAS, the Manager has entered into an Advisory Agreement dated May 1,
1998 (the "Advisory Agreement") with New England Zenith Fund (the "Trust"),
pursuant to which the Manager provides portfolio management and administrative
services to the Balanced Series of the Trust (the "Series");
WHEREAS, the Advisory Agreement provides that the Manager may delegate any
or all of its portfolio management responsibilities under the Advisory Agreement
to one or more subadvisers;
WHEREAS, the Manager desires to retain the Subadviser to render portfolio
management services in the manner and on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Manager and the Subadviser agree as follows:
1. Subadvisory Services.
--------------------
a. The Subadviser shall, subject to the supervision of the Manager
and in cooperation with the Manager, as administrator, or with any other
administrator appointed by the Manager (the "Administrator"), manage the
investment and reinvestment of the assets of the Series. The Subadviser shall
manage the Series in conformity with (1) the investment objective, policies and
restrictions of the Series set forth in the Trust's prospectus and statement of
additional information, as revised or supplemented from time to time, relating
to the Series (the "Prospectus"), (2) any additional policies or guidelines
established by the Manager or by the Trust's trustees that have been furnished
in writing to the Subadviser and (3) the provisions of the Internal Revenue Code
(the "Code") applicable to "regulated investment companies" (as defined in
Section 851 of the Code) and "segregated asset accounts" (as defined in Section
817 of the Code), all as from time to time in effect (collectively, the
"Policies"), and with all applicable provisions of law, including without
limitation all applicable provisions of the Investment Company Act of 1940 (the
"1940 Act") the rules and regulations thereunder and the interpretive opinions
thereof of the staff of the Securities and Exchange Commission ("SEC") ("SEC
Positions"); provided, however, that the Manager agrees to inform the Subadviser
of any and all applicable state insurance law restrictions that operate to limit
or restrict the investments the Series might otherwise make ("Insurance
Restrictions"), and to inform the Subadviser promptly of any changes in such
Insurance Restrictions. Subject to the foregoing, the Subadviser is authorized,
in its discretion and without prior consultation with the Manager, to buy, sell,
lend
-1-
<PAGE>
and otherwise trade in any stocks, bonds and other securities and investment
instruments on behalf of the Series, without regard to the length of time the
securities have been held and the resulting rate of portfolio turnover or any
tax considerations; and the majority or the whole of the Series may be invested
in such proportions of stocks, bonds, other securities or investment
instruments, or cash, as the Subadviser shall determine. Notwithstanding the
foregoing provisions of this Section 1.a, however, the Subadviser shall, upon
written instructions from the Manager, effect such portfolio transactions for
the Series as the Manager shall determine are necessary in order for the Series
to comply with the Policies.
b. The Subadviser shall furnish the Manager and the Administrator
daily, weekly, monthly, quarterly and/or annual reports concerning portfolio
transactions and the investment performance of the Series in such form as may be
mutually agreed upon, and agrees to review the Series and discuss the management
of the Series with representatives or agents of the Manager, the Administrator
or the Trust at their reasonable request. The Subadviser shall maintain all
books and records with respect to the Series' portfolio transactions required by
subparagraphs (b) (5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule
31a-1 under the 1940 Act. The Subadviser shall permit all books and records
with respect to the Series to be inspected and audited by the Manager and the
Administrator at all reasonable times during normal business hours, upon
reasonable notice. The Subadviser shall also provide the Manager, the
Administrator or the Trust with such other information and reports as may
reasonably be requested by the Manager, the Administrator or the Trust from time
to time, including without limitation all material as reasonably may be
requested by the Trustees of the Trust pursuant to Section 15(c) of the 1940
Act. The Subadviser shall furnish the Manager (which may also provide it to the
Trust's Board of Trustees) with copies of all comment letters received from the
SEC following routine or special SEC examinations or inspections.
c. The Subadviser shall provide to the Manager a copy of the
Subadviser's Form ADV as filed with the SEC and any amendments or restatements
as thereof in the future and a list of the persons whom the Subadviser wishes to
have authorized to give written and/or oral instructions to custodians of assets
of the Series.
d. Unless the Manager gives the Subadviser written instructions
indicating that the Manager will assume responsibilities for voting proxies, the
Subadviser shall use its good faith judgment in a manner which it reasonably
believes best serves the interest of the Series' shareholders to vote or abstain
from voting all proxies solicited by or with respect to the issuers of
securities in which assets of the Series are invested.
2. Obligations of the Manager.
--------------------------
a. The Manager shall provide (or cause the Trust's custodian to
provide) timely information to the Subadviser regarding such matters as the
composition of assets in the Series, cash requirements and cash available for
investment in the Series, and all other information as may be reasonably
necessary for the Subadviser to perform its responsibilities hereunder.
-2-
<PAGE>
b. The Manager has furnished the Subadviser a copy of the Prospectus
and agrees during the continuance of this Agreement to furnish the Subadviser
copies of any revisions or supplements thereto at, or, if practicable, before
the time the revisions or supplements become effective. The Manager agrees to
furnish the Subadviser with relevant sections of minutes of meetings of the
Trustees of the Trust applicable to the Series to the extent they may affect the
duties of the Subadviser, and with copies of any financial statements or reports
of the Trust with respect to the Series to its shareholders, and any further
materials or information which the Subadviser may reasonably request to enable
it to perform its functions under this Agreement, including, but not limited to,
timely information relating to any Insurance Restrictions.
3. Custodian. The Manager shall provide the Subadviser with a copy of the
---------
Series's agreement with the custodian designated to hold the assets of the
Series (the "Custodian") and any modifications thereto (the "Custody
Agreement"). The assets of the Series shall be maintained in the custody of the
Custodian identified in, and in accordance with the terms and conditions of, the
Custody Agreement (or any sub-custodian properly appointed as provided in the
Custody Agreement). The Subadviser shall provide timely instructions directly
to the Trust's custodian, in the manner and form as required by the Trust's
custodian agreement (including with respect to exchange offerings and other
corporate actions) necessary to effect the investment and reinvestment of the
Series' assets. Any assets added to the Series shall be delivered directly to
the Custodian.
4. Proprietary Rights. The Manager agrees and acknowledges that the
------------------
Subadviser is the sole owner of the name and trade or service mark "Wellington"
and that all use of any designation consisting in whole or part of such trade or
service mark under this Agreement shall inure to the benefit of the Subadviser.
The Manager agrees not to use the name "Wellington" in any marketing,
promotional or other documents without giving the Subadviser an opportunity to
review and comment on a draft of such document and without the Subadviser's
prior consent to such use.
5. Expenses. Except for expenses specifically assumed or agreed to be
--------
paid by the Subadviser pursuant hereto, the Subadviser shall not be liable for
any expenses of the Manager or the Trust including, without limitation, (a)
interest and taxes, (b) brokerage commissions and other costs in connection with
the purchase or sale of securities or other investment instruments with respect
to the Series, and (c) custodian fees and expenses. The Subadviser will pay its
own expenses incurred in furnishing the services to be provided by it pursuant
to this Agreement.
6. Purchase and Sale of Assets. Absent instructions from the Manager to
---------------------------
the contrary, the Subadviser shall place all orders for the purchase and sale of
securities for the Series with brokers or dealers selected by the Subadviser,
which may include brokers or dealers affiliated with the Subadviser, provided
such orders comply with Rule 17e-1 (or any successor or other relevant
regulations) under the 1940 Act in all respects. To the extent consistent with
applicable law and then-current staff positions, purchase or sell orders for the
Series may be aggregated with contemporaneous purchase or sell orders of other
clients of the Subadviser. The Subadviser shall use its best efforts to obtain
execution of transactions for the Series at prices which are advantageous to the
Series and at commission rates that are reasonable in relation to
-3-
<PAGE>
the benefits received. However, the Subadviser may select brokers or dealers on
the basis that they provide brokerage, research or other services or products to
the Series and/or other accounts serviced by the Subadviser. Not all such
services or products need to be used by the Subadviser in managing the Series.
7. Compensation of the Subadviser. As full compensation for all services
------------------------------
rendered, facilities furnished and expenses borne by the Subadviser hereunder,
the Manager shall pay the Subadviser compensation at the annual rate of 0.325%
of the first $100 million of the average daily net assets of the Series during
the Series' then-current fiscal year, 0.275% of the next $100 million of such
assets and 0.25% of such assets in excess of $200 million. Such compensation
shall be payable monthly in arrears or at such other intervals, not less
frequently than quarterly, as the Manager is paid by the Series pursuant to the
Advisory Agreement. If the Subadviser shall serve for less than the whole of
any month or other agreed-upon interval, the foregoing compensation shall be
prorated. The Manager may from time to time waive the compensation it is
entitled to receive from the Trust; however, any such waiver will have no effect
on the Manager's obligation to pay the Subadviser the compensation provided for
herein.
8. Non-Exclusivity. The Manager agrees that the services of the
---------------
Subadviser are not to be deemed exclusive and that the Subadviser and its
affiliates are free to act as investment manager and provide other services to
various investment companies and other managed accounts, except as the
Subadviser and the Manager or the Administrator may otherwise agree from time to
time in writing before or after the date hereof. This Agreement shall not in
any way limit or restrict the Subadviser or any of its directors, officers,
employees or agents from buying, selling or trading any securities or other
investment instruments for its or their own account or for the account of others
for whom it or they may be acting, provided that such activities do not
adversely affect or otherwise impair the performance by the Subadviser of its
duties and obligations under this Agreement. The Manager recognizes and agrees
that the Subadviser may provide advice to or take action with respect to other
clients, which advice or action, including the timing and nature of such action,
may differ from or be identical to advice given or action taken with respect to
the Series. The Subadviser shall for all purposes hereof be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent the Trust or the Manager in any way or
otherwise be deemed an agent of the Trust or the Manager.
9. Liability and Indemnification. Except as may otherwise be provided by
-----------------------------
the 1940 Act or other federal securities laws, neither the Subadviser nor any of
its officers, partners, managing directors, employees, affiliates or agents (the
"Indemnified Parties") shall be subject to any liability to the Manager, the
Trust, the Series or any shareholder of the Series for any error of judgment, or
any loss arising out of any investment or other act or omission in the course
of, connected with, or arising out of any service to be rendered under this
Agreement, except by reason of a violation of law, willful misfeasance, bad
faith or gross negligence in the performance of any Indemnified Party's duties
or by reason of reckless disregard by any Indemnified Party of its obligations
and duties. The Manager shall hold harmless and indemnify the Subadviser for
any loss, liability, cost, damage or expense (including reasonable attorneys
fees and costs) arising (i) from any claim or demand by any past or present
shareholder of the Series that is not based upon the obligations of the
Subadviser with respect to the Series under
-4-
<PAGE>
this Agreement or (ii) resulting from the failure of the Manager to inform the
Subadviser of any applicable Insurance Restrictions or any changes therein. The
Manager acknowledges and agrees that the Subadviser makes no representation or
warranty, express or implied, that any level of performance or investment
results will be achieved by the Series or that the Series will perform
comparably with any standard or index, including other clients of the
Subadviser, whether public or private.
10. Effective Date and Termination. This Agreement shall become effective
------------------------------
as of the date of its execution, and
a. unless otherwise terminated, this Agreement shall continue in
effect for two years from the date of execution, and from year to year
thereafter so long as such continuance is specifically approved at least
annually (i) by the Board of Trustees of the Trust or by vote of a majority of
the outstanding voting securities of the Series, and (ii) by vote of a majority
of the trustees of the Trust who are not interested persons of the Trust, the
Manager or the Subadviser, cast in person at a meeting called for the purpose of
voting on such approval;
b. this Agreement may at any time be terminated on sixty days'
written notice to the Subadviser either by vote of the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the
Series;
c. this Agreement shall automatically terminate in the event of its
assignment or upon the termination of the Advisory Agreement;
d. this Agreement may be terminated by the Subadviser on sixty days'
written notice to the Manager and the Trust, or, if approved by the Board of
Trustees of the Trust, by the Manager on sixty days' written notice to the
Subadviser; and
Termination of this Agreement pursuant to this Section 10 shall be without
the payment of any penalty. In the event of termination of this Agreement, all
compensation due to the Subadviser through the date of termination will be
calculated on a pro rata basis through the date of termination and paid on the
first business day after the next succeeding month end.
11. Amendment. This Agreement may be amended at any time by mutual
---------
consent of the Manager and the Subadviser, provided that, if required by law (as
may be modified by any exemptions received by the Manager), such amendment shall
also have been approved by vote of a majority of the outstanding voting
securities of the Series and by vote of a majority of the trustees of the Trust
who are not interested persons of the Trust, the Manager or the Subadviser, cast
in person at a meeting called for the purpose of voting on such approval.
12. Certain Definitions. For the purpose of this Agreement, the terms
-------------------
"vote of a majority of the outstanding voting securities," "interested person,"
"affiliated person" and "assignment" shall have their respective meanings
defined in the 1940 Act, subject, however, to such exemptions as may be granted
by the SEC under the 1940 Act.
-5-
<PAGE>
13. General.
-------
a. The Subadviser may perform its services through any partner,
employee, officer or agent of the Subadviser, and the Manager shall not be
entitled to the advice, recommendation or judgment of any specific person;
provided, however, that the persons identified in the Prospectus of the Series
shall perform the portfolio management duties described therein until the
Subadviser notifies the Manager that one or more other partners, employees,
officers or agents of the Subadviser, identified in such notice, shall assume
such duties as of a specific date. The Subadviser shall use commercially
reasonable efforts to inform the Manager of any such events enough time prior to
the event taking effect such that allows the Manager sufficient time to prepare
and file any necessary supplement to the Prospectus.
b. If any term or provision of this Agreement or the application
thereof to any person or circumstances is held to be invalid or unenforceable to
any extent, the remainder of this Agreement or the application of such provision
to other persons or circumstances shall not be affected thereby and shall be
enforced to the fullest extent permitted by law.
c. This Agreement shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Massachusetts.
NEW ENGLAND INVESTMENT MANAGEMENT, INC.
By: /s/ JOHN F. GUTHRIE
-----------------------------------------
John F. Guthrie, Jr.
Senior Vice President
WELLINGTON MANAGEMENT COMPANY, LLP
By: /s/ DUNCAN M. MCFARLAND
-----------------------------------------
Name: Duncan M. McFarland
Title: President
-6-
<PAGE>
EX-99.(h)(6)
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of August 29, 1996, by and
between New England Mutual Life Insurance Company, a Massachusetts mutual life
insurance company ("NEMLICO"), and New England Variable Life Insurance Company,
a Delaware insurance company ("NEVLICO").
WHEREAS, pursuant to an Amended and Restated Agreement and Plan of Merger,
dated as of August 16, 1995, by and between NEMLICO and Metropolitan Life
Insurance Company, a New York mutual life insurance company ("MetLife"), NEMLICO
will be merged with and into MetLife on August 30, 1996 (the "Merger");
WHEREAS, at the time of the Merger, NEVLICO will be redomesticated as a
Massachusetts insurance company, New England Life Insurance Company ("NELICO"),
and certain of the insurance operations now conducted by NEMLICO will be
transferred to NELICO;
WHEREAS, New England Zenith Fund, a Massachusetts business trust (the
"Trust"), serves as a funding vehicle for certain variable annuity, variable
life insurance and group pension contracts issued by NEMLICO or NEVLICO;
WHEREAS, NEMLICO is a party to the Transfer Agency Agreement between the
Trust and NEMLICO dated as of February 27, 1987, as supplemented (the "Transfer
Agency Agreement"), and to the Amended and Restated Custodian Agreement among
the Trust, NEMLICO and State Street Bank and Trust Company dated September 24,
1992, as supplemented (the "Custodian Agreement");
WHEREAS, NEMLICO and NEVLICO intend that the rights and obligations of
NEMLICO under the Transfer Agency Agreement and the Custodian Agreement should
be assigned and delegated to, and assumed by, NELICO, effective at the time of
the Merger;
NOW, THEREFORE, NEMLICO hereby assigns to NELICO its rights and delegates
to NELICO its obligations under each of the Transfer Agency Agreement and the
Custodian Agreement, and NELICO hereby unconditionally assumes all rights and
obligations of NEMLICO under each such Agreement, all effective at the time of
the Merger.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NEW ENGLAND MUTUAL
LIFE INSURANCE COMPANY
By: /s/ Anne M. Goggin
---------------------------
Name: Anne M. Goggin
---------------------------
Title: Vice President and Counsel
---------------------------
NEW ENGLAND MUTUAL
LIFE INSURANCE COMPANY
By: /s/ H. James Wilson
---------------------------
Name: H. James Wilson
---------------------------
Title: General Counsel
---------------------------
<PAGE>
EX-99.(h)(7)
AMENDED AND RESTATED EXPENSE AGREEMENT
AGREEMENT dated as of May 1, 2000 by and between New England Zenith Fund, a
Massachusetts business trust (the "Trust"), and New England Investment
Management, Inc., a Massachusetts corporation (the "Adviser").
WHEREAS, the Adviser is the investment adviser of several series of shares
of beneficial interest (the "Series") of the Trust pursuant to separate advisory
agreements relating to each Series; and
WHEREAS, the Trust and the adviser are each parties to a certain Expense
Agreement dated as of April 28, 1999; and
WHEREAS, the Trust and the Adviser desire to alter the arrangements
described in such Expense Agreement relating to the payment of certain expenses
of the Trust by amending and restating such Expense Agreement;
NOW, THEREFORE, the Trust and the Adviser hereby agree as follows:
1. Until further notice from the Adviser to the Trust, the Adviser will
waive such portion of the fees payable to it under the Advisory Agreement
relating to each Series listed in this Section 1, or pay such portion of the
other operating expenses (excluding brokerage costs, interest, taxes or
extraordinary expenses) ("Operating Expenses") incurred in the operation of each
Series, as is necessary to reduce the total Operating Expenses of each Series to
the following annual percentages of the average daily net assets of each Series:
SERIES PERCENTAGE
------ ----------
Harris Oakmark Mid Cap Value Series 0.90
Loomis Sayles Small Cap Series 1.00
MFS Investors Series 0.90
MFS Research Managers Series 0.90
Morgan Stanley International Magnum Equity Series 1.30
Salomon Brothers U.S. Government Series 0.70
<PAGE>
2. The Trust, on behalf of each Series except Loomis Sayles Small Cap
Series, agrees to repay to the Adviser the amount of fees waived and expenses
borne by the Adviser with respect to such Series pursuant to Section 1 of this
Agreement, subject to the limitations provided in this Section 2. Such
repayment shall be made monthly, but only if the Operating Expenses of the
Series in question, without regard to such repayment, are at an annual rate (as
a percentage of that Series' average daily net assets) based on that Series'
then-current fiscal year that is less than the percentage rate for such Series
set forth in Section 1. Furthermore, the amount repaid by a Series in any month
shall be limited so that the sum of (a) the amount of such repayment and (b) the
other Operating Expenses of the Series do not exceed the annual rate (as a
percentage of that Series' average daily net assets) for such Series set forth
in Section 1.
Amounts of fees waived and expenses borne by the Adviser with respect to a
Series pursuant to Section 1 during any fiscal year of such Series shall not be
repayable if the amounts repayable by such Series pursuant to the immediately
preceding two sentences during the period ending two years (three years in the
case of MFS Investors Series and MFS Research Managers Series) after the end of
such fiscal year are not sufficient to completely repay such amounts of fees
waived and expenses borne. In no event will any Series be obligated to repay
any fees waived or expenses borne by the Adviser with respect to any other
Series.
3. The Adviser may by notice in writing to the Trust terminate its
obligation under Section 1 to waive fees or bear expenses with respect to any
Series in any period following the date specified in such notice (or change the
percentage specified in Section 1 with respect to such Series), but no such
change shall affect the obligation (including the amount of the obligation) of
the Series to repay amounts of fees waived or expenses borne by the Adviser
during periods prior to the date specified in such notice, if any such
obligation is in effect pursuant to Section 2 herein.
4. A copy of the Agreement and Declaration of Trust establishing the Trust
is on file with the Secretary of The Commonwealth of Massachusetts, and notice
is hereby given that this Agreement is executed with respect to each Series
listed in Section 1 hereof on behalf of the Trust by officers of the Trust as
officers and not individually and that the obligations arising out of this
Agreement are not binding upon any of the trustees, officers or shareholders of
the Trust individually but are binding only upon the assets and property of the
Trust belonging to the respective Series.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
NEW ENGLAND ZENITH FUND
By: /s/ JOHN F. GUTHRIE
------------------------------
John F. Guthrie
Senior Vice President
NEW ENGLAND INVESTMENT MANAGEMENT, INC.
By: /s/ JOHN F. GUTHRIE
-----------------------------
John F. Guthrie
Senior Vice President
-3-
<PAGE>
EXHIBIT 99.(H)(9)
PARTICIPATION AGREEMENT
Among
NEW ENGLAND ZENITH FUND,
NEW ENGLAND INVESTMENT MANAGEMENT, INC.,
NEW ENGLAND SECURITIES CORPORATION
and
________________________ LIFE INSURANCE COMPANY
AGREEMENT, made and entered into the 1st day of May, 2000 by and among NEW
ENGLAND ZENITH FUND, a business trust organized under the laws of the
Commonwealth of Massachusetts ( the "Fund"), _____________________ Life
Insurance Company (the "Company") on its own behalf and on behalf of
[_______________ Variable Life Account], [_______________ Variable Annuity
Account], and [Group Pension Account] and any other current or future separate
account which invests in the Fund (each an "Account"), each a separate account
of the Company, NEW ENGLAND INVESTMENT MANAGEMENT, INC. (the "Adviser") and NEW
ENGLAND SECURITIES CORPORATION (the "Underwriter").
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and its shares are registered under the Securities Act of 1933, as amended
(hereinafter the "1933 Act"); and
WHEREAS, the Fund serves as an investment vehicle underlying variable life
insurance policies and variable annuity contracts (collectively, "Variable
Insurance Products") offered by insurance companies ("Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from certain
provisions of the 1940 Act and certain thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by both variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Adviser acts as the investment adviser and/or administrator or
subadministrator to each series of the Fund and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Company has registered or will register certain variable life
and/or variable annuity contracts under the 1933 Act;
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"); and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of certain series of the
Fund (the "Series") on behalf of each Account to fund certain variable life and
variable annuity contracts (each, a "Contract") and the Underwriter is
authorized to sell such shares to each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
1. Sale of Fund Shares.
-------------------
1.1 Subject to the terms of the Distribution Agreement in effect from time
to time between the Fund and the Underwriter, the Underwriter agrees to
sell to the Company those shares of each Series which each Account
orders, executing such orders on a daily basis at the net asset value
next computed after receipt by the Fund or its designee of the order for
the shares of the Fund. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Fund
calculates the net asset value of shares of the Series.
1.2 The Fund agrees to make its shares available for purchase at the
applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value. The Fund
agrees to use reasonable efforts to calculate such net asset value on
each day which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Fund
(hereinafter the "Board" or the "Trustees") may refuse to sell shares of
any Series to any person, or suspend or terminate the offering of shares
of any Series, if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the
Trustees acting in good faith and in light of their fiduciary duties
under federal and any applicable state laws, in the best interests of
the shareholders of such Series.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts,
or to other purchasers of the kind specified in Treas. Reg. Section
1.817-5 (f)(3) (or any successor regulation) as from time to time in
effect.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption.
1.5 The Company agrees that all purchases and redemptions by it of the
shares of each Series will be in accordance with the provisions of the
then current prospectus and statement of additional information of the
Fund for the respective Series and in accordance with any procedures
that the Fund, the Underwriter or the Fund's transfer agent may have
established governing purchases and redemptions of shares of the Series
generally.
2
<PAGE>
1.6 The Company shall pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with the provisions
of Section 1.1. hereof. Payment shall be in federal funds transmitted by
wire to the Fund's custodian.
1.7 Issuance and transfer of the Funds' shares will be by book entry only.
Share certificates will not be issued. Shares ordered from the Fund will
be recorded on the transfer records of the Fund in an appropriate title
for each Account or the appropriate subaccount of each Account.
1.8 The Fund shall furnish same day notice (by e-mail, fax or telephone,
followed by written confirmation) to the Company of any income,
dividends or capital gain distributions payable on the shares of any
Series. The Company hereby elects to receive all such income dividends
and capital gain distributions as are payable on the Series shares in
additional shares of that Series. The Company reserves the right to
revoke this election and to receive all such income dividends and
capital gain distributions in cash. The Fund shall notify the Company of
the number of shares so issued as payment of such dividends and
distributions.
1.9 The Fund shall make the net asset value per share for each Series
available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by
7:00 p.m. Boston time.
2. Representations and Warranties.
------------------------------
2.1 The Company represents and warrants that each Contract shall be either
(i) registered, or prior to the purchase of shares of any Series in
connection with the funding of such Contract, will be registered under
the 1933 Act or (ii) exempt from such registration; that the Contracts
will be issued and sold in compliance in all material respects with all
applicable federal and state laws, including all applicable customer
suitability requirements. The Company further represents and warrants
that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established
each Account as a separate account pursuant to relevant state insurance
law prior to any issuance or sale of any Contract by such Account and
that each Account shall be either (i) registered or, prior to any
issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act; or
(ii) exempt from such registration.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws and
that the Fund is and shall remain registered under the 1940 Act. The
Fund agrees that it will amend the registration statement for its shares
under the 1933 Act and the 1940 Act from time to time as required in
order to permit the continuous public offering of its shares in
accordance with the 1933 Act. The Fund shall register and
3
<PAGE>
qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund represents that each Series is currently qualified as a
"regulated investment company" under subchapter M of the Internal
Revenue Code of 1986, as amended, (the "Code") and agrees that it will
make every effort to maintain such qualification (under Subchapter M or
any successor or similar provision) and that it will notify the Company
promptly upon having a reasonable basis for believing that it has ceased
to so qualify or that it might not so qualify in the future.
2.4 The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts under applicable
provisions of the Code and agrees that it will make every effort to
maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.5 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of
the various states.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
2.7 The Underwriter further represents that it will sell and distribute the
Fund shares in accordance with all applicable state and federal
securities laws, including without limitation the 1933 Act, the 1934 Act
and the 1940 Act.
2.8 The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and
will comply in all material respects with the 1940 Act.
2.9 Each of the Fund, the Adviser and the Underwriter represent and warrant
that all of their directors, officers and employees dealing with the
money and/or securities of the Fund are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund in an amount not less than the minimal coverage as
required by Rule 17g-(1) under the 1940 Act or any successor regulations
as may be promulgated from time to time. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.10 The Company represents and warrants that all of its directors, officers,
employees and other individuals/entities dealing with the money and/or
securities representing amounts intended for the purchase of shares of
the Fund or proceeds of the redemption of shares of the Fund are and
shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund, in an amount not less than
the amount required of the Fund, the Adviser and the Underwriter under
Section 2.9. hereof.
4
<PAGE>
The aforesaid Bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
2.11 The Company represents and warrants that it will not, without the prior
written consent of the Fund and the Adviser, purchase Fund shares with
Account assets derived from the sale of Contracts to individuals or
entities which would cause the investment policies of any Series to be
subject to any limitations not in the Fund's then current prospectus or
statement of additional information with respect to any Series.
3. Prospectuses and Proxy Statements; Voting.
-----------------------------------------
3.1 The Underwriter (or the Fund) shall provide the Company with as many
copies of the Fund's current prospectus as the Company may reasonably
request (at the Company's expense with respect to other than existing
Contract owners). If requested by the Company in lieu thereof, the
Underwriter (or the Fund) shall provide such documentation (including a
final copy of the new prospectus as set in type at the Fund's expense)
and other assistance as is reasonably necessary in order for the Company
once each year (or more frequently if the prospectus for the Fund is
amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense with respect to other than existing Contract owners).
3.2 The Underwriter (or the Fund), at its expense, shall print and provide
the Fund's then current statement of additional information free of
charge to the Company and to any owner of a Contract or prospective
owner who requests such statement.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require
for distribution (at the Fund's expense) to Contract owners.
3.4 So long as and to the extent that the SEC or its staff continues to
interpret the 1940 Act to require pass-through voting privileges for
variable contract owners, or if and to the extent required by law, the
Company shall: (i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received from
Contract owners; and (iii) vote Fund shares for which no instructions
have been received in the same proportion as Fund shares of such Series
for which instructions have been received. The Company reserves the
right to vote Fund shares held in any Account in its own right, to the
extent permitted by law. The Company shall be responsible for assuring
that each Account participating in the Fund calculates voting privileges
in a manner consistent with the standards set forth on Schedule A
hereto, which standards will also be provided to the other Participating
Insurance Companies.
5
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4. Sales Material and Information.
------------------------------
4.1 The Company shall be solely responsible for ensuring that sales
literature in which the Fund, a Series, the Adviser, any subadviser to
any Series or the Underwriter (in its capacity as distributor of the
Fund) is named, eligible for use under Rule 134 or Rule 482 under the
1933 Act or other sales literature the substance of which is contained
in the then current prospectus or statement of additional information of
the Fund. The Company may, if it so chooses, deliver other draft sales
literature to the Fund or its designee, at least thirty Business days
prior to its use. The Fund or such designee shall use commercially
reasonable efforts to review sales literature so delivered within
fifteen days. Any sales literature so delivered shall not be used by the
Company if the Fund or its designee objects to such use within fifteen
Business Days after receipt of such material.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection
with the sale of the Contracts other than the information or
representations contained in the registration statement, prospectus or
statement of additional information for the Fund shares, as such
registration statement and prospectus or statement of additional
information may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in sales literature or
other promotional material approved by the Fund or its designee or by
the Underwriter, except with the approval of the Fund or the Underwriter
or the designee of either.
4.3 The obligations set forth in Section 4.1 herein shall apply mutatis
-------
mutandis to the Fund and the Underwriter with respect to each piece of
--------
sales literature or other promotional material in which the Company
and/or any Account is named.
4.4 The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, any
Account or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts,
as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Account
which are in the public domain or approved by the Company for
distribution to Contract owners, or in sales literature or other
promotional material approved by the Company or its designee, except
with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional
information, shareholder annual, semi-annual or other reports, proxy
statements, applications for exemptions, requests for no-action letters
and any amendments to any of the above, that relate to any Series,
promptly after the filing of each such document with the SEC or any
other regulatory authority.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional
information, shareholder annual, semi-annual or other reports,
solicitations for voting instructions, applications for exemptions,
6
<PAGE>
requests for no-action letters and any amendments to any of the above,
that relate to the Contracts or any Account, promptly after the filing
of such document with the SEC or any other regulatory authority. Each
party hereto will provide to each other party, to the extent it is
relevant to the Contracts or the Fund, a copy of any comment letter
received from the staff of the SEC or the NASD, and the Company's
response thereto, following any examination or inspection by the staff
of the SEC or the NASD.
4.7 As used herein, the phrase "sales literature or other promotional
material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public
media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters,
seminar texts, reprints or excerpts of any other advertisement, sales
literature or published article), educational or training materials or
other communications distributed or made generally available to some or
all agents or employees.
5. Fees and Expenses.
-----------------
5.1 The Fund, the Adviser and the Underwriter shall pay no fee or other
compensation to the Company under this agreement, except that if the
Fund or any Series adopts and implements a plan pursuant to Rule 12b-1
to finance distribution expenses, then the Underwriter may make payments
to the Company or to the underwriter. Each party acknowledges that the
Adviser may pay service or administrative fees to the Company and other
Participating Insurance Companies pursuant to separate agreements.
6. Diversification.
---------------
6.1 The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply
with Section 817(h) of the Code and any Treasury Regulations thereunder
relating to the diversification requirements for variable annuity,
endowment or life insurance contracts, as from time to time in effect.
7. Potential Conflicts.
-------------------
7.1 To the extent required by the Shared Funding Exemptive Order or by
applicable law, the Board of Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable
conflict between the interests of the contract owners of all separate
accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative letter, or
any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of
7
<PAGE>
any Series are being managed; (e) a difference in voting instructions
given by variable annuity contract and variable life insurance contract
owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Fund shall promptly inform the
Company if it determines that an irreconcilable material conflict exists
and the implications thereof.
7.2 The Company will report to the Board any potential or existing conflicts
between the interests of contract owners of different separate accounts
of which the Company is or becomes aware. The Company will assist the
Board in carrying out its responsibilities under the Shared Funding
Exemptive Order and under applicable law, by providing the Board with
all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation of
the Company to inform the Board whenever contract owner voting
instructions are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (1)
withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Series and reinvesting such assets in a different
investment medium, including (but not limited to) another series of the
Fund, or submitting the question of whether such segregation should be
implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or variable
contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected contract
owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Fund's election, to withdraw
the relevant Account's investment in the Fund and terminate this
Agreement; provided, however, that such withdrawal and termination shall
be limited to the extent required by such material irreconcilable
conflict as determined by a majority of the disinterested members of the
Board. Any such withdrawal and termination will take place within six
(6) months after the Fund gives written notice that this provision is
being implemented.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw
the affected Account's investment in the Fund and terminate this
Agreement within six months after the Board informs the Company in
writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by
such material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
8
<PAGE>
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material
conflict, but in no event will the Fund be required to establish a new
funding medium for the Contracts. The Company shall not be required by
Section 7.3 to establish a new funding medium for the Contracts if an
offer to do so has been declined by vote of a majority of Contract
owners materially adversely affected by the irreconcilable material
conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement within six (6) months after the Board informs
the Company in writing of the foregoing determination, provided,
however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested members of the Board.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) under the 1940 Act
are amended, or Rule 6e-3 is adopted, to provide exemptive relief from
any provision of the Act or the rules promulgated thereunder with
respect to mixed or shared funding (as defined in the Shared Funding
Exemptive Order) on terms and conditions materially different from those
contained in the Shared Funding Exemptive Order, then (a) the Fund
and/or Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable; and (b) Sections 3.4, 7.1, 7.2, 7.3, 7.4, and 7.5 of this
Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
8. Indemnification.
---------------
8.1 Indemnification by the Company
(a) The Company agrees to indemnify and hold harmless the Fund and each
of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to
the sale or acquisition of the Fund's shares or the Contracts and: (i)
arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement
or prospectus or statement of additional information (if applicable) for
the Contracts or contained in the Contracts or sales literature or other
promotional material for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
9
<PAGE>
misleading, provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund for use
in the registration statement or prospectus or statement of additional
information (if applicable) for the Contracts or in the Contracts or
sales literature or other promotional material (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or (ii) arise out of or as a result of
statements or representations (other than statements or representations
contained in the registration statement, prospectus or statement of
additional information (if applicable) or sales literature or other
promotional material of the Fund not supplied by the Company, or persons
under its control) or wrongful conduct of the Company or persons under
its control, with respect to the sale or distribution of the Contracts
or Fund Shares; or (iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in any registration
statement, prospectus or statement of additional information (if
applicable) or sales literature or other promotional material of the
Fund or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or (iv) arise as a
result of any failure by the Company to provide the services and furnish
the materials under the terms of this Agreement; or (v) arise out of or
result from any material breach of any representation and/or warranty
made by the Company in this Agreement or arise out of or result from any
other material breach of this Agreement by the Company, as limited by
and in accordance with the provisions of Section 8.1(b) and 8.1(c)
hereof.
(b) The Company shall not be liable under this Section 8.1 with respect
to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject if such loss, claim,
damage, liability or litigation is caused by or arises out of such
Indemnified Party's willful misfeasance, bad faith or gross negligence
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to the Fund, whichever is
applicable.
(c) Each Indemnified Party shall notify the Company of any claim made
against an Indemnified Party in writing within a reasonable time after
the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party
(or after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any liability which it
may have to the Indemnified Party against whom such action is brought
under this indemnification provision unless the Company's ability to
defend against the claim shall have been materially prejudiced by the
Indemnified Party's failure to give such notice and shall not in any way
relieve the Company from any liability which it may have to the
Indemnified Party against whom the action is brought otherwise than on
account of this indemnification provision. In case any such action is
brought against one or more Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in
10
<PAGE>
the defense of such action. The Company also shall be entitled to assume
the defense thereof, with counsel satisfactory to each Indemnified Party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by
it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other than
reasonable costs of investigation. An Indemnified Party shall not settle
any claim involving a remedy including other than monetary damages
without the prior written consent of the Company.
(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the
operation of the Fund.
8.2 Indemnification by the Adviser and the Underwriter
(a) The Adviser and the Underwriter agree to indemnify and hold harmless
the Company and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Adviser and the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares
or the Contracts and: (i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of additional
information, or sales literature or other promotional material of the
Fund (or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the
Adviser, the Underwriter, or Fund by or on behalf of the Company for use
in the registration statement, prospectus or statement of additional
information for the Fund or in sales literature or other promotional
material (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or (ii) arise
out of or as a result of statements or representations (other than
statements or representations contained in the registration statement,
prospectus or statement of additional information or sales literature or
other promotional material for the Contracts not supplied by the
Adviser, the Underwriter or the Fund or persons under their control) or
wrongful conduct of the Adviser, the Underwriter or the Fund or persons
under their control, with respect to the sale or distribution of the
Contracts or Fund Shares; or (iii) arise out of any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement, prospectus or statement of additional
information or sales literature or other promotional material
11
<PAGE>
covering the Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of
the Adviser, the Underwriter, or the Fund; or (iv) arise as a result of
any failure by the Adviser, the Underwriter or the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements specified in
Article VI of this Agreement; or (v) arise out of or result from any
material breach of any representation and/or warranty made by the
Adviser, the Underwriter, or the Fund in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Adviser, the Underwriter, or the Fund; as limited by and in accordance
with the provisions of Sections 8.2(b) and 8.2(c) hereof.
(b) Neither the Adviser nor the Underwriter shall be liable under this
Section 8.2 with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject if
such loss, claim, damage, liability or litigation is caused by or arises
out of such Indemnified Party's willful misfeasance, bad faith or gross
negligence or by reason of such Indemnified Party's reckless disregard
of obligations and duties under this Agreement or to the Company or each
Account, whichever is applicable.
(c) Each Indemnified Party shall notify each of the Adviser, the
Underwriter, and the Fund of any claim made against the Indemnified
Party within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but
failure to notify each of the Adviser, the Underwriter, and the Fund of
any such claim shall not relieve the Adviser or the Underwriter from any
liability which it may have to the Indemnified Party against whom such
action is brought under this indemnification provision unless the
Adviser or the Underwriter's ability to defend against the claim shall
have been materially prejudiced by the Indemnified Party's failure to
give such notice and shall not in any way relieve the Company from any
liability which it may have to the Indemnified Party against whom the
action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against one or more
Indemnified Parties, the Adviser and the Underwriter will be entitled to
participate, at their own expense, in the defense thereof. The Adviser
and/or the Underwriter shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice
from the Adviser and/or the Underwriter to such party of the election of
the Adviser and/or the Underwriter to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Adviser and/or the Underwriter will not
be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
An Indemnified Party shall not settle any claim involving any remedy
other than monetary damages without the prior written consent of the
Adviser and/or the Underwriter.
12
<PAGE>
(d) The Company agrees promptly to notify the Adviser, the Underwriter
and the Fund of the commencement of any litigation or proceedings
against it or any of its officers or directors in connection with the
issuance or sale of the Contracts or the operation of each Account.
9. Applicable Law.
--------------
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as
the SEC may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed
in accordance therewith.
10. Termination.
-----------
10.1 This Agreement shall terminate:
(a) at the option of any party upon 180 days' advance written notice to
the other parties; provided, however, that such notice shall not be
given earlier than one year following the date of this Agreement; or
(b) at the option of the Company to the extent that shares of a Series
are not reasonably available to meet the requirements of the Contracts
as determined by the Company, provided however, that such termination
shall apply only to those Series the shares of which are not reasonably
available. Prompt notice of the election to terminate for such cause
shall be furnished by the Company; or
(c) at the option of the Fund in the event that formal administrative
proceedings are instituted against the Company by the NASD, the SEC, any
state insurance department or commissioner or similar insurance
regulator or any other regulatory body regarding the Company's duties
under this Agreement or related to the sale of the Contracts, with
respect to the operation of any Account or the purchase by any Account
of Fund shares, provided, however, that the Fund determines in its sole
judgment, exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of the
Company to perform its obligations under this Agreement; or
(d) at the option of the Company in the event that formal administrative
proceedings are instituted against the Fund, the Adviser or the
Underwriter by the NASD, the SEC or any state securities or insurance
department or commissioner or any other regulatory body, provided,
however, that the Company determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the Fund, the Adviser or the
Underwriter to perform its obligations under this Agreement; or
13
<PAGE>
(e) with respect to any Account, upon requisite authority (by vote of
the Contract owners having an interest in such Account or any subaccount
thereof, or otherwise) to substitute the shares of another investment
company (or separate series thereof) for the shares of any Series in
accordance with the terms of the Contracts for which shares of that
Series had been selected to serve as the underlying investment medium.
The Company will give 90 days' prior written notice to the Fund of the
date of any proposed vote to replace the Fund's shares or of the filing
by the Company with the SEC of any application relating to any such
substitution; or
(f) at the option of the Company, in the event any shares of any Series
are not registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares as the
underlying investment medium of the Contracts issued or to be issued by
the Company; or
(g) at the option of the Company, if any Series ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes
that any Series may fail to so qualify; or
(h) at the option of the Company, if the Fund fails to meet the
diversification requirements specified in Section 6 hereof; or
(i) at the option of the Fund, the Adviser or the Underwriter, if (1)
the Fund, the Adviser or the Underwriter, as the case may be, shall
determine, in its sole judgment reasonably exercised in good faith, that
the Company has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity and
such material adverse change or material adverse publicity will have a
material adverse impact on the business and operations of the Fund, the
Adviser or the Underwriter, as the case may be, (2) the Fund, the
Adviser or the Underwriter shall notify the Company in writing of such
determination and its intent to terminate this Agreement, and (3) after
considering the actions taken by the Company and any other changes in
circumstances since the giving of such notice, such determination of the
Fund, the Adviser or the Underwriter shall continue to apply on the
sixtieth (60th) day following the giving of such notice, which sixtieth
day shall be the effective date of termination; or
(j) at the option of the Company, if (1) the Company shall determine, in
its sole judgment reasonably exercised in good faith, that the Fund, the
Adviser or the Underwriter has suffered a material adverse change in its
business or financial condition or is the subject of material adverse
publicity and such material adverse change or material adverse publicity
will have a material adverse impact upon the business and operations of
the Company, (2) the Company shall notify the Fund, the Adviser and the
Underwriter in writing of such determination and its intent to terminate
the Agreement, and (3) after considering the actions taken by the Fund,
the Adviser and/or the Underwriter and any other changes in
circumstances since the giving of such notice, such determination shall
continue to apply on the sixtieth (60th) day following the giving of
such notice, which sixtieth day shall be the effective date of
termination; or
14
<PAGE>
(k) in the case of an Account not registered under the 1933 Act or 1940
Act, the Company shall give the Fund 90 days' prior written notice if
the Company chooses to cease using any Series as an investment vehicle
for such Account.
It is understood and agreed that the right of any party hereto to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.2 Notice Requirement. No termination of this Agreement shall be effective
unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate which notice shall set forth the basis for such termination.
Furthermore, in the event that any termination is based upon the
provisions of Article VII, or the provision of Section 10.1(a), 10.1(i)
or 10.1(j) of this Agreement, such prior written notice shall be given
in advance of the effective date of termination as required by such
provisions; and
10.3 In the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, such prior written notice
shall be given at least ninety (90) days before the effective date of
termination.
10.4 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the
Company, continue to make available additional shares of each Series
pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts
shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.4 shall not apply to any terminations under
Section 10.1(b) or Section 7, and in the case of terminations under
Section 7 terminations, the effect of such terminations shall be
governed by Section 7 of this Agreement.
11. Notices.
-------
Any notice shall be sufficiently given when sent by registered or certified mail
to the other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Fund or to the Adviser:
501 Boylston Street
Boston, Massachusetts 02116
Attention: Secretary
15
<PAGE>
If to the Company:
_________________ Life Insurance Company
[address]
Attention: ________________
If to the Underwriter:
501 Boylston Street
Boston, Massachusetts 02116
Attention: Secretary
12. Miscellaneous.
-------------
12.1 A copy of the Agreement and Declaration of Trust establishing New
England Zenith Fund is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is
executed on behalf of the Fund by officers of the Fund as officers and
not individually and that the obligations of or arising out of this
Agreement are not binding upon any of the trustees, officers or
shareholders of the Fund individually but are binding only upon the
assets and property belonging to the Series.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of
the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize
such names and addresses and other confidential information until such
time as it may come into the public domain without the express written
consent of the affected party.
12.3 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
SEC, the NASD and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
16
<PAGE>
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled
to under state and federal laws.
17
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
________________________ LIFE INSURANCE COMPANY
By:
-------------------------------------
Name:
Title:
Date:
-----------------------------------
NEW ENGLAND ZENITH FUND
By:
-------------------------------------
Name:
Title:
Date:
-----------------------------------
NEW ENGLAND INVESTMENT MANAGEMENT, INC.
By:
-------------------------------------
Name:
Title:
Date:
-----------------------------------
NEW ENGLAND SECURITIES CORPORATION
By:
-------------------------------------
Name:
Title:
Date:
-----------------------------------
18
<PAGE>
PARTICIPATION AGREEMENT
Among
NEW ENGLAND ZENITH FUND,
NEW ENGLAND INVESTMENT MANAGEMENT, INC.,
NEW ENGLAND SECURITIES CORPORATION
and
________________________ LIFE INSURANCE COMPANY
SCHEDULE A
With respect to each Account, all shares of each Series attributable to such
policies and contracts for which no owner instructions have been received by the
Company and all shares of the Series attributable to charges assessed by the
Company against such policies and contracts will be voted for, voted against, or
withheld from voting on any proposal in the same proportions as are the shares
for which owner instructions have been received by the Company with respect to
policies or contracts issued by such Account. To the extent the Company has so
agreed with respect to an Account not registered with the SEC under the 1940
Act, all shares of each Series held by the Account will be voted for, voted
against or withheld from voting on any proposal in the same proportions as are
the shares of such Series for which contract owners' voting instructions have
been received. If the Company has not so agreed, the shares of each Series
attributable to such unregistered Account will be voted for, voted against, or
withheld from voting on any proposal in the same proportions as are all other
shares for which the Company has received voting instructions.
19
<PAGE>
EXHIBIT 99.(i)(1)
[LETTERHEAD OF ROPES & GRAY]
April 25, 2000
New England Zenith Fund
501 Boylston Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
You have informed us that you propose to offer and sell from time to time
shares ("Shares") of beneficial interest registered under the Securities Act of
1933, as amended (the "Act"), without par value, of your Alger Equity Growth
Series, Back Bay Advisors Bond Income Series, Back Bay Advisors Managed Series,
Back Bay Advisors Money Market Series, Capital Growth Series, Davis Venture
Value Series, Goldman Sachs Midcap Value Series, Loomis Sayles Balanced Series,
Loomis Sayles Small Cap Series, MFS Investors Series, MFS Research Managers
Series, Morgan Stanley International Magnum Equity Series, Salomon Brothers
Strategic Bond Opportunities Series, Salomon Brothers U.S. Government Series,
Westpeak Growth and Income Series and Westpeak Stock Index Series (each, a
"Series" of the New England Zenith Fund (the "Trust")), at not less than net
asset value.
We have examined an executed copy of your Agreement and Declaration of
Trust dated December 16, 1986, as amended by Amendments Nos. 1 through 10
thereto (the "Declaration of Trust"), and are familiar with the action taken by
your trustees to authorize the issue and sale to the public from time to time of
authorized and unissued Shares. We have further examined a copy of your By-Laws
and such other documents and records as we have deemed necessary for the purpose
of this opinion.
Based on the foregoing, we are of the opinion that the issue and sale by
the Trust of an unlimited number of Shares of each Series has been duly
authorized under Massachusetts law. Upon the original issue and sale of any such
authorized but unissued Shares and upon receipt by the Trust of the authorized
consideration therefor in an amount not less than the applicable net asset
value, the Shares so issued will be validly issued, fully paid and nonassessable
by the Trust.
<PAGE>
New England Zenith Fund -2- April 25, 2000
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of such disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or its trustees. The Declaration of Trust provides for indemnification out of
the property of each Series for all loss and expense of any shareholder of such
Series held personally liable solely by reason of his or her being or having
been such a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
such Series itself would be unable to meet its obligations.
We understand that this opinion is to be used in connection with the
registration of an indefinite number of Shares for offering and sale pursuant to
the Act. We consent to the filing of this opinion with and as part of your
Registration Statement on Form N-1A (File No. 2-83538) relating to such offering
and sale.
Very truly yours,
/s/ ROPES & GRAY
Ropes & Gray
<PAGE>
EX-99.(j)(1)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 28 to the Registration Statement (File No. 2-83538) of the New England
Zenith Fund of our report dated February 4, 2000, appearing in the annual
reports to shareholders for the year ended December 31, 1999. We also consent to
the references to us under the headings "Financial Highlights" in the
Prospectuses and "Independent Accountants" in the Statement of Additional
Information, all of which are part of such Registration Statement.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
April 26, 2000
<PAGE>
EX-99.(j)(2)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
New England Zenith Fund:
We hereby consent to the incorporation by reference in Post-Effective Amendment
No. 28 to the Registration Statement of New England Zenith Fund (comprising,
respectively, the Back Bay Advisors Bond Income Series, Capital Growth Series,
Back Bay Advisors Money Market Series, Westpeak Stock Index Series, Back Bay
Advisors Managed Series, Harris Oakmark Midcap Value Series (formerly known as
Goldman Sachs Midcap Value Series and prior to May 1, 1998, known as Loomis
Sayles Avanti Growth Series), Westpeak Growth and Income Series, Balanced Series
(formerly known as Loomis Sayles Balanced Series), Morgan Stanley International
Magnum Equity Series (formerly known as Draycott International Equity Series),
Salomon Brothers U.S. Government Series, Salomon Brothers Strategic Bond
Opportunities Series, Davis Venture Value Series, Alger Equity Growth Series and
Loomis Sayles Small Cap Series -- the "Series") on Form N-1A (No. 2-83538) of
our report dated February 14, 1997 on our audit of the financial statements and
financial highlights of the respective Series, which report is included in the
Annual Report to Shareholders for the year ended December 31, 1996, which is
incorporated by reference in the Registration Statement. We also consent to the
reference to our Firm under the caption "Financial Highlights" in the Prospectus
and "Independent Accountants" in the Statement of Additional Information.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 26, 2000
<PAGE>
EX-99.(p)(1)
NEW ENGLAND ZENITH FUND
NEW ENGLAND VARIABLE ANNUITY FUND I
CODE OF ETHICS
--------------
(Adopted: October 27, 1999)
In order to ensure that all acts, practices and courses of business engaged in
by personnel of the above Funds reflect high standards and comply with the
requirements of Section 17(j) of the Investment Company Act of 1940 (the
"Investment Company Act") and Rule 17j-1 thereunder, the Board of Trustees and
Managers of each Fund has determined that such Fund shall adopt this Code of
Ethics.
The following general fiduciary principles shall govern the personal investment
activities of all Access Persons.
Each Access Person shall:
. At all times, place the interests of each Fund before his or her personal
interests;
. Conduct all personal securities transactions in a manner consistent with
this Code, so as to avoid any actual or potential conflicts of interest, or
an abuse of position of trust and responsibility; and
. Not take any inappropriate advantage of his or her position with or on
behalf of either Fund.
1. Definitions
a. "Fund" or "Funds" means one or more of New England Zenith Fund and its
series and New England Variable Annuity Fund I.
b. "Access Person" of a Fund means any trustee, manager, director,
officer, general partner or Advisory Person of that Fund.
c. "Adviser" means each investment adviser (including subadvisers) of a
Fund.
d. "Advisory Person" of a Fund means (i) any employee of that Fund or of
any company in a control relationship to that Fund, who, in connection
with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of a Covered
Security by that Fund, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (ii) any
natural person in a control relationship to that Fund who obtains
information concerning recommendations made to that Fund with regard
to the purchase or sale of Covered Securities.
1
<PAGE>
e. A Covered Security is "being considered for purchase or sale" when a
recommendation to purchase or sell such Covered Security has been made
and communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
f. "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16(a) of the Securities Exchange Act of 1934 (the "1934
Act") and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership shall apply
to all Covered Securities which an Access Person has or acquires. For
a description of the method of interpreting beneficial ownership for
purposes of the provisions of Section 16(a) of the 1934 Act, See
Appendix A.
g. "Code Compliance Officer" of a Fund means the Secretary of the Fund or
such other individual as the Board of Trustees or Managers may from
time to time appoint.
h. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Investment Company Act.
i. "Covered Security" shall have the meaning set forth in Section
2(a)(36) of the Investment Company Act, except that it shall not
include: (i) direct obligations of the Government of the United
States; (ii) shares of registered open-ended investment companies; and
(iii) bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements.
j. "Covered Security held or to be acquired" by a Fund means any Covered
Security which, within the most recent 15 days, (i) is or has been
held by the Fund; or (ii) is being or has been considered by the Fund
or its Adviser for purchase by the Fund.
k. "Disinterested Trustee" or "Disinterested Manager" means a Trustee or
Manager of a Fund who is not an "interested person" of that Fund
within the meaning of Section 2(a)(19) of the Investment Company Act.
l. "Exempt Transactions" means those transactions described in Section 2
of this Code.
m. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of sections 13 or 15(d) of the Securities and Exchange Act of 1934.
2
<PAGE>
n. "Limited Offering" means an offering that is exempt from registration
under the Securities Act of 1933 pursuant to sections 4(2) or 4(6)
under the Securities Act of 1933.
o. "Purchase or sale of a Covered Security" includes, inter alia, the
writing or purchase of an option to purchase or sell that Covered
Security.
p. "Underwriter" means New England Securities Corporation.
2. Exempt Transactions
"Exempt Transactions" shall mean, and the prohibitions of Section 3 of this
Code shall not apply to:
a. Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control.
b. Purchases or sales which are non-volitional on the part of either the
Access Person or the Fund.
c. Purchases which are part of an automatic dividend reinvestment plan.
d. Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
e. Purchase or sales in a discretionary investment advisory account, in
which an Access Person has a beneficial ownership interest (either
alone or with others), managed by a registered investment adviser who
is not a member of the Access Person's family if the Access Person did
not have knowledge of the transactions until after the transactions
had been executed.
3. Prohibitions
No Access Person of a Fund shall purchase or sell, directly or indirectly,
any Covered Security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership and which
he or she knows or should have known at the time of such purchase or sale:
a. is being considered for purchase or sale by the Fund; or
b. is being purchased or sold by the Fund.
3
<PAGE>
4. Quarterly Transaction Reporting
a. Except as set forth in Section 4(b) of this Code with respect to
Disinterested Trustees or Managers, every Access Person of a Fund
shall report to the Fund's Code Compliance Officer the information
described in:
i) Section 4(c) of this Code with respect to transactions in any
Covered Security in which such Access Person has, or by reason of
such transaction acquires, any direct or indirect beneficial
ownership in the security; and
ii) Section 4(d) of this Code with respect to accounts established by
the Access Person in which any Covered Security was held during
the quarter for the direct or indirect investment benefit of the
Access Person;
provided, however, that an Access Person shall not be required to make
a report with respect to Exempt Transactions.
b. A Disinterested Trustee or Manager of a Fund need only report a
transaction in a Covered Security pursuant to Section 4(a) of this
Code if he or she, at the time of that transaction, knew or, in the
ordinary course of fulfilling his or her official duties as a Trustee
or Manager of the Fund, should have known that, on the day of the
transaction or within 15 days immediately preceding or following that
day, a security of the same class was purchased or sold by the Fund or
was being considered by the Fund or an Advisory Person of the Fund for
purchase or sale by the Fund.
c. Every report required pursuant to Section 4(a)(i) shall be made not
later than 10 days after the end of the calendar quarter in which the
transaction to which the report relates was effected and shall contain
the following information:
i) The date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares, and the
principal amount of each Covered Security involved;
ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
iii) The price of the Covered Security at which the transaction was
effected;
iv) The name of the broker, dealer or bank with or through whom the
transaction was effected;
v) The date the report is submitted by the Access Person; and
4
<PAGE>
vi) Identification of factors potentially relevant to a conflict of
interest analysis, of which the Access Person is aware, including
the existence of any substantial economic relationship between
his or her transactions and transactions of securities held or to
be acquired by the Fund.
Each Access Person (other than a Disinterested Trustee or Manager)
shall provide the Code Compliance Officer with copies of each broker
trade confirmation or account statement related to a transaction
required to be reported under this Code. Each such Access Person need
not include in his or her report under this Section 4(c) the
information required by subsections (i) through (vi) hereof relating
to a particular transaction in a Covered Security to the extent that
such information is contained in a broker trade confirmation or
account statement received by the Code Compliance Officer on or before
the date such report is due. The Access Person must ensure that for
each of his or her transactions in a Covered Security, each item of
information required under subsections (i) through (iv) hereof is
received by the Code Compliance Officer (whether by delivery of broker
trade confirmations and account statements or by submission of a
report to the Code Compliance Officer).
d. Every report required pursuant to Section 4(a)(ii) shall be made not
later than 10 days after the end of the calendar quarter during which
an account established by an Access Person held any Covered Securities
for the direct or indirect benefit of the Access Person and shall
contain the following information:
i) The name of the broker, dealer, or bank with whom the Access
Person established the account;
ii) The date the account was established; and
iii) The date the report is submitted by the Access Person.
e. If an Access Person is required to file a report pursuant to each of
Sections 4(a)(i) and 4(a)(ii), that Access Person may combine the
information required by Sections 4(e) and 4(f) in a single report.
f. Any report filed pursuant to this Article 4 may contain a statement
that the report shall not be construed as an admission by the person
making such report that he or she has any direct or indirect
beneficial ownership in the security to which the report relates.
5. Initial and Annual Holding Reports
a. Every Access Person of a Fund, other than a Disinterested Trustee or
Manager of a Fund, shall report to the Fund's Code Compliance Officer
the information described in:
5
<PAGE>
i) Section 5(b) of this Code with respect to his or her initial
holdings; and
ii) Section 5(c) of this Code with respect to his or her annual
holdings.
b. Every report required pursuant to Section 5(a)(i) shall be made not
later than 10 days after the person becomes an Access Person and shall
contain the following information:
i) The title, number of shares, and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership when the person became an Access Person;
ii) The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held
for the direct or indirect benefit of the Access Person as of the
date the person became an Access Person; and
iii) The date that the report is submitted by the Access Person.
c. Every report required pursuant to Section 5(a)(ii) shall contain the
following information:
i) The title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership;
ii) The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities are held for
the direct or indirect benefit of the Access Person; and
iii) The date that the report was submitted by the Access Person.
d. Any report filed pursuant to this Article 5 may contain a statement
that the report may not be construed as an admission by the person
making such report that he or she may have any direct or indirect
beneficial ownership in the security to which the report relates.
e. Every Access Person of a Fund, including Disinterested Trustees and
Managers of a Fund, shall certify annually that he or she has read and
understands this Code and recognizes that he or she is subject to this
Code. Each Access Person shall at the same time also certify that he
or she has complied with the requirements of this Code and that he or
she has filed the reports required by this Code and that such reports
are, to such Access Person's knowledge, true and complete.
6
<PAGE>
6. Other Conflicts
a. Access Persons (other than Disinterested Trustees or Managers of a
Fund) are prohibited from serving on the board of directors of any
publicly-traded company unless such Access Person had identified such
board service to the Code Compliance Officer before the date of
adoption by the Board of Trustees or Managers, as applicable, of this
Code.
b. Access Persons (other than Disinterested Trustees or Managers of a
Fund) are prohibited from acquiring securities in an Initial Public
Offering.
c. Access Persons (other than Disinterested Trustees or Managers of a
Fund) may not acquire securities in a Limited Offering without the
prior approval of the Code Compliance Officer. It is understood that
such approval will only be granted in limited circumstances (such as
in connection with a family-owned business). Such prior approval shall
include the Code Compliance Officer's reasons supporting a decision to
approve the acquisition of Covered Securities offered in the Limited
Offering.
d. Access Persons of a Fund may not receive any gift or other thing of
more than de minimis value from any person or entity that does
business with a Fund. A one-time ticket to a sporting or theatrical
event with a face-value of less than $100 and non-recurring meals or
entertainment functions that are part of standard business practice of
the service provider shall be considered de minimis.
e. Access Persons (other than Disinterested Trustees or Managers of a
Fund) may not profit on the purchase and sale, or sale and purchase,
of the same (or equivalent) security within 60 calendar days. Any
profits realized on such short-term trades are required to be
disgorged.
7. Procedures
a. The Code Compliance Officer shall prepare an annual report to each
Fund's Board of Trustees or Managers that
i) describes any issues arising under this Code since the last
report to the Board of Trustees of Managers, including, but not
limited to, information about material violations of this Code
and a summary of sanctions imposed by the Code Compliance Officer
or the Board of Trustees or Managers in response to the material
violations;
ii) certifies that the Fund has adopted procedures reasonably
necessary to prevent the Access Person from violating this Code;
and
iii) identifies any recommended changes in existing restrictions or
procedures based upon the Code Compliance Officer's experience
under the Code,
7
<PAGE>
evolving industry practices, or developments in
applicable laws or regulations.
b. The Code Compliance Officer shall identify all Access Persons who are
required to make reports pursuant to Section 4 or 5 of this Code and
inform those Access Persons of their reporting obligations. The Code
Compliance Officer will, no less frequently than quarterly, identify
any new Access Persons of the Funds and inform such persons of their
reporting obligations under this Code.
c. The Code Compliance Officer will review each report required to be
made pursuant to Sections 4 and 5 of this Code. The Code Compliance
Officer shall forward each report to the Treasurer of the Zenith Fund,
or a representative of New England Life Insurance Company (or any
successor entity) in the case of New England Variable Annuity Fund I,
and he or she (or his or her designee) shall compare the transaction
against the trading records of the Funds and report back to the Code
Compliance Officer.
d. The Code Compliance Officer will report any material violation of this
Code to the Board of Trustees or Managers of the Fund at the next
regularly scheduled Board meeting following the Code Compliance
Officer's discovery. The Code Compliance Officer or the Board of
Trustees or Managers of the Fund may impose such sanctions as it deems
appropriate, including, inter alia, a letter of censure or suspension
or termination of the relationship to the Fund. In addition to any
sanctions imposed by the Code Compliance Officer or the Board of
Trustees or Managers of the Fund, all profits realized by an Access
Person of the Fund in violation of any restriction of this Code shall
be immediately paid over to the Fund, which profits the Fund shall
contribute to charity.
8. Recordkeeping Requirements
The Code Compliance Officer, on behalf of each Fund, will maintain the
following records at the principal place of business of each Fund and make
such records available to the Securities Exchange Commission and any
representative of the Commission at any time and from time to time for
reasonable periodic, special or other examination:
a. A copy of the Code of Ethics for the Fund and each Adviser of the Fund
that is in effect, or at any time within the past five years was in
effect, to be maintained in an easily acceptable place;
b. A record of any violation of this Code of Ethics and of any action
taken as a result of the violation, to be maintained in an easily
accessible place for at least five years after the end of the fiscal
year in which such violation occurs;
c. A copy of each report made by an Access Person as required by Sections
4 or 5 of this Code, to be maintained for at least five years after
the end of the fiscal year in
8
<PAGE>
which the report was made or the information was provided, and for the
first two years in an easily accessible place;
d. A list of all persons who currently or within the past five years is
or was an Access Person or a Code Compliance Officer, to be maintained
in an easily accessible place;
e. A copy of each certification and report required by Section 7(a) of
this Code, to be maintained for at least five years after the end of
the fiscal year in which such report is made, and for the first two
years in an easily accessible place; and
f. A record of any decision, and the reasons supporting the decision, to
approve the acquisition by an Access Person of Covered Securities in a
Limited Offering pursuant to Section 6(c) of this Code, to be
maintained for at least five years after the end of the fiscal year in
which the approval is granted.
9
<PAGE>
EXHIBIT A
---------
to
New England Zenith Fund
New England Variable Annuity Fund I
CODE OF ETHICS
For purposes of the attached Code of Ethics, "beneficial ownership" shall be
interpreted in the same manner as it would be in determining whether a person is
subject to the provisions of Section 16(a) of the Securities Exchange Act of
1934 and the rules and regulations thereunder, except that the determination of
direct or indirect beneficial ownership shall apply to all Covered Securities
that an Access Person has or acquires. Securities held in the name of another
should be considered as "beneficially" owned by an Access Person where such
person enjoys "benefits substantially equivalent to ownership".
The Securities and Exchange Commission has said that although the final
determination of beneficial ownership is a question to be determined in the
light of the facts of the particular case, generally a person is regarded as the
beneficial owner of securities held in the name of his or her spouse and their
minor children. Absent special circumstances, transactions by these immediate
family members ordinarily result in the Access Person obtaining benefits
substantially equivalent to ownership, e.g., application of the income derived
----
from such securities to maintain a common home, to meet expenses that such
person otherwise would meet from other sources, or the ability to exercise a
controlling influence over the purchase, sale or voting of such securities. An
Access Person also is regarded as the beneficial owner of securities held in the
name of a spouse, minor children or other person, even though he or she does not
obtain therefrom the aforementioned benefits of ownership, if he or she can vest
or revest title in himself or herself at once or at some future time. Moreover,
the fact that the holder is a relative or a spouse and sharing the same home as
an Access Person may in itself indicate that the Access Person would obtain
benefits substantially equivalent to those of ownership from securities held in
the name of such relative. Thus, absent countervailing facts, it is expected
that securities held by relatives who share the same home as an Access Person
will be treated as being beneficially owned by the Access Person.
The term "beneficial ownership" of securities would include not only ownership
of securities held by an Access Person for his or her own benefit, whether in
bearer form or registered in his name or otherwise, but also ownership of
securities held for his or her benefit by others (regardless of whether or how
they are registered) such as custodians, brokers, executors, administrators, or
trustees (including trusts in which he or she has only a remainder interest),
and securities held for his or her account by pledges, securities owned by a
partnership in which he or she is a member, if he may exercise a controlling
influence over the purchase, sale or voting of such securities held for his
account by pledges, securities owned by a partnership in which he or she is a
member, if he or she may exercise a controlling influence over the purchase,
sale or
A-1
<PAGE>
voting of such securities and securities owned by any corporation.
Correspondingly, this term would exclude securities held by an Access Person for
the benefit of someone else.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which an Access Person is a legatee or beneficiary
unless there is a specific legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
An Access Person also may be regarded as the beneficial owner of securities held
in the name of another person, if by reason of any contract, understanding,
relationship, agreement, or other arrangement, he obtains therefrom benefits
substantially equivalent to those of ownership.
A-2
<PAGE>
EX-99.(p)(2)
NEW ENGLAND INVESTMENT MANAGEMENT, INC.
CODE OF ETHICS
--------------
(Adopted: October 27, 1999)
In order to ensure that all acts, practices and courses of business engaged in
by personnel of New England Investment Management, Inc. ("NEIM"), an investment
adviser registered with the Securities and Exchange Commission ("SEC") under the
Investment Advisors Act of 1940, reflect high standards and comply with the
requirements of Section 17(j) of the Investment Company Act of 1940 (the
"Investment Company Act") and Rule 17j-1 thereunder, the Board of Directors of
NEIM have determined that NEIM shall adopt this Code of Ethics.
The following general fiduciary principles shall govern the personal investment
activities of all Access Persons.
Each Access Person shall:
. At all times, place the interests of NEIM's clients before his or her
personal interests;
. Conduct all personal securities transactions in a manner consistent with this
Code, so as to avoid any actual or potential conflicts of interest, or an
abuse of position of trust and responsibility; and
Not take any inappropriate advantage of his or her position with NEIM, including
through the misuse of confidential information. This Code is also designed to
provide part of NEIM's procedures designed to prevent the misuse of material
non-public information. NEIM's Statement on Inside Information should be read in
conjunction with this Code.
Any reference herein to a security purchased, sold, held, recommended, or any
similar reference, "by NEIM" includes such an action by a subadviser retained by
NEIM and acting on NEIM's behalf.
1. Definitions
a. "Fund" means an investment advisory client of NEIM.
b. "Access Person" means any trustee, manager, director, officer, general
partner or Advisory Person of NEIM.
c. Reserved.
d. "Advisory Person" of NEIM means (i) any employee of NEIM or of any
company in a control relationship to NEIM, who or which, in connection
with his or her or its regular functions or duties, makes,
participates in, or obtains
1
<PAGE>
information regarding the purchase of sale of a Covered Security by
NEIM, or whose functions relate to the making of any recommendations
with respect to such purchases or sales; and (ii) any natural person
in a control relationship to NEIM who obtains information concerning
recommendations made by NEIM with regard to the purchase or sale of
Covered Securities.
e. A Covered Security is "being considered for purchase or sale" when a
recommendation to purchase or sell such Covered Security has been made
and communicated and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
f. "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16(a) of the Securities Exchange Act of 1934 (the "1934
Act") and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership shall apply
to all Covered Securities which an Access Person has or acquires. For
a description of the method of interpreting beneficial ownership for
purposes of the provisions of Section 16(a) of the 1934 Act, See
Appendix A.
g. "Code Compliance Officer" means the General Counsel of NEIM or such
other individual as the Board of Directors of NEIM may from time to
time appoint.
h. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Investment Company Act.
i. "Covered Security" shall have the meaning set forth in Section
2(a)(36) of the Investment Company Act, except that it shall not
include: (i) direct obligations of the government of the United
States; (ii) shares of registered open-ended investment companies; and
(iii) bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements.
j. "Covered Security held or to be acquired" means any Covered Security
which, within the most recent 15 days, (i) is currently being held or
has been held by a Fund; or (ii) is being or has been considered by
NEIM for purchase by a Fund.
k. Reserved.
l. "Exempt Transactions" means those transactions described in Section 2
of this Code.
m. "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of sections 13 or 15(d) of the Securities and Exchange Act of 1934.
2
<PAGE>
n. "Limited Offering" means an offering that is exempt from registration
under the Securities Act of 1933 pursuant to sections 4(2) or 4(6)
under the Securities Act of 1933.
o. "Purchase or sale of a Covered Security" includes, inter alia, the
writing or purchase of an option to purchase or sell that Covered
Security.
p. Reserved.
2. Exempt Transactions
"Exempt Transactions" shall mean, and the prohibitions of Section 3 of this
Code shall not apply to:
a. Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control.
b. Purchases or sales which are non-volitional on the part of either the
Access Person or the Fund.
c. Purchases which are part of an automatic dividend reinvestment plan.
d. Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
e. Purchase or sales in a discretionary investment advisory account, in
which an Access Person has a beneficial ownership interest (either
alone or with others), managed by a registered investment adviser who
is not a member of the Access Person's family if the Access Person did
not have knowledge of the transactions until after the transactions
had been executed.
3. Prohibitions
No Access Person shall purchase or sell, directly or indirectly, any
Covered Security in which he or she has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which he or she
knows or should have known at the time of such purchase or sale:
a. is being considered for purchase or sale by NEIM; or
b. is being purchased or sold by NEIM on behalf of a Fund.
3
<PAGE>
4. Quarterly Transaction Reporting
a. Every Access Person shall report to the Fund's Code Compliance Officer
the information described in:
i) Section 4(c) of this Code with respect to transactions in any
Covered Security in which such Access Person has, or by reason of
such transaction acquires, any direct or indirect beneficial
ownership in the security; and
ii) Section 4(d) of this Code with respect to accounts established by
the Access Person in which any Covered Security was held during
the quarter for the direct or indirect investment benefit of the
Access Person;
provided, however, that an Access Person shall not be required to make
a report with respect to Exempt Transactions.
b. Reserved.
c. Every report required pursuant to Section 4(a)(i) shall be made not
later than 10 days after the end of the calendar quarter in which the
transaction to which the report relates was effected and shall contain
the following information:
i) The date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares, and the
principal amount of each Covered Security involved;
ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
iii) The price of the Covered Security at which the transaction was
effected;
iv) The name of the broker, dealer or bank with or through whom the
transaction was effected;
v) The date the report is submitted by the Access Person; and
vi) Identification of factors potentially relevant to a conflict of
interest analysis, of which the Access Person is aware, including
the existence of any substantial economic relationship between
his or her transactions and transactions of or securities held or
to be acquired by NEIM.
Each Access Person (other than a Disinterested Trustee or Manager)
shall provide the Code Compliance Officer with copies of each broker
trade confirmation or account statement related to a transaction
required to be reported under this Code. Each such Access Person need
not include in his or her report under this
4
<PAGE>
Section 4(c) the information required by subsections (i) through (vi)
hereof relating to a particular transaction in a Covered Security to
the extent that such information is contained in a broker trade
confirmation or account statement received by the Code Compliance
Officer on or before the date such report is due. The Access Person
must ensure that for each of his or her transactions in a Covered
Security, each item of information required under subsections (i)
through (iv) hereof is received by the Code Compliance Officer
(whether by delivery of broker trade confirmations and account
statements or by submission of a report to the Code Compliance
Officer).
d. Every report required pursuant to Section 4(a)(ii) shall be made not
later than 10 days after the end of the calendar quarter during which
an account established by an Access Person held any Covered Securities
for the direct or indirect benefit of the Access Person and shall
contain the following information:
i) The name of the broker, dealer, or bank with whom the Access
Person established the account;
ii) The date the account was established; and
iii) The date the report is submitted by the Access Person.
e. If an Access Person is required to file a report pursuant to each of
Sections 4(a)(i) and 4(a)(ii), that Access Person may combine the
information required by Sections 4(e) and 4(f) in a single report.
f. Any report filed pursuant to this Article 4 may contain a statement
that the report shall not be construed as an admission by the person
making such report that he or she has any direct or indirect
beneficial ownership in the security to which the report relates.
5. Initial and Annual Holding Reports
a. Every Access Person shall report to the Fund's Code Compliance Officer
the information described in:
i) Section 5(b) of this Code with respect to his or her initial
holdings; and
ii) Section 5(c) of this Code with respect to his or her annual
holdings.
b. Every report required pursuant to Section 5(a)(i) shall be made not
later than 10 days after the person becomes an Access Person and shall
contain the following information:
5
<PAGE>
i) The title, number of shares, and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership when the person became an Access Person;
ii) The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held
for the direct or indirect benefit of the access person as of the
date the person became an Access Person; and
iii) The date that the report is submitted by the Access Person.
c. Every report required pursuant to Section 5(a)(ii) shall contain the
following information:
i) The title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership;
ii) The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities are held for
the direct or indirect benefit of the Access Person; and
iii) The date that the report was submitted by the Access Person.
d. Any report filed pursuant to this Article 5 may contain a statement
that the report may not be construed by the person making such report
that he or she may have any direct or indirect beneficial ownership in
the security to which the report relates.
e. Every Access Person shall certify annually that he or she has read and
understands this Code and recognizes that he or she is subject to this
Code. Each Access Person shall at the same time also certify that he
or she has complied with the requirements of this Code and that he or
she has filed the reports required by this Code and that such reports
are, to such Access Person's knowledge, true and complete.
6. Other Conflicts
a. Access Persons are prohibited from serving on the board of directors
of any publicly-traded company unless such Access Person had
identified such board service to the Code Compliance Officer before
the date of adoption by the Board of Trustees or Managers, as
applicable, of this Code.
b. Access Persons are prohibited from acquiring securities in an Initial
Public Offering.
6
<PAGE>
c. Access Persons may not acquire securities in a Limited Offering
without the prior approval of the Code Compliance Officer. It is
understood that such approval will only be granted in limited
circumstances (such as in connection with a family-owned business).
Such prior approval shall include the Code Compliance Officer's
reasons supporting a decision to approve the acquisition of Covered
Securities offered in the Limited Offering.
d. Access Persons may not receive any gift or other thing of more than de
minimis value from any person or entity that does business with a
Fund. A one-time ticket to a sporting or theatrical event with a face-
value of less than $100 and non-recurring meals or entertainment
functions that are part of standard business practice of the service
provider shall be considered de minimis.
e. Access Persons may not profit on the purchase and sale, or sale and
purchase, of the same (or equivalent) security within 60 calendar
days. Any profits realized on such short-term trades are required to
be disgorged.
7. Procedures
a. The Code Compliance Officer shall prepare an annual report to NEIM's
President that
i) describes any issues arising under this Code since the last
report to the Board of Trustees of Managers, including, but not
limited to, information about material violations of this Code
and a summary of sanctions imposed by the Code Compliance
Officer, the President or the Board of Directors in response to
the material violations;
ii) certifies that NEIM has adopted procedures reasonably necessary
to prevent Access Persons from violating this Code; and
iii) identifies any recommended changes in existing restrictions or
procedures based upon the Code Compliance Officer's experience
under the Code, evolving industry practices, or developments in
applicable laws or regulations.
b. The Code Compliance Officer shall identify all Access Persons who are
required to make reports pursuant to Section 4 or 5 of this Code and
inform those Access Persons of their reporting obligations. The Code
Compliance Officer will, no less frequently than quarterly, identify
any new Access Persons and inform such persons of their reporting
obligations under this Code.
c. The Code Compliance Officer will review each report required to be
made pursuant to Sections 4 and 5 of this Code. The Code Compliance
Officer shall forward each report to the Treasurer of NEIM, or a
representative of New England Life Insurance Company (or any successor
entity), and he or she (or his
7
<PAGE>
or her designee) shall compare the transaction against the trading
records of the Funds and report back to the Code Compliance Officer.
d. The Code Compliance Officer will report any material violation of this
Code to the President of NEIM promptly following the Code Compliance
Officer's discovery. The Code Compliance Officer, the President or
the Board of Directors may impose such sanctions as it deems
appropriate, including, inter alia, a letter of censure or suspension
or termination of the Access Person's employment by NEIM. In addition
to any sanctions imposed by the Code Compliance Officer, the President
or the Board of Directors, all profits realized by an Access Person of
the Fund in violation of any restriction of this Code, unless paid
over to that Fund pursuant to such Fund's Code of Ethics, shall be
immediately paid over to NEIM, which profits NEIM shall contribute to
charity.
8. Recordkeeping Requirements
The Code Compliance Officer will maintain, on behalf of NEIM, the following
records at the principal place of business of NEIM and make such records
available to the SEC and any representative of the staff of the SEC at any
time and from time to time for reasonable periodic, special or other
examination:
a. A copy of this Code and any previous such code of ethics which was in
effect at any time within the past five years, to be maintained in an
easily acceptable place;
b. A record of any violation of this Code and of any action taken as a
result of the violation, to be maintained in an easily accessible
place for at least five years after the end of the fiscal year in
which such violation occurs;
c. A copy of each report made by an Access Person as required by Sections
4 or 5 of this Code, to be maintained for at least five years after
the end of the fiscal year in which the report was made or the
information was provided, and for the first two years in an easily
accessible place;
d. A list of all persons who currently or within the past five years is
or was an Access Person or a Code Compliance Officer, to be maintained
in an easily accessible place;
e. A copy of each certification and report required by Section 7(a) of
this Code, to be maintained for at least five years after the end of
the fiscal year in which such report is made, and for the first two
years in an easily accessible place; and
f. A record of any decision, and the reasons supporting the decision, to
approve the acquisition by an Access Person of Covered Securities in a
Limited Offering pursuant to Section 6(c) of this Code, to be
maintained for at least five years after the end of the fiscal year in
which the approval is granted.
8
<PAGE>
EXHIBIT A
---------
to
NEW ENGLAND INVESTMENT MANAGEMENT, INC.
CODE OF ETHICS
For purposes of the attached Code of Ethics, "beneficial ownership" shall be
interpreted in the same manner as it would be in determining whether a person is
subject to the provisions of Section 16(a) of the Securities Exchange Act of
1934 and the rules and regulations thereunder, except that the determination of
direct or indirect beneficial ownership shall apply to all Covered Securities
that an Access Person has or acquires. Securities held in the name of another
should be considered as "beneficially" owned by an Access Person where such
person enjoys "benefits substantially equivalent to ownership".
The Securities and Exchange Commission has said that although the final
determination of beneficial ownership is a question to be determined in the
light of the facts of the particular case, generally a person is regarded as the
beneficial owner of securities held in the name of his or her spouse and their
minor children. Absent special circumstances, transactions by these immediate
family members ordinarily result in the Access Person obtaining benefits
substantially equivalent to ownership, e.g., application of the income derived
----
from such securities to maintain a common home, to meet expenses that such
person otherwise would meet from other sources, or the ability to exercise a
controlling influence over the purchase, sale or voting of such securities. An
Access Person also is regarded as the beneficial owner of securities held in the
name of a spouse, minor children or other person, even though he or she does not
obtain therefrom the aforementioned benefits of ownership, if he or she can vest
or revest title in himself or herself at once or at some future time. Moreover,
the fact that the holder is a relative or a spouse and sharing the same home as
an Access Person may in itself indicate that the Access Person would obtain
benefits substantially equivalent to those of ownership from securities held in
the name of such relative. Thus, absent countervailing facts, it is expected
that securities held by relatives who share the same home as an Access Person
will be treated as being beneficially owned by the Access Person.
The term "beneficial ownership" of securities would include not only ownership
of securities held by an Access Person for his or her own benefit, whether in
bearer form or registered in his name or otherwise, but also ownership of
securities held for his or her benefit by others (regardless of whether or how
they are registered) such as custodians, brokers, executors, administrators, or
trustees (including trusts in which he or she has only a remainder interest),
and securities held for his or her account by pledges, securities owned by a
partnership in which he or she is a member, if he may exercise a controlling
influence over the purchase, sale or voting of such securities held for his
account by pledges, securities owned by a partnership in which he or she is a
member, if he or she may exercise a controlling influence over the purchase,
sale or
A-1
<PAGE>
voting of such securities and securities owned by any corporation.
Correspondingly, this term would exclude securities held by an Access Person for
the benefit of someone else.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which an Access Person is a legatee or beneficiary
unless there is a specific legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
An Access Person also may be regarded as the beneficial owner of securities held
in the name of another person, if by reason of any contract, understanding,
relationship, agreement, or other arrangement, he obtains therefrom benefits
substantially equivalent to those of ownership.
A-2
<PAGE>
EX-99.(p)(3)
Wellington Management Company, llp
Wellington Trust Company, na
Wellington Management International
Wellington International Management Company Pte Ltd.
Code of Ethics
- ---------------- ------------------------------------------------------------
Summary Wellington Management Company, llp and its affiliates have a
fiduciary duty to investment company and investment
counseling clients which requires each employee to act solely
for the benefit of clients. Also, each employee has a duty to
act in the best interest of the firm. In addition to the
various laws and regulations covering the firm's activities,
it is clearly in the firm's best interest as a professional
investment advisory organization to avoid potential conflicts
of interest or even the appearance of such conflicts with
respect to the conduct of the firm's employees. Wellington
Management's personal trading and conduct must recognize that
the firm's clients always come first, that the firm must
avoid any actual or potential abuse of our positions of trust
and responsibility, and that the firm must never take
inappropriate advantage of its positions. While it is not
possible to anticipate all instances of potential conflict,
the standard is clear.
In light of the firm's professional and legal
responsibilities, we believe it is appropriate to restate and
periodically distribute the firm's Code of Ethics to all
employees. It is Wellington Management's aim to be as
flexible as possible in its internal procedures, while
simultaneously protecting the organization and its clients
from the damage that could arise from a situation involving a
real or apparent conflict of interest. While it is not
possible to specifically define and prescribe rules regarding
all possible cases in which conflicts might arise, this Code
of Ethics is designed to set forth the policy regarding
employee conduct in those situations in which conflicts are
most likely to develop. If an employee has any doubt as to
the propriety of any activity, he or she should consult the
President or Regulatory Affairs Department.
The Code reflects the requirements of United States law, Rule
17j-1 of the Investment Company Act of 1940, as amended on
October 29, 1999, as well as the recommendations issued by an
industry study group in 1994, which were strongly supported
by the SEC. The term "Employee" includes all employees and
Partners.
- ------------------ ------------------------------------------------------------
Policy on Personal Essentially, this policy requires that all personal
Securities securities transactions (including acquisitions or
Transactions dispositions other than through a purchase or sale) by all
Employees must be cleared prior to execution. The only
exceptions to this policy of prior clearance are noted below.
- ------------------ -------------------------------------------------------------
Definition of The following transactions by Employees are considered
"Personal "personal" under applicable SEC rules and therefore subject
Securities to this statement of policy:
Transactions"
<PAGE>
Code of Ethics
Page 2
- ------------------ -------------------------------------------------------------
1
Transactions for an Employee's own account, including IRA's.
2
Transactions for an account in which an Employee has indirect
beneficial ownership, unless the Employee has no direct or
indirect influence or control over the account. Accounts
involving family (including husband, wife, minor children or
other dependent relatives), or accounts in which an Employee
has a beneficial interest (such as a trust of which the
Employee is an income or principal beneficiary) are included
within the meaning of "indirect beneficial interest".
If an Employee has a substantial measure of influence or
control over an account, but neither the Employee nor the
Employee's family has any direct or indirect beneficial
interest (e.g., a trust for which the Employee is a trustee
but not a direct or indirect beneficiary), the rules relating
to personal securities transactions are not considered to be
directly applicable. Therefore, prior clearance and
subsequent reporting of such transactions are not required.
In all transactions involving such an account an Employee
should, however, conform to the spirit of these rules and
avoid any activity which might appear to conflict with the
investment company or counseling clients or with respect to
the Employee's position within Wellington Management. In this
regard, please note "Other Conflicts of Interest", found
later in this Code of Ethics, which does apply to such
situations.
- ------------------ ------------------------------------------------------------
Preclearance Except as specifically exempted in this section, all
Required ----------------------------------------------------
Employees must clear personal securities transactions prior
------------------------------------------------------------
to execution. This includes bonds, stocks (including closed
------------
end funds), convertibles, preferreds, options on securities,
warrants, rights, etc. for domestic and foreign securities,
whether publicly traded or privately placed. The only
exceptions to this requirement are automatic dividend
reinvestment and stock purchase plan acquisitions, broad-
based stock index and U.S. government securities futures and
options on such futures, transactions in open-end mutual
funds, U.S. Government securities, commercial paper, or non-
volitional transactions. Non-volitional transactions include
gifts to an Employee over which the Employee has no control
of the timing or transactions which result from corporate
action applicable to all similar security holders (such as
splits, tender offers, mergers, stock dividends, etc.).
Please note, however, that most of these transactions must be
reported even though they do not have to be precleared. See
the following section on reporting obligations.
Clearance for transactions must be obtained by contacting the
Director of Global Equity Trading or those personnel
designated by him for this purpose. Requests for clearance
and approval for transactions may be communicated orally or
via
<PAGE>
Code of Ethics
Page 3
- ----------------- -----------------------------------------------------------
email. The Trading Department will maintain a log of all
requests for approval as coded confidential records of the
firm. Private placements (including both securities and
partnership interests) are subject to special clearance by
the Director of Regulatory Affairs, Director of Enterprise
Risk Management or the General Counsel, and the clearance
will remain in effect for a reasonable period thereafter, not
to exceed 90 days.
Clearance for personal securities transactions for publicly
traded securities will be in effect for one trading day only.
This "one trading day" policy is interpreted as follows:
. If clearance is granted at a time when the principal
market in which the security trades is open, clearance is
effective for the remainder of that trading day until the
opening of that market on the following day.
. If clearance is granted at a time when the principal
market in which the security trades is closed, clearance
is effective for the next trading day until the opening of
that market on the following day.
- ----------------- -------------------------------------------------------------
Filing of Reports Records of personal securities transactions by Employees will
be maintained. All Employees are subject to the following
reporting requirements:
1
Duplicate All Employees must require their securities brokers to send
Brokerage duplicate confirmations of their securities transactions
Confirmations to the Regulatory Affairs Department. Brokerage firms are
accustomed to providing this service. Please contact
Regulatory Affairs to obtain a form letter to request this
service. Each employee must return to the Regulatory Affairs
Department a completed form for each brokerage account that
is used for personal securities transactions of the Employee.
Employees should not send the completed forms to their
---
brokers directly. The form must be completed and returned
to the Regulatory Affairs Department prior to any
transactions being placed with the broker. The Regulatory
Affairs Department will process the request in order to
assure delivery of the confirms directly to the Department
and to preserve the confidentiality of this information. When
possible, the transaction confirmation filing requirement
will be satisfied by electronic filings from securities
depositories.
2
Filing of SEC rules require that a quarterly record of all personal
Quarterly securities transactions submitted by each person subject to
Report of all the Code's requirements and that this record be available for
"Personal inspection. To comply with these rules, every Employee must
Securities file a quarterly personal securities transaction report
Transactions" within 10 calendar days after the end of each calendar
quarter. Reports are filed electronically utilizing the
firm's proprietary Personal Securities Transaction
<PAGE>
Code of Ethics
Page 4
- ----------------- ------------------------------------------------------------
Reporting System (PSTRS) accessible to all Employees via the
Wellington Management Intranet.
At the end of each calendar quarter, Employees will be
notified of the filing requirement. Employees are responsible
for submitting the quarterly report within the deadline
established in the notice.
Transactions during the quarter indicated on brokerage
confirmations or electronic filings are displayed on the
Employee's reporting screen and must be affirmed if they are
accurate. Holdings not acquired through a broker submitting
confirmations must be entered manually. All Employees are
required to submit a quarterly report, even if there were no
reportable transactions during the quarter.
Employees must also provide information on any new brokerage
account established during the quarter including the name of
the broker, dealer or bank and the date the account was
established.
IMPORTANT NOTE: The quarterly report must include the
--------------
required information for all "personal securities
transactions" as defined above, except transactions in open-
end mutual funds, money market securities, U.S. Government
securities, and futures and options on futures on U.S.
government securities. Non-volitional transactions and those
resulting from corporate actions must also be reported even
though preclearance is not required and the nature of the
transaction must be clearly specified in the report.
3
Certification of As part of the quarterly reporting process on PSTRS,
Compliance Employees are required to confirm their compliance with
the provisions of this Code of Ethics.
4
Filing of Personal Annually, all Employees must file a schedule indicating their
Holding Report personal securities holdings as of December 31 of each year
by the following January 30. SEC Rules require that this
report include the title, number of shares and principal
amount of each security held in an Employee's personal
account, and the name of any broker, dealer or bank with whom
the Employee maintains an account. "Securities" for purposes
of this report are those which must be reported as indicated
in the prior paragraph. Newly hired Employees are required to
file a holding report within ten (10) days of joining the
firm. Employees may indicate securities held in a brokerage
account by attaching an account statement, but are not
required to do so, since these statements contain additional
information not required by the holding report.
<PAGE>
Code of Ethics
Page 5
- ----------------- -------------------------------------------------------------
5
Review of Reports All reports filed in accordance with this section will be
maintained and kept confidential by the Regulatory Affairs
Department. Reports will be reviewed by the Director of
Regulatory Affairs or personnel designated by her for this
purpose.
Restrictions on While all personal securities transactions must be cleared
"Personal prior to execution, the following guidelines indicate which
Securities transactions will be prohibited, discouraged, or subject to
Transactions" nearly automatic clearance. The clearance of personal
securities transactions may also depend upon other
circumstances, including the timing of the proposed
transaction relative to transactions by our investment
counseling or investment company clients; the nature of the
securities and the parties involved in the transaction; and
the percentage of securities involved in the transaction
relative to ownership by clients. The word "clients" refers
collectively to investment company clients and counseling
clients. Employees are expected to be particularly sensitive
to meeting the spirit as well as the letter of these
restrictions.
Please note that these restrictions apply in the case of debt
securities to the specific issue and in the case of common
stock, not only to the common stock, but to any equity-
related security of the same issuer including preferred
stock, options, warrants, and convertible bonds. Also, a gift
or transfer from you (an Employee) to a third party shall be
subject to these restrictions, unless the donee or transferee
represents that he or she has no present intention of selling
the donated security.
1
No Employee may engage in personal transactions involving any
securities which are:
. being bought or sold on behalf of clients until one
trading day after such buying or selling is completed or
canceled. In addition, no Portfolio Manager may engage in
a personal transaction involving any security for 7 days
prior to, and 7 days following, a transaction in the same
security for a client account managed by that Portfolio
Manager without a special exemption. See "Exemptive
Procedures" below. Portfolio Managers include all
designated portfolio managers and others who have direct
authority to make investment decisions to buy or sell
securities, such as investment team members and analysts
involved in Research Equity portfolios. All Employees who
are considered Portfolio Managers will be so notified by
the Regulatory Affairs Department.
. the subject of a new or changed action recommendation from
a research analyst until 10 business days following the
issuance of such recommendation;
<PAGE>
Code of Ethics
page 6
- ----------------- -------------------------------------------------------------
. the subject of a reiterated but unchanged recommendation
from a research analyst until 2 business days following
reissuance of the recommendation
. actively contemplated for transactions on behalf of
clients, even though no buy or sell orders have been
placed. This restriction applies from the moment that an
Employee has been informed in any fashion that any
Portfolio Manager intends to purchase or sell a specific
security. This is a particularly sensitive area and one in
which each Employee must exercise caution to avoid actions
which, to his or her knowledge, are in conflict or in
competition with the interests of clients.
2
The Code of Ethics strongly discourages short term trading by
Employees. In addition, no Employee may take a "short term
trading" profit in a security, which means the sale of a
security at a gain (or closing of a short position at a gain)
within 60 days of its purchase, without a special exemption.
See "Exemptive Procedures". The 60 day prohibition does not
apply to transactions resulting in a loss, nor to futures or
options on futures on broad-based securities indexes or U.S.
government securities.
3
No Employee engaged in equity or bond trading may engage in
personal transactions involving any equity securities of any
company whose primary business is that of a broker/dealer.
4
Subject to preclearance, Employees may engage in short sales,
options, and margin transactions, but such transactions are
strongly discouraged, particularly due to the 60 day short
term profit-taking prohibition. Any Employee engaging in such
transactions should also recognize the danger of being
"frozen" or subject to a forced close out because of the
general restrictions which apply to personal transactions as
noted above. In specific case of hardship an exception may be
granted by the Director of Regulatory Affairs or her designee
upon approval of the Ethics Committee with respect to an
otherwise "frozen" transaction.
5
No Employee may engage in personal transactions involving the
purchase of any security on an initial public offering. This
restriction also includes new issues resulting from spin-
offs, municipal securities and thrift conversions, although
in limited cases the purchase of such securities in an
offering may be approved by
<PAGE>
Code of Ethics
Page 7
- ----------------- -------------------------------------------------------------
the Director of Regulatory Affairs or her designee upon
determining that approval would not violate any policy
reflected in this Code. This restriction does not apply to
open-end mutual funds, U. S. government issues or money
market investments.
6
Employees may not purchase securities in private placements
unless approval of the Director of Regulatory Affairs,
Director of Enterprise Risk Management or the General Counsel
has been obtained. This approval will be based upon a
determination that the investment opportunity need not be
reserved for clients, that the Employee is not being offered
the investment opportunity due to his or her employment with
Wellington Management and other relevant factors on a
case-by- case basis. If the Employee has portfolio
management or securities analysis responsibilities and is
granted approval to purchase a private placement, he or she
must disclose the privately placed holding later if asked to
evaluate the issuer of the security. An independent review of
the Employee's analytical work or decision to purchase the
security for a client account will then be performed by
another investment professional with no personal interest in
the transaction.
Gifts and Other Employees should not seek, accept or offer any gifts or
Sensitive Payments favors of more than minimal value or any preferential
treatment in dealings with any client, broker/dealer,
portfolio company, financial institution or any other
organization with whom the firm transacts business.
Occasional participation in lunches, dinners, cocktail
parties, sporting activities or similar gatherings conducted
for business purposes are not prohibited. However, for both
the Employee's protection and that of the firm it is
extremely important that even the appearance of a possible
conflict of interest be avoided. Extreme caution is to be
exercised in any instance in which business related travel
and lodgings are paid for other than by Wellington
Management, and prior approval must be obtained from the
Regulatory Affairs Department.
Any question as to the propriety of such situations should be
discussed with the Regulatory Affairs Department and any
incident in which an Employee is encouraged to violate these
provisions should be reported immediately. An explanation of
all extraordinary travel, lodging and related meals and
entertainment is to be reported in a brief memorandum to the
Director of Regulatory Affairs.
Employees must not participate individually or on behalf of
the firm, a subsidiary, or any client, directly or
indirectly, in any of the following transactions:
<PAGE>
Code of Ethics
Page 8
- ----------------- -------------------------------------------------------------
1
Use of the firm's funds for political purposes.
2
Payment or receipt of bribes, kickbacks, or payment or
receipt of any other amount with an understanding that part
or all of such amount will be refunded or delivered to a
third party in violation of any law applicable to the
transaction.
3
Payments to government officials or employees (other than
disbursements in the ordinary course of business for such
legal purposes as payment of taxes).
4
Payment of compensation or fees in a manner the purpose of
which is to assist the recipient to evade taxes, federal or
state law, or other valid charges or restrictions applicable
to such payment.
5
Use of the funds or assets of the firm or any subsidiary for
any other unlawful or improper purpose.
- ----------------- -------------------------------------------------------------
Other Conflicts of Employees should also be aware that areas other than personal
Interest securities transactions or gifts and sensitive payments may
involve conflicts of interest. The following should be
regarded as examples of situations involving real or
potential conflicts rather than a complete list of situations
to avoid.
"Inside Specific reference is made to the firm's policy on the use of
Information" "inside information" which applies to personal securities
transactions as well as to client transactions.
Use of Information Information acquired in connection with employment by the
organization may not be used in any way which might be
contrary to or in competition with the interests of clients.
Employees are reminded that certain clients have specifically
required their relationship with us to be treated
confidentially.
Disclosure of Information regarding actual or contemplated investment
Information decisions, research priorities or client interests should not
be disclosed to persons outside our organization and in no
way can be used for personal gain.
Outside All outside relationships such as directorships or
Activities trusteeships of any kind or membership in investment
organizations (e.g., an investment club) must be cleared by
the Director of Regulatory Affairs prior to the acceptance of
such a position. As
<PAGE>
Code of Ethics
page 9
- ----------------- -------------------------------------------------------------
a general matter, directorships in unaffiliated public
companies or companies which may reasonably be expected to
become public companies will not be authorized because of the
potential for conflicts which may impede our freedom to act
in the best interests of clients. Service with charitable
organizations generally will be authorized, subject to
considerations related to time required during working hours
and use of proprietary information.
Exemptive The Director of Regulatory Affairs, the Director of
Procedure Enterprise Risk Management, the General Counsel or the Ethics
Committee can grant exemptions from the personal trading
restrictions in this Code upon determining that the
transaction for which an exemption is requested would not
result in a conflict of interest or violate any other policy
embodied in this Code. Factors to be considered may include:
the size and holding period of the Employee's position in the
security, the market capitalization of the issuer, the
liquidity of the security, the reason for the Employee's
requested transaction, the amount and timing of client
trading in the same or a related security, and other relevant
factors.
Any Employee wishing an exemption should submit a written
request to the Director of Regulatory Affairs setting forth
the pertinent facts and reasons why the employee believes
that the exemption should be granted. Employees are cautioned
that exemptions are intended to be exceptions, and repetitive
exemptive applications by an Employee will not be well
received.
Records of the approval of exemptions and the reasons for
granting exemptions will be maintained by the Regulatory
Affairs Department.
- ----------------- ------------------------------------------------------------
Compliance with Adherence to the Code of Ethics is considered a basic
The Code of Ethics condition of employment with our organization. The Ethics
Committee monitors compliance with the Code and reviews
violations of the Code to determine what action or sanctions
are appropriate.
Violations of the provisions regarding personal trading will
presumptively be subject to being reversed in the case of a
violative purchase, and to disgorgement of any profit
realized from the position (net of transaction costs and
capital gains taxes payable with respect to the transaction)
by payment of the profit to any client disadvantaged by the
transaction, or to a charitable organization, as determined
by the Ethics Committee, unless the Employee establishes to
the satisfaction of the Ethics Committee that under the
particular circumstances disgorgement would be an
unreasonable remedy for the violation.
<PAGE>
Code of Ethics
Page 10
- ----------------- -----------------------------------------------------------
Violations of the Code of Ethics may also adversely affect an
Employee's career with Wellington Management with respect to
such matters as compensation and advancement.
Employees must recognize that a serious violation of the Code
of Ethics or related policies may result, at a minimum, in
immediate dismissal. Since many provisions of the Code of
Ethics also reflect provisions of the U.S. securities laws,
Employees should be aware that violations could also lead to
regulatory enforcement action resulting in suspension or
expulsion from the securities business, fines and penalties,
and imprisonment.
Again, Wellington Management would like to emphasize the
importance of obtaining prior clearance of all personal
securities transactions, avoiding prohibited transactions,
filing all required reports promptly and avoiding other
situations which might involve even an apparent conflict of
interest. Questions regarding interpretation of this policy
or questions related to specific situations should be
directed to the Regulatory Affairs Department or Ethics
Committee.
Revised: March 1, 2000
<PAGE>
EX-99.(p)(4)
WESTPEAK INVESTMENT ADVISORS, L.P.
Code of Ethics
Adopted as of April 1, 1998
It is important to remember at all times that the interests of our clients
and the shareholders of the funds that we advise must come first. In order to
maintain that priority, all personal securities transactions must be conducted
in a manner consistent with this Code of Ethics ("Code"). We must be vigilant
in maintaining the integrity of our business by avoiding any actual or potential
conflicts of interest or any abuse of our position of trust and responsibility.
All provisions of this Code will be interpreted in such a way as to give full
effect to the principles stated in this preamble.
I. Definitions
-----------
(A) "Access person" means any director, officer or advisory person of
Westpeak.
(B) "Advisory person" means (i) any employee of Westpeak (or of any company
in a control relationship to Westpeak) who, in connection with his or
her regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security by a Fund, or
whose functions relate to the making of any recommendations with
respect to such purchases or sales; and (ii) any natural person in a
control relationship to Westpeak who obtains information concerning
recommendations made to a Fund with regard to the purchase or sale of a
security.
(C) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder from time to time in effect,
except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an access person has or
acquires. In general, a Westpeak employee is deemed to have beneficial
ownership of securities owned by the employee's spouse, by children
residing in the employee's household or by children who are financially
dependent on the employee, or other securities over which the employee
has control. Refer to Appendix A attached to this Code for a fuller
explanation of the meaning of "beneficial ownership."
(D) "Compliance Officer" shall refer to the Westpeak officer holding this
title (currently Philip J. Cooper, Executive Vice President - Portfolio
Management) or, in the Compliance Officer's absence, Gerald H. Scriver,
President and Chief Executive Officer.
(E) "Control" shall have the same meaning as set forth in Section 2(a)(9)
of the Investment Company Act of 1940 (the "1940 Act"). Section 2(a)(9)
1
<PAGE>
provides that "control" means, among other things, the power to
exercise a controlling influence over the management or policies of a
company, unless such power is solely the result of an official position
with such company.
(F) "Fund" means each investment company for which Westpeak Investment
Advisors, L.P. ("Westpeak" or the "Company") serves as investment
adviser or subadviser and each other client for which Westpeak provides
investment advisory services.
(G) "Purchase or sale of a security" includes, inter alia, the writing of
an option to purchase or sell a security.
(H) "Security" shall have the meaning set forth in Section 2(a)(36) of the
1940 Act, except that it shall not include securities issued by the
Government of the United States (including government money market
instruments of the type issued by agencies of the federal government or
guaranteed by the federal government or its agencies), bankers'
acceptances, bank certificates of deposit, commercial paper and shares
of registered open-end investment companies, or such other securities
as may be excepted under the provisions of Rule 17j-1 under the 1940
Act from time to time in effect.
(I) "Security held or to be acquired" by a Fund means any security which,
within the most recent fifteen days, (i) is or has been held by the
Fund, or (ii) is being or has been considered by Westpeak for purchase
by the Fund.
(J) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated or, with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
(K) A security is "being purchased or sold" by a Fund from the time when a
purchase or sale program has been communicated to the person who places
the buy and sell orders for the Fund until the time when such program
has been fully completed or terminated.
A person who normally only assists in the preparation of public reports, or
receives public reports but receives no information about current
recommendations or trading, is neither an "advisory person" nor an "access
person." A single instance or infrequent, inadvertent instances of obtaining
knowledge does not make one for all times an advisory person. Under the
definition of "advisory person" in the phrase "makes, participates in, or
obtains information regarding the purchase or sale of a security" means someone
who places orders or otherwise arranges transactions.
2
<PAGE>
II. Outside Affiliations
--------------------
No access person (other than members of the Board of Directors of
Westpeak's general partner who are not Westpeak employees) shall become an
officer, trustee or director of any company whose shares are publicly traded
(except an investment company managed by the Company or an affiliate of the
Company) without the approval of the Compliance Officer. This restriction on
serving as an officer, trustee or director of a public company is designed to
prevent Westpeak from being deemed to possess inside information concerning a
company that an access person may learn in serving in one of those capacities.
Therefore, exceptions will be made by the Compliance Officer only in unusual
situations, with the advice of legal counsel, as appropriate.
No access person (other than members of the Board of Directors of
Westpeak's general partner who are not Westpeak employees) shall accept an
appointment as an executor, administrator, trustee, guardian or conservator
(other than in family situations) without approval by the Compliance Officer.
III. Gifts to or from Brokers or Clients
-----------------------------------
No access person shall accept or receive on his or her own behalf or on
behalf of the Company any gift or other accommodations from a business contact
or broker, securities salesman or client (a "business contact") that might
create a conflict of interest or interfere with the impartial discharge of his
or her responsibilities to Westpeak's clients or place the recipient or Westpeak
in a difficult or embarrassing position. This prohibition applies equally to
gifts to an access person's close relatives or to those who share the same
household as an access person.
No access person shall give on his or her own behalf or on behalf of the
Company any gift or other accommodation to a business contact that may be
construed as an improper attempt to influence the recipient.
In no event should gifts to or from any one business contact have a value
that exceeds the limitation on gifts established by the NASD from time to time
(currently $100). This prohibition does not apply to normal business
entertainment.
IV. Use of Inside Information
-------------------------
Access persons agree to adhere to Westpeak's Statement of Policy on Inside
Information, which should be read in conjunction with this Code.
V. Personal Securities Transactions
--------------------------------
In furtherance of the principle set out in the preamble to this Code (i.e.,
that the interests of Westpeak's clients and the shareholders of the Funds
Westpeak advises come first), access persons will adhere to the following
restrictions and requirements with respect to their personal investing activity;
provided, however, that the restrictions and
- -------- -------
3
<PAGE>
requirements listed below in this Section V do not apply to any member of the
Board of Directors of Westpeak's general partner who is not a Westpeak employee
and who does not have actual knowledge of purchases or sales of securities by
any Fund, or recommendations with regard to purchases or sales of securities by
any Fund.
1. Pre-Trade Clearance
No access person will purchase or sell any security in which such
person has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership without the prior written approval of the
Compliance Officer. Any such approval will be valid for five business days
from the date approval is granted or such lesser time period as the
Compliance Officer determines. The Compliance Officer will maintain records
documenting all pre-trade clearance requests and approvals.
2. Brokerage Confirmation and Statements
Access persons will direct their brokers to routinely supply duplicate
copies of all confirmations and periodic account statements to the
Compliance Officer.
3. Investment Opportunities of Limited Availability
If an access person learns of an investment opportunity of limited
availability that would be suitable for a client, the access person must
make the opportunity available to the client first, and may not invest in
that opportunity for his or her own account without the client's consent.
4. Initial Public Offerings
No access person may acquire securities in an initial public offering.
5. Private Placements
No access person may acquire securities in a private placement without
the express prior approval of the Compliance Officer.
Any access person who now or hereafter owns a privately-placed
security and who becomes involved in an investment decision involving the
issuer of the security shall disclose his or her ownership of the private
placement to the Compliance Officer as soon as practicable after becoming
involved in the decision-making process.
Any access person who owns a private placement of an issuer must
refrain from deliberations regarding client purchases or sales of
securities issued by the same issuer.
4
<PAGE>
6. Blackout Periods
Except as set forth below, no access person may purchase or sell
securities on any day during which a buy or sell order in the same security
is pending for a Fund.
Except as set forth below, no access person may purchase or sell a
security purchased or sold by a Fund within seven calendar days before or
after the Fund buys or sells the security; provided, however, that the
-------- -------
prohibition on a purchase or sale by an access person seven days before the
------
Fund buys or sells the same security does not apply if the access person
does not have actual knowledge that such security is being considered for
purchase or sale by the Company for a Fund.
Except as set forth below, no access person may buy and sell, or sell
and buy, the same securities (including options on securities) at a profit
within 60 calendar days. Any profits realized by such access person on such
short-term trades shall be disgorged to a charitable organization selected
by the Company. The Compliance Officer may allow exceptions to this
provision only in cases where the security must be sold involuntarily (such
as in the case of a merger involving the issuer).
The pre-trade clearance and blackout period provisions of this Section
(Section V.1. and V.6.) do not apply to transactions in the following
securities:
. Securities that are not eligible (nor are convertible into or
exchangeable for securities that are eligible) for purchase by any
of the Funds.
. Securities issued or guaranteed by any government that is a member
of the Organization for Economic Cooperation and Development, or
any agency or authority thereof.
. Common or preferred stocks of a class that is publicly-traded,
issued by a company with a stock market capitalization in excess of
five billion U.S. dollars (or the equivalent in foreign currency).
. Futures and options contracts on indices.
. Commodity futures contracts, including futures contracts on
interest rate instruments or indices, and options on such
contracts.
. Open-end investment management companies.
The pre-trade clearance and blackout period provisions of this Section
(Section V.1. and V.6.) do not apply to the following transactions:
5
<PAGE>
. Transactions that occur by operation of law or under any other
circumstance in which the access person does not exercise any
discretion to buy or sell.
. Purchases of securities pursuant to an automatic dividend
reinvestment plan.
. Purchases pursuant to the exercise of rights issued pro rata to all
holders of the class of securities held by the access person and
received by the access person from the issuer.
VI. Annual Certification
--------------------
All access persons shall certify annually that they have read and
understand this Code and that they have complied with all its provisions. A copy
of the form of annual certification is attached hereto as Appendix B. Access
persons shall further certify that they have complied with the reporting
requirements of Part VII of this Code.
VII. Reporting
---------
(A) Every access person shall file with the Compliance Officer a report
containing the information described in Section VII(B) of this Code
with respect to transactions in any security in which such access
person has, or by reason of reason of such transaction acquires, any
direct or indirect beneficial ownership; provided, however, that such
-------- -------
access person shall not be required to make a report with respect to
transactions effected for any account over which such person does not
have any direct or indirect influence or control, and provided,
--------
further, that the term "security" does not include the savings or
-------
demand deposit accounts of access persons with banks or thrifts.
(B) Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates
was effected, and shall contain the following information:
(1) The date of the transaction and the title and number of shares and
principal amount of each security involved;
(2) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition), including information
sufficient to establish any exemption from the restrictions listed
in Section V on which the access person has relied;
(3) The price at which the transaction was effected; and
6
<PAGE>
(4) The name of the broker, dealer or bank with or through whom the
transaction was effected.
(C) The making of such report shall not be construed as an admission by
the person making such report that he or she has any direct or
indirect beneficial ownership in the security to which the report
relates, and the existence of any report shall not be construed as an
admission that any transaction reported constitutes a violation of
Section V hereof.
(D) Any person required to report a transaction under this Section may
satisfy his or her obligation hereunder by providing a duplicate
confirmation/ statement of such transaction to the Compliance Officer,
as required to be routinely furnished in Section V.2.
VIII. Review and Enforcement
----------------------
(A) Review
------
(1) The Compliance Officer shall cause the reported personal
securities transactions to be compared with completed and
contemplated portfolio transactions of the Funds to determine
whether any transactions subject to the restrictions in Section V
(each a "Reviewable Transaction") may have occurred.
(2) If the Compliance Officer determines that a Reviewable Transaction
may have occurred, he shall then determine whether a violation of
this Code may have occurred, taking into account of the exemptions
provided under Section V. Before making any determination that a
violation has been committed by a person, the Compliance Officer
shall give such person an opportunity to supply additional
information regarding the transaction in question.
(B) Enforcement
-----------
(1) If the Compliance Officer determines that a violation of this Code
may have occurred, he shall promptly report the possible violation
to the President of Westpeak, who, together with the Compliance
Officer, shall take such actions as they consider appropriate,
including imposition of any sanctions that they consider
appropriate.
(2) No person shall participate in a determination of whether he has
committed a violation of this Code or in the imposition of any
sanction against himself. If a securities transaction of the
Compliance Officer is under consideration, Westpeak's President
shall act in all respects in the manner prescribed herein for the
Compliance Officer, and, if a securities transaction of the
President is under consideration, the
7
<PAGE>
Compliance Officer shall report the possible violation to the
Chairman of the Board of Directors of Westpeak's general
partner.
IX. Reporting Requirement to Investment Company Clients
---------------------------------------------------
The Compliance Officer shall, with respect to each Fund that is an
investment company, annually furnish a written report to the board of trustees
of such Fund (i) describing issues arising under this Code since the last report
to the board, including information about violations of the Code, sanctions
imposed in response to such violations, changes made to the Code, and any
proposed changes to the Code; and (ii) certifying that Westpeak has adopted such
procedures as are reasonably necessary to prevent access persons from violating
the Code.
X. Records
-------
(A) Westpeak shall maintain records in the manner and to the extent set
forth below, which records may be maintained on microfilm under the
conditions described in Rule 31a-2(f)(1) under the 1940 Act and shall
be available for appropriate examination by representatives of the
Securities and Exchange Commission.
(1) A copy of this Code and any other Code which is, or at any time
within the past five years has been, in effect shall be preserved
in an easily accessible place.
(2) A record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs.
(3) A copy of each report made pursuant to this Code by any access
person shall be preserved for a period of not less than five years
from the end of the fiscal year in which it is made, the first two
years in an easily accessible place.
(4) A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code shall be
maintained in an easily accessible place.
(B) Confidentiality
---------------
All reports of securities transactions and any other information
collected or produced pursuant to this Code shall be treated as
confidential, except as regards appropriate examinations by
representatives of the Securities and Exchange Commission of any other
authorized governmental body or self-regulatory organization.
8
<PAGE>
APPENDIX A
- ----------
"Beneficial Ownership"
- ----------------------
For purposes of the Code of Ethics, a beneficial owner of a security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in such security.
You have a pecuniary interest in a security if you have the
opportunity, directly or indirectly, to profit or share in the profit derived
from a transaction in such security. You are deemed to have a pecuniary
interest in any securities held by members of your immediate family sharing your
household. "Immediate family" means your son or daughter (including your
legally adopted child) or any descendants of either, your stepson or
stepdaughter, your father or mother or any ancestor of either, your stepfather
or stepmother and your spouse. Also, you are deemed to have a pecuniary
interest in securities held by a partnership of which you are a general partner,
and beneficial ownership of the securities held by such partnership will be
attributed to you in proportion to the greater of your capital account or
interest in the partnership at the time of any transaction in such securities.
You are also deemed to have a pecuniary interest in the portfolio securities
held by a corporation if you are a controlling shareholder of such corporation
and have or share investment control over such portfolio securities.
Additionally, certain performance-related fees received by brokers, dealers,
banks, insurance companies, investment companies, investment advisors, trustees
and others may give rise to pecuniary interests in securities over which such
persons have voting or investment control.
Securities owned of record or held in your name generally are
considered to be beneficially owned by you if you have a pecuniary interest in
such securities. Beneficial ownership may include securities held by others for
your benefit regardless of record ownership (e.g., securities held for you or
members of your immediate family by agents, custodians, brokers, trustees,
executors or other administrators; securities owned by you but which have not
been transferred into your name on the books of a company; and securities which
you have pledged) if you have or share a pecuniary interest in such securities.
With respect to ownership of securities held in trust, beneficial
ownership includes the ownership of securities as a trustee in instances either
where you as trustee have, or where a member of your immediate family has, a
pecuniary interest in the securities held by the trust (e.g., by virtue of being
a beneficiary of the trust).
The final determination of beneficial ownership is a question to be
determined in light of the facts of a particular case. Thus, while you may
include security holdings of other members of your family, you may nonetheless
disclaim beneficial ownership of such securities. Any uncertainty as to whether
you are the beneficial owner of a security should be brought to the attention of
the Compliance Officer.
9
<PAGE>
APPENDIX B
- ----------
ANNUAL CODE OF ETHICS CERTIFICATION
- -----------------------------------
I acknowledge that I have received a copy and read the Westpeak
Investment Advisors, L.P. Code of Ethics, dated April 1, 1998. I understand my
responsibilities under this Code of Ethics and agree to comply with all of its
terms and conditions. I will retain a copy of this Code of Ethics for future
reference.
I hereby certify that I have complied with the requirements of the
Westpeak Investment Advisors, L.P. Code of Ethics, dated April 1, 1998, and I
have disclosed or reported all personal securities transactions required to be
disclosed or reported pursuant to such Code of Ethics.
------------------------
Dated
------------------------
Printed Name
------------------------
Signature
10
<PAGE>
MEMORANDUM
----------
WESTPEAK INVESTMENT ADVISORS
TO: All Westpeak Investment Advisors Personnel
FROM: Philip Cooper, Compliance Officer
SUBJECT: Insider Trading
DATE: December 1, 1997
Insider trading is a form of fraudulent trading activity that has been
prohibited by the Federal securities laws for over fifty years. In recent years,
the Securities & Exchange Commission ("SEC") and U.S. Department of Justice have
made prosecution of insider trading violations a top priority. In 1984, and
again in 1988, Congress passed legislation intended to crack down on insider
trading by increasing the fines and jail penalties for violations of the law, by
making it easier for prosecutors and private plaintiffs to prove their cases,
and by making securities firms, such as Westpeak, responsible for implementing
procedures designed to prevent insider trading.
Insider Trading Defined
- -----------------------
Although the prohibition against insider trading is based on a law passed by
Congress in 1934, Congress has never defined insider trading, leaving
development of the law to the courts.
It is now well-established that insider trading includes the purchase or sale of
a security based on material nonpublic information about the issuer of the
security obtained from an "insider". An "insider" is someone who is an officer
or employee of the issuer, or someone (such as a lawyer or investment banker)
who is retained by the issuer and obtains information from the issuer in
confidence.
Someone who obtains information from an insider in exchange for something of
value is also considered an insider for purposes of this rule, so that "tippees"
are prohibited from trading to the same extent as those who have passed on the
tip. It is our policy to assume that anyone who passes on inside information is
an "insider".
This area of law is still developing. The SEC has taken the position that anyone
trading while in possession of material nonpublic information (whether or not
this trading was "based on" the information) is guilty of insider trading. Our
policy is that employees refrain from trading or directing trades when in
possession of material nonpublic information.
<PAGE>
Page 2
"Material"
--------
Information is material if a "reasonable investor" would consider it important
in making a decision to buy, sell or hold a security. The information must be
significant enough to "alter the total mix" of information available about the
issuer to be considered material. A piece of nonpublic information that, when
added to the mosaic of generally available information about the issuer, does
not significantly affect the picture, is not material.
Examples of information about a company that may be material include: a
forthcoming dividend declaration or dividend cut; plans for a corporate
reorganization; acquisition or loss of a major contract; a major borrowing; a
major purchase or sale of company assets; a stock buy-back program; an event of
default on a debt obligation; or knowledge of a forthcoming negative or positive
article on the company.
"Nonpublic"
---------
Information is considered "nonpublic" until it has been communicated to the
marketplace at large in such a manner that investors in general have access to
it.
Information is public once it has been included in a filing made with the SEC or
has appeared in national newspapers or national wire services. Information and
research material received from brokerage houses ordinarily can be considered
public unless you have reason to believe otherwise.
Once you are in possession of inside information (that you obtained, for
example, from a discussion with a company's officers), you must wait until the
information has been disseminated. It is not enough that the information is
currently being circulated in the rumor mill -- it must be generally available
to the public.
Sanctions
- ---------
Penalties for trading based on, or passing on, insider information are severe,
both for individuals and their employers. A person can be subject to some or all
of the penalties below even if he or she does not personally receive any profit
from the insider trading violation:
- jail terms (up to 10 years per violation)
- fines up to the greater of $2,500,000 or three times the profit gained
or loss avoided (by the violator and his or her tippees)
- damages to contemporaneous traders.
Of course, anyone found trading on inside information could substantially damage
our firm's reputation with our clients and would be subject to sanction by
Westpeak.
<PAGE>
EX-99.(p)(5)
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "CLOSED-END FUNDS")
AND
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
(THE "OPEN-END FUNDS", AND TOGETHER WITH THE CLOSED-END FUNDS, THE "FUNDS")
AND
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
("MSDW INVESTMENT MANAGEMENT")
AND
MILLER ANDERSON & SHERRERD, LLP
("MAS", AND TOGETHER WITH MSDW INVESTMENT MANAGEMENT, THE "INVESTMENT MANAGERS")
AND
MORGAN STANLEY & CO. INCORPORATED
("MS&Co.")
CODE OF ETHICS
--------------
1. Purposes
--------
This Code of Ethics has been adopted by the Funds, the Investment Managers
and MS&Co., the principal underwriter of the Open-End Funds, in accordance with
Rule 17j-1 under the Investment Company Act of 1940, as amended (the "Act").
Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to purchases or sales of securities held or to be
acquired by investment companies, if effected by affiliated persons (as defined
under the Act) of such companies. Specifically, Rule 17j-1 provides that it is
unlawful for any affiliated person of or principal underwriter for a registered
investment company, or any affiliated person of an investment adviser of or
principal underwriter for a registered investment company, in connection with
the purchase or sale, directly or indirectly, by such person of a security held
or to be acquired by such registered investment company:
(a) To employ any device, scheme or artifice to defraud such registered
investment company;
1
<PAGE>
(b) To make to such registered investment company any untrue statement of
a material fact or omit to state to such registered investment
company a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not
misleading;
(c) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any such registered
investment company; or
(d) To engage in any manipulative practice with respect to such
registered investment company.
While Rule 17j-1 is designed to protect only the interests of the Funds and
their stockholders, the Investment Managers apply the policies and procedures
described in this Code of Ethics to all employees of the Investment Managers to
protect the interests of their non-Fund clients as well (hereinafter, where
appropriate, non-Fund clients of the Investment Managers are referred to as
"Advisory Clients" and any reference to an Advisory Client(s) relates only to
the activities of employees of the Investment Managers).
The purpose of this Code of Ethics is to (i) ensure that Access Persons
conduct their personal securities transactions in a manner which does not (a)
create an actual or potential conflict of interest with the Funds' or an
Advisory Client's portfolio transactions, (b) place their personal interests
before the interest of the Funds and their stockholders or an Advisory Client or
(c) take unfair advantage of their relationship to the Funds or an Advisory
Client and (ii) provide policies and procedures consistent with the Act and Rule
17j-1 designed to give effect to the general prohibitions set forth in Rule 17j-
l.
Among other things, the procedures set forth in this Code of Ethics require
that all (i) Access Persons review this Code of Ethics at least annually, (ii)
Access Persons, unless excepted by Sections 8. (d) or (e) of this Code of
Ethics, report transactions in Covered Securities, (iii) Access Persons refrain
from engaging in certain transactions, and (iv) employees of the Investment
Managers pre-clear with the Compliance Department or the trading desk at MAS any
transactions in Covered Securities.
2. Definitions
-----------
(a) "Access Person" means (i) any director, officer or Advisory Person of
the Funds or of the Investment Managers, and (ii) any director or
officer of MS&Co., who, in the ordinary course of business, makes,
participates in or obtains information regarding the purchase or sale
of Covered Securities by the Funds.
(b) "Advisory Person" means any employee of the Funds, or of the
Investment Managers (or of any company in a control relationship to
the Funds or the Investment Managers), who, in connection with his or
her regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of Covered Securities by
the Funds or an Advisory Client, or whose functions relate to the
making of any recommendations with respect to such purchases or
sales.
2
<PAGE>
(c) "Beneficial ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, except that the determination
of direct or indirect beneficial ownership shall apply to all
securities which an Access Person has or acquires.
(d) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act.
(e) "Compliance Department" means the MSDW Investment Management or MAS
Compliance Department.
(f) "Covered Security" means a security as defined in Section 2(a)(36) of
the Act, except that it does not include: (i) shares of registered
open-end investment companies, (ii) direct obligations of the
Government of the United States, and (iii) bankers' acceptances, bank
certificates of deposit, commercial paper, and high quality short-
term debt instruments, including repurchase agreements.
(g) "Disinterested Director" means a director of a Fund who is not an
"interested person" of such Fund within the meaning of Section
2(a)(19) of the Act.
(h) "Purchase or sale (or sell)" with respect to a Covered Security means
any acquisition or disposition of a direct or indirect beneficial
interest in a Covered Security, including, inter alia, the writing or
----- ----
buying of an option to purchase or sell a Covered Security.
(i) "Security held or to be acquired" means (i) any Covered Security
which, within the most recent 15 days, is or has been held by a Fund
or an Advisory Client, or is being or has been considered by a Fund
or an Advisory Client or the Investment Managers for purchase by a
Fund or an Advisory Client and (ii) any option to purchase or sell,
and any security convertible into or exchangeable for, a Covered
Security described in this paragraph.
3. Prohibited Transactions
-----------------------
(a) No Access Person or employee of the Investment Managers shall
purchase or sell any Covered Security which to his or her actual
knowledge at the time of such purchase or sale:
(i) is being considered for purchase or sale by a Fund or an
Advisory Client; or
(ii) is being purchased or sold by a Fund or an Advisory Client.
3
<PAGE>
(b) No employee of the Investment Managers shall purchase or sell a
Covered Security while there is a pending "buy" or "sell" order in
the same or a related security for a Fund or an Advisory Client until
that order is executed or withdrawn.
(c) No Advisory Person shall purchase or sell a Covered Security within
seven calendar days before or after any portfolio(s) of the Funds
over which such Advisory Person exercises investment discretion or an
Advisory Client over which the Advisory Person exercises investment
discretion purchases or sells the same or a related Covered Security.
Any profits realized or unrealized by the Advisory Person on a
prohibited purchase or sale within the proscribed period shall be
disgorged to a charity.
(d) No employee of the Investment Managers shall profit from the purchase
and sale or sale and purchase of the same (or equivalent) Covered
Security within 60 calendar days, except that he or she may sell a
Covered Security for a loss after 30 calendar days. Any profits
realized within 60 calendar days on such purchase or sale shall be
disgorged to a charity.
(e) No employee of the Investment Managers shall purchase any securities
in an initial public offering.
(f) No employee of the Investment Managers shall purchase privately-
placed securities unless such purchase is pre-approved by the
Compliance Department. Any such person who has previously purchased
privately-placed securities must disclose such purchases to the
Compliance Department before such person participates in a Fund's or
an Advisory Client's subsequent consideration of an investment in the
securities of the same or a related issuer. Upon such disclosure, the
Compliance Department shall appoint another person with no personal
interest in the issuer, to conduct an independent review of such
Fund's or such Advisory Client's decision to purchase securities of
the same or a related issuer.
(g) No Access Person or employee of the Investment Managers shall
recommend the purchase or sale of any Covered Securities to a Fund or
to an Advisory Client without having disclosed to the Compliance
Department his or her interest, if any, in such Covered Securities or
the issuer thereof, including without limitation (i) his or her
direct or indirect beneficial ownership of any securities of such
issuer, (ii) any contemplated purchase or sale by such person of such
securities, (iii) any position with such issuer or its affiliates,
and (iv) any present or proposed business relationship between such
issuer or its affiliates, on the one hand, and such person or any
party in which such person has a significant interest, on the other;
provided, however, that in the event the interest of such person in
such securities or the issuer thereof is not material to his or her
personal net worth and any contemplated purchase or sale by such
person in such securities cannot reasonably be expected to have a
material adverse effect on any such purchase or sale by a Fund or an
Advisory Client or on the market for the securities generally, such
person shall not be required to disclose his or her interest in the
securities or the issuer thereof in connection with any such
recommendation.
4
<PAGE>
(h) No Access Person or employee of the Investment Managers shall reveal
to any other person (except in the normal course of his or her duties
on behalf of a Fund or an Advisory Client) any information regarding
the purchase or sale of any Covered Security by a Fund or an Advisory
Client or consideration of the purchase or sale by a Fund or an
Advisory Client of any such Covered Security.
4. Pre-Clearance of Covered Securities Transactions and Permitted
--------------------------------------------------------------
Brokerage Accounts
------------------
No employee of MSDW Investment Management shall purchase or sell Covered
Securities without prior written authorization from its Compliance Department.
No employee of MAS shall purchase or sell Covered Securities without prior
written authorization from the appropriate trading desk. Unless otherwise
indicated by the Compliance Department, pre-clearance of a purchase or sale
shall be valid and in effect only for the business day in which such pre-
clearance is given; provided, however, that the approval of an unexecuted
purchase or sale is deemed to be revoked when the employee becomes aware of
facts or circumstances that would have resulted in the denial of approval of the
approved purchase or sale were such facts or circumstances made known to the
Compliance Department or MAS trading desk, as appropriate, at the time the
proposed purchase or sale was originally presented for approval. The Investment
Managers require all of their employees to maintain their personal brokerage
accounts at MS&Co. or a broker/dealer affiliated with MS&Co. (hereinafter, a
"Morgan Stanley Account"). Outside personal brokerage accounts are permitted
only under very limited circumstances and only with express written approval by
the Compliance Department. The Compliance Department has implemented procedures
reasonably designed to monitor purchases and sales effected pursuant to the
aforementioned pre-clearance procedures.
5. Exempted Transactions
---------------------
(a) The prohibitions of Section 3 and Section 4 of this Code of Ethics
shall not apply to:
(i) Purchases or sales effected in any account over which an Access
Person or an employee of the Investment Managers has no direct
or indirect influence or control;
(ii) Purchases or sales which are non-volitional;
(iii) Purchases which are part of an automatic purchase plan directly
with the issuer or its agent or which are part of an automatic
dividend reinvestment plan; or
(iv) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its
--- ----
securities and sales of such rights so acquired, but only to the
extent such rights were acquired from such issuer.
(b) Notwithstanding the prohibitions of Sections 3. (a), (b) and (c) of
this Code of Ethics, the Compliance Department or MAS trading desk, as
appropriate, may approve a purchase or sale of a Covered Security by
employees of the Investment Managers which would appear to be in
5
<PAGE>
contravention of the prohibitions in Sections 3. (a), (b) and (c) if
it is determined that (i) the facts and circumstances applicable at
the time of such purchase or sale do not conflict with the interests
of a Fund or an Advisory Client, or (ii) such purchase or sale is only
remotely potentially harmful to a Fund or an Advisory Client because
it would be very unlikely to affect a highly institutional market, or
because it is clearly not related economically to the securities to be
purchased, sold or held by such Fund or Advisory Client, and (iii) the
spirit and intent of this Code of Ethics is met.
6. Restrictions on Receiving Gifts
-------------------------------
No employee of the Investment Managers shall receive any gift or other
consideration in merchandise, service or otherwise of more than de minimis value
-- -------
from any person, firm, corporation, association or other entity that does
business with or on behalf of the Funds or an Advisory Client.
7. Service as a Director
---------------------
No employee of the Investment Managers shall serve on the board of
directors of a publicly-traded company without prior written authorization from
the Compliance Department. Approval will be based upon a determination that the
board service would not conflict with the interests of the Funds and their
stockholders or an Advisory Client.
8. Reporting
---------
(a) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person must disclose all personal holdings in Covered
Securities to the Compliance Department for its review no later than
10 days after becoming an Access Person and annually thereafter. The
initial and annual holdings reports must contain the following
information:
(i) The title, number of shares and principal amount of each
Covered Security in which the Access Person has any direct or
indirect beneficial ownership;
(ii) The name of any broker, dealer or bank with or through whom the
Access Person maintained an account in which any securities
were held for the direct or indirect benefit of the Access
Person; and
(iii) The date the report was submitted to the Compliance Department
by the Access Person.
(b) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person and each employee of the Investment Managers must report
to the Compliance Department for its review within 10 days of the end
of a calendar quarter the information described below with respect to
transactions in Covered Securities in which such person has, or by
reason of such transactions acquires any direct or indirect beneficial
interest:
6
<PAGE>
(i) The date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of each Covered Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(iii) The price of the Covered Security at which the purchase or sale
was effected;
(iv) The name of the broker, dealer or bank with or through which
the purchase or sale was effected; and
(v) The date the report was submitted to the Compliance Department
by such person.
(c) Unless excepted by Section 8. (d) or (e) of this Code of Ethics, each
Access Person and each employee of the Investment Managers must report
to the Compliance Department for its review within 10 days of the end
of a calendar quarter the information described below with respect to
any account established by such person in which any securities were
held during the quarter for the direct or indirect benefit of such
person:
(i) The name of the broker, dealer or bank with whom the account
was established;
(ii) The date the account was established; and
(iii) The date the report was submitted to the Compliance Department
by such person.
(d) An Access Person will not be required to make any reports described in
Sections 8. (a), (b) and (c) above for any account over which the
Access Person has no direct or indirect influence or control. An
Access Person or an employee of the Investment Managers will not be
required to make the annual holdings report under Section 8. (a) and
the quarterly transactions report under Section 8. (b) with respect to
purchases or sales effected for, and Covered Securities held in: (i) a
Morgan Stanley Account, (ii) an account in which the Covered
Securities were purchased pursuant to an automatic purchase plan set
up directly with the issuer or its agent or pursuant to a dividend
reinvestment plan, or (iii) an account for which the Compliance
Department receives duplicate trade confirmations and quarterly
statements. An Access Person or an employee of MSDW Investment
Management will not be required to make a report under Section 8. (c)
for any account in which only shares of open-end registered investment
companies can be purchased or sold. Lastly, an employee of MSDW
Investment Management will no be required to make a report under
Section 8. (c) for any account established with MS&Co. or a
broker/dealer affiliated with MS&Co., or for any account which was
pre-approved by the Compliance Department.
7
<PAGE>
(e) A Disinterested Director of a Fund, who would be required to make a
report solely by reason of being a Fund director, is not required to
make initial and annual holdings reports. Additionally, such
Disinterested Director need only make a quarterly transactions report
for a purchase or sale of Covered Securities if he or she, at the time
of that transaction, knew or, in the ordinary course of fulfilling his
or her official duties as a Disinterested Director of a Fund, should
have known that, during the 15-day period immediately preceding or
following the date of the Covered Securities transaction by him or
her, such Covered Security is or was purchased or sold by a Fund or
was being considered for purchase or sale by a Fund.
(f) The reports described in Sections 8. (a), (b) and (c) above may
contain a statement that the reports shall not be construed as an
admission by the person making such reports that he or she has any
direct or indirect beneficial ownership in the Covered Securities to
which the reports relate.
9. Annual Certifications
---------------------
All Access Persons and employees of the Investment Managers must certify
annually that they have read, understood and complied with the requirements of
this Code of Ethics and recognize that they are subject to this Code of Ethics
by signing the certification attached hereto as Exhibit A.
10. Board Review
------------
The management of the Funds and representatives or officers of the
Investment Managers and, with respect to the Open-End Funds, MS&Co., shall each
provide each Fund's Board of Directors, at least annually, with the following:
(a) a summary of existing procedures concerning personal investing and any
changes in the procedures made during the past year;
(b) a description of any issues arising under this Code of Ethics or
procedures since the last such report, including, but not limited to,
information about material violations of this Code of Ethics or
procedures and sanctions imposed in response to material violations;
(c) any recommended changes in the existing restrictions or procedures
based upon a Fund's or the Investment Managers' experience under this
Code of Ethics, evolving industry practices or developments in
applicable laws and regulations; and
(d) a certification (attached hereto as Exhibits B, C, D, and E, as
appropriate) that each has adopted procedures reasonably necessary to
prevent its Access Persons from violating this Code of Ethics.
8
<PAGE>
11. Sanctions
---------
Upon discovering a violation of this Code of Ethics, the Board of Directors
of such Fund or of the Investment Managers, as the case may be, may impose such
sanctions as it deems appropriate.
12. Recordkeeping Requirements
--------------------------
The management of the Funds and representatives or officers of the
Investment Managers and, with respect to the Open-End Funds, MS&Co., each shall
maintain, as appropriate, the following records for a period of five years, the
first two years in an easily accessible place, and shall make these records
available to the Securities and Exchange Commission or any representative of
such during an examination of the Funds or of the Investment Managers:
(a) a copy of this Code of Ethics or any other Code of Ethics which was in
effect at any time within the previous five years;
(b) a record of any violation of this Code of Ethics during the previous
five years, and of any action taken as a result of the violation;
(c) a copy of each report required by Section 8. of this Code of Ethics,
including any information provided in lieu of each such report;
(d) a record of all persons, currently or within the past five years, who
are or were subject to this Code of Ethics and who are or were
required to make reports under Section 8. of this Code of Ethics;
(e) a record of all persons, currently or within the past five years, who
are or were responsible for reviewing the reports required under
Section 8. of this Code of Ethics; and
(f) a record of any decision, and the reasons supporting the decision, to
approve the acquisition of securities described in Sections 3. (e) and
(f) of this Code of Ethics.
9
<PAGE>
EXHIBIT A
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "CLOSED-END FUNDS")
AND
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
(THE "OPEN-END FUNDS", AND TOGETHER WITH THE CLOSED-END FUNDS, THE "FUNDS")
AND
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
("MSDW INVESTMENT MANAGEMENT")
AND
MILLER ANDERSON & SHERRERD, LLP
("MAS", AND TOGETHER WITH MSDW INVESTMENT MANAGEMENT, THE "INVESTMENT MANAGERS")
AND
MORGAN STANLEY & CO., INCORPORATED
("MS&Co.")
CODE OF ETHICS
--------------
ANNUAL CERTIFICATION
--------------------
I hereby certify that I have read and understand the Code of Ethics (the
"Code") which has been adopted by the Funds, the Investment Managers and MS&Co.
and recognize that it applies to me and agree to comply in all respects with the
policies and procedures described therein. Furthermore, I hereby certify that I
have complied with the requirements of the Code in effect, as amended, for the
year ended December 31, ____, and that all of my reportable transactions in
Covered Securities were executed and reflected accurately in a Morgan Stanley
Account (as defined in the Code) or that I have attached a report that satisfies
the annual holdings disclosure requirement as described in Section 8. (a) of the
Code.
Date:______________, _____ Name:______________________________
Signature:_________________________
10
<PAGE>
EX-99.(p)(6)
CAPITAL GROWTH MANAGEMENT
LIMITED PARTNERSHIP
CODE
(As revised March 1, 2000)
PART I - BUSINESS PRACTICES
---------------------------
Understanding as to Clients' Accounts, Company Records, etc.
------------------------------------------------------------
Clients' accounts are the property of Capital Growth Management and not of
any individual member of the firm. This applies to all clients for whom the firm
acts as investment counsel or adviser, regardless of how or through whom the
client relationship originated and regardless of who may be the individual
consultant on a particular client's affairs.
You agree that, upon the termination of your employment, you will not take
with you any of our records, correspondence, files, forms, documents or data of
any nature whatsoever pertaining to our clients, procedures, or research
activities, and that you will not prepare or take with you any copies of the
same, and that you will not, before or after termination of your employment,
make any of such records or other information or data available to any other
person or firm.
All information in our files pertaining to the clients of the firm or our
forms, procedures, research or counseling activities is confidential property of
the firm.
Client Information
------------------
Our relationship with clients is entirely confidential and no disclosure of
the name or of any detail of the personal circumstances of a client shall be
made to anyone not a member of the firm without the specific permission of the
client.
Outside Affiliations
--------------------
No member of the firm shall become an officer, trustee or director of any
company whose shares are publicly traded (except an investment company managed
by Capital Growth Management or a Capital Growth Management affiliate) without
the advance approval of the Chairman or President of the General Partner of
Capital Growth Management. Capital
<PAGE>
-2-
Growth Management cannot be in the position of receiving or being able to
receive inside information. Therefore, exceptions will be made only in extremely
unusual situations.
No member of the firm shall accept an appointment as an executor,
administrator, trustee, guardian or conservator (other than in family
situations) without approval by the Chairman or President of the General Partner
of Capital Growth Management.
Gifts from Third Parties
------------------------
In order to avoid a conflict of interest, the impairment of the impartial
discharge of your responsibilities to our clients, or any other difficulty or
embarrassment, you shall not accept any gift presented on your own behalf, on
the firm's behalf, or on behalf of any member of your family or any other person
designated by you from any person with whom the firm does business, including
brokers, securities salesmen, clients, or vendors of any kind. The only
exception to this restriction shall be for occasional small gifts of de minimis
----------
value which present no possibility of influencing your judgment.
Publishing Articles and Books
-----------------------------
You shall not publish any book or article bearing on investments or finance
or allied subjects except with the specific approval of the Chairman or
President of the General Partner of Capital Growth Management. This also
applies to public talks or interviews.
Use of Inside Information
-------------------------
You agree to adhere to the firm's Statement of Policy on Inside Information
which should be read in conjunction with this Code.
<PAGE>
PART II - PERSONAL SECURITIES TRANSACTIONS
------------------------------------------
The primary purpose of the Capital Growth Management Code is to protect the
interests of all our clients. Our Code is very important to each member of the
firm in maintaining the high standards and reputation of Capital Growth
Management and guarding against an inadvertent violation of the securities laws
which might jeopardize your future in the investment business.
There are two points in particular that should be constantly kept in mind.
1. Capital Growth Management holds itself out as a professional
investment counsel firm which provides unbiased advice - that is,
--------
advice based solely on the merits of the individual investment and
undiluted by any conflicts of interest which could prejudice the
investment decision in any way. Thus, the very nature of our business
requires that the main thrust of our Code be the elimination of any
conflicts that could jeopardize our unbiased investment approach.
2. The second point we stress is the fiduciary nature of the relationship
---------
with our clients. This fiduciary relationship has been stressed by
the SEC and state and federal courts, including the U.S. Supreme
Court, and is highlighted in ERISA. Capital Growth Management is
considered to be a fiduciary with respect to all its investment
counsel clients, including both ERISA and non-ERISA accounts.
This means that the same standards that are uniformly applied to trustees,
guardians and other fiduciaries are applied to Capital Growth Management in
its client relationships. These standards oblige Capital Growth Management
to act honestly and fairly in all respects in our dealings with clients and
to serve their interests with undivided loyalty.
----------
You are obliged to put the interests of the Capital Growth Management
clients before your own personal interests. This is an obligation we all assume
as members of an investment counsel firm.
This rule has particular significance with reference to the flow of
investment information our personnel receive from brokers. Such brokerage
information is the property of Capital Growth Management and is to be used for
the benefit of the Capital Growth Management
<PAGE>
-2-
clientele. It should not be used for the personal advantage of the individual
member of the firm who receives such information if such use conflicts with the
interests of Capital Growth Management clients. This is a clear principle of law
resulting from the fiduciary nature of our client relationship and our
obligation to serve clients with undivided loyalty.
I. Basic Philosophy
----------------
Capital Growth Management recognizes the fundamental value to its clients
in developing an organization of sound, experienced and practical investment
people. The actual experience of investing one's own capital, whether it be
small or large, is a valuable means of learning firsthand the opportunities,
risks and characteristics of the investment markets. Therefore, Capital Growth
--------------
Management encourages sound, personal investment by members of the firm.
- -----------------------------------------------------------------------
On the other hand, Capital Growth Management as a firm must make certain
that there is no abuse of our responsibilities to clients or to the reputation
and professional standing of our organization or any of its members.
In formulating the Capital Growth Management Code, we have made every
effort to produce a framework which will adequately protect the interests of our
clients and our firm, while at the same time permitting as much freedom as we
believe reasonable and permissible for the firm's individual members in carrying
out their own personal investments.
II. Securities Transactions Covered by the Code
-------------------------------------------
1. Employees of Capital Growth Management
--------------------------------------
The restrictions of the Capital Growth Management Code are applicable to
the securities transactions of all employees of Capital Growth Management.
The restrictions of the Capital Growth Management Code also apply to
directors, officers and general partners of Capital Growth Management and its
General Partner, and all individuals in a control relationship to Capital Growth
Management who obtain information concerning investment recommendations to the
CGM Funds or any other registered investment company advised by Capital Growth
Management. References in this Code to CGM employees include all other persons
to whom this Code applies.
<PAGE>
-3-
Capital Growth Management will identify and inform all persons subject to
the reporting requirements under this Code.
2. Employee Accounts
-----------------
The Code applies to securities transactions for all accounts in which you
-------------------------------------------------------------------------
have a "beneficial interest", except any such account where you have no
- -----------------------------------------------------------------------
influence or control over investments.
- --------------------------------------
Whether you have a "beneficial interest" in an account will be determined
pursuant to Rule 16a-1(a)(2) of the Securities Exchange Act of 1934 and
interpretative releases of the Securities and Exchange Commission. Under these
rules a beneficial interest in securities exists whenever you derive any
economic benefit from the income from the securities or whenever you can
exercise a controlling influence over the purchase, sale or voting of the
securities. You may also have a beneficial interest in securities if you have
the opportunity to indirectly participate in profits from the securities
through, among other things, trusts, partnerships, or immediate family members.
Accordingly, you are normally considered to have a beneficial interest in:
a. Securities owned by you, whether or not registered in your name.
b. Securities held in a trust, estate or other account in which you, your
spouse, minor children or other relatives who share the same home with
you have a (direct or indirect) present or future interest in the
income or principal.
c. Securities owned by your spouse or minor children.
d. Securities owed by other relatives who share the same home with you.
e. Securities in the name of another person where you can obtain title to
the securities at once or at some future time.
3. Fund Trustees
-------------
The Code does not apply to trustees of the mutual funds managed by Capital
Growth Management who are not employees of our firm. The restrictions on the
securities transactions of the outside Fund trustees and the requirements for
filing reports of their transactions are governed by the Codes of Ethics of the
Funds.
<PAGE>
-4-
III. The Rule of Reason, Conscience and Integrity
--------------------------------------------
The primary rule of the Capital Growth Management Code is the Rule of
Reason, Conscience and Integrity. You have the responsibility of carrying out
-------------------------------------------
your own personal transactions to ensure that you are not benefiting in your
- ----------------------------------------------------------------------------
personal investments at the expense of any Capital Growth Management client and
- -------------------------------------------------------------------------------
that you are not in any way taking advantage of or "trading" on the knowledge
- -----------------------------------------------------------------------------
you may have of the market impact of transactions carried out by Capital Growth
- -------------------------------------------------------------------------------
Management for any of its clients.
- ----------------------------------
Using your own conscience as a person of integrity, you should be the best
judge in regard to compliance with this basic approach to personal investing.
This rule imposes a stricter standard upon members of Capital Growth
Management than the general standard of federal and state laws, which prohibit
any act, practice or course of business which would operate as a fraud or deceit
upon clients.
IV. Specific Restrictions on all Purchase and Sale Transactions
-----------------------------------------------------------
In addition to the Rule of Reason, Conscience and Integrity, the following
specific restrictions in this Section IV applies to all securities transactions
for accounts subject to the Code, except the exempt transactions which follow
--------------------
the rule:
NO EMPLOYEE OF CAPITAL GROWTH MANAGEMENT MAY PURCHASE A SECURITY IF
SECURITIES OF THE SAME ISSUER ARE HELD IN ANY OF THE FIRM'S CLIENT ACCOUNTS.
The Employee is required to determine whether or not securities of the same
issuer are held in any client account or whether there is a pending "buy" order
prior to engaging in any trading for his or her own account. For employees
located at the 222 Berkeley Street offices, this determination shall take the
form of written verification from Leslie Lake. If the employee already holds a
security at the time that securities of the same issuer are purchased for a
client account, he or she may not sell such security for his or her own account
until either (i) at least seven days after all securities of the same issuer are
purchased for any client account (i.e., seven days after all pending "buy"
----
orders of securities of the same issuer for all client accounts have been
completed), or (ii) client accounts no longer hold any securities of the same
issuer.
Because it is important for Capital Growth Management to avoid even the
appearance of impropriety, the preceding restriction applies to
<PAGE>
-5-
all employees, whether or not they are actively involved in portfolio
management, securities analysis or trading on behalf of clients.
ADDITIONAL RESTRICTION FOR PORTFOLIO MANAGERS: A Portfolio Manager may not
buy or sell a security within seven calendar days before or after any Fund which
he or she manages trades in the security.
This Section IV applies to all types of securities transactions, provided
the following securities or transactions are exempted from this general rule:
. Purchases or sales of direct obligations of the Government of the United
States, shares of registered open-end investment companies, bankers'
acceptances, bank certificates of deposit or commercial paper;
. Purchases which are part of an automatic dividend reinvestment plan;
. Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer; and
. Purchases and sales of publicly traded securities of any issuers whose
total market capitalization is less than $100 million (which issuers
are, as a class, considered to be inappropriate investments for the
funds managed by the firm).
Any prohibition against purchase or sale of a security in this Section IV
includes a prohibition against the short sale of the security, the purchase or
sale of a bond or preferred stock which is convertible into that security or the
purchase or sale of an option, warrant, or other right to purchase or sell that
security.
V. Additional Restrictions
-----------------------
The following additional restrictions have been adopted for specific types
of transactions for the reasons indicated below. These prohibitions apply to
direct investments, short sales and options trading in such securities.
1. No employee may purchase securities issued by any company the principal
business of which is brokerage, underwriting or investment
<PAGE>
-6-
banking except for companies on the following list (which shall be updated from
time to time):
Bear Stearns Merrill Lynch
Donaldson, Lufkin & Jenrette Morgan Stanley Dean Witter
Edwards, A.G. Paine Webber
Jefferies Group Schwab, Charles
Lehman Brothers Solomon-Smith Barney
Reason: To avoid investments which might influence the selection of
brokers for client transactions. The companies listed above are those whose
capitalizations are sufficiently high and whose brokerage or underwriting
activities are sufficiently large so as to mitigate concerns about improper
influence.
2. No employee may participate as a purchaser or acquire beneficial ownership
of any security in an initial public offering of securities. For this purpose
"initial public offering" means an offering of securities registered under the
Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act of 1934.
Reason: to avoid use or the appearance of the use of brokerage business
for our clients to obtain favorable treatment from brokers distributing new
issues.
3. No employee may participate as a purchaser or acquire beneficial ownership
of any security in any private offering of securities. Where the employee
already has a holding of such securities, he or she need not divest such
holdings, but shall play no role in any further consideration by Capital Growth
Management of any investment in such issuer. For this purpose "private
offering" means an offering that is exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) or 4(6) of the Act, Regulation A
under the Act, or Rule 504, 505 or 506 under the Act.
Reason: to avoid a conflict of interest between the employee entering into
or holding such investment and clients of Capital Growth Management both at the
time that the investment is made available to the employee and at the time that
an investment in the same issuer is being considered for client accounts.
4. No employee may participate in any investment club, hedge fund, limited
partnership, or other private investment pool, unless such
<PAGE>
-7-
employee: (i) receives the advance approval of the Chairman or President of the
General Partner of Capital Growth Management, and (ii) verifies in writing that
such employee does not provide investment advice to such investment pool or its
participants, or that such investment pool has agreed to become subject to all
of the requirements of this Code.
Reason: the same restrictions which apply to your personal trading must
apply to the investment pool, unless your involvement is entirely passive.
5. No employee may invest in either a public or private real estate investment
trust ("REIT") unless such employee receives the written approval of the
Chairman and President of the General Partner of Capital Growth Management in
advance of such investment. The President and the Chairman of Capital Growth
Management may not invest in REIT's without the other's written approval in
advance of such investment. The Review Officer shall report to the Board of
Trustees of each of CGM Trust and CGM Capital Development Fund at least
quarterly concerning all purchases and sales of REIT's by employees of Capital
Growth Management during the prior year.
Reason: A substantial portion of CGM Realty Fund's portfolio is invested
in REIT's; this restriction is designed to minimize the possibility of a
conflict of interest with the investment strategy of this fund.
All profits realized in violation of any restriction in this Code shall be
--------------------------------------------------------------------------
immediately paid over to Capital Growth Management, which shall, in its
- -----------------------------------------------------------------------
discretion, allocate such profits among its clients, or contribute them to
- --------------------------------------------------------------------------
charity. Any such profits shall be calculated net of any federal, state, local,
- --------
or foreign taxes paid or payable on the profits.
VI. Disclosure Requirements and Reports
-----------------------------------
Each employee must comply with the reporting requirements described below.
For purposes of this Section VI, the term "security" includes stocks, bonds,
notes, partnership interests, options, warrants, debentures, puts and calls on
securities, mining interests, ADRs, and any other interest or instrument
commonly known as a "security." However, the term "security" does not include:
. direct obligations of the Government of the United States,
. bankers' acceptances,
. bank certificates of deposit,
. commercial paper,
. high quality short-term debt instruments,
<PAGE>
-8-
. repurchase agreements, and
. shares of registered open-end investment companies, i.e. mutual funds.
Any report made pursuant to this Section VI may contain a statement that
the report shall not be construed as an admission that you have any direct or
indirect beneficial ownership in a security to which the report relates and no
report shall be considered as an admission that any transaction reported
constitutes a violation of the Code. Reports need not be made with respect to
accounts where you have no direct or indirect influence or control over
investments.
1. Initial Reports
---------------
All new employees shall supply the Review Officer with a list of all
brokerage and banking accounts in which any securities are held for the
employee's direct or indirect beneficial interest and the securities held in
each such account (including the names of the brokerage firms or banks and the
title, number of shares and principal amount of each security beneficially
owned). In addition, new employees shall affirm that they have no affiliations
or positions with a public company not permitted by this Code.
This initial report shall be submitted by each employee no later than ten
days after becoming an employee and shall contain the date the report is
submitted by the employee.
2. Monthly Reports
---------------
Within ten days following the end of each month, you must file a signed
securities transaction form with the Review Officer. On that form you must
report the security transactions carried out during the month for all accounts
in which you have a "beneficial interest", except accounts where you have no
direct or indirect influence or control over investments. The monthly reports
shall contain (a) the date of the transaction, (b) the title, interest rate and
maturity date (if applicable), number of shares and principal amount of each
security, (c) the nature of the transaction (i.e., purchase, sale, other), (d)
the price of the security at which the transaction was effected and (e) the name
of the brokerage firm or bank through which the transaction was effected.
The monthly report also must contain, with respect to any account you
established in which securities were held during the month for your direct or
indirect benefit, the (a) name of the brokerage firm or bank with
<PAGE>
-9-
which you established the account and (b) the date the account was established.
These monthly reports must be submitted by every employee of Capital Growth
Management and must contain the date the report is submitted by the employee.
Monthly reports must be filed whether or not any security transactions have
been carried out. In instances where there have been no transactions, that fact
should be so noted.
Employees shall keep copies of all broker confirmations and statements for
all accounts in which they have a beneficial interest, and shall be prepared to
supply them to the Review Officer upon request.
3. Annual Report
-------------
On an annual basis, no later than 20 days after each December 31/st/, each
employee shall supply the Review Officer with an annual report containing: (a)
the title, number of shares and principal amount of each security in which the
employee has any direct or indirect beneficial ownership and (b) the name of any
brokerage firm or bank with which the employee maintains an account in which any
securities are held for the direct or indirect benefit of the employee. In the
annual report each employee shall either certify that he or she has fully
complied with this Code or shall fully disclose any and all failures to do so.
The information contained in the annual report must be current as of a date no
more than 30 days before the report is submitted and must contain the date the
report is submitted by the employee.
VII. Review and Enforcement
----------------------
Mr. Kemp serves as the Review Officer for this Code. Mr. Heebner shall
serve as Alternate Review Officer for Mr. Kemp.
It will be the responsibility of the Review Officer to review these
transactions promptly with the objective of catching at an early date any
conflict with the specific rules or general principles and philosophy of this
Code. It will be the Review Officer's responsibility to use common sense and
judgment in regard to the character and nature of individual securities
transactions as reported, to point out at once any apparent violation to the
individual, and to take appropriate action.
You cannot participate in a determination of whether you have committed a
violation of this Code or of the imposition of any resulting
<PAGE>
-10-
sanction. If a contemplated securities transaction may apparently conflict with
the provisions of this Code, you should contact the Review Officer prior to
going ahead with the transaction. Information submitted in the initial, monthly,
and annual reports will be treated as confidential by the Review Officer,
provided it may be made available to the Securities and Exchange Commission and
other government agencies.
An employee shall report to the Review Officer any failure on his or her
part to comply with this Code immediately upon occurrence.
If you believe that adherence to any of the restrictions in Sections IV or
V of the Code will cause you a serious and undue hardship because of unusual
personal circumstances (e.g., the need to raise cash to pay an extraordinary
medical expense) you may submit a request for an exemption in writing to the
Review Officer. The Review Officer's determination will be final. Such relief
from the requirements of the Code will be granted only rarely.
VIII. Maintenance of Records
----------------------
Capital Growth Management will maintain the following records at its
principal place of business, to the extent and in the manner set forth below,
and will make such records available to the Securities and Exchange Commission
or any representative thereof at any time and from time to time for reasonable
periodic, special or other examination:
1. A copy of each Capital Growth Management Code which is, or any time
within the past five years has been, in effect shall be preserved in
an easily accessible place.
2. A record of any violation of such Code, and of any action taken as a
result of such violation, shall be preserved in an easily accessible
place for a period of not less than five years following the end of
the fiscal year in which the violation occurs.
3. A copy of each report made under this Code shall be preserved for a
period of not less than five years from the end of the fiscal year in
which it is made, the first two years in an easily accessible place.
4. A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code or who are or
were responsible for reviewing these reports shall be maintained in an
easily accessible place.
<PAGE>
-11-
5. A copy of each report concerning this Code furnished by Capital Growth
Management to the Board of any Fund pursuant to the Investment Company
Act shall be maintained for at least five years after the end of the
fiscal year in which it is made, the first two years in an easily
accessible place.
6. A record of any decisions, and the reasons supporting the decisions,
to approve the acquisition of securities under Section VII of this
Code shall be maintained for at least five years after the end of the
fiscal year in which the approval is granted.
IX. Amendments and Reporting to Funds
---------------------------------
Any material change to this Code of Ethics must be approved by the Boards
of Trustees of the CGM Funds and any other registered investment company advised
by Capital Growth Management, including a majority of trustees who are not
interested persons of Capital Growth Management, no later than six months after
adoption of the material change.
No less frequently than annually, Capital Growth Management must furnish to
the Boards of Trustees of the CGM Funds and any other registered investment
company advised by Capital Growth Management a report that:
1. describes any issues arising under this Code of Ethics or procedures
of Capital Growth Management since the last report to the Board,
including, but not limited to, information about material violations
of this Code of Ethics or procedures and sanctions imposed in response
to the material violations; and
2. certifies that Capital Growth Management has adopted procedures
reasonably necessary to prevent its employees from violating this Code
of Ethics.
<PAGE>
EX-99.(p)(7)
CODE OF ETHICS
--------------
I. General Principles
------------------
This Code of Ethics ("Code") establishes rules of conduct that govern
personal investment activities of employees of Fred Alger Management, Inc.
("Alger"), Fred Alger & Company, Incorporated ("Alger Inc.") and each
registered investment company for which Alger acts as investment adviser
("Alger Fund").
The following categories of personnel are covered by the Code:
(1) portfolio managers - those employees who have direct responsibility
and authority to make investment decisions affecting an Alger Fund and
their immediate family members residing in the same household;
(2) investment personnel - portfolio managers and all persons such as
securities analysts and traders, who provide information and advice to
a portfolio manager or who help execute the portfolio manager's
decisions and their immediate family members residing in the same
household; and
(3) access persons - all employees of Alger and Alger Inc. (including
investment personnel) and their immediate family members residing in
the same household; and "interested" directors or trustees and
officers of Alger, Alger Inc. or any Alger Fund.
(4) An independent trustee or director of any Alger Fund will be subject
to the preclearance and reporting requirements of Section III of the
Code only if such person, at the time of his transaction, knows, or in
the ordinary course of fulfilling his official duties as a director of
such company should know, that during the 15-day period immediately
preceding or after the date of the transaction by such person, the
security such person purchases or sells, is or was purchased or sold
by any Alger Fund or is being considered for purchase or sale by any
Alger Fund or Alger.
Certain general fiduciary principles govern the personal investment
activities of all employees:
(1) the duty at all times to place the interests of Alger Fund
shareholders and Alger investment accounts first;
(2) the requirement that all personal securities transactions be conducted
consistent with the Code and in such a manner as to avoid any actual
or potential conflict of interest or any abuse of an individual's
position of trust and responsibility; and
<PAGE>
(3) the fundamental standard that Alger personnel should not take
inappropriate advantage of their positions.
The restrictions and procedures of the Code apply to all accounts in which
an access person has, or by reason of the subsequent transaction acquires,
any direct or indirect beneficial ownership (as defined in Exhibit A).
For purposes of the Code, the term "security" shall not include government
securities, bankers' acceptances, bank certificates of deposit, commercial
paper and shares of registered open-end investment companies.
II. Restrictions on Personal Investing
----------------------------------
A. Initial Public Offerings
- Investment personnel may not acquire any securities in an initial
public offering.
B. Private Placements
- Investment personnel must obtain prior approval of any
acquisition of securities in a private placement.
(a) Any such approved acquisition must be disclosed if the
investment person subsequently participates in any Alger
Fund's consideration of an investment in the issuer.
(b) Any Alger Fund's subsequent decision to purchase securities
of the issuer will be subject to independent review by
investment personnel with no personal interest in the
issuer.
C. Blackout Periods
1. An access person may not execute a securities transaction at a
time when any Portfolio Manager is considering the purchase or
sale of that security. If the Alger Fund is in the middle of a
buying or selling program for that security, the program must be
completed before the access person may execute his or her
transaction.
(a) An access person may not recommend any securities
transaction by an Alger Fund without having disclosed his or
her interest, if any, in such securities or the issuer
thereof, including without limitation:
<PAGE>
(1) direct or indirect beneficial ownership of any
securities of the issuer;
(2) any position with the issuer or its affiliates; and
(3) any present or proposed business relationship between
the issuer or its affiliates and such person or any
party in which such person has a significant interest.
2. A portfolio manager may not buy or sell a security within seven
calendar days before and after the Alger Fund that he or she
manages trades in that security unless one of the following
situations exists:
(a) The Alger Fund receives a better price on its transaction
made within seven days of the portfolio manager's
transaction.
(b) If a portfolio manager has recommended a security for
purchase or sale by an Alger Fund and his or her
recommendation is overruled by Senior Management, he or she
may purchase or sell that security for his or her own
account. If Senior Management subsequently changes its
position regarding that security and decides to purchase or
sell the security for an Alger Fund within 7 days of the
portfolio manager's transaction for his or her own account,
the Fund's purchase or sale will not require disgorgement by
the portfolio manager.
(c) The portfolio manager can demonstrate that a hardship exists
which requires the sale of the security within the
prohibited time period.
3. Any profits realized on trades within the proscribed periods must
be disgorged to the appropriate Alger Fund or to charity.
D. Short-term Trading
Investment personnel may not profit in the purchase and sale, or sale
and purchase, of the same (or equivalent) securities* within 60
calendar days unless the security is not held by any Alger Fund and is
not eligible for purchase by any Alger Fund.
- The Compliance Officer will consider exemptions to this
prohibition on a case-by-case basis when it is clear that no
abuse is involved and the equities of the situation strongly
support an exemption.
* Includes options and short sales
<PAGE>
E. Gifts
Investment personnel may not accept any gift or other thing of more
than de minimus value from any person or entity that does business
-- -------
with or on behalf of an Alger Fund.
F. Service as a Director
Investment Personnel must obtain prior authorization to serve on the
board of directors of a publicly traded company. Such authorization
will be based on a determination that the board service would be
consistent with the interests of the Alger Fund and its shareholders.
III. Compliance Procedures
---------------------
A. Preclearance
All access persons must preclear their personal securities
transactions with the Compliance Officer.
- The Compliance Officer must preclear the personal securities
transactions of all access persons with the Portfolio Managers in
addition to preclearance with the trading desk.
- Any approval will be valid only for the day on which it is
granted.
B. Brokerage Confirmations and Statements
All access persons should direct their brokers to supply duplicate
copies of all confirmations and periodic statements to the firm's
Compliance Officer.
C. Disclosure of Personal Holdings
All investment personnel must disclose their personal securities
holdings upon commencement of employment and thereafter on an annual
basis.
<PAGE>
D. Certification of Compliance With the Code
All access persons must certify annually that:
- they have read and understood the Code;
- they are subject to the Code;
- they have complied with the requirements of the Code; and
- they have disclosed all personal securities transactions required to
be disclosed pursuant to the Code.
E. The management of each Alger Fund will prepare an annual report to the
Fund's Board of Trustees/Directors that:
- summarizes existing procedures concerning personal investing and
any changes made during the previous year;
- identifies any violations requiring significant remedial action
during the previous year; and
- identifies any recommended changes in existing restrictions or
procedures.
IV. Sanctions
---------
Upon discovering that an access person has not complied with the
requirements of this Code, the Board of Directors of Alger or of any Alger
Fund may impose on that person whatever sanctions the Board deems
appropriate, including, among other things, censure, suspension or
termination of employment.
V. Confidentiality
---------------
All information obtained from any access person hereunder shall be kept in
strict confidence, except that reports of securities transactions hereunder
will be made available to the Securities and Exchange Commission or any
other regulatory or self-regulatory organization to the extent required by
law or regulation.
<PAGE>
VI. Other Laws, Rules and Statements of Policy
------------------------------------------
Nothing contained in this Code shall be interpreted as relieving any access
person from acting in accordance with the provision of any applicable law,
rule, or regulation or any other statement of policy or procedure adopted
by Alger or by an Alger Fund governing the conduct of such person.
<PAGE>
Exhibit A
For purposes of the attached Code of Ethics, "beneficial ownership" shall
be interpreted in the same manner as it would be in determining whether a person
is subject to the provisions of Section 16 of the Securities Exchange Act of
1934 and the rules and regulations thereunder, except that the determination of
direct or indirect beneficial ownership shall apply to all securities that an
Access Person has or acquires. The term "beneficial ownership" of securities
would include not only ownership of securities held by an Access Person for his
own benefit, whether in bearer form or registered in his name or otherwise, but
also ownership of securities held for his benefit by others (regardless of
whether or how they are registered) such as custodians, brokers, executors,
administrators, or trustees (including trusts in which he has only a remainder
interest), and securities held for his account by pledgees, securities owned by
a partnership in which he is a member, if he may exercise a controlling
influence over the purchase, sale or voting of such securities held for his
account by pledgees, securities owned by a partnership in which he is a member,
if he may exercise a controlling influence over the purchase, sale or voting of
such securities and securities owned by any corporation. Correspondingly, this
term would exclude securities held by an Access Person for the benefit of
someone else.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which an Access Person is a legatee or beneficiary
unless there is a specific legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
Securities held in the name of another should be considered as
"beneficially" owned by an Access Person where such person enjoys "benefits
substantially equivalent to ownership". The Securities and Exchange Commission
has said that although the final determination of beneficial ownership is a
question to be determined in the light of the facts of the particular case,
generally a person is regarded as the beneficial owner of securities held in the
name of his or her spouse and their minor children. Absent special
circumstances such relationship ordinarily results in such person obtaining
benefits substantially equivalent to ownership, e.g., application of the income
----
derived from such securities to maintain a common home, to meet expenses that
such person otherwise would meet from other sources, or the ability to exercise
a controlling influence over the purchase, sale or voting of such securities.
An Access Person also may be regarded as the beneficial owner of securities
held in the name of another person, if by reason of any contract, understanding,
relationship, agreement, or other arrangement, he obtains therefrom benefits
substantially equivalent to those of ownership.
<PAGE>
Moreover, the fact that the holder is a relative or relative of a spouse and
sharing the same home as an Access Person may in itself indicate that the Access
Person would obtain benefits substantially equivalent to those of ownership from
securities held in the name of such relative. Thus, absent countervailing
facts, it is expected that securities held by relatives who share the same home
as an Access Person will be treated as being beneficially owned by the Access
Person.
An Access Person also is regarded as the beneficial owner of securities
held in the name of a spouse, minor children or other person, even though he
does not obtain therefrom the aforementioned benefits of ownership, if he can
vest or revest title in himself at once or at some future time.
<PAGE>
EX-99.(p)(8)
BACK BAY ADVISORS, L.P.
Code of Ethics
Adopted April 1, 2000
This is the Code of Ethics of Back Bay Advisors, L.P. (the "Firm").
Things You Need to Know to Use This Code
- ----------------------------------------
1. Terms in boldface type have special meanings as used in this Code. To
understand the Code, you need to read the definitions of these terms. The
definitions are at the end of the Code.
2. To understand what parts of this Code apply to you, you need to know
whether you fall into one of these categories:
. Access Person
. Investment Person
If you don't know, ask the Compliance Officer.
Currently all employees of the Firm are designated as Investment Persons.
If you have any questions regarding this policy, ask the Compliance Officer.
With respect to the provisions detailed below, the Code Officer has the
authority to act on behalf of the Compliance Officer.
This Code has three sections:
Part I-- Applies to All Personnel
Part II-- Applies to Access Persons and Investment Persons
Part III--Definitions
There are also three Reporting Forms that Access Persons have to fill out
under this Code. You can get copies of the Reporting Forms from the Compliance
Officer.
<PAGE>
NOTE: If you are an Investment Person, you are automatically an Access
Person too, so you must comply with both the Access Person provisions and the
Investment Person provisions.
By SEC rule, all the members of the board of directors of the Firm's
general partner, Back Bay Advisors, Inc. ("BBA Inc.") are Access Persons, even
those who aren't employees of the Firm. So all board members are subject to both
Part I and Part II of this Code.
3. The Compliance Officer has the authority to grant written waivers of
the provisions of this Code in appropriate instances. However:
. the Firm expects that waivers will be granted only in rare instances,
and
. some provisions of the Code are mandated by SEC rule and cannot be
waived.
2
<PAGE>
PART I--Applies to All Personnel (including All Members of the BBA Inc. Board)
------------------------------------------------------------------------------
A. General Principles--These Apply to All Personnel (including All BBA Inc.
- ----------------------------------------------------------------------------
Board Members)
- --------------
The Firm is a fiduciary for its investment advisory and sub-advisory
clients. Because of this fiduciary relationship, it is generally improper for
the Firm or its personnel to
. use for their own benefit (or the benefit of anyone other
than the client) information about the Firm's trading or
recommendations for client accounts; or
. take advantage of investment opportunities that would
otherwise be available for the Firm's clients.
Also, as a matter of business policy, the Firm wants to avoid even the
appearance that the Firm, its personnel or others receive any improper benefit
from information about client trading or accounts, or from our relationships
with our clients or with the brokerage community.
The Firm expects all personnel to comply with the spirit of the Code, as
well as the specific rules contained in the Code.
The Firm treats violations of this Code (including violations of the spirit
of the Code) very seriously. If you violate either the letter or the spirit of
this Code, the Firm might impose penalties or fines, cut your compensation,
demote you, require disgorgement of trading gains, impose a ban on one's
personal trading, suspend or terminate your employment.
Improper trading activity can constitute a violation of this Code. But you
can also violate this Code by failing to file required reports in a timely
manner, or by making inaccurate or misleading reports or statements concerning
trading activity or securities accounts. Your conduct can violate this Code even
if no clients are harmed by your conduct.
3
<PAGE>
If you have any doubt or uncertainty about what this Code requires or
permits, you should ask the Compliance Officer. Don't just guess at the answer.
B. Gifts to or from Brokers, Clients or Others--This Applies to All Personnel
- ------------------------------------------------------------------------------
(including All BBA Inc. Board Members)
- --------------------------------------
No personnel may accept or receive on their own behalf or on behalf of the
Firm any gift or other accommodations from a vendor, broker, securities
salesman, client or prospective client (a "business contact") that might create
a conflict of interest or interfere with the impartial discharge of such
personnel's responsibilities to the Firm or its clients or place the recipient
or the Firm in a difficult or embarrassing position. This prohibition applies
equally to gifts to members of the Family/Household of firm personnel.
No personnel may give or receive on their own behalf or on behalf of the
Firm any gift or other accommodation to a business contact that may be construed
as an improper attempt to influence the recipient.
In no event should gifts to or from any one business contact have a value
that exceeds the annual limitation on the dollar value of gifts established by
the Compliance Officer from time to time (currently $100).
These policies are not intended to prohibit normal business entertainment
such as meals or tickets to sporting events or the theatre. Please note that
----------------
business entertainment is different than giving or receiving gifts. If you are
- -------------------------------------------------------------------------------
unsure whether something is a gift or business entertainment, ask the Compliance
- --------------------------------------------------------------------------------
Officer.
- --------
C. Service on the Board or as an Officer of Another Company--This Applies to
- -----------------------------------------------------------------------------
All Personnel (including All Board Members)
- --------------------------------------------
To avoid conflicts of interest, inside information and other compliance and
business issues, the Firm prohibits all its employees from serving as officers
or members of the board of any other entity, except with the advance written
approval of the Firm. Approval must be obtained through the Compliance Officer,
and will ordinarily require consideration by senior officers or the board of the
Firm. The Firm can deny approval for any reason. This prohibition does not apply
to service as an officer or board
4
<PAGE>
member of any parent or subsidiary of the Firm nor does it apply to members of
the Firm's board who are not employees of the Firm.
PART II--Applies to Access Persons and Investment Persons
--------------------------------------------------------
A. Reporting Requirements--These Apply to All Access Persons (including All
- ----------------------------------------------------------------------------
Investment Persons and All Members of the Firm's Board)
- -------------------------------------------------------
NOTE: One of the most complicated parts of complying with this Code is
understanding what holdings, transactions and accounts you must report and what
accounts are subject to trading restrictions. For example, accounts of certain
members of your family and household are covered, as are certain categories of
trust accounts, certain investment pools in which you might participate, and
certain accounts that others may be managing for you. To be sure you understand
what holdings, transactions and accounts are covered, it is essential that you
carefully review the definitions of Covered Security, Family/Household and
Beneficial Ownership in the "Definitions" section at the end of this Code.
ALSO: You must file the reports described below, even if you have no holdings,
------------------------------------------------------------------------
transactions or accounts to list in the reports.
- ------------------------------------------------
1. Initial Holdings Reports. No later than 10 days after you become
-------------------------
an Access Person, you must file with the Compliance Officer a Holdings Report on
Form A (copies of all reporting forms are available from the Compliance
Officer). However, for the initial conversion to the new code, personnel who
are Access Persons as of the date this Code goes into effect (April 1, 2000)
must file an Initial Holdings Report as of March 31, 2000 on Form A with the
Compliance Officer by April 30, 2000.
Form A requires you to list all Covered Securities in which you (or
members of your Family/Household) have Beneficial Ownership. It also requires
you to list all brokers, dealers and banks where you maintained an account in
which any securities (not just Covered Securities) were held for the direct or
---
indirect benefit of you or a member of your Family/Household on the date you
became an Access Person. If you are an Access Person on the date this Code goes
into effect, such list due by April 30, 2000 for the period ending March 31,
2000.
5
<PAGE>
Form A also requires you to confirm that you have read and understand this
Code, that you understand that it applies to you and members of your
Family/Household and that you understand that you are an Access Person and, if
applicable, an Investment Person under the Code.
2. Quarterly Transaction Reports. No later than 10 days after the end of
------------------------------
March, June, September and December each year, you must file with the Compliance
Officer a Quarterly Transactions Report on Form B.
Form B requires you to report all transactions during the most recent
calendar quarter in Covered Securities, where you (or a member of your
Family/Household) had Beneficial Ownership. It also requires you to either
confirm or amend your complete list of all brokers, dealers and banks where you
or a member of your Family/Household established an account in which any
---
securities (not just Covered Securities) were held during the quarter for the
direct or indirect benefit of you or a member of your Family/Household.
3. Annual Holdings Reports. By January 31 of each year, you must file
------------------------
with the Compliance Officer an Annual Holdings Report on Form C as of December
31.
Form C requires you to list all Covered Securities in which you (or a
member of your Family/Household) had Beneficial Ownership as of December 31. It
also requires you to list all brokers, dealers and banks where you or a member
of your Family/Household maintained an account in which any securities (not just
---
Covered Securities) were held for the direct or indirect benefit of you or a
member of your Family/Household on December 31.
Form C also includes requires you to confirm that you have read and
understand this Code, that you understand that it applies to you and members of
your Family/Household and that you understand that you are an Access Person and,
if applicable, an Investment Person under the Code.
4. Duplicate Confirmation Statements. If you or any member of your
----------------------------------
Family/Household have a securities account with any broker, dealer or bank, you
or your Family/Household member must direct that broker, dealer or bank to send,
directly to the Firm's Compliance
6
<PAGE>
Officer, contemporaneous duplicate copies of all transaction confirmation
statements and all account statements relating to that account.
B. Transaction Restrictions--These Apply to All Access Persons (including All
- ------------------------------------------------------------------------------
Investment Persons), Except Members of the Firm's Board Who Are Not Employees of
- --------------------------------------------------------------------------------
the Firm
- --------
1. Preclearance. You and members of your Family/Household are prohibited
-------------
from engaging in any transaction in a Covered Security for any account in which
you or a member of your Family/Household has any Beneficial Ownership, unless
you obtain, in advance of the transaction, written preclearance for that
transaction from the Compliance Officer.
Once obtained, a preclearance is only valid for the day it is granted. The
----------------------------------------------------------------------
Compliance Officer may revoke a preclearance any time after it is granted and
before you execute the transaction. The Compliance Officer may deny or revoke
preclearance for any reason. In no event will preclearance be granted for any
Covered Security if, to the knowledge of the Compliance Officer, the Firm has a
buy or sell order pending for that same security or a closely related security
(such as an option relating to that security, or a related convertible or
exchangeable security).
2. Initial Public Offerings and Private Placements. Neither you nor any
------------------------------------------------
member of your Family/Household may acquire any Beneficial Ownership in any
Covered Security in an initial public offering. However, private placements may
be acquired with the specific, advance written approval of the Compliance
Officer, which the Compliance Officer may deny for any reason.
3. Prohibition on Short-Term Trading. Neither you nor any member of your
----------------------------------
Family/Household may purchase and sell at a profit, or sell and purchase, a
Covered Security (or any closely related security, such as an option or a
related convertible or exchangeable security) within any period of 60 calendar
days. If any such transactions occur, the Firm will require any profits from
the transactions to be disgorged for donation by the Firm to charity.
7
<PAGE>
C. 15-Day Blackout Period--This Applies to All Access Persons (including All
- -----------------------------------------------------------------------------
Investment Persons), Except Members of the Firm's Board Who Are Not
-------------------------------------------------------------------
Employees of the Firm
---------------------
No Access Person (including any member of the Family/Household of such
Access Person) may purchase or sell any Covered Security within the seven
calendar days immediately before or after a calendar day on which any client
account managed by the Firm purchases or sells that Covered Security (or any
closely related security, such as an option or a related convertible or
exchangeable security), unless the Access Person had no actual knowledge that
the Covered Security (or any closely related security) was being considered for
purchase or sale for any client account. If any such transactions occur, the
Firm will generally require any profits from the transactions to be disgorged
for donation by the Firm to charity. Note that the total blackout period is 15
days (the day of the client trade, plus seven days before and seven days after).
NOTE: It sometimes happens that an Investment Person who is responsible for
making investment recommendations or decisions for client accounts (such as a
portfolio manager or analyst) determines--within the seven calendar days after
the day he or she (or a member of his or her Family/Household) has purchased or
sold for his or her own account a Covered Security that was not, to the
Investment Person's knowledge, then under consideration for purchase by any
client account--that it would be desirable for client accounts as to which the
Investment Person is responsible for making investment recommendations or
decisions to purchase or sell the same Covered Security (or a closely related
security). In this situation, the Investment Person MUST put the clients'
interests first, and promptly make the investment recommendation or decision in
the clients' interest, rather than delaying the recommendation or decision for
clients until after the seventh day following the day of the transaction for the
Investment Person's (or Family/Household member's) own account to avoid conflict
with the blackout provisions of this Code. The Firm recognizes that this
situation may occur in entire good faith, and will not require disgorgement of
profits in such instances if it appears that the Investment Person acted in good
faith and in the best interests of the Firm's clients.
8
<PAGE>
D. Exempt Transactions
- ------------------------
The preclearance requirements, prohibitions on short term trading and the
15 day blackout period do not apply to the following categories of transactions:
. Transactions in securities guaranteed by the United States Government, or
any securities issued or guaranteed by its agencies or instrumentalities
thereof.
. Transactions in any registered open-end mutual fund.
. Transactions in common or preferred stocks of a class that is publicly-
traded, issued by a company with a stock market capitalization of at least
$10 billion U.S. dollars (or the equivalent in foreign currency).
. Transactions in futures and options contracts on interest rate instruments
or indexes, and options on such contracts.
. Transactions that occur by operation of law or under any other circumstance
in which neither the Access Person nor any member of his or her
Family/Household exercises any discretion to buy or sell or makes
recommendations to a person who exercises such discretion.
. Purchases pursuant to the exercise of rights issued pro rata to all holders
of the class of Covered Securities held by the Access Person (or
Family/Household member) and received by the Access Person (or
Family/Household member) from the issuer.
. Purchases of Covered Securities pursuant to an automatic dividend
reinvestment plan.
9
<PAGE>
Definitions
-----------
These terms have special meanings in this Code of Ethics:
Access Person
Beneficial Ownership
Compliance Officer
Covered Security
Family/Household
Initial Public Offering
Investment Person
Private Placement
The special meanings of these terms as used in this Code of Ethics are
explained below. Some of these terms (such as "beneficial ownership") are
sometimes used in other contexts, not related to Codes of Ethics, where they
have different meanings. For example, "beneficial ownership" has a different
meaning in this Code of Ethics than it does in the SEC's rules for proxy
statement disclosure of corporate directors' and officers' stockholdings, or in
determining whether an investor has to file 13D or 13G reports with the SEC.
IMPORTANT: If you have any doubt or question about whether an
investment, account or person is covered by any of these definitions,
ask the Compliance Officer. Don't just guess at the answer.
Access Person means access person as defined in Rule 17j-1 under the Investment
- -------------
Company Act, as amended from time to time. Currently this includes:
. Every member of the board of directors of the Firm's general partner, BBA
Inc., even those board members that are not employees of the Firm
. Every officer of the Firm
. Every employee of the Firm (or of any company that directly or indirectly
has a 25% or greater interest in the Firm) who, in connection with his or
her regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of a Covered Security
10
<PAGE>
for any client account, or whose functions relate to the making of any
recommendations with respect to such purchases and sales.
Beneficial ownership means beneficial ownership as defined in Rule 17j-1 under
- --------------------
the Investment Company Act, as amended from time to time. Currently this means:
any opportunity, directly or indirectly, to profit or share in the profit from
any transaction in securities. Beneficial Ownership is a very broad concept.
Some examples of forms of Beneficial Ownership include:
. securities held in a person's own name, or that are held for the
person's benefit in nominee, custodial or "street name" accounts.
. securities owned by or for a partnership in which the person is a
general partner (whether the ownership is under the name of that
partner, another partner or the partnership or through a nominee,
custodial or "street name" account).
. securities that are being managed for a person's benefit on a
discretionary basis by an investment adviser, broker, bank, trust
company or other manager, unless the securities are held in a
------
"blind trust" or similar arrangement under which the person is
prohibited by contract from communicating with the manager of the
account and the manager is prohibited from disclosing to the
person what investments are held in the account. (Just putting
securities into a discretionary account is not enough to remove
them from a person's Beneficial Ownership. This is because, unless
the arrangement is a "blind trust," the owner of the account can
still communicate with the manager about the account and
potentially influence the manager's investment decisions.)
. securities in a person's individual retirement account.
. securities in a person's account in a 401(k) or similar retirement
plan, even if the person has chosen to give someone else
investment discretion over the account.
11
<PAGE>
. securities owned by a trust of which the person is either a
trustee or a beneficiary.
------- -----------
. securities owned by a corporation, partnership or other entity
that the person controls (whether the ownership is under the name
of that person, under the name of the entity or through a nominee,
custodial or "street name" account).
. securities that are traded on behalf of an investment club of
which an Access Person is a club member or which a member of your
Family/Household is a member.
This is not a complete list of the forms of ownership that could constitute
Beneficial Ownership for purposes of this Code. You should ask the Compliance
Officer if you have any questions or doubts at all about whether you or a member
of your Family/Household would be considered to have Beneficial Ownership in any
particular situation.
Compliance Officer means the compliance officer of the Firm or another person
- ------------------
that he or she has designated to perform the functions of Compliance Officer.
For purposes of reviewing the Compliance Officer's own transactions and reports
under this Code, the functions of the Compliance Officer are performed by an
appropriate designee.
Covered Security means a covered security as defined in Rule 17j-1 under the
- ----------------
Investment Company Act, as amended from time to time. Currently this means:
anything that is considered a "security" under the Investment Company Act of
1940, except:
------
. Direct obligations of the U.S. Government.
. Bankers' acceptances, bank certificates of deposit, commercial paper and
high quality short-term debt obligations, including repurchase agreements.
. Shares of open-end investment companies that are registered under the
--------
Investment Company Act (mutual funds).
12
<PAGE>
Covered Security is a very broad definition of security. It includes most kinds
of investment instruments, including things that you might not ordinarily think
of as "securities," such as:
. options on securities, on indexes and on currencies.
. investments in all kinds of limited partnerships.
. investments in foreign unit trusts and foreign mutual funds.
. investments in private investment funds, hedge funds and
investment clubs.
If you have any question or doubt about whether an investment is a considered a
security or a Covered Security under this Code, ask the Compliance Officer.
--------------------------
Members of your Family/Household include:
----------------
. Your spouse or domestic partner (unless he or she does not live in the same
household as you and you do not contribute in any way to his or her support).
. Your children under the age of 18.
. Your children who are 18 or older (if they live in the same household as you
and you contribute in any way to their support).
. Any of these people who live in your household: your stepchildren,
grandchildren, parents, stepparents, grandparents, brothers, sisters,
parents- in-law, sons-in-law, daughters-in-law, brothers-in-law and
sisters-in-law, including adoptive relationships.
. Any individuals for which you are exercising investment control or are doing
so on one's behalf.
Comment--There are a number of reasons why this Code covers transactions in
which members of your Family/Household have Beneficial Ownership.
13
<PAGE>
First, the SEC regards any benefit to a person that you help support financially
as indirectly benefiting you, because it could reduce the amount that you might
otherwise need to contribute to that person's support. Second, members of your
household could, in some circumstances, learn of information regarding the
Firm's trading or recommendations for client accounts, and must not be allowed
to benefit from that information.
Initial Public Offering ("IPO") means an offering of securities registered under
- -------------------------------
the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of sections 13 or
15(d) of the Securities Exchange Act of 1934.
Investment Person means any employee of the Firm (or of any company that
- -----------------
directly or indirectly has a 25% or greater interest in the Firm) who, in
connection with his or her regular functions or duties, makes, participates in
or obtains information regarding the purchase or sale of any securities (even if
they're not Covered Securities) for any client account, or whose functions
relate to the making of any recommendations with respect to purchases and sales;
and any natural person who directly or indirectly has a 25% or greater interest
in the Firm and obtains information concerning recommendations made to any
client of the Firm regarding the purchase or sale of any securities (even if
they're not Covered Securities) by the client.
Private Placement means a stock or bond that is not registered with the
- -----------------
Securities & Exchange Commission and therefore cannot be sold in the public
market.
14
<PAGE>
EX-99.(p)(9)
LOOMIS, SAYLES & CO., L.P.
Code of Ethics
--------------
Policy on Personal Trading and Related
Activities
by Loomis, Sayles Personnel
January 14, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page #
------
<S> <C>
1. INTRODUCTION...................................................................... 1
2. STATEMENT OF GENERAL PRINCIPLES................................................... 1
3. OVERVIEW.......................................................................... 2
3.1 Provisions of the Code Applicable to You..................................... 2
3.2 A Few Key Terms.............................................................. 3
4. SUBSTANTIVE RESTRICTIONS ON PERSONAL TRADING AND RELATED ACTIVITIES -- PROHIBITED
OR RESTRICTED ACTIVITIES........................................................... 6
4.1 Competing with Client Trades................................................ 6
4.2 Personal Use of Client Trading Knowledge.................................... 6
4.3 Disclosure of Client Trading Knowledge...................................... 6
4.4 Transacting in Securities Under Consideration or Pending Execution.......... 6
4.5 Initial Public Offerings and Private Placements............................. 7
4.6 Participation in Investment Clubs and Private Pooled Vehicles............... 7
4.7 Good Until Canceled and Limit Orders........................................ 7
4.8 Investment Personnel Seven-Day Blackout..................................... 8
4.9 Research Analyst Three-Day Blackout Before Recommendation................... 8
4.10 Access Person Seven-Day Blackout After Recommendation....................... 9
4.11 Short Term Trading Profits.................................................. 9
4.12 Short Sales................................................................. 9
4.13 Futures and Related Options................................................. 9
4.14 Acceptance of Gifts......................................................... 10
4.15 Public Company Board Service and Other Affiliations......................... 10
5. PRECLEARANCE, DOCUMENT DELIVERY AND REPORTING PROCEDURES........................... 10
5.1 Preclearance................................................................. 10
5.2 Transaction Reporting Requirements........................................... 11
5.3 Initial and Annual Personal Holdings Reporting Requirements.................. 13
5.4 Brokerage Confirmations and Statements....................................... 13
5.5 Review of Reports by Review Officer.......................................... 13
6. EXEMPT SECURITIES AND EXEMPT TRANSACTIONS......................................... 13
6.1 Exempt Securities............................................................ 13
6.2 Exempt Transactions.......................................................... 14
6.3 Exemption for Investment Personnel from Seven-Day Blackout
for Certain Transactions in Large Capitalization Stocks...................... 15
6.4 Other Exemptions Granted by the Review Officer............................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
7. SANCTIONS......................................................................... 15
8. RECORDKEEPING REQUIREMENTS........................................................ 16
9. MISCELLANEOUS..................................................................... 17
9.1 Confidentiality.............................................................. 17
9.2 Notice to Access Persons, Investment Personnel and Research
Analysts as to Status; Notice to Review Officer of Engagement of
Independent Contractors...................................................... 17
9.3 Initial and Annual Certification of Compliance............................... 17
9.4 Questions and Educational Materials.......................................... 17
GLOSSARY OF TERMS...................................................................... G-1
</TABLE>
-ii-
<PAGE>
LOOMIS, SAYLES & CO., L.P.
Code of Ethics
--------------
Policy on Personal Trading and Related
Activities
1. INTRODUCTION
This Code of Ethics ("Code") of Loomis, Sayles & Co., L.P. ("Loomis,
Sayles") governs personal trading in securities and related activities by you
and, in some circumstances, your family members and others in a similar
relationship to you.
The policies in this Code reflect Loomis, Sayles' desire to detect and
prevent not only situations involving actual or potential conflicts of interest
or unethical conduct, but those situations involving even the appearance of
these.
2. STATEMENT OF GENERAL PRINCIPLES
It is the policy of Loomis, Sayles that no Loomis, Sayles personnel shall
engage in any act, practice or course of conduct that would violate this Code,
the fiduciary duty owed by Loomis, Sayles and its personnel to our clients,
Section 206 of the Investment Advisers Act of 1940, as amended (the "Advisers
Act"), the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the provisions of Section 17(j) of the Investment Company Act of
1940, as amended (the "1940 Act"), and Rule 17j-1 thereunder. The fundamental
position of Loomis, Sayles is, and has been, that we must at all times place the
interests of our clients first. Accordingly, your personal financial
transactions (and in some cases, those of your family members and others in a
similar relationship to you) and related activities must be conducted
consistently with this Code and in such a manner as to avoid any actual or
potential conflict of interest or abuse of your position of trust and
responsibility. Further, you must not take inappropriate advantage of your
position with or on behalf of any our clients.
Without limiting in any manner the fiduciary duty owed by Loomis, Sayles
personnel to clients, it should be noted that Loomis, Sayles considers it proper
that purchases and sales be made by its personnel in the marketplace of
securities owned by our clients, provided that such securities transactions
--------
comply with the spirit of, and the specific restrictions and limitations set
forth in, this Code. Loomis, Sayles believes this policy not only encourages
investment freedom and results in investment experience, but also fosters a
continuing personal interest in such investments by those responsible for the
continuous supervision of our clients' portfolios. It is also evidence of our
confidence in the investments made for our clients.
<PAGE>
In making personal investment decisions, however, you must exercise extreme
care to ensure that the prohibitions of this Code are not violated. Further,
you should conduct your personal investing in such a manner as to eliminate the
possibility that your time and attention are devoted to your personal
investments at the expense of time and attention that should be devoted to
management of a client's portfolio.
It is not intended that these policies will specifically address every
situation involving personal trading. These policies will be interpreted and
applied, and exceptions and amendments will be made, by Loomis, Sayles in a
manner considered fair and equitable, but in all cases with the view of placing
our clients' interests paramount. It also bears emphasis that technical
compliance with the procedures, prohibitions and limitations of this Code will
not automatically insulate you from scrutiny of, and sanctions for, securities
transactions which indicate an abuse of your fiduciary duty to any client of
Loomis, Sayles.
You are encouraged to bring any questions you may have about these policies
to the personnel in the Legal and Compliance Department, who will assist you.
Boldfaced terms appearing in these policies have special meaning. Please see
the Glossary for definitions of these terms. Also, see the "Explanatory Notes"
appearing throughout (and made a part of) this Code for clarification of certain
provisions.
3. OVERVIEW
This Code governs personal trading and related activities by Loomis, Sayles
personnel, and in some circumstances by their family members and others in a
similar relationship to Loomis, Sayles personnel.
3.1 Provisions of the Code Applicable to You
The Code contains substantive rules you must observe. You must also follow
certain procedural requirements designed to enforce and verify compliance with
the Code. The Code also provides for sanctions for violations of either
substantive or procedural requirements. The Code consists of three types of
requirements applicable to you. These three types of Code provisions can be
summarized as follows:
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3.1.1 Substantive Restrictions on Personal Trading and Related
Activities. (Section 4)
As a Loomis, Sayles employee, your personal securities trading,
outside affiliations and receipt of gifts are subject to restrictions, and in
some cases, prohibitions. Certain of these activities, such as competing with
client trades and making personal use and benefit from client trades, are
obviously unethical, and the basis for prohibitions on these activities is self
evident. Others, such as purchases of initial public offerings and private
placements, trading during specified black out periods, short-term trading and
public company board service, are restricted because they present actual or
perceived conflicts of interest. These restrictions or prohibitions are based
on SEC rules or positions, industry "best practices" recommendations, and
Loomis, Sayles, policies.
3.1.2 Preclearance, Document Delivery and Reporting. (Section 5)
With certain limited exceptions (described in Section 6) you must pre-
clear every personal securities transaction you propose to enter. You must also
arrange for the delivery by your broker to the Legal and Compliance Department
of duplicate copies of your brokerage confirmation statements and account
statements, either in paper form or, through arrangements with certain brokers
approved by the Legal and Compliance Department, electronically. Likewise, you
must report your personal securities transactions to the Legal and Compliance
Department on a monthly basis either directly, or through arrangements, approved
by the Legal and Compliance Department, by which your broker provides the Legal
and Compliance Department with electronic duplicate copies of your brokerage
confirmation statements and account statements. Finally, you must disclose your
personal securities holdings on an annual basis (and, for new employees, upon
commencing employment). Certain restrictions apply differently to different
types of personnel. You will be notified from time to time of the category (or
categories) into which you fall, and where appropriate, of the accounts or
specific securities with respect to which you are considered to be in such
category.
3.1.3 Sanctions. (Section 7)
The sanctions for violating the Code may be severe. They range from
warnings and fines to suspension or termination of employment, and, in some
cases, to referral to regulatory agencies for civil or criminal proceedings
against the individual involved.
3.2 A Few Key Terms
As noted above, Boldfaced terms have special meaning in this Code. The
application of a particular Code requirement to you may hinge on the elements of
the definition of these terms. See the Glossary at the end of this Code for
definitions of these terms. In order to have a basic understanding of the Code,
however, you must have an understanding of the terms "Security" and "Beneficial
Ownership" as used in the Code.
3.2.1 Security.
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This Code generally relates to transactions in and ownership of
investment that is a Security. For purposes of the Code, Security is
interpreted as defined in Rule 17j-1 under the 1940 Act and Rule 204-2(a)(12)
under the Advisers Act or any applicable successor provision. Currently, this
means any type of equity or debt security (such as common and preferred stocks,
and corporate and government bonds or notes) and any instrument representing, or
any rights relating to, a security (such as certificates of participation,
depository receipts, put and call options, warrants, convertible securities and
securities indices).
EXCEPT that Security for this purpose does not include:
---
. shares of registered open-end investment companies (mutual funds)
whether or not affiliated with Loomis, Sayles
. direct obligations of the United States Government (i.e.,
Treasury securities, as distinct from U.S. Government agencies or
instrumentalities)
. bankers' acceptances
. bank certificates of deposit
. commercial paper
. repurchase agreements
. other money market instruments
Explanatory Note:
Shares of closed-end funds, municipal obligations and securities
issued by agencies and instrumentalities of the U.S. government
(e.g., GNMA obligations) are Securities.
3.2.2 Beneficial Ownership.
The Code governs any Security in which you have a direct or indirect
"Beneficial Ownership." This term encompasses not only "ownership" by you in
the usual sense, but any interest which gives you an ability to profit or enjoy
economic benefits from a Security.
Beneficial Ownership for purposes of the Code is interpreted as that
term is defined from time to time in Rule 17j-1 under the 1940 Act and Rule
204-2(a)(12) under the Advisers Act or any applicable successor provision.
Currently, this means a direct or indirect "pecuniary interest" that is held or
shared by you directly or indirectly (through any contract, arrangement,
understanding, relationship or otherwise) in a Security. The term "pecuniary
interest" in turn generally means your opportunity directly or indirectly to
receive or share in any profit derived from a transaction in a
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Security whether or not the Security or the relevant account is in your name or
is held in an ordinary brokerage or retirement plan account. Although this
concept is subject to a variety of SEC rules and interpretations, you should
know that you are presumed under the Code to have an indirect pecuniary interest
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as a result of:
. ownership of a Security by your spouse or minor children;
. ownership of a Security by your other family members sharing your
household (including an adult child, a stepchild, a grandchild, a
parent, stepparent, grandparent, sibling, mother- or father-in-
law, sister- or brother-in-law, and son- or daughter-in-law);
. your share ownership, partnership interest or similar interest in
the portfolio securities held by a corporation, general or
limited partnership or similar entity you control;
. your right to receive dividends or interest from a Security even
if that right is separate or separable from the underlying
securities;
. your interest in a Security held for the benefit of you alone or
for you and others in a trust or similar arrangement (including
any present or future right to income or principal); and
. your right to acquire a Security through the exercise or
conversion of a "derivative security."
Explanatory Note:
Note that you are presumed to have a Beneficial Ownership in any
Security held by family members who share your household. In
certain unusual cases this presumption will not apply if the
Review Officer determines, based on all of the relevant facts,
that the attribution of these family member's Security
transactions to you is inappropriate.
In the case of unmarried persons who share a household and
combine their financial resources in a manner similar to that of
married persons, each person will be presumed to have a
Beneficial Ownership in the securities and transactions of the
other.
The Loomis, Sayles Funded Pension Plan, and any account of an
Access Person, even if also a client account, will be subject to
this Code as an account in which an Access Person has a
Beneficial Ownership.
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4. SUBSTANTIVE RESTRICTIONS ON PERSONAL TRADING AND RELATED ACTIVITIES --
PROHIBITED OR RESTRICTED ACTIVITIES
The following are substantive prohibitions and restrictions on your
personal trading and related activities. Please note that different types of
prohibitions and restrictions apply to different types of personnel. In
general, the prohibitions set forth below relating to trading activities apply
to accounts holding Securities in which an Access Person has a Beneficial
Ownership. However, as noted above in the Statement of General Principles,
technical compliance with these provisions will not insulate you from scrutiny
of, and sanctions for, Securities transactions which indicate an abuse of your
fiduciary duty.
4.1 Competing with Client Trades.
No Access Person may, directly or indirectly, purchase or sell a Security
in such a way that the Access Person knew, or reasonably should have known, that
such a Security transaction competes in the market with any actual or considered
Security transaction for any client of Loomis, Sayles, or otherwise personally
acts to injure any Loomis, Sayles client's Security transactions.
4.2 Personal Use of Client Trading Knowledge.
No Access Person may use the knowledge of Securities purchased or sold by
any client of Loomis, Sayles or Securities being considered for purchase or sale
by any client of Loomis, Sayles to profit personally, directly or indirectly, by
the market effect of such transactions.
4.3 Disclosure of Client Trading Knowledge.
No Access Person may, directly or indirectly, communicate to any person who
is not an Access Person or other approved agent of Loomis, Sayles (e.g., legal
counsel) any non-public information relating to any client of Loomis, Sayles or
any issuer of any Security owned by any client of Loomis, Sayles, including,
without limitation, the purchase or sale or considered purchase or sale of a
Security on behalf of any client of Loomis, Sayles, except to the extent
necessary to comply with applicable law or to effectuate Securities transactions
on behalf of the client of Loomis, Sayles.
4.4 Transacting in Securities Under Consideration or Pending Execution.
No Access Person may, directly or indirectly, execute a personal Securities
transaction on a day during on which: (a) the same Security or an Equivalent
Security is being considered for purchase or sale by a client; or (b) the same
Security or an Equivalent Security is the subject of a pending "buy" or "sell"
order, until that Security ceases being considered for purchase or sale or the
buy or sell order is executed or withdrawn.
Explanatory Note:
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You may assume that a Security is not being considered for
purchase or sale or the subject of a pending buy or sell order if
you receive a preclearance to trade the Security, as described in
Section 5, unless you have actual knowledge to the contrary.
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4.5 Initial Public Offerings and Private Placements.
Without obtaining prior written approval from the Review Officer, no Access
Person may, directly or indirectly, purchase any Security sold in an Initial
Public Offering or pursuant to a Private Placement Transaction.
Explanatory Note:
An Access Person seeking approval to acquire a Security in an
Initial Public Offering or Private Placement Transaction must
submit a request in the form prescribed by the Review Officer
from time to time describing the issuer and the investment.
In considering such a request, the Review Officer will take into
account, among other considerations, whether the investment
opportunity should be reserved for Loomis, Sayles clients,
whether the opportunity is being offered to you by virtue of your
position at Loomis, Sayles and whether the opportunity is likely
to present actual or perceived conflicts of interest with Loomis,
Sayles' duties to its clients.
It should be understood that approval of these transactions will
be given only in special circumstances, and normally will be
denied.
------
If you have been authorized to acquire a Security in a Private
Placement Transaction, you must disclose such investment when you
are involved in a client's subsequent consideration of an
investment in the issuer, even if that investment involves a
different type or class of Security. In such circumstances, the
client's decision to purchase securities of the issuer must be
independently reviewed by an Investment Person with no personal
interest in the issuer.
4.6 Participation in Investment Clubs and Private Pooled Vehicles.
No Access Person shall participate in an investment club or invest in a
hedge fund, or similar private organized investment pool (but not on SEC
registered open-end mutual fund) without express permission of the Review
Officer.
4.7 Good Until Canceled and Limit Orders.
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No Access Person shall place any "good until canceled" or "limit" order
with any broker except that an Access Person may utilize a "day order with a
limit" so long as the transaction is consistent with provisions of this Code,
including the preclearance procedures.
Explanatory Note:
All orders must expire at the end of the trading day they are
precleared and made. "Good until canceled" and "limit" orders
that do not expire at the end of that trading day are
inconsistent with the preclearance timing aspects of this Code of
Ethics.
4.8 Investment Personnel Seven-Day Blackout.
Except as set forth in Section 6.3 below, no Investment Person shall,
directly or indirectly, purchase or sell any Security within a period of seven
(7) calendar days before and after the date that a client with respect to which
------ -----
he or she is designated by the Review Officer as an Investment Person has
purchased or sold such Security.
Explanatory Note:
The "seven days before" element of this restriction is based on
the premise that an Investment Person can normally be expected to
know, when he or she is effecting a personal trade, whether any
client as to which he is designated an Investment Person will be
trading in the same Security seven days later. An Investment
Person has an affirmative obligation to recommend and/or effect
suitable and attractive trades for clients regardless of whether
such trade will cause a prior personal trade to be considered in
apparent violation of this restriction. It would constitute a
breach of fiduciary duty and a violation of this Code to delay or
fail to make any such recommendation or transaction in order to
avoid a conflict with this restriction.
Of course, in particular cases a change of circumstance, a firm
or client initiated liquidation, rebalancing or other decision or
similar event may occur after an Investment Person's personal
trade which gives rise to an opportunity or necessity for his or
her client to trade in that Security which did not exist or was
not anticipated by that person at the time of that person's
personal trade. The Review Officer will review any extenuating
circumstances which may warrant waiving of any remedial actions
in a particular situation involving an apparently inadvertent
violation of this restriction.
4.9 Research Analyst Three-Day Blackout Before Recommendation.
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During the three (3) business day period before the issuance of a
------
Recommendation by a Research Analyst with respect to a Security, that Research
Analyst may not purchase or sell that Security.
Explanatory Note:
Of course, in particular cases a news release, change of
circumstance or similar event may occur after a Research
Analyst's personal trade which gives rise to a need, or makes it
appropriate, for a Research Analyst to issue a Recommendation
which news, circumstance or event did not exist or was not
anticipated by a Research Analyst at the time of the Research
Analyst's personal trade. The Review Officer will review any
extenuating circumstances which may warrant waiving of any
remedial sanctions in a particular situation involving an
apparently inadvertent violation of this restriction. A Research
Analyst has an affirmative duty to make unbiased Recommendations
and issue reports, both with respect to their timing and
substance, without regard to his or her personal interest. It
would constitute a breach of a Research Analyst's fiduciary duty
and a violation of this Code to delay or fail to issue a
Recommendation in order to avoid a conflict with this provision.
4.10 Access Person Seven-Day Blackout After Recommendation.
During the seven (7) day period after a Recommendation is issued with
respect to a Security, no Access Person may purchase or sell that Security.
4.11 Short Term Trading Profits.
No Access Person may profit from the purchase and sale, or conversely the
sale and purchase, of the same or equivalent Security within 60 calendar days.
Any profits generated on such transactions (calculated in a manner determined
appropriate under the circumstances by the Review Officer) will be disgorged.
Exceptions may be requested (in advance) from the Review Officer. Such
exceptions will be granted only in cases in which there are extenuating
circumstances and no actual or apparent conflict exists between such
transactions and a client's transactions.
4.12 Short Sales.
No Access Person may purchase a put option or sell a call option, sell a
Security short or otherwise take a short position in a Security then being
managed by Loomis, Sayles on a discretionary basis in a client account, unless
there is a corresponding long position in the underlying Security. Short
selling against the box is permitted, as is purchasing a put or selling a call
option on a broad based index.
4.13 Futures and Related Options.
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No Access Person shall use futures or related options on a Security to
evade the restrictions of this Code. In other words, no Access Person may use
futures or related options transactions with respect to a Security if this Code
would prohibit taking the same position directly in the Security.
4.14 Acceptance of Gifts.
Without obtaining prior written approval of the Review Officer, no Access
Person may accept any gift or other thing of more than de minimis value from any
person or entity that does business with Loomis, Sayles. The Review Officer
will, from time to time, issue guidelines as to the type and value of items that
would be considered subject to this restriction.
4.15 Public Company Board Service and Other Affiliations.
No Access Person may serve on the board of directors of any publicly traded
company, absent prior written approval by the Review Officer. In determining
whether to approve such board service, the Review Officer will consider whether
such service will involve an actual or perceived conflict of interest with
client trading, place impediments on Loomis Sayles' ability to trade on behalf
of clients or otherwise materially interfere with the effective discharge of
Loomis Sayles' or the Access Person's duties to clients. Likewise, absent prior
written approval by the Review Officer, no Access Person shall accept any other
service, employment, engagement, connection, association or affiliation in or
with any enterprise, business or otherwise which may present such actual or
perceived conflicts, place impediments on trading or otherwise materially
interfere with the effective discharge of Loomis Sayles' or the Access Person's
responsibilities to clients.
5. PRECLEARANCE, DOCUMENT DELIVERY AND REPORTING PROCEDURES
5.1 Preclearance
With certain limited exceptions, set forth in Section 6 below, every Access
Person must pre-clear (by written, telephonic or electronic means specified by
the Review Officer from time to time) all personal Security transactions in
which he or she has or would acquire Beneficial Ownership. Any transaction
approved pursuant to the preclearance request procedure must be executed by the
end of the trading day on which it is approved unless the Review Officer extends
the preclearance for an additional trading day. If the Access Person's trade
has not been executed by the end of the same trading day (or the next trading
day in the case of an extension), the "preclearance" will lapse and the Access
Person may not trade without again seeking and obtaining preclearance of the
intended trade.
Pre-clearance requests will be accepted and responded to only during hours
specified by the Review Officer from time to time.
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If after preclearance is given and before it has lapsed, an Access Person
becomes aware that a Security as to which he or she obtained pre-clearance has
become the subject of a buy or sell order or has become a Security being
considered for purchase or sale, the Access Person who obtained the preclearance
must consider the preclearance revoked. If the transaction has already been
executed before the Access Person becomes aware of such facts no violation will
be considered to occur as a result of the Access Person's transactions.
Generally preclearance will be denied:
------
. if Loomis, Sayles has an unfilled order for that Security placed
with a broker-dealer, the Security is on the Loomis, Sayles
"Restricted List" or "Concentration List" (or such other trading
restriction list as Loomis, Sayles, may from time to time
establish) or the Security is otherwise being considered for
purchase or sale,
. if the trade is otherwise prohibited under the substantive rules
set forth in Section 4 above (e.g., the requesting person is an
Investment Person and his or her client accounts have traded in
the same Security within seven calendar days).
If an Access Person has actual knowledge that a requested transaction is
nevertheless in violation of this Code, approval of the request will not protect
the Access Person from being considered in violation of the Code.
5.2 Transaction Reporting Requirements
5.2.1 Accounts Subject to Reporting.
Unless utilizing an alternative reporting procedure described in
Section 5.2.3 below, each Access Person must file (by paper or electronic means
specified by the Review Officer from time to time) a report on all Security
transactions made during each monthly period in which such Access Person has, or
by reason of such transactions acquires or disposes of, any Beneficial Ownership
of a Security, or as to which the Access Person has any direct or indirect
influence or control (even if such Access Person has no Beneficial Ownership in
such Security). (Official Loomis, Sayles client accounts in which no Loomis,
Sayles employee has a Beneficial Ownership are not control accounts for this
purpose.) Control accounts subject to reporting include accounts managed by an
Access Person, accounts of trusts for which an Access Person serve as trustee or
co-trustee and similar accounts. Such report is required whether or not such
transactions were precleared or subject to preclearance.
5.2.2 Transaction Reporting Procedure.
Every transaction report must be made not later than ten (10)
calendar days after the end of each calendar month in which the transaction(s)
to which the report relates was effected. All reports must contain the
information required from time to time by Rule 17j-1 under the 1940 Act and Rule
204-2(a)(12) under the Advisers Act or any
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applicable successor provision. A list of the specific items of information then
required will be set forth in a reporting form or other materials provided by
the Review Officer from time to time.
If no transactions in any securities required to be reported were
effected during a monthly period by an Access Person, such Access Person shall
nevertheless submit a report within the time-frame specified above stating that
no reportable securities transactions were effected.
In addition, with respect to each account maintained by the Access
Person during the period subject to reporting under Section 5.2.1, whether or
not a transaction occurred in such an account, the transaction report must
contain the brokerage account identification information required from time to
time by Rule 17j-1 under the 1940 Act and Rule 204-2(a)(12) under the Advisers
Act or any applicable successor provision. A list of the specific items of
information then required will be set forth in a reporting form or other
materials provided by the Review Officer from time to time.
Every report concerning a securities transaction prohibited under
Section 4, with respect to which the Access Person relies upon one of the
exemptions from substantive restrictions or preclearance requirements provided
in Section 6 shall contain a brief statement of the exemption relied upon and
the circumstances of the transactions.
5.2.3 Alternative Transaction Reporting Procedures
The Review Officer may from time to time specify one or more personal
trading arrangements that permit or require the use of approved alternative
reporting procedures. These arrangements may include effecting all transactions
through a Loomis, Sayles trading desk or through approved brokerage firms, or
similar arrangements, in each case that would permit the Review Officer to
receive directly electronic or other information reports on the Access Person's
trading without the intervention of the Access Person.
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5.3 Initial and Annual Personal Holdings Reporting Requirements
Within 10 days after becoming an Access Person, each Access Person must
file with the Review Officer a report (by paper or electronic means specified by
the Review Officer from time to time) of such Securities in which such Access
Person has a Beneficial Ownership or as to which such Access Person has direct
or indirect influence or control. In addition, at least annually thereafter, by
a date specified by the Review Officer, each Access Person must file with the
Review Officer a dated report on a form and in a manner specified by the Review
Officer of Securities in which such Access Person has a Beneficial Ownership or
over which such Access Person has direct or indirect influence or control. In
the case of the initial holdings report, the information must be as of the date
the person became an Access Person. In the case of the annual holdings report,
the information in the report shall be as of a date within 30 days of filing the
report. In each case, this report must contain the information required from
time to time by Rule 17j-1 under the 1940 Act and Rule 204-2(a)(12) under the
Advisers Act or any applicable successor provision. A list of the specific
items of information then required will be set forth in a reporting form or
other materials provided by the Review Officer from time to time.
5.4 Brokerage Confirmations and Statements
Each Access Person must arrange for his or her broker to supply to the
Review Officer, on a timely basis, duplicate copies of all confirmations of all
Security transactions and copies of periodic statements for all accounts holding
Securities in which the Access Person has Beneficial Ownership or as to which
such Access Person has direct or indirect influence or control. Access Persons
who maintain accounts with institutions that agree to provide such information
in an approved electronic format may be eligible for an exemption from some of
----------
the transaction reports required by the Code with respect to those accounts.
See Section 5.2.3.
5.5 Review of Reports by Review Officer
The Review Officer shall establish procedures as the Review Officer may
from time to time determine appropriate, for the review of the information
required to be compiled under this Code regarding transactions by Access
Persons.
6. EXEMPT SECURITIES AND EXEMPT TRANSACTIONS
6.1 Exempt Securities
Transactions in the following types of Securities are exempt from the
substantive trading restrictions and the preclearance requirements, but not
------- ------------ ------------ ------------ ---
reporting, requirements of this Code:
- ---------
. shares of unit investment trusts as to which entity's investment
portfolio the Access Person has no direct or indirect influence
or control (other than open-ended registered investment
companies,
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shares of which are not considered "securities" at all
for these purposes);
. bonds issued or guaranteed by any sovereign government or its
agencies, instrumentalities or authorities or supra-national
issuers (other than direct U.S. government obligations which are
not considered "Securities" at all for these purposes) in each
case, as designated by the Review Officer from time to time;
. Securities of small, private businesses owned or operated by the
family of the Access Person; and
. "index baskets" and options, futures or other derivatives in each
case tied to recognized broad market indices.
6.2 Exempt Transactions.
The following types of transactions are exempt from the trading
-------
restrictions, and the preclearance requirements, but not reporting, requirements
- ------------ ------------ ------------ --- ---------
of this Code:
. purchases or sales of Securities for an account over which you
have no direct or indirect influence or control;
. purchases or sales of Securities which occur as a result of
operation of law, or any margin call (provided such margin call
does not result from your withdrawal of collateral within 10 days
before the call and you have no involvement in the selection of
the specific Securities to be sold);
. purchases of Securities which are part of an automatic dividend
reinvestment plan, automatic payroll deduction program, automatic
cash purchase or withdrawal program or other similar automatic
transaction program, but only to the extent you have made no
voluntary adjustment (up or down) in the rate at which you
purchase or sell;
. purchases of Securities made by exercising rights distributed by
an issuer pro rata to all other holders of a class of its
Securities or other interests, to the extent such rights were
acquired by you from the issuer, and sales of such rights so
acquired;
. tenders of Securities pursuant to tender offers which are
expressly conditioned on the tender offeror's acquisition of all
of the Securities of the same class; and
. transactions in Securities by your spouse (or person in a similar
relationship such that the presumption of Beneficial Ownership
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arises) employed at another investment firm or similar entity,
provided that: (a) you have no direct or indirect influence or
control over the transaction; (b) the transactions are effected
solely through an account separate from your account and (c) the
Review Officer has specifically exempted the spousal or similar
account from certain trading restrictions and preclearance
requirements.
Explanatory Note:
Transactions in such spousal or similar relationship accounts
that are exempted from trading restrictions and preclearance
requirements will be subject to special scrutiny and may be
subject to additional policies or restrictions in the discretion
of the Review Officer to ensure that these accounts are not being
used to circumvent the policies and purposes of this Code.
6.3 Exemption for Investment Personnel from Seven-Day Blackout for Certain
Transactions in Large Capitalization Stocks.
An Investment Person may, without regard to the Investment Personnel Seven-
Day Blackout restriction set forth in Section 4.8 above, purchase or sell a
publicly traded equity security of an issuer having a market capitalization of
at least U.S. $5 billion in one or more transactions having an aggregate value
not exceeding U.S. $10,000 in any one day. Such transactions shall otherwise be
subject to all other substantive and procedural provisions of this Code,
including the preclearance provisions.
6.4 Other Exemptions Granted by the Review Officer.
Subject to applicable law, the Review Officer may from time to time grant
exemptions from the trading restrictions, preclearance requirements or other
provisions of this Code with respect to particular individuals, types of
transactions or Securities, where in the opinion of the Review Officer such an
exemption is appropriate in light of all the surrounding circumstances.
7. SANCTIONS
Any violation of the substantive or procedural requirements of this Code
will result in the imposition of such sanctions as the Review Officer may deem
appropriate under the circumstances of the particular violation, as well as the
violator's past history of violations. These sanctions may include, but are not
limited to:
. a letter of caution or warning;
. payment of monies, such as a fine, disgorgement of profits
generated or payment of losses avoided, or restitution to an
affected client;
. suspension of personal trading privileges;
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. actions affecting employment status, such as suspension of
employment without pay, demotion or termination of employment;
and
. referral to the SEC, other civil authorities or criminal
authorities;
In applying sanctions, the Review Officer will be guided by sanctions
guidelines established by senior management, from time to time, setting forth
suggested sanctions for specific types of violations, including a schedule of
escalating penalties for repeat violations in some areas. Serious violations,
including those involving deception, dishonesty or knowing breaches of law or
fiduciary duty, will result in one or more of the most severe violations
regardless of the violator's history of prior compliance.
Fines, penalties and disgorged profits will be donated to a charity
selected by the relevant employee or as determined by the Review Officer.
8. RECORDKEEPING REQUIREMENTS
Loomis, Sayles shall maintain and preserve records relating to this Code of
the type and in the manner and form and for the time period prescribed from time
to time by applicable law. Currently, Loomis, Sayles is required by law to
maintain and preserve:
. in an easily accessible place, a copy of this Code (and any prior
code of ethics that was in effect at any time during the past
five years) for a period of five years;
. in an easily accessible place a record of any violation of this
Code and of any action taken as a result of such violation for a
period of five years following the end of the fiscal year in
which the violation occurs;
. a copy of each report (or information provided in lieu of a
report) submitted under this Code for a period of five years,
provided that for the first two years such copy must be preserved
in an easily accessible place;
. in an easily accessible place, a list of all persons who are, or
within the past five years were, required to make, or were
responsible for reviewing, reports pursuant to this Code;
. a copy of each report provided to any Investment Company as
required by paragraph (c)(2)(ii) of Rule 17j-1 under the 1940 Act
or any successor provision for a period of five years following
the end of the fiscal year in which such report is made, provided
that for the first two years such record shall be preserved in an
easily accessible place; and
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. a written record of any decision, and the reasons supporting any
decision, to approve the purchase by an Access Person of any
Security in an Initial Public Offering or Private Placement
Transaction for a period of five years following the end of the
fiscal year in which the approval is granted.
9. MISCELLANEOUS
9.1 Confidentiality
Information obtained from any Access Person hereunder will normally be kept
in strict confidence by Loomis, Sayles, but may under certain circumstances be
provided to third parties. For example, reports of Securities transactions and
violations hereunder will be made available to the SEC or any other regulatory
or self-regulatory organization to the extent required by law or regulation, and
in certain circumstances, may in Loomis, Sayles' discretion be made available to
other civil and criminal authorities. In addition, information regarding
violations of this Code may be provided to clients or former clients of Loomis,
Sayles.
9.2 Notice to Access Persons, Investment Personnel and Research Analysts
as to Status; Notice to Review Officer of Engagement of Independent
Contractors
Loomis, Sayles shall periodically identify all persons who are considered
to be "Access Persons," " Investment Personnel" and "Research Analysts" and any
accounts or types of accounts or Securities covered as to which a designation of
Investment Personnel or Research Analysts may apply, inform such persons of
their respective reporting and duties under the Code and provide such persons
with copies of this Code.
Any person engaging an independent contractor shall notify the Review
Officer of this engagement and provide to the Review Officer information
concerning the independent contractor sufficient to permit the Review Officer to
make a determination as to whether such independent contractor shall be
designated as an Access Person.
9.3 Initial and Annual Certification of Compliance
Each Access Person must, upon becoming an Access Person and annually
thereafter, (by paper or electronic means specified by the Review Officer from
time to time) acknowledge that he or she has received, read and understands this
Code and recognizes that he or she is subject hereto, and certify that he or she
will (in the case of a new Access Person) and has during the past year (in the
case of an annual certification) complied with the requirements of this Code of
Ethics, except as otherwise disclosed in writing to the Review Officer.
9.4 Questions and Educational Materials
-17-
<PAGE>
You are encouraged to bring to the Legal and Compliance Department any
questions you may have about interpreting or complying with this Code, about
Security accounts or personal trading activities of you or of your family or
household members, about your legal or ethical responsibilities or about similar
matters that may involve this Code.
The Legal and Compliance Department may from time to time circulate
educational materials or bulletins designed to assist you in understanding and
carrying out your duties under this Code.
-18-
<PAGE>
GLOSSARY OF TERMS
The boldface terms used throughout this policy have the following meanings:
1. "Access Person" means an "access person" as defined from time to time
in Rule 17j-1 under the 1940 Act or any applicable successor
provision. Currently, this means any director, general partner or
officer of Loomis, Sayles, or any Advisory Person (as defined below)
of Loomis, Sayles.
2. "Advisory Person" means an "advisory person" and "advisory
representative" as defined from time to time in Rule 17j-1 under the
1940 Act and Rule 204-2(a)(12) under the Advisers Act, respectively,
or any applicable successor provision. Currently, this means (i)
every employee of Loomis, Sayles (or of any company in a Control
relationship to Loomis, Sayles), who, in connection with his or her
regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a Security by Loomis,
Sayles on behalf of clients, or whose functions relate to the making
of any recommendations with respect to such purchases or sales; and
(ii) every natural person in a Control relationship to Loomis, Sayles
who obtains information concerning recommendations made to a client
with regard to the purchase or sale of a Security. Advisory Person
also includes: (a) any other employee designated by the Review Officer
as an Advisory Person under this Code; and (b) any independent
contractor (or similar person) engaged by Loomis, Sayles designated as
such by the Review Officer as a result of such independent
contractor's access to information about the purchase or sale of
Securities by Loomis, Sayles on behalf of clients (by being present in
Loomis, Sayles offices, having access to computer data or otherwise).
3. "Beneficial Ownership" is defined in Section 3.2.2 of the Code.
4. "Control" means "control" as defined from time to time in Rule 17j-1
under the 1940 Act and Rule 204-2(a)(12) under the Advisers Act or any
applicable successor provision. Currently, this means the power to
exercise a controlling influence over the management or policies of
Loomis, Sayles, unless such power is solely the result of an official
position with Loomis, Sayles.
5. "Initial Public Offering" means an "initial public offering" as
defined from time to time in Rule 17j-l under the 1940 Act or any
applicable successor provision. Currently, this means any offering of
securities registered under the Securities Act of 1933 the issuer of
which immediately before the offering, was not subject to the
reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934.
6. "Investment Company" means any Investment Company registered as such
under the 1940 Act and for which Loomis, Sayles serves as investment
adviser or subadviser.
7. "Investment Person" means all Portfolio Managers of Loomis, Sayles and
other Advisory Persons who assist the Portfolio Managers in making and
implementing investment decisions for an Investment Company or other
client of Loomis, Sayles, including, but not limited to, designated
Research Analysts and tenders of Loomis,
G-1
<PAGE>
Sayles. A person is considered an Investment Person only as to those
client accounts or types of client accounts as to which he or she is
designated by the Review Officer as such. As to other accounts, he or
she is simply an Access Person.
8. "Portfolio Manager" means any individual employed by Loomis, Sayles
who has been designated as a Portfolio Manager by Loomis, Sayles. A
person is considered a Portfolio Manager only as to those client
accounts as to which he or she is designated by the Review Officer as
such. As to other client accounts, he or she is simply an Access
Person.
9. "Private Placement Transaction" means a "limited offering" as defined
from time to time in Rule 17j-l under the 1940 Act or any applicable
successor provision. Currently, this means an offering exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2)
or 4(6) or Rule 504, 505 or 506 under that Act.
10. "Recommendation" means any initial rating or change therein, in the
case of an equity Security, or any initial rating or status, or change
therein in the case of a fixed income Security in either case issued
by a Research Analyst.
11. "Research Analyst" means any individual employed by Loomis, Sayles who
has been designated as a Research Analyst by Loomis, Sayles. A person
is considered a Research Analyst only as to those Securities which he
or she is assigned to cover and about which he or she issues research
reports to other Investment Personnel. As to other accounts, he or
she is simply an Access Person.
12. "Review Officer" means the General Counsel or such other officer or
employee of Loomis, Sayles designated from time to time by Loomis,
Sayles to receive and review reports of purchases and sales by Access
Persons, and to address issues of personal trading. "Alternate Review
Officer(s)" means the employee or employees of Loomis, Sayles
designated from time to time by Loomis, Sayles to receive and review
reports of purchases and sales, and to address issues of personal
trading, by the Review Officer, and to act for the Review Officer in
the absence of the Review Officer.
13. "Security" is defined in Section 3.2.1 of the Code.
G-2
<PAGE>
EX-99.(p)(10)
MASSACHUSETTS FINANCIAL SERVICES COMPANY
STATEMENT OF POLICY ON
PERSONAL SECURITIES TRANSACTIONS
(Code of Ethics)
As Adopted by the Audit Committee
Effective as of March 1, 2000
As an investment advisory organization wih substantial responsibilities to
clients, Massachusetts Financial Services Company ("MFS") has an obligation to
implement and maintain a meaningful policy governing the securities transactions
of its Directors, officers and employees ("MFS" representatives")./1/ This
policy is intended to minimize conflicts of interest, and even the appearance of
conflicts of interest, between members of the MFS organization and its clients
in the securities markets as well as to effect compliance with the Investment
Company Act, the Investment Advisers Act and the Securities Exchange Act. This
policy inevitably will restrict MFS representatives in their securities
transactions, but this is the necessary consequence of undertaking to furnish
investment advice to clients. In addition to complying with the specific rules,
we all must be sensitive to the need to recognize any conflict, or the
appearance of conflict, of interest whether or not covered by the rules. When
such situations occur, the interests of our clients must supersede the interest
of MFS representatives.
1. General Fiduciary Principles. All personal investment activities
----------------------------
conducted by MFS representatives are subject to compliance with the following
principles: (i) the duty at all times to place the interests of MFS' clients
first; (ii) the requirement that all personal securities transactions be
conducted consistent with this Code of Ethics and in such a manner as to avoid
any actual or potential conflict of interest or any abuse of an individual's
position of trust and responsibility; and (iii) the fundamental standard that
MFS representatives should not take inappropriate advantage of their positions.
2. Applicability of Restrictions and Procedures. In recognition of the
--------------------------------------------
different circumstances surrounding each MFS representative's employment,
various categories of MFS employees are subject to different restrictions under
this Code of Ethics. For purposes of applying this Code of Ethics, MFS employees
are divided into the general categories of Portfolio Managers, Investment
Personnel, Access Persons and Non-Access Persons, as each such term is defined
in Appendix A to this Code of Ethics, as amended from time to time by the Audit
Committee.
As used in this Code of Ethics, the term "securities" includes not only
publicly traded equity securities, but also privately issued equity securities,
shares of closed-end funds, fixed income securities (including municipal bonds
and many types of U.S. Government securities), futures, options, warrants,
rights, swaps, commodities and other similar instruments. Moreover, the
restrictions of this Code of Ethics apply to transactions by Access Persons
involving
___________________
/1/ Employees of MFS Institutional Advisors, Inc., MFS Fund Distributors,
Inc., MFS Retirement Services, Inc., MFS International Ltd., MFS International
(U.K.) Ltd., MFS Service Center, Inc., Vertex Investment Management Inc. and
MFS Heritage Trust Company also are covered by this Code of Ethics.
<PAGE>
securities and other instruments related to, but not necessarily the same as,
securities held or to be acquired on behalf of an MFS client.
3. Restrictions on Personal Securities Transactions. No Access Person shall
------------------------------------------------
trade in any security which is subject to a pending "buy" or "sell" order, or is
being considered for purchase or sale,2 for a client of MFS until such order is
executed or withdrawn or such a transaction is no longer being considered. In
addition, no Investment Personnel shall trade in any security after an MFS
client trades in such security or such security has been considered for purchase
or sale on behalf of an MFS client until: (i) the next business day following
such trade or consideration (in the case of a proposed trade by an Investment
Personnel in the same direction as the MFS client); or (ii) the eighth calendar
day thereafter (in the case of a proposed trade by an Investment Personnel in
the opposite direction from the MFS client's trade). No Portfolio Manager shall
trade in any security within at least seven calendar days before or after an MFS
client whose account he or she manages trades in such security or such security
has been considered for purchase or sale on behalf of such an MFS client. Any
profits realized on trades within these proscribed periods must be disgorged to
the affected MFS client or, in the event that the amount to be disgorged is
relatively minor or difficult to allocate, to charity. In addition, no MFS
representative shall provide any information about such transaction or
recommendation to any person other than in connection with the proper execution
of such purchase or sale for an MFS client's account.
Portfolio Managers should consider the problems inherent in purchasing for
their own account securities that are or may be suitable for a client's
portfolio. For example, a fortuitous early sale by the Manager for his or her
personal account may be criticized in hindsight if the same security later is
sold from the client's account at a lower price.
Gifts and Transfers. A gift or transfer shall be excluded from the
-------------------
preclearance requirements provided that the recipient represents in writing
that he, she, they or it has no present intention of selling the donated
security.
Short Sales. No Access Person shall effect a short sale in any security
-----------
held in a portfolio managed by MFS. Access Persons may engage in
transactions in options and futures, subject to special preclearance rules
applicable to certain of those transactions as described in Section 5
below.
Initial Public Offerings. The purchase by Access Persons of securities
------------------------
(other than securities of registered open-end investment companies) offered
at fixed public offering price by underwriters or a selling group is
prohibited.3 Rights (including rights purchased to acquire an additional
full share) issued in respect of securities any Access
__________________________
/2/ A security is deemed to have been "considered for purchase or sale"
when a recommendation to purchase or sell such security has been made and
communicated to a portfolio manager and, with respect to the person making the
recommendation, when such person seriously considers making such a
recommendation.
/3/ The reason for this rule is that it precludes any possibility that
Access Persons might use MFS' clients' market stature as a means of obtaining
for themselves "hot" issues which otherwise might not be offered to them. In
addition, this rule eliminates the possibility that underwriters and selling
group members might seek by this means to gain favor with individuals in order
to obtain preferences from MFS.
<PAGE>
Persons owns may be exercised, subject to preclearance; the decision
whether or not to grant preclearance shall take into account, among other
factors, whether the investment opportunity should be reserved for an MFS
client and whether the investment opportunity is being or was offered to
the individual by virtue of his or her position with MFS.
Private Placements. Any acquisition by Access Persons of securities issued
------------------
in a private placement is subject to preclearance. The decision whether or
not to grant preclearance shall take into account, among other factors,
whether the investment opportunity should be reserved for an MFS client and
whether the investment opportunity is being offered to the individual by
virtue of his or her position with MFS. Investment Personnel who have been
precleared to acquire securities in a private placement are required to
disclose that investment when they play a part in any subsequent
consideration of an investment in the issuer for an MFS client. In such
circumstances, the decision to purchase securities of the issuer for the
MFS client shall be subject to an independent review by Investment
Personnel with no personal interest in the issuer.
Note: Acquisitions of securities in private placements by
----
country clubs, yacht clubs and other similar entities need not be
precleared, but are subject to the reporting, disclosure and independent
review requirements.
Prohibition on Short-Term Trading Profits. All Investment Personnel are
-----------------------------------------
prohibited from profiting in the purchase and sale, or sale and purchase,
of the same (or equivalent) securities within 60 calendar days. Any profits
realized on such short-term trades must be disgorged to the affected MFS
client (if any) or, in the event that the amount to be disgorged is
relatively minor or difficult to allocate, to charity. This restriction on
short-term trading profits shall not apply to transactions exempt from
preclearance requirements, as described in Section 8 below.
It is expected that all MFS representatives will follow these restrictions
in good faith and conduct their personal trading in keeping with the intended
purpose of this Code of Ethics. Note: Any Non-Access Person who receives any
information about any particular investment recommendation or executed or
proposed transaction for any MFS client is required to comply with all
preclearance and other requirements of this Code of Ethics applicable to Access
Persons. Any individual should feel free to take up with the Audit Committee any
case in which he or she feels inequitably burdened by these policies. The Audit
Committee may, in its sole discretion, grant appropriate exceptions from the
requirements of this Code of Ethics where warranted by applicable facts and
circumstances.
4. Beneficial Ownership. The requirements of this Code of Ethics apply to
--------------------
any account in which an MFS representative has (i) "direct or indirect
beneficial ownership" or (ii) any "direct or indirect influence or control."
Under applicable SEC interpretations, such "beneficial ownership" includes
--------
accounts of a spouse, minor children and dependent relatives resident in the MFS
- --------------------------------------------------------------------------------
representative's house, as well as any other contract, relationship,
- ----------------------
understanding or other arrangement which results in an opportunity for the MFS
representative to profit or share profits from a transaction in securities.
NOTE: The exception for accounts with respect to which an MFS
----
representative lacks "direct or indirect influence or control" is extremely
narrow, and should only be relied upon in
<PAGE>
cases which have been pre-approved in writing by Stephen E. Cavan or Robert T.
Burns of the Legal Department. Certain "blind trust" arrangements approved by
the Legal Department may be excluded from the preclearance (but not the
quarterly reporting) requirements of this Code of Ethics.
5. Preclearance Requirements. In order to facilitate compliance with this
-------------------------
Code of Ethics, preclearance requests must be made and approved before any
transaction may be made by an Access Person or for any other account
beneficially owned by an Access Person. A preclearance request in the form set
forth in MFS' automated Code of Ethics system, as amended from time to time,
should be completed and submitted electronically for any order for an Access
Person's own account or one described in Section 4 above, or, in the case of an
Access Person who wishes to preclear while outside of the Boston area, should
either: (i) be completed in the form attached hereto, as amended from time to
time, signed and submitted by facsimile machine, to the Compliance Department
(see Preclearance Request form); or (ii) be submitted by telephone call to the
Compliance Department. Any preclearance request received before 3:00 p.m. on a
business day will be responded to as soon as available on the following business
day. Preclearance requests will be reviewed by Equity and Fixed Income
Department personnel who will be kept apprised of recommendations and orders to
purchase and sell securities on behalf of MFS clients, the completion or
cancellation of such orders and the securities currently held in portfolios
managed by MFS. Their advice will be forwarded to the Compliance Department.
The preclearance process imposes significant burdens on the investment and
administrative departments within MFS. Accordingly, if the MFS Audit Committee
determines that an Access Person is making an excessive number of preclearance
requests, it reserves the right to limit such Access Person to a certain number
of preclearance requests per day or per period.
An Access Person who obtains electronic or written notice from the
Compliance Department indicating consent to an order which the Access Person
proposes to enter for his or her own account or one described in Section 4 above
may execute that order only on the day when such notice is received unless
--------------------------------------------
otherwise stated on the notice. Such notices will always be electronic or in
writing; however, in the case of an Access Person who wishes to preclear a
transaction while outside the Boston area, the Compliance Department will also
provide oral confirmation of the content of the written notice.
Preclearance requests may be denied for any number of appropriate reasons,
most of which are confidential. For example, a preclearance request for a
security that is being considered for purchase or sale on behalf of an MFS
client may be denied for an extended period (e.g. 10 business days).
Accordingly, an Access Person is not entitled to receive any explanation or
reason if his or her preclearance request is denied, and repetitive requests for
an explanation by an Access Person will be deemed a violation of this Code of
Ethics.
Significant Ownership by MFS Clients. In cases where MFS clients own, in
-------------------------------------
the aggregate, 8% or more of the outstanding equity securities of an
issuer, requests by Access Persons to purchase the securities of such
issuer will be denied. Requests to preclear sales of such securities may be
granted, subject to the standard requirements set forth in Section 3 above.
Securities Subject to Automatic Purchases and Sales for MFS Clients.
--------------------------------------------------------------------
Certain MFS funds and institutional accounts are managed such that the
securities held in such
<PAGE>
Portfolios are regularly purchased or sold on an equal proportionate basis
so as to preserve specified percentage weightings of such securities across
such portfolios. Requests to preclear purchases of securities held in such
portfolios will be denied. Requests to sell such securities may be granted,
subject to the standard preclearance requirements set forth in Section 3
above.
Options and Futures Transactions. Access Persons may purchase (to open) and
---------------------------------
sell (to close) call and put options and futures contracts on securities,
subject to the preclearance and other requirements of this Code of Ethics;
however, an Access Person may neither buy a put option on any security held
in a portfolio managed by MFS nor write (sell to open) options and futures
contracts. In the case of purchased put and call options, the preclearance
of the exercise of such options as well as their purchase and sale, is
required. Preclearance of the exercise of purchased put and call options
shall be requested on the day before the proposed exercise or, if notice to
the writer of such options is required before the proposed exercise date,
the date before notice is proposed to be given, setting forth the proposed
exercise date as well as the proposed notice date.4 Purchases and sales of
options or futures contracts to "close out" existing options or futures
contracts must be precleared./5/
MFS Closed-End Funds. All transactions effected by any MFS representative
---------------------
in shares of any closed-end fund for which MFS or one of its affiliates
acts as investment adviser shall be subject to preclearance and reporting
in accordance with this Code of Ethics. Non-Access Persons are exempt from
the preclearance and reporting requirements set forth in this Code of
Ethics with respect to transactions in any other type of securities, so
long as they have not received any information about any particular
investment recommendation or executed or proposed transaction for any MFS
client with respect to such security.
6. Duplicate Confirmation Statement Requirement. In order to implement and
---------------------------------------------
enforce the above policies, every Access Person shall arrange for his or her
broker to send MFS duplicate copies of all confirmation statements issued with
respect to the Access Person's transactions and all periodic statements for such
Access Person's securities accounts (or other accounts beneficially owned by
such Access Person). The Compliance Department will coordinate with brokerage
firms in order to assist Access Persons in complying with this requirement.
7. Reporting Requirement. Each Access Person shall report on or before the
---------------------
tenth day of each calendar quarter any securities transactions during the prior
quarter in accounts covered by Section 4 above. Employees who fail to complete
and file such quarterly reports on a timely basis will be reported to the Audit
Committee and will be subject to sanctions. Reports shall be reviewed by the
Compliance Department.
_____________________
/4/ Access Persons should note that this requirements may result in their
not being allowed to exercise an option purchased by them on the exercise date
they desire, and in the case of a "European" option on the only date on which
exercise is permitted by the terms of the option.
/5/ Access Persons should note that as a result of this requirement, they
may not be able to obtain preclearance consent to close out an option or futures
contract before the settlement date. If such an option or futures contract is
automatically closed out, the gain, if any, on such transaction will be
disgorged in the manner described in Section 3 above.
<PAGE>
In filing the reports for accounts within these rules, please note:
(i) You must file a report for every calendar quarter even if you
had no reportable transactions in that quarter; all such reports
shall be completed and submitted in the form set forth in MFS'
automated Code of Ethics system.
(ii) Reports must show any sales, purchases or other acquisitions or
dispositions, including gifts, exercises of conversion rights
and exercises or sales of subscription rights. See Section 8
below for certain exceptions to this requirement.
(iii) Reports will be treated confidentially unless a review of
particular reports with the representative is required by the
Audit Committee.
(v) Reports are made available for review by the Boards of Trustees
of MFS investment company clients upon their request.
Note: Any Access Person who maintains all of his or her personal
----
securities accounts with one or more broker-dealer firms that send
confirmation and periodic account statements in an electronic format
approved by the Compliance Department, and who arranges for such firms
to send such statements (no less frequently than quarterly) required
by Section 6 above, shall not be required to prepare and file the
quarterly reports required by this Section 7. However, each such
Access Person shall be required to verify the accuracy and
completeness of all such statements on at least an annual basis.
8. Certain Exceptions.
-------------------
Mutual Funds. Transactions in shares of any open-end investment
------------
companies, including funds for which the MFS organization is investment
adviser, need not be precleared or reported.
Closed-End Funds. Automatic reinvestments of distributions of closed-
----------------
end funds advised by MFS pursuant to dividend reinvestment plans of such
funds need only be reported. All other closed-end fund transactions must be
precleared and reported.
MFS Common Stock. Transactions in shares of stock of MFS need not be
----------------
precleared or reported.
Large Capitalization Stocks. Transactions in securities issued by
----------------------------
companies with market capitalizations of at least $5 billion generally will
be eligible for automatic preclearance (subject to certain exceptions), but
must be reported and are subject to post-trade monitoring. The Compliance
Department will maintain a list of issuers that meet this market
capitalization requirement. A preclearance request for a large
capitalization company will be denied whenever deemed appropriate.
U.S. Government Securities. Transactions in U.S. Treasury securities
---------------------------
(including options and futures contracts and other derivatives with respect
to such securities) need not be precleared or reported. Option and futures
contracts on U.S. Government obligations (other than
<PAGE>
U.S. Treasury securities) and securities indices need not be precleared but
must be reported. Transactions in U.S. Government securities offered on the
basis of "non-competitive tender" need not be precleared or reported.
However, U.S. Government obligations (other than U.S. Treasury securities)
offered by "subscription" must be precleared and reported.
Other Exceptions. Transactions in money market instruments and in
-----------------
options on broad-based indices need not be precleared, although such
transactions must be reported. In addition, the following types of
transactions need not be precleared or reported: (i) stock dividends and
stock splits; (ii) foreign currency transactions; and (iii) transactions in
real estate limited partnership interests.
9. Disclosure of Personal Securities Holdings. All Access Persons are
------------------------------------------
required to disclose all personal securities holdings within 10 days after
becoming an Access Person (i.e. upon commencement of employment with MFS or
transfer within MFS to an Access Person position) and thereafter on an
annual basis. Reports shall be reviewed by the Compliance Department.
10. Gifts, Entertainment and Favors. MFS representatives must not make
-------------------------------
business decisions that are influenced or appear to be influenced by giving
or accepting gifts, entertainment or favors. Investment Personnel are
prohibited from receiving any gift or other thing of more than de minimis
value from any person or entity that does business with or on behalf of MFS
or its clients. Invitations to an occasional meal, sporting event or other
similar activity will not be deemed to violate this restriction unless the
occurrence of such events is so frequent or lavish as to suggest an
impropriety.
11. Service as a Director. All MFS representatives are prohibited from
---------------------
serving on the boards of directors of commercial business enterprises,
absent prior authorization by the Management Committee based upon a
determination that the board service would be consistent with the interests
of MFS' clients. In the relatively small number of instances in which board
service is authorized, MFS representatives serving as directors may be
isolated from other MFS representatives through "Chinese Wall" or other
appropriate procedures.
12. Certification of Compliance with Code of Ethics. All MFS
-----------------------------------------------
representatives (including Non-Access Persons) shall be required to certify
annually that (i) they have read and understand this Code of Ethics and
recognize that they are subject to its requirements applicable to them and
(ii) they have complied with all requirements of this Code of Ethics
applicable to them, and (in the case of Access Persons) have reported all
personal securities transactions (whether pursuant to quarterly reports from
the Access Person or duplicate confirmation statements and periodic reports
from the Access Person's broker-dealer) required to be reported pursuant to
this Code of Ethics. This certification shall apply to all accounts
beneficially owned by an MFS representative.
13. Boards of Trustees of MFS Funds. Any material amendment to this
-------------------------------
Code of Ethics shall be subject to the approval by each of the Boards of
Trustees (including a majority of the disinterested Trustees on each such
Board) of each of the registered investment companies with respect to which
MFS, or any subsidiary of MFS, acts as investment adviser. In addition, on
at least an annual basis, MFS shall provide each such Board with a written
report that: (i) describes issues that arose during the preceding year under
this Code of Ethics, including without limitation information about any
material violations of this Code of Ethics and any sanctions
<PAGE>
imposed with respect to such violations; and (ii) certifies to each such
Board that MFS has adopted procedures reasonably necessary to prevent Access
Persons from violating this Code of Ethics.
14. Sanctions. Any trading for an MFS representative's account which
---------
does not evidence a good faith effort to comply with these rules will be
subject to Audit Committee review. If the Audit Committee determines that a
violation of this Code of Ethics or its intent has occurred, it may impose
such sanctions as it deems appropriate including forfeiture of any profit
from a transaction and/or termination of employment. Any violations
resulting in sanctions will be reported to the Boards of Trustees of MFS
investment company clients and will be reflected in the employee's personnel
file.
<PAGE>
APPENDIX A
CERTAIN DEFINED TERMS
As used in this Code of Ethics, the following shall terms shall have the
meanings set forth below, subject to revision from time to time by the Executive
Committee:
Portfolio Managers -- employees who are authorized to make investment
------------------
decisions for a mutual fund or client portfolio. Note: research analysts
----
are deemed to be Portfolio Managers with respect to the entire portfolio of
any fund managed collectively by a committee of research analysts (e.g. MFS
Research Fund).
Investment Personnel -- all Portfolio Managers as well as research
--------------------
analysts, traders and other members of the Equity Trading, Fixed Income and
Equity Research Departments.
Access Persons -- all Portfolio Managers, Investment Personnel and other
--------------
members of the following departments or groups: Institutional Advisors;
Compliance; Fund Accounting; Investment Communications; and Technology
Services & Solutions ("TS&S") (excluding, however, TS&S employees who are
employed at Lafayette Corporate Center and certain TS&S employees who may
be specifically excluded by the Compliance or Legal Departments); also
included are members of the MFS Management Committee, the MFS
Administrative Committee and the MFS Operations Committee. In certain
instances, non-employee consultants and other independent contractors may
be deemed Access Persons and therefore be subject to some or all of the
requirements set forth in this Code of Ethics.
Non-Access Persons -- all employees of the following departments or
------------------
groups: Corporate Communications; Corporate Finance; Facilities Management;
Human Resources; Internal Audit (unless undergoing an audit of an access
area); Legal; MFS Service Center, Inc. (other than TS&S employees who are
employed at 500 Boylston Street); Retired Partners; Travel and Conference
Services; the International Division; MFS International Ltd.; MFS Fund
Distributors, Inc.; and MFS Retirement Services, Inc. Note: Any Non-Access
Person who receives any information about any particular investment
recommendation or executed or proposed transaction for any MFS client is
required to comply with all preclearance and other requirements of this
Code of Ethics applicable to Access Persons. Any Non-Access Person who
regularly receives such information will be reclassified as an Access
Person. In addition, transactions in shares of the MFS closed-end funds by
all MFS representatives are subject to all such preclearance and reporting
requirements (see Section 5 of this Code of Ethics).
<PAGE>
PERSONAL SECURITIES TRANSACTION
PRECLEARANCE REQUEST
[Only For Use By MFS Employees
Not Located In Boston]
Date:__________________, ____
All transactions must be precleared, regardless of their size, except those in
certain specific categories of securities that are exempted under the MFS Code
of Ethics. If necessary, continue on the reverse side. Please note that special
rules apply to the preclearance of option and futures transactions. If the
transaction is to be other than a straightforward sale or purchase of
securities, mark it with an asterisk and explain the nature of the transaction
on the reverse side. Describe the nature of each account in which the
transaction is to take place, i.e., personal, spouse, children, charitable
trust, etc.
SALES
-----
CUSIP/TICKER AMOUNT OR BROKER NATURE* OF
SECURITY NO. OF SHARES ------ ACCOUNT
-------- ------------- -------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
PURCHASES
---------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
I represent that I am not in possession of material non-public information
concerning the securities listed above or their issuer. If I am an MFS access
person charged with making recommendations to MFS with respect to any of the
securities listed above, I represent that I have not determined or been
requested to make a recommendation in that security except as permitted by the
MFS Code of Ethics.
___________________________________
Signature and Date
___________________________________
Name of MFS Access Person
(please print)
Explanatory Notes: This form must be filed by 3:00 p.m. on the business day
prior to the business day on which you wish to trade and covers all accounts in
which you have an interest, direct or indirect. This includes any account in
which you have "beneficial ownership" (unless you have no influence or control
over it) and non-client accounts over which you act in an advisory or
supervisory capacity. No trade can be effected until approval from the
Compliance Department has been obtained.
__________________
* Check if you wish to claim that the reporting of the account or the
securities transaction shall not be construed as an admission that you have any
direct or indirect beneficial ownership in such account or securities.
<PAGE>
EX-99.(p)(11)
PERSONAL INVESTMENT POLICY
FOR
SSB CITI ASSET MANAGEMENT GROUP - NORTH AMERICA
AND CERTAIN REGISTERED INVESTMENT COMPANIES
SSB Citi Asset Management Group ("SSB Citi")/1/, and those U.S.-registered
investment companies advised or managed by SSB Citi that have adopted this
policy ("Funds"), have adopted this policy on securities transactions in order
to accomplish two goals: first, to minimize conflicts and potential conflicts of
interest between employees of SSB Citi and SSB Citi's clients (including the
Funds), and between Fund directors or trustees and their Funds, and second, to
------
provide policies and procedures consistent with applicable law, including Rule
17j-1 under the Investment Company Act of 1940, to prevent fraudulent or
manipulative practices with respect to purchases or sales of securities held or
to be acquired by client accounts. All U.S. employees of SSB Citi, including
employees who serve as Fund officers or directors, and all directors or trustees
("directors") of each Fund, are Covered Persons under this policy. Other
Covered Persons are described in Section II below.
I. Statement of Principles - All SSB Citi employees owe a fiduciary duty to
SSB Citi's clients when conducting their personal investment transactions.
Employees must place the interests of clients first and avoid activities,
interests and relationships that might interfere with the duty to make
decisions in the best interests of the clients. All Fund directors owe a
fiduciary duty to each Fund of which they are a director and to that Fund's
shareholders when conducting their personal investment transactions. At all
times and in all matters Fund directors shall place the interests of their
Funds before their personal interests. The fundamental standard to be
followed in personal securities transactions is that Covered Persons may
not take inappropriate advantage of their positions.
All personal securities transactions by Covered Persons shall adhere to the
requirements of this policy and shall be conducted in such a manner as to
avoid any actual or potential conflict of interest, the appearance of such
a conflict, or the abuse of the person's position of trust and
responsibility. While this policy is designed to address both identified
conflicts and potential conflicts, it cannot possibly be written broadly
enough to cover all potential situations. In this regard, Covered Persons
are expected to adhere not only to the letter, but also the spirit of the
policies contained herein.
Employees are reminded that they also are subject to other Citigroup
policies, including policies on insider trading, the purchase and sale of
securities listed on any applicable SSB Citi restricted list, the receipt
of gifts and service as a director of a publicly traded company. Employees
must never trade in a security or commodity while in possession of
material, non-public information about the issuer or the market for those
securities or commodities, even if the employee has satisfied all other
requirements of this policy.
The reputation of SSB Citi and its employees for straightforward practices
and integrity is a priceless asset, and all employees have the duty and
obligation to support and maintain it when conducting their personal
securities transactions.
/1/ The investment advisory entities of SSB Citi covered by this policy include:
Salomon Brothers Asset Management Inc.; SSB Citi Fund Management LLC; Smith
Barney Asset Management Division of Salomon Smith Barney Inc.; Travelers
Investment Management Company; and the Citibank Global Asset Management Division
of Citibank, N.A. and Citicorp Trust, N.A.-California.
1
<PAGE>
II. Applicability - SSB Citi Employees - This policy applies to all U.S.
employees of SSB Citi, including part-time employees. Each employee,
including employees who serve as Fund officers or directors, must comply
with all of the provisions of the policy applicable to SSB Citi employees
unless otherwise indicated. Certain employees are considered to be
"investment personnel" (i.e., portfolio managers, traders and research
analysts (and each of their assistants)), and as such, are subject to
certain additional restrictions outlined in the policy. All other employees
of SSB Citi are considered to be "advisory personnel."
Generally, temporary personnel and consultants working in any SSB Citi
business are subject to the same provisions of the policy as full-time
employees, and their adherence to specific requirements will be addressed
on a case-by-case basis.
The personal investment policies, procedures and restrictions referred to
herein also apply to an employee's spouse and minor children. The policies
also apply to any other account over which the employee is deemed to have
beneficial ownership. This includes: accounts of any immediate family
members sharing the same household as the employee; accounts of persons or
other third parties for whom the employee exercises investment discretion
or gives investment advice; a legal vehicle in which the employee has a
direct or indirect beneficial interest and has power over investment
decisions; accounts for the benefit of a third party (e.g., a charity)
which may be directed by the employee (other than in the capacity of an
employee); and any account over which the employee may be deemed to have
control. For a more detailed description of beneficial ownership, see
Exhibit A attached hereto.
These policies place certain restrictions on the ability of an employee to
purchase or sell securities that are being or have been purchased or sold
by an SSB Citi managed fund or client account. The restrictions also apply
to securities that are "related" to a security being purchased or sold by
an SSB Citi managed fund or client account. A "related security" is one
whose value is derived from the value of another security (e.g., a warrant,
option or an indexed instrument).
Fund Directors - This policy applies to all directors of Funds that have
adopted this policy. The personal investment policies, procedures and
restrictions that specifically apply to Fund directors apply to all
accounts and securities in which the director has direct or indirect
beneficial ownership. See Exhibit A attached hereto for a more detailed
description of beneficial ownership.
Securities are defined as stocks, notes, bonds, closed-end mutual funds,
debentures, and other evidences of indebtedness, including senior debt,
subordinated debt, investment contracts, commodity contracts, futures and
all derivative instruments such as options, warrants and indexed
instruments, or, in general, any interest or instrument commonly known as a
"security."
III. Enforcement - It is the responsibility of each Covered Person to act in
accordance with a high standard of conduct and to comply with the policies
and procedures set forth in this document. SSB Citi takes seriously its
obligation to monitor the personal investment activities of its employees.
Any violation of this policy by employees will be considered serious, and
may result in disciplinary action, which may include the unwinding of
trades, disgorgement of profits, monetary fine or censure, and suspension
or termination of employment. Any violation of this policy by a Fund
director will be reported to the Board of Directors of the applicable Fund,
which may impose such sanctions as it deems appropriate.
2
<PAGE>
IV. Opening and Maintaining Employee Accounts - All employee brokerage
accounts, including spouse accounts, accounts for which the employee is
deemed to have beneficial ownership, and any other accounts over which the
employee and/or spouse exercise control, must be maintained either at
Salomon Smith Barney ("SSB") or at Citicorp Investment Services ("CIS")./2/
For spouses or other persons who, by reason of their employment, are
required to conduct their securities, commodities or other financial
transactions in a manner inconsistent with this policy, or in other
exceptional circumstances, employees may submit a written request for an
exemption to the Compliance Department. If approval is granted, copies of
trade confirmations and monthly statements must be sent to the Compliance
Department. In addition, all other provisions of this policy will apply.
V. Excluded Accounts and Transactions - The following types of
accounts/transactions need not be maintained at SSB or CIS, nor are they
subject to the other restrictions of this policy:
1. Accounts at outside mutual funds that hold only shares of open-
end funds purchased directly from that fund company. Note:
transactions relating to closed-end funds are subject to the pre-
clearance, blackout period and other restrictions of this policy;
2. Estate or trust accounts in which an employee or related person
has a beneficial interest, but no power to affect investment
decisions. There must be no communication between the account(s)
and the employee with regard to investment decisions prior to
execution. The employee must direct the trustee/bank to furnish
copies of confirmations and statements to the Compliance
Department;
3. Fully discretionary accounts managed by either an internal or
external registered investment adviser are permitted and may be
custodied away from SSB and CIS if (i) the employee receives
permission from the Regional Director of Compliance and the
unit's Chief Investment Officer, and (ii) there is no
communication between the manager and the employee with regard to
investment decisions prior to execution. The employee must
designate that copies of trade confirmations and monthly
statements be sent to the Compliance Department;
4. Employees may participate in direct investment programs which
allow the purchase of securities directly from the issuer without
the intermediation of a broker/dealer provided that the timing
and size of the purchases are established by a pre-arranged,
regularized schedule (e.g., dividend reinvestment plans).
Employees must pre-clear the transaction at the time that the
dividend reinvestment plan is being set up. Employees also must
provide documentation of these arrangements and direct periodic
(monthly or quarterly) statements to the Compliance Department;
and
5. In addition to the foregoing, the following types of securities
are exempted from pre-clearance, blackout periods, reporting and
short-term trading requirements: open-ended mutual funds; open-
end unit investment trusts; U.S. Treasury bills, bonds and notes;
mortgage pass-throughs (e.g. Ginnie Maes) that are direct
obligations of the U.S. government; bankers acceptances; bank
/2/ This requirement will become effective as to all employees on a date to be
determined by the Compliance Department and may be subject to a phase-in
implementation process.
3
<PAGE>
certificates of deposit; commercial paper; and high quality
short-term debt instruments (meaning any instrument that has a
maturity at issuance of less than 366 days and that is rated in
one of the two highest rating categories by a nationally
recognized statistical rating organization, such as S&P or
Moody's), including repurchase agreements.
VI. Securities Holding Period/Short-Term Trading - Securities transactions
must be for investment purposes rather than for speculation. Consequently,
employees may not profit from the purchase and sale, or sale and purchase,
of the same or equivalent securities within sixty (60) calendar days,
calculated on a First In, First Out (FIFO) basis (i.e., the security may
be sold on the 61st day). Citigroup securities received as part of an
employee's compensation are not subject to the 60-day holding period. All
profits from short-term trades are subject to disgorgement. However, with
the prior written approval of both a Chief Investment Officer and the
Regional Director of Compliance, and only in rare and/or unusual
circumstances, an employee may execute a short-term trade that results in
a significant loss or in break-even status.
VII. Pre-Clearance - All SSB Citi employees must pre-clear all personal
securities transactions (see Section V for a listing of accounts,
transactions and securities that do not require pre-clearance). A copy of
the pre-clearance form is attached as Exhibit B. In addition, employees
are prohibited from engaging in more than twenty (20) transactions in any
calendar month, except with prior written approval from their Chief
Investment Officer, or designee. A transaction must not be executed until
the employee has received the necessary approval. Pre-clearance is valid
only on the day it is given. If a transaction is not executed on the day
pre-clearance is granted, it is required that pre-clearance be sought
again on a subsequent day (i.e., open orders, such as limit orders, good
until cancelled orders and stop-loss orders, must be pre-cleared each day
until the transaction is effected). In connection with obtaining approval
for any personal securities transaction, employees must describe in detail
any factors which might be relevant to an analysis of the possibility of a
conflict of interest. Any trade that violates the pre-clearance process
may be unwound at the employee's expense, and the employee will be
required to absorb any resulting loss and to disgorge any resulting
profit.
In addition to the foregoing, the CGAM NA Director of Global Equity
Research, or his designate, must approve all personal securities
transactions for members of the CGAM Research Department prior to pre-
clearance from the Compliance Department as set forth in this section.
Pre-approval by the Director of Research, or his designate, is in addition
to and does not replace the requirement for the pre-clearance of all
personal securities transactions.
VIII. Blackout Periods - No Covered Person shall purchase or sell, directly or
indirectly, any security in which he/she has, or by reason of the
transaction acquires, any direct or indirect beneficial ownership if
he/she has knowledge at the time of such transaction that the security is
being purchased or sold, or is being considered for purchase or sale, by a
managed fund or client account or in the case of a Fund director, by the
director's Fund. In addition, the following Blackout Periods apply to the
categories of SSB Citi employees listed below:
1. Portfolio Managers and Portfolio Manager Assistants - may not
----------------------------------------------------
buy or sell any securities for personal accounts seven (7)
calendar days before or after managed funds or client accounts
he/she manages trade in that security.
4
<PAGE>
2. Traders and Trader Assistants - may not buy or sell any
-----------------------------
securities for personal accounts three (3) calendar days before
or seven (7) calendar days after managed funds or client accounts
he/she executes trades for trade in that security.
3. Research Analysts and Research Assistants - may not buy or sell
-----------------------------------------
any securities for personal accounts: seven (7) calendar days
before or after the issuance of or a change in any
recommendation; or seven (7) calendar days before or after any
managed fund or client account about which the employee is likely
to have trading or portfolio information (as determined by the
Compliance Department) trades in that security.
4. Advisory Personnel (see Section II for details) - may not buy or
------------------
sell any securities for personal accounts on the same day that a
managed fund or client account about which the employee is likely
to have trading or portfolio information (as determined by the
Compliance Department) trades in that security.
5. Unit Trust Personnel - all employees assigned to the Unit Trust
--------------------
Department are prohibited from transacting in any security when a
SSB Citi-sponsored Unit Trust portfolio is buying the same (or a
related) security, until seven business days after the later of
the completion of the accumulation period or the public
announcement of the trust portfolio. Similarly, all UIT employees
are prohibited from transacting in any security held in a UIT (or
a related security) seven business days prior to the liquidation
period of the trust.
Employees in categories 1, 2 and 5 above may also be considered Advisory
Personnel for other accounts about which the employee is likely to have
trading or portfolio information (as determined by the Compliance
Department).
Any violation of the foregoing provisions will require the employee's
trade to be unwound, with the employee absorbing any resulting loss and
disgorging any resulting profit. Advisory personnel are subject to the
unwinding of the trade provision; however, they may not be required to
absorb any resulting loss (at the discretion of the Compliance Department
and the employee's supervisor). Please be reminded that, regardless of
the provisions set forth above, all employees are always prohibited from
effecting personal securities transactions based on material, non-public
information.
Blackout period requirements shall not apply to any purchase or sale, or
series of related transactions involving the same or related securities,
involving 500 or fewer shares in the aggregate if the issuer has a market
capitalization (outstanding shares multiplied by the current price per
share) greater than $10 billion and is listed on a U.S. Stock Exchange or
NASDAQ. Note: Pre-clearance is still required. Under certain
circumstances, the Compliance Department may determine that an employee
may not rely upon this "Large Cap/De Minimis" exemption. In such a case,
the employee will be notified prior to or at the time the pre-clearance
request is made.
IX. Prohibited Transactions - The following transactions by SSB Citi employees
are prohibited without the prior written approval from the Chief Investment
Officer, or designee, and the Regional Compliance Director:
1. The purchase of private placements; and
2. The acquisition of any securities in an initial public offering
(new issues of municipal debt securities may be acquired subject
to the other requirements of this policy (e.g., pre-clearance).)
5
<PAGE>
X. Transactions in Options and Futures - SSB Citi employees may buy or sell
derivative instruments such as individual stock options, options and
futures on indexes and options and futures on fixed-income securities, and
may buy or sell physical commodities and futures and forwards on such
commodities. These transactions must comply with all of the policies and
restrictions described in this policy, including pre-clearance, blackout
periods, transactions in Citigroup securities and the 60-day holding
period. However, the 60-day holding period does not apply to individual
stock options that are part of a hedged position where the underlying stock
has been held for more than 60 days and the entire position (including the
underlying security) is closed out.
XI. Prohibited Recommendations - No Covered Person shall recommend or execute
any securities transaction by any managed fund or client account, or, in
the case of a Fund director, by the director's Fund, without having
disclosed, in writing, to the Chief Investment Officer, or designee, any
direct or indirect interest in such securities or issuers, except for those
securities purchased pursuant to the "Large Cap/De Minimis" exemption
described in Section VIII above. Prior written approval of such
recommendation or execution also must be received from the Chief Investment
Officer, or designee. The interest in personal accounts could be in the
form of:
1. Any direct or indirect beneficial ownership of any securities of
such issuer;
2. Any contemplated transaction by the person in such securities;
3. Any position with such issuer or its affiliates; or
4. Any present or proposed business relationship between such issuer
or its affiliates and the person or any party in which such
person has a significant interest.
XII. Transactions in Citigroup Securities - Unless an SSB Citi employee is a
member of a designated group subject to more restrictive provisions, or is
otherwise notified to the contrary, the employee may trade in Citigroup
securities without restriction (other than the pre-clearance and other
requirements of this policy), subject to the limitations set forth below.
Employees whose jobs are such that they know about Citigroup's
quarterly earnings prior to release may not engage in any
transactions in Citigroup securities during the "blackout periods"
beginning on the first day of a calendar quarter and ending on the
second business day following the release of earnings for the prior
quarter. Members of the SSB Citi Executive Committee and certain
other senior SSB Citi employees are subject to these blackout
periods.
Stock option exercises are permitted during a blackout period (but
the simultaneous exercise of an option and sale of the underlying
stock is prohibited). With regard to exchange traded options, no
transactions in Citigroup options are permitted except to close or
roll an option position that expires during a blackout period.
Charitable contributions of Citigroup securities may be made during
the blackout period, but an individual's private foundation may not
sell donated Citigroup common stock during the blackout period. "Good
`til cancelled" orders on Citigroup stock must be cancelled before
entering a blackout period and no such orders may be entered during a
blackout period.
No employee may engage at any time in any personal transactions in
Citigroup securities while in possession of material non-public
information. Investments in Citigroup securities must be made with a
long-term orientation rather than for
6
<PAGE>
speculation or for the generation of short-term trading profits. In
addition, please note that employees may not engage in the following
transactions:
. Short sales of Citigroup securities;
. Purchases or sales of options ("puts" or "calls") on Citigroup
securities, except writing a covered call at a time when the
securities could have been sold under this policy;
. Purchases or sales of futures on Citigroup securities; or
. Any transactions relating to Citigroup securities that might
reasonably appear speculative.
The number of Citigroup shares an employee is entitled to in the
Citigroup Stock Purchase Plan is not treated as a long stock position
until such time as the employee has given instructions to purchase
the shares of Citigroup. Thus, employees are not permitted to use
options to hedge their financial interest in the Citigroup Stock
Purchase Plan.
Contributions into the firm's 401(k) Plan are not subject to the
restrictions and prohibitions described in this policy.
XIII. Acknowledgement and Reporting Requirements - SSB Citi Employees - All new
SSB Citi employees must certify that they have received a copy of this
policy, and have read and understood its provisions. In addition, all SSB
Citi employees must:
1. Acknowledge receipt of the policy and any modifications thereof,
in writing (see Exhibit C for the form of Acknowledgement);
2. Within 10 days of becoming an SSB Citi employee, disclose in
writing all information with respect to all securities
beneficially owned and any existing personal brokerage
relationships (employees must also disclose any new brokerage
relationships whenever established). Such information should be
provided on the form attached as Exhibit D;
3. Direct their brokers to supply, on a timely basis, duplicate
copies of confirmations of all personal securities transactions
(Note: this requirement may be satisfied through the transmission
----
of automated feeds);
4. Within 10 days after the end of each calendar quarter, provide
information relating to securities transactions executed during
the previous quarter for all securities accounts (Note: this
----
requirement may be satisfied through the transmission of
automated feeds);
5. Submit an annual holdings report containing similar information
that must be current as of a date no more than 30 days before the
report is submitted, and confirm at least annually all brokerage
relationships and any and all outside business affiliations
(Note: this requirement may be satisfied through the
----
transmission of automated feeds or the regular receipt of monthly
brokerage statements); and
6. Certify on an annual basis that he/she has read and understood
the policy, complied with the requirements of the policy and that
he/she has pre-cleared and disclosed or reported all personal
securities transactions and securities accounts required to be
disclosed or reported pursuant to the requirements of the policy.
7
<PAGE>
Fund Directors - Fund Directors shall deliver the information required by
Items 1 through 4 of the immediately preceding paragraph, except that a
Fund director who is not an "interested person" of the Fund within the
meaning of Section 2(a)(19) of the Investment Company Act of 1940, and
who would be required to make reports solely by reason of being a Fund
Director, is not required to make the initial and annual holdings reports
required by Item 2. Also, a "non-interested" Fund Director need not
supply duplicate copies of confirmations of personal securities
transactions required by Item 3, and need only make the quarterly
transactions reports required by Item 3 as to any security if at the time
of a transaction by the Director in that security, he/she knew or in the
ordinary course of fulfilling his/her official duties as a Fund Director
should have known that, during the 15-day period immediately preceding or
following the date of that transaction, that security is or was purchased
or sold by that Director's Fund or was being considered for purchase or
sale by that Director's Fund.
Disclaimer of Beneficial Ownership - The reports described in Items 2 and
3 above may contain a statement that the reports shall not be construed
as an admission by the person making the reports that he/she has any
direct or indirect beneficial ownership in the securities to which the
reports relate.
XIV. Handling of Disgorged Profits - Any amounts that are paid/disgorged by an
employee under this policy shall be donated by SSB Citi to one or more
charities. Amounts donated may be aggregated by SSB Citi and paid to such
charity or charities at the end of each year.
XV. Confidentiality - All information obtained from any Covered Person
pursuant to this policy shall be kept in strict confidence, except that
such information will be made available to the Securities and Exchange
Commission or any other regulatory or self-regulatory organization or to
the Fund Boards of Directors to the extent required by law, regulation or
this policy.
XVI. Other Laws, Rules and Statements of Policy - Nothing contained in this
policy shall be interpreted as relieving any person subject to the policy
from acting in accordance with the provision of any applicable law, rule
or regulation or, in the case of SSB Citi employees, any statement of
policy or procedure governing the conduct of such person adopted by
Citigroup, its affiliates and subsidiaries.
XVII. Retention of Records - All records relating to personal securities
transactions hereunder and other records meeting the requirements of
applicable law, including a copy of this policy and any other policies
covering the subject matter hereof, shall be maintained in the manner and
to the extent required by applicable law, including Rule 17j-1 under the
1940 Act. The Compliance Department shall have the responsibility for
maintaining records created under this policy.
XVIII. Monitoring - SSB Citi takes seriously its obligation to monitor the
personal investment activities of its employees and to review the
periodic reports of all Covered Persons. Employee personal investment
transaction activity will be monitored by the Compliance Department. All
noted deviations from the policy requirements will be referred back to
the employee for follow-up and resolution (with a copy to be supplied to
the employee's supervisor). Any noted deviations by Fund directors will
be reported to the Board of Directors of the applicable Fund for
consideration and follow-up as contemplated by Section III hereof.
8
<PAGE>
XIX. Exceptions to the Policy - Any exceptions to this policy must have the
prior written approval of both the Chief Investment Officer and the
Regional Director of Compliance. Any questions about this policy should
be directed to the Compliance Department.
XX. Board Review - Fund management and SSB Citi shall provide to the Board of
Directors of each Fund, on a quarterly basis, a written report of all
material violations of this policy, and at least annually, a written
report and certification meeting the requirements of Rule 17j-1 under the
1940 Act.
XXI. Other Codes of Ethics - To the extent that any officer of any Fund is not
a Covered Person hereunder, or an investment subadviser of or principal
underwriter for any Fund and their respective access persons (as defined
in Rule 17j-1) are not Covered Persons hereunder, those persons must be
covered by separate codes of ethics which are approved in accordance with
applicable law.
XXII. Amendments - SSB Citi Employees - Unless otherwise noted herein, this
policy shall become effective as to all SSB Citi employees on March 30,
2000. This policy may be amended as to SSB Citi employees from time to
time by the Compliance Department. Any material amendment of this policy
shall be submitted to the Board of Directors of each Fund for approval in
accordance with Rule 17j-1 under the 1940 Act.
Fund Directors - This policy shall become effective as to a Fund upon the
approval and adoption of this policy by the Board of Directors of that
Fund in accordance with Rule 17j-1 under the 1940 Act or at such earlier
date as determined by the Secretary of the Fund. Any material amendment
of this policy that applies to the directors of a Fund shall become
effective as to the directors of that Fund only when the Board of
Directors of that Fund has approved the amendment in accordance with Rule
17j-1 or at such earlier date as determined by the Secretary of the Fund.
March 15, 2000
9
<PAGE>
EXHIBIT A
EXPLANATION OF BENEFICIAL OWNERSHIP
You are considered to have "Beneficial Ownership" of Securities if you have or
share a direct or indirect "Pecuniary Interest" in the Securities.
You have a "Pecuniary Interest" in Securities if you have the opportunity,
directly or indirectly, to profit or share in any profit derived from a
transaction in the Securities.
The following are examples of an indirect Pecuniary Interest in Securities:
1. Securities held by members of your immediate family sharing the same
household; however, this presumption may be rebutted by convincing
evidence that profits derived from transactions in these Securities
will not provide you with any economic benefit.
"Immediate family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and
includes any adoptive relationship.
2. Your interest as a general partner in Securities held by a general or
limited partnership.
3. Your interest as a manager-member in the Securities held by a limited
liability company.
You do not have an indirect Pecuniary Interest in Securities held by a
corporation, partnership, limited liability company or other entity in which you
hold an equity interest, unless you are a controlling equityholder or you have
or share investment control over the Securities held by the entity.
The following circumstances constitute Beneficial Ownership by you of Securities
held by a trust:
1. Your ownership of Securities as a trustee where either you or members
of your immediate family have a vested interest in the principal or
income of the trust.
2. Your ownership of a vested interest in a trust.
3. Your status as a settlor of a trust, unless the consent of all of the
beneficiaries is required in order for you to revoke the trust.
The foregoing is a summary of the meaning of "beneficial ownership". For
purposes of the attached policy, "beneficial ownership" shall be interpreted in
the same manner as it would be in determining whether a person is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934 and the rules
and regulations thereunder
10
<PAGE>
SSB Citi Asset Management Group ("SSB Citi") EXHIBIT B
Employee Trade Pre-Approval Form
(PAGE 1)
Instructions:
All employees are required to submit this form to
the Compliance Department prior to placing a
trade. The Compliance Department will notify the
employee as to whether or not pre-approval is
granted. Pre-approval is effective only on the
date granted.
<TABLE>
<CAPTION>
I. Employee Information
- ---------------------------------------------------------------------------------------------------------------------------
Employee Name: Phone Number:
- ---------------------------------------------------------------------------------------------------------------------------
Account Title:
- ---------------------------------------------------------------------------------------------------------------------------
Account Number:
- ---------------------------------------------------------------------------------------------------------------------------
Managed Account(s)/Mutual Fund(s) for which employee is a Covered Person:
- ---------------------------------------------------------------------------------------------------------------------------
II. Security Information
IPO [_] Yes [_] No Private Placement [_] Yes [_] No
<CAPTION>
Security Name Security Type-e.g., Ticker Buy/Sell If Sale, Date First No. Large Cap Stock?/2/
common stock, etc. Acquired/1/ Shares/Units
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
III. Your position with the Firm:
(Please check one of the following) [_] Portfolio Manager / Portfolio Manager Assistant
[_] Research Analyst / Research Analyst Assistant
[_] Trader / Trader Assistant
[_] Unit Trust Personnel
[_] Other (Advisory Personnel)
NOTE: . All Portfolio Managers must complete the reverse side of this form.
. All Research Analysts and Research Analyst Assistants located in Connecticut must provide an
----
additional form signed by Rama Krishna or one of his designees.
</TABLE>
IV. Certification
I certify that I will not effect the transaction(s) described above unless and
until pre-clearance approval is obtained from the Compliance Department. I
further certify that, except as described on an attached page, to the best of my
knowledge, the proposed transaction(s) will not result in a conflict of interest
with any account managed by SSB Citi (including mutual funds managed by SSB
Citi). I further certify that, to the best of my knowledge, there are no
pending orders for any security listed above or any related security for any
Managed Accounts and/or Mutual Funds for which I am considered a Covered Person.
The proposed transaction(s) are consistent with all firm policies regarding
employee personal securities transactions.
Signature___________________________________ Date_______________________
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
For Use By the Compliance Department
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
[_] Yes [_] No [_] Yes [_] No Reason not granted:
Are Securities Restricted? Pre-approval Granted?
- -----------------------------------------------------------------------------------------------------------------------------
Compliance Department Signature: Date: Time:
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. All securities sold must have been held for at least 60 days.
2. For purposes of SSB Citi's personal trading policies, a Large Cap Exemption
applies to transactions involving 500 or fewer shares in aggregate and the
stock is one that is listed on a U.S. stock exchange or NASDAQ and whose
issuer has a market capitalization (outstanding shares multiplied by current
price) of more than $10 billion.
11
<PAGE>
SSB Citi Asset Management Group ("SSB Citi")
Page 2 - Portfolio Manager Certification
All portfolio managers must answer the following questions in order to obtain
pre-approval. All questions must be answered or the form will be returned. If
a question is not applicable, please indicate "N/A".
1. Have your client accounts purchased or sold the securities (or related
securities) in the past seven calendar days? Yes [_] No [_]
2. Do you intend to purchase or sell the securities (or related securities) for
any client accounts in the next seven calendar days? Yes [_] No [_]
3. Do any of your client accounts currently own the securities (or related
securities)? Yes [_] No [_]
3a. If yes, and you are selling the securities for your personal account,
please explain why the sale of the securities was rejected for client
accounts but is appropriate for your personal account:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
4. Have you, in the past 7 calendar days, considered purchasing the securities
(or related securities) for your client accounts? Yes [_] No [_]
4a. If yes, and you are purchasing securities for your personal account,
please explain why the purchase of the securities is appropriate for your
account but has been rejected for your client accounts:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
4b. If no, and you are purchasing securities for your personal account, please
explain why the purchase of the securities has not been considered for
your client accounts:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Certification
I certify that I will not effect the transaction(s) described above unless and
until pre-clearance approval is obtained from the Compliance Department. I
further certify that, except as described on an attached page, to the best of my
knowledge, the proposed transaction(s) will not result in a conflict of interest
with any account managed by SSB Citi (including mutual funds managed by SSB
Citi). I further certify that, to the best of my knowledge, there are no
pending orders for any security listed above or any related securities for any
Managed Accounts and/or Mutual Funds for which I am considered a Covered Person.
The proposed transaction(s) are consistent with all firm policies regarding
employee personal securities transactions.
_______________________________ _______________________________
Signature Date
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
For Use By the Compliance Department
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
[_] Yes [_] No Pre-approval [_] Yes [_] No Reason not granted:
Are Securities Restricted? Granted?
- -----------------------------------------------------------------------------------------------------------------------------
Compliance Department Signature: Date: Time:
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Personal Investment Policy EXHIBIT C
For
SSB Citi Asset Management Group - North America
And Certain Registered Investment Companies
Acknowledgment
I acknowledge that I have received and read the Personal Investment Policy
for SSB Citi Asset Management Group - North America and Certain Registered
Investment Companies dated March 15, 2000. I understand the provisions of the
Personal Investment Policy as described therein and agree to abide by them.
Employee Name (Print): _________________________
Signature: _________________________
Date: _________________________
- --------------------------------------------------------------------------------
Social Security
Number: Date of Hire:
================================================================================
Job Function & Supervisor:
Title:
- --------------------------------------------------------------------------------
Location:
- --------------------------------------------------------------------------------
Floor and/or Zone: Telephone
Number:
- --------------------------------------------------------------------------------
NASD Registered Employee (Please check one) [_] Yes [_] No
If registered, list Registration \ License:
- --------------------------------------------------------------------------------
This Acknowledgment form must be completed and returned no later than March
30, 2000 to the Compliance Department - Attention: Vera Sanducci-Dendy, 388
Greenwich Street, 23rd Floor, New York, NY 10013.
13
<PAGE>
EXHIBIT D
SSB Citi Asset Management Group - North America Personal Investment Policy
Financial Services Firm Disclosure and Initial Report of Securities Holdings
This report must be signed, dated and returned within 10 days of employment to
the Compliance Department - Attention: Vera Sanducci-Dendy, 388 Greenwich
Street, 23rd Floor
- --------------------------------------------------------------------------------
Employee Name: ____________________________ Date of Employment: _______________
Brokerage Accounts:
[_] I do not have a beneficial interest in any account(s) with any financial
services firm.
[_] I maintain the following account(s) with the financial services firm(s)
listed below (attach additional information if necessary-e.g., a brokerage
statement). Please include the information required below for any broker,
dealer or bank where an account is maintained which holds securities for
your direct or indirect benefit as of the date you began your employment.
- --------------------------------------------------------------------------------
Name of Financial Service(s) Firm and Address Account Title Account Number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Securities Holdings:
Complete the following (or attach a copy of your most recent statement(s))
listing all of your securities holdings, with the exception of open-ended mutual
funds and U.S Government securities if:
. You own securities which are held by financial services firm(s) as described
above. If you submit a copy of a statement, it must include all of the
information set forth below. Please be sure to include any additional
securities purchased since the date of the brokerage statement which is
attached. Use additional sheets if necessary.
. Your securities are not held with a financial service(s) firm (e.g.,
dividend reinvestment programs).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Title of Security Ticker Symbol # of Shares Principal Amt. Held Since Financial Services Firm
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
[_] I have no securities holdings to report.
I certify that I have received the SSB Citi - North America Personal Investment
Policy and have read it and understood its contents. I further certify that the
above represents a complete and accurate description of my brokerage account(s)
and securities holdings as of my date of employment.
Signature: _____________________________________ Date of Signature: ___________
14
<PAGE>
EX-99.(p)(12)
Harris Associates L.P., Harris Associates Securities L.P. and Harris
--------------------------------------------------------------------
Associates Investment Trust
---------------------------
Code of Ethics and Statement on Insider Trading
-----------------------------------------------
(Effective April 18, 2000)
I. DEFINITIONS
-----------
A. Firm or Harris. The term "Firm" or "Harris" shall include Harris
Associates L.P. ("HALP") and Harris Associates Securities L.P. ("HASLP").
B. Trust. The term "Trust" shall mean Harris Associates Investment Trust,
including any series of shares of beneficial interest of the Trust (each, a
"Fund").
C. Employee. The term "Employee" shall include any person employed by the
Firm, whether on a full or part-time basis and all partners, officers,
shareholders and directors of the Firm.
D. Access Person. The term "Access Person" shall have the meaning set forth
in Section 17j-1(a)(1) of the Investment Company Act of 1940 and rules
thereunder (the "Act"). Accordingly, Access Person means any director, officer,
general partner, or Advisory Person (as defined below) of the Fund or HALP, but
shall not include any trustee of the Trust who is not an "interested person" of
the Trust.
E. Advisory Person. The term "Advisory Person" shall have the meaning set
forth in Section 17j-1(a)(2) of the Act. Accordingly, Advisory Person means any
Employee of the Firm, who, in connection with his or her regular functions or
duties, makes, participates in, or obtains information regarding the purchase or
sale of Covered Securities (as defined below) by a Client (as defined below), or
whose functions relate to the making of any recommendations with respect to
purchases and sales. For the purpose of this Code, each Employee of the Firm
with an office at the Firm's principal place of business shall be deemed to be
an Advisory Person.
F. Persons Subject to this Code. Each Employee is subject to this Code.
G. Covered Security. The term "Covered Security" shall have the meaning set
forth in Section 2(a)(36) of the Act,/1/ including any right to acquire such
security, except that it shall not include securities which are direct
obligations of the Government of the United States, bankers' acceptances, bank
certificates of deposit, commercial paper, high quality short-term debit
instruments (including
- --------------------
/1/ Sec. 2(a)(36) "Security" means any note, stock, treasury stock,
bond, debenture, evidence of indebtedness, certificate of interest or
participation in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or subscription, transferable
share, investment contract, voting-trust certificate, certificate of
deposit for a security, fractional undivided interest in oil, gas, or other
mineral rights, any put, call, straddle, option, or privilege on any
security (including a certificate of deposit) or on any group or index of
securities (including any interest therein or based on the value thereof),
or any put, call, straddle, option, or privilege entered into on a national
securities exchange relating to foreign currency, or, in general, any
interest or instrument commonly known as a "security," or any certificate
of interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to or purchase,
any of the foregoing.
1
<PAGE>
repurchase agreements), and shares issued by open-end investment companies.
H. Beneficial Interest or Ownership. The term "beneficial interest or
ownership" shall be interpreted in the same manner as it would be under Rule
16a-1(a)(2) under the Securities Exchange Act of 1934 in determining whether a
person is subject to the provisions of Section 16 of the Securities Exchange Act
of 1934 and rules thereunder, which includes any interest in which a person,
directly or indirectly, has or shares a direct or indirect pecuniary interest.
A pecuniary interest is the opportunity, directly or indirectly, to profit or
share in any profit derived from any transaction. Each person will be assumed
to have a pecuniary interest, and therefore, beneficial interest or ownership,
in all securities held by that person, that person's spouse, all members of that
person's immediate family and adults sharing the same household with that person
(other than mere roommates) and all minor children of that person and in all
accounts subject to their direct or indirect influence or control and/or through
which they obtain the substantial equivalent of ownership, such as trusts in
which they are a trustee or beneficiary, partnerships in which they are the
general partner, corporations in which they are a controlling shareholder or any
other similar arrangement. Any questions an Employee may have about whether an
interest in a security or an account constitutes beneficial interest or
ownership should be directed to the Firm's General Counsel or Compliance
Department. Examples of beneficial interest or ownership are attached as
Appendix A.
I. Client. The term "Client" shall mean any client of HALP, including any
Fund.
II. CODE OF ETHICS
--------------
A. GENERAL STATEMENT
Harris seeks to foster a reputation for integrity and professionalism.
That reputation is a vital business asset. The confidence and trust placed in
us by investors in mutual funds and clients with accounts advised by the Firm is
something that is highly valued and must be protected. As a result, any activity
which creates even the suspicion of misuse of material non-public information by
the Firm or any of its Employees, which gives rise to or appears to give rise to
any breach of fiduciary duty owed to any Client, or which creates any actual or
potential conflict of interest between any Client and the Firm or any of its
Employees or even the appearance of any conflict of interest must be avoided and
is prohibited.
The Investment Company Act and rules make it illegal for any person covered
by the Code, directly or indirectly, in connection with the purchase or sale of
a security held or to be acquired by the Trust to:
a. employ any device, scheme, or artifice to defraud the Trust;
b. make any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light
of circumstances under which they are made, not misleading or in any
way mislead the Trust regarding a material fact;
2
<PAGE>
c. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon the Trust; or
d. engage in any manipulative practice with respect to the Trust.
The restrictions on personal securities transactions contained in this Code are
intended to help the Firm monitor for compliance with these prohibitions.
Additionally, the federal securities laws require that an investment
adviser maintain a record of every transaction in any Covered Security in which
an Access Person acquires any direct or indirect beneficial interest or
ownership, except any transaction in an account in which the Access Person has
no direct or indirect control or influence.
To attempt to ensure that each Person Subject to this Code satisfies this
Code and these record keeping obligations, the Firm has developed the following
rules relating to personal securities trading, outside employment, personal
investments with external investment managers and confidentiality. The General
Counsel, Chief Executive Officer, and Compliance Officer, acting in concert, has
the authority to grant written waivers of the provisions of this Code in
appropriate instances. However, the Firm expects that waivers will be granted
only in rare instances, and some provisions of the Code that are mandated by the
Act cannot be waived.
B. RESTRICTIONS ON EMPLOYEE TRADING
No trading activity by an Employee in any security in which an Employee has any
beneficial interest or ownership which is also the subject of a Client portfolio
purchase or sale shall disadvantage or appear to disadvantage such Client
transaction. Further, the following specific restrictions apply to all trading
activity for Advisory Persons:
i) Any transaction in a security in anticipation of client orders
("frontrunning") is prohibited,
ii) Any transaction in a security which is the subject of a Firm
recommendation is prohibited until the tenth business day following the
dissemination of the recommendation, or any longer period specified in this
Code,
iii) Any transaction in a security which the Advisory Person knows or
has reason to believe is being purchased or sold or considered for purchase
or sale/2/ by any investment company advised by the Firm is prohibited
until the transaction by such investment company has been
- -------------------------------------
/2/ A security is "being considered for purchase or sale", the
earlier of, when a recommendation to purchase or sell has been made and
communicated or the security is placed on the research project list and,
with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
3
<PAGE>
completed or consideration of such transaction has been abandoned,/3/
iv) Any same day transaction in a security in which any investment
company advised by the Firm has a pending or actual transaction is
prohibited. If an Advisory Person places a same day trade for such
security prior to the investment company placing an order the Employee's
order will be canceled,
v) Any transaction in a security within two business days after any
investment company advised by the Firm has traded in that security is
prohibited,
vi) Any transaction involving options relating to any security on the
Firm's approved list or which are held by any investment company advised by
the Firm is prohibited, and
vii) Any acquisition of an equity security in an initial public offering is
prohibited.
Additionally, no Employee of the Firm shall knowingly sell to or purchase
from the Funds or HAIT any security or other property except, in the case of the
Funds, securities issued by the Funds.
C. PERSONAL INVESTMENTS WITH EXTERNAL MONEY MANAGERS.
All investments in which an Advisory Person has any beneficial interest or
ownership placed with external investment managers (including interests in
limited partnerships or trust vehicles, managed accounts, variable annuities or
foreign entities) or in any account in which an Advisory Person has discretion
must be approved in writing by the Compliance Department and the Chief Executive
Officer prior to the commitment of initial capital.
Additionally, "Investment Personnel" must obtain approval prior to
investing or acquiring a beneficial ownership interest in a Limited Offering,
whether directly or indirectly. "Investment Personnel" is defined in Section
17j-1(a)(7) of the Act and shall be deemed to include any officer of HAI with an
office in the Firm's principal place of business; any officer of HAI who, in
connection with his or her regular functions or duties, makes or participates in
making recommendations regarding the purchase or sale of securities; any Harris
portfolio manager; any member of the Harris stock selection group; any Harris
financial analyst; or any Harris fund manager. A "Limited Offering" is generally
defined as a private placement and can include interests in real estate or oil
and gas limited partnership interests and other privately placed securities and
funds. The Investment Personnel must (i) provide notice in writing to the Chief
Executive Officer and the Compliance Department prior to acquiring ownership,
and (ii) obtain the written approval of the Chief Executive Officer and the
Compliance Department prior to acquiring ownership. The Compliance Department
shall maintain a copy of such approval and reasons supporting the approval as
provided under Section IV of this Code.
- -----------------------------
/3/ Among the clients of the Firm are private investment partnerships
(partnerships) in which various Employees of the Firm have equity
interests. This trading prohibition shall not restrict purchases or sales
for the accounts of such partnerships provided that the Trust and such
accounts are treated fairly and equitably in connection with such purchases
and sales.
4
<PAGE>
The Compliance Department will maintain a list of investment managers used
by Partnerships managed internally and a list of investment managers used by
Advisory Persons.
If an Advisory Person has been notified that an investment manager is used
by the Partnerships' managed internally, an Advisory Person must notify the
Compliance Department and the Head of the Multi-Manager Area of any material
withdrawal of their investment with such investment manager at least two working
days prior to an Advisory Person submitting any notice of such withdrawal. To
avoid a conflict of interest or the appearance of any conflict, an Advisory
Person should also note the reason for the withdrawal if it relates to the
investment manager's performance, organization or perceived ability to execute
their trading strategy.
D. ADDITIONAL RESTRICTION ON FUND MANAGERS OF INVESTMENT COMPANY ACCOUNTS.
Any Access Person who is a fund manager of any investment company that is
advised by the Firm is prohibited from buying or selling a security within
fifteen calendar days before and after the investment company that he/she
manages trades in that security. Any profits realized on trades within the
proscribed periods shall be required to be disgorged./4/
E. PROCEDURES TO IMPLEMENT TRADING RESTRICTIONS AND REPORTING OBLIGATIONS.
1) Trading through Harris' Trading Desk.
All transactions in Covered Securities in which an Advisory Person has any
beneficial interest or ownership or in any accounts in which an Advisory Person
has discretion, other than fee paying accounts ("Advisory Person account"), must
be processed through the Firm's trading desk.
Transactions at other brokers or banks are not permitted except in unusual
circumstances and then only after the Advisory Person has: (i) provided notice
in writing to his/her Supervisor and the Compliance Department prior to opening
or placing an initial order in an account with such other broker or bank, (ii)
obtained the written approval of his/her Supervisor and the Compliance
Department prior to opening or placing an initial order in such account, (iii)
provided such other broker or bank with a written notice of the Advisory
Person's affiliation with Harris and request that copies of confirmations and
statements be sent to the Firm's Compliance Department, and provide a report to
the Firm that includes the name of the broker or bank with whom the account was
established, the date the account was established, and the date the report is
submitted. A copy of such written notice and request should also be provided to
his/her Supervisor and the Compliance Department.
Even after an Advisory Person has obtained approval to execute transactions
through another broker or bank, the Advisory Person must still present the
Firm's trading desk with an order ticket for an
- -----------------------------
/4/ Any profits disgorged shall be given to a tax exempt charitable
organization of Harris' choosing.
5
<PAGE>
order to be executed at the other broker or bank. In those exceptional
situations in which it is inappropriate for the Firm's trading desk to place the
order, the Advisory Person must promptly present the trading desk with a
completed order ticket reflecting the details of the transaction and clearly
indicating that the transaction has been completed.
2) Monitoring of Trades.
Transactions for an account of an Advisory Person that are executed through
the Firm's trading desk are to be monitored by the Trading Department and
reviewed and approved by the Chief Executive Officer (or such party to whom he
delegates). These transactions are unsolicited brokerage transactions, should be
so marked on the original order ticket and may not be executed if they are in
conflict with discretionary orders. Should a conflict arise, sharing of
executions may be approved by the Head of the Investment Advisory Department, or
in his/her absence, the Manager of the Trading Department. Employee accounts
must be opened in the 40000 office range.
The Firm will provide to the Compliance Department information (including
the title of each Covered Security involved, the date of the transaction, the
interest rate and maturity rate (if applicable), the number of shares and
principal amount of each Covered Security involved, the nature of the
transaction (i.e. buy/sell), the price at which the transaction was effected,
the name of the broker or bank through which the transaction was effected, and
the date on which the report is submitted) about transactions in the accounts of
Advisory Persons who have accounts with the Firm.
Transactions at other brokers or banks, in addition to being placed through
the trading desk, are to be monitored by the Compliance Department. To
accomplish this, an Access Person shall submit to the Compliance Department
within ten days after any transaction a report which includes the title of the
Covered Security, the date of the transaction, the interest rate and maturity
rate (if applicable), the number of shares and principal amount of each Covered
Security involved, the nature of the transaction (i.e. buy/sell), the price at
which the transaction was effected, the name of the broker or bank through which
the transaction was effected and the date on which the report is submitted. This
requirement may be satisfied by having the broker or bank send the Firm
duplicate copies of confirmations and statements, provided that such
confirmations and statements contain all of the information otherwise required
to be provided in the report. The Compliance Department will maintain copies of
all such transaction reports.
3) Cancellation of Trades.
Any transaction for an account of an Access Person is subject to
cancellation or reversal if it is determined by either the Chief Executive
Officer (or such party to whom he delegates), the Manager of the Trading
Department or the Compliance Department that the transaction is or was in
conflict with or appeared to be in conflict with any Client transaction or any
of the trading restrictions of this Code. Cancellations or reversals of
transactions may be required after an extended period past the settlement date.
The Manager of the Trading Department may also prevent the execution of orders
for an Advisory Person's account if it appears that the trade may have to be
canceled or reversed.
6
<PAGE>
Client transactions include transactions for any investment company managed
by the Firm, any other discretionary advisory clients or any other accounts
managed or advised by Employees of the Firm for a fee.
The determination that a transaction of an Access Person may conflict with
a Client transaction will be subjective and individualized and may include
questions about timely and adequate dissemination of information, availability
of bids and offers, as well as many other factors deemed pertinent for that
transaction or series of transactions. It is possible that a cancellation or
reversal of a transaction could be costly to an Access Person or his/her family.
Therefore, great care is required to adhere to the Firm's trading restrictions
and avoid conflicts or the appearance of conflicts.
4) Participation in Dividend Reinvestment Plans and Systematic Purchase
Plans.
Advisory Persons may purchase securities through dividend reinvestment
plans or systematic purchase plans without processing such transactions through
the Firm's trading desk. Purchases are permitted only after the Employee has:
(i) provided notice in writing to his/her Supervisor and the Compliance
Department prior to opening an account or placing an initial purchase, and (ii)
obtained the written approval of his/her Supervisor and the Compliance
Department prior to opening an account or placing an initial purchase. Even
after the Advisory Person has obtained approval to invest in such a plan, the
Advisory Person must provide the Compliance Department with duplicate copies of
statements within ten days after the end of each quarter. Such report or
statements must contain all of the information required to be reported with
respect to transactions in Covered Securities under II(F)(2) above. The
Compliance Department will maintain copies of all such transaction reports.
5) Reporting All Other Securities Transactions.
Because the obligations of an investment adviser to maintain records of
Employee's personal securities transactions is broader than the type of
transactions discussed above in this Section, all Employees have the following
additional reporting obligations. Any transaction in a Covered Security not
- ----------
required to be placed through the Firm's trading desk in which an Employee has
any beneficial interest or ownership (such as, real estate or oil and gas
limited partnership interests and other privately placed securities and funds)
must be reported to the Compliance Department. This report must be submitted
within ten days after the end of each quarter and include: the title, price,
number of shares and principal amount of each Covered Security involved, the
date and nature of the transaction (i.e. buy/sell), the name of the broker or
bank used, if any, interest rate and maturity, if applicable, and the date on
which the report is submitted. This report may be in any form, including a copy
of a confirmation or monthly statement. However, no report is necessary for any
transaction in an account in which the Employee has no control or influence.
6) Initial and Annual Reporting Requirements.
Each Access Person shall initially disclose in writing to the Compliance
Department within 10 business days of becoming an Access Person, and annually
thereafter within 30 business days after each
7
<PAGE>
calendar year-end, the title, number of shares and principal amount of all
Covered Securities beneficially owned by such Access Person as of the date of
becoming a Access Person, or as of the preceding December 31 for annual
reporting and the name of the broker or bank with whom the Access Person
maintains an account in which he or she has beneficial ownership of any
security. The first such annual report under this amended Code of Ethics shall
be made by January 30, 2001. An Access Person need not make an Initial or Annual
Report for Covered Securities held in any account over which the Employee has no
direct or indirect influence or control.
F. CONFIDENTIALITY & OBLIGATIONS OF EMPLOYEES
During the period of employment with the Firm an Employee will have access
to certain "confidential information" concerning the Firm and its clients. This
information is a valuable asset and the sole property of the Firm and may not be
misappropriated and used outside of the Firm by an Employee or former Employee.
"Confidential Information", defined as all information not publicly available
about the business of the Firm, may include, but is not limited to, Client and
prospect names and records, research, trading and portfolio information and
systems, information concerning externally managed entities or accounts which
have been considered or made on behalf of fee paying clients, and the financial
records of the Firm and/or its Employees. In order to protect the interests of
the Firm, an Employee or ex-Employee shall not, without the express written
consent of the Firm's Chief Executive Officer, disclose directly or indirectly
confidential information to anyone outside of the Firm. An Employee should be
extremely careful to avoid inadvertent disclosures and to exercise maximum
effort to keep confidential information confidential. Any questions concerning
the confidentiality of information should be directed to the Chief Executive
Officer or the General Counsel. An abuse of the Firm's policy of confidentiality
could subject an Employee to immediate disciplinary action that may include
dismissal from the Firm.
G. OUTSIDE EMPLOYMENT, ASSOCIATIONS AND BUSINESS ACTIVITIES
1) Outside Employment and Associations.
It is Harris's policy not to permit Advisory Persons to hold outside
positions of authority, including that of being an officer, partner, director or
employee of another business entity (except in the case of entities managed by
the Firm). Also, Harris requires that all Advisory Persons make their positions
with the Firm a full-time job. The approval of Harris, and in some cases the
approval of the NASD, is required before any Advisory Person may hold any
outside position for any business organization, regardless of whether such
position is compensated or not. Any exception to this policy must be approved in
writing by the Firm's Chief Executive Officer (or other person as he may
delegate) and the Access Person's Supervisor, and a copy of such approval shall
be provided by the Advisory Person to the Compliance Department. Any change in
the status of such approved position immediately must be reported in writing to
the Compliance Department and the Advisory Person's Supervisor. Any income or
compensation received by an Advisory Person for serving in such position must be
paid in full to the Firm. Under no circumstance may an Advisory Person represent
or suggest that Harris has approved or recommended the business activities of
the outside organization or any person associated
8
<PAGE>
with it.
2) Outside Business Activities.
To further avoid actual or potential conflicts of interest and to maintain
impartial investment advice, and equally important, the appearance of impartial
investment advice, each Advisory Person must disclose in writing to the
Compliance Department any special relationships and/or investments or business
activities that they or their families have which could influence the investment
activities of the Firm. If an Employee has any questions about any activities
and the need for disclosure, the Employee should be cautious and direct any
questions to the Firm's General Counsel or Compliance Department.
H. Certification of Compliance by Access Persons.
Each Access Person is required to certify annually that (i) he or she has
read and understands the Code, (ii) recognizes that he or she is subject to the
Code, and (iii) he or she has disclosed or reported all Personal Securities
Transactions required to be disclosed or reported under the Code. The Firm shall
annually distribute a copy of the Code and request certification by all Persons
Subject to this Code and shall be responsible for ensuring that all personnel
comply with the certification requirement.
Each Access Person who has not engaged in any personal securities
transactions during the preceding year for which a report was required to be
filed pursuant to the Code shall include a certification to that effect in his
or her annual certification.
I. Annual Report to the Trust's Board of Trustees.
The officers of the Trust shall prepare an annual report to the board of
trustees of the Trust that:
1. summarizes existing procedures concerning personal investing and any
changes in those procedures during the past year;
2. describes issues that arose during the previous year under the Code or
procedures concerning personal investing, including but not limited to
information about material violations of the Code and sanctions
imposed;
3. certifies to the board that the Trust has adopted procedures
reasonably necessary to prevent its Investment Personnel and Access
Persons from violating the Code; and
4. identifies any recommended changes in existing restrictions or
procedures based upon experience under the Code, evolving industry
practices, or developments in applicable laws or regulations.
III. POLICY STATEMENT ON INSIDER TRADING
-----------------------------------
A. BACKGROUND
9
<PAGE>
Trading securities while in possession of material, nonpublic information
or improperly communicating that information to others may expose you to
stringent penalties. Criminal sanctions may include a fine of up to $1,000,000
and/or ten years imprisonment. The Securities and Exchange Commission (SEC) can
recover the profits gained or losses avoided through the violative trading,
obtain a penalty of up to three times the illicit windfall and issue an order
permanently barring you from the securities industry. Finally, you may be sued
by investors seeking to recover damages for insider trading violations.
Regardless of whether a government inquiry occurs, Harris views seriously
any violation of this Policy Statement. Such violations constitute grounds for
disciplinary sanctions, including dismissal.
The law of insider trading is unsettled; an individual legitimately may be
uncertain about the application of the Policy Statement in a particular
circumstance. Often, a single question can forestall disciplinary action or
complex legal problems. You should direct any questions relating to the Policy
Statement to the General Counsel, or, in her absence, a member of the Stock
Selection Group, or the Compliance Department. You also must notify the General
Counsel, or, in her absence, a member of the Stock Selection Group or the
Compliance Department immediately if you have any reason to believe that a
violation of the Policy Statement has occurred or is about to occur.
B. POLICY STATEMENT ON INSIDER TRADING
No person to whom this Policy Statement applies may trade, either
personally or on behalf of others (such as Clients), while in possession of
material, nonpublic information; nor may such persons communicate material,
nonpublic information to others in violation of the law. This Policy Statement
is drafted broadly; it will be applied and interpreted in a similar manner.
This Policy Statement applies to securities trading and information handling by
all Access Persons (including their spouses, minor children and adult members of
their households).
The section below reviews principles important to this Policy Statement.
1. What is Material Information?
Information is "material" when there is a substantial likelihood that a
reasonable investor would consider it important in making his or her investment
decisions. Generally, this is information whose disclosure will have a
substantial effect on the price of a company's securities. No simple "bright
line" test exists to determine when information is material; assessments of
materiality involve a highly fact-specific inquiry. For this reason, you should
direct any questions about whether information is material to the General
Counsel, or, in her absence, a member of the Stock Selection Group, or
Compliance Department.
Material information often relates to a company's results and operations
including, for example, dividend changes, earnings results, changes in
previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
10
<PAGE>
Material information also may relate to the market for a company's
securities. Information about a significant order to purchase or sell
securities may, in some contexts, be deemed material. Similarly, prepublication
information regarding reports in the financial press also may be deemed
material.
2. What is Nonpublic Information?
Information is "nonpublic" until it has been disseminated broadly to
investors in the marketplace. Tangible evidence of such dissemination is the
best indication that the information is public. For example, information is
public after it has become available to the general public through a public
filing with the SEC or some other governmental agency, the Dow Jones "tape" or
the WALL STREET JOURNAL or some other publication of general circulation, and
after sufficient time has passed so that the information has been disseminated
widely.
3. Identifying Inside Information
Before executing any trade for yourself or others, including Clients, you
must determine whether you have access to material, nonpublic information. If
you think that you might have access to material, nonpublic information, you
should take the following steps:
i. Immediately alert the Trading Department to restrict trading in the
security by placing the security on the restricted list maintained in
the trading room. No reason or explanation should be given to the
Trading Department for the restriction.
ii. Report the information and proposed trade immediately to the General
Counsel, , or a member of the Stock Selection Group.
iii. Do not purchase or sell the securities on behalf of yourself or
others, including Clients.
iv. Do not communicate the information inside or outside Harris other than
to the above individuals.
v. After the above individuals have reviewed the issue, the Firm will
determine whether the information is material and nonpublic and, if
so, what action the Firm should take.
4. Contacts with Public Companies
For Harris, contacts with public companies represent an important part of
our research efforts. Harris may make investment decisions on the basis of the
Firm's conclusions formed through such contacts and analysis of publicly-
available information. Difficult legal issues arise, however, when, in the
course of these contacts, an Access Person becomes aware of material, nonpublic
information. This could happen, for example, if a company's Chief Financial
Officer prematurely discloses quarterly results to an analyst or an investor
relations representative makes a selective disclosure of adverse news to a
handful of investors. In such situations, Harris must make a judgment as to its
further conduct. To protect yourself, Clients and the Firm, you should contact
the General Counsel, or in her absence, a
11
<PAGE>
member of the Stock Selection Group, or Compliance Department immediately if you
believe that you may have received material, nonpublic information.
5. Tender Offers
Tender offers represent a particular concern in the law of insider trading
for two reasons. First, tender offer activity often produces extraordinary
gyrations in the price of the target company's securities. Trading during this
time period is more likely to attract regulatory attention (and produces a
disproportionate percentage of insider trading cases). Second, the SEC has
adopted a rule which expressly forbids trading and "tipping" while in possession
of material, nonpublic information regarding a tender offer received from the
tender offeror, the target company or anyone acting on behalf of either.
Employees should exercise particular caution any time they become aware of
nonpublic information relating to a tender offer.
C. PROCEDURES TO IMPLEMENT THE POLICY STATEMENTON INSIDER TRADING
1. Personal Securities Trading
The restrictions on Employee trading and procedures to implement those
restrictions and the Firm's reporting obligations, which are set forth in
Section II above, constitute the same procedures to implement this Policy
Statement. Review those procedures carefully and direct any questions about
their scope or applicability to the General Counsel or the Compliance
Department.
2. Restrictions on Disclosures
Harris Employees shall not disclose any nonpublic information (whether or
not it is material) relating to Harris or its securities transactions to any
person outside Harris (unless such disclosure has been authorized by Harris).
Material, nonpublic information may not be communicated to anyone, including
persons within Harris, except as provided in Section III(B)(3) above. Such
information must be secured. For example, access to files containing material,
nonpublic information and computer files containing such information should be
restricted, and conversations containing such information, if appropriate at
all, should be conducted in private.
IV. RETENTION OF RECORDS
--------------------
The Compliance Department or the Secretary of the Trust will maintain the
records listed below for a period of five years. Such records shall be
maintained at the Firm's principal place of business in an easily accessible
place:
(i) a list of all persons subject to the Code during that period;
12
<PAGE>
(ii) receipts signed by all persons subject to the Code acknowledging
receipt of copies of the Code and acknowledging that they are subject
to it;
(iii) a copy of each Code of Ethics that has been in effect at any time
during the period;
(iv) a copy of each report filed pursuant to the Code and a record of any
known violations and actions taken as a result thereof during the
period as well as a record of all persons responsible for reviewing
these reports; and
(v) a copy of any decision and the reasons supporting the decision, to
approve the acquisition by Investment Personnel of Limited Offerings.
13
<PAGE>
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS AND STATEMENT ON
INSIDER TRADING
FOR ACCESS PERSONS
Code of Ethics. Harris Associates L.P. ("HALP"), Harris Associates
Securities L.P. ("HASLP") and Harris Associates Investment Trust (the "Trust")
have adopted a written Code of Ethics and Statement on Insider Trading (the
"Code") to avoid potential conflicts of interest by HALP and HASLP personnel and
to govern the use and handling of material non-public information. A copy of the
Code is attached to this acknowledgement. As a condition of your continued
employment with HALP and HASLP, and/or the retention of your position, if any,
as an officer of the Trust, you are required to read, understand and abide by
the Code.
Compliance Program. The Code requires that all personnel furnish to the
Compliance Department information regarding any investment account in which you
have a "beneficial interest." You are also required to furnish to the Compliance
Department copies of your monthly or quarterly account statements, or other
documents, showing all purchases or sales of securities in any such account, or
which are effected by you or for your benefit, or the benefit of any member of
your household. Additionally, you are required to furnish a report of your
personal securities holdings within ten days of commencement of your employment
with HALP or HASLP and annually thereafter. These requirements apply to any
investment account, such as an account at a brokerage house, trust account at a
bank, custodial account or similar types of accounts.
This compliance program also requires that you report any contact with any
securities issuer, government or its personnel, or others, that, in the usual
course of business, might involve material non-public financial information. The
Code requires that you bring to the attention of the General Counsel any
information you receive from any source which might be material non-public
information.
Any questions concerning the Code should be directed to the General Counsel
or the Compliance Department.
I affirm that I have read and understand the Code. I agree to the terms and
conditions set forth in the Code.
- ----------------------------------- ---------------
Signature Date
1
<PAGE>
ANNUAL AFFIRMATION OF COMPLIANCE
FOR ACCESS PERSONS
I affirm that:
1. I have again read and, during the past year to the best of my
knowledge, have complied with the Code of Ethics and Statement of
Insider Trading (the "Code").
2. I have provided to the Compliance Department the names and addresses
of each investment account that I have with any firm, including, but
not limited to, broker-dealers, banks and others. (List of known
accounts attached.)
3. I have provided to the Compliance Department copies of account
statements or other reports showing each and every transaction in any
security in which I have a beneficial interest, as defined in the
Code, during the most recently ended calendar year
or
During the most recent calendar year there were no transactions in any
security in which I had a beneficial interest required to be reported
pursuant to the Code.
4. I have provided to the Compliance Department a report of my personal
securities holdings as of the end of the most recent calendar year,
including all required information for each security in which I have
any direct or indirect beneficial ownership.
- ----------------------------------- --------------
Signature Date
<PAGE>
APPENDIX A
Examples of Beneficial Interest
For purposes of the Code, you will be deemed to have a beneficial interest
in a security if you have the opportunity, directly or indirectly, to profit or
share in any profit derived from a transaction in the security. Examples of
beneficial ownership under this definition include:
. securities you own, no matter how they are registered, and including
securities held for you by others (for example, by a custodian or
broker, or by a relative, executor or administrator) or that you have
pledged to another (as security for a loan, for example);
. securities held by a trust of which you are a beneficiary (except
that, if your interest is a remainder interest and you do not have or
participate in investment control of trust assets, you will not be
deemed to have a beneficial interest in securities held by the trust);
. securities held by you as trustee or co-trustee, where either you or
any member of your immediate family (i.e., spouse, children or
descendants, stepchildren, parents and their ancestors, and
stepparents, in each case treating a legal adoption as blood
relationship) has a beneficial interest (using these rules) in the
trust.
. securities held by a trust of which you are the settlor, if you have
the power to revoke the trust without obtaining the consent of all the
beneficiaries and have or participate in investment control;
. securities held by any partnership in which you are a general partner,
to the extent of your interest in partnership capital or profits;
. securities held by a personal holding company controlled by you alone
or jointly with others;
. securities held by (i) your spouse, unless legally separated, or you
and your spouse jointly, or (ii) your minor children or any immediate
family member of you or your spouse (including an adult relative),
directly or through a trust, who is sharing your home, even if the
securities were not received from you and the income from the
securities is not actually used for the maintenance of your household;
or
. securities you have the right to acquire (for example, through the
exercise of a derivative security), even if the right is not presently
exercisable, or securities as to which, through any other type of
arrangement, you obtain benefits substantially equivalent to those of
ownership.
You will not be deemed to have beneficial ownership of securities in the
following situations:
. securities held by a limited partnership in which you do not have a
controlling interest and do not have or share investment control over
the partnership's portfolio; and
<PAGE>
APPENDIX A
. securities held by a foundation of which you are a trustee and donor,
provided that the beneficiaries are exclusively charitable and you
have no right to revoke the gift.
These examples are not exclusive. There are other circumstances in which you may
be deemed to have a beneficial interest in a security. Any questions about
whether you have a beneficial interest should be directed to the General Counsel
or Compliance Department.
<PAGE>
Ex-99(p)(13)
CODE OF ETHICS
Davis Selected Advisers, L.P.
Davis Selected Advisers-NY, Inc.
Davis Distributors, LLC
And The Clients For Which They Serve As Investment Adviser
As Amended January 29, 2000
Preamble
- --------
The interests of our clients, and the interests of shareholders of the funds we
advise, are, at all times, our highest priority. In order to maintain this
priority, all personal securities transactions are conducted in a manner
consistent with this Code of Ethics (the "Code"). We are committed to
maintaining the integrity of our business by exercising vigilance in the
avoidance of all actual or potential conflicts of interest or abuses of our
position of trust and responsibility. The Code should be read in conjunction
with this Preamble.
Section 1: Definitions
- -----------------------
All definitions shall be interpreted pursuant to the Investment Company Act of
1940 (the "1940 Act") and its Rule 17j-1, and the Investment Advisers Act and
its Rule 204-(2).
(A) "Adviser" means Davis Selected Advisers, L.P. ("DSA"), Davis Selected
Advisers-NY, Inc. ("DSANY"), and Davis Distributors, LLC ("DDLLC"), and any
firm which controls, is controlled by, or is under common control with DSA,
and any other firm adopting this Code.
(B) "Access Person" means any director, officer, general partner, or Advisory
Person of the Adviser or a Fund. Access Person shall not include:
(1) disinterested Directors who are Access Persons solely by reason of
being a Director of a Fund; or
(2) Officers of a Fund who are Access Persons solely by reason of being an
Officer of a Fund;
if such Disinterested Directors and Officers do not, in connection with their
regular functions or duties, obtain information regarding the purchase or sale
of a security by that Fund prior to disclosure in a regular meeting of
Directors.*
(C) "Advisory Person" means
(1) any employee of the Adviser or a Fund who, in connection with his/her
regular functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a Covered Security by a Client, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales;
(2) any natural person in a control relationship to the Adviser or a Fund
who obtains information concerning recommendations made to such company with
regard to the purchase of a Covered Security; or
Page 1 of 10
<PAGE>
(3) any person who obtains information concerning any recommendations or
executions of Client transactions in Covered Securities and has been designated
by the Compliance Officer as an Advisory Person.*
* This Code requires the Compliance Officer to maintain a list of all Access
Persons and Advisory Persons and to provide these persons with notice of their
status.
(D) "Security held or to be Acquired by a Client" means:
(1) any Covered Security which, within the most recent 15 days:
(a) is or has been held by a Client; or
(b) is being or has been seriously considered for purchase by a
Client; and
(2) any option to purchase or sell, and any security convertible into or
exchangeable for, a Covered Security described in part (i) of this section.
A Covered Security is seriously considered for purchase by a Client when a
recommendation to purchase or sell a Covered Security has been communicated to a
portfolio manager for a Client and the portfolio manager is considering the
recommendation. A Covered Security is not being seriously considered for
purchase by a Client solely by reason of that Covered Security being subject to
normal review procedures applicable to portfolio securities of the Client, or
normal review procedures which are part of a general industrial or business
study, review, survey or research or monitoring of securities markets.
(E) "Beneficial Owner" shall be determined in the same manner as it would be in
determining whether a person is subject to the provisions of Section 16 of
the Securities Exchange Act of 1934 and the rules and regulations
thereunder. (The meaning of the term "Beneficial Owner" is summarized and
illustrated in Appendix A attached to this Code.)
(F) "Client" means any party for whom the Adviser provides investment advisory
services. Clients include Funds, whether or not the Adviser serves as the
primary investment adviser or serves as sub-adviser.
(G) "Compliance Officer" shall mean an Adviser's designated Compliance Officer
or, in the case of such designated Compliance Officer's unavailability or
inability to act, any officer of the Adviser designated to act in such
circumstances.
(H) "Control" shall have the same meaning as set forth in Section 2(a)(9) of
the 1940 Act.
(I) "Covered Security" means a security as defined in Section 2(a)(36) of the
1940 Act , except that it does not include: (1) direct obligations of the
Government of the United States, (2) banker's acceptances, bank
certificates of deposit, commercial paper, and high quality short-term debt
instruments, including repurchase agreements; and (3) shares issued by
open-end funds registered under the 1940 Act.
(J) "Disinterested Director" means a director of a Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19) of
the 1940 Act.
(K) "Fund" means each investment company for whom the Adviser serves as the
primary investment adviser and manages the investment company's daily
business affairs. Currently, this includes the Davis Funds and the
Selected Funds.
(L) "Limited Offering" means an offering that is exempt from registration under
the Securities Act of 1933 pursuant to Section 4(2), Section 4(6), Rule
505, or Rule 506,
Page 2 of 10
<PAGE>
(M) "Purchase or Sale of a Covered Security" includes, inter alia, the writing
of an option to purchase or sell a Covered Security.
Section 2: Unlawful Actions
- ----------------------------
No Access Person, in connection with the purchase or sale of any Security Held
or to be acquired by a Client shall
(A) employ any device, scheme or artifice to defraud a Client;
(B) make any untrue statement of a material fact (or omit to state a material
fact necessary in order to make the statements made not misleading) to a
DSA employee making investment decisions or to a DSA officer investigating
securities transactions;
(C) engage in any act, practice or course of business that operates or would
operate as a fraud or deceit to a Client; or
(D) engage in any manipulative practice with respect to a Client.
Section 3: Prohibited Purchases and Sales
- ------------------------------------------
(A) Pre-Clearing. No Access Person shall, directly or indirectly, purchase or
------------
sell any Covered Security (or any security sold in a Limited Offering) in
which such person has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership without the prior approval of the
Compliance Officer. The Compliance Officer shall pre-clear his personal
transactions in any Covered Security (or any security sold in a Limited
Offering) with a senior officer designated by DSA.
(B) Initial Public Offerings. No Access Person shall acquire any Securities in
------------------------
an initial public offering.
(C) Seven Day Trading Window. No Access Person shall, directly or indirectly,
------------------------
purchase or sell any Covered Security in which he or she has, or by reason
of such transaction acquires, any direct or indirect beneficial ownership,
and which to his or her actual knowledge at the time of such purchase or
sale is being seriously considered for purchase or sale by or for a Client,
or is the subject of a pending buy or sell order by a Client, or is
programmed for purchase or sale by or for a Client; or was purchased or
sold by or for a Client within the seven (7) calendar day period preceding
or following the purchase or sale by such Access Person.
(D) Sanctions. Upon discovering a violation of Section 3(A) of this Code, the
---------
Compliance Officer shall impose a fine in an amount he or she deems
appropriate. Upon discovering a violation of Sections 2, 3(B) or 3(C) of
this Code, the Adviser and the Board of Directors of any Fund affected by
such violation may impose such sanctions as each deems appropriate,
including, inter alia, monetary sanctions, a letter of censure or
suspension or termination of the employment of the violator, civil referral
to the SEC or other civil regulatory authorities, or criminal referral.
(E) For purposes of the prohibitions in Section 3 of this Code on purchases and
sales of certain Securities, "directly or indirectly" shall be deemed to
include within such prohibitions any transaction involving any other
substantially similar Covered Securities of the same issuer, and any
derivatives of such Covered Security.
Page 3 of 10
<PAGE>
Section 4: Exempted Transactions
- ---------------------------------
(A) Blue Chip Exemption. The prohibitions of Section 3(A) of this Code shall
--------------------
not apply to any purchase or sale, or series of related transactions,
involving less than $50,000 of the securities of a company listed either on
a national securities exchange or traded over the counter and having a
market capitalization exceeding $5 billion. A series of transactions in
the securities of a company shall be deemed to be related if occurring
within seven days, and shall be deemed not to be related if occurring more
than 14 days apart.
(B) The prohibitions of Section 3 of this Code shall not apply to:
(1) No Control. Purchases or sales effected for any account over which the
----------
Access Person has no direct or indirect influence or control.
(2) Automatic Dividend Reinvestment Plan. Purchases that are part of an
------------------------------------
automatic dividend reinvestment plan.
(3) Pro Rata Rights. Purchases effected upon the exercise of rights issued
---------------
by an issuer pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such rights so
acquired.
(4) Systematic Investment Plan. Purchases effected through a systematic
--------------------------
investment plan involving the automatic investment of a predetermined amount on
predetermined dates, provided the Compliance Officer has been previously
notified by the employee that he or she (or his or her spouse) will be
participating in the plan.
(5) Gifts. Subject to the provisions of Section 7, the giving or receiving
-----
of any security as a gift.
(6) Futures Contracts, Options on Futures Contracts. Any purchase or sale
-----------------------------------------------
involving futures contracts on broad securities indices, such as the S&P, or
interest rate futures contracts, or options on such futures contracts.
Section 5: Limited Offerings
- ----------------------------
In reviewing requests for approval of a transaction by an Access Person
involving a limited offering, the Compliance Officer shall take into account,
among other factors, whether the investment opportunity should be reserved for a
Client, and whether the opportunity is being offered to such Access Person by
virtue of his or her position with the Adviser.
An Advisory Person who has been authorized to acquire Securities in a limited
offering shall be required to disclose such investment when that Advisory Person
plays a part in any Fund's subsequent consideration of an investment in the
issuer. Any such consideration of an investment in the issuer shall be subject
to review by Advisory Persons with no personal interest in the issuer.
Section 6: Disgorgement by Access Persons of Certain Short-Term Trading Profits
- --------------------------------------------------------------------------------
(A) No Access Person shall profit from the purchase and sale, or sale and
purchase, of the same (or equivalent) securities within 60 calendar days.
Any profits realized by such Access Person on such short-term trades shall
be disgorged.
Page 4 of 10
<PAGE>
(B) Any profits realized by an Access Person on trades made in violation of
Section 3(C) of this Code (the Seven Day Trading Window) shall be
disgorged.
Section 7: Gifts
- -----------------
In addition to those provisions of the NASD Rules of Fair Practice or similar
ethical rules relating to the receipt of gifts and other benefits, all Access
Persons are prohibited from receiving any gift, gratuity, favor award or other
item or benefit having a market value in excess of $100 per person, per year,
from or on behalf of any person or entity that does, or seeks to do, business
with or on behalf of the Adviser or its Clients. Business-related entertainment
such as meals, tickets to the theater or a sporting event which are infrequent
and of a non-lavish nature are excepted from this prohibition.
Section 8: Service as a Director
- ---------------------------------
Access Persons are prohibited from serving on the boards of directors of
publicly traded companies unless the Compliance Officer determines, in writing,
that such service is not inconsistent with the interests of the Clients and
their shareholders. If the Compliance Officer has approved such service, and
such Access Person is also an Advisory Person, that Advisory Person shall be
isolated, through "Chinese Wall" procedures, from persons making investment
decisions with respect to such issuer.
Section 9: Reporting
- ---------------------
(A) Initial and Annual Disclosure. Except as provided in paragraph (e), every
-----------------------------
Access Person shall:
(1) Report all personal holdings of Covered Securities within 10 days of
becoming an Access person; and
(2) Report all personal holdings of Covered Securities as of December 31st
(or other date acceptable to the Compliance Officer) within 30 days of calendar
year-end.
(B) Duplicate Confirmation Statements. Every Access Person shall instruct the
---------------------------------
broker, dealer or bank with or through whom a Covered Security transaction
is effected in which every Access Person has, or by reason of such
transaction acquires or sells, any direct or indirect beneficial ownership
in the Covered Security, to furnish the Compliance Officer duplicate copies
of transaction confirmations and statements of account at the same time
such confirmations and statements of account are sent to the Access Person.
(C) Quarterly Reporting. Every Access Person shall report within 10 days after
-------------------
the end of each calendar quarter to the Compliance Officer all Covered
Securities transactions taking place during the preceding calendar quarter
in an account of which the Access Person is a Beneficial Owner. If the
Access Person did not execute any such transactions during the preceding
calendar quarter, he shall report such fact to the Compliance Officer.
(D) Opening Brokerage Accounts. Prior to the opening of an account for the
--------------------------
purpose of executing transactions in Covered Securities, every Access
Person shall obtain the written consent of the Compliance Officer.
(E) Non-Discretionary Accounts. No person shall be required to make a report
--------------------------
with respect to any account over which such person does not have any direct
or indirect influence or control.
Page 5 of 10
<PAGE>
(F) Non-Admission Statement. Any such disclosure report may contain a
-----------------------
statement that the report shall not be construed as an admission by the
person making such report that he or she has any direct or indirect
beneficial ownership in the Covered Security to which the report relates.
Section 10: Administration of the Code
- ---------------------------------------
(A) Appointment of a Compliance Officer. DSA shall appoint a Compliance
-----------------------------------
Officer and shall keep a record for five years of the persons serving as
Compliance Officer and their dates of service.
(B) Administration of the Code. The Compliance Officer shall administer the
--------------------------
Code and shall use reasonable diligence and institute procedures reasonably
necessary to review reports submitted by Access Persons and to prevent
violations of the Code.
(C) Record of Violations of the Code. The Compliance Officer shall maintain a
--------------------------------
record of all violations of the Code, and of any action taken as a result
of the violation, which shall be maintained for five years in an easily
accessible place.
(D) List of Access and Advisory Persons. The Compliance Officer shall prepare
-----------------------------------
a list of the Access Persons and Advisory Persons, shall update the list as
necessary, and shall maintain a record (for 5 years) of former lists of
Access and Advisory Persons.
(E) Notice of Status as Access or Advisory Person. The Compliance Officer
---------------------------------------------
shall notify each Access and Advisory Person of their status, provide them
with a copy of this Code, and obtain an acknowledgment from such person of
receipt thereof.
(F) Notice of Amendments to the Code. Amendments to this Code shall be
--------------------------------
provided to each Access and Advisory Person, who shall acknowledge receipt
thereof.
(G) Exemptions to the Code. The Board of Directors of the Funds may exempt any
----------------------
person from application of any Section(s) of this Code. A written
memorandum shall specify the Section(s) of this Code from which the person
is exempted and the reasons therefore.
(H) Quarterly Directors' Report. The Compliance Officer shall compile a
---------------------------
quarterly report to be presented to the Board of Directors of each of the
Funds. Such report shall discuss compliance with this Code, and shall
provide details with respect to any failure to comply and the actions taken
by the Adviser upon discovery of such failure.
(I) Annual Directors' Report. Not less than once a year the Compliance Officer
------------------------
shall furnish to Directors of each of the Funds, and the Directors shall
consider, a written report that:
(1) Describes any issues arising under the Code since the last report to
the Directors, including, but not limited to, information about material
violations of the Code and sanctions imposed in response to the material
violations. The annual written report may incorporate by reference information
included in written quarterly reports previously presented to the Directors; and
(2) Certifies that DSA has adopted procedures reasonably necessary to
prevent Access Persons from violating the Code.
Section 11: Adoption of Code by Entities Other Than DSA
- --------------------------------------------------------
The Compliance Officer of DSA shall ensure that all firms controlling,
controlled by, or under common control with DSA that employ persons who obtain
information concerning recommendations or
Page 6 of 10
<PAGE>
executions of Covered Security transactions of any Client have adopted the Code
or have imposed similar ethical constraints on their personnel.
Section 12: Material Changes to the Code
- -----------------------------------------
(A) All material changes to the Code must be approved by a majority of the
Board of Directors (including independent directors voting separately) of
Funds at their next regular meeting (and in no event more than 6 months
after material change). DSA shall provide the Directors with a
certification that DSA has adopted procedures reasonably necessary to
prevent Access Persons from violating the Code. The Directors shall base
their approval on a determination that the Code contains provisions
reasonably necessary to prevent Access persons from violating Section 2 of
this Code.
(B) A copy of each version of the Code shall be maintained for five years in an
easily accessible place.
Page 7 of 10
<PAGE>
CODE OF ETHICS
Davis Selected Advisers, L.P.
Davis Selected Advisers-NY, Inc.
Davis Distributors, LLC
And The Clients For Which They Serve As Investment Adviser
As Amended January 29, 2000
INITIAL & ANNUAL CODE OF ETHICS CERTIFICATION
- ---------------------------------------------
I acknowledge that I have received a copy and read the Code of Ethics, as
amended January 29, 2000, for Davis Selected Advisers, L.P., Davis Selected
Advisers-NY, Inc., Davis Distributors, LLC, other entities adopting this Code
and the Funds and clients for which they serve as investment adviser. I
understand my responsibilities under this Code of Ethics and agree to comply
with all of its terms and conditions. I will retain a copy of this Code of
Ethics for future reference.
I hereby certify that I have complied with the requirements of the Code of
Ethics of Davis Selected Advisers, L.P., Davis Selected Advisers-NY, Inc., Davis
Distributors, LLC, and the clients for which they serve as investment adviser,
as amended January 29, 2000, and that I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to such
Code of Ethics.
- -------------------------------------- --------------------------------------
Print Name Signature
- --------------------------------------
Date
RETURN TO COMPLIANCE DEPARTMENT.
Page 8 of 10
<PAGE>
CODE OF ETHICS
Davis Selected Advisers, L.P.
Davis Selected Advisers-NY, Inc.
Davis Distributors, LLC
And The Clients For Which They Serve As Investment Adviser
As Amended January 29, 2000
INITIAL & ANNUAL CODE OF ETHICS CERTIFICATION
- ---------------------------------------------
I acknowledge that I have received a copy and read the Code of Ethics, as
amended January 29, 2000, for Davis Selected Advisers, L.P., Davis Selected
Advisers-NY, Inc., Davis Distributors, LLC, other entities adopting this Code,
and the Funds and clients for which they serve as investment adviser. I
understand my responsibilities under this Code of Ethics and agree to comply
with all of its terms and conditions. I will retain a copy of this Code of
Ethics for future reference.
I hereby certify that I have complied with the requirements of the Code of
Ethics of Davis Selected Advisers, L.P., Davis Selected Advisers-NY, Inc., Davis
Distributors, LLC, and the clients for which they serve as investment adviser,
as amended January 29, 2000, and that I have disclosed or reported all personal
securities transactions required to be disclosed or reported pursuant to such
Code of Ethics.
- -------------------------------------- --------------------------------------
Print Name Signature
- --------------------------------------
Date
EMPLOYEE COPY.
Page 9 of 10
<PAGE>
CODE OF ETHICS
Davis Selected Advisers, L.P.
Davis Selected Advisers-NY, Inc.
Davis Distributors, LLC
And The Clients For Which They Serve As Investment Adviser
As Amended January 29, 2000
Beneficial Ownership
- --------------------
For purposes of the Code of Ethics, a beneficial owner of a security includes
any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or indirect
pecuniary interest in such security.
You have a pecuniary interest in a security if you have the opportunity,
directly or indirectly, to profit or share in the profit derived from a
transaction in such security. You are deemed to have a pecuniary interest in
any securities held by members of your immediate family sharing your household.
"Immediate family" means your son or daughter (including any legally adopted
child) or any descendants of either, your stepson or stepdaughter, your father
or mother or any ancestor of either, your stepfather or stepmother, and your
spouse. Also, you are deemed to have a pecuniary interest in securities held by
a partnership of which you are a general partner, and beneficial ownership of
the securities held by such partnership will be attributed to you in proportion
to the greater of your capital account or interest in the partnership at the
time of any transaction in such securities. You are also deemed to have a
pecuniary interest in the portfolio securities held by a corporation if you are
a controlling shareholder of such corporation and have or share investment
control over such portfolio securities. Additionally, certain performance-
related fees received by brokers, dealers, banks, insurance companies,
investment companies, investment advisors, trustees and others may give rise to
pecuniary interests in securities over which such persons have voting or
investment control.
Securities owned of record or held in your name are generally considered to be
beneficially owned by you if you have a pecuniary interest in such securities.
Beneficial ownership may include securities held by others for your benefit
regardless of record ownership (e.g., securities held for you or members of your
immediate family by agents, custodians, brokers, trustees, executors or other
administrators; securities owned by you but which have not been transferred into
your name on the books of a company; and securities which you have pledged) if
you have or share a pecuniary interest in such securities.
With respect to ownership of securities held in trust, beneficial ownership
includes the ownership of securities as a trustee in instances either where you
as trustee have, or where a member of your immediate family has, a pecuniary
interest in the securities held by the trust (e.g., by virtue of being a
beneficiary of the trust).
The final determination of beneficial ownership is a question to be determined
in light of the facts of a particular case. Thus, while you may include
security holdings of other members of your family, you may nonetheless disclaim
beneficial ownership of such securities. Any uncertainty as to whether you are
the beneficial owner of a security should be brought to the attention of the
Compliance Officer.
Page 10 of 10
<PAGE>
EX-99.(p)(14)
New England Securities Corporation (NES) Code of Ethics under Rule 17j-1 of the
Investment Company Act of 1940
As principal underwriter for certain funds ("Funds") offered in connection with
variable products issued by its parent company, certain officers of NES are
deemed to be access persons under Rule 17j-1 of the Investment Company Act. NES
prohibits each access person from purchasing or selling, directly or indirectly,
any security in which the access person has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which he or she knows
or should have known at the time of such purchase or sale: (i) is being
considered for purchase or sale by a Fund; or (ii) is being purchased or sold by
a Fund. This prohibition does not apply to:
. Purchases or sales effected in any account over which the access person
has no direct or indirect influence or control;
. Purchases or sales which are non-volitional on the part of either the
access person or a Fund;
. Purchases which are part of an automatic dividend reinvestment plan;
. Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such
--- ----
rights were acquired from such issuer, and sales of such rights so
acquired; and
. Purchase or sales in a discretionary investment advisory account, in
which an access person has a beneficial ownership interest (either alone
or with others), managed by a registered investment adviser who is not a
member of the access person's family if the access person did not have
knowledge of the transactions until after the transactions had been
executed.