<PAGE> 1
Registration No. 2-94157/811-4146
As filed with the Securities and Exchange Commission
on December 19, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 35
and
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 36
NASL SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of Principal Executive Offices)
James D. Gallagher, Esq.
General Counsel
North American Security Life Insurance Company
116 Huntington Avenue
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copies to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W.
Washington, DC 20007
The Registrant has registered an indefinite amount of its shares under
the Securities Act of 1933 pursuant to a declaration made in accordance with
paragraph (a)(1) of Rule 24f-2 under the Investment Company Act of 1940. The
notice required by such rule for the Registrant's most recent fiscal year was
filed on February 28, 1996.
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on December 31,1996 pursuant to paragraph (b)
[X] 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)
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NASL SERIES TRUST
CROSS REFERENCE TO ITEMS
REQUIRED BY RULE 404(A)
N-1A Item of Part A Caption in Prospectus
1. Cover Page
2. Synopsis
3. Financial Highlights; Management of the Trust
(Performance Data)
4. Synopsis; Investment Objectives, Policies and
Risks (Pacific Rim Emerging Markets Trust;
Science & Technology Trust; International Small
Cap Trust; Emerging Growth Trust; Pilgrim Baxter
Growth Trust; Small/Mid Cap Trust; International
Stock Trust; Worldwide Growth Trust; Global
Equity Trust; Growth Trust; Equity Trust;
Quantitative Equity Trust; Equity Index Trust;
Blue Chip Growth Trust; Value Trust;
International Growth and Income Trust; Growth
and Income Trust; Equity-Income Trust; Real
Estate Securities Trust, Balanced Trust; High
Yield Trust; Automatic Asset Allocation Trusts,
Strategic Bond Trust; Global Government Bond
Trust; Investment Quality Bond Trust; Capital
Growth Bond Trust; U.S. Government Securities
Trust; Money Market Trust, The Lifestyle
Trusts); Risk Factors (Investment Restrictions
Generally; Foreign Securities; Lending
Securities; When-Issued Securities; Hedging
Techniques); Appendix I - Debt Security
Ratings; Appendix II - Options, Futures and
Currency Transactions, Appendix III - Standard
& Poor's Disclaimers
5. Management of the Trust (Advisory Agreement;
Subadvisory Agreements; Expenses); General
Information (Custodian)
6. General Information (Shares of the Trust; Taxes;
Dividends)
7. General Information (Purchase and Redemption of
Shares)
8. General Information (Purchase and Redemption of
Shares)
9. Not Applicable
N-1A Item of Part B Caption in Part B
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Policies (Money Market Instruments);
Investment Restrictions; Portfolio Turnover
14. Management of the Trust (Compensation of
Trustees)
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15. Organization of the Trust (Principal
Holders of Securities)
16. Investment Management Arrangements (The Advisory
Agreement; The Subadvisory Agreements)
17. Investment Management Arrangements (Portfolio
Brokerage)
18. Organization of the Trust (Shares of the Trust)
19. Purchase and Redemption of Shares (Determination
of Net Asset Value)
20. Not Applicable
21. Not Applicable
22. Purchase and Redemption of Shares (Performance
Data)
23. Financial Statements
<PAGE> 4
NASL SERIES TRUST
116 Huntington Avenue Boston, Massachusetts 02116
NASL Series Trust (the "Trust") is a no-load, open-end management
investment company, commonly known as a mutual fund. Shares of the Trust are not
offered directly to the public but are sold only to insurance companies and
their separate accounts as the underlying investment medium for variable
contracts ("contracts"). The Trust provides a range of investment objectives
through thirty-five separate investment portfolios, each of which issues its own
series of shares of beneficial interest. The names of those portfolios are as
follows:
PACIFIC RIM EMERGING MARKETS TRUST
SCIENCE & TECHNOLOGY TRUST
INTERNATIONAL SMALL CAP TRUST
EMERGING GROWTH TRUST
PILGRIM BAXTER GROWTH TRUST
SMALL/MID CAP TRUST
INTERNATIONAL STOCK TRUST
WORLDWIDE GROWTH TRUST
GLOBAL EQUITY TRUST
GROWTH TRUST
EQUITY TRUST
QUANTITATIVE EQUITY TRUST
EQUITY INDEX TRUST
BLUE CHIP GROWTH TRUST
REAL ESTATE SECURITIES TRUST
VALUE TRUST
INTERNATIONAL GROWTH AND INCOME TRUST
GROWTH AND INCOME TRUST
EQUITY-INCOME TRUST
BALANCED TRUST
AGGRESSIVE ASSET ALLOCATION TRUST
HIGH YIELD TRUST
MODERATE ASSET ALLOCATION TRUST
CONSERVATIVE ASSET ALLOCATION TRUST
STRATEGIC BOND TRUST
GLOBAL GOVERNMENT BOND TRUST
CAPITAL GROWTH BOND TRUST
INVESTMENT QUALITY BOND TRUST
U.S. GOVERNMENT SECURITIES TRUST
MONEY MARKET TRUST
LIFESTYLE AGGRESSIVE 1000 TRUST
LIFESTYLE GROWTH 820 TRUST
LIFESTYLE BALANCED 640 TRUST
LIFESTYLE MODERATE 460 TRUST
LIFESTYLE CONSERVATIVE 280 TRUST
The investment objectives and certain policies of each Trust are set
forth on the inside front cover. In pursuing their investment objectives, the
Strategic Bond and High Yield Trusts reserve the right to invest without
limitation, and the Investment Quality Bond and Equity-Income Trusts may invest
up to 20% and 10%, respectively, of their assets, in high yield (high risk)
securities, commonly known as "junk bonds" which also present a high degree of
risk. High-yielding, lower-quality securities involve comparatively greater
risks, including price volatility and risk of default in the timely payment of
interest and principal, than higher-quality securities. Although the Strategic
Bond Trust's Subadviser has the ability to invest up to 100% of the portfolio's
assets in lower-rated securities, the portfolio's Subadviser does not anticipate
investing in excess of 75% of the portfolio's assets in such securities.
Purchasers should carefully assess the risks associated with an investment in
the above-named Trusts. See "RISK FACTORS -- High Yield (High Risk) Securities."
AN INVESTMENT IN THE MONEY MARKET TRUST IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET TRUST WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $10.00 PER SHARE.
This Prospectus sets forth concisely the information about the Trust
that a prospective purchaser of a contract should know before purchasing such a
contract. PLEASE READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE REFERENCE.
Additional information about the Trust has been filed with the Securities and
Exchange Commission and is available upon request and without charge by writing
the Trust at the above address or calling (617) 266-6008 and requesting the
"Statement of Additional Information for NASL Series Trust" dated the date of
this Prospectus (hereinafter "Statement of Additional Information"). The
Statement of Additional Information is incorporated by reference into this
Prospectus. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding registrants
that file electronically with the Commission. SHARES OF THE TRUST ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, AND THE
SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December 31, 1996.
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The investment objectives and certain policies of each Trust are as
follows:
PACIFIC RIM EMERGING MARKETS TRUST -- The investment objective of the Pacific
Rim Emerging Markets Trust is to achieve long-term growth of capital.
Manufacturers Adviser Corporation ("MAC") manages the Pacific Rim Emerging
Markets Trust and seeks to achieve this investment objective by investing in a
diversified portfolio that is comprised primarily of common stocks and
equity-related securities of corporations domiciled in countries in the Pacific
Rim region.
SCIENCE & TECHNOLOGY TRUST -- The investment objective of the Science &
Technology Trust is long-term growth of capital. Current income is incidental to
the portfolio's objective. T. Rowe Price Associates, Inc. ("T. Rowe Price")
manages the Science & Technology Trust.
INTERNATIONAL SMALL CAP TRUST -- The investment objective of the International
Small Cap Trust is to seek long term capital appreciation. Founders Asset
Management, Inc. ("Founders") manages the International Small Cap Trust and will
pursue this objective by investing primarily in securities issued by foreign
companies which have total market capitalizations or annual revenues of $1
billion or less. These securities may represent companies in both established
and emerging economies throughout the world.
EMERGING GROWTH TRUST -- The investment objective of the Emerging Growth Trust
is maximum capital appreciation. Warburg, Pincus Counsellors, Inc. ("Warburg")
manages the Emerging Growth Trust and will pursue this objective by investing
primarily in a portfolio of equity securities of domestic companies. The
Emerging Growth Trust ordinarily will invest at least 65% of its total assets in
common stocks or warrants of emerging growth companies that represent attractive
opportunities for maximum capital appreciation.
PILGRIM BAXTER GROWTH TRUST -- The investment objective of the Pilgrim Baxter
Growth Trust is capital appreciation. Pilgrim Baxter & Associates, Ltd. ("PBHG")
manages the Pilgrim Baxter Growth Trust and seeks to achieve its objective by
investing in companies believed by PBHG to have an outlook for strong earnings
growth and the potential for significant capital appreciation.
SMALL/MID CAP TRUST -- The investment objective of the Small/Mid Cap Trust is to
seek long term capital appreciation. Fred Alger Management, Inc. ("Alger")
manages the Small/Mid Cap Trust and will pursue this objective by investing at
least 65% of the portfolio's total assets (except during temporary defensive
periods) in small/mid cap equity securities.
INTERNATIONAL STOCK TRUST -- The investment objective of the International Stock
Trust is long-term growth of capital. Rowe Price-Fleming International, Inc.
("Price-Fleming") manages the International Stock Trust and seeks to attain this
objective by investing primarily in common stocks of established, non-U.S.
companies.
WORLDWIDE GROWTH TRUST -- The investment objective of the Worldwide Growth Trust
is long-term growth of capital. Founders manages the Worldwide Growth Trust and
seeks to attain this objective by normally investing at least 65% of its total
assets in equity securities of growth companies in a variety of markets
throughout the world.
GLOBAL EQUITY TRUST -- The investment objective of the Global Equity Trust is
long-term capital appreciation. Morgan Stanley Asset Management Inc. ("Morgan
Stanley") manages the Global Equity Trust and intends to pursue this objective
by investing primarily in equity securities of issuers throughout the world,
including U.S. issuers and emerging market countries.
GROWTH TRUST -- The investment objective of the Growth Trust is to seek
long-term growth of capital. Founders manages the Growth Trust and will pursue
this objective by investing, under normal market conditions, at least 65% of its
total assets in common stocks of well-established, high-quality growth companies
that Founders believes have the potential to increase earnings faster than the
rest of the market.
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EQUITY TRUST -- The principal investment objective of the Equity Trust is growth
of capital. Current income is a secondary consideration although growth of
income may accompany growth of capital. Fidelity Management Trust Company
("FMTC") manages the Equity Trust and seeks to attain the foregoing objective by
investing primarily in common stocks of United States issuers or securities
convertible into or which carry the right to buy common stocks.
QUANTITATIVE EQUITY TRUST -- The investment objective of the Quantitative Equity
Trust (prior to December 31, 1996, the "Common Stock Trust") is to achieve
intermediate and long-term growth through capital appreciation and current
income by investing in common stocks and other equity securities of well
established companies with promising prospects for providing an above average
rate of return. MAC manages the Quantitative Equity Trust.
EQUITY INDEX TRUST -- The investment objective of the Equity Index Trust is to
achieve investment results which approximate the total return of publicly traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. MAC manages the Equity Index Trust.
BLUE CHIP GROWTH TRUST -- The primary investment objective of the Blue Chip
Growth Trust (prior to October 1, 1996, the "Pasadena Growth Trust") is to
provide long-term growth of capital. Current income is a secondary objective,
and many of the stocks in the portfolio are expected to pay dividends. T. Rowe
Price manages the Blue Chip Growth Trust.
REAL ESTATE SECURITIES TRUST -- The investment objective of the Real Estate
Securities Trust is to achieve a combination of long-term capital appreciation
and satisfactory current income by investing in real estate related equity and
debt securities. MAC manages the Real Estate Securities Trust.
VALUE TRUST -- The investment objective of the Value Trust is to realize an
above-average total return over a market cycle of three to five years,
consistent with reasonable risk. Miller Anderson & Sherrerd, LLP ("MAS") manages
the Value Trust and seeks to attain this objective by investing primarily in
common and preferred stocks, convertible securities, rights and warrants to
purchase common stocks, ADRs and other equity securities of companies with
equity capitalizations usually greater than $300 million.
INTERNATIONAL GROWTH AND INCOME TRUST -- The investment objective of the
International Growth and Income Trust is to seek long-term growth of capital and
income. The portfolio is designed for investors with a long-term investment
horizon who want to take advantage of investment opportunities outside the
United States. J.P. Morgan Investment Management Inc. ("J.P. Morgan") manages
the International Growth and Income Trust.
GROWTH AND INCOME TRUST -- The investment objective of the Growth and Income
Trust is to provide long-term growth of capital and income consistent with
prudent investment risk. Wellington Management Company ("Wellington Management")
manages the Growth and Income Trust and seeks to achieve the Trust's objective
by investing primarily in a diversified portfolio of common stocks of U.S.
issuers which Wellington Management believes are of high quality.
EQUITY-INCOME TRUST -- The investment objective of the Equity-Income Trust
(prior to December 31, 1996, the "Value Equity Trust") is to provide substantial
dividend income and also long term capital appreciation. T. Rowe Price manages
the Equity-Income Trust and seeks to attain this objective by investing
primarily in dividend-paying common stocks, particularly of established
companies with favorable prospects for both increasing dividends and capital
appreciation.
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BALANCED TRUST -- The investment objective of the Balanced Trust is current
income and capital appreciation. Founders is the manager of the Balanced Trust
and seeks to attain this objective by investing in a balanced portfolio of
common stocks, U.S. and foreign government obligations and a variety of
corporate fixed-income securities.
HIGH YIELD TRUST -- The investment objective of the High Yield Trust is to
realize an above-average total return over a market cycle of three to five
years, consistent with reasonable risk. MAS manages the High Yield Trust and
seeks to attain this objective by investing primarily in high yield debt
securities, including corporate bonds and other fixed-income securities.
AUTOMATIC ASSET ALLOCATION TRUSTS (AGGRESSIVE, MODERATE AND CONSERVATIVE) -- The
investment objective of each of the Automatic Asset Allocation Trusts is to
obtain the highest potential total return consistent with a specified level of
risk tolerance -- aggressive, moderate and conservative. The amount of each
portfolio's assets invested in each category of securities is dependent upon the
judgment of FMTC as to what percentages of each portfolio's assets in each
category will contribute to the limitation of risk and the achievement of its
investment objective.
STRATEGIC BOND TRUST -- The investment objective of the Strategic Bond Trust is
to seek a high level of total return consistent with preservation of capital.
The Strategic Bond Trust seeks to achieve its objective by giving its
Subadviser, Salomon Brothers Asset Management ("SBAM"), broad discretion to
deploy the Strategic Bond Trust's assets among certain segments of the
fixed-income market as SBAM believes will best contribute to the achievement of
the portfolio's objective.
GLOBAL GOVERNMENT BOND TRUST -- The investment objective of the Global
Government Bond Trust is to seek a high level of total return by placing primary
emphasis on high current income and the preservation of capital. Oechsle
International Advisors, L.P. ("Oechsle International") manages the Global
Government Bond Trust and intends to pursue this objective by investing
primarily in a selected global portfolio of high-quality, fixed-income
securities of foreign and U.S. governmental entities and supranational issuers.
CAPITAL GROWTH BOND TRUST -- The investment objective of the Capital Growth Bond
Trust is to achieve growth of capital by investing in medium-grade or better
debt securities, with income as a secondary consideration. MAC manages the
Capital Growth Bond Trust. The Capital Growth Bond Trust differs from most
"bond" funds in that its primary objective is capital appreciation, not income.
INVESTMENT QUALITY BOND TRUST -- The investment objective of the Investment
Quality Bond Trust is to provide a high level of current income consistent with
the maintenance of principal and liquidity. Wellington Management manages the
Investment Quality Bond Trust and seeks to achieve the Trust's objective by
investing primarily in a diversified portfolio of investment grade corporate
bonds and U.S. Government bonds with intermediate to longer term maturities.
U.S. GOVERNMENT SECURITIES TRUST -- The investment objective of the U.S.
Government Securities Trust is to obtain a high level of current income
consistent with preservation of capital and maintenance of liquidity. SBAM
manages the U.S. Government Securities Trust and seeks to attain its objective
by investing a substantial portion of its assets in debt obligations and
mortgage backed securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and derivative securities such as collateralized
mortgage obligations backed by such securities.
MONEY MARKET TRUST -- The investment objective of the Money Market Trust is to
obtain maximum current income consistent with preservation of principal and
liquidity. MAC manages the Money
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Market Trust and seeks to achieve this objective by investing in high quality,
U.S. dollar denominated money market instruments.
LIFESTYLE AGGRESSIVE 1000 TRUST -- The investment objective of the Lifestyle
Aggressive 1000 Trust is to provide long term growth of capital. Current income
is not a consideration. MAC manages the Lifestyle Aggressive 1000 Trust and
seeks to achieve this objective by investing 100% of the Lifestyle Trust's
assets in other portfolios of NASL Series Trust ("Underlying Portfolios") which
invest primarily in equity securities.
LIFESTYLE GROWTH 820 TRUST -- The investment objective of the Lifestyle Growth
820 Trust is to provide long term growth of capital with consideration also
given to current income. MAC manages the Lifestyle Growth 820 Trust and seeks to
achieve this objective by investing approximately 20% of the Lifestyle Trust's
assets in Underlying Portfolios which invest primarily in fixed income
securities and approximately 80% of its assets in Underlying Portfolios which
invest primarily in equity securities.
LIFESTYLE BALANCED 640 TRUST -- The investment objective of the Lifestyle
Balanced 640 Trust is to provide a balance between a high level of current
income and growth of capital with a greater emphasis given to capital growth.
MAC manages the Lifestyle Balanced 640 Trust and seeks to achieve this objective
by investing approximately 40% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in fixed income securities and approximately
60% of its assets in Underlying Portfolios which invest primarily in equity
securities.
LIFESTYLE MODERATE 460 TRUST -- The investment objective of the Lifestyle
Moderate 460 Trust is to provide a balance between a high level of current
income and growth of capital with a greater emphasis given to high income. MAC
manages the Lifestyle Moderate 460 Trust and seeks to achieve this objective by
investing approximately 60% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in fixed income securities and approximately
40% of its assets in Underlying Portfolios which invest primarily in equity
securities.
LIFESTYLE CONSERVATIVE 280 TRUST -- The investment objective of the Lifestyle
Conservative 280 Trust is to provide a high level of current income with some
consideration also given to growth of capital. MAC manages the Lifestyle
Conservative 280 Trust and seeks to achieve this objective by investing
approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 20% of its assets
in Underlying Portfolios which invest primarily in equity securities.
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NASL SERIES TRUST
TABLE OF CONTENTS
SYNOPSIS ................................................................... 8
FINANCIAL HIGHLIGHTS ....................................................... 10
INVESTMENT OBJECTIVES AND POLICIES.......................................... 32
Pacific Rim Emerging Markets
Trust............................................................. 32
Science & Technology Trust........................................... 33
International Small Cap
Trust............................................................. 34
Emerging Growth
Trust............................................................. 35
Pilgrim Baxter Growth Trust.......................................... 37
Small/Mid Cap Trust.................................................. 38
International Stock Trust............................................ 39
Worldwide Growth Trust .............................................. 41
Global Equity Trust ................................................. 42
Growth Trust......................................................... 43
Equity Trust ........................................................ 44
Quantitative Equity Trust (formerly, the "Common Stock Trust")....... 44
Equity Index
Trust............................................................. 45
Blue Chip Growth Trust (formerly, "Pasadena
Growth").......................................................... 46
Real Estate Securities
Trust............................................................. 48
Value
Trust............................................................. 48
International Growth and Income Trust ............................... 49
Growth and Income Trust ............................................. 50
Equity-Income Trust (formerly, "Value Equity
Trust")........................................................... 51
Balanced
Trust............................................................. 52
High Yield
Trust............................................................. 54
Automatic Asset Allocation Trusts ................................... 55
Strategic Bond Trust ................................................ 58
Global Government Bond Trust ........................................ 60
Capital Growth Bond
Trust............................................................. 61
Investment Quality Bond Trust ....................................... 62
U.S. Government Securities Trust .................................... 63
Money Market Trust .................................................. 65
The Lifestyle Trusts................................................. 66
RISK FACTORS ............................................................... 67
Investment Restrictions Generally ................................... 67
Additional Investment Restrictions on Borrowing
and Foreign Investing............................................. 68
High Yield Securities................................................ 69
Corporate Debt Securities............................................ 70
Foreign Sovereign Debt Securities.................................... 70
Foreign Securities................................................... 71
Warrants............................................................. 72
Lending Securities................................................... 72
When-Issued Securities .............................................. 73
Repurchase Agreements and Reverse Repurchase Agreements.............. 73
Mortgage Dollar Rolls................................................ 74
Hedging and Other Strategic Transactions............................. 74
Illiquid Securities ................................................. 75
MANAGEMENT OF THE TRUST .................................................... 75
Advisory Arrangements................................................ 75
Subadvisory Arrangements............................................. 78
Expenses ............................................................ 86
Performance Data .................................................... 87
GENERAL INFORMATION ........................................................ 88
Shares of the Trust ................................................. 88
Taxes ............................................................... 88
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Dividends ........................................................... 89
Purchase and Redemption of Shares ................................... 90
Custodian ........................................................... 90
Appendix I - Debt Security Ratings ......................................... 91
Appendix II - Strategic Bond and Investment Quality Bond
Trust Debt Ratings....................................................... 93
Appendix III - Standard & Poor's
Disclaimers................................................................. 94
______________________
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE TRUST, THE ADVISER, THE SUBADVISERS OR THE
PRINCIPAL UNDERWRITER OF THE CONTRACTS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
8
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SYNOPSIS
NASL Series Trust (the "Trust") is a series trust, which means that it
has a number of portfolios, each with a stated investment objective which it
pursues through separate investment policies. Currently, there are thirty-five
such portfolios: the Pacific Rim Emerging Markets Trust, the Science &
Technology Trust, the International Small Cap Trust, the Emerging Growth Trust,
the Pilgrim Baxter Growth Trust, the Small/Mid Cap Trust, the International
Stock Trust, the Worldwide Growth Trust, the Global Equity Trust, the Growth
Trust, the Equity Trust, the Quantitative Equity Trust, the Equity Index Trust,
the Blue Chip Growth Trust, the Real Estate Securities Trust, the Value Trust,
the International Growth and Income Trust, the Growth and Income Trust, the
Equity-Income Trust, the Balanced Trust, the Aggressive Asset Allocation Trust,
the High Yield Trust, the Moderate Asset Allocation Trust, the Conservative
Asset Allocation Trust, the Strategic Bond Trust, the Global Government Bond
Trust, the Capital Growth Bond Trust, the Investment Quality Bond Trust, the
U.S. Government Securities Trust, the Money Market Trust, the Lifestyle
Aggressive 1000 Trust, the Lifestyle Growth 820 Trust, the Lifestyle Balanced
640 Trust, the Lifestyle Moderate 460 Trust and the Lifestyle Conservative 280
Trust.. The investment objective of each of the thirty-five portfolios is set
forth below in the description of each portfolio.
In addition to the risks inherent in any investment in securities,
certain portfolios of the Trust are subject to particular risks associated with
investing in foreign securities, lending portfolio securities, investing in
when-issued securities and hedging techniques employed through the use of
futures contracts, options on futures contracts, forward currency contracts and
various options. See "RISK FACTORS."
The investment adviser of the Trust is NASL Financial Services, Inc.
("NASL Financial" or the "Adviser"). The Trust currently has fourteen
Subadvisers who manage all of the portfolios except for the five Lifestyle
Trusts:
<TABLE>
<CAPTION>
SUBADVISER SUBADVISER TO
-------------
<S> <C>
Fred Alger Management, Inc. ("Alger") Small/Mid Cap Trust
Founders Asset Management, Inc. ("Founders") Growth Trust
Worldwide Growth Trust
Balanced Trust
International Small Cap Trust
Oechsle International Advisors, L.P. Global Government Bond Trust
("Oechsle International")
Fidelity Management Trust Company Equity Trust
("FMTC") Conservative Asset Allocation Trust
Moderate Asset Allocation Trust
Aggressive Asset Allocation Trust
Wellington Management Company Growth and Income Trust
("Wellington Management") Investment Quality Bond Trust
Salomon Brothers Asset Management U.S. Government Securities Trust
("SBAM") Strategic Bond Trust
J.P. Morgan Investment Management Inc. International Growth and Income Trust
("J.P. Morgan")
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
T. Rowe Price Associates, Inc. Science & Technology Trust
("T. Rowe Price") Blue Chip Growth Trust
Equity-Income Trust
Rowe Price-Fleming International, Inc. International Stock Trust
("Price-Fleming")
Morgan Stanley Asset Management Inc. Global Equity Trust
("Morgan Stanley")
Miller Anderson & Sherrerd, LLP ("MAS") Value Trust
High Yield Trust
Warburg, Pincus Counsellors, Inc. ("Warburg") Emerging Growth Trust
Pilgrim Baxter & Associates, Ltd. ("PBHG") Pilgrim Baxter Growth Trust
Manufacturers Adviser Corporation ("MAC") Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Real Estate Securities Trust
Equity Index Trust
Capital Growth Bond Trust
Money Market Trust
Lifestyle Trusts
</TABLE>
The Adviser receives a fee from the Trust computed separately for each
portfolio, except for the Lifestyle Trusts, as indicated in the expense table
below. The Subadviser of each portfolio receives a fee from the Adviser computed
separately for each portfolio, which fee is paid out of the advisory fee and is
not an additional charge to the portfolio or its shareholders. See "Management
of the Trust."
The Trust currently serves as the underlying investment medium for sums
invested in annuity and variable life contracts issued by North American
Security Life Insurance Company ("Security Life"), First North American Life
Assurance Company ("FNAL") and The Manufacturers Life Insurance Company of
America ("Manulife America"). The portfolios that are available for investment
by Manulife America contractholders are as follows: the Pacific Rim Emerging
Markets, Real Estate Securities, Equity Index, Capital Growth Bond, Money
Market, International Stock, Blue Chip Growth, Balanced, Equity, Equity-Income,
Growth and Income, U.S. Government, Aggressive Asset Allocation, Moderate Asset
Allocation and Conservative Asset Allocation Trusts. The Trust may, however, be
used for other purposes in the future, such as funding annuity contracts issued
by other insurance companies. Security Life is controlled by The Manufacturers
Life Insurance Company ("Manulife"), a mutual life insurance company based in
Toronto, Canada. FNAL is a wholly-owned subsidiary of Security Life and Manulife
America is a wholly owned subsidiary of Manulife. Currently, the Trust has three
shareholders, Security Life, FNAL and Manulife America. Trust shares are not
offered directly to and may not be purchased directly by members of the public.
Consequently, as of the date of this Prospectus, the terms "shareholder" and
"shareholders" in this Prospectus refer to Security Life, Manulife America and
FNAL.
Certain contract values will vary with the investment performance of
the portfolios of the Trust. Because contract owners will allocate their
investments among the portfolios, prospective purchasers should carefully
consider the information about the Trust and its portfolios presented in this
Prospectus before purchasing such a contract.
The Trust is a no-load, open-end management investment company
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940, and each of the portfolios, except the Global Government
Bond Trust, the Emerging Growth Trust and the five Lifestyle Trusts, is
diversified for purposes of the Investment Company Act of 1940. See "Global
Government Bond Trust," "Emerging Growth Trust" and "The Lifestyle Trusts."
Information about the performance of each portfolio of the Trust is
contained in the Trust's annual report to shareholders which may be obtained
without charge.
10
<PAGE> 13
FINANCIAL HIGHLIGHTS
The tables below provide Financial Highlights for NASL Series Trust. In
the case of the Quantitative Equity, Pacific Rim Emerging Markets, Real Estate
Securities, Capital Growth Bond and Equity Index Trusts, the Financial
Highlights for each period shown below consist of financial information for the
predecessors to these portfolios. On December 31, 1996, the Common Stock,
Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth Bond and
Equity Index portfolios of Manulife Series Fund, Inc. merged into the
Quantitative Equity, Pacific Rim Emerging Markets, Real Estate Securities,
Capital Growth Bond and Equity Index Trust of NASL Series Trust, respectively,
each of which was created to be successors to the corresponding portfolio of
Manulife Series Fund, Inc. This information is supplemented by financial
statements and accompanying notes appearing in the NASL Series Trust Annual
Report to shareholders for the fiscal year ended December 31, 1995, the NASL
Series Trust Semi-Annual Report to shareholders for the six month period ended
June 30, 1996 as well as the financial statements and accompanying notes for the
Common Stock, Pacific Rim Emerging Markets, Real Estate Securities, Capital
Growth Bond and Equity Index portfolios of Manulife Series Fund, Inc. appearing
in the Manulife Series Fund, Inc. Annual Report to shareholders for the fiscal
year ended December 31, 1995 and Semi-Annual Report to shareholders for the six
months period ended June 30, 1996, all of which have been incorporated by
reference into the Statement of Additional Information. In the case of the
Growth Trust, this information is supplemented by financial statements and
accompanying notes appearing in the Statement of Additional Information. The
financial statements of the Trust at December 31, 1995 have been audited by
Coopers & Lybrand L.L.P. independent accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon said report given
on the authority of said firm as experts in accounting and auditing. The
financial statements of the Common Stock, Pacific Rim Emerging Markets, Real
Estate Securities, Capital Growth Bond and Equity Index portfolios of Manulife
Series Fund, Inc. at December 31, 1995 have been audited by Ernst & Young LLP,
independent auditors, as indicated in their report with respect thereto, and are
included herein in reliance upon said report given on the authority of said firm
as experts in accounting and auditing.
11
<PAGE> 14
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SMALL/MID CAP TRUST
03/04/96*
TO
06/30/96
(UNAUDITED)
<TABLE>
<S> <C>
Net asset value, beginning
of period ......................... $ 12.50
-------
Income from investment operations:
Net investment income ............. 0.01
Net realized and unrealized gain
on investments .................. 0.62
-------
Total from investment
operations ................. 0.63
Net asset value, end of period ...... $ 13.13
=======
Total return ................. 5.04%
Net assets, end of period (000's) ... $83,645
Ratio of operating expenses to
average net assets ................ 1.17%(A)
Ratio of net investment income to
average net assets ................ 0.24%(A)
Portfolio turnover rate ............. 54%(A)
Average commission rate per
share (B) ......................... $ 0.069
</TABLE>
- -----------------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
12
<PAGE> 15
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
INTERNATIONAL SMALL CAP
TRUST
03/04/96*
TO
06/30/96
(UNAUDITED)
<TABLE>
<S> <C>
Net asset value, beginning
of period .......................................... $ 12.50
Income from investment operations:
Net investment income .............................. 0.03
Net realized and unrealized loss
on investments and foreign currency
transactions .................................... 0.75
--------
Total from investment
operations .................................. 0.78
Net asset value, end of period ....................... $ 13.28
========
Total return .................................. 6.24%
Net assets, end of period (000's) .................... $ 47,088
Ratio of operating expenses to
average net assets ................................. 1.44%(A)
Ratio of net investment income to
average net assets ................................. 1.71%(A)
Portfolio turnover rate .............................. 24%(A)
Average commission rate per share (B) ................ $ 0.019
</TABLE>
- -----------------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
13
<PAGE> 16
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
GLOBAL EQUITY TRUST
-------------------------------------------------------------------------------------
SIX
MONTHS
ENDED YEARS ENDED DECEMBER 31,
06/30/96
---------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period............................. $ 16.10 $ 15.74 $ 15.73 $ 12.00 $ 12.24
Income from investment operations:
Net investment income (loss) (B)...... 0.05 0.29 0.05 0.12 0.10
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions...... 1.06 0.84 0.22 3.79 (0.19)
--------- --------- --------- --------- ---------
Total from investment operations... 1.11 1.13 0.27 3.91 (0.09)
Less distributions:
Dividends from net investment income.. (0.27) (0.08) (0.02) (0.18) (0.15)
Distributions from capital gains...... -- (0.69) (0.24) -- --
--------- --------- --------- --------- ---------
Total distributions................ (0.27) (0.77) (0.26) (0.18) (0.15)
--------- --------- --------- --------- ---------
Net asset value, end of period.......... $ 16.94 $ 16.10 $ 15.74 $ 15.73 $ 12.00
--------- --------- --------- --------- ---------
Total return....................... 6.93% 7.68% 1.74% 32.89% (0.72%)
Net assets, end of period (000's)....... $ 726,688 $ 648,183 $ 616,138 $ 377,871 $ 116,731
Ratio of operating expenses to
average net assets (C)................ 1.06%(A) 1.05% 1.08% 1.16% 1.16%
Ratio of net investment income (loss)
to average net assets................. 1.80%(A) 0.61% 0.44% 0.77% 1.12%
Portfolio turnover rate................. 63%(A) 63% 52% 52% 69%
Average commission rate per share (D)... $ 0.034 N/A N/A N/A N/A
<CAPTION>
GLOBAL EQUITY TRUST
--------------------------------------------------------------
YEARS ENDED DECEMBER 31,
3/18/88*
--------------------------------------------- TO
1991 1990 1989 12/31/88
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period............................. $ 11.00 $ 12.57 $ 10.15 $ 10.03
Income from investment operations:
Net investment income (loss) (B)...... 0.16 0.12 0.10 (0.05)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions...... 1.23 (1.41) 2.32 0.17
--------- --------- --------- ---------
Total from investment operations... 1.39 (1.29) 2.42 0.12
Less distributions:
Dividends from net investment income.. (0.15) (0.04) -- --
Distributions from capital gains...... -- (0.24) -- --
--------- --------- --------- ---------
Total distributions................ (0.15) (0.28) -- --
--------- --------- --------- ---------
Net asset value, end of period.......... $ 12.24 $ 11.00 $ 12.57 $ 10.15
--------- --------- --------- ---------
Total return....................... 12.80% (10.43%) 23.84% 1.20%
Net assets, end of period (000's)....... $ 89,003 $ 63,028 $ 26,223 $ 2,143
Ratio of operating expenses to
average net assets (C)................ 1.23% 1.28% 1.62% 3.98%(A)
Ratio of net investment income (loss)
to average net assets................. 1.47% 1.97% 1.82% (1.71%)(A)
Portfolio turnover rate................. 74% 67% 109% 81%(A)
Average commission rate per share (D)... N/A N/A N/A N/A
</TABLE>
- ---------------------------------
* Commencement of operations.
(A) Annualized
(B) After expense reimbursement per share of $0.02 in 1988.
(C) The ratio of operating expenses, before reimbursement from the investment
adviser, was 4.53% in 1988.
(D) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
14
<PAGE> 17
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PASADENA GROWTH TRUST
------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 12/11/92*
06/30/96 TO
------------------------------------------
(UNAUDITED) 1995 1994 1993 12/31/92
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 11.40 $ 9.05 $ 9.55 $ 9.93 $ 10.00
Income from investment operations:
Net investment income (B)............... 0.01 0.03 0.04 0.05 0.00
Net realized and unrealized gain
(loss) on investments 1.59 2.36 (0.50) (0.42) (0.07)
-------- -------- -------- -------- --------
Total from investment operations... 1.60 2.39 (0.46) (0.37) (0.07)
Less distributions:
Dividends from net investment income.... (0.04) (0.04) (0.04) (0.01) --
-------- -------- -------- -------- --------
Total distributions.............. (0.04) (0.04) (0.04) (0.01) --
-------- -------- -------- -------- --------
Net asset value, end of period.......... $ 12.96 $ 11.40 $ 9.05 $ 9.55 $ 9.93
======== ======== ======== ======== ========
Total return..................... 14.02% 26.53% (4.80%) (3.80%) (0.70%)
Net assets, end of period (000's)....... $351,823 $277,674 $151,727 $104,966 $ 31,118
Ratio of operating expenses to
average net assets (C)................ 0.975%(A) 0.975% 0.975% 0.975% 1.06%(A)
Ratio of net investment income to
average net assets.................... 0.11%(A) 0.42% 0.65% 0.75% 1.04%(A)
Portfolio turnover rate................. 78%(A) 57% 33% 12% 0%(A)
Average commission rate per share (D)... $ 0.058 N/A N/A N/A N/A
</TABLE>
- ---------------------------------
* Commencement of operations.
(A) Annualized
(B) After subadviser expense reimbursement per share of $0.003 for the six
months ended June 30, 1996 and $0.004, $0.006 and $0.01 for the years ended
December 31, 1995, 1994 and 1993, respectively.
(C) The ratio of operating expenses, before reimbursement from the subadviser,
was 1.03% for the six months ended June 30, 1996 and 1.03%, 1.06% and 1.09%
for the years ended December 31,1995, 1994 and 1993, respectively.
(D) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
15
<PAGE> 18
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
EQUITY TRUST
-------------------------------------------------------
SIX YEARS ENDED DECEMBER 31,
MONTHS
ENDED
-----------------------------
06/30/96
(UNAUDITED) 1995 1994
-------------- ----------- -----------
<S> <C> <C> <C>
Net asset value, beginning
of period .......................... $ 20.79 $ 14.66 $ 15.57
Income from investment operations:
Net investment income (B) .......... 0.07 0.10 0.11
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions .. 2.10 6.14 (0.18)
-------------- ----------- -----------
Total from investment
operations ..................... 2.17 6.24 (0.07)
Less distributions:
Dividends from net investment income (0.09) (0.11) (0.05)
Distributions from capital gains ... (1.98) -- (0.79)
Total distributions .............. (2.07) (0.11) (0.84)
-------------- ----------- -----------
Net asset value, end of period ....... $ 20.89 $ 20.79 $ 14.66
============== =========== ===========
Total return .................... 10.95% 42.79% (0.53%)
Net assets, end of period (000's) .... $ 1,183,293 $ 988,800 $ 534,562
Ratio of operating expenses to
average net assets (C) ............. 0.81%(A) 0.80% 0.84%
Ratio of net investment income to
average net assets ................. 1.60%(A) 0.63% 0.88%
Portfolio turnover rate .............. 126%(A) 88% 132%
Average commission rate per
share (D) .......................... $ 0.044 N/A N/A
<CAPTION>
EQUITY TRUST
--------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1993** 1992 1991 1990
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period .......................... $ 13.97 $ 13.12 $ 11.33 $ 19.14
Income from investment operations:
Net investment income (B) .......... 0.07 0.64 0.14 0.24
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions .. 2.11 0.38 1.88 (1.95)
----------- ----------- ---------- ----------
Total from investment
operations ..................... 2.18 1.02 2.02 (1.71)
Less distributions:
Dividends from net investment
income ........................... (0.58) (0.17) (0.23) (0.29)
Distributions from capital gains ... -- -- -- (5.81)
----------- ----------- ---------- ----------
Total distributions .............. (0.58) (0.17) (0.23) (6.10)
----------- ----------- ---------- ----------
Net asset value, end of period ....... $ 15.57 $ 13.97 $ 13.12 $ 11.33
=========== =========== ========== ==========
Total return .................... 16.31% 7.93% 17.94% (11.79%)
Net assets, end of period (000's) .... $ 387,842 $ 192,626 $ 88,235 $ 36,564
Ratio of operating expenses to
average net assets (C) ............. 0.88% 0.95% 0.89% 0.97%
Ratio of net investment income to
average net assets ................. 0.50% 7.31% 2.23% 2.74%
Portfolio turnover rate .............. 173% 782% 172% 95%
Average commission rate per
share (D)........................... N/A N/A N/A N/A
<CAPTION>
EQUITY TRUST
----------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1989 1988 1987 1986
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period .......................... $ 15.17 $ 12.57 $ 13.01 $ 11.39
Income from investment operations:
Net investment income (B) .......... 0.29 0.15 0.19 0.27
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions .. 3.87 2.45 0.97 1.80
---------- ----------- ---------- ---------
Total from investment
operations ..................... 4.16 2.60 1.16 2.07
Less distributions:
Dividends from net investment
income ........................... (0.12) -- (0.14) (0.24)
Distributions from capital gains ... (0.07) -- (1.46) (0.21)
---------- ----------- ---------- ---------
Total distributions .............. (0.19) -- (1.60) (0.45)
---------- ----------- ---------- ---------
Net asset value, end of period ....... $ 19.14 $ 15.17 $ 12.57 $ 13.01
========== =========== ============= ============
Total return .................... 27.70% 20.71% 6.87% 18.50%
Net assets, end of period (000's) .... $ 32,108 $ 133,852 $ 37,001 $ 1,408
Ratio of operating expenses to
average net assets (C) ............. 1.02% 1.08% 1.15% 1.41%
Ratio of net investment income to
average net assets ................. 1.90% 1.80% 1.33% 1.19%
Portfolio turnover rate .............. 111% 49% 64% 209%
Average commission rate per
share (D) .......................... N/A N/A N/A N/A
</TABLE>
- --------------------------
** Net investment income per share was calculated using the average shares
method for fiscal year 1993.
(A) Annualized
(B) After expense reimbursement per share of $0.02 , $0.53 and $0.14 in 1987,
1986 and 1985, respectively.
(C) The ratio of operating expenses, before
reimbursement from the investment adviser, was 1.30%, 3.71% and 4.69% in
1987, 1986 and 1985, respectively.
(D) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
16
<PAGE> 19
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
VALUE EQUITY TRUST
-----------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 02/19/93*
06/30/96 TO
------------------------------
(UNAUDITED) 1995 1994** 12/31/93
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period ......................... $ 13.81 $ 11.33 $ 11.31 $ 10.00
Income from investment operations:
Net investment income ............... 0.08 0.17 0.12 0.07
Net realized and unrealized gain
(loss) on investments ............. 1.00 2.49 (0.03) 1.24
------------ ------------ ------------ ------------
Total from investment
operations ............... 1.08 2.66 0.09 1.31
Less distributions:
Dividends from net investment
income ............................ (0.16) (0.08) (0.05) --
Distributions from capital gains .... (0.84) (0.10) (0.02) --
------------ ------------ ------------ ------------
Total distributions ........ (1.00) (0.18) (0.07) --
------------ ------------ ------------ ------------
Net asset value, end of period ...... $ 13.89 $ 13.81 $ 11.33 $ 11.31
============ ============ ============ ============
Total return ............... 8.03% 23.69% 0.79% 13.10%
Net assets, end of period (000's) ... $ 487,793 $ 396,827 $ 221,835 $ 86,472
Ratio of operating expenses to
average net assets ................ 0.84%(A) 0.85% 0.87% 0.94%(A)
Ratio of net investment income to
average net assets ................ 1.50%(A) 1.63% 1.08% 1.30%(A)
Portfolio turnover rate ............. 58%(A) 52% 26% 33%(A)
Average commission rate per
share (B) ......................... $ 0.056 N/A N/A N/A
</TABLE>
- -----------------------------
* Commencement of operations.
** Net investment income per share was calculated using the average shares
method for fiscal year 1994.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
17
<PAGE> 20
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
GROWTH AND INCOME TRUST
----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 4/23/91*
06/30/96 TO
----------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 12/31/91
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ........................... $ 16.37 $ 13.04 $ 13.05 $ 12.10 $ 11.08 $ 10.00
Income from investment operations:
Net investment income ............... 0.11 0.27 0.25 0.17 0.20 0.13
Net realized and unrealized gain
on investments and foreign currency
transactions ..................... 1.28 3.45 0.11 0.98 0.92 0.95
-------- -------- -------- -------- -------- -------
Total from investment operations 1.39 3.72 0.36 1.15 1.12 1.08
Less distributions:
Dividends from net investment
income ............................ (0.26) (0.26) (0.19) (0.18) (0.10) --
Distributions from capital gains .... (0.36) (0.13) (0.18) (0.02) -- --
-------- -------- -------- -------- -------- -------
Total distributions ............ (0.62) (0.39) (0.37) (0.20) (0.10) --
-------- -------- -------- -------- -------- -------
Net asset value, end of period ........ $ 17.14 $ 16.37 $ 13.04 $ 13.05 $ 12.10 $ 11.08
======== ======== ======== ======== ======== =======
Total return .................. 8.64% 29.20% 2.85% 9.62% 10.23% 10.80%
Net assets, end of period (000's) ..... $832,809 $669,387 $409,534 $288,765 $130,984 $57,404
Ratio of operating expenses to
average net assets .................. 0.80%(A) 0.80% 0.82% 0.85% 0.85% 0.98%(A)
Ratio of net investment income to
average net assets .................. 1.72%(A) 2.23% 2.40% 2.29% 2.78% 2.92%(A)
Portfolio turnover rate ............... 54%(A) 39% 42% 39% 44% 62%(A)
Average commission rate per
share (B)............................ $ 0.055 N/A N/A N/A N/A N/A
</TABLE>
- ------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
18
<PAGE> 21
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH AND INCOME TRUST
--------------------------------------
SIX MONTHS ENDED 01/09/95*
06/30/96 TO
(UNAUDITED) 12/31/95
------------ ------------
<S> <C> <C>
Net asset value, beginning
of period ........................... $ 10.47 $ 10.00
Income from investment operations:
Net investment income .............. 0.12 0.11
Net realized and unrealized loss
on investments and foreign currency
transactions ..................... 0.49 0.59
------------ ------------
Total from investment
operations ................... 0.61 0.70
Less distributions:
Dividends from net investment
income ........................... (0.02) (0.12)
Distributions from capital gains ... -- (0.11)
------------ ------------
Total distributions ............ (0.02) (0.23)
------------ ------------
Net asset value, end of period ........ $ 11.06 $ 10.47
============ ============
Total return ................... 5.81% 6.98%
Net assets, end of period (000's) ..... $ 141,098 $ 88,638
Ratio of operating expenses to
average net assets .................. 1.13%(A) 1.47%(A)
Ratio of net investment income to
average net assets .................. 2.40%(A) 0.71%(A)
Portfolio turnover rate ............... 206%(A) 112%(A)
Average commission rate per
share (B)............................ $ 0.031 N/A
</TABLE>
- -----------------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
19
<PAGE> 22
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
STRATEGIC BOND TRUST
----------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 02/19/93*
06/30/96 TO
-----------------------------
(UNAUDITED) 1995 1994 12/31/93
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period ............................. $ 11.26 $ 9.91 $ 10.88 $ 10.00
Income from investment operations:
Net investment income ................. 0.30 0.78 0.57 0.33
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ....................... 0.30 1.04 (1.22) 0.55
----------- ----------- ----------- -----------
Total from investment
operations ..................... 0.60 1.82 (0.65) 0.88
Less distributions:
Dividends from net investment income .. (0.85) (0.47) (0.28) --
Distributions from capital gains ...... -- -- (0.04) --
----------- ----------- ----------- -----------
Total distributions .............. (0.85) (0.47) (0.32) --
----------- ----------- ----------- -----------
Net asset value, end of period .......... $ 11.01 $ 11.26 $ 9.91 $ 10.88
=========== =========== =========== ===========
Total return ..................... 5.67% 19.22% (5.99%) 8.80%
Net assets, end of period (000's) ....... $ 155,321 $ 122,704 $ 84,433 $ 53,640
Ratio of operating expenses to
average net assets .................... 0.92%(A) 0.92% 0.91% 1.00%(A)
Ratio of net investment income to
average net assets .................... 8.55%(A) 8.76% 7.49% 6.56%(A)
Portfolio turnover rate ................. 220%(A) 181% 197% 356%(A)
Average commission rate per share (B) ... N/A N/A N/A N/A
</TABLE>
- -----------------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
20
<PAGE> 23
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
GLOBAL GOVERNMENT BOND TRUST
--------------------------------------------------------------------------------------
SIX MONTHS
ENDED
06/30/96 YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
Net asset value, beginning
of period ........................... $ 14.56 $ 12.47 $ 13.93 $ 12.47 $ 12.88
Income from investment operations:
Net investment income ............... 0.43 1.16 0.74 0.59 0.42
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ... (0.08) 1.62 (1.54) 1.67 (0.16)
----------- ----------- ----------- ----------- -----------
Total from investment
operations.................... 0.35 2.78 (0.80) 2.26 0.26
Less distributions:
Dividends from net investment income (1.31) (0.69) (0.30) (0.70) (0.43)
Distributions from capital gains .... -- -- (0.36) (0.10) (0.24)
----------- ----------- ----------- ----------- -----------
Total distributions ............ (1.31) (0.69) (0.66) (0.80) (0.67)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period ........ $ 13.60 $ 14.56 $ 12.47 $ 13.93 $ 12.47
=========== =========== =========== =========== ===========
Total return .................. 2.67% 23.18% (5.75%) 18.99% 2.27%
Net assets, end of period (000's) ..... $ 237,536 $ 235,243 $ 208,513 $ 196,817 $ 67,859
Ratio of operating expenses to
average net assets .................. 0.94%(A) 0.93% 0.96% 1.06% 1.05%
Ratio of net investment income to
average net assets .................. 6.31%(A) 6.83% 6.10% 5.61% 6.71%
Portfolio turnover rate ............... 211%(A) 171% 157% 154% 132%
Average commission rate per
share (B)............................ N/A N/A N/A N/A N/A
<CAPTION>
GLOBAL GOVERNMENT BOND TRUST
-------------------------------------------------------------------
3/18/88*
YEARS ENDED DECEMBER 31, TO
-----------------------------------------------
1991 1990 1989 12/31/88
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period ........................... $ 11.59 $ 10.50 $ 10.21 $ 10.03
Income from investment operations:
Net investment income ............... 0.55 0.25 0.45 0.14
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ... 1.21 1.13 -- 0.04
----------- ----------- ----------- -----------
Total from investment
operations.................... 1.76 1.38 0.45 0.18
Less distributions:
Dividends from net investment income (0.46) (0.24) (0.09) --
Distributions from capital gains .... (0.01) (0.05) (0.07) --
----------- ----------- ----------- -----------
Total distributions ............ (0.47) (0.29) (0.16) --
----------- ----------- ----------- -----------
Net asset value, end of period ........ $ 12.88 $ 11.59 $ 10.50 $ 10.21
=========== =========== =========== ===========
Total return .................. 15.86% 13.49% 4.49% 1.79%
Net assets, end of period (000's) ..... $ 28,251 $ 11,582 $ 4,065 $ 1,355
Ratio of operating expenses to
average net assets .................. 1.14% 1.21% 1.50% 3.39%(A)
Ratio of net investment income to
average net assets .................. 17.28% 6.62% 7.15% 3.74%(A)
Portfolio turnover rate ............... 164% 142% 50% 234%(A)
Average commission rate per
share (B)............................ N/A N/A N/A N/A
</TABLE>
- --------------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
21
<PAGE> 24
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INVESTMENT QUALITY BOND TRUST
------------------------------------------------------------------------------------
SIX
MONTHS
ENDED YEARS ENDED DECEMBER 31,
06/30/96
-----------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991**
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .......................... $ 12.32 $ 11.01 $ 12.12 $ 11.58 $ 11.33 $ 10.74
Income from investment operations:
Net investment income (B) .......... 0.37 0.77 0.66 0.60 0.63 0.76
Net realized and unrealized gain
(loss) on investments ............ (0.65) 1.28 (1.23) 0.53 0.15 0.85
-------- -------- -------- ------- ------- -------
Total from investment
operations .................... (0.28) 2.05 (0.57) 1.13 0.78 1.61
Less distributions:
Dividends from net investment
income ........................... (0.71) (0.74) (0.54) (0.59) (0.53) (1.25)
Distributions from capital gains ... -- -- -- -- -- --
-------- --------- --------- ------- ------- -------
Total distributions ............. (0.71) (0.74) (0.54) (0.59) (0.53) (1.02)
-------- -------- -------- ------- ------- -------
Net asset value, end of period ....... $ 11.33 $ 12.32 $ 11.01 $ 12.12 $ 11.58 $ 11.33
======== ======== ======== ======= ======= =======
Total return ................... (2.25%) 19.49% (4.64%) 10.01% 7.21% 16.07%
Net assets, end of period (000's) .... $141,937 $143,103 $111,423 $99,474 $60,185 $38,896
Ratio of operating expenses to
average net assets (C) ............. 0.75%(A) 0.74% 0.76% 0.77% 0.80% 0.85%
Ratio of net investment income to
average net assets ................. 6.79%(A) 6.91% 6.49% 6.03% 6.96% 7.47%
Portfolio turnover rate .............. 63%(A) 137% 140% 33% 59% 115%
Average commission rate per
share (D) .......................... N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT QUALITY BOND TRUST
----------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1990 1989 1988 1987 1986
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .......................... $ 12.37 $ 11.55 $ 10.79 $ 11.58 $ 11.18
Income from investment operations:
Net investment income (B) .......... 1.12 0.75 0.57 0.81 1.02
Net realized and unrealized gain
(loss) on investments ............ (1.50) 0.51 0.19 (0.50) 0.37
----------- ----------- ----------- ----------- -----------
Total from investment
operations .................... (0.38) 1.26 0.76 0.31 1.39
Less distributions:
Dividends from net investment
income .......................... (1.25) (0.44) -- (0.88) (0.69)
Distributions from capital gains ... -- -- -- (0.22) (0.30)
----------- ----------- ----------- ----------- -----------
Total distributions ............. (1.25) (0.44) -- (1.10) (0.99)
----------- ----------- ----------- ----------- -----------
Net asset value, end of period ....... $ 10.74 $ 12.37 $ 11.55 $ 10.79 $ 11.58
=========== =========== =========== =========== ===========
Total return ................... (2.73%) 11.34% 7.09% 2.61% 13.25%
Net assets, end of period (000's) .... $ 20,472 $ 26,965 $ 114,221 $ 25,131 $ 1,295
Ratio of operating expenses to
average net assets (C) ............. 0.70% 0.83% 0.89% 0.95% 1.16%
Ratio of net investment income to
average net assets ................. 8.41% 8.77% 7.97% 7.46% 8.11%
Portfolio turnover rate .............. 120% 351% 94% 201% 127%
Average commission rate per
share (D) ......................... N/A N/A N/A N/A N/A
</TABLE>
- --------------------------
** The Investment Quality Bond Trust is the successor to the Bond Trust
effective April 23, 1991.
(A) Annualized
(B) After expense reimbursement per share of $0.02, $0.28 and $0.12 in 1987,
1986 and 1985, respectively.
(C) The ratio of operating expenses, before
reimbursement from the investment adviser, was 1.14%, 3.38% and 3.55% in
1987, 1986 and 1985, respectively.
(D) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
22
<PAGE> 25
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Securities Trust
------------------------------------------------------------------------------------
Six Months
Ended
06/30/96*** Years Ended December 31,
---------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991 1990
-------------- --------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ............................. $13.65 $12.64 $13.48 $13.05 $12.85 $11.83 $10.98
Income from investment operations:
Net investment income (B) ............. 0.40 0.89 0.77 0.48 0.10 0.19 1.07
Net realized and unrealized gain
(loss) on investments ............... (1.25) 0.99 (0.95) 0.49 0.65 1.40 (0.13)
----- ---- ----- ---- ---- ---- -----
Total from investment
operations ..................... (0.85) 1.88 (0.18) 0.97 0.75 1.59 0.94
Less distributions:
Dividends from net investment income .. (0.07) (0.87) (0.51) (0.46) (0.38) (0.53) (0.08)
Distributions from capital gains ...... ---- ---- (0.15) (0.08) (0.17) (0.04) (0.01)
----- ---- ----- ---- ---- ---- -----
Total distributions .............. (0.07) (0.87) (0.66) (0.54) (0.55) (0.57) (0.09)
----- ---- ----- ---- ---- ---- -----
Net asset value, end of period .......... $12.73 $13.65 $12.64 $13.48 $13.05 $12.85 $11.83
====== ====== ====== ====== ====== ====== ======
Total return .................... (1.20%) 15.57% (1.25%) 7.64% 6.19% 14.01% 8.63%
Net assets, end of period (000's) ....... $212,117 $216,788 $188,813 $222,072 $125,945 $29,246 $10,469
Ratio of operating expenses to
average net assets (C) ................ 0.72%(A) 0.71% 0.73% 0.75% 0.76% 0.87% 1.04%
Ratio of net investment income to
average net assets .................... 6.18%(A) 6.46% 5.68% 5.05% 6.12% 7.09% 7.70%
Portfolio turnover rate ................. 215%(A) 212% 387% 213% 141% 233% 284%
Average commission rate per share (D) ... N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
3/18/88*
to
1989** 12/31/88
--------- ----------
<S> <C> <C>
Net asset value, beginning
of period ............................. $9.81 $10.03
Income from investment operations:
Net investment income (B) ............. 0.20 0.07
Net realized and unrealized gain
(loss) on investments ............... 1.08 (0.29)
---- -----
Total from investment
operations ..................... 1.28 (0.22)
Less distributions:
Dividends from net investment income .. (0.11) ----
Distributions from capital gains ...... ---- ----
---- -----
Total distributions .............. (0.11) ----
---- -----
Net asset value, end of period .......... $10.98 $9.81
====== =====
Total return .................... 13.16% (2.19%)
Net assets, end of period (000's) ....... $5,905 $344
Ratio of operating expenses to
average net assets (C) ................ 0.90% 5.16%(A)
Ratio of net investment income to
average net assets .................... 6.66% 1.16%(A)
Portfolio turnover rate ................. 330% 156%(A)
Average commission rate per share (D) ... N/A N/A
</TABLE>
- -----------------------------
* Commencement of operations.
** The U.S. Government Securities Trust is the successor to the Convertible
Securities Trust effective May 1, 1989.
*** Net investment income per share has been calculated using the average shares
method for the six months ended June 30, 1996.
(A) Annualized
(B) After expense reimbursement per share of $0.01 and $0.06 in 1989 and 1988,
respectively.
(C) The ratio of operating expenses, before reimbursement from the investment
adviser, was 1.62% and 6.16% in 1989 and 1988, respectively.
(D) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share of all security trades on
which commissions are charged. In certain foreign markets the relationship
between the translated U.S. dollar price per share and commission paid per
share may vary from that of domestic markets.
23
<PAGE> 26
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Market Trust
------------------------------------------------------------------------------------
Six Months
Ended
06/30/96 Years Ended December 31,
----------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991 1990 1989
------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ........................... $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
Income from investment operations:
Net investment income (B) ........... 0.40 0.55 0.38 0.27 0.33 0.56 0.75 0.72
Less distributions:
Dividends from net
investment income ................. (0.40) (0.55) (0.38) (0.27) (0.33) (0.56) (0.75) (0.72)
----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period ........ $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
====== ====== ====== ====== ====== ====== ====== ======
Total return .................... 2.47% 5.62% 3.78% 2.69% 3.36% 5.71% 7.76% 8.56%
Net assets, end of period (000's) ..... $338,435 $258,117 $276,674 $132,274 $89,535 $79,069 $85,040 $19,403
Ratio of operating expenses to
average net assets (C) .............. 0.54%(A) 0.54% 0.57% 0.59% 0.60% 0.60% 0.57% 0.79%
Ratio of net investment income to
average net assets .................. 4.76%(A) 5.48% 3.93% 2.66% 3.28% 5.65% 7.27% 8.26%
Average commission rate per
share (D) .......................... N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
-----------------------------
1988 1987 1986
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning
of period ........................... $10.00 $10.00 $10.00
Income from investment operations:
Net investment income (B) ........... 0.57 0.60 0.56
Less distributions:
Dividends from net
investment income ................. (0.57) (0.60) (0.56)
----- ----- -----
Net asset value, end of period ........ $10.00 $10.00 $10.00
====== ====== ======
Total return .................... 6.77% 6.13% 5.74%
Net assets, end of period (000's) ..... $12,268 $7,147 $1,046
Ratio of operating expenses to
average net assets (C) .............. 0.99% 0.78% 1.11%
Ratio of net investment income to
average net assets .................. 6.68% 5.86% 6.84%
Average commission rate per share (D) . N/A N/A N/A
</TABLE>
- ---------------------------------
(A) Annualized
(B) After expense reimbursement per share of $0.08, $0.23 and $0.12 in 1987,
1986 and 1985, respectively.
(C) The ratio of operating expenses, before reimbursement from the investment
adviser, was 1.57%, 3.43% and 3.50% in 1987, 1986 and 1985, respectively.
(D) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share of all security trades on
which commissions are charged. In certain foreign markets the relationship
between the translated U.S. dollar price per share and commission paid per
share may vary from that of domestic markets.
24
<PAGE> 27
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Aggressive Asset Allocation Trust
--------------------------------------------------------------------------
Six Months Years Ended December 31,
Ended
06/30/96
----------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .............................. $12.85 $11.17 $12.03 $11.25 $10.72 $9.08
Income from investment operations:
Net investment income .................. 0.17 0.35 0.31 0.34 0.30 0.36
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ...... 0.48 2.07 (0.41) 0.79 0.55 1.69
---- ---- ----- ---- ---- ----
Total from investment operations .. 0.65 2.42 (0.10) 1.13 0.85 2.05
Less distributions:
Dividends from net investment income ... (0.33) (0.33) (0.31) (0.30) (0.32) (0.41)
Distributions from capital gains ....... (0.64) (0.41) (0.45) (0.05) ---- ----
----- ----- ----- -----
Total distributions ................. (0.97) (0.74) (0.76) (0.35) (0.32) (0.41)
----- ----- ----- ----- ----- -----
Net asset value, end of period ........... $12.53 $12.85 $11.17 $12.03 $11.25 $10.72
====== ====== ====== ====== ====== ======
Total return ........................ 5.27% 22.77% (0.69%) 10.30% 8.24% 22.96%
Net assets, end of period (000's) ........ $220,905 $211,757 $184,662 $174,448 $151,627 $124,632
Ratio of operating expenses to
average net assets ..................... 0.96%(A) 0.91% 0.89% 0.86% 0.89% 0.88%
Ratio of net investment income to
average net assets ...................... 2.79%(A) 2.76% 2.90% 2.96% 3.08% 3.63%
Portfolio turnover rate .................. 81%(A) 111% 136% 92% 123% 172%
Average commission rate per share (B) .... $0.025 N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
-----------------------
8/03/89*
to
--------
1990 12/31/89
--------- ----------
<S> <C> <C>
Net asset value, beginning
of period .............................. $9.88 $10.00
Income from investment operations:
Net investment income .................. 0.36 0.08
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ...... (1.07) (0.20)
----- -----
Total from investment operations .. (0.71) (0.12)
Less distributions:
Dividends from net investment income ... (0.07) ----
Distributions from capital gains ....... (0.02) ----
----- ------
Total distributions ................. (0.09) ----
----- ------
Net asset value, end of period ........... $ 9.08 $ 9.88
====== ======
Total return ........................ (7.27%) (1.20%)
Net assets, end of period (000's) ........ $91,581 $87,301
Ratio of operating expenses to
average net assets ..................... 0.78% 0.89%(A)
Ratio of net investment income to
average net assets ...................... 4.08% 3.32%(A)
Portfolio turnover rate .................. 82% 22%(A)
Average commission rate per share (B) .... N/A N/A
</TABLE>
- -----------------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share of all security trades on
which commissions are charged. In certain foreign markets the relationship
between the translated U.S. dollar price per share and commission paid per
share may vary from that of domestic markets.
25
<PAGE> 28
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moderate Asset Allocation Trust
---------------------------------------------------------------------------
Six Months Years Ended December 31,
Ended
06/30/96
-----------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ................................ $12.39 $10.79 $11.76 $11.14 $10.72 $9.29
Income from investment operations:
Net investment income .................... 0.27 0.50 0.45 0.41 0.41 0.42
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ........ 0.10 1.65 (0.65) 0.67 0.43 1.50
------ ------ ------ ------ ------ ------
Total from investment operations .... 0.37 2.15 (0.20) 1.08 0.84 1.92
Less distributions:
Dividends from net investment income ..... (0.52) (0.45) (0.40) (0.39) (0.42) (0.49)
Distributions from capital gains ......... (0.52) (0.10) (0.37) (0.07) ---- ----
----- ----- ----- ----- ------ -------
Total distributions ................... (1.04) (0.55) (0.77) (0.46) (0.42) (0.49)
----- ----- ----- ----- ----- -----
Net asset value, end of period ............. $11.72 $12.39 $10.79 $11.76 $11.14 $10.72
------ ------ ------ ------ ------ ------
Total return ......................... 3.18% 20.68% (1.61%) 10.06% 8.30% 21.23%
Net assets, end of period (000's) .......... $628,835 $650,136 $604,491 $644,257 $505,967 $420,074
Ratio of operating expenses to
average net assets ....................... 0.88%(A) 0.84% 0.85% 0.84% 0.87% 0.86%
Ratio of net investment income to
average net assets ....................... 4.19%(A) 4.09% 4.01% 4.02% 4.21% 4.38%
Portfolio turnover rate .................... 87%(A) 129% 180% 135% 169% 168%
Average commission rate per share (B) ...... $0.026 N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
----------------------
8/03/89*
to
---------
1990 12/31/89
--------- ----------
<S> <C> <C>
Net asset value, beginning
of period ................................ $10.03 $10.00
Income from investment operations:
Net investment income .................... 0.48 0.11
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ........ (1.10) (0.08)
------- ------
Total from investment operations .... (0.62) 0.03
Less distributions:
Dividends from net investment income ..... (0.10) ----
Distributions from capital gains ......... (0.02) ----
----- ------
Total distributions ................... (0.12) ----
----- ------
Net asset value, end of period ............. $9.29 $10.03
----- ------
Total return ......................... (6.23%) 0.30%
Net assets, end of period (000's) .......... $327,328 $318,439
Ratio of operating expenses to
average net assets ....................... 0.73% 0.79%(A)
Ratio of net investment income to
average net assets ....................... 5.10% 4.51%(A)
Portfolio turnover rate .................... 76% 41%(A)
Average commission rate per share (B) ...... N/A N/A
</TABLE>
- -----------------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share of all security trades on
which commissions are charged. In certain foreign markets the relationship
between the translated U.S. dollar price per share and commission paid per
share may vary from that of domestic markets.
26
<PAGE> 29
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Conservative Asset Allocation Trust
--------------------------------------------------------------------------
Six Months Years Ended December 31,
Ended
06/30/96
----------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ................................ $11.59 $10.34 $11.26 $10.78 $10.63 $9.56
Income from investment operations:
Net investment income .................... 0.27 0.54 0.55 0.50 0.47 0.58
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ........ (0.09) 1.26 (0.76) 0.44 0.26 1.15
----- ---- ----- ---- ---- ----
Total from investment operations .... 0.18 1.80 (0.21) 0.94 0.73 1.73
Less distributions:
Dividends from net investment income ..... (0.56) (0.55) (0.46) (0.46) (0.58) (0.66)
Distributions from capital gains ......... (0.16) ---- (0.25) ---- ---- ----
----- ---- ----- ---- ---- ----
Total distributions ................... (0.72) (0.55) (0.71) (0.46) (0.58) (0.66)
----- ----- ----- ----- ----- -----
Net asset value, end of period ............. $11.05 $11.59 $10.34 $11.26 $10.78 $10.63
------ ------ ------ ------ ------ ------
Total return ......................... 1.61% 18.07% (1.84%) 8.99% 7.36% 18.80%
Net assets, end of period (000's) .......... $215,765 $224,390 $216,716 $250,117 $201,787 $165,167
Ratio of operating expenses to
average net assets ....................... 0.92%(A) 0.87% 0.87% 0.86% 0.89% 0.88%
Ratio of net investment income to
average net assets ....................... 4.57%(A) 4.68% 4.86% 4.78% 4.99% 5.65%
Portfolio turnover rate .................... 75%(A) 110% 220% 170% 252% 211%
Average commission rate per share (B) ...... $0.028 N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
----------------------
8/03/89*
to
---------
1990 12/31/89
--------- ----------
<S> <C> <C>
Net asset value, beginning
of period ................................ $10.11 $10.00
Income from investment operations:
Net investment income .................... 0.62 0.15
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ........ (1.01) (0.04)
----- -----
Total from investment operations .... (0.39) 0.11
Less distributions:
Dividends from net investment income ..... (0.13) ----
Distributions from capital gains ......... (0.03) ----
----- ----
Total distributions ................... (0.16) ----
----- ----
Net asset value, end of period ............. $9.56 $10.11
----- ------
Total return ......................... (3.84%) 1.10%
Net assets, end of period (000's) .......... $149,901 $141,191
Ratio of operating expenses to
average net assets ....................... 0.76% 0.82%(A)
Ratio of net investment income to
average net assets ....................... 6.68% 6.00%(A)
Portfolio turnover rate .................... 78% 85%(A)
Average commission rate per share (B) ...... N/A N/A
</TABLE>
- -----------------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is required
to disclose its average commission rate per share of all security trades on
which commissions are charged. In certain foreign markets the relationship
between the translated U.S. dollar price per share and commission paid per
share may vary from that of domestic markets.
27
<PAGE> 30
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH
TRUST
-----------
07/15/96*
TO
11/30/96
(UNAUDITED)
-----------
<S> <C>
Net asset value, beginning of period ............. $ 12.50
Income from investment operations:
Net investment income ............................ 0.09
Net realized and unrealized gain on investments .. 1.66
--------
Total from investment
operations .................................. 1.75
Net asset value, end of period ................... $ 14.25
========
Total return .................................... 14.00%
Net assets, end of period (000's) ............... $ 52,034
Ratio of operating expenses to
average net assets ............................. 1.04%(A)
Ratio of net investment income to
average net assets ............................. 3.54%(A)
Portfolio turnover rate .......................... 202%(A)
Average commission rate per share (B)............. $ 0.046
</TABLE>
- --------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
<PAGE> 31
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding for the periods
indicated.
<TABLE>
<CAPTION>
COMMON STOCK FUND *
- -----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
ENDED DEC. 31/95 DEC. 31/94 DEC. 31/93 DEC. 31/92 DEC. 31/91
JUNE 30/96
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period $ 17.27 $ 13.36 $ 14.68 $ 13.73 $ 13.33 $ 10.48
-------- -------- -------- --------- --------- ------------
Income from investment operations:
Net investment income 0.12 0.24 0.20 0.19 0.18 0.21
Net realized and unrealized gain
(loss) on investments 1.34 3.67 (0.81) 1.64 0.61 2.94
-------- -------- -------- --------- --------- ------------
Total from investment operations 1.46 3.91 (0.61) 1.83 0.79 3.15
-------- -------- -------- --------- --------- ------------
Dividend Distributions:
Net investment income -- -- (0.20) (0.19) (0.18) (0.21)
Net realized gain -- -- (0.51) (0.69) (0.21) (0.09)
-------- -------- -------- --------- --------- ------------
Total dividend distributions 0.00 0.00 (0.71) (0.88) (0.39) (0.30)
-------- -------- -------- --------- --------- ------------
Net asset value end of period $ 18.73 $ 17.27 $ 13.36 $ 14.68 $ 13.73 $ 13.33
======== ======== ======== ========= ========= ============
Net assets end of period (in 000's) $ 76,032 $ 60,996 $ 34,829 $ 21,651 $ 9,708 $ 5,480
Aggregate return on share outstanding
during entire period 8.45% 29.23% (4.19)% 13.39% 6.07% 30.18%
Significant ratios :
Portfolio turnover 85.74% (A) 109.03% 84.78% 88.23% 47.60% 53.01%
Ratio of expenses to average
net assets 0.50% (A) 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of net investment income to
average net assets 1.77% (A) 1.76% 1.53% 1.39% 1.51% 1.78%
Ratio of net investment income and
realized and unrealized gain(loss)
to average net assets 15.76% (A) 25.70% (4.49)% 11.50% 7.94% 25.41%
Average commission rate per share (B) $ 0.060 N/A N/A N/A N/A N/A
</TABLE>
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all
security trades on which commissions are charged. In certain foreign
markets, the relationship between the translated U.S. dollar price per
share and commissions paid per share may vary from that of domestic
markets.
* Financial Highlights for predecessor portfolio.
<PAGE> 32
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding for the periods
indicated.
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES FUND *
- -----------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
ENDED DEC. 31/95 DEC. 31/94 DEC. 31/93 DEC. 31/92 DEC. 31/91
JUNE 30/96
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period........................ $ 15.10 $ 13.34 $ 14.07 $ 12.75 $ 10.92 $ 8.16
---------- --------- -------- --------- ---------- ---------
Income from investment operations:
Net investment income...................... 0.36 0.67 0.55 0.47 0.45 0.53
Net realized and unrealized gain
(loss) on investments...................... 0.55 1.35 (0.93) 2.38 1.83 2.76
---------- --------- -------- --------- ---------- ---------
Total from investment operations ......... 0.91 2.02 (0.38) 2.85 2.28 3.29
---------- --------- -------- --------- ---------- ---------
Dividend Distributions:
Net investment income...................... 0.00 (0.26) (0.27) (0.47) (0.45) (0.53)
Net realized gain.......................... 0.00 --- (0.08) (1.06) --- ---
---------- --------- -------- --------- ---------- ---------
Total dividend distributions............... 0.00 (0.26) (0.35) (1.53) (0.45) (0.53)
---------- --------- -------- --------- ---------- ---------
Net asset value end of period.............. $ 16.01 $ 15.10 $ 13.34 $ 14.07 $ 12.75 $ 10.92
========== ========= ======== ========= ========== =========
Net assets end of period (in 000's)........ $ 56,860 $ 52,440 $ 42,571 $ 24,106 $ 7,273 $ 4,120
Aggregate return on share outstanding
during entire period............... 6.03% 15.14% (2.76)% 22.61% 21.29% 41.10%
Significant ratios :
Portfolio turnover......................... 169.22%(A) 136.05% 35.60% 143.00% 70.71% 40.29%
Ratio of expenses to average
net assets............................... 0.50%(A) 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of net investment income to
average net assets....................... 4.88%(A) 5.06% 4.26% 3.93% 4.13% 5.40%
Ratio of net investment income and
realized and unrealized gain(loss)
to average net assets..................... 11.81%(A) 14.51 % (4.48)% 15.23% 20.29% 33.48%
Average commission rate per share (B) ..... $ 0.060 N/A N/A N/A N/A N/A
</TABLE>
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all
security trades on which commissions are charged. In certain foreign
markets, the relationship between the translated U.S. dollar price per
share and commissions paid per share may vary from that of domestic
markets.
* Financial Highlights for predecessor portfolio.
<PAGE> 33
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding for the periods
indicated.
<TABLE>
<CAPTION>
CAPITAL GROWTH BOND FUND *
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Year Ended Year Ended Year Ended Year Ended Year Ended
Ended Dec. 31/95 Dec. 31/94 Dec. 31/93 Dec. 31/92 Dec. 31/91
June 30/96
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period ............... $ 11.30 $ 10.10 $ 11.33 $ 11.12 $ 11.47 $ 10.62
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ............. 0.35 0.72 0.72 0.65 0.77 0.83
Net realized and unrealized gain
(loss) on investments ............. (0.61) 1.32 (1.22) 0.51 (0.11) 0.85
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations .. (0.26) 2.04 (0.50) 1.16 0.66 1.68
---------- ---------- ---------- ---------- ---------- ----------
Dividend Distributions:
Net investment income ............. -- (0.72) (0.72) (0.65) (0.78) (0.83)
Net realized gain ................. -- (0.12) (0.01) (0.30) (0.23) --
---------- ---------- ---------- ---------- ---------- ----------
Total dividend distributions ...... 0.00 (0.84) (0.73) (0.95) (1.01) (0.83)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value end of period ..... $ 11.04 $ 11.30 $ 10.10 $ 11.33 $ 11.12 $ 11.47
========== ========== ========== ========== ========== ==========
Net assets end of period (in 000's) $ 41,329 $ 42,694 $ 33,618 $ 41,183 $ 30,695 $ 29,326
Aggregate return on share outstanding
during entire period............ (2.29)% 20.24% (4.49)% 10.56% 5.89% 16.38%
Significant ratios :
Portfolio turnover...................... 100.85% (A) 84.74% 79.04% 94.75% 153.05% 19.60%
Ratio of expenses to average
net assets............................ 0.50% (A) 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of net investment income to
average net assets.................... 6.14% (A) 6.36% 6.29% 5.69% 6.76% 7.54%
Ratio of net investment income and
realized and unrealized gain(loss)
to average net assets.................. (4.71)%(A) 18.11% (5.23)% 9.28% 5.78% 15.35%
Average commission rate per share (B) .. N/A N/A N/A N/A N/A N/A
</TABLE>
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all
security trades on which commissions are charged. In certain foreign
markets, the relationship between the translated U.S. dollar price per
share and commissions paid per share may vary from that of domestic
markets.
* Financial Highlights for predecessor portfolio.
<PAGE> 34
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding for the periods
indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PACIFIC RIM EMERGING MARKETS FUND ** EQUITY INDEX FUND **
- ----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED OCT. 04/94* TO FEB. 14/96* TO
ENDED DEC. 31/95 DEC. 31/94 JUNE 30/96
JUNE 30/96
(UNAUDITED) (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value
beginning of period ................. $ 10.36 $ 9.41 $ 10.00 $ 10.00
----------- ----------- ----------- -----------
Income from investment operations:
Net investment income ............... 0.06 0.12 0.04 0.09
Net realized and unrealized gain
(loss) on investments ............... 0.66 0.96 (0.59) 0.28
----------- ----------- ----------- -----------
Total from investment operations ... 0.72 1.08 (0.55) 0.37
----------- ----------- ----------- -----------
Dividend Distributions:
Net investment income ............... -- (0.09) (0.04) --
Net realized gain ................... -- (0.04) -- --
----------- ----------- ----------- -----------
Total dividend distributions ........ 0.00 (0.13) (0.04) 0.00
----------- ----------- ----------- -----------
Net asset value end of period ....... $ 11.08 $ 10.36 $ 9.41 $ 10.37
=========== =========== =========== ===========
Net assets end of period (in 000's) . $ 19,627 $ 13,057 $ 7,657 $ 2,493
Aggregate return on share outstanding
during entire period ........ 7.03% 11.47% (5.63)% 3.71%
Significant ratios :
Portfolio turnover .................. 56.53%(A) 54.85% 0.00% 0.00%
Ratio of expenses to average
net assets ........................ 1.50%(A) 1.50% 1.50%(A) 0.40%(A)
Ratio of net investment income to
average net assets ................ 1.22%(A) 1.01% 1.84%(A) 3.75%(A)
Ratio of net investment income and
realized and unrealized gain(loss)
to average net assets .............. 11.14% (A) 11.86 % (23.41)%(A) 7.79 %(A)
Average commission rate per
share (B) .......................... $ 0.021 N/A N/A $ 0.040
</TABLE>
* Commencement of Operations
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all
security trades on which commissions are charged. In certain foreign
markets, the relationship between the translated U.S. dollar price per
share and commissions paid per share may vary from that of domestic
markets.
** Financial Highlights for predecessor portfolio.
<PAGE> 35
INVESTMENT OBJECTIVES AND POLICIES
Each portfolio has a stated investment objective which it pursues
through separate investment policies. The differences in objectives and policies
among the portfolios can be expected to affect the return of each portfolio and
the degree of market and financial risk to which each portfolio is subject.
The investment objectives of each portfolio represent fundamental
policies of each such portfolio and may not be changed without the approval of
the holders of a majority of the outstanding shares of the portfolio. Except for
certain investment restrictions, the policies by which a portfolio seeks to
achieve its investment objectives may be changed by the Trustees of the Trust
without the approval of the shareholders.
The following is a description of the investment objectives and
policies of each portfolio. More complete descriptions of the money market
instruments and certain other instruments in which the Trust may invest and of
the options, futures, currency and other derivative transactions that certain
portfolios may engage in are set forth in the Statement of Additional
Information. A more complete description of the debt security ratings used by
the Trust assigned by Moody's Investors Service, Inc. ("Moody's") or Standard
and Poor's Corporation ("S&P") is included in Appendix I to this Prospectus.
PACIFIC RIM EMERGING MARKETS TRUST
The investment objective of the Pacific Rim Emerging Markets Trust is
to achieve long-term growth of capital. MAC manages the Pacific Rim Emerging
Markets Trust and seeks to achieve this investment objective by investing in a
diversified portfolio that is comprised primarily of common stocks and
equity-related securities of corporations domiciled in countries in the Pacific
Rim region. Current income from dividends and interest will not be an important
consideration in the selection of portfolio securities.
In pursuit of its investment objective, the Pacific Rim Emerging
Markets Trust will vary the geographical distribution of its investments based
upon the continuous evaluation of political, economic and market trends
throughout the world. Investments will be shifted among the world's capital
markets in accordance with the ongoing analyses of trends and developments
affecting such markets and securities. The Pacific Rim Emerging Markets Trust
will invest primarily in companies domiciled in potentially all countries of the
Pacific Rim region. As used herein, the countries of the Pacific Rim region are
India, Pakistan, Japan, Hong Kong, Singapore, Malaysia, Thailand, Indonesia,
Australia, South Korea, Taiwan, Philippines, New Zealand and China.
The Pacific Rim Emerging Markets Trust will, under normal conditions,
invest at least 65% of its net assets in common stocks and equity-related
securities of established larger-capitalization non-U.S. companies that have
attractive long-term prospects for growth of capital. Equity-related securities
in which the portfolio may invest include: preferred stocks, warrants (see "RISK
FACTORS - Warrants" for further information on warrants) and securities
convertible into or exchangeable into common stocks.
The Pacific Rim Emerging Markets Trust may, for defensive purposes,
invest all or a portion of its assets in non-convertible fixed income securities
denominated in U.S. and non-U.S. dollars. These non-convertible fixed income
securities will include debt of corporations, foreign governments and
supranational organizations. The portfolio may also maintain a portion of its
assets in cash or short term debt securities pending the selection of certain
long-term investments.
The Pacific Rim Emerging Markets Trust will be subject to special risks
as a result of its ability to invest up to 100% of its total assets in foreign
securities. These risks are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Pacific Rim Emerging Markets Trust may also purchase and sell the
following equity-related financial instruments: exchange-listed call and put
options on equity indices, over-the-counter ("OTC") and exchange-listed equity
index futures, OTC and exchange-listed call and put options on
33
<PAGE> 36
various currencies in the portfolio, and OTC foreign currency futures contracts
on various currencies in the portfolio. (A call option gives the holder the
right to buy shares of the underlying security at a fixed price before a
specified date in the future. A put option gives the holder the right to sell a
specified number of shares of the underlying security at a particular price
within a specified time period.)The Statement of Additional Information contains
a description of these strategies and of certain risks associated therewith.
SCIENCE & TECHNOLOGY TRUST
The investment objective of the Science & Technology Trust is long-term
growth of capital. Current income is incidental to the portfolio's objective. T.
Rowe Price manages the Science & Technology Trust
The Science & Technology Trust will invest at least 65% of its total
assets in the common stocks of companies expected to benefit from the
development, advancement, and use of science and technology. Industries likely
to be represented in the portfolio include computers and peripheral products,
software, electronic components and systems, telecommunications, media and
information services, pharmaceuticals, hospital supply and medical devices,
biotechnology, environmental services, chemicals and synthetic materials, and
defense and aerospace. Investments may also include companies that should
benefit from the commercialization of technological advances even if they are
not directly involved in research and development.
Most of the assets of the Science & Technology Trust will be invested
in U.S. common stocks. However, the portfolio may also purchase other types of
securities, for example, foreign securities, convertible stocks and bonds, and
warrants, when considered consistent with the portfolio's investment objective
and program. The portfolio will hold a certain portion of its assets in U.S. and
foreign dollar-denominated money market securities, including repurchase
agreements, in the two highest rating categories, maturing in one year or less.
For temporary, defensive purposes, the portfolio may invest without limitation
in such securities. This reserve position provides flexibility in meeting
redemptions, expenses, and the timing of new investments and serves as a
short-term defense during periods of unusual market volatility.
Stock selection for the portfolio is not based on company size but
rather on an assessment of the company's fundamental prospects. As a result,
holdings can range from small companies developing new technologies or pursuing
scientific breakthroughs to large, blue chip firms with established track
records of developing and marketing such advances.
Companies in the rapidly changing fields of science and technology face
special risks. For example, their products or services may not prove
commercially successful or may become obsolete quickly. Therefore, a portfolio
of these stocks will likely be more volatile in price than one with broader
diversification that includes investments in more economic sectors. The level of
risk will be increased to the extent that the portfolio has significant exposure
to smaller or unseasoned companies (those with less than a three-year operating
history). Small companies often have limited product lines, markets, or
financial resources, and they may depend on a small group of inexperienced
managers. The securities of small companies may be subject to more abrupt or
erratic market declines than securities of larger companies or the market
averages in general.
The Science & Technology Trust may also engage in a variety of
investment management practices, such as buying and selling futures and options.
The portfolio may invest up to 10% of its total assets in hybrid instruments,
which are a type of high-risk derivative which can combine the characteristics
of securities, futures and options. For example, the principal amount,
redemption or conversion terms of a security could be related to the market
price of some commodity, currency or securities index. Such securities may bear
interest or pay dividends at below market (or even relatively nominal) rates.
The Statement of Additional Information contains a fuller description of such
instruments and the risks associated therewith.
The Science & Technology Trust will be subject to special risks as a
result of its ability to invest up to 30% of its total assets in foreign
securities. These include nondollar-denominated securities traded outside of the
U.S. and dollar-denominated securities of foreign issuers traded in the U.S.
(such as ADRs). See "RISK FACTORS --Foreign Securities" in this Prospectus for a
description of these
34
<PAGE> 37
risks as well as a definition of ADRs. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Science & Technology Trust is currently authorized to use all of
the various investment strategies referred to under "Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
INTERNATIONAL SMALL CAP TRUST
The investment objective of the International Small Cap Trust is to
seek long term capital appreciation. Founders manages the International Small
Cap Trust and will pursue this objective by investing primarily in securities
issued by foreign companies which have total market capitalizations (present
market value per share multiplied by the total number of shares outstanding) or
annual revenues of $1 billion or less. These securities may represent companies
in both established and emerging economies throughout the world.
At least 65% of the portfolio's total assets will normally be invested
in foreign securities representing a minimum of three countries (other than the
United States). The portfolio may invest in larger foreign companies or in U.S.
based companies if, in Founders' opinion, they represent better prospects for
capital appreciation.
The International Small Cap Trust may invest a significant portion of
its assets in the securities of small companies. Small companies are those which
are still in the developing stages of their life cycles and are attempting to
achieve rapid growth in both sales and earnings. Investments in small companies
involve greater risk than is customarily associated with more established
companies. These companies often have sales and earnings growth rates which
exceed those of large companies. Such growth rates may be reflected in more
rapid share price appreciation. However, smaller companies often have limited
operating histories, product lines, markets or financial resources, and they may
be dependent upon one-person management. These companies may be subject to
intense competition from larger entities, and the securities of such companies
may have limited marketability and may be subject to more abrupt or erratic
movements in price than securities of larger companies or the market averages in
general. Therefore, the net asset value of the International Small Cap Trust may
fluctuate more widely than the popular market averages. Accordingly, an
investment in the portfolio may not be appropriate for all investors.
The International Small Cap Trust will invest primarily in equity
securities but may also invest in convertible securities, preferred stocks,
bonds, debentures and other corporate obligations when Founders believes that
these investments offer opportunities for capital appreciation. Current income
will not be a substantial factor in the selection of these securities. The
portfolio will only invest in bonds, debentures and corporate obligations--other
than convertible securities and preferred stock--rated investment-grade (Baa or
higher by Moody's or BBB or higher by S&P) at the time of purchase or, if
unrated, of comparable quality in the opinion of Founders. Convertible
securities and preferred stocks purchased by the Portfolio may be rated in
medium and lower categories by Moody's or S&P (Ba or lower by Moody's and BB or
lower by S&P) but will not be rated lower than B. The portfolio may also invest
in unrated convertible securities and preferred stocks in instances in which
Founders believes that the financial condition of the issuer or the protection
afforded by the terms of the securities limits risk to a level similar to that
of securities rated in categories no lower than B. At no time will the portfolio
have more than 5% of its total assets invested in any fixed-income securities
which are unrated or are rated below investment grade either at the time of
purchase or as a result of a reduction in rating after purchase. The portfolio
is not required to dispose of debt securities whose ratings are downgraded below
these ratings subsequent to the portfolio's purchase of the securities, unless
such a disposition is necessary to reduce the portfolio's holdings of such
securities to less than 5% of its total assets. See "RISK FACTORS - High Yield
(High Risk) Securities." A description of the ratings used by Moody's and S & P
is set forth in Appendix I to the Prospectus.
The International Small Cap Trust may invest up to 100% of its assets
temporarily in the following securities if Founders determines that it is
appropriate for purposes of enhancing liquidity or preserving capital in light
of prevailing market or economic conditions: cash, cash equivalents, U.S.
government obligations, commercial paper, bank obligations, repurchase
agreements, and negotiable U.S. dollar-
35
<PAGE> 38
denominated obligations of domestic and foreign branches of U.S. depository
institutions, U.S. branches of foreign depository institutions, and foreign
depository institutions. The portfolio may also acquire certificates of deposit
and bankers' acceptances of banks which meet criteria established by the Trust's
Trustees. When the portfolio is in a defensive position, the opportunity to
achieve capital growth will be limited, and, to the extent that this assessment
of market conditions is incorrect, the portfolio will be foregoing the
opportunity to benefit from capital growth resulting from increases in the value
of equity investments and may not achieve its investment objective.
Foreign Securities. The portfolio may invest up to 100% of its total
assets in foreign securities and will be subject to special risks as a result of
these investments. These risks are described under the caption "RISK FACTORS
- -Foreign Securities" in this Prospectus. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under "GENERAL
INFORMATION -Taxes" in this Prospectus. In order to comply with limitations
imposed by the State of California Insurance Department, the International Small
Cap Trust will comply with the restrictions regarding foreign investments set
forth under "Risk Factors - Additional Investment Restrictions on Borrowing and
Foreign Investing."
Foreign investments of the International Small Cap Trust may include
securities issued by companies located in countries not considered to be major
industrialized nations. Such countries are subject to more economic, political
and business risk than major industrialized nations, and the securities they
issue and of issuers located in such countries are expected to be more volatile
and more uncertain as to payments of interest and principal. The secondary
market for such securities is expected to be less liquid than for securities of
major industrialized nations. Such countries may include (but are not limited
to) Argentina, Australia, Austria, Belgium, Bolivia, Brazil, Chile, China,
Colombia, Costa Rica, Croatia, Czech Republic, Denmark, Ecuador, Egypt, Finland,
Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Jordan,
Malaysia, Mexico, Netherlands, New Zealand, Nigeria, North Korea, Norway,
Pakistan, Paraguay, Peru, Philippines, Poland, Portugal, Singapore, Slovak
Republic. South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland,
Taiwan, Thailand, Turkey, Uruguay, Venezuela, Vietnam and the countries of the
former Soviet Union. Investments of the Portfolio may include securities created
through the Brady Plan, a program under which heavily indebted countries have
restructured their bank debt into bonds. See "OTHER INSTRUMENTS--High Yield
Foreign Sovereign Debt Securities" in the Statement of Additional Information.
Since the International Small Cap Trust's assets will be invested
primarily in foreign securities and since substantially all of the portfolio's
revenues will be received in foreign currencies, the portfolio's net asset
values will be affected by changes in currency exchange rates. The portfolio
will pay dividends in dollars and will incur currency conversion costs.
Use of Hedging and Other Strategic Transactions. The International
Small Cap Trust is currently authorized to use all of the various investment
strategies referred to under "RISK FACTORS -- Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
EMERGING GROWTH TRUST
The investment objective of the Emerging Growth Trust is maximum
capital appreciation. Warburg manages the Emerging Growth Trust and will pursue
this objective by investing primarily in a portfolio of equity securities of
domestic companies.
The Emerging Growth Trust ordinarily will invest at least 65% of its
total assets in common stocks or warrants of emerging growth companies that
represent attractive opportunities for maximum capital appreciation. Emerging
growth companies are small- or medium-sized companies that have passed their
start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time.
The Emerging Growth Trust is classified as a non-diversified investment
company under the 1940 Act, which means that portfolio is not limited by the
1940 Act in the proportion of its assets that it may invest in the obligations
of a single issuer. As a non-diversified investment company, the portfolio may
invest a greater proportion of its assets in the obligations of a small number
of issuers and, as a result, may be subject to greater risk with respect to
portfolio securities. To the extent that the portfolio assumes large positions
in the securities of a small number of issuers, its return may fluctuate to a
36
<PAGE> 39
greater extent than that of a diversified company as a result of changes in the
financial condition or in the market's assessment of the issuers.
Although under current market conditions the Emerging Growth Trust
expects to invest in companies having stock market capitalizations of up to
approximately $500 million, the portfolio may invest in emerging growth
companies without regard to their market capitalization. Emerging growth
companies generally stand to benefit from new products or services,
technological developments or changes in management and other factors and
include smaller companies experiencing unusual developments affecting their
market value. These "special situation companies" include companies that are
involved in the following: an acquisition or consolidation; a reorganization; a
recapitalization; a merger, liquidation, or distribution of cash, securities or
other assets; a tender or exchange offer; a breakup or workout of a holding
company; litigation which, if resolved favorably, would improve the value of the
company's stock; or a change in corporate control.
The Emerging Growth Trust may invest up to 20% of its total assets in
investment grade debt securities (other than money market obligations) and
preferred stocks that are not convertible into common stock for the purpose of
seeking capital appreciation. The interest income to be derived may be
considered as one factor in selecting debt securities for investment by Warburg.
Because the market value of debt obligations can be expected to vary inversely
to changes in prevailing interest rates, investing in debt obligations may
provide an opportunity for capital appreciation when interest rates are expected
to decline. The success of such a strategy is dependent upon Warburg's ability
to accurately forecast changes in interest rates. The market value of debt
obligations may also be expected to vary depending upon, among other factors,
the ability of the issuer to repay principal and interest, any change in
investment rating and general economic conditions.
A security will be deemed to be investment grade if it is rated within
the four highest grades by Moody's or S&P or, if unrated, is determined to be of
comparable quality by Warburg. Bonds rated in the fourth highest grade may have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. Subsequent to
its purchase by the portfolio, an issue of securities may cease to be rated or
its rating may be reduced below the minimum required for purchase by the
portfolio. Neither event will require sale of such securities, although Warburg
will consider such event in its determination of whether the portfolio should
continue to hold the securities.
When Warburg believes that a defensive posture is warranted, the
Emerging Growth Trust may invest temporarily without limit in investment grade
debt obligations and in domestic and foreign money market obligations, including
repurchase agreements.
The Emerging Growth Trust is authorized to invest, under normal market
conditions, up to 20% of its total assets in domestic and foreign short-term
(one year or less remaining to maturity) and medium-term (five years or less
remaining to maturity) money market obligations and for temporary defensive
purposes may invest in these securities without limit. These instruments consist
of obligations issued or guaranteed by the U.S. government or a foreign
government, their agencies or instrumentalities; bank obligations (including
certificates of deposit, time deposits and bankers' acceptances of domestic or
foreign banks, domestic savings and loans and similar institutions) that are
high quality investments or, if unrated, deemed by Warburg to be high quality
investments; commercial paper rated no lower than A-2 by S&P or Prime-2 by
Moody's or the equivalent from another major rating service or, if unrated, of
an issuer having an outstanding, unsecured debt issue then rated within the
three highest rating categories; and repurchase agreements with respect to the
foregoing.
Investing in securities of emerging growth and small-sized companies
may involve greater risks since these securities may have limited marketability
and, thus, may be more volatile. Because small- and medium-sized companies
normally have fewer shares outstanding than larger companies, it may be more
difficult for the Emerging Growth Trust to buy or sell significant amounts of
such shares without an unfavorable impact on prevailing prices. In addition,
smalland medium-sized companies are typically subject to a greater degree of
changes in earnings and business prospects than are larger, more established
companies. There is typically less publicly available information concerning
small- and medium-sized companies than for larger, more established ones.
Securities of issuers in "special situations" also may be more volatile, since
the market value of these securities may decline in value if the anticipated
benefits do not materialize. Although investing in securities of emerging growth
companies or
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"special situations" offers potential for above-average returns if the companies
are successful, the risk exists that the companies will not succeed and the
prices of the companies' shares could significantly decline in value. Therefore,
an investment in the portfolio may involve a greater degree of risk than an
investment in other mutual funds that seek capital appreciation by investing in
better-known, larger companies.
The Emerging Growth Trust will be subject to certain risks as a result
of its ability to invest up to 20% of its total assets in the securities of
foreign issuers. These risks are described under the caption "RISK FACTORS
- --Foreign Securities" in this Prospectus. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions The Emerging Growth
Trust is currently authorized to use all of the investment strategies referred
to under "Hedging and Other Strategic Transactions." However, it is not
presently contemplated that any of these strategies will be used to a
significant degree by the portfolio.
PILGRIM BAXTER GROWTH TRUST
The investment objective of the Pilgrim Baxter Growth Trust is capital
appreciation. PBHG manages the Pilgrim Baxter Growth Trust and seeks to achieve
its objective by investing in companies believed by the Subadviser to have an
outlook for strong earnings growth and the potential for significant capital
appreciation.
The Pilgrim Baxter Growth Trust will normally be as fully invested as
practicable in common stocks and securities convertible into common stocks, but
also may invest up to 5% of its assets in warrants and rights to purchase common
stocks. In the opinion of PBHG, there may be times when the shareholders'
interests are best served and the investment objective is more likely to be
achieved by having varying amounts of the portfolio's assets invested in
convertible securities.
Under normal market conditions, the Pilgrim Baxter Growth Trust will
invest at least 65% of its total assets in common stocks and convertible
securities of small and medium sized growth companies (market capitalization or
annual revenues up to $2 billion). At certain times that percentage may be
substantially higher. The average market capitalizations or annual revenues of
holdings in the portfolio may, however, fluctuate over time as a result of
market valuation levels and the availability of specific investment
opportunities. In addition, the portfolio may continue to hold securities of
companies whose market capitalizations or annual revenues grow above $2 billion
subsequent to purchase, if the company continues to satisfy the other investment
policies of the portfolio.
PBHG tries to keep the portfolio fully invested at all times. However,
for temporary defensive purposes, when the PBHG determines that market
conditions warrant, each portfolio may invest up to 100% of its assets in cash
and money market instruments (consisting of securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities; certificates of deposit,
time deposits and bankers' acceptances issued by banks or savings and loan
associations having net assets of at least $500 million as stated on their most
recently published financial statements; commercial paper rated in one of the
two highest rating categories by at least one nationally recognized statistical
rating organization ("NRSRO"); repurchase agreements involving such securities;
and, to the extent permitted by applicable law and the portfolio's investment
restrictions, shares of other investment companies investing solely in money
market securities). To the extent the portfolio is invested in temporary
defensive instruments, it will not be pursuing its investment objective.
PBHG's investment process in managing the assets of the Pilgrim Baxter
Growth Trust is both quantitative and fundamental, and is extremely focused on
quality earnings growth. In seeking to identify investment opportunities for the
portfolio, PBHG begins by creating a universe of rapidly growing companies with
market capitalizations within the parameters described above and that possess
certain quality characteristics. Using proprietary software and research models
that incorporate important attributes of successful growth, such as positive
earnings surprises, upward earnings estimate revisions, and accelerating sales
and earnings growth, PBHG creates a universe of growing companies. Then, using
fundamental research, PBHG evaluates each company's earnings quality and
as-
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sesses the sustainability of the company's current growth trends. Through this
highly disciplined process, the Subadviser seeks to construct an investment
portfolio that possesses strong growth characteristics.
While PBHG intends to invest in small and medium capitalization
companies that have strong balance sheets and that PBHG's research indicates
should exceed consensus earnings expectations, any investment in small and
medium capitalization companies involves greater risk and price volatility than
that customarily associated with investments in larger, more established
companies. This increased risk may be due to the greater business risks of small
size, limited markets and financial resources, narrow product lines and frequent
lack of management depth. The securities of small and medium capitalization
companies are often traded in the over-the-counter market, and might not be
traded in volumes typical of securities traded on a national securities
exchange. Thus, the securities of small and medium capitalization companies are
likely to be less liquid, and subject to more abrupt or erratic market
movements, than securities of larger, more established companies
Securities will be sold when PBHG believes that anticipated
appreciation is no longer probable, alternative investments offer superior
appreciation prospects, or the risk of a decline in market price is too great.
Because of its policy with respect to the sales of investments, the Pilgrim
Baxter Growth Trust may from time to time realize short-term gains or losses.
The portfolio will likely have somewhat greater volatility than the stock market
in general, as measured by the S&P 500 Index.
Normally, the Pilgrim Baxter Growth Trust will purchase only securities
traded in the United States or Canada on registered exchanges or in the
over-the-counter market. The Portfolio may invest up to 15% of its total assets
in securities of foreign issuers (including ADRs). To the extent the portfolio
invests in foreign securities, it will be subject to certain risks as described
under the caption "RISK FACTORS --Foreign Securities" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Pilgrim Baxter Growth Trust is currently authorized to use all of
the investment strategies referred to under "Hedging and Other Strategic
Transactions." With the exception of forward foreign currency contracts,
however, it is not presently contemplated that any of these strategies will be
used to a significant degree by the portfolio. (Forward foreign currency
contracts are the purchase of a fixed quantity of foreign currency at a future
date at a price set at the time of the contract.) The Statement of Additional
Information contains a description of these strategies and certain risks
associated therewith.
SMALL/MID CAP TRUST
The investment objective of the Small/Mid Cap Trust is to seek long
term capital appreciation. Alger manages the Small/Mid Cap Trust and will pursue
this objective by investing at least 65% of the portfolio's total assets (except
during temporary defensive periods) in small/mid cap equity securities. As used
in this Prospectus, small/mid cap equity securities are equity securities of
companies that, at the time of purchase, have "total market capitalization" --
present market value per share multiplied by the total number of shares
outstanding -- between $500 million and $5 billion. The portfolio 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 $5 billion or greater and in
excess of that amount (up to 100% of its assets ) during temporary defensive
periods.
The Small/Mid Cap Trust seeks to achieve its 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. The portfolio will invest primarily in companies whose
securities are traded on domestic stock exchanges or in the over-the-counter
market.
The Small/Mid Cap Trust may invest a significant portion of its assets
in the securities of small companies. Small companies are those which are still
in the developing stages of their life cycles and will attempt to achieve rapid
growth in both sales and earnings. Investments in small companies involve
greater risk than is customarily associated with more established companies.
These companies often have sales and earnings growth rates which exceed those of
large companies. Such growth rates may be reflected in more rapid share price
appreciation. However, smaller companies often have limited operating histories,
product lines, markets or financial resources, and they may be dependent upon
the management of only a few people. These companies may be subject to intense
competition from larger entities, and the securities of such
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companies may have limited marketability and may be subject to more abrupt or
erratic movements in price than securities of larger companies or the market
averages in general. Therefore, the net asset values of the Small/Mid Cap Trust
may fluctuate more widely than the popular market averages. Accordingly, an
investment in the portfolio may not be appropriate for all investors.
In order to afford the portfolio the flexibility to take advantage of
new opportunities for investments in accordance with its investment objectives,
it may hold up to 15% of its net assets (up to 100% of their assets during
temporary defensive periods) in money market instruments, 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, variable rate master demand notes and
repurchase agreements. When the portfolio is in a defensive position, the
opportunity to achieve capital growth will be limited, and, to the extent that
this assessment of market conditions is incorrect, the portfolio will be
foregoing the opportunity to benefit from capital growth resulting from
increases in the value of its investments and may not achieve its investment
objective.
Foreign Securities. The portfolio may invest up to 20% of its total
assets in foreign securities and will be subject to certain risks as a result of
these investments. These risks are described under the caption "RISK FACTORS
- -Foreign Securities" in this Prospectus. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under "GENERAL
INFORMATION -Taxes" in this Prospectus. The portfolio may also purchase American
Depository Receipts ("ADRs") or U.S. dollar-denominated securities of foreign
issuers that are not included in the 20% foreign securities limitation. See
"RISK FACTORS - Foreign Securities" in this Prospectus for a description of
ADRs.
Use of Hedging and Other Strategic Transactions. The Small/Mid Cap
Trust is currently authorized to use all of the various investment strategies
referred to under "RISK FACTORS -- Hedging and Other Strategic Transactions".
The Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.
INTERNATIONAL STOCK TRUST
The investment objective of the International Stock Trust is long-term
growth of capital. Price-Fleming manages the International Stock Trust and seeks
to attain this objective by investing primarily in common stocks of established,
non-U.S. companies. The portfolio expects to invest substantially all of its
assets outside the U.S. and to diversify broadly among countries throughout the
world -- developed, newly industrialized, and emerging. The portfolio will
invest in at least three countries outside the United States.
The International Stock Trust expects to invest substantially all of
its assets in common stocks. However, the portfolio may also invest in a variety
of other equity-related securities, such as preferred stocks, warrants and
convertible securities, as well as corporate and governmental debt securities,
when considered consistent with the portfolio's investment objectives and
program. Under normal market conditions, the portfolio's investment in
securities other than common stocks is limited to no more than 35% of total
assets. However, for temporary defensive purposes, the portfolio may invest all
or a significant portion of its assets in U.S. Government and corporate debt
obligations. The portfolio will not purchase any debt security which at the time
of purchase is rated below investment grade. This would not prevent the
portfolio from retaining a security downgraded to below investment grade after
purchase.
The International Stock Trust will hold a certain portion of its assets
in U.S. and foreign dollar-denominated money market securities, including
repurchase agreements, in the two highest rating categories, maturing in one
year or less. For temporary, defensive purposes, the portfolio may invest
without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new investments
and serves as a short-term defense during periods of unusual market volatility.
Price-Fleming uses a "bottom-up" approach to stock selection based on
fundamental research. A company's prospects for achieving and sustaining
above-average, long-term earnings growth is generally the Subadviser's primary
focus. However, valuation factors, such as price/earnings, price/cash flow, and
price/book are also important considerations. In conjunction with identifying
potential stocks for in-
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vestment, external factors are also reviewed. For example, a country's or
region's political, economic, and financial status help shape the outlook for
individual stocks and also affect decisions regarding the prudent level of
overall exposure to particular areas.
It is the present intention of Price-Fleming to invest in companies
based in (or governments of or within) the Far East (for example, Japan, Hong
Kong, Singapore, and Malaysia), Europe (for example, United Kingdom, Germany,
Hungary, Poland, Netherlands, France, Spain, and Switzerland), South Africa,
Australia, Canada, Latin America, and such other areas and countries as
Price-Fleming may determine from time to time.
In determining the appropriate distribution of investments among
various countries and geographic regions, Price-Fleming ordinarily considers the
following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range of
individual investment opportunities available to international investors. In
analyzing companies for investment, Price-Fleming ordinarily looks for one or
more of the following characteristics: an above-average earnings growth per
share; high return on invested capital; healthy balance sheet; sound financial
and accounting policies and overall financial strength; strong competitive
advantages; effective research and product development and marketing; efficient
service; pricing flexibility; strength of management; and general operating
characteristics which will enable the companies to compete successfully in their
market place.
While current dividend income is not a prerequisite in the selection of
International Stock Trust companies, the companies in which the portfolio
invests normally will have a record of paying dividends, and will generally be
expected to increase the amounts of such dividends in future years as earnings
increase. It is expected that the portfolio's investments will ordinarily be
traded on exchanges located at least in the respective countries in which the
various issuers of such securities are principally based.
The International Stock Trust may purchase the securities of certain
foreign investment portfolios or trusts called passive foreign investment
companies. Such trusts have been the only or primary way to invest in certain
countries. In addition to bearing their proportionate share of the trust's
expenses (management fees and operating expenses), shareholders will also
indirectly bear similar expenses of such trusts. Capital gains on the sale of
such holdings are considered ordinary income regardless of how long the
portfolio held its investment. In addition, the portfolio may be subject to
corporate income tax and an interest charge on certain dividends and capital
gains earned from these investments, regardless of whether such income and gains
are distributed to shareholders. To avoid such tax and interest, the portfolio
intends to treat these securities as sold on the last day of its fiscal year and
recognize any gains for tax purposes at that time; losses will not be
recognized. Such gains will be considered ordinary income, which the portfolio
will be required to distribute even though it has not sold the security.
The International Stock Trust may also engage in a variety of
investment management practices, such as buying and selling futures and options
and engaging in foreign currency exchange contracts. The portfolio may invest up
to 10% of its total assets in hybrid instruments, which are a type of high-risk
derivative which can combine the characteristics of securities, futures and
options. For example, the principal amount, redemption or conversion terms of a
security could be related to the market price of some commodity, currency or
securities index. Such securities may bear interest or pay dividends at below
market (or even relatively nominal) rates. The Statement of Additional
Information contains a fuller description of such instruments and the risks
associated therewith.
The International Stock Trust will be subject to special risks as a
result of its ability to invest up to 100% of its total assets in foreign
securities. These include non-dollar-denominated securities traded outside of
the U.S. and dollar-denominated securities of foreign issuers traded in the U.S.
(such as ADRs). These risks are described under the caption "RISK FACTORS
- --Foreign Securities" in this Prospectus. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
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The International Stock Trust is currently authorized to use all of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
WORLDWIDE GROWTH TRUST
The investment objective of the Worldwide Growth Trust is long-term
growth of capital. Founders manages the Worldwide Growth Trust and seeks to
attain this objective by normally investing at least 65% of its total assets in
equity securities of growth companies in a variety of markets throughout the
world.
The Worldwide Growth Trust will emphasize common stocks of both
emerging and established growth companies that generally have proven performance
records and strong market positions. The portfolio's holdings will usually
consist of investments in companies in various countries throughout the world,
but it will always invest at least 65% of its total assets in three or more
countries. The portfolio will not invest more than 25% of its total assets in
the securities of any one foreign country.
The Worldwide Growth Trust has the ability to purchase securities in
any foreign country as well as in the United States. Foreign investments of the
portfolio may include securities issued by companies located in countries not
considered to be major industrialized nations. Such countries are subject to
more economic, political and business risk than major industrialized nations,
and the securities they issue are expected to be more volatile and more
uncertain as to payments of interest and principal. Investments of the portfolio
may include securities created through the Brady Plan, a program under which
heavily indebted countries have restructured their bank debt into bonds.
Since the Worldwide Growth Trust's assets will be invested primarily in
foreign securities and since substantially all of the portfolio's revenues will
be received in foreign currencies, the portfolio's net asset values will be
affected by changes in currency exchange rates. The portfolio will pay dividends
in dollars and will incur currency conversion costs.
The Worldwide Growth Trust may invest in convertible securities,
preferred stocks, bonds, debentures, and other corporate obligations when
Founders believes that these investments offer opportunities for capital
appreciation. Current income will not be a substantial factor in the selection
of these securities.
The portfolio will only invest in bonds, debentures, and corporate
obligations -- other than convertible securities and preferred stocks -- rated
investment grade (BBB or higher) at the time of purchase or, if unrated, of
comparable quality in the opinion of Founders. Convertible securities and
preferred stocks purchased by the portfolio may be rated in medium and lower
categories by Moody's or S&P (Ba or lower by Moody's and BB or lower by S&P),
but will not be rated lower than B. The portfolio may also invest in unrated
convertible securities and preferred stocks in instances in which Founders
believes that the financial condition of the issuer or the protection afforded
by the terms of the securities limits risk to a level similar to that of
securities eligible for purchase by the portfolio rated in categories no lower
than B. At no time will the portfolio have more than 5% of its total assets
invested in any fixed-income securities which are unrated or are rated below
investment grade either at the time of purchase or as a result of a reduction in
rating after purchase. The portfolio is not required to dispose of debt
securities whose ratings are downgraded below these ratings subsequent to the
portfolio's purchase of the securities, unless such a disposition is necessary
to reduce the portfolio's holdings of such securities to less than 5% of its
total assets. See "RISK FACTORS -- High Yield (High Risk) Securities." A
description of the ratings used by Moody's and S&P is set forth in Appendix I to
the Prospectus.
Up to 100% of the assets of the Worldwide Growth Trust may be invested
temporarily in U.S. Government obligations, commercial paper, bank obligations,
repurchase agreements, and negotiable U.S. dollar-denominated obligations of
domestic and foreign branches of U.S. depository institutions, U.S. branches of
foreign depository institutions, and foreign depository institutions, in cash,
or in other cash equivalents, if Founders determines it to be appropriate for
purposes of enhancing liquidity or preserving capital in light of prevailing
market or economic conditions. The portfolio may also acquire certificates of
deposit and bankers' acceptances of banks which meet criteria established by the
Trust's Trustees. While the portfolio is in a defensive position, the
opportunity to achieve capital growth will be
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limited, and, to the extent that this assessment of market conditions is
incorrect, the portfolio will be foregoing the opportunity to benefit from
capital growth resulting from increases in the value of equity investments.
The Worldwide Growth Trust may invest in the securities of small and
medium-sized companies. The Subadviser considers small and medium-sized
companies to be those which are still in the developing stages of their life
cycles and are attempting to achieve rapid growth in both sales and earnings.
Investments in small and medium-sized companies involve greater risk than is
customarily associated with more established companies. These companies often
have sales and earnings growth rates which exceed those of large companies. Such
growth rates may in turn be reflected in more rapid share price appreciation.
However, smaller companies often have limited operating histories, product
lines, markets, or financial resources, and they may be dependent upon
one-person management. These companies may be subject to intense competition
from larger entities, and the securities of such companies may have limited
marketability and may be subject to more abrupt or erratic movements in price
than securities of larger companies or the market averages in general.
Therefore, the net asset value of the Worldwide Growth Trust's shares may
fluctuate more widely than the popular market averages.
The Worldwide Growth Trust will be subject to special risks as a result
of its ability to invest up to 100% of its total assets in foreign securities.
These risks are described under the caption "RISK FACTORS --Foreign Securities"
in this Prospectus. Moreover, substantial investments in foreign securities may
have adverse tax implications as described under "GENERAL INFORMATION --Taxes"
in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Worldwide Growth Trust is currently authorized to use all of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
GLOBAL EQUITY TRUST
The investment objective of the Global Equity Trust is long-term
capital appreciation. Morgan Stanley manages the Global Equity Trust and seeks
to attain this objective by investing primarily in common and preferred stocks,
convertible securities, rights and warrants to purchase common stocks, American
and Global Depository Receipts and other equity securities of issuers throughout
the world, including issuers in the U.S. and emerging market countries.
Under normal circumstances, at least 65% of the value of the total
assets of the Global Equity Trust will be invested in equity securities and at
least 20% of the value of the portfolio's total assets will be invested in the
common stocks of U.S. issuers. The portfolio may also invest in money market
instruments. Although the portfolio intends to invest primarily in securities
listed on stock exchanges, it will also invest 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.
The Subadviser's approach is oriented to individual stock selection and
is value driven. In selecting stocks for the portfolio, the Subadviser initially
identifies those stocks that it believes to be undervalued in relation to the
issuer's assets, cash flow, earnings and revenues, and then evaluates the future
value of such stocks by running the results of an in-depth study of the issuer
through a dividend discount model. In selecting investments, the Subadviser
utilizes the research of a number of sources, including Morgan Stanley Capital
International, an affiliate of the Subadviser located in Geneva, Switzerland.
Portfolio holdings are regularly reviewed and subjected to fundamental analysis
to determine whether they continue to conform to the Subadviser's value
criteria. Equity securities which no longer conform to such investment criteria
will be sold. Although the portfolio will not invest for short-term trading
purposes, investment securities may be sold from time to time without regard to
the length of time they have been held.
The Global Equity Trust may engage in forward foreign currency
exchanges and when-issued or delayed delivery securities.
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The Global Equity Trust will be subject to special risks as a result of
its ability to invest up to 100% of its total assets in foreign securities.
These risks, including the risks of the possible increased likelihood of
expropriation or the return to power of a communist regime which would institute
policies to expropriate, nationalize or otherwise confiscate investments, are
described under the caption "RISK FACTORS --Foreign Securities" in this
Prospectus. Moreover, substantial investments in foreign securities may have
adverse tax implications as described under "GENERAL INFORMATION --Taxes" in
this Prospectus.
Use of Hedging and Other Strategic Transactions
The Global Equity Trust is currently authorized to use all of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions." With the exception of currency transactions, however, it is not
presently anticipated that any of these strategies will be used to a significant
degree by the portfolio. The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.
GROWTH TRUST
The investment objective of the Growth Trust is to seek long-term
growth of capital. Founders manages the Growth Trust and will pursue this
objective by investing, under normal market conditions, at least 65% of its
total assets in common stocks of well-established, high-quality growth companies
that Founders believes have the potential to increase earnings faster than the
rest of the market. These companies tend to have strong performance records,
solid market positions and reasonable financial strength, and have continuous
operating records of three years or more.
The Growth Trust may invest in convertible securities, preferred
stocks, bonds, debentures and other corporate obligations when Founders believes
that these investments offer opportunities for capital appreciation. Current
income will not be a substantial factor in the selection of these securities.
The Growth Trust will only invest in bonds, debentures and corporate
obligations--other than convertible securities and preferred stock--rated
investment-grade (Baa or higher by Moody's and BBB or higher by S&P) or, if
unrated, of comparable quality in the opinion of Founders at the time of
purchase. Convertible securities and preferred stocks purchased by the Trust may
be rated in medium and lower categories by Moody's or S&P (Ba or lower by
Moody's and BB or lower by S&P) but will not be rated lower than B. The Growth
Trust may also invest in unrated convertible securities and preferred stocks in
instances in which Founders believes that the financial condition of the issuer
or the protection afforded by the terms of the securities limits risk to a level
similar to that of securities rated in categories no lower than B. At no time
will the portfolio have more than 5% of its total assets invested in any
fixed-income securities which are unrated or are rated below investment grade
either at the time of purchase or as a result of a reduction in rating after
purchase. The portfolio is not required to dispose of debt securities whose
ratings are downgraded below these ratings subsequent to the portfolio's
purchase of the securities, unless such a disposition is necessary to reduce the
portfolio's holdings of such securities to less than 5% of its total assets. See
"RISK FACTORS - High Yield Securities."
The Growth Trust may invest up to 100% of its assets temporarily in the
following securities if Founders determines that it is appropriate for purposes
of enhancing liquidity or preserving capital in light of prevailing market or
economic conditions: cash, cash equivalents, U.S. government obligations,
commercial paper, bank obligations, repurchase agreements, and negotiable U.S.
dollar-denominated obligations of domestic and foreign branches of U.S.
depository institutions, U.S. branches of foreign depository institutions, and
foreign depository institutions. The portfolio may also acquire certificates of
deposit and bankers' acceptances of banks which meet criteria established by the
Trust's Trustees. When the Growth Trust is in a defensive position, the
opportunity to achieve capital growth will be limited, and, to the extent that
this assessment of market conditions is incorrect, the Growth Trust will be
foregoing the opportunity to benefit from capital growth resulting from
increases in the value of equity investments and may not achieve its investment
objective.
Foreign Securities. The Growth Trust may invest without limit in ADRs
and up to 30% of its total assets in foreign securities (other than ADRs), with
no more than 25% invested in any one foreign country. The Growth Trust will be
subject to certain risks as a result of these investments. These risks are
described under the caption "RISK FACTORS -- Foreign Securities" in this
Prospectus. Moreover, substantial
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investments in foreign securities may have adverse tax implications as described
under "GENERAL INFORMATION -Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions. The Growth Trust is
currently authorized to use all of the various investment strategies referred to
under "RISK FACTORS -- Hedging and Other Strategic Transactions." The Statement
of Additional Information contains a description of these strategies and of
certain risks associated therewith.
EQUITY TRUST
The principal investment objective of the Equity Trust is growth of
capital. Current income is a secondary consideration although growth of income
may accompany growth of capital.
FMTC manages the Equity Trust and seeks to attain the foregoing
objective by investing primarily in common stocks of United States issuers or
securities convertible into or which carry the right to buy common stocks. It
may also invest to a limited degree, normally not in excess of 15% of the value
of the Equity Trust's total assets, in non-convertible preferred stocks and debt
securities. Portfolio securities may be selected with a view toward either
short-term or long-term capital growth. When in FMTC's opinion market or
economic conditions warrant a defensive posture, the Equity Trust may place any
portion of its assets in investment grade debt securities (i.e., the four
highest bond ratings assigned by Moody's or S&P), preferred stocks, Government
securities or cash. The fourth highest category of investment grade bonds has
some speculative characteristics and instruments with such ratings are subject
to greater fluctuations in value than more highly rated instruments as economic
conditions change. The Equity Trust is not required to dispose of such
instruments in the event they are downgraded. It may also maintain amounts in
cash or short-term debt securities pending selection of investments in
accordance with its policies.
The Equity Trust will invest primarily in securities listed on national
securities exchanges, but from time to time it may also purchase securities
traded in the "over the counter" market. The Equity Trust will be subject to
certain risks as a result of its ability to invest up to 20% of its assets in
foreign securities. These risks are described under the caption "Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "Taxes" in this
Prospectus.
Use of Hedging and Other Strategic Transactions
The Equity Trust is currently authorized to use all of the various
investment strategies referred to under "RISK FACTORS -- Hedging and Other
Strategic Transactions." However, it is not presently anticipated that any of
these strategies will be used to a significant degree by the portfolio. The
Statement of Additional Information contains a description of these strategies
and of certain risks associated therewith.
QUANTITATIVE EQUITY TRUST
The investment objective of the Quantitative Equity Trust (prior to
December 31, 1996, the "Common Stock Trust") is to achieve intermediate and
long-term growth through capital appreciation and current income by investing in
common stocks and other equity securities of well established companies with
promising prospects for providing an above average rate of return. MAC manages
the Quantitative Equity Trust.
In pursuit of its objective, the Quantitative Equity Trust will invest
principally in common stocks or in securities convertible into common stocks or
carrying rights or warrants to purchase common stock or to participate in
earnings. In selecting investments, emphasis will be placed on companies with
good financial resources, strong balance sheet, satisfactory rate of return on
capital, good industry position, superior management skills, and earnings that
tend to grow at above average rates. The Trust's investments are not limited to
any particular type or size of company, but high-quality growth and income
stocks are emphasized.
Investments will be made primarily in securities listed on national
securities exchanges, but the Trust may purchase securities traded in the United
States over-the-counter market. When, in the opinion of management, market or
economic conditions warrant a defensive posture, the Trust may place all
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or a portion of its assets in fixed-income securities. The Trust may also
maintain a portion of its assets in cash or short-term debt securities pending
selection of particular long-term investments. The Trust may purchase securities
on a forward-commitment, when-issued or delayed-delivery basis.
The Quantitative Equity Trust will be subject to certain risks as a
result of its ability to invest up to 100% of its total assets in the following
types of foreign securities: (i) U.S. dollar denominated obligations of foreign
branches of U.S. banks, (ii) securities represented by ADRs listed on a national
securities exchange or traded in the U.S. over-the-counter market, (iii)
securities of a corporation organized in a jurisdiction other than the U.S. and
listed on the New York Stock Exchange or NASDAQ or (iv) securities denominated
in U.S. dollars but issued by non U.S. issuers and issued under U.S. federal
securities regulations (for example, U.S. dollar denominated obligations issued
or guaranteed as to principal or interest by the Government of Canada or any
Canadian Crown agency). These risks are described under the caption "RISK
FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as described
under "GENERAL INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions The Quantitative Equity
Trust does not presently use any of the investment strategies referred to under
"Hedging and Other Strategic Transactions."
EQUITY INDEX TRUST
The investment objective of the Equity Index Trust is to achieve
investment results which approximate the total return of publicly traded common
stocks in the aggregate, as represented by the Standard & Poor's 500 Composite
Stock Price Index (the "Index"). MAC manages the Equity Index Trust.
The Equity Index Trust is designed to provide an economical and
convenient means of maintaining a widely diversified investment in the United
States equity market as part of an overall investment strategy. The portfolio
uses the Index as its standard performance comparison because it represents more
than 70% of the total market value of all publicly traded common stocks in the
United States and is widely viewed among investors as representative of the
performance of publicly traded common stocks in the United States.
The Index is composed of 500 selected common stocks, over 95% of which
are listed on the New York Stock Exchange. The Index is an unmanaged index of
common stock prices. The performance of the Index is based on changes in the
prices of stocks comprising the Index and assumes the reinvestment of all
dividends paid on such stocks. Taxes, brokerage, commissions and other fees are
disregarded in computing the level of the Index. Standard & Poor's selects the
stocks to be included in the Index on a proprietary basis but does incorporate
such factors as the market capitalization and trading activity of each stock and
its adequacy as representative of stocks in a particular industry group. Stocks
in the Index are weighted according to their market capitalization (i.e., the
number of shares outstanding multiplied by the stock's current price).(1)
The Index fluctuates in value with changes in the market value of the
500 stocks included in the Index at any point in time. An investment in the
Equity-Index Trust involves risks similar to the risks of investing directly in
the stocks included in the Index.
The Subadviser will not attempt to "manage" the Equity Index Trust in
the traditional portfolio management sense which generally involves the buying
and selling of securities based upon investment analysis of economic, financial
and market factors. Instead, the portfolio, utilizing a "passive" or "indexing"
investment approach, attempts to duplicate the performance of the Index. The
adverse financial situation of a company will not directly result in its
elimination from the portfolio unless, of course, the company in question is
removed from the Index. Conversely, the projected superior financial performance
of a company would not normally lead to an increase in the portfolio's holdings
of the company. Under normal circumstances, the net assets of the Equity Index
Trust will be invested in any
- ------------------
(1) "Standard & Poor's (R)", "S&P 500 (R)", "Standard & Poor's 500 (R) and "500"
are trademarks of McGraw-Hill, Inc.
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combination of the following investments: 1) representative common stocks, 2)
Standard & Poor's 500 Futures Contracts and 3) Standard & Poor's Depository
Receipts (R).
With regard to the portion of the Equity Index Trust invested in common
stocks, the method used to select investments for the portfolio involves
investing in common stocks in approximately the order of their respective market
value weightings in the Index, beginning with those having the highest
weightings. For diversification purposes, the portfolio can purchase stocks with
smaller weightings in order to represent other sectors of the Index. The
portfolio will invest only in those stocks, and in such amounts, as its
Subadviser deems necessary and appropriate in order for the portfolio to
approximate the performance of the Index.
There is no minimum or maximum number of stocks included in the Index
which the Equity Index Trust must hold. Under normal circumstances, it is
expected that the portion of the portfolio invested in stocks would hold between
300 and 500 different stocks included in the Index. The portfolio may compensate
for the omission of a stock that is included in the Index, or for purchasing
stocks in other than the same proportion that they are represented in the Index,
by purchasing stocks that are believed to have characteristics that correspond
to those of the omitted stocks. The portfolio may invest in short-term debt
securities to maintain liquidity or pending investment in stocks or Standard &
Poor's Stock Index Futures Contracts (S&P 500 Futures Contracts).
Tracking error is measured by the difference between the total return
for the Index and the total return for the portfolio after deductions of fees
and expenses. All tracking error deviations are reviewed to determine the
effectiveness of investment policies and techniques. Tracking error is reviewed
at least weekly and more frequently if such a review is indicated by significant
cash balance changes, market conditions or changes in the composition of the
Index. If deviation accuracy is not maintained, the Equity Index Trust will
rebalance its composition by selecting securities which, in the opinion of the
Subadviser, will provide a more representative sampling of the capitalization of
the securities in the Index as a whole or a more representative sampling of the
sector diversification in the Index.
S&P licenses certain trademarks and trade names to the Trust but
disclaims any responsibility or liability to the Trust and its shareholders. See
Appendix III for such disclaimer.
Use of Hedging and Other Strategic Transactions The Equity Index Trust
may (i) invest any portion of its net assets in S&P 500 Futures Contracts until
the portfolio reaches $25 million in net assets and (ii) once the portfolio
reaches $25 million in net assets, invest no more than 20% of its net assets in
S&P 500 Futures Contracts. A description of this investment strategy appears
under "RISK FACTORS --Hedging and Other Strategic Transactions" below in this
Prospectus and under "Hedging and Other Strategic Transactions" in the Statement
of Additional Information.
BLUE CHIP GROWTH TRUST
The primary investment objective of the Blue Chip Growth Trust (prior
to October 1, 1996, the "Pasadena Growth Trust") is to provide long-term growth
of capital. Current income is a secondary objective, and many of the stocks in
the portfolio are expected to pay dividends. T. Rowe Price manages the Blue Chip
Growth Trust.
The portfolio will invest at least 65% of its total assets in the
common stocks of large and medium-sized blue chip companies, as defined by T.
Rowe Price. These companies will be well established in their industries and
have the potential for above-average growth in earnings.
In identifying blue chip companies, T. Rowe Price will generally take
the following into consideration:
*Leading market positions. Blue chip companies often have leading market
positions that are expected to be maintained or enhanced over time.
Strong positions, particularly in growing industries, can give a company
pricing flexibility as well as the potential for good unit sales. These
factors, in turn, can lead to higher earnings growth and greater share
price appreciation.
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*Seasoned management teams. Seasoned management teams with a track
record of providing superior financial results are important for a
company's long-term growth prospects. T. Rowe Price analysts will
evaluate the depth and breadth of a company's management experience.
*Strong financial fundamentals. Companies should demonstrate faster
earnings growth than their competitors and the market in general; high
profit margins relative to competitors; strong cash flow; a healthy
balance sheet with relatively low debt; and a high return on equity
with a comparatively low dividend payout ratio.
Most of the assets of the portfolio will be invested in U.S. common
stocks. However, the portfolio may also purchase other types of securities, for
example, foreign securities, convertible stocks and bonds, and warrants, when
considered consistent with the portfolio's investment objective and program.
Investments in convertible securities, preferred stocks and debt securities are
limited to 25% of total assets. The portfolio will hold a certain portion of its
assets in U.S. and foreign dollar-denominated money market securities, including
repurchase agreements, in the two highest rating categories, maturing in one
year or less. For temporary, defensive purposes, the portfolio may invest
without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new investments
and serves as a short-term defense during periods of unusual market volatility.
T. Rowe Price analysts evaluate the growth prospects of companies and
the industries in which they operate. This approach seeks to identify companies
with strong market franchises in industries that appear to be strategically
poised for long-term growth. The investment approach reflects T. Rowe Price's
belief that the combination of solid company fundamentals (with emphasis on the
potential for above-average growth in earnings) along with a positive outlook
for the overall industry will ultimately reward investors with a higher stock
price. While primary emphasis is placed on a company's prospects for future
growth, the portfolio will not purchase securities that, in T. Rowe Price's
opinion, are overvalued considering the underlying business fundamentals. In the
search for substantial capital appreciation, the portfolio looks for stocks
attractively priced relative to their anticipated long-term value.
The Blue Chip Growth Trust may invest in debt securities of any type
without regard to quality or rating. Such securities would be purchased in
companies which meet the investment criteria for the portfolio. The total return
and yield of lower-quality (high-yield/high-risk) bonds, commonly referred to as
"junk" bonds, can be expected to fluctuate more than the total return and yield
of higher-quality, shorter-term bonds, but not as much as common stocks. Junk
bonds (those rated below BBB or in default) are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. The portfolio will not purchase a noninvestment-grade
debt security (or junk bond) if immediately after such purchase the portfolio
would have more than 5% of its total assets invested in such securities. See
"RISK FACTORS -- High Yield (High Risk) Securities" for further information.
The Blue Chip Growth Trust may also engage in a variety of investment
management practices, such as buying and selling futures and options. The
portfolio may invest up to 10% of its total assets in hybrid instruments, which
are a type of high-risk derivative which can combine the characteristics of
securities, futures and options. For example, the principal amount, redemption
or conversion terms of a security could be related to the market price of some
commodity, currency or securities index. Such securities may bear interest or
pay dividends at below market (or even relatively nominal) rates. The Statement
of Additional Information contains a fuller description of such instruments and
the risks associated therewith.
The Blue Chip Growth Trust will be subject to special risks as a result
of its ability to invest up to 20% of its total assets in foreign securities.
These include nondollar-denominated securities traded outside of the U.S. and
dollar-denominated securities of foreign issuers traded in the U.S. (such as
ADRs). These risks are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
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The Blue Chip Growth Trust is currently authorized to use all of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
REAL ESTATE SECURITIES TRUST
The investment objective of the Real Estate Securities Trust is to
achieve a combination of long-term capital appreciation and satisfactory current
income by investing in real estate related equity and debt securities. MAC
manages the Real Estate Securities Trust and seeks to attain this objective by
investing principally in real estate investment trust ("REIT") equity and debt
securities and other securities issued by companies which invest in real estate
or interests therein.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. Investing in
REITs involves the risks associated with real estate investing, such as risks
relating to declines in real estate values, deterioration in general and local
economic conditions, overbuilding and increased competition, increases in
operating expenses and increases in interest rates, as well as certain unique
risks, such as risks relating to heavy cash flow dependency, defaults by
borrowers, self-liquidation and the possibility of failing to qualify for
exemption from tax for distributed income under the Code or failing to maintain
exemption from regulation under the 1940 Act. REITs are dependent on management
skills, are not diversified and are subject to the risks of financing projects.
They may have limited financial resources, trade less frequently and in a
limited volume and be subject to more abrupt or erratic price movements than
securities of larger issuers.
The Real Estate Securities Trust may also purchase the common stocks,
preferred stocks, convertible securities and bonds of companies operating in
industry groups relating to the real estate industry. This would include
companies engaged in the development of real estate, building and construction,
and other market segments related to real estate. The portfolio will not invest
directly in real property nor will it purchase mortgage notes directly.
Under normal circumstances, at least 65% of the value of the Real
Estate Securities Trust's total assets will be invested in real estate related
equity and debt securities. When, in the opinion of the Subadviser, market or
economic conditions warrant a defensive posture, the portfolio may place all or
a portion of its assets in fixed-income securities which may or may not be real
estate debt related securities. The portfolio may also maintain a portion of its
assets in cash or short-term debt securities pending selection of particular
long-term investments. The portfolio may purchase securities on a
forward-commitment, when-issued or delayed-delivery basis. For a discussion of
these securities, please see the discussion under "When-Issued Securities
("Forward Commitments") below.
The Real Estate Securities Trust will be subject to certain risks as a
result of its ability to invest up to 100% of its total assets in the following
types of foreign securities: (i) U.S. dollar denominated obligations of foreign
branches of U.S. banks, (ii) securities represented by ADRs listed on a national
securities exchange or traded in the U.S. over-the-counter market, (iii)
securities of a corporation organized in a jurisdiction other than the U.S. and
listed on the New York Stock Exchange or NASDAQ or (iv) securities denominated
in U.S. dollars but issued by non U.S. issuers and issued under U.S. federal
securities regulations (for example, U.S. dollar denominated obligations issued
or guaranteed as to principal or interest by the Government of Canada or any
Canadian Crown agency). These risks are described under the caption "RISK
FACTORS --Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as described
under "GENERAL INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions The Real Estate
Securities Trust does not presently use any of the investment strategies
referred to under "Hedging and Other Strategic Transactions."
VALUE TRUST
The investment objective of the Value Trust is to realize an
above-average total return over a market cycle of three to five years,
consistent with reasonable risk. MAS manages the Value Trust and seeks to attain
this objective by investing primarily in common and preferred stocks,
convertible securities, rights and warrants to purchase common stocks, ADRs and
other equity securities of companies with equity capitalizations usually greater
than $300 million.
Under normal circumstances, the Value Trust will invest at least 65% of
its total assets in equity securities. The portfolio may also invest in
obligations issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities, corporate bonds, foreign bonds, zero coupons, repurchase
agreements, cash equivalents, foreign currencies, investment company securities
and derivatives, including when-issued or delayed delivery securities, forward
foreign currency exchange contracts, futures, options and swaps. See "INVESTMENT
POLICIES -- Other Instruments" and "HEDGING AND OTHER STRATEGIC TRANSACTIONS" in
the Statement of Additional Information.
The Subadviser's approach is to select equity securities which are
deemed to be undervalued relative to the stock market in general as measured by
the Standard & Poor's 500 Index, based on value measures such as price/earnings
ratios and price/book ratios, as well as fundamental research. While capital
return will be emphasized somewhat more than income return, the Value Trust's
total return will consist of both capital and income returns. Stocks that are
deemed to be under-valued in the marketplace have, under most market conditions,
provided higher dividend income returns than stocks that are deemed to have
long-term earnings growth potential which normally sell at higher price/earnings
ratios.
The Value Trust may invest without limit in ADRs and up to 5% of its
total assets in foreign equities excluding ADRs. The risks associated with
foreign securities are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Value Trust is currently authorized to use all of the various
investment strategies referred to under "Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
INTERNATIONAL GROWTH AND INCOME TRUST
The investment objective of the International Growth and Income Trust
is to seek long-term growth of capital and income. The portfolio is designed for
investors with a long-term investment horizon who want to take advantage of
investment opportunities outside the United States.
J.P. Morgan manages the International Growth and Income Trust and will
seek to achieve the portfolio's objective by investing, under normal
circumstances, at least 65% of its total assets in equity securities of foreign
issuers, consisting of common stocks and other securities with equity
characteristics such as preferred stock, warrants, rights and convertible
securities. The portfolio will focus primarily on the common stock of
established companies based in developed countries outside the United States
although it may invest up to 15% of its assets in emerging market securities.
Such investments will be made in at least three foreign countries. The portfolio
invests in securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets, and may
invest in certain restricted or unlisted securities. See "RISK FACTORS --
Foreign Securities." Under normal circumstances, the International Growth and
Income Trust expects to invest primarily in equity securities. However, the
portfolio may invest up to 35% of its assets in debt obligations of corporate or
sovereign or supranational organizations rated A or higher by Moody's or S&P, or
if unrated, of equivalent credit quality as determined by the Subadviser. See
"Global Government Bond Trust" for further information on supranational
organizations. Under normal circumstances, the portfolio will be invested
approximately 85% in equity securities and 15% in these fixed income securities.
This allocation, however, may change over time. J.P. Morgan may allocate the
portfolio's investment in these asset classes in a manner consistent with the
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portfolio's investment objective and current market conditions. Using a variety
of analytical tools, J.P. Morgan assesses the relative attractiveness of each
asset class and determines an optimal allocation between them. Yields on
non-U.S. equity securities tend to be lower than those on equity securities of
U.S. issuers. Therefore, current income from the portfolio may not be as high as
that available from a portfolio of U.S. equity securities.
In pursuing the International Growth and Income Trust's objective, J.P.
Morgan will actively manage the assets of the portfolio through country
allocation and stock valuation and selection. Based on fundamental research,
quantitative valuation techniques and experienced judgment, J.P. Morgan uses a
structured decision-making process to allocate the portfolio primarily across
the developed countries of the world outside the United States. This universe is
typically represented by the Morgan Stanley Europe, Australia and Far East Index
(the "EAFE Index").
Using a dividend discount model and based on analysts' industry
expertise, securities within each country are ranked within economic sectors
according to their relative value. Based on this valuation, J.P. Morgan selects
the securities which appear the most attractive for the portfolio. J.P. Morgan
believes that under normal market conditions, economic sector weightings
generally will be similar to those of the relevant equity index.
Finally, J.P. Morgan actively manages currency exposure, in conjunction
with country and stock allocation, in an attempt to protect and possibly enhance
the International Growth and Income Trust's market value. Through the use of
forward currency exchange contracts, J.P. Morgan will adjust the portfolio's
foreign currency weightings to reduce its exposure to currencies that the
Subadviser deems unattractive and, in certain circumstances, increase exposure
to currencies deemed attractive, as market conditions warrant, based on
fundamental research, technical factors and the judgment of a team of
experienced currency managers.
The International Growth and Income Trust intends to manage its
investment portfolio actively in pursuit of its investment objective. The
portfolio does not expect to trade in securities for short-term profits;
however, when circumstances warrant, securities may be sold without regard to
the length of time held. See "GENERAL INFORMATION -Taxes." To the extent the
portfolio engages in short-term trading, it may incur increased transaction
costs.
The International Growth and Income Trust may also invest in securities
on a when-issued or delayed delivery basis, enter into repurchase agreements,
loan its portfolio securities and purchase certain privately placed securities.
See "RISK FACTORS."
The International Growth and Income Trust may make money market
investments pending other investments or settlement or for liquidity purposes.
In addition, when J.P. Morgan believes that investing for defensive purposes is
appropriate, such as during periods of unusual or unfavorable market or
economics conditions, up to 100% of the portfolio's assets may be temporarily
invested in money market instruments. The money market investments permitted for
the portfolio include obligations of the U.S. Government and its agencies and
instrumentalities, other debt securities, commercial paper, bank obligations and
repurchase agreements, as described below under "Money Market Trust."
The International Growth and Income Trust will be subject to special
risks as a result of its ability to invest up to 100% of its assets in foreign
securities, including up to 15% in emerging market securities. These risks are
described under the captions "RISK FACTORS -- Foreign Securities" and
"INTERNATIONAL SMALL CAP TRUST - Foreign Securities." in this Prospectus.
Moreover, substantial investments in foreign securities may have adverse tax
implications as described under "GENERAL INFORMATION -- Taxes" in this
Prospectus. The ability to diversify its investments among the equity markets of
different countries may, however, reduce the overall level of market risk to the
extent it may reduce the portfolio's exposure to a single market. In order to
comply with limitations imposed by the State of California Insurance Department,
the International Growth and Income Trust will comply with the restrictions
regarding foreign investments set forth under "Risk Factors - Additional
Investment Restrictions on Borrowing and Foreign Investing."
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Use of Hedging and Other Strategic Transactions
The International Growth and Income Trust is currently authorized to
use all of the various investment strategies referred to under "RISK FACTORS --
Hedging and Other Strategic Transactions." With the exception of currency
transactions, however, it is not presently anticipated that any of these
strategies will be used to a significant degree by the portfolio. The Statement
of Additional Information contains a description of these strategies and of
certain risks associated therewith.
GROWTH AND INCOME TRUST
The investment objective of the Growth and Income Trust is to provide
long-term growth of capital and income consistent with prudent investment risk.
Wellington Management manages the Growth and Income Trust and seeks to
achieve the Trust's objective by investing primarily in a diversified portfolio
of common stocks of U.S. issuers which Wellington Management believes are of
high quality. Wellington Management believes that high quality is evidenced by a
leadership position within an industry, a strong or improving balance sheet,
relatively high return on equity, steady or increasing dividend payout and
strong management skills. The Trust's investments will primarily emphasize
dividends paying stocks of larger companies. The Trust may also invest in
securities convertible into or which carry the right to buy common stocks,
including those convertible securities issued in the Euromarket, preferred
stocks and debt securities. When market or financial conditions warrant a
temporary defensive posture, the Trust may, in order to reduce risk and achieve
attractive total investment return, invest up to 100% of its assets in
securities which are authorized for purchase by the Investment Quality Bond
Trust (excluding non-investment grade securities) or the Money Market Trust. The
Subadviser expects that under normal market conditions the Growth and Income
Trust will consist primarily of equity securities.
Investments will be selected on the basis of fundamental analysis to
identify those securities that, in Wellington Management's judgment, provide the
potential for long-term growth of capital and income. Fundamental analysis
involves assessing a company and its business environment, management, balance
sheet, income statement, anticipated earnings and dividends and other related
measures of value. When selecting securities of issuers domiciled outside of the
United States, Wellington Management will also monitor and evaluate the economic
and political climate and the principal securities markets of the country in
which each company is located.
The Growth and Income Trust will invest primarily in securities listed
on national securities exchanges, but from time to time it may also purchase
securities traded in the "over the counter" market.
The Growth and Income Trust will be subject to certain risks as a
result of its ability to invest up to 20% of its assets in foreign securities.
These risks are described under the caption "Foreign Securities" in this
Prospectus. Moreover, substantial investments in foreign securities may have
adverse tax implications as described under "Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Growth and Income Trust is currently authorized to use all of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions." However, it is not presently anticipated that any of these
strategies will be used to a significant degree by the portfolio. The Statement
of Additional Information contains a description of these strategies and of
certain risks associated therewith.
EQUITY-INCOME TRUST
The investment objective of the Equity-Income Trust (prior to December
31, 1996, the "Value Equity Trust") is to provide substantial dividend income
and also long term capital appreciation. T. Rowe Price manages the Equity-Income
Trust and seeks to attain this objective by investing primarily in
dividend-paying common stocks, particularly of established companies with
favorable prospects for both increasing dividends and capital appreciation.
Under normal circumstances, the Equity-Income Trust will invest at
least 65% of total assets in the common stocks of established companies paying
above-average dividends. T. Rowe Price believes
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that income can be a significant contributor to total return over time and
expects the portfolio's yield to be above that of the Standard & Poor's 500
Stock Index.
The Equity-Income Trust will generally consider companies with the
following characteristics:
-- Established operating histories;
-- Above-average current dividend yield relative to the average yield
of the S&P 500;
-- Low price/earnings ratios relative to the S&P 500;
-- Sound balance sheets and other financial characteristics;
-- Low stock price relative to a company's underlying value as measured
by assets, earnings, cash flow, or business franchises.
The Equity-Income Trust will tend to take a "value" approach and invest
in stocks and other securities that appear to be temporarily undervalued by
various measures, such as price/earnings ratios. Value investors seek to buy a
stock (or other security) when its price is low in relation to what they believe
to be its real worth or future prospects. By identifying companies whose stocks
are currently out of favor, value investors hope to realize significant
appreciation as other investors recognize the stock's intrinsic value and the
price rises accordingly. Finding undervalued stocks requires considerable
research to identify the particular stock, to analyze the company's underlying
financial condition and prospects, and to assess the likelihood that the stock's
underlying value will be recognized by the market and reflected in its price.
The Equity-Income Trust may also purchase other types of securities,
for example, foreign securities, preferred stocks, convertible stocks and bonds,
and warrants, when considered consistent with the portfolio's investment
objective and program. The portfolio will hold a certain portion of its assets
in U.S. and foreign dollar-denominated money market securities, including
repurchase agreements, in the two highest rating categories, maturing in one
year or less. For temporary, defensive purposes, the portfolio may invest
without limitation in such securities. This reserve position provides
flexibility in meeting redemptions, expenses, and the timing of new investments
and serves as a short-term defense during periods of unusual market volatility.
The Equity-Income Trust may also invest in debt securities of any type
including municipal securities without regard to quality or rating. The total
return and yield of lower-quality (high-yield/high-risk) bonds, commonly
referred to as "junk" bonds, can be expected to fluctuate more than the total
return and yield of higher-quality, shorter-term bonds, but not as much as
common stocks. Junk bonds (those rated below BBB or in default) are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. The portfolio will not purchase a
noninvestment-grade debt security (or junk bond) if immediately after such
purchase the portfolio would have more than 10% of its total assets invested in
such securities.
The Equity-Income Stock Trust may also engage in a variety of
investment management practices, such as buying and selling futures and options.
The portfolio may invest up to 10% of its total assets in hybrid instruments,
which are a type of high-risk derivative which can combine the characteristics
of securities, futures and options. For example, the principal amount,
redemption or conversion terms of a security could be related to the market
price of some commodity, currency or securities index. Such securities may bear
interest or pay dividends at below market (or even relatively nominal) rates.
The Statement of Additional Information contains a fuller description of such
instruments and the risks associated therewith.
The Equity-Income Trust will be subject to special risks as a result of
its ability to invest up to 25% of its total assets in foreign securities. These
include nondollar-denominated securities traded outside of the U.S. and
dollar-denominated securities of foreign issuers traded in the U.S. (such as
ADRs). These risks are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
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Use of Hedging and Other Strategic Transactions
The Equity-Income Trust is currently authorized to use all of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
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BALANCED TRUST
The investment objective of the Balanced Trust is current income and
capital appreciation. Founders is the manager of the Balanced Trust and seeks to
attain this objective by investing in a balanced portfolio of common stocks,
U.S. and foreign government obligations and a variety of corporate fixed-income
securities.
Normally, the Balanced Trust will invest a significant percentage (up
to 75%) of its total assets in common stocks, convertible corporate obligations,
and preferred stocks. The portfolio emphasizes investment in dividend-paying
common stocks with the potential for increased dividends, as well as capital
appreciation. The portfolio also may invest in non-dividend-paying companies if,
in Founders' opinion, they offer better prospects for capital appreciation.
The Balanced Trust may invest in convertible securities, preferred
stocks, bonds, debentures, and other corporate obligations when Founders
believes that these investments offer opportunities for capital appreciation.
Current income is also a factor in the selection of these securities.
The Balanced Trust will maintain a minimum of 25% of its total assets
in fixed-income, investment-grade securities rated Baa or higher by Moody's or
BBB or higher by S&P. There is, however, no limit on the amount of straight debt
securities in which the portfolio may invest. Up to 5% of the Balanced Trust's
total assets may be invested in lower-grade (Ba or less by Moody's, BB or less
by S&P) or unrated straight debt securities, generally referred to as junk
bonds, where Founders determines that such securities present attractive
opportunities. The portfolio will not invest in securities rated lower than B.
Securities rated B generally lack characteristics of a desirable investment and
are deemed speculative with respect to the issuer's capacity to pay interest
and repay principal over a long period of time.
The Balanced Trust may also invest in convertible corporate obligations
and preferred stocks. Convertible securities and preferred stocks purchased by
the portfolio may be rated in medium and lower categories by Moody's or S&P (Ba
or lower by Moody's and BB or lower by S&P) but will not be rated lower than B.
The portfolio may also invest in unrated convertible securities and preferred
stocks in instances in which Founders believes that the financial condition of
the issuer or the protection afforded by the terms of the securities limits risk
to a level similar to that of securities eligible for purchase by the portfolio
rated in categories no lower than B. At no time will the portfolio have more
than 5% of its total assets invested in any fixed-income securities which are
unrated or are rated below investment grade either at the time of purchase or as
a result of a reduction in rating after purchase. The portfolio is not required
to dispose of debt securities whose ratings are downgraded below these ratings
subsequent to the portfolio's purchase of the securities, unless such a
disposition is necessary to reduce the portfolio's holdings of such securities
to less than 5% of its total assets. See "RISK FACTORS -- High Yield (High Risk)
Securities." A description of the ratings used by Moody's and S&P is set forth
in Appendix I to the Prospectus.
Up to 100% of the assets of the Balanced Trust may be invested
temporarily in U.S. Government obligations, commercial paper, bank obligations,
repurchase agreements, and negotiable U.S. dollar-denominated obligations of
domestic and foreign branches of U.S. depository institutions, U.S. branches of
foreign depository institutions, and foreign depository institutions, in cash,
or in other cash equivalents, if Founders determines it to be appropriate for
purposes of enhancing liquidity or preserving capital in light of prevailing
market or economic conditions. The portfolio may also acquire certificates of
deposit and bankers' acceptances of banks which meet criteria established by the
Trust's Board of Trustees. While the portfolio is in a defensive position, the
opportunity to achieve capital growth will be limited, and, to the extent that
this assessment of market conditions is incorrect, the portfolio will be
foregoing the opportunity to benefit from capital growth resulting from
increases in the value of equity investments.
The Balanced Trust may invest without limit in ADRs and up to 30% of
its total assets in foreign securities (other than ADRs). The portfolio will not
invest more than 25% of its total assets in the securities of any one country.
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The Balanced Trust will be subject to special risks as a result of its
ability to invest up to 30% of its total assets in foreign securities, excluding
ADRs. These risks are described under the caption "RISK FACTORS --Foreign
Securities" in this Prospectus. Moreover, substantial investments in foreign
securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Balanced Trust is currently authorized to use all of the various
investment strategies referred to under "Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
HIGH YIELD TRUST
The investment objective of the High Yield Trust is to realize an
above-average total return over a market cycle of three to five years,
consistent with reasonable risk. MAS manages the High Yield Trust and seeks to
attain this objective by investing primarily in high yield debt securities,
including corporate bonds and other fixed-income securities.
The High Yield Trust expects to achieve its objective through
maximizing current income, although the portfolio may seek capital growth
opportunities when consistent with its objective. The portfolio's average
weighted maturity ordinarily will be greater than five years. Under normal
circumstances, the portfolio will invest at least 65% of the value of its total
assets in high yield debt securities.
High yield securities are generally considered to include corporate
bonds, preferred stocks and convertible securities rated Ba through C by Moody's
or BB through D by S&P, and unrated securities considered to be of equivalent
quality. Securities rated less than Baa by Moody's or BBB by S&P's are
classified as non-investment grade securities and are commonly referred to as
junk bonds or high yield securities. Such securities carry a high degree of risk
and are considered speculative by the major credit rating agencies.
While such securities offer high yields, they also normally carry with
them a greater degree of risk than securities with higher ratings. Lower-rated
bonds are considered speculative by traditional investment standards. High yield
securities may be issued as a consequence of corporate restructuring or similar
events. Also, high yield securities are often issued by smaller, less credit
worthy companies, or by highly leveraged (indebted) firms, which are generally
less able than more established or less leveraged firms to make scheduled
payments of interest and principal. The price movement of these securities is
influenced less by changes in interest rates and more by the financial and
business position of the issuing corporation when compared to investment grade
bonds. The risks posed by securities issued under such circumstances are
substantial. If a security held by the portfolio is down-graded, the portfolio
may retain the security. See "RISK FACTORS -- High Yield (High Risk)
Securities." A description of the ratings used by Moody's and S&P is set forth
in Appendix I to the Prospectus.
The Subadviser's approach is to use equity and fixed-income valuation
techniques and analyses of economic and industry trends to determine portfolio
structure. Individual securities are selected and monitored by fixed-income
portfolio managers who specialize in credit analysis of fixed-income securities
and use in-depth financial analysis to uncover opportunities in undervalued
issues. The Subadviser seeks to invest in high yield securities based on the
Subadviser's analysis of economic and industry trends and individual security
characteristics. The Subadviser conducts credit analysis for each security
considered for investment to evaluate its attractiveness relative to its risk. A
high level of diversification is also maintained to limit credit exposure to
individual issuers.
One of two primary components of the Subadviser's fixed-income strategy
is value investing, whereby the Subadviser seeks to identify undervalued sectors
and securities through analysis of credit quality, option characteristics and
liquidity. Quantitative models are used in conjunction with judgment and
experience to evaluate and select securities with embedded put or call options
(options which are part of the security) which are attractive on a risk- and
option-adjusted basis. Successful value investing will permit a portfolio to
benefit from the price appreciation of individual securities during periods when
interest rates are unchanged.
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The other primary component of the Subadviser's fixed-income investment
strategy is maturity and duration management. The maturity and duration
structure of a portfolio investing in fixed-income securities is actively
managed in anticipation of cyclical interest rate changes. Adjustments are not
made in an effort to capture short-term, day-to-day movements in the market, but
instead are implemented in anticipation of longer term shifts in the levels of
interest rates. Adjustments made to shorten portfolio maturity and duration are
made to limit capital losses during periods when interest rates are expected to
rise. Conversely, adjustments made to lengthen maturity are intended to produce
capital appreciation in periods when interest rates are expected to fall. The
foundation for maturity and duration strategy lies in analysis of the U.S. and
global economies, focusing on levels of real interest rates, monetary and fiscal
policy actions, and cyclical indicators.
At times it is anticipated that greater than 50% of High Yield Trust's
assets may be invested in mortgage-backed securities. These include securities
which represent pools of mortgage loans made by lenders such as commercial
banks, savings and loan associations, mortgage bankers and others. The pools are
assembled by various Governmental, Government-related and private organizations.
It is expected that the portfolio's primary emphasis will be in mortgage-backed
securities issued by the various Government-related organizations. However, the
portfolio may invest, without limit, in mortgage-backed securities issued by
private issuers when the Subadviser deems that the quality of the investment,
the quality of the issuer, and market conditions warrant such investments.
Securities issued by private issuers will be rated investment grade by Moody's
or Standard & Poor's or be deemed by the Subadviser to be of comparable
investment quality. It is not anticipated that greater than 25% of a portfolio's
assets will be invested in mortgage pools comprised of private organizations.
See "INVESTMENT POLICIES -- Other Instruments" in the Statement of Additional
Information for a description of these investments and of certain risks
associated therewith.
The High Yield Trust will invest in foreign bonds and other fixed
income securities denominated in foreign currencies, where, in the opinion of
the Subadviser, the combination of current yield and currency value offer
attractive expected returns. Foreign securities in which the portfolio may
invest include emerging market securities. The Subadviser's approach to emerging
markets investing is based on the Subadviser's evaluation of both short-term and
long-term international economic trends and the relative attractiveness of
emerging markets and individual emerging market securities. Emerging markets
describes any country which is generally considered to be an emerging, or
developing country by the international financial community such as the
International Bank for Reconstruction and Development (more commonly known as
the World Bank) and the International Finance Corporation. Securities available
to the portfolio also include securities created through the Brady Plan, a
program under which heavily indebted countries have restructured their bank debt
into bonds.
The High Yield Trust will be subject to special risks as a result of
its ability to invest up to 100% of its total assets in foreign securities,
including emerging market securities. These risks, including the risks of the
possible increased likelihood of expropriation or the return to power of a
communist regime which would institute policies to expropriate, nationalize or
otherwise confiscate investments, are described under the caption "RISK FACTORS
- --Foreign Securities" in this Prospectus. Moreover, substantial investments in
foreign securities may have adverse tax implications as described under "GENERAL
INFORMATION --Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The High Yield Trust is currently authorized to use all of the various
investment strategies referred to under "Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
AUTOMATIC ASSET ALLOCATION TRUSTS
There are three Automatic Asset Allocation Trusts - Aggressive,
Moderate and Conservative. The investment objective of each of the Automatic
Asset Allocation Trusts is to obtain the highest potential total return
consistent with a specified level of risk tolerance -- aggressive, moderate and
conservative. Currently, the risk tolerance levels--aggressive, moderate and
conservative--of the Asset Allocation Trusts are defined in terms of limiting
the decline in portfolio value in very adverse market conditions. The definition
of a risk tolerance level is not a fundamental policy and, therefore, can be
changed by the Trustees at any time. The Automatic Asset Allocation Trusts are
designed for:
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* The investor who wants to maximize total return potential, but lacks
the time, temperament or expertise to do so effectively;
* The investor who does not want to monitor the financial markets in
order to make periodic exchanges among portfolios;
* The investor who wants the opportunity to improve on the return of an
income-oriented investment program, but wants to take advantage of the
risk management features of an asset allocation program; and
* Retirement program fiduciaries who have a responsibility to limit risk
in a meaningful way, while seeking the highest potential total return.
Each of the Automatic Asset Allocation Trusts may invest in a
combination of equity, fixed-income and money market securities. The amount of
each portfolio's assets invested in each category of securities is dependent
upon the judgment of FMTC as to what percentages of each portfolio's assets in
each category will contribute to the limitation of risk and the achievement of
its investment objective. Unlike many asset allocation and timing services
offered by competitors, the Automatic Asset Allocation Trusts permit FMTC to
reallocate each portfolio's assets among the categories of securities
"automatically," without a delay for a request or response by the shareholder,
whenever, in the Subadviser's judgment, market or economic changes warrant such
a reallocation. FMTC reserves complete discretion to determine the allocations
among the categories of securities.
The investor chooses an Automatic Asset Allocation Trust by determining
which risk tolerance level most closely corresponds to the investor's individual
planning needs, objectives and comfort. Generally, the higher the portfolio's
level of risk tolerance, the higher is the expected total return for the
portfolio over the long-term and under favorable market conditions. Over the
long-term, it is expected that the total return of the Aggressive Asset
Allocation Trust will exceed that of the Moderate Asset Allocation Trust and
that the total return of the Moderate Asset Allocation Trust will exceed that of
the Conservative Asset Allocation Trust, although there is no assurance that
this will be the case. Moreover, as a general matter, the higher the risk
tolerance of a portfolio, the greater is the expected volatility of the
portfolio. In adverse market conditions, it is expected that the losses will be
greater in the Aggressive Asset Allocation Trust than in the Moderate Asset
Allocation Trust and greater in the Moderate Asset Allocation Trust than in the
Conservative Asset Allocation Trust, although again there is no assurance that
this will be the case.
FMTC attempts to limit the maximum amount of decline in value each
portfolio incurs under very adverse market conditions, to define the level of
risk tolerance -- aggressive, moderate or conservative. Very adverse market
conditions are defined as a substantial increase in long-term interest rates
accompanied by a similarly substantial decline in one or more commonly-followed
stock market indices over a three year period. Of course, FMTC cannot predict
with certainty when adverse market conditions will arise. Consequently, FMTC
must manage each of the Automatic Asset Allocation Trusts under all market
conditions with a view toward limiting risk and portfolio decline should very
adverse market conditions arise. For example, since the Conservative Asset
Allocation Trust has the lowest risk tolerance level, its assets under all
market conditions will be invested less aggressively (i.e., with greater
emphasis on fixed-income securities and money market instruments) than those of
the other Automatic Asset Allocation Trusts. In addition, when market conditions
deteriorate (the probability of very adverse market conditions rises), FMTC will
give greater emphasis to fixed-income securities and money market instruments in
an effort to limit overall declines in portfolio value.
An investor should select an Automatic Asset Allocation Trust depending
on his or her objective in terms of balancing the potential long-term total
returns of a portfolio against limiting risk and portfolio declines in very
adverse market conditions. There can be no assurance that actual declines in
portfolio value will not exceed the percentage limitations set forth below in
the description of each portfolio.
THE AGGRESSIVE ASSET ALLOCATION TRUST
The investment objective of the Aggressive Asset Allocation Trust is to
seek the highest total return consistent with an aggressive level of risk
tolerance. This Trust attempts to limit the decline in portfolio value in very
adverse market conditions to 15% in any three year period. This Trust will tend
to invest a greater portion of its assets in equity and foreign securities than
the Moderate and Conservative Asset Allocation Trusts and a lower percentage of
its assets in fixed-income securities and money market instruments than such
Trusts. FMTC will invest the Aggressive Asset Allocation Trust's assets to
attempt to produce a total return competitive with that of equity funds, while
at the same time exposing the Trust's assets to less risk
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than the typical aggressive equity fund by allocating a portion of the
portfolio's assets to fixed-income securities and money market instruments.
There can be no assurance that FMTC will be able to attain this objective.
THE MODERATE ASSET ALLOCATION TRUST
The investment objective of the Moderate Asset Allocation Trust is to
seek the highest total return consistent with a moderate level of risk
tolerance. This Trust attempts to limit the decline in portfolio value in very
adverse market conditions to 10% over any three year period. The amount of the
Moderate Asset Allocation Trust's assets invested in each category of securities
will depend on the judgment of FMTC as to what relative portions of the
portfolio's assets in each category will contribute to the achievement of its
objective. Generally, it will place greater emphasis on equity and foreign
securities than the Conservative Asset Allocation Trust but more emphasis on
fixed-income securities and money market instruments than the Aggressive Asset
Allocation Trust. FMTC will invest the Moderate Asset Allocation Trust's assets
to attempt to give the portfolio a substantial participation in favorable equity
and bond markets, although the expected total return will not necessarily exceed
the best returns available from either of those markets.
THE CONSERVATIVE ASSET ALLOCATION TRUST
The investment objective of the Conservative Asset Allocation Trust is
to seek the highest total return consistent with a conservative level of risk
tolerance. This Trust attempts to limit the decline in portfolio value in very
adverse market conditions to 5% over any three year period. This Trust will tend
to invest a greater portion of its assets in fixed-income securities and money
market instruments than the Moderate and Aggressive Asset Allocation Trusts and
a lower percentage of its assets in equity and foreign securities than such
Trusts. FMTC will attempt to invest the Conservative Asset Allocation Trust's
assets in order to produce a higher total return than that which is available
from a bond or a money market portfolio alone, although there can be no
assurance that FMTC will be able to attain this objective.
The types and characteristics of equity securities to be purchased by
the Automatic Asset Allocation Trusts are set forth above in the discussion of
investment objectives and policies for the Equity Trust; the types and
characteristics of the fixed-income securities to be purchased are set forth in
the discussion of investment objectives and policies for the Investment Quality
Bond (the Automatic Asset Allocation Trusts may not invest in below investment
grade securities except as noted below) and U.S. Government Securities Trusts;
and the types and characteristics of the money market securities to be purchased
are set forth in the discussion of investment objectives of the Money Market
Trust. Potential investors should review the discussion therein in considering
an investment in shares of the Automatic Asset Allocation Trusts.
The Aggressive Asset Allocation Trust and the Moderate Asset Allocation
Trust may each invest up to 10% of their assets in domestic and foreign high
yield corporate and government debt securities, commonly known as "junk bonds"
(i.e., rated "Ba" or below by Moody's or "BB" or below by S & P, or if unrated,
of comparable quality as determined by FMTC. Domestic and foreign high yield
debt securities involve comparatively greater risks, including price volatility
and risk of default in the payment of interest and principal, than higher
quality securities. See "RISK FACTORS -- High Yield (High Risk) Securities" for
further information.
Use of Hedging and Other Strategic Transactions
The Automatic Asset Allocation Trusts are currently authorized to use
all of the various investment strategies referred to under "Hedging and Other
Strategic Transactions." The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith. The
Aggressive Asset Allocation Trust may invest up to 35% of its assets, the
Moderate Asset Allocation Trust may invest up to 25% of its assets and the
Conservative Allocation Trust may invest up to 15% of its assets in securities
issued by foreign entities and/or denominated in foreign currencies. The
Automatic Asset Allocation Trusts will be subject to certain risks as a result
of their ability to invest in foreign securities. These risks are described
under the caption "Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as described
under "Taxes" in this Prospectus. In order to comply with limitations imposed by
the State of California Insurance Department, the Aggressive and Moderate Asset
Allocation Trusts will comply with the restrictions regarding foreign
investments set forth under "Risk Factors - Additional Investment Restrictions
on Borrowing and Foreign Investing."
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STRATEGIC BOND TRUST
The investment objective of the Strategic Bond Trust is to seek a high
level of total return consistent with preservation of capital.
The Strategic Bond Trust seeks to achieve its objective by giving its
Subadviser, SBAM, broad discretion to deploy the Strategic Bond Trust's assets
among certain segments of the fixed-income market as SBAM believes will best
contribute to the achievement of the portfolio's objective. At any point in
time, the Subadviser will deploy the portfolio's assets based on the
Subadviser's analysis of current economic and market conditions and the relative
risks and opportunities present in the following market segments: U.S.
Government obligations, investment grade domestic corporate debt, high yield
(high risk) corporate debt securities, mortgage backed securities and investment
grade and high yield international debt securities. The Subadviser is an
affiliate of Salomon Brothers Inc. ("SBI"), and in making investment decisions
is able to draw on the research and market expertise of SBI with respect to
fixed-income securities.
In pursuing its investment objective, the Strategic Bond Trust may
invest without limitation in high yield (high risk) securities. High yield
securities, commonly known as "junk bonds", also present a high degree of risk.
High-yielding, lower-quality securities involve comparatively greater risks,
including price volatility and the risk of default in the timely payment of
interest and principal, than higher-quality securities. Due to the risks
inherent in certain of the securities in which the Strategic Bond Trust may
invest, an investment in the portfolio should not be considered as a complete
investment program and may not be appropriate for all investors. See "Risk
Factors--High Yield (High Risk) Securities."
The Subadviser will determine the amount of assets to be allocated to
each type of security in which it invests based on its assessment of the maximum
level of total return that can be achieved from a portfolio which is invested in
these securities without incurring undue risks to principal value. In making
this determination, the Subadviser will rely in part on quantitative analytical
techniques that measure relative risks and opportunities of each type of
security based on current and historical economic, market, political and
technical data for each type of security, as well as on its own assessment of
economic and market conditions both on a global and local (country) basis. In
performing quantitative analysis, the Subadviser will employ prepayment analysis
and option adjusted spread technology to evaluate mortgage securities, mean
variance optimization models to evaluate international debt securities, and
total rate of return analysis to measure relative risks and opportunities in
other fixed-income markets. Economic factors considered will include current and
projected levels of growth and inflation, balance of payment status and monetary
policy. The allocation of assets to international debt securities will further
be influenced by current and expected currency relationships and political and
sovereign factors. The portfolio's assets may not always be allocated to the
highest yielding securities if the Subadviser feels that such investments would
impair the portfolio's ability to preserve shareholder capital. The Subadviser
will continuously review this allocation of assets and make such adjustments as
it deems appropriate. The portfolio does not plan to establish a minimum or a
maximum percentage of the assets which it will invest in any particular type of
fixed-income security.
In addition, the Subadviser will have discretion to select the range of
maturities of the various fixed-income securities in which the portfolio
invests. Such maturities may vary substantially from time to time depending on
economic and market conditions.
The types and characteristics of the U.S. Government obligations,
mortgage-backed securities, investment grade corporate debt securities and
investment grade international debt securities to be purchased are set forth in
the discussion of investment objectives and policies for the Investment Quality
Bond, U.S. Government Securities and Global Government Bond Trusts, and in the
section entitled "Other Investments" in the Statement of Additional Information;
and the types and characteristics of the money market securities to be purchased
are set forth in the discussion of investment objectives of the Money Market
Trust. Potential investors should review the discussion therein in considering
an investment in shares of the Strategic Bond Trust. As described below, the
Strategic Bond Trust may also invest in high yield domestic and foreign debt
securities.
The Strategic Bond Trust will be subject to special risks as a result
of its ability to invest up to 100% of its assets in foreign securities. These
risks are described under the captions "Risk Factors--High Yield (High Risk)
Securities" and "Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as described
under "Taxes" in this Prospectus. The
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ability to spread its investments among the fixed-income markets in a number of
different countries may, however, reduce the overall level of market risk to the
extent it may reduce the Strategic Bond Trust's exposure to a single market. In
order to comply with limitations imposed by the State of California Insurance
Department, the Strategic Bond Trust will comply with the restrictions regarding
foreign investments set forth under "Risk Factors - Additional Investment
Restrictions on Borrowing and Foreign Investing."
The Strategic Bond Trust currently intends to invest substantially all
of its assets in fixed-income securities. In order to maintain liquidity,
however, the Strategic Bond Trust may invest up to 20% of its assets in
high-quality short-term money market instruments. If at some future date, in the
opinion of the Subadviser, adverse conditions prevail in the market for
fixed-income securities, the Strategic Bond Trust for temporary defensive
purposes may invest its assets without limit in high-quality short-term money
market instruments.
As discussed above, the Strategic Bond Trust may invest in U.S.
dollar-denominated securities issued by domestic issuers that are rated below
investment grade or of comparable quality. Although the Subadviser does not
anticipate investing in excess of 75% of the portfolio's assets in domestic and
developing country debt securities that are rated below investment grade, the
portfolio 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. By investing a portion of the portfolio's assets in
securities rated below investment grade, as well as through investments in
mortgage securities and international debt securities, as described below, the
Subadviser expects to provide investors with a higher yield than a high-quality
domestic corporate bond fund while at the same time presenting less risk than a
fund that invests principally in securities rated below investment grade.
Certain of the debt securities in which the portfolio may invest may have, or be
considered comparable to securities having, the lowest ratings for
non-subordinated debt instruments assigned by Moody's or S&P (i.e., rated C by
Moody's or CCC or lower by S&P). See "Risk Factors--High Yield (High Risk)
Securities--General."
In light of the risks associated with high yield corporate and
sovereign debt securities, the Subadviser will take various factors into
consideration in evaluating the credit worthiness of an issue. For corporate
debt securities, these will typically include the issuer's financial resources,
its sensitivity to economic conditions and trends, the operating history of the
issuer, and the experience and track record of the issuer's management. For
sovereign debt instruments, these will typically include the economic and
political conditions within the issuer's country, the issuer's overall and
external debt levels and debt service ratios, the issuer's access to capital
markets and other sources of funding, and the issuer's debt service payment
history. The Subadviser will also review the ratings, if any, assigned to the
security by any recognized rating agencies, although the Subadviser's judgment
as to the quality of a debt security may differ from that suggested by the
rating published by a rating service. The Strategic Bond Trust's ability to
achieve its investment objective may be more dependent on the Subadviser's
credit analysis than would be the case if it invested in higher quality debt
securities.
A description of the ratings used by Moody's and S&P is set forth in
Appendix I to this Prospectus.
In addition to the types of international debt securities as set forth
in the discussion of investment objectives and policies of the Global Government
Bond Trust, the Strategic Bond Trust may also invest in international debt
securities that are below investment grade.
The high yield sovereign debt securities in which the Strategic Bond
Trust may invest are U.S. dollar-denominated and non-dollar-denominated debt
securities issued or guaranteed by governments or governmental entities of
developing and emerging countries. The Subadviser expects that these countries
will consist primarily of those which have issued or have announced plans to
issue Brady Bonds, but the portfolio is not limited to investing in the debt of
such countries. Brady Bonds are debt securities issued under the framework of
the Brady Plan, an initiative announced by U.S. Treasury Secretary Nicholas F.
Brady in 1989 as a mechanism for debtor nations to restructure their outstanding
external indebtedness. The Subadviser anticipates that the portfolio's initial
investments in sovereign debt will be concentrated in Latin American countries,
including Mexico and Central and South American and Caribbean countries. The
Subadviser expects to take advantage of additional opportunities for investment
in the debt of North African countries, such as Nigeria and Morocco, Eastern
European countries, such as Poland and Hungary, and Southeast Asian countries,
such as the Philippines. Sovereign governments may include national, provincial,
state, municipal or other foreign governments with taxing authority.
Governmental entities may include the agencies and instrumentalities of such
governments, as well as state-owned enterprises.
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Use of Hedging and Other Strategic Transactions
The Strategic Bond Trust is currently authorized to use all of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions." With the exception of currency transactions, however, it is not
presently anticipated that any of these strategies will be used to a significant
degree by the portfolio. The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith.
GLOBAL GOVERNMENT BOND TRUST
The investment objective of the Global Government Bond Trust is to seek
a high level of total return by placing primary emphasis on high current income
and the preservation of capital. Oechsle International manages the Global
Government Bond Trust and intends to pursue this objective by investing
primarily in a selected global portfolio of high-quality, fixed-income
securities of foreign and U.S. governmental entities and supranational issuers.
Oechsle International will select the Global Government Bond Trust's
assets from among countries and in currency denominations where opportunities
for total return are expected to be the most attractive. Fundamental economic
strength, credit quality, and currency and interest rate trends will be the
principal determinants of the various country and sector weightings within the
Global Government Bond Trust. The Global Government Bond Trust may substantially
invest in one or more countries but intends to have represented in its portfolio
securities from a number of different countries, although there is no limit on
the value of the portfolio's assets that may be invested in any one country or
in assets denominated in any one country's currency. Moreover, the Global
Government Bond Trust may for temporary defensive purposes choose to invest
substantially all its assets in U.S. securities or cash and cash items.
The Global Government Bond Trust, unlike the other portfolios of the
Trust, is non-diversified for purposes of the Investment Company Act of 1940.
Due to its status as non-diversified, the Global Government Bond Trust is not
subject to the general limitation under the Investment Company Act of 1940 that
it not invest more than 5% of its total assets in the securities of a single
issuer. The Global Government Bond Trust has elected non-diversified status so
that it may invest more than 5% of its assets in the obligations of a foreign
government and this practice may expose the Global Government Bond Trust to
increased financial and market risks. While non-diversified for purposes of the
Investment Company Act of 1940, the Global Government Bond Trust remains subject
to certain diversification requirements imposed under the Internal Revenue Code
which are described under the caption "Taxes" in this Prospectus.
The Global Government Bond Trust will generally invest at least 65% of
its assets in the following investments: (i) debt obligations issued or
guaranteed by the U.S. government or one of its agencies or political
subdivisions; (ii) debt obligations issued or guaranteed by a foreign sovereign
government or one of its agencies or political subdivisions; (iii) debt
obligations issued or guaranteed by supranational organizations. 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. Investments in multi-currency,
debt securities will be limited to those assigned within the four highest bond
ratings by Moody's or S&P or, if not rated, that are of equivalent investment
quality as determined by Oechsle International. The Global Government Bond Trust
may also invest up to 35% of its assets in (i) corporate debt securities
assigned within the three highest bond ratings by Moody's or S&P or, if not
rated, that are of equivalent investment quality as determined by Oechsle
International, (ii) preferred stocks and (iii) securities convertible into or
exercisable for common stocks. In addition, the Global Government Bond Trust
will hold short-term cash reserves (money market instruments maturing in a
period of thirteen months or less) as Oechsle International believes is
advisable to maintain liquidity or for temporary defensive purposes. Reserves
may be held in any currency deemed attractive by Oechsle International.
Oechsle International intends to invest in fixed-income securities in
countries where the combination of fixed-income market returns and exchange rate
movements is judged to be attractive. Oechsle International will actively manage
the Global Government Bond Trust's maturity structure according to its
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interest rate outlook for each foreign economy. In response to rising interest
rates and falling prices, the Global Government Bond Trust may invest in
securities with shorter maturities to protect its principal value. Conversely,
when certain interest rates are falling and prices are rising, the Global
Government Bond Trust may invest in securities with longer maturities to take
advantage of higher yields and to seek capital appreciation. The Global
Government Bond Trust will seek to invest in countries having favorable currency
and interest rate trends. Investments in countries where the currency trend is
unfavorable may be made when the currency risk can be minimized through hedging.
The Global Government Bond Trust does not intend to invest in longer-term fixed
income securities in countries where the fixed income market is fundamentally
unattractive, regardless of the currency trend, but may invest in short-term
fixed income securities in such countries.
Use of Hedging and Other Strategic Transactions
The Global Government Bond Trust is currently authorized to use all of
the various investment strategies referred to under "Hedging and Other Strategic
Transactions." With the exception of currency transactions, however, it is not
presently anticipated that any of these strategies will be used to a significant
degree by the portfolio. The Statement of Additional Information contains a
description of these strategies and of certain risks associated therewith. The
Global Government Bond Trust will be subject to special risks as a result of its
ability to invest up to 100% of its assets in foreign securities. These risks
are described under the caption "Foreign Securities" in this Prospectus.
Moreover, substantial investments in foreign securities may have adverse tax
implications as described under "Taxes" in this Prospectus. The ability to
spread its investments among the fixed-income markets in a number of different
countries may, however, reduce the overall level of market risk to the extent it
may reduce the Global Government Bond Trust's exposure to a single market. In
order to comply with limitations imposed by the State of California Insurance
Department, the Global Government Bond Trust will comply with the restrictions
regarding foreign investments set forth under "Risk Factors - Additional
Investment Restrictions on Borrowing and Foreign Investing."
CAPITAL GROWTH BOND TRUST
The investment objective of the Capital Growth Bond Trust is to achieve
growth of capital by investing in medium-grade or better debt securities, with
income as a secondary consideration. MAC manages the Capital Growth Bond Trust.
The Capital Growth Bond Trust differs from most "bond" funds in that
its primary objective is capital appreciation, not income. Opportunities for
capital appreciation will usually exist only when the levels of prevailing
interest rates are falling. During periods when MAC expects interest rates to
decline, the portfolio will invest primarily in intermediate-term and long-term
corporate and government debt securities. However, during periods when the
Subadviser expects interest rates to rise or believes that market or economic
conditions otherwise warrant such action, the portfolio may invest substantially
all of its assets in short-term debt securities to preserve capital and maintain
income. The portfolio may also maintain a portion of its assets temporarily in
cash or short-term debt securities pending selection of particular long-term
investments.
The Capital Growth Bond Trust will be carefully positioned in relation
to the term of debt obligations and the anticipated movement of interest rates.
It is contemplated that at least 75% of the value of the portfolio's total
investment in corporate debt securities, excluding commercial paper, will be
represented by debt securities which have, at the time of purchase, a rating
within the four highest grades as determined by Moody's (Aaa, Aa, A or Baa),
S&P's (AAA, AA, A or BBB), or Fitch's Investors Service ("Fitch's") (AAA, AA, A
or BBB) and debt securities of banks and other issuers which, although not rated
as a matter of policy by either Moody's, S&P's, or Fitch's, are considered by
the Subadviser to have investment quality comparable to securities receiving
ratings within such four highest grades. Although the portfolio does not intend
to acquire or hold debt securities of below investment-grade quality,
shareholders should note that even bonds of the lowest categories of
investment-grade quality may have speculative characteristics, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with
higher-grade bonds. It should be further noted that should an obligation in the
portfolio drop below investment grade, the portfolio will make every effort to
dispose of it promptly so long as to do so would not be detrimental to the
portfolio.
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Government obligations in which the Capital Growth Bond Trust may
invest include those of foreign governments provided they are denominated in
U.S. dollars. The portfolio may purchase securities on a forward-commitment,
when-issued or delayed-delivery basis. See "RISK FACTORS - When-Issued
Securities" for additional information on this practice.
The Capital Growth Bond Trust may purchase corporate debt securities
which carry certain equity features, such as conversion or exchange rights or
warrants for the acquisition of stock of the same or a different issuer or
participations based on revenues, sales, or profits. The portfolio will not
exercise any such conversion, exchange or purchase rights if, at the time, the
value of all equity interests so owned would exceed 10% of the value of the
portfolio's total assets.
The Capital Growth Bond Trust will be subject to certain risks as a
result of its ability to invest up to 100% of its total assets in the following
types of foreign securities: (i) U.S. dollar denominated obligations of foreign
branches of U.S. banks, (ii) securities represented by American Depository
Receipts listed on a national securities exchange or traded in the U.S.
over-the-counter market, (iii) securities of a corporation organized in a
jurisdiction other than the U.S. and listed on the New York Stock Exchange or
NASDAQ ("Interlisted Securities") or (iv) securities denominated in U.S. dollars
but issued by non U.S. issuers and issued under U.S. federal securities
regulations (for example, U.S. dollar denominated obligations issued or
guaranteed as to principal or interest by the Government of Canada or any
Canadian Crown agency). These risks are described under the caption "RISK
FACTORS -- Foreign Securities" in this Prospectus. Moreover, substantial
investments in foreign securities may have adverse tax implications as described
under "GENERAL INFORMATION -- Taxes" in this Prospectus.
Use of Hedging and Other Strategic Transactions
The Capital Growth Bond Trust is currently authorized to use all of the
investment strategies referred to under "Hedging and Other Strategic
Transactions." However, it is not presently contemplated that any of these
strategies will be used to a significant degree by the portfolio.
INVESTMENT QUALITY BOND TRUST
The investment objective of the Investment Quality Bond Trust is to
provide a high level of current income consistent with the maintenance of
principal and liquidity.
Wellington Management manages the Investment Quality Bond Trust and
seeks to achieve the Trust's objective by investing primarily in a diversified
portfolio of investment grade corporate bonds and U.S. Government bonds with
intermediate to longer term maturities. Investment management will emphasize
sector analysis, which focuses on relative value and yield spreads among
security types and among quality, issuer, and industry sectors, call protection
and credit research. Credit research on corporate bonds is based on both
quantitative and qualitative criteria established by Wellington Management, such
as an issuer's industry, operating and financial profiles, business strategy,
management quality, and projected financial and business conditions. Wellington
Management will attempt to maintain a high, steady and possibly growing income
stream.
At least 65% of the Investment Quality Bond Trust's assets will be
invested in:
(1) marketable debt securities of domestic issuers and of foreign issuers
(payable in U.S. dollars) rated at the time of purchase "A" or better by Moody's
or S&P or, if unrated, of comparable quality as determined by Wellington
Management;
(2) securities issued or guaranteed as to principal or interest by the U.S.
Government or its agencies or instrumentalities, including mortgage backed
securities (described below under U.S. Government Securities Trust); and
(3) cash and cash equivalent securities which are authorized for purchase by the
Money Market Trust.
The balance of the Investment Quality Bond Trust's investments may
include: domestic and foreign debt securities rated below "A" by Moody's and S&P
(and unrated securities of comparable quality as determined by Wellington
Management), preferred stocks, convertible securities (including those issued in
the Euromarket) and securities carrying warrants to purchase equity securities,
privately placed debt securities,
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asset-backed securities and privately issued mortgage securities. At least 65%
of the Investment Quality Bond Trust's assets will be invested in bonds and
debentures.
In pursuing its investment objective, the Investment Quality Bond Trust
may invest up to 20% of its assets in domestic and foreign high yield (high
risk) corporate and government debt securities, commonly known as "junk bonds"
(i.e., rated "Ba" or below by Moody's or "BB" or below by S&P, or if unrated, of
comparable quality as determined by Wellington Management). The high yield
sovereign debt securities in which the portfolio will invest are described above
under "Strategic Bond Trust." No minimum rating standard is required for a
purchase by the portfolio. Domestic and foreign high yield debt securities
involve comparatively greater risks, including price volatility and risk of
default in the payment of interest and principal, than higher-quality
securities. See "RISK FACTORS -- High Yield (High Risk) Securities" and
"-- Foreign Sovereign Debt Securities."
The Investment Quality Bond Trust may also invest in debt securities
carrying the fourth highest quality rating ("Baa" by Moody's or "BBB" by S&P)
and unrated securities of comparable quality as determined by Wellington
Management. While such securities are considered as investment grade and are
viewed to have adequate capacity for payment of principal and interest,
investments in such securities involve a higher degree of risk than that
associated with investments in debt securities in the higher rating categories
and such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. For example, changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds. While
the Investment Quality Bond Trust may only invest up to 20% of its assets in
bonds rated below "Baa" by Moody's or "BBB" by S&P (or, if unrated, of
comparable quality as determined by Wellington Management) at the time of
investment, it is not required to dispose of bonds owned that may be downgraded
causing the portfolio to exceed this 20% maximum.
Use of Hedging and Other Strategic Transactions
The Investment Quality Bond Trust is currently authorized to use all of
the various investment strategies referred to under "Hedging and Other Strategic
Transactions." The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith. The Investment
Quality Bond Trust will be subject to certain risks as a result of its ability
to invest up to 20% of its assets in foreign securities. These risks are
described under the caption "Foreign Securities" in this Prospectus. Moreover,
substantial investments in foreign securities may have adverse tax implications
as described under "Taxes" in this Prospectus.
U.S. GOVERNMENT SECURITIES TRUST
The investment objective of the U.S. Government Securities Trust is to
obtain a high level of current income consistent with preservation of capital
and maintenance of liquidity. SBAM manages the U.S. Government Securities Trust
and seeks to attain its objective by investing a substantial portion of its
assets in debt obligations and mortgage backed securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and derivative
securities such as collateralized mortgage obligations backed by such
securities. The portfolio may also invest a portion of its assets in the types
of securities in which the Investment Quality Bond Trust may invest.
At least 80% of the total assets of the U.S. Government Securities
Trust will be invested in:
(1) mortgage backed securities guaranteed by the Government National
Mortgage Association that are supported by the full faith and credit of
the U.S. Government and which are the "modified pass-through" type of
mortgage backed security ("GNMA Certificates"). Such securities entitle
the holder to receive all interest and principal payments due whether
or not payments are actually made on the underlying mortgages;
(2) U.S. Treasury obligations;
(3) obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government which are backed by their own credit and may not be
backed by the full faith and credit of the U.S. Government;
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(4) mortgage backed 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 the Federal National Mortgage
Association; and
(5) collateralized mortgage obligations issued by private issuers for which
the underlying mortgage backed securities serving as collateral are
backed (i) by the credit alone 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.
The mortgage backed securities in which the U.S. Government Securities
Trust invests represent participating interests in pools of residential mortgage
loans which are guaranteed by the U.S. Government, its agencies or
instrumentalities. However, the guarantee of these types of securities runs only
to the principal and interest payments and not to the market value of such
securities. In addition, the guarantee only runs to the portfolio securities
held by the U.S. Government Securities Trust and not the purchase of shares of
the portfolio.
Mortgage backed securities are issued by lenders such as mortgage
bankers, commercial banks, and savings and loan associations. Such securities
differ from conventional debt securities which provide for periodic payment of
interest in fixed amounts (usually semiannually) with principal payments at
maturity or specified call dates. Mortgage backed securities provide monthly
payments which are, in effect, a "pass-through" of the monthly interest and
principal payments (including any prepayments) made by the individual borrowers
on the pooled mortgage loans. Principal prepayments result from the sale of the
underlying property or the refinancing or foreclosure of underlying mortgages.
The yield of mortgage-backed securities is based on the average life of
the underlying pool of mortgage loans, which is computed on the basis of the
maturities of the underlying instruments. The actual life of any particular pool
may be shortened by unscheduled or early payments of principal and interest. The
occurrence of prepayments is affected by a wide range of economic, demographic
and social factors and, accordingly, it is not possible to accurately predict
the average life of a particular pool. For pools of fixed rate 30-year
mortgages, it has been common practice to assume that prepayments will result in
a 12-year average life. The actual prepayment experience of a pool of mortgage
loans may cause the yield realized by the U.S. Government Securities Trust to
differ from the yield calculated on the basis of the average life of the pool.
In addition, if any of these mortgage backed securities are purchased at a
premium, the premium may be lost in the event of early prepayment which may
result in a loss to the portfolio.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. Reinvestment by the U.S. Government Securities Trust of scheduled
principal payments and unscheduled prepayments may occur at higher or lower
rates than the original investment, thus affecting the yield of this portfolio.
Monthly interest payments received by the portfolio have a compounding effect
which will increase the yield to shareholders as compared to debt obligations
that pay interest semiannually. Because of the reinvestment of prepayments of
principal at current rates, mortgage-backed securities may be less effective
than Treasury bonds of similar maturity at maintaining yields during periods of
declining interest rates. Also, although the value of debt securities may
increase as interest rates decline, the value of these pass-through type of
securities may not increase as much due to the prepayment feature.
The U.S. Government Securities Trust must comply with diversification
requirements established pursuant to the Internal Revenue Code for investments
of separate accounts funding contracts. Under these requirements, no more than
55% of the value of the assets of a portfolio may be represented by any one
investment; no more than 70% by any two investments; no more than 80% by any
three investments; and no more than 90% by any four investments. For these
purposes, all securities of the same issuer are treated as a single investment
and each United States government agency or instrumentality is treated as a
separate issuer. As a result of these requirements, the U.S. Government
Securities Trust may not invest more than 55% of the value of its assets in GNMA
Certificates or in securities issued or guaranteed by any other single United
States government agency or instrumentality. See the discussion under "Taxes"
below for additional information.
Use of Hedging and Other Strategic Transactions
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The U.S. Government Securities Trust is currently authorized to use
only certain of the various investment strategies referred to under "Hedging and
Other Strategic Transactions." Specifically, the U.S. Government Securities
Trust may write covered call options and put options on securities and purchase
call and put options on securities, write covered call and put options on
securities indices and purchase call and put options on securities indices, and,
may enter into futures contracts on financial instruments and indices and write
and purchase put and call options on such futures contracts. It is not presently
anticipated that any of these strategies will be used to a significant degree by
the portfolio. The Statement of Additional Information contains a description of
these strategies and of certain risks associated therewith.
MONEY MARKET TRUST
The investment objective of the Money Market Trust is to obtain maximum
current income consistent with preservation of principal and liquidity. MAC
manages the Money Market Trust and seeks to achieve this objective by investing
in high quality, U.S. dollar denominated money market instruments of the
following types:
(1) obligations issued or guaranteed as to principal and interest by the
United States Government, or any agency or authority controlled or
supervised by and acting as an instrumentality of the U.S. Government
pursuant to authority granted by Congress (hereinafter "U.S. Government
securities"), or obligations of foreign governments including those
issued or guaranteed as to principal or interest by the Government of
Canada, the government of any province of Canada, or any Canadian or
provincial Crown agency (any foreign obligation acquired by the Trust
will be payable in U.S. dollars);
(2) certificates of deposit, bank notes, time deposits, Eurodollars, Yankee
obligations and bankers' acceptances of U.S. banks, foreign branches of
U.S. banks, foreign banks and U.S. savings and loan associations which
at the date of investment have capital, surplus and undivided profits
as of the date of their most recent published financial statements in
excess of $100,000,000 (or less than $100,000,000 if the principal
amount of such bank obligations is insured by the Federal Deposit
Insurance Corporation or the Saving Association Insurance Fund);
(3) commercial paper which at the date of investment is rated (or
guaranteed by a company whose commercial paper is rated) within the two
highest rating categories by any nationally recognized statistical
rating organization ("NRSRO") (such as "P-1" or "P-2" by Moody's or
"A-1" or "A-2" by S&P) or, if not rated, is issued by a company which
MAC acting pursuant to guidelines established by the Trustees, has
determined to be of minimal credit risk and comparable quality;
(4) corporate obligations maturing in 397 days or less which at the date of
investment are rated within the two highest rating categories by any
NRSRO (such as "Aa" or higher by Moody's or "AA" or higher by S&P); and
(5) short-term obligations issued by state and local governmental issuers;
(6) securities that have been structured to be eligible money market
instruments such as participation interests in special purpose trusts
that meet the quality and maturity requirements in whole or in part due
to arrangements for credit enhancement or for shortening effective
maturity; and
(7) repurchase agreements with respect to any of the foregoing obligations.
Commercial paper may include variable amount master demand notes, which
are obligations that permit investment of fluctuating amounts at varying rates
of interest. Such notes are direct lending arrangements between the Money Market
Trust and the note issuer, and MAC will monitor the creditworthiness of the
issuer and its earning power and cash flow, and will also consider situations in
which all holders of such notes would redeem at the same time. Variable amount
master demand notes are redeemable on demand.
All of the Money Market Trust's investments will mature in 397 days or
less and the portfolio will maintain a dollar-weighted average portfolio
maturity of 90 days or less. By limiting the maturity of its investments, the
Money Market Trust seeks to lessen the changes in the value of its assets caused
by fluctuations in short-term interest rates. In addition, the Money Market
Trust will invest only in securities the
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Trustees determine to present minimal credit risks and which at the time of
purchase are "eligible securities" as defined by Rule 2a-7 under the Investment
Company Act of 1940. The Money Market Trust also intends to maintain, to the
extent practicable, a constant per share net asset value of $10.00, but there is
no assurance that it will be able to do so.
The Money Market Trust will be subject to certain risks as a result of
its ability to invest up to 20% of its assets in foreign securities. These risks
are described under "RISK FACTORS - Foreign Securities."
Use of Hedging and Other Strategic Transactions
The Money Market Trust is not authorized to use any of the various
investment strategies referred to under "Hedging and Other Strategic
Transactions."
THE LIFESTYLE TRUSTS
There are five Lifestyle Trusts (each of which is a fund of funds) --
Aggressive, Growth, Balanced, Moderate and Conservative. The Lifestyle Trusts
differ from the portfolios previously described in that each Lifestyle Trust
invests in a number of the other portfolios of the Trust ("Underlying
Portfolios"). Each Lifestyle Trust has its own investment objective and
policies.
Lifestyle Aggressive 1000 Trust. The investment objective of the
Lifestyle Aggressive 1000 Trust is to provide long term growth of capital.
Current income is not a consideration. MAC seeks to achieve this objective by
investing 100% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in equity securities.
Lifestyle Growth 820 Trust. The investment objective of the Lifestyle
Growth 820 Trust is to provide long term growth of capital with consideration
also given to current income. MAC seeks to achieve this objective by investing
approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 80% of its assets
in Underlying Portfolios which invest primarily in equity securities.
Lifestyle Balanced 640 Trust. The investment objective of the Lifestyle
Balanced 640 Trust is to provide a balance between a high level of current
income and growth of capital with a greater emphasis given to capital growth.
MAC seeks to achieve this objective by investing approximately 40% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 60% of its assets in Underlying
Portfolios which invest primarily in equity securities.
Lifestyle Moderate 460 Trust. The investment objective of the Lifestyle
Moderate 460 Trust is to provide a balance between a high level of current
income and growth of capital with a greater emphasis given to high income. MAC
seeks to achieve this objective by investing approximately 60% of the Lifestyle
Trust's assets in Underlying Portfolios which invest primarily in fixed income
securities and approximately 40% of its assets in Underlying Portfolios which
invest primarily in equity securities.
Lifestyle Conservative 280 Trust. The investment objective of the
Lifestyle Conservative 280 Trust is to provide a high level of current income
with some consideration also given to growth of capital. MAC seeks to achieve
this objective by investing approximately 80% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 20% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The Lifestyle Trusts are designed to provide a simple means of
obtaining a professionally-determined comprehensive investment program designed
for differing investment orientations. Each program is implemented by means of
selected long term investment allocations among the Underlying Portfolios.
The portfolios eligible for purchase by the Lifestyle Trusts consist of
all of the non-Lifestyle Trusts. The Underlying Portfolios are grouped according
to whether they invest primarily in fixed income securities or equity
securities. The Underlying Portfolios investing primarily in fixed income
se-
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curities are the Strategic Bond, Global Government Bond, Capital Growth Bond,
Investment Quality Bond, U.S. Government Securities and Money Market Trusts.
The other Underlying Portfolios invest primarily in equity securities.
The percentage allocations between the two types of Underlying
Portfolios specified for each Lifestyle Trust are approximate only. Variations
in the percentages are permitted up to 10% in either direction. Thus, for
example, the Lifestyle Conservative 280 Trust may have a fixed income/equity
allocation of 10%/90% or 30%/70%. Variations beyond the permissible deviation
range of 10% are not permitted, unless the Adviser determines that in light of
market or economic conditions the normal percentage limitations should be
exceeded to protect the portfolio or to achieve the portfolio's objective.
NASL Financial and MAC manage the Lifestyle Trusts at no cost, although
they reserve the right to seek compensation for services in the future. Within
the prescribed percentage allocations between the two types of Underlying
Portfolios, MAC may from time to time adjust the percent of assets invested in
any single portfolios held by a Lifestyle Trust. Such adjustments may be made to
increase or decrease the Lifestyle Trust's holdings of particular assets
classes, such as common stocks of foreign issuers, or to adjust portfolio
quality or the duration of fixed income securities. Adjustments may also be made
to increase or reduce the percent of the Lifestyle Trust's assets subject to the
management of a particular Subadviser. In addition, changes may be made to
reflect some fundamental change in the investment environment.
Although substantially all of the assets of the Lifestyle Trusts will
be invested in shares of the Underlying Portfolios, the Lifestyle Trusts may
invest up to 100% of their assets in cash or in the money market instruments of
the type in which the Money Market Trust is authorized to invest for the purpose
of meeting redemption requests or making other anticipated cash payments or to
protect the portfolio in the event the Adviser determines that market or
economic conditions warrant a defensive posture. Because substantially all of
the securities in which the Lifestyle Trusts may invest are Underlying
Portfolios, each of the Lifestyle Trusts is non-diversified for purposes of the
Investment Company Act of 1940.
The Lifestyle Trusts are subject to the risks of the Underlying
Portfolios in which they invest. The Lifestyle Trusts are not authorized to use
any of the various investment strategies referred to under "Hedging and Other
Strategic Transactions."
Investors in the Lifestyle Trusts, in addition to bearing their
proportionate share of the expenses of a Lifestyle Trust, will indirectly bear
expenses of the Underlying Portfolio. Therefore, some investors may be able to
realize lower aggregate charges and expenses by investing directly in the
Underlying Portfolios rather than investing indirectly in the Underlying
Portfolio by investing in the Lifestyle Trusts. An investor who chose to invest
directly in the Underlying Portfolios rather than purchasing the Lifestyle
Trusts would, however, forego the asset allocation services provided by the MAC
in its management of the Lifestyle Trusts.
RISK FACTORS
INVESTMENT RESTRICTIONS GENERALLY
The Trust is subject to a number of restrictions in pursuing its
investment objectives and policies. The following is a brief summary of certain
restrictions that may be of interest to contract owners. Some of these
restrictions are subject to exceptions not stated here. Such exceptions and a
complete list of the investment restrictions applicable to the individual
portfolios and to the Trust are set forth in the Statement of Additional
Information under the caption "Investment Restrictions."
Except for the restrictions specifically identified as fundamental, all
investment restrictions described in this Prospectus and in the Statement of
Additional Information are not fundamental, so that the Trustees of the Trust
may change them without shareholder approval. Fundamental policies may not be
changed without the affirmative vote of a majority of the outstanding voting
securities.
Fundamental policies applicable to all portfolios include prohibitions
on (i) investing more than 25% of the total assets of any portfolio, except the
Real Estate Securities Trust and the Lifestyle Trusts, in the
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securities of issuers having their principal activities in any particular
industry (with exceptions for U.S. Government securities and certain other
obligations) and (ii) borrowing money, except for temporary or emergency
purposes (but not for leveraging) and then not in excess of 33 1/3% of the value
of the total assets of the portfolio at the time the borrowing is made. In
addition, each portfolio may borrow in connection with reverse repurchase
agreements, mortgage dollar rolls and other similar transactions. Reverse
repurchase agreements and mortgage dollar rolls may be considered a form of
borrowing and will be treated as a borrowing for purposes of the restriction on
borrowing in excess of 33 1/3% of the value of the total assets of a portfolio.
A portfolio will not purchase securities while borrowings (other than reverse
repurchase agreements, mortgage dollar rolls and similar transactions) exceed 5%
of total assets. In addition, each of the portfolios except the Global
Government Bond, Emerging Growth and Lifestyle Trusts, is prohibited from
purchasing securities of any issuer if the purchase would cause more than 5% of
the value of a portfolio's total assets to be invested in the securities of any
one issuer (excluding U.S. Government securities) or cause more than 10% of the
voting securities of the issuer to be held by a portfolio, except that up to 25%
of the value of each portfolio's total assets (except the Money Market Trust)
may be invested without regard to this restriction.
Restrictions that apply to all portfolios and that are not fundamental
include prohibitions on (i) knowingly investing more than 15% of the net assets
of any portfolio in "illiquid" securities (including repurchase agreements
maturing in more than seven days but excluding master demand notes), (ii)
pledging, hypothecating, mortgaging or transferring more than 10% of the total
assets of any portfolio as security for indebtedness (except that the applicable
percent is 33 1/3% in the case of the Blue Chip Growth, Equity-Income,
International Stock and Science & Technology Trusts, 15% in the case of the
International Small Cap, Growth, Balanced and Worldwide Growth Trusts and 50% in
the case of the Value Trust), and (iii) purchasing securities of other
investment companies, other than in connection with a merger, consolidation or
reorganization, if the purchase would cause more than 10% of the value of a
portfolio's total assets to be invested in investment company securities, except
that the Lifestyle Trusts are not subject to this restriction. The percentage
restriction in clause (i) of the preceding sentence, however, is 10% in the case
of the Money Market Trust.
Finally, the Money Market Trust is subject to certain restrictions
required by Rule 2a-7 under the Investment Company Act of 1940. In order to
comply with such restrictions, the Money Market Trust will, inter alia, not
purchase the securities of any issuer if it would cause (i) more than 5% of its
total assets to be invested in the securities of any one issuer (excluding U.S.
Government securities and repurchase agreements fully collateralized by U.S.
Government securities), except as permitted by the Rule for certain securities
for a period of up to three business days after purchase, (ii) more than 5% of
its total assets to be invested in "second tier securities," as defined by the
Rule, or (iii) more than the greater of $1 million or 1% of its total net assets
to be invested in the second tier securities of that issuer.
* * *
There are also diversification and other requirements for all of the
portfolios imposed by the federal tax laws, as described under "Taxes" in this
Prospectus.
The following is a description of certain investment policies subject
to investment restrictions that may be of particular interest to contract
owners.
ADDITIONAL INVESTMENT RESTRICTIONS ON BORROWING AND FOREIGN INVESTING
In order to comply with limitations imposed by the State of California
Insurance Department, each Trust will comply with the following restrictions on
borrowing and each Trust that invests in foreign securities will comply with the
following restrictions regarding foreign investments. These restrictions are
nonfundamental and may be changed without shareholder approval.
Borrowing. Each portfolio of the Trust will not borrow money except
that each portfolio may borrow in an amount (i) up to 25% of the portfolio's net
assets for temporary purposes to facilitate redemptions (not for leveraging) and
(ii) up to 10% of the portfolio's net assets in connection with reverse
repurchase agreements, mortgage dollar rolls and other similar transactions.
This limitation is more restrictive than the Trust's fundamental restriction on
borrowing.
Foreign Securities. Each portfolio of the Trust that invests in foreign
securities will comply with the following restrictions:
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(i) A portfolio will be invested in a minimum of five different foreign
countries at all times. However, this minimum is reduced to four when foreign
country investments comprise less than 80% of the portfolio's net asset value;
to three when less than 60% of such value; to two when less than 40%; and to one
when less than 20%.
(ii) Except as set forth in items (iii) and (iv) below, a portfolio will have no
more than 20% of its net asset value invested in securities of issuers located
in any one country.
(iii) A portfolio may have an additional 15% of its net asset value invested in
securities of issuers located in any one of the following countries (to the
extent such investment is consistent with the investment policies of the
portfolio): Australia, Canada, France, Japan, the United Kingdom or West
Germany.
(iv) A portfolio's investments in United States issuers are not subject to these
foreign country diversification restrictions.
HIGH YIELD (HIGH RISK) SECURITIES
GENERAL. The Strategic Bond and High Yield Trusts may invest without
limitation, the Investment Quality Bond Trust may invest up to 20% of its
assets, the Equity-Income, Aggressive Asset Allocation and Moderate Asset
Allocation Trusts may each invest up to 10% of its assets, and the Balanced,
International Small Cap, Growth, Blue Chip Growth and Worldwide Growth Trusts
may each invest up to 5% of its assets, in "high yield" (high risk) securities.
Securities rated below investment grade and comparable unrated securities offer
yields that fluctuate over time, but generally are superior to the yields
offered by higher rated securities. However, securities rated below investment
grade also involve greater risks than higher rated securities. Under rating
agency guidelines, medium- and lower-rated securities and comparable unrated
securities will likely have some quality and protective characteristics that are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Certain of the debt securities in which the portfolios may invest may have, or
be considered comparable to securities having, the lowest ratings for
non-subordinated debt instruments assigned by Moody's or S&P (i.e., rated C by
Moody's or CCC or lower by S&P). These securities are considered to have
extremely poor prospects of ever attaining any real investment standing, to have
a current identifiable vulnerability to default, to be unlikely to have the
capacity to pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in default or not
current in the payment of interest or principal. Such securities are considered
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. Accordingly, it is
possible that these types of factors could, in certain instances, reduce the
value of securities held by the portfolio with a commensurate effect on the
value of the portfolio's shares. Because the Strategic Bond and High Yield
Trusts may invest without limitation in high yield debt securities, an
investment in those portfolios should not be considered as a complete investment
program for all investors.
Because the Strategic Bond, High Yield, and Investment Quality Bond
Trusts will invest primarily in fixed-income securities, the net asset value of
each portfolio's shares can be expected to change as general levels of interest
rates fluctuate, although the market values of securities rated below investment
grade and comparable unrated securities tend to react less to fluctuations in
interest rate levels than do those of higher-rated securities. Except to the
extent that values are affected independently by other factors such as
developments relating to a specific issuer, when interest rates decline, the
value of a fixed-income portfolio can generally be expected to rise. Conversely,
when interest rates rise, the value of a fixed-income portfolio can generally be
expected to decline.
The secondary markets for high yield corporate and sovereign debt
securities are not as liquid as the secondary markets for higher rated
securities. The secondary markets for high yield debt securities are
concentrated in relatively few market makers and participants in the market are
mostly institutional investors, including insurance companies, banks, other
financial institutions and mutual funds. In addition, the trading volume for
high yield debt securities is generally lower than that for higher-rated
securities and the secondary markets could contract under adverse market or
economic conditions independent of any specific adverse changes in the condition
of a particular issuer. These factors may have an adverse effect on the ability
of portfolios investing in high yield securities to dispose of particular
portfolio investments and may limit the ability of those portfolios to obtain
accurate market quotations for purposes of valuing securities and
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calculating net asset value. If a portfolio investing in high yield debt
securities is not able to obtain precise or accurate market quotations for a
particular security, it will become more difficult for the Trustees to value
that portfolio's investment portfolio and the Trustees may have to use a greater
degree of judgment in making such valuations. Less liquid secondary markets may
also affect a portfolio's ability to sell securities at their fair value. In
addition, each portfolio may invest up to 15% (10% in the case of the Money
Market Trust) of its net assets, measured at the time of investment, in illiquid
securities, which may be more difficult to value and to sell at fair value. If
the secondary markets for high yield debt securities are affected by adverse
economic conditions, the proportion of a portfolio's assets invested in illiquid
securities may increase.
CORPORATE DEBT SECURITIES. While the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities,
the market values of certain of these securities also tend to be more sensitive
to individual corporate developments and changes in economic conditions than
higher-rated securities. In addition, such securities generally present a higher
degree of credit risk. Issuers of these securities are often highly leveraged
and may not have more traditional methods of financing available to them, so
that their ability to service their debt obligations during an economic downturn
or during sustained periods of rising interest rates may be impaired. The risk
of loss due to default by such issuers is significantly greater than with
investment grade securities because such securities generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness.
FOREIGN SOVEREIGN DEBT SECURITIES. Investing in foreign sovereign debt
securities will expose the Strategic Bond, High Yield and Investment Quality
Bond Trusts and other portfolios investing in such securities to the direct or
indirect consequences of political, social or economic changes in the developing
and emerging countries that issue the securities. The ability and willingness of
sovereign obligors in developing and emerging countries or the governmental
authorities that control repayment of their external debt to pay principal and
interest on such debt when due may depend on general economic and political
conditions within the relevant country. Countries such as those in which these
portfolios may invest have historically experienced, and may continue to
experience, high rates of inflation, high interest rates, exchange rate trade
difficulties and extreme poverty and unemployment. Many of these countries are
also characterized by political uncertainty or instability. Additional factors
which may influence the ability or willingness to service debt include, but are
not limited to, a country's cash flow situation, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, and its government's policy towards
the International Monetary Fund, the World Bank and other international
agencies.
The ability of a foreign sovereign obligor to make timely payments on
its external debt obligations will also be strongly influenced by the obligor's
balance of payments, including export performance, its access to international
credits and investments, fluctuations in interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few commodities
or whose economy depends on certain strategic imports could be vulnerable to
fluctuations in international prices of these commodities or imports. To the
extent that a country receives payment for its exports in currencies other than
dollars, its ability to make debt payments denominated in dollars could be
adversely affected. 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 foreign governments, multilateral organizations and others to
make such disbursements may be conditioned on the government's implementation of
economic reforms and/or economic performance and the timely service of its
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due 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. The
cost of servicing external debt will also generally be adversely affected by
rising international interest rates, because many external debt obligations bear
interest at rates which are adjusted based upon international interest rates.
The ability to service external debt will also depend on the level of the
relevant government's international currency reserves and its access to foreign
exchange. Currency devaluations may affect the ability of a sovereign obligor to
obtain sufficient foreign exchange to service its external debt.
As a result of the foregoing, a governmental obligor may default on its
obligations. If such an event occurs, the portfolio may have limited legal
recourse against the issuer and/or guarantor. Remedies must, in some cases, be
pursued in the courts of the defaulting party itself, and the ability of the
holder of foreign sovereign debt securities to obtain recourse may be subject to
the political climate in the relevant country. In
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addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of other foreign sovereign debt
obligations in the event of default under their commercial bank loan agreements.
Sovereign obligors in developing and emerging countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. These obligors have in
the past experienced substantial difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, 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.
Holders of certain foreign sovereign debt securities may be requested to
participate in the restructuring of such obligations and to extend further loans
to their issuers. There can be no assurance that the Brady Bonds and other
foreign sovereign debt securities in which the portfolios may invest will not be
subject to similar restructuring arrangements or to requests for new credit
which may adversely affect the portfolio's holdings. Furthermore, certain
participants in the secondary market for such debt may be directly involved in
negotiating the terms of these arrangements and may therefore have access to
information not available to other market participants.
In addition to high yield foreign sovereign debt securities, many of
the Trust's portfolios may invest in investment grade foreign securities. For a
discussion of such securities and their associated risks, see "Foreign
Securities" below.
FOREIGN SECURITIES
Each of the portfolios, other than the U.S. Government Securities and
Equity Index Trusts, may invest in securities of foreign issuers. Such foreign
securities may be denominated in foreign currencies, except with respect to the
Money Market Trust which may only invest in U.S. dollar-denominated securities
of foreign issuers. The International Small Cap, Capital Growth Bond, Global
Equity, Global Government Bond, Worldwide Growth, High Yield, International
Growth and Income, International Stock, Strategic Bond, Real Estate Securities,
Common Stock and Pacific Rim Emerging Markets Trusts may each, without
limitation, invest up to 100% of its assets in securities issued by foreign
entities and/or denominated in foreign currencies. The Aggressive Asset
Allocation Trust may invest up to 35% of its assets, the Growth, Balanced and
Science & Technology Trusts each up to 30% of its assets, the Moderate Asset
Allocation and Equity-Income Trusts each up to 25% of its assets, the Pilgrim
Baxter Growth and Conservative Asset Allocation Trusts each up to 15% of its
assets, the Value Trust up to 5% of its assets, and each of the other portfolios
other than the U.S. Government Securities and Equity Index Trusts up to 20% of
its assets in securities issued by foreign entities and/or denominated in
foreign currencies. (In the case of the Small/Mid Cap, Growth, Balanced and
Value Trusts, ADRs and U.S. dollar denominated securities are not included in
the percentage limitation.)
Securities of foreign issuers include obligations of foreign branches
of U.S. banks and of foreign banks, common and preferred stocks, debt securities
issued by foreign governments, corporations and supranational organizations, and
American Depository Receipts, European Depository Receipts and Global Depository
Receipts ("ADRs", "EDRs" and "GDRs"). ADRs are U.S. dollar-denominated
securities backed by foreign securities deposited in a U.S. securities
depository. ADRs are created for trading in the U.S. markets. The value of an
ADR will fluctuate with the value of the underlying security, reflect any
changes in exchange rates and otherwise involve risks associated with investing
in foreign securities. ADRs in which the portfolios may invest may be sponsored
or unsponsored. There may be less information available about foreign issuers of
unsponsored ADRs.
Securities of foreign issuers also include EDRs and GDRs, which are
receipts evidencing an arrangement with a non-U.S. bank similar to that for ADRs
and are designed for use in non-U.S. securities markets. EDRs and GDRs are not
necessarily quoted in the same currency as the underlying security.
Foreign securities may be subject to foreign government taxes which
reduce their attractiveness. See "Taxes." In addition, investing in securities
denominated in foreign currencies and in the securities of foreign issuers,
particularly non-governmental issuers, involves risks which are not ordinarily
associated with investing in domestic issuers. These risks include political or
economic instability in the country involved and the possibility of imposition
of currency controls. Since certain portfolios may invest in securities
denominated or quoted in currencies other than the United States dollar, changes
in foreign currency
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exchange rates may affect the value of investments in the portfolio and the
unrealized appreciation or depreciation of investments insofar as United States
investors are concerned. Foreign currency exchange rates are determined by
forces of supply and demand on the foreign exchange markets. These forces are,
in turn, affected by the international balance of payments and other economic
and financial conditions, government intervention, speculation and other
factors. The portfolios may incur transaction charges in exchanging foreign
currencies.
There may be less publicly available information about a foreign issuer
than about a domestic issuer. Foreign issuers, including foreign branches of
U.S. banks, are subject to different accounting and reporting requirements which
are generally less extensive than the requirements applicable to domestic
issuers. Foreign stock markets (other than Japan) have substantially less volume
than the United States exchanges and securities of foreign issuers are generally
less liquid and more volatile than those of comparable domestic issuers. There
is frequently less governmental regulation of exchanges, broker-dealers and
issuers than in the United States, and brokerage costs may be higher. In
addition, investments in foreign companies may be subject to the possibility of
nationalization, withholding of dividends at the source, expropriation or
confiscatory taxation, currency blockage, political or economic instability or
diplomatic developments that could adversely affect the value of those
investments. Finally, in the event of a default on any foreign obligation, it
may be difficult for the Trust to obtain or to enforce a judgment against the
issuer.
Emerging Markets. Foreign markets, especially emerging markets, may
have different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of a portfolio is uninvested and no return is earned thereon. The
inability of a portfolio to make intended security purchases due to settlement
problems could cause the portfolio to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result in losses to a portfolio due to subsequent declines in values of the
portfolio securities or, if the portfolio has entered into a contract to sell
the security, possible liability to the purchaser. Certain foreign markets,
especially emerging markets, may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. A portfolio could be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the portfolio of any
restrictions on investments.
In addition to the foreign securities listed above, the Strategic Bond,
High Yield, Investment Quality Bond, Worldwide Growth, International Small Cap,
Growth, Balanced, Aggressive Asset Allocation and Moderate Asset Allocation
Trusts may also invest in foreign sovereign debt securities, which involve
certain additional risks. See "Risk Factors--High Yield (High Risk)
Securities--Foreign Sovereign Debt Securities" above.
WARRANTS
Subject to certain restrictions, each of the Portfolios except the
Money Market Trust and the Lifestyle Trusts may purchase warrants, including
warrants traded independently of the underlying securities. Warrants are rights
to purchase securities at specific prices valid for a specific period of time.
Their prices do not necessarily move parallel to the prices of the underlying
securities, and warrant holders receive no dividends and have no voting rights
or rights with respect to the assets of an issuer. Warrants cease to have value
if not exercised prior to the expiration date.
LENDING SECURITIES
Each portfolio may lend its securities so long as such loans do not
represent in excess of 33 1/3% of a portfolio's total assets. This is a
fundamental policy. The procedure for lending securities is for the borrower to
give the lending portfolio collateral consisting of cash, cash equivalents or
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities. The lending portfolio may invest the cash collateral and earn
additional income or receive an agreed upon fee from a borrower which has
delivered cash equivalent collateral. The Trust anticipates that its securities
will be loaned only under the following conditions: (1) the borrower must
furnish collateral equal at all times to the market value of the securities
loaned and the borrower must agree to increase the collateral on a daily basis
if the securities increase in value; (2) the loan will be made in accordance
with New York Stock Exchange rules, which presently require the borrower, after
notice, to redeliver the securities within five business days; and (3) the
portfolio making
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the loan may pay reasonable service, placement, custodian or other fees in
connection with loans of securities and share a portion of the interest from
these investments with the borrower of the securities. As with other extensions
of credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially.
WHEN-ISSUED SECURITIES ("FORWARD COMMITMENTS")
In order to help ensure the availability of suitable securities, each
of the portfolios may purchase debt securities on a "when-issued" or on a
"forward delivery" basis, which means that the obligations will be delivered to
the portfolio at a future date, which may be a month or more after the date of
commitment (referred to as "forward commitments"). It is expected that, under
normal circumstances, a portfolio purchasing securities on a when-issued or
forward delivery basis will take delivery of the securities, but the portfolio
may sell the securities before the settlement date, if such action is deemed
advisable. In general, a portfolio does not pay for the securities or start
earning interest on them until the obligations are scheduled to be settled, but
it does, in the meantime, record the transaction and reflect the value each day
of the securities in determining its net asset value. At the time delivery is
made, the value of when-issued or forward delivery securities may be more or
less than the transaction price, and the yields then available in the market may
be higher than those obtained in the transaction. While awaiting delivery of the
obligations purchased on such bases, a portfolio will establish a segregated
account consisting of cash or high quality debt securities equal to the amount
of the commitments to purchase when-issued or forward delivery securities. The
availability of liquid assets for this purpose and the effect of asset
segregation on a portfolio's ability to meet its current obligations, to honor
requests for redemption and to have its investment portfolio managed properly
will limit the extent to which the portfolio may purchase when-issued or forward
delivery securities. Except as may be imposed by these factors, there is no
limit on the percent of a portfolio's total assets that may be committed to such
transactions.
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE AGREEMENTS
Each of the Trust's portfolios may enter into repurchase agreements and
reverse repurchase agreements. Repurchase agreements involve the acquisition by
a portfolio of debt securities subject to an agreement to resell them at an
agreed-upon price. Under a repurchase agreement, at the time the portfolio
acquires a security, it agrees to resell it to the original seller (a financial
institution or broker/dealer which meets the guidelines established by the
Trustees) and must deliver the security (and/or securities that may be added to
or substituted for it under the repurchase agreement) to the original seller on
an agreed-upon date in the future. The repurchase price is in excess of the
purchase price. The arrangement is in economic effect a loan collateralized by
securities.
The Trustees have adopted procedures that establish certain
creditworthiness, asset and collateralization requirements for the
counterparties to a portfolio's repurchase agreements. The Trustees will
regularly monitor the use of repurchase agreements and the Subadvisers will,
pursuant to procedures adopted by the Trustees, continuously monitor the amount
of collateral held with respect to a repurchase transaction so that it equals or
exceeds the amount of the obligation.
A portfolio's risk in a repurchase transaction is limited to the
ability of the seller to pay the agreed-upon sum on the delivery date. In the
event of bankruptcy or other default by the seller, there may be possible delays
and expenses in liquidating the instrument purchased, decline in its value and
loss of interest. Securities subject to repurchase agreements will be valued
every business day and additional collateral will be requested if necessary so
that the value of the collateral is at least equal to the value of the
repurchase obligation, including the interest accrued thereon.
Each portfolio of the Trust may enter into "reverse" repurchase
agreements. Under a reverse repurchase agreement, a portfolio may sell a debt
security and agree to repurchase it at an agreed upon time and at an agreed upon
price. The portfolio retains record ownership of the security and the right to
receive interest and principal payments thereon. At an agreed upon future date,
the portfolio repurchases the security by remitting the proceeds previously
received, plus interest. The difference between the amount the portfolio
receives for the security and the amount it pays on repurchase is deemed to be
payment of interest. The portfolio will maintain in a segregated custodial
account cash, Treasury bills or other U.S. Government securities having an
aggregate value equal to the amount of such commitment to repurchase including
accrued interest, until payment is made. In certain types of agreements, there
is no agreed-upon repurchase date and interest payments are calculated daily,
often based on the prevailing overnight repurchase rate.
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While a reverse repurchase agreement may be considered a form of leveraging and
may, therefore, increase fluctuations in a portfolio's net asset value per
share, each portfolio will cover the transaction as described above.
MORTGAGE DOLLAR ROLLS
Each portfolio of the Trust (except the Money Market Trust and the
Lifestyle Trusts) may enter into mortgage dollar rolls. Under a mortgage dollar
roll, a portfolio sells mortgage-backed securities for delivery in the future
(generally within 30 days) and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. During the roll period, the portfolio forgoes principal and
interest paid on the mortgage-backed securities. A portfolio is compensated by
the difference between the current sale price and the lower 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. A portfolio may also be
compensated by receipt of a commitment fee. A portfolio may only enter into
covered rolls. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash or cash equivalent security position which matures
on or before the forward settlement date of the dollar roll transaction. Dollar
roll transactions involve the risk that the market value of the securities sold
by the portfolio may decline below the repurchase price of those securities.
While a mortgage dollar roll may be considered a form of leveraging, and may,
therefore, increase fluctuations in a portfolio's net asset value per share,
each portfolio will cover the transaction as described above.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
Individual portfolios may be authorized to use a variety of investment
strategies described below for hedging purposes only, including hedging various
market risks (such as interest rates, currency exchange rates and broad or
specific market movements) and managing the effective maturity or duration of
debt instruments held by the portfolio. The description in this Prospectus of
each portfolio indicates which, if any, of these types of transactions may be
used by the portfolio. Limitations on the portion of a portfolio's assets that
may be used in connection with the investment strategies described below are set
out in the Statement of Additional Information.
Subject to the constraints described above, an individual portfolio may
(if and to the extent so authorized) purchase and sell (or write)
exchange-listed and over-the-counter put and call options on securities,
financial futures contracts and fixed income indices and other financial
instruments, enter into financial futures contracts, enter into interest rate
transactions, and enter into currency transactions (collectively, these
transactions are referred to in this Prospectus as "Hedging and Other Strategic
Transactions"). A portfolio's interest rate transactions may take the form of
swaps, caps, floors and collars, and a portfolio's currency transactions may
take the form of currency forward contracts, currency futures contracts,
currency swaps and options on currencies or currency futures contracts.
Hedging and Other Strategic Transactions may be used to attempt to
protect against possible changes in the market value of securities held or to be
purchased by a portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect a portfolio's unrealized gains in the value of its
securities, to facilitate the sale of those securities for investment purposes,
to manage the effective maturity or duration of a portfolio's securities or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. A portfolio may use any or all
types of Hedging and Other Strategic Transactions which it is authorized to use
at any time; no particular strategy will dictate the use of one type of
transaction rather than another, as use of any authorized Hedging and Other
Strategic Transaction will be a function of numerous variables, including market
conditions. The ability of a portfolio to utilize Hedging and Other Strategic
Transactions successfully will depend on, in addition to the factors described
above, the subadviser's ability to predict pertinent market movements, which
cannot be assured. These skills are different from those needed to select a
portfolio's securities. None of the portfolios is a "commodity pool" (i.e., a
pooled investment vehicle which trades in commodity futures contracts and
options thereon and the operator of which is registered with the Commodity
Futures Trading Commission (the "CFTC")) and Hedging and Other Strategic
Transactions involving futures contracts and options on futures contracts will
be purchased, sold or entered into only for bona fide hedging, risk management
or appropriate portfolio management purposes and not for speculative purposes.
The use of certain Hedging and Other Strategic Transactions will require that a
portfolio segregate cash, liquid high grade debt obligations or other assets to
the extent a portfolio's obligations are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency. Risks
associated with Hedging and Other Strategic Transactions
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are described in "Hedging and Other Strategic Transactions -- Risk Factors" in
the Statement of Additional Information. A detailed discussion of various
Hedging and Other Strategic Transactions, including applicable regulations of
the CFTC and the requirement to segregate assets with respect to these
transactions, also appears in the Statement of Additional Information.
ILLIQUID SECURITIES
Each of the portfolios is precluded from investing in excess of 15% of
its net assets in securities that are not readily marketable, except that the
Money Market Trust may not invest in excess of 10% of its net assets in such
securities. Excluded from the 10% and 15% limitation are securities that are
restricted as to resale but for which a ready market is available pursuant to
exemption provided by Rule 144A adopted pursuant to the Securities Act of 1933
("1933 Act") or other exemptions from the registration requirements of the 1933
Act. Whether securities sold pursuant to Rule 144A are readily marketable for
purposes of the Trust's investment restriction is a determination to be made by
the Subadvisers subject to the Trustees' oversight and for which the Trustees
are ultimately responsible. The Subadvisers will also monitor the liquidity of
Rule 144A securities held by the portfolios for which they are responsible. To
the extent Rule 144A securities held by a portfolio should become illiquid
because of a lack of interest on the part of qualified institutional investors,
the overall liquidity of the portfolio could be adversely affected. In addition,
the Money Market Trust may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the 1933 Act. Section
4(2) commercial paper is restricted as to the disposition under federal
securities law, and is generally sold to institutional investors, such as the
Trust, who agree that they are purchasing the paper for investment purposes and
not with a view to public distribution. Any resale by the purchaser must be made
in an exempt transaction. Section 4(2) commercial paper is normally resold to
other institutional investors like the Money Market Trust through or with the
assistance of the issuer or investment dealers who make a market in Section 4(2)
commercial paper, thus providing liquidity. The Money Market Trust's subadviser
believes that Section 4(2) commercial paper meets its criteria for liquidity and
is quite liquid. The Money Market Trust intends, therefore, to treat Section
4(2) commercial paper as liquid and not subject to the investment limitation
applicable to illiquid securities. The Money Market Trust's subadviser will
monitor the liquidity of 4(2) commercial paper held by the Money Market Trust,
subject to the Trustees' oversight and for which the Trustees are ultimately
responsible.
MANAGEMENT OF THE TRUST
Under Massachusetts law and the Trust's Declaration of Trust and
By-Laws, the management of the business and affairs of the Trust is the
responsibility of its Trustees. The Trust was originally organized on August 3,
1984 as "NASL Series Fund, Inc." (the "Fund"), a Maryland corporation. Pursuant
to an Agreement and Plan of Reorganization and Liquidation approved at the
Special Meeting of Shareholders held on December 2, 1988, the Fund was
reorganized as a Massachusetts business trust established pursuant to an
Agreement and Declaration of Trust dated September 29, 1988 (the "Declaration of
Trust"). The reorganization became effective on December 31, 1988. At that time,
the assets and liabilities of each of the Fund's separate investment portfolios
were assumed by the corresponding portfolios of the Trust and the Trust carried
on the business and operations of the Fund with the same investment management
arrangements as were in effect for the Fund immediately prior to such
reorganization. Effective December 31, 1996, Manulife Series Fund, Inc., a
registered management investment company with nine portfolios, was merged into
the Trust. The net assets of four of the portfolios of Manulife Series Fund,
Inc. were transferred to comparable portfolios of the Trust, and the remaining
five portfolios -- the Pacific Rim Emerging Markets, Common Stock, Real Estate
Securities, Capital Growth and Equity Index Portfolios -- were transferred to
the Trust and reconstituted as new portfolios of the Trust.
ADVISORY ARRANGEMENTS
NASL Financial Services, Inc. ("NASL Financial" or, in its capacity as
investment adviser to the Trust the "Adviser"), a Massachusetts corporation
whose principal offices are located at 116 Huntington Avenue, Boston,
Massachusetts 02116, is a wholly-owned subsidiary of Security Life the ultimate
parent of which is The Manufacturers Life Insurance Company ("Manulife"), a
Canadian mutual life insurance company based in Toronto, Canada. Prior to
January 1, 1996, Security Life was a wholly owned subsidiary of North American
Life Assurance Company ("NAL"), a Canadian mutual life insurance company. On
January 1, 1996 NAL and Manulife merged with the combined company retaining the
name Manulife. NASL Financial is registered as an investment adviser under the
Investment Advisers Act of 1940 and as a broker-dealer under the Securities
Exchange Act of 1934, and it is a member of the National Association of
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Securities Dealers, Inc. ("NASD"). In addition, NASL Financial serves as
principal underwriter of certain contracts issued by Security Life and as
investment adviser to one other investment company, North American Funds.
Under the terms of the Advisory Agreement, the Adviser administers the
business and affairs of the Trust. The Adviser is responsible for performing or
paying for various administrative services for the Trust, including providing at
the Adviser's expense, (i) office space and all necessary office facilities and
equipment, (ii) necessary executive and other personnel for managing the affairs
of the Trust and for performing certain clerical, accounting and other office
functions, and (iii) all other information and services, other than services of
counsel, independent accountants or investment subadvisory services provided by
any subadviser under a subadvisory agreement, required in connection with the
preparation of all tax returns and documents required to comply with the federal
securities laws. The Adviser pays the cost of (i) any advertising or sales
literature relating solely to the Trust, (ii) the cost of printing and mailing
prospectuses to persons other than current holders of Trust shares or of
variable contracts funded by Trust shares and (iii) the compensation of the
Trust's officers and Trustees that are officers, directors or employees of the
Adviser or its affiliates. In addition, advisory fees are reduced or the Adviser
reimburses the Trust if the total of all expenses (excluding advisory fees,
taxes, portfolio brokerage commissions, interest, litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Trust's business) applicable to a portfolio exceeds an annual rate of .75%
in the case of the International Small Cap, Global Equity, Global Government
Bond, Worldwide Growth, International Growth and Income, International Stock and
Pacific Rim Emerging Markets Trusts, .50% in the case of all other portfolios
except for the Equity Index Trust, or .15% in the case of the Equity Index Trust
of the average annual net assets of such portfolio. The expense limitations will
continue in effect from year to year unless otherwise terminated at any year end
by the Adviser on 30 days' notice to the Trust. (For a limited period of one
year ending December 31, 1997, the expense limitation applicable to the Real
Estate Securities, Common Stock and Capital Growth Bond Trusts will include all
expenses of such portfolios, so that their total expenses for that year,
including advisory fees, will not exceed .50%.) For the prior fiscal year, the
Adviser did not reimburse the Trust for any expenses since expenses were below
the expense limitations. However, if expenses were to increase above the expense
limits and the reimbursements were terminated, Trust expenses would increase. In
addition, in the case of the Lifestyle Trusts, the Adviser has agreed to pay the
expenses of the Lifestyle Trusts (other than the expenses of the Underlying
Portfolios) for a period of one year commencing January 1, 1997. After this one
year period, this expense reimbursement may be terminated at any time.
In addition to providing the services and expense limitations described
above, the Adviser selects, contracts with and compensates subadvisers to manage
the investment and reinvestment of the assets of all portfolios of the Trust.
(The Adviser does not manage any of the Trust portfolio assets.) The Adviser
monitors the compliance of such subadvisers with the investment objectives and
related policies of each portfolio and reviews the performance of such
subadvisers and reports periodically on such performance to the Trustees of the
Trust. The Trust has received an order from the Securities and Exchange
Commission permitting the Adviser to appoint a subadviser or change a
subadvisory fee pursuant to an agreement that is not approved by shareholders.
The Trust, therefore, is able to change subadvisers or the fees paid to
subadvisers from time to time without the expense and delays associated with
obtaining shareholder approval of the change.
As compensation for its services, the Adviser receives a fee from the
Trust computed separately for each portfolio, except for the Lifestyle Trusts
for which the Adviser makes no charge. The fee for each portfolio is stated as
an annual percentage of the current value of the net assets of the portfolio.
The fee, which is accrued daily and payable monthly, is calculated for each day
by multiplying the daily equivalent of the annual percentage prescribed for a
portfolio by the value of the net assets of the portfolio at the close of
business on the previous business day of the Trust. The following is a schedule
of the management fees each portfolio currently is obligated to pay the Adviser:
<TABLE>
<S> <C>
PORTFOLIO
Pacific Rim Emerging Markets Trust........................ .850%
Science & Technology Trust................................ 1.100%
International Small Cap Trust............................. 1.100%
Emerging Growth Trust..................................... 1.050%
Pilgrim Baxter Growth Trust............................... 1.050%
Small/Mid Cap Trust....................................... 1.000%
</TABLE>
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<PAGE> 80
<TABLE>
<S> <C>
International Stock Trust........................... 1.050%
Worldwide Growth Trust ............................. 1.000%
Global Equity Trust................................. .900%
Growth Trust........................................ .850%
Equity Trust ....................................... .750%
Quantitative Equity Trust........................... .700%*
Equity Index Trust.................................. .250%
Blue Chip Growth Trust.............................. .925%
Real Estate Securities Trust........................ .700%*
Value Trust......................................... .800%
International Growth and Income Trust .............. .950%
Growth and Income Trust ............................ .750%
Equity-Income Trust................................. .800%
Balanced Trust...................................... .800%
Aggressive Asset Allocation Trust .................. .750%
High Yield Trust.................................... .775%
Moderate Asset Allocation Trust..................... .750%
Conservative Asset Allocation Trust................. .750%
Strategic Bond Trust ............................... .775%
Global Government Bond Trust ....................... .800%
Capital Growth Bond................................. .650%*
Investment Quality Bond Trust ...................... .650%
U.S. Government Securities Trust ................... .650%
Money Market Trust ................................. .500%
</TABLE>
* Because of the special one-year expense limitation described above, total fees
will not exceed .50%.
For the year ended December 31, 1995 the aggregate investment advisory
fees paid by the Trust was $33,808,255, allocated among the portfolios as
follows: $5,513,312 -- Global Equity Trust, $2,115,434 -- Blue Chip Growth
Trust, $5,643,363 -- Equity Trust, $2,459,247 -- Equity-Income Trust,
$3,922,671 -- Growth and Income Trust, $450,200 -- International Growth and
Income Trust (January 9, 1995, commencement of operations, to December 31,
1995), $767,448 -- Strategic Bond Trust, $1,757,909 -- Global Government Bond
Trust, $798,045 -- Investment Quality Bond Trust, $1,291,668 -- U.S. Government
Securities Trust, $1,318,573 -- Money Market Trust, $1,463,421 -- Aggressive
Asset Allocation Trust, $4,667,061 -- Moderate Asset Allocation Trust and
$1,639,903 -- Conservative Asset Allocation Trust.
For the year ended December 31, 1995 the net investment advisory fees
retained by the Adviser after payment of subadvisory fees was $21,679,387,
allocated among the portfolios as follows:
<TABLE>
<CAPTION>
$ Amount Annual % of
-------- portfolio net assets
--------------------
<S> <C> <C>
Global Equity Trust $ 3,097,393 0.51%
Blue Chip Growth Trust 1,018,275 0.47%
Equity Trust 4,014,691 0.53%
Equity-Income Trust 1,594,436 0.52%
Growth and Income Trust 2,655,435 0.51%
International Growth and Income Trust* 215,965 0.45%
Strategic Bond Trust 445,372 0.45%
Global Government Bond Trust 986,193 0.45%
Investment Quality Bond Trust 521,799 0.43%
U.S. Government Securities Trust 849,065 0.43%
Money Market Trust 1,120,787 0.43%
Aggressive Asset Allocation Trust 903,401 0.46%
Moderate Asset Allocation Trust 3,233,644 0.52%
Conservative Asset Allocation Trust 1,022,932 0.47%
---------
$21,679,387
===========
</TABLE>
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* For the period January 9, 1995 (commencement of operations) to December 31,
1995.
SUBADVISORY ARRANGEMENTS
Each of the Trust's subadvisers, except Fidelity Management Trust
Company, is registered as an investment adviser under the Investment Advisers
Act of 1940. Agreements with the subadvisers have heretofore been approved by
the vote of a majority of the then outstanding voting securities of each series
of shares of the portfolios to be managed by the subadviser. The Trust has filed
an application with the Securities and Exchange Commission seeking exemptive
relief to permit the appointment of a subadviser pursuant to an agreement that
is not approved by shareholders. If granted, the Trust would be able to change
subadvisers from time to time without the expense and delays associated with
obtaining shareholder approval of the new subadviser. There is no assurance that
the requested relief will be granted.
Fidelity Management Trust Company
Fidelity Management Trust Company ("FMTC"), the subadviser to the
Equity and Automatic Asset Allocation Trusts, founded in 1946, is located at 82
Devonshire Street, Boston, Massachusetts 02109. FMTC is part of Fidelity
Investments, a group of companies that provides investment management and other
financial services. FMTC is a wholly-owned subsidiary of FMR Corp., the parent
company of the Fidelity companies. Founded in 1981, FMTC serves as investment
manager to institutional clients, managing assets for insurance companies,
tax-exempt retirement funds, endowments, foundations and other institutional
investors. As of October 31, 1996 FMTC had investment management responsibility
for approximately $39.3 billion of assets. Fidelity Investments, founded by
Edward C. Johnson 2d, the father of the current chairman, Edward C. Johnson 3d,
is the country's largest privately-owned investment management organization and
as of October 31, 1996 had assets under management exceeding $476.5 billion.
Fidelity Investments maintains a staff of over 100 in-house research analysts
and follows some 7000 companies worldwide.
David Felman has been primarily responsible for the day-to-day
management of the Equity Trust since June 1996. Scott D. Stewart has had primary
responsibility for the day-to-day management of the three Asset Allocation
Trusts since December 1991.
David Felman joined Fidelity in June, 1993 and is a Portfolio Manager
within the Growth Group and an analyst for the Diversified Chemicals Industry.
Scott Stewart joined Fidelity in 1987, and is Senior Vice President,
Portfolio Manager and head of the Structured Equity Group.
Oechsle International Advisors, L.P.
Oechsle International Advisors, L.P. ("Oechsle International"), the
subadviser to the Global Government Bond Trust, founded in 1986, is a Delaware
limited partnership whose principal offices are located at One International
Place, Boston, Massachusetts 02110. Oechsle International, which also has
offices in London, England, Frankfurt, Germany and Tokyo, Japan, as of November
30, 1996 managed approximately $9.1 billion for institutional and private
investors. Oechsle International is a money manager providing management and
advisory services with respect to all primary international securities markets.
Each year Oechsle International's investment professionals concentrate on up to
30 different countries, averaging 700 visits to companies annually.
Astrid Vogler has been primarily responsible for the day-to-day
management of the Global Government Bond Trust. Ms. Vogler has been a Fixed
Income Portfolio Manager at Oechsle International in Frankfurt, West Germany
since 1988.
Wellington Management Company, LLP
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Wellington Management Company, LLP ("Wellington Management"), the
subadviser to the Growth and Income and Investment Quality Bond Trusts, founded
in 1933, is a Massachusetts limited liability partnership whose principal
business address is 75 State Street, Boston, Massachusetts 02109. Wellington
Management is a professional investment counseling firm which provides
investment services to investment companies, employee benefit plans, endowments,
foundations and other institutions and individuals. As of September 30, 1996,
Wellington Management had investment management authority with respect to
approximately $123 billion of client assets. The managing partners of Wellington
Management are Robert W. Doran, Duncan M. McFarland and John R. Ryan.
Matthew E. Megargel, Senior Vice President of Wellington Management,
has served as portfolio manager to the Growth and Income Trust since February
1992. Mr. Megargel also serves as the portfolio manager for the North American
Funds' Growth and Income Fund. Mr. Megargel joined Wellington Management in 1983
as a research analyst and took on additional responsibilities as a portfolio
manager in 1988. In 1991, he became solely a portfolio manager with Wellington
Management.
Thomas L. Pappas, Senior Vice President of Wellington Management, has
served as portfolio manager to the Investment Quality Bond Trust since March
1994. Mr. Pappas also serves as portfolio manager to the North American Funds'
Investment Quality Bond Fund. Mr. Pappas has been a portfolio manager with
Wellington Management since 1987.
J.P. Morgan Investment Management, Inc.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan") is the
Subadviser to the International Growth and Income Trust. J.P. Morgan, with
principal offices at 522 Fifth Avenue, New York 10036, is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan & Co."), a bank
holding company organized under the laws of Delaware which is located at 60 Wall
Street, New York, New York 10260. Through offices in New York City and abroad,
J.P. Morgan & Co., through J.P. Morgan and other subsidiaries, offers a wide
range of services to governmental, institutional, corporate and individual
customers and acts as investment adviser to individual and institutional clients
with combined assets under management of approximately $197 billion as of
September 30, 1996. J.P. Morgan has managed international securities for
institutional investors since 1974. As of September 30, 1996, the non-U.S.
securities under J.P. Morgan's management was approximately $ 65 billion. J.P.
Morgan provides investment advice and portfolio management services to the
portfolio. Subject to the supervision of the Trustees, J.P. Morgan makes the
portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments.
J.P. Morgan uses a sophisticated, disciplined, collaborative process
for managing the portfolio. The following persons are primarily responsible for
the day-to-day management of the portfolio (their business experience for the
past five years is indicated parenthetically): Paul A. Quinsee, Vice President
(employed by J.P. Morgan since February 1992, previously Vice President,
Citibank) and Gareth A. Fielding, Vice President (employed by J.P. Morgan since
February 1992, previously he received his MBA from Imperial College at London
University, while he was a self-employed trader on the London International
Financial Futures Exchange.)
Mr. Quinsee is primarily responsible for the day-to-day management of
several other institutional and investment company accounts that invest in
international securities constituting approximately $5 billion of assets. Since
July 1994, Mr. Fielding has been responsible for the day-to-day management (in
some cases with another person) of 10 institutional and investment company
portfolios that invest primarily in international fixed income securities,
constituting approximately $3.3 billion of assets. Mr. Fielding is a specialist
in mortgage and asset-backed securities. Prior to July 1994, Mr. Fielding traded
global fixed income products on J.P. Morgan's London trading desk.
Salomon Brothers Asset Management Inc.
Salomon Brothers Asset Management Inc. ("SBAM"), the subadviser to the
U.S. Government Securities Fund and Strategic Bond Fund (collectively, the
"Funds") is a wholly-owned subsidiary of Salomon Brothers Holding Company Inc.,
which is in turn wholly-owned
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by Salomon Inc. ("SI"). SBAM was incorporated in 1987 and, together with
affiliates in London, Frankfurt and Hong Kong, provides a full range of fixed
income and equity investment advisory services for individual and institutional
clients around the world, including European and Far East central banks, pension
funds, endowments, insurance companies, and services as investment adviser to
various investment companies. In providing such investment advisory services,
SBAM and it affiliates have access to SI's more than 250 economists, mortgage,
bond, sovereign and equity analysts. As of October 31, 1996, SBAM and its
worldwide investment advisory affiliates managed approximately $17.8 billion in
assets. SBAM's business offices are located at 7 World Trade Center, New York,
New York 10048.
In connection with SBAM's service as subadviser to the Strategic Bond
Fund, SBAM's London-based affiliate, Salomon Brothers Asset Management Limited
("SBAM Limited"), whose business address is Victoria Plaza, 111 Buckingham
Palace Road, London SW1W OSB, England, provides certain advisory services to
SBAM with regard to currency transactions and investments in non-dollar
denominated debt securities for the benefit of the Strategic Bond Fund. SBAM
Limited is compensated by SBAM at no additional expense to the Strategic Bond
Fund. SBAM Limited is an indirect, wholly-owned subsidiary of Salomon Brothers
Holding Company Inc. SBAM Limited is a member of the Investment Management
Regulatory Organization Limited in the United Kingdom and is registered as an
investment adviser in the United States pursuant to the Investment Advisers Act
of 1940, as amended.
Steven Guterman and Roger Lavan are jointly responsible for the
day-to-day management of the mortgage-backed securities and U.S. government
securities components of the U.S. Government Securities Fund portfolio and the
Strategic Bond Fund portfolio. Mr. Guterman, who joined SBAM in 1990, is a
Managing Director of Salomon Brothers Inc. and a managing Director and Senior
Portfolio Manager of SBAM, responsible for SBAM's investment company and
institutional portfolios which invest primarily in mortgage-backed securities
and U.S. government issues. Mr. Guterman also serves as portfolio manager for
two offshore mortgage funds and a number of institutional clients. Mr. Guterman
joined Salomon Brothers Inc. in 1983 working initially in the mortgage research
group where he became a Research Director and later traded derivative
mortgage-backed securities.
Mr. Lavan joined SBAM in 1990 and is a Portfolio Manager and
Quantitative Fixed Income Analyst, responsible for working with senior portfolio
managers to monitor and analyze market relationships and identify and implement
relative value transactions in SBAM's investment company and institutional
portfolios which invest in mortgage-backed securities and U.S. government
securities. Prior to joining SBAM, Mr. Lavan spent four years analyzing
portfolios for Salomon Brothers' Fixed Income Sales Group and Product Support
Divisions.
Messrs. Guterman and Lavan are assisted in the management of the Funds
by Peter Wilby and David Scott. Mr. Wilby, who joined SBAM in 1989, is a
Managing Director of Salomon Brothers Inc. and SBAM and a Senior Portfolio
Manager of SBAM, responsible for investment company and institutional portfolio
investments in high yield U.S. corporate debt securities and high yield foreign
sovereign debt securities. From 1984 to 1989, Mr. Wilby was employed by
Prudential Capital Management Group ("Prudential"), where he served as Director
of Prudential's
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credit research unit and as a corporate and sovereign credit analyst. Mr. Wilby
also managed high yield bonds and leveraged equities for Prudential mutual funds
and institutional portfolios.
David Scott is a Senior Portfolio Manager with SBAM Limited in London
with primary responsibility for managing long-term global bond portfolios. He
also plays an integral role in developing strategy. Mr. Scott manages currency
transactions and investments in non-dollar denominated securities for the
Strategic Bond Fund. Prior to joining Salomon Brothers in April 1994, Mr. Scott
worked at J.P. Morgan Investment Management ("J.P. Morgan") from 1990 to 1994
where he had responsibility for global and non-dollar portfolios for clients
including departments of various governments, pension funds and insurance
companies. Before joining J.P. Morgan, from 1987 to 1990, Mr. Scott worked for
Mercury Asset Management managing captive insurance portfolios and products.
Fred Alger Management, Inc.
Investment decisions for the Small/Mid Cap Trust are made by its
Subadviser, Fred Alger Management, Inc. ("Alger"). Alger, located at 75 Maiden
Lane, New York, New York 10038, has been in the business of providing investment
advisory services since 1964 and as of September 30, 1996 had approximately $6.8
billion under management, including $4.8 billion in mutual fund accounts and
$2.0 billion in other advisory accounts. Alger Management is wholly owned by
Fred Alger & Company, Incorporated which in turn is wholly owned by Alger
Associates, Inc., a financial services holding company. Fred M. Alger, III and
his brother, David D. Alger, are the majority shareholders of Alger Associates,
Inc. and may be deemed to control that company and its subsidiaries.
David D. Alger, President of Alger Management, is primarily responsible
for the day-to-day management of the Small/Mid Cap Trust. He has been employed
by Alger as Executive Vice President and Director of Research since 1971 and as
President since 1995 and he serves as portfolio manager for other mutual funds
and investment accounts managed by Alger Management. Also participating in the
management of the Small/Mid Cap Trust are Ronald Tartaro and Seilai Khoo. Mr.
Tartaro has been employed by Alger Management since 1990 and he serves as a
Senior Vice President. Prior to 1990, he was a member of the technical staff at
AT&T Bell Laboratories. Ms. Khoo has been employed by Alger Management since
1989 and she serves as a Senior Vice President.
Founders Asset Management, Inc.
Investment decisions for the Growth, International Small Cap, Balanced
and Worldwide Growth Trusts are made by its Subadviser, Founders Asset
Management, Inc. ("Founders"), located at 2930 East Third Avenue, Denver,
Colorado 80206, a registered investment adviser first established as an asset
manager in 1938. Bjorn K. Borgen, Chairman, Chief Executive Officer and Chief
Investment Officer of Founders, owns 100% of the voting stock of Founders. As of
October 31, 1996, Founders had over $4.5 billion of assets under management,
including approximately $3.4 billion in mutual fund accounts and $1.1 billion in
other advisory accounts.
Founders is a "growth-style" manager of equity portfolios and gives
priority to the selection of individual securities that have the potential to
provide superior results over time, despite short-term volatility. Under normal
circumstances, Founders' approach to investment management gives greater
emphasis to the fundamental financial, marketing and operating strengths of the
companies whose securities it buys, and is less concerned with the short-term
impact of changes in macroeconomic and market conditions. Founders focuses on
purchasing the stocks of companies with strong management and market positions
that have earnings prospects that are significantly above the average for their
market sectors.
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To facilitate the day-to-day investment management of the Growth,
International Small Cap, Balanced and Worldwide Growth Trusts, Founders employs
a unique team-and-lead-manager system. The management team is composed of
several members of the Investment Department, including Founders' Chief
Investment Officer, lead portfolio managers, assistant portfolio managers,
portfolio traders and research analysts. Team members share responsibility for
providing ideas, information, knowledge and expertise in the management of the
portfolios. Each team member has one or more areas of expertise that is applied
to the management of the Portfolio. Daily decisions on portfolio selection for
the portfolio rests with a lead portfolio manager assigned to the portfolio.
Michael W. Gerding, Vice President of Investments, is the lead
portfolio manager for the International Small Cap and Worldwide Growth Trusts.
Mr. Gerding is a chartered financial analyst who has been part of Founders'
investment department since 1990. Prior to joining Founders, Mr. Gerding served
as a portfolio manager and research analyst with NCNB Texas for several years.
Mr. Gerding earned a BBA in finance and an MBA from Texas Christian University.
Edward F. Keely, Vice President of Investments, is the lead portfolio
manager for the Growth Trust. Mr. Keely is a chartered financial analyst who
joined Founders in 1989. A graduate of The Colorado College, Mr. Keely holds a
Bachelor of Arts degree in economics.
Brian F. Kelly, Portfolio Manager, is the lead portfolio manager for
the Balanced Trust. Mr. Kelly joined Founders in 1996. Prior to joining
Founders, Mr. Kelly served as portfolio manager for Invesco Trust Company
(1993-1996) and as a senior investment analyst for Sears Investment Management
Company (1986-1993). A graduate of the University of Notre Dame, Mr. Kelly
received his MBA and JD from the University of Iowa. He is also a Certified
Public Accountant.
T. Rowe Price Associates, Inc.
T. Rowe Price Associates, Inc. ("T. Rowe Price"), whose address is at
100 East Pratt Street, Baltimore, Maryland 21202, is the subadviser for the Blue
Chip Growth, Equity-Income and Science & Technology Trusts. Founded in 1937 by
the late Thomas Rowe Price, Jr., T. Rowe Price and its affiliates managed over
$90 billion for over four million individual and institutional investor accounts
as of November 30, 1996.
The Blue Chip Growth Trust has an investment advisory committee
composed of the following members: Larry J. Puglia, Chairman, Brian W.H.
Berghuis, Thomas H. Broadus, Jr., John D. Gillespie, Thomas J. Huber, and
William J. Stromberg. The committee chairman has day-to-day responsibility for
managing the portfolio and works with the committee in developing and executing
the portfolio's investment program. Mr. Puglia joined T. Rowe Price in 1990 and
has been managing investments since 1993. He became chairman of the Blue Chip
Growth Trust investment advisory committee on October 1, 1996.
The investment advisory committee for the Science and Technology Trust
is composed of the following members: Charles A. Morris, Chairman, Lise J.
Buyer, Jill L. Hauser, Joseph Klein III, and Brian D. Stansky. Mr. Morris joined
T. Rowe Price in 1987, and has been managing investments since 1991. He has been
chairman of the investment advisory committee of T. Rowe Price Science &
Technology Fund, Inc. since 1991.
The investment advisory committee for the Equity-Income Trust is
comprised of the following members: Brian C. Rogers, Chairman, Stephen W.
Boesel, Richard P. Howard, Michael F. Sola, and William J. Stromberg. Mr. Rogers
joined T. Rowe Price in 1982 and has been managing investments since 1983. He
has been chairman of the Equity Income Trust investment advisory committee since
October 1, 1996.
Rowe Price-Fleming International, Inc.
Rowe Price-Fleming International, Inc. ("Price-Fleming") is subadviser
to the International Stock Trust. Price Fleming's U.S. office is located at 100
East Pratt Street, Baltimore, Maryland 21202. Price-Fleming has offices in
Baltimore, London, Tokyo, and Hong Kong. Price-Fleming was incorporated in
Maryland in 1979 as a joint venture between T. Rowe Price and Robert Fleming
Holdings Limited (Flemings).
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T. Rowe Price, Flemings, and Jardine Fleming are owners of
Price-Fleming. The common stock of Price-Fleming is 50% owned by a wholly owned
subsidiary of T. Rowe Price, 25% by a subsidiary of Flemings, and 25% by Jardine
Fleming Group Limited (Jardine Fleming). (Half of Jardine Fleming is owned by
Flemings and half by Jardine Matheson Holdings Limited) T. Rowe Price has the
right to elect a majority of the Board of Directors of Price Fleming, and
Flemings has the right to elect the remaining directors, one of whom will be
nominated by Jardine Fleming.
An investment advisory group has day to day responsibility for managing
the portfolio and developing and executing its investment program. The members
of the advisory group are as follows: Martin G. Wade, Christopher D. Alderson,
Peter B. Askew, Richard J. Bruce, Mark J.T. Edwards, John R. Ford, Robert C.
Howe, James B.M. Seddon, Benedict R.F. Thomas, and David J.L. Warren..
Martin Wade joined Price-Fleming in 1979 and has 26 years of experience
with the Fleming Group in research, client service, and investment management.
(Fleming Group included Robert Fleming and/or Jardine Fleming.) Christopher
Alderson joined Price-Fleming in 1988 and has nine years of experience with the
Fleming Group in research and portfolio management. Peter Askew joined
Price-Fleming in 1988 and has 20 years of experience managing multi-currency
fixed income portfolios. Richard Bruce joined Price-Fleming in 1991 and has
seven years of experience in investment management with the Fleming Group in
Tokyo. Mark Edwards joined Price-Fleming in 1986 and has 14 years of experience
in financial analysis. John Ford joined Price-Fleming in 1982 and has 15 years
of experience with the Fleming Group in research and portfolio management.
Robert Howe joined Price-Fleming in 1986 and has 14 years of experience in
economic research, company research, and portfolio management. James Seddon
joined Price-Fleming in 1987 and has 10 year of experience in portfolio
management. Benedict Thomas joined Price-Fleming in 1988 and has six years of
portfolio management experience. David Warren joined Price-Fleming in 1984 and
has 15 years of experience in equity research, fixed income research, and
portfolio management.
Morgan Stanley Asset Management Inc.
Morgan Stanley Asset Management Inc. ("Morgan Stanley"), with principal
offices at 1221 Avenue of the Americas, New York, New York 10020, has been the
subadviser to the Global Equity Trust since October 1, 1996. Morgan Stanley, a
wholly-owned subsidiary of Morgan Stanley Group Inc., conducts a worldwide
portfolio management business, providing a broad range of portfolio management
services to customers in the United States and abroad. At September 30, 1996,
Morgan Stanley, together with its affiliated asset management companies
(including MAS), managed investments totaling approximately $103.5 billion,
including approximately $86.9 billion under active management and $16.6 billion
as named fiduciary or fiduciary adviser.
Frances Campion is primarily responsible for the portfolio management
of the Global Equity Trust. Ms. Campion joined Morgan Stanley in January 1990 as
a global equity fund manager and is now a Principal of Morgan Stanley & Co.
Incorporated. Her responsibilities include day to day management of the Global
Equity Portfolio of Morgan Stanley Institutional Fund, Inc. Prior to joining
Morgan Stanley, Ms. Campion was a U.S. equity analyst with Lombard Odler Limited
where she had responsibility for the management of global portfolios. Ms.
Campion has ten years global investment experience. She is a graduate of
University of College, Dublin.
Miller Anderson & Sherrerd, LLP
Miller Anderson & Sherrerd, LLP ("MAS"), the subadviser to the Value
and High Yield Trusts, is a Pennsylvania limited liability partnership founded
in 1969 and is located at One Tower Bridge, West Conshohocken, PA 19428. MAS
provides investment services to employee benefit plans, endowment funds,
foundations and other institutional investors and as of September 30, 1996 had
approximately $37.5 billion in assets under management. As of January 1996, MAS
is also indirectly wholly-owned by Morgan Stanley Group Inc.
The investment professionals of MAS who are primarily responsible for
the day to day management of the Value Trust are Robert J. Marcin and Richard M.
Behler. Robert J. Marcin,
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Portfolio Manager, joined MAS in 1988 and Richard M Behler, Portfolio Manager,
joined MAS in 1995. Both Mr. Marcin and Mr. Behler have been portfolio managers
since joining MAS. Prior to joining MAS, Mr. Behler served as portfolio manager
from 1992-1995 for Moore Capital Management and Senior Vice President for
Merrill Lynch Economics from 1987 through 1992. Messrs. Marcin and Behler are
also primarily responsible for the management of the Value Portfolios of MAS
Funds and Morgan Stanley Universal Funds. The investment professionals primarily
responsible for the High Yield Trust are Robert E. Angevine, Thomas L. Bennett
and Stephen F. Esser. Robert E. Angevine, Portfolio Manager, joined Morgan
Stanley Asset Management in 1988 and came to the MAS High Yield Portfolio Team
in 1996, Thomas L. Bennett, Portfolio Manager, joined MAS in 1984, and Stephen
F. Esser, Portfolio Manager, joined MAS in 1988. Messrs. Angevine, Bennett and
Esser are also primarily responsible for the management of the High Yield
portfolios of MAS funds and Morgan Stanley Universal Funds.
Pilgrim Baxter & Associates
Pilgrim Baxter & Associates, the sub-advisor to the Pilgrim Baxter
Growth Trust, is a professional investment management firm that has been in
business since its founding in 1982. The controlling shareholder of Pilgrim
Baxter & Associates is United Asset Management Corporation (UAM), a New York
Stock Exchange listed holding company principally engaged, through affiliated
firms, in providing institutional investment management services. UAM's
corporate headquarters are located at One International Place, Boston,
Massachusetts 02110. Pilgrim Baxter & Associates currently has discretionary
management authority with respect to approximately $14 billion. In addition to
advising the Pilgrim Baxter Growth Trust, Pilgrim Baxter & Associates provides
advisory services to the PBHG Funds, Inc. and to pension and profit sharing
plans, charitable institutions, corporations, individuals, trust and estates and
other investment companies. The principal business address for Pilgrim Baxter &
Associates is 1255 Drummers Lane, Wayne, Pennsylvania 19087.
Mr. Bruce J. Muzina and Mr. Gary L. Pilgrim, CFA serve as co-portfolio
managers of the Pilgrim Baxter Growth Trust. Mr. Pilgrim has served as the Chief
Investment Officer of Pilgrim Baxter & Associates for the past six years and as
the President since 1993. Mr. Pilgrim is also the portfolio manager of the PBHG
Growth Fund, a mutual fund available to the general public. Mr. Muzina serves as
the lead Mid-Cap portfolio manager for institutional accounts at Pilgrim Baxter
& Associates. Mr. Muzina has been with the firm since 1985.
Manufacturers Adviser Corporation
Manufacturers Adviser Corporation ("MAC"), a Colorado corporation, is
the subadviser of the Money Market, Pacific Rim Emerging Markets, Capital Growth
Bond, Quantitative Equity, Real Estate Securities, Equity Index and Lifestyle
Trusts. Its principal business at the present time is to provide investment
management services to these portfolios and comparable portfolios of North
American Funds. MAC is an indirect wholly-owned subsidiary of Manulife. The
address of MAC is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5. As of
October 31, 1996, MAC together with Manulife had approximately $15 billion of
assets under management.
Management of the above portfolios is provided by a team of investment
professionals each of whom plays an important role in the management process of
each portfolio. Team members work together to develop investment strategies and
select securities for a portfolio. They are supported by research analysts,
traders and other investment specialists who work alongside the investment
professionals in an effort to utilize all available resources to benefit the
shareholders.
The persons with primary responsibility for the day to day management
of the Real Estate Securities Trust are Mark Schmeer and Leslie Grober. Mr.
Schmeer joined MAC in 1995 and has managed the Real Estate Securities Trust
since then. He is an investment manager of U.S. Equities at Manulife. Prior to
1995 he was a Vice President of Sun Life Investment Management, where he served
from 1993 to 1995. Mr. Schmeer was a manager of U.S. Investments for Ontario
Hydro Corporation from 1986 to 1993. Mr. Grober also joined MAC in 1995 and has
managed the Real Estate Securities Trust since then. He has been an investment
manager of U.S. Equities at Manulife
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since 1994. Mr. Grober was an investment representative of Toronto-Dominion Bank
from 1991 to 1993. Prior to that he was employed by the Bank of Montreal.
The persons with primary responsibility for the day to day management
of the Quantitative Equity Trust are Mark Schmeer and Rhonda Chang. Ms. Chang
joined MAC in 1995 and has managed the Quantitative Equity Trust since then. She
has been an investment manager at Manulife since 1994. From 1990 to 1994, Ms.
Chang was an investment analyst with American International Group. Mark Schmeer
has managed the Quantitative Equity Trust since 1995.
The person with primary responsibility for the day to day management of
the Lifestyle Trusts is Mark Schmeer.
Catherine Addison has primary responsibility for the day to day
management of the Capital Growth Bond Trust. She has had such responsibility for
the predecessor portfolio of Manulife Series Fund, Inc., since 1988. She has
been an investment manager of U.S. Fixed Income at Manulife since 1985.
The persons with primary responsibility for the day to day management
of the Pacific Rim Emerging Markets Trust are Stephen Hill, Richard James Crook
and Emilia Panadero-Perez. Mr. Hill joined MAC in 1995 and has managed the
Pacific Rim Emerging Market Trust since then. He is also an investment manager
at Manulife. Prior to 1995, Mr. Hill was a director of INVESCO Asset Management,
where he served in 1993 and 1994. Mr. Hill was a director of Yasuda Trust Europe
from 1989 to 1992. Mr. Crook joined MAC in 1994 and has managed the Pacific Rim
Emerging Market Trust since then. He has been an investment manager of Manulife
since 1975. Ms. Panadero-Perez joined MAC in 1995. She has been an investment
manager at Manulife since 1989.
Warburg, Pincus Counsellors, Inc.
Warburg, Pincus Counsellors, Inc. ("Warburg"), the subadviser of the
Emerging Growth Trust, is a professional investment counselling firm which
provides investment services to investment companies, employee benefit plans,
endowment funds, foundations and other institutions and individuals. As of
October 31, 1996, Warburg managed approximately $18.4 billion of assets,
including approximately $9.8 billion of investment company assets. Incorporated
in 1970, Warburg is a wholly owned subsidiary of Warburg, Pincus Counsellors
G.P. ("Warburg G.P."), a New York general partnership. E.M. Warburg, Pincus &
Co., LLC ("EMW") controls Warburg through its ownership of a class of voting
preferred stock of Warburg. Warburg G.P. has no business other than being a
holding company of Warburg and its subsidiaries. Warburg's address is 466
Lexington Avenue, New York, New York 10017-3147.
The co-portfolio managers of the Fund are Elizabeth B. Dater and
Stephen J. Lurito. Ms. Dater has been portfolio manager of the Warburg Pincus
Emerging Growth Fund since its inception on January 21, 1988. She is a managing
director of EMW and has been a portfolio manager of Warburg since 1978. Mr.
Lurito has been a portfolio manager of the Fund since 1990. He is a
managing director of EMW and has been with Warburg since 1987, before which time
he was a research analyst at Sanford C. Bernstein & Company, Inc.
* * *
Under the terms of each of the Subadvisory Agreements, the subadviser
manages the investment and reinvestment of the assets of the assigned
portfolios, subject to the supervision of the Trustees of the Trust. The
subadviser formulates a continuous investment program for each such portfolio
consistent with its investment objectives and policies outlined in this
Prospectus. Each subadviser implements such programs by purchases and sales of
securities and regularly reports to the Adviser and the Trustees of the Trust
with respect to the implementation of such programs.
As compensation for their services, the subadvisers receive fees from
the Adviser computed separately for each portfolio. The fee for each portfolio
is stated as an annual percentage of the current value
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of the net assets of such portfolio. The fees are calculated on the basis of the
average of all valuations of net assets of each portfolio made at the close of
business on each business day of the Trust during the period for which such fees
are paid. Once the average net assets of a portfolio exceed specified amounts,
the fee is reduced with respect to such excess. The following is a schedule of
the management fees the Adviser currently is obligated to pay the subadvisers
out of the advisory fee it receives from each portfolio as specified above:
<TABLE>
<CAPTION>
BETWEEN BETWEEN
$50,000,000 $200,000,000
FIRST AND AND EXCESS OVER
PORTFOLIO $50,000,000 $200,000,000 $500,000,000 $500,000,000
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emer'g Mrkts
Trust ........................................ .400% .350% .275% .225%
Science & Technology Trust ...................... .600% .600% .600% .600%
International Small Cap Trust ................... .650% .600% .500% .400%
Emerging Growth Trust ........................... .550% .550% .550% .550%
Pilgrim Baxter Growth Trust ..................... .600% .600% .500% .500%
Small/Mid Cap Trust ............................. .525% .500% .475% .450%
International Stock Trust ....................... .750%* .500% .500%* .450%*
Worldwide Growth Trust .......................... .600% .550% .450% .350%
Global Equity Trust ............................. .500% .450% .375% .325%
Growth Trust .................................... .450% .450% .350% .300%
Equity Trust .................................... .375% .325% .275% .200%
Quantitative Equity Trust ....................... .275% .225% .175% .150%
Equity Index Trust .............................. .100% .100% .100% .100%
Blue Chip Growth ................................ .500% .450% .400% .325%
Real Estate Securities Trust .................... .275% .225% .175% .150%
Value Trust ..................................... .400% .300% .200% .200%
International Growth and
Income Trust ................................. .500% .450% .400% .350%
Growth and Income Trust ......................... .325% .275% .225% .150%
Equity-Income Trust ............................. .400% .300% .200% .200%
Balanced Trust .................................. .375% .325% .275% .225%
Aggressive Asset Allocation
Trust ........................................ .400% .350% .300% .225%
High Yield Trust ................................ .350% .300% .250% .200%
Moderate Asset Allocation Trust ................. .375% .325% .275% .200%
Conservative Asset Allocation
Trust ........................................ .350% .300% .250% .175%
Strategic Bond Trust** .......................... .350% .300% .250% .200%
Global Government Bond Trust .................... .375% .350% .300% .250%
Capital Growth Bond Trust ....................... .225% .225% .150% .100%
Investment Quality Bond Trust ................... .225% .225% .150% .100%
U.S. Government Securities Trust ................ .225% .225% .150% .100%
Money Market Trust .............................. .075% .075% .075% .020%
Lifestyle Trusts ................................ no subadvisory fee
</TABLE>
*.750% up to $20 million, .600% from $20 million up to $50 million, .50% from
$50 million up to $200 million of the current value of the net assets of the
Portfolio. When the current value of the net assets of the Portfolio equals or
exceeds $200 million, the fee is .500% of the current value of the net assets of
the Portfolio. When the current value of the net assets of the Portfolio equals
or exceeds $500 million, the fee is .450% of the current value of the net assets
of the Portfolio.
** In connection with the subadvisory consulting agreement between SBAM and SBAM
Limited, SBAM will pay SBAM Limited, as full compensation for all services
provided under the subadvisory consulting agreement, a portion of its
subadvisory fee, such amount being an amount equal to the fee payable under
SBAM's subadvisory agreement multiplied by the current value of the net assets
of the portion of the assets
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of the Strategic Bond Trust that SBAM Limited has been delegated to manage
divided by the current value of the net assets of the portfolio.
For the year ended December 31, 1995, the Adviser paid aggregate
subadvisory fees of $12,007,940, allocated among the portfolios as follows:
Global Equity Trust - $2,415,918, Blue Chip Growth Trust - $978,146, Equity
Trust - $1,628,673, Equity-Income Trust - $864,812, Growth & Income Trust -
$1,267,236, International Growth & Income Trust - $232,320, Global Government
Bond Trust - $771,716, Investment Quality Bond Trust - $276,246, U.S. Government
Securities Trust - $442,603, Money Market Trust - $197,786, Aggressive Asset
Allocation Trust - $560,019, Moderate Asset Allocation Trust - $1,433,417,
Conservative Asset Allocation Trust - $616,971, Strategic Bond Trust - $322,077
($63,321 of this amount was paid to SBAM Limited.).
For the year ended December 31, 1995, the Adviser did not pay any
subadvisory fees to any affiliated subadviser.
Above are brief summaries of the advisory agreement with NASL Financial
("Advisory Agreement") and the subadvisory agreements with the subadvisers
("Subadvisory Agreements"). A more comprehensive statement of the terms of such
agreements appears in the Statement of Additional Information under the caption
"Investment Management Arrangements".
All or a portion of Trust brokerage commissions may be paid to
affiliates of Salomon, J.P. Morgan, Alger, Fidelity, Morgan Stanley and Oechsle.
Information on the amount of these commissions is set forth in the Statement of
Additional Information under "Portfolio Brokerage."
EXPENSES
Subject to the expense limitations discussed above, the Trust is
responsible for the payment of all expenses of its organization, operations and
business, except for those expenses the Adviser or subadvisers have agreed to
pay pursuant to the Advisory or Subadvisory Agreements. Among the expenses to be
borne by the Trust are charges and expenses of the custodian, independent
accountants and transfer, bookkeeping and dividend disbursing agents appointed
by the Trust; brokers' commissions and issue and transfer taxes on securities
transactions to which the Trust is a party; taxes payable by the Trust; and
legal fees and expenses in connection with the affairs of the Trust, including
registering and qualifying its shares with regulatory authorities and in
connection with any litigation.
For the year ended December 31, 1995, the expenses, including the
Adviser's fee but excluding portfolio brokerage commissions, expressed as a
percentage of average net assets, for each of the Trust's portfolios were as
follows: 1.05% -- Global Equity Trust, .975% -- Blue Chip Growth Trust, .80% --
Equity Trust, .85% -- Equity-Income Trust, .80% -- Growth and Income Trust,
1.47% (annualized) -- International Growth and Income Trust, .92% -- Strategic
Bond Trust, .93% -- Global Government Bond Trust, .74% -- Investment Quality
Bond Trust, .71% -- U.S. Government Securities Trust, .54% -- Money Market
Trust, .91% -- Aggressive Asset Allocation Trust, .84% -- Moderate Asset
Allocation Trust and .87% -- Conservative Asset Allocation Trust.
For the year ended December 31, 1995, the expenses, excluding the
Adviser's fee and portfolio brokerage commissions, expressed as a percentage of
average net assets, for each of the Trust's portfolios were as follows: .15% --
Global Equity Trust, 0% -- Blue Chip Growth Trust, .05% -- Equity Trust, .05% --
Equity-Income Trust, .05% -- Growth and Income Trust, .52% (annualized) --
International Growth and Income Trust, .15% -- Strategic Bond Trust, .13% --
Global Government Bond Trust, .09% -- Investment Quality Bond Trust, .06% --
U.S. Government Securities Trust, .04% -- Money Market Trust, .16% --
Aggressive Asset Allocation Trust, .09% -- Moderate Asset Allocation Trust and
.12% -- Conservative Asset Allocation Trust.
Each of the portfolios, except the Global Equity, Blue Chip Growth,
Equity, Equity-Income and Growth and Income Trusts, anticipates that its annual
portfolio turnover rate will exceed 100%. A high portfolio turnover rate
generally involves correspondingly greater brokerage commission expenses, which
must be borne directly by the portfolio. The portfolio turnover rate of each of
the Trust's portfolios may vary from year to year, as well as within a year. See
"Portfolio Turnover" in the Statement of Additional Information.
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PERFORMANCE DATA
From time to time the Trust may publish advertisements containing
performance data relating to its portfolios. Performance data will consist of
total return quotations which will always include quotations for recent one-year
and, when applicable, five-year and ten-year periods and where less than five or
ten years, for the period since the date the portfolio, including its
predecessor prior to the reorganization of the Fund on December 31, 1988, became
available for investment. In the case of the Pacific Rim Emerging Markets, Real
Estate Securities, Common Stock, Capital Growth Bond and Equity Index Trusts,
such quotations will be for periods that include the performance of the
predecessor portfolios of Manulife Series Trust, Inc. Such quotations for such
periods will be the average annual rates of return required for an initial
investment of $1,000 to equal the market value of such investment on the last
day of the period, after reflection of all Trust charges and expenses and
assuming reinvestment of all dividends and distributions. Performance figures
used by the Trust are based on the actual historical performance of its
portfolios for specified periods, and the figures are not intended to indicate
future performance. Moreover, the Trust's performance figures are not comparable
to those for public mutual funds. Trust shares are only available as the
underlying investment medium for contracts which provide for certain charges, as
described in the accompanying contract Prospectus. The impact of such charges is
not reflected in the Trust's performance figures. More detailed information on
the computations is set forth in the Statement of Additional Information. The
Trust's annual report, which is available without charge upon request, contains
further discussions of Trust performance.
The Trust may also from time to time advertise the performance of
certain portfolios relative to that of unmanaged indices, including but not
limited to the Dow Jones Industrial Average, the Lehman Brothers Bond,
Government Corporate, Corporate and Aggregate Indices, the Standard and Poor's
500, the Value Line Composite and the Morgan Stanley Capital International
Europe, Australia and Far East ("EAFE") and World Indices. The Trust may also
advertise the performance rankings assigned certain portfolios or their
investment subadvisers by various statistical services, including but not
limited to SEI, Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis and Variable Insurance Products Performance Analysis, Variable Annuity
Research and Data Service, Intersec Research Survey of Non-U.S. Equity Fund
Returns and Frank Russell International Universe, and any other data which may
be presented from time to time by such analysts as Dow Jones, Morning Star,
Chase International Performance, Wilson Associates, Stanger, CDA Investment
Technology, the Consumer Price Index ("CPI"), The Bank Rate Monitor National
Index, IBC/Donaghue's Average U.S. Government and Agency, or as they appear in
various publications, including The Wall Street Journal, New York Times, Forbes,
Barrons, Fortune, Money Magazine, Financial World and Financial Services Week.
GENERAL INFORMATION
SHARES OF THE TRUST
The Trust's Declaration of Trust authorizes the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest having a
par value of $.01 per share, to divide such shares into an unlimited number of
series of shares and to designate the relative rights and preferences thereof,
all without shareholder approval. In addition, the Trustees are authorized to
divide any series of shares into separate classes, also without shareholder
approval. The Trust currently has thirty-five series of shares, one for each
portfolio. Shares of each portfolio have equal rights with regard to
redemptions, dividends, distributions and liquidations with respect to that
portfolio. When issued, shares are fully paid and non-assessable and do not have
preemptive or conversion rights or cumulative voting rights. All shares are
entitled to one vote and are voted by series, except that when voting for the
election of Trustees and when otherwise permitted by the Investment Company Act
of 1940, shares are voted in the aggregate. Only shares of a particular
portfolio are entitled to vote on matters determined by the Trustees to affect
only the interests of that portfolio.
The Trust currently has three shareholders, Security Life, Manulife
America and FNAL. Security Life provided the Trust with its initial capital.
Currently, Security Life owns Trust shares attributable to the initial
capitalization of the Growth and Income Trust. Each shareholder owns the Trust
shares attributable to contracts participating in its separate accounts and will
vote such shares and, in the case of Security Life, Trust shares owned
beneficially by Security Life in accordance with instructions received from
contract owners.
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Shares of the Trust may be sold to both variable annuity separate
accounts and variable life insurance separate accounts of affiliated insurance
companies. The Trust currently does not foresee any disadvantages to the owners
of variable annuity or variable life insurance contracts arising from the fact
that the interests of those owners may differ. Nevertheless, the Trust's Board
of Trustees will monitor events in order to identify any material irreconcilable
conflicts which may possibly arise due to differences of tax treatment or other
considerations and to determine what action, if any, should be taken in response
thereto. Such an action could include the withdrawal of a separate account from
participation in the Trust.
TAXES
TAX STATUS. The Trust believes that each portfolio will qualify as a
regulated investment company under Subchapter M, Chapter 1, Subtitle A of the
Internal Revenue Code (the "Code"), and the Trust intends to take the steps
necessary to so qualify each portfolio. As a result of qualifying as a regulated
investment company, each portfolio will not be subject to Federal income tax to
the extent that the portfolio distributes its net income, including its net
realized capital gains, to its shareholders. Accordingly, each portfolio intends
to distribute substantially all of its net income, including all of its net
realized capital gains, to its shareholders. Under current law, net income,
including net realized capital gain, is not taxed to a life insurance company to
the extent that it is applied to increase the reserves for the company's
variable annuity and life insurance contracts.
SOURCES OF GROSS INCOME. To qualify for treatment as a regulated
investment company, a portfolio must, among other things, derive its income from
certain sources. Specifically, in each taxable year a portfolio must derive at
least 90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, or other income (including, but not limited to, gains
from options, futures or forward contracts) derived with respect to its business
of investing in stock, securities, or currencies. A portfolio must also derive
less than 30% of its gross income from the sale or other disposition of any of
the following which was held for less than three months: (1) stock or
securities, (2) options, futures, or forward contracts (other than options,
futures, or forward contracts on foreign currencies), or (3) foreign currencies
(or options, futures, or forward contracts on foreign currencies) but only if
such currencies (or options, futures, or forward contracts) are not directly
related to the portfolio's principal business of investing in stock or
securities (or options and futures with respect to stocks or securities). For
purposes of these tests, gross income generally is determined without regard to
losses from the sale or other disposition of stock or securities or other
portfolio assets. Compliance with these requirements may prevent a portfolio
from utilizing options, futures, and forward contracts as much as the subadviser
might otherwise believe to be desirable.
DIVERSIFICATION OF ASSETS. To qualify for treatment as a regulated
investment company, a portfolio must also satisfy certain requirements with
respect to the diversification of its assets. A portfolio must have, at the
close of each quarter of the taxable year, at least 50% of the value of its
total assets represented by cash, cash items, United States Government
securities, securities of other regulated investment companies, and other
securities which, in respect of any one issuer, do not represent more than 5% of
the value of the assets of the portfolio nor more than 10% of the voting
securities of that issuer. In addition, at those times not more than 25% of the
value of the portfolio's assets may be invested in securities (other than United
States Government securities or the securities of other regulated investment
companies) of any one issuer, or of two or more issuers which the portfolio
controls and which are engaged in the same or similar trades or businesses or
related trades or businesses.
Because the Trust is established as an investment medium for insurance
company separate accounts, regulations under Subchapter L of the Code impose
additional diversification requirements on each portfolio. These requirements
generally are that no more than 55% of the value of the assets of a portfolio
may be represented by any one investment; no more than 70% by any two
investments; no more than 80% by any three investments; and no more than 90% by
any four investments. For these purposes, all securities of the same issuer are
treated as a single investment and each United States government agency or
instrumentality is treated as a separate issuer.
FOREIGN INVESTMENTS. Portfolios investing in foreign securities or
currencies may be required to pay withholding or other taxes to foreign
governments. Foreign tax withholding from dividends and interest, if any, is
generally at a rate between 10% and 35%. The investment yield of any portfolio
that invests in foreign securities or currencies will be reduced by these
foreign taxes. Shareholders will bear the cost of any foreign
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tax withholding, but may not be able to claim a foreign tax credit or deduction
for these foreign taxes. Portfolios investing in securities of passive foreign
investment companies may be subject to U.S. federal income taxes and interest
charges (and investment yield of the portfolios making such investments will be
reduced by these taxes and interest charges). Shareholders will bear the cost of
these taxes and interest charges, but will not be able to claim a deduction for
these amounts.
ADDITIONAL TAX CONSIDERATIONS. If a portfolio failed to qualify as a
regulated investment company, owners of contracts based on the portfolio (1)
might be taxed currently on the investment earnings under their contracts and
thereby lose the benefit of tax deferral, and (2) the portfolio might incur
additional taxes. In addition, if a portfolio failed to comply with the
diversification requirements of the regulations under Subchapter L of the Code,
owners of contracts based on the portfolio would be taxed on the investment
earnings under their contracts and thereby lose the benefit of tax deferral.
Accordingly, compliance with the above rules is carefully monitored by the
Adviser and the Subadvisers and it is intended that the portfolios will comply
with these rules as they exist or as they may be modified from time to time.
Compliance with the tax requirements described above may result in a reduction
in the return under a portfolio, since, to comply with the above rules, the
investments utilized (and the time at which such investments are entered into
and closed out) may be different from that Subadvisers might otherwise believe
to be desirable.
OTHER INFORMATION. For more information regarding the tax implications
for the purchaser of a variable annuity or life insurance contracts who
allocates investments to the Trust, please refer to the prospectus for the
contract.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. It is not
intended to be a complete explanation or a substitute for consultation with
individual tax advisors. For the complete provisions, reference should be made
to the pertinent Code sections and the Treasury Regulations promulgated
thereunder. The Code and Regulations are subject to change.
DIVIDENDS
The Trust intends to declare as dividends substantially all of the net
investment income, if any, of each portfolio. For dividend purposes, net
investment income of each portfolio except the Money Market Trust will consist
of all payments of dividends (other than stock dividends) or interest received
by such portfolio less the estimated expenses of such portfolio (including fees
payable to the Adviser) and for the Money Market Trust it will consist of the
interest income earned on investments, plus or minus amortized purchase discount
or premium, plus or minus realized gains and losses, less estimated expenses.
Dividends from the net investment income and the net realized short-term and
long-term capital gains, if any, for each portfolio except the Money Market
Trust will be declared not less frequently than annually and reinvested in
additional full and fractional shares of that portfolio or paid in cash.
Dividends from net investment income and net realized short-term and long-term
capital gains, if any, for the Money Market Trust will be declared and
reinvested, or paid in cash, daily.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Trust are offered continuously, without sales charge, at
prices equal to the respective net asset values of the portfolio. The Trust
sells its shares directly without the use of any underwriter. Shares of the
Trust are sold and redeemed at their net asset value next computed after a
purchase payment or redemption request is received by the shareholder from the
contract owner or after any other purchase or redemption order is received by
the Trust. Depending upon the net asset values at that time, the amount paid
upon redemption may be more or less than the cost of the shares redeemed.
Payment for shares redeemed will be made as soon as possible, but in any event
within seven days after receipt of a request for redemption.
The net asset value of the shares of each portfolio is determined once
daily as of the close of regularly scheduled trading of the New York Stock
Exchange, Monday through Friday, except that no determination is required on (i)
days on which changes in the value of such portfolio's portfolio securities will
not materially affect the current net asset value of the shares of the
portfolio, (ii) days during which no shares of such portfolio are tendered for
redemption and no order to purchase or sell such shares is received by the
Trust, or (iii) the following business holidays or the days on which such
holidays are observed by the New York Stock Exchange: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Generally, trading in non-U.S. securities,
as well as U.S. Government
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securities and money market instruments, is substantially completed each day at
various times prior to the close of regularly scheduled trading of the New York
Stock Exchange. The values of such securities used in computing the net asset
value of a portfolio's shares are generally determined as of such times.
Occasionally, events which affect the values of such securities may occur
between the times at which they are generally determined and the close of the
New York Stock Exchange and would therefore not be reflected in the computation
of a portfolio's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be valued
at their fair value as determined in good faith by the subadvisers under
procedures established and regularly reviewed by the Trustees.
The net asset values per share of all portfolios other than the Money
Market Trust are computed by adding the sum of the value of the securities held
by each portfolio plus any cash or other assets it holds, subtracting all its
liabilities, and dividing the result by the total number of shares outstanding
of that portfolio at such time. Securities held by each of the portfolios other
than the Money Market Trust, except for money market instruments with remaining
maturities of 60 days or less and Underlying Portfolio shares held by the
Lifestyle Trusts, are valued at their market value if market quotations are
readily available. Otherwise, such securities are valued at fair value as
determined in good faith by the Trustees although the actual calculations may be
made by persons acting pursuant to the direction of the Trustees.
All instruments held by the Money Market Trust and money market
instruments with a remaining maturity of 60 days or less held by the other
portfolios are valued on an amortized cost basis.
CUSTODIAN
State Street Bank and Trust Company, ("State Street") 225 Franklin
Street, Boston, Massachusetts 02110, currently acts as custodian and bookkeeping
agent of all the Trust assets. State Street has selected various banks and trust
companies in foreign countries to maintain custody of certain foreign
securities. State Street is authorized to use the facilities of the Depository
Trust Company, the Participants Trust Company and the book-entry system of the
Federal Reserve Banks.
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APPENDIX I
DEBT SECURITY RATINGS
STANDARD & POOR'S RATINGS GROUP ("S&P")
Commercial Paper:
A-1 The rating A-1 is the highest rating assigned by S&P to
commercial paper. This designation indicates that the degree
of safety regarding timely payment is either overwhelming or
very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign
designation.
A-2 Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high
for issuers designated "A-1".
Bonds:
AAA Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB-B-CCC
-CC Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance
with the terms of the obligations. 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.
D Bonds rated D are in default. The D category is used when
interest payments or principal payments are not made on the
date due even if the applicable grace period has not expired.
The D rating is also used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.
The ratings set forth above may be modified by the addition of
a plus or minus to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Commercial Paper:
P-1 The rating P-1 is the highest commercial paper rating assigned
by Moody's. Issuers rated P-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics: (1)
leading market positions in established industries; (2) high
rates of return on funds employed; (3) conservative
capitalization structures with moderate reliance on debt
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and ample asset protection; (4) broad margins in earnings
coverage of fixed financial charges and high internal cash
generation; and (5) well established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 Issuers rated P-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
Bonds:
Aaa Bonds which are rated Aaa by Moody's 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 by Moody's are judged to be of high
quality by all standards. Together with the Aaa group, they
comprise what are generally known as high grade bonds. They
are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A by Moody's possess many favorable
investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated Baa by Moody's are considered as medium
grade obligations, that is, 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.
B Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal
payments or of maintenance and 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 high degree. Such issues are often in default
or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to certain of its
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
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APPENDIX II
STRATEGIC BOND TRUST DEBT RATINGS
The average distribution of investments in corporate and government
bonds by ratings for the fiscal year ended December 31, 1995,
calculated monthly on a dollar-weighted basis, for the Strategic Bond
Trust, are as follows:
<TABLE>
<CAPTION>
UNRATED BUT OF
MOODY'S STANDARD & POOR'S COMPARABLE QUALITY PERCENTAGE*
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA 11% 0%
Aa AA 0% 0%
A A 0% 2%
Baa BBB 0% 3%
Ba BB 23% 4%
B B 0% 33%
Caa CCC 0% 2%
Ca CC 0% 0%
C C 0% 0%
D 0% 0%
Unrated as a Group 34%
U.S. Government Securities* 22%
----
100%
</TABLE>
The actual distribution of the Strategic Bond Trust's corporate and
government bond investments by ratings on any given date will vary. In addition,
the distribution of the Trust's investments by ratings as set forth above should
not be considered as representative of the Trust's future portfolio composition.
*Obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.
INVESTMENT QUALITY BOND TRUST DEBT RATINGS
The average distribution of investments in corporate and government
bonds by ratings for the fiscal year ended December 31, 1995,
calculated monthly on a dollar-weighted basis, for the Investment
Quality Bond Trust, are as follows:
<TABLE>
<CAPTION>
UNRATED BUT OF
MOODY'S STANDARD & POOR'S COMPARABLE QUALITY PERCENTAGE*
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Aaa AAA 0% 9%
Aa AA 0% 5%
A A 0% 19%
Baa BBB 0% 5%
Ba BB 0% 2%
B B 0% 1%
Caa CCC 0% 0%
Ca CC 0% 0%
C C 0% 0%
D 0% 0%
Unrated as a Group 0%
U.S. Government Securities* 59%
---
100%
</TABLE>
The actual distribution of the Investment Quality Bond Trust's
corporate and government bond investments by ratings on any given date will
vary. In addition, the distribution of the Trust's investments by ratings as set
forth above should not be considered as representative of the Trust's future
portfolio composition.
*Obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.
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APPENDIX III
STANDARD AND POOR'S DISCLAIMERS
The Equity Index Trust is not sponsored, endorsed, sold or promoted by
Standard & Poor's ("S&P"). S&P makes no representation or warranty, express or
implied, to the shareholders of the Equity Index Trust or any member of the
public regarding the advisability of investing in securities generally or in the
Equity Index Trust particularly or the ability of the S&P 500 Index to track
general stock market performance. S&P's only relationship to the Trust is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard to the Trust
or the Equity Index Trust. S&P has no obligation to take the needs of the Trust
or the shareholders of the Equity Index Trust 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 shares of the
Equity Index Trust or the timing of the issuance or sale of the shares of the
Equity Index Trust or in the determination or calculation of the equation by
which shares of the Equity Index Trust are to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the Equity Index Portfolio.
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 warranty, express or
implied, as to results to be obtained by the Trust, shareholders of the Equity
Index Trust, 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.
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STATEMENT OF ADDITIONAL INFORMATION
NASL SERIES TRUST
(the "Trust")
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Trust's Prospectus dated December 31, 1996 which
may be obtained from NASL Series Trust, 116 Huntington Avenue, Boston,
Massachusetts, 02116.
The date of this Statement of Additional Information is December 31, 1996.
<PAGE> 100
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
INVESTMENT POLICIES .............................................................. 3
Money Market Instruments .................................................. 3
Other Instruments ......................................................... 5
HEDGING AND OTHER STRATEGIC TRANSACTIONS ......................................... 13
General Characteristics of Options ........................................ 13
General Characteristics of Futures Contracts and Options on
Futures Contracts ....................................................... 15
Options on Securities Indices and Other Financial Indices ................. 15
Currency Transactions ..................................................... 16
Combined Transactions ..................................................... 17
Swaps, Caps, Floors and Collars ........................................... 17
Eurodollar Instruments .................................................... 18
Risk Factors .............................................................. 18
Risks of Hedging and Other Strategic Transactions Outside the
United States ........................................................... 19
Use of Segregated and Other Special Accounts .............................. 19
Other Limitations ......................................................... 20
INVESTMENT RESTRICTIONS .......................................................... 21
Fundamental ............................................................... 21
Nonfundamental ............................................................ 22
PORTFOLIO TURNOVER ............................................................... 23
MANAGEMENT OF THE TRUST .......................................................... 25
Compensation of Trustees .................................................. 27
INVESTMENT MANAGEMENT ARRANGEMENTS ............................................... 27
The Advisory Agreement .................................................... 29
The Subadvisory Agreements ................................................ 30
Agreement With Prior Subadviser ........................................... 32
PORTFOLIO BROKERAGE .............................................................. 32
PURCHASE AND REDEMPTION OF SHARES ................................................ 38
DETERMINATION OF NET ASSET VALUE ................................................. 38
PERFORMANCE DATA ................................................................. 39
ORGANIZATION OF THE TRUST ........................................................ 41
Shares of the Trust ....................................................... 41
Principal Holders of Securities ........................................... 42
REPORTS TO SHAREHOLDERS .......................................................... 42
INDEPENDENT ACCOUNTANTS .......................................................... 42
LEGAL COUNSEL .................................................................... 42
FINANCIAL STATEMENTS ............................................................. 43
</TABLE>
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<PAGE> 101
INVESTMENT POLICIES
The following discussion supplements the Trust's "Investment Objectives
and Policies" set forth in the Prospectus.
MONEY MARKET INSTRUMENTS
The Money Market Trust will be invested in the types of money market
instruments described below. Certain of the instruments listed below may also be
purchased by the other portfolios in accordance with their investment policies
and all portfolios may purchase such instruments to invest otherwise idle cash
or for defensive purposes, except that the U.S. Government Securities Trust and
the Equity Index Trust may not invest in the instruments described in 2. below.
1. U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS. Government
obligations are debt securities issued or guaranteed as to principal or interest
by the U.S. Treasury. These securities include treasury bills, notes and bonds.
U.S. Government agency obligations are debt securities issued or guaranteed as
to principal or interest by an agency or instrumentality of the U.S. Government
pursuant to authority granted by Congress. U.S. Government agency obligations
include, but are not limited to, the Student Loan Marketing Association, Federal
Home Loan Banks, Federal Intermediate Credit Banks and the Federal National
Mortgage Association. U.S. instrumentality obligations include, but are not
limited to, the Export-Import Bank and Farmers Home Administration. Some
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities are supported by the right of the issuer to borrow from the
U.S. Treasury or the Federal Reserve Banks, such as those issued by Federal
Intermediate Credit Banks; others, such as those issued by the Federal National
Mortgage Association, by discretionary authority of the U.S. Government to
purchase certain obligations of the agency or instrumentality; and others, such
as those issued by the Student Loan Marketing Association, only by the credit of
the agency or instrumentality. There are also separately traded interest
components of securities issued or guaranteed by the United States Treasury. No
assurance can be given that the U.S. Government will provide financial support
to such U.S. Government sponsored agencies or instrumentalities in the future,
since it is not obligated to do so by law. The foregoing types of instruments
are hereafter collectively referred to as "U.S. Government securities."
2. CANADIAN AND PROVINCIAL GOVERNMENT AND CROWN AGENCY OBLIGATIONS.
Canadian Government obligations are debt securities issued or guaranteed as to
principal or interest by the Government of Canada pursuant to authority granted
by the Parliament of Canada and approved by the Governor in Council, where
necessary. These securities include treasury bills, notes, bonds, debentures and
marketable Government of Canada loans. Canadian Crown agency obligations are
debt securities issued or guaranteed by a Crown corporation, company or agency
("Crown agencies") pursuant to authority granted by the Parliament of Canada and
approved by the Governor in Council, where necessary. Certain Crown agencies are
by statute agents of Her Majesty in right of Canada, and their obligations, when
properly authorized, constitute direct obligations of the Government of Canada.
Such obligations include, but are not limited to, those issued or guaranteed by
the Export Development Corporation, Farm Credit Corporation, Federal Business
Development Bank and Canada Post Corporation. In addition, certain Crown
agencies which are not by law agents of Her Majesty may issue obligations which
by statute the Governor in Council may authorize the Minister of Finance to
guarantee on behalf of the Government of Canada. Other Crown agencies which are
not by law agents of Her Majesty may issue or guarantee obligations not entitled
to be guaranteed by the Government of Canada. No assurance can be given that the
Government of Canada will support the obligations of Crown agencies which are
not agents of Her Majesty, which it has not guaranteed, since it is not
obligated to do so by law.
Provincial Government obligations are debt securities issued or
guaranteed as to principal or interest by the government of any province of
Canada pursuant to authority granted by the Legislature of any such province and
approved by the Lieutenant Governor in Council of any such province, where
necessary. These securities include treasury bills, notes, bonds and debentures.
Provincial Crown agency obligations are debt securities issued or guaranteed by
a provincial Crown corporation, company or agency ("provincial Crown agencies")
pursuant to authority granted by a provincial Legislature and approved by the
Lieutenant
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Governor in Council of such province, where necessary. Certain provincial Crown
agencies are by statute agents of Her Majesty in right of a particular province
of Canada, and their obligations, when properly authorized, constitute direct
obligations of such province. Other provincial Crown agencies which are not by
law agents of Her Majesty in right of a particular province of Canada may issue
obligations which by statute the Lieutenant Governor in Council of such province
may guarantee, or may authorize the Treasurer thereof to guarantee, on behalf of
the government of such province. Finally, other provincial Crown agencies which
are not by law agencies of Her Majesty may issue or guarantee obligations not
entitled to be guaranteed by a provincial government. No assurance can be given
that the government of any province of Canada will support the obligations of
provincial Crown agencies which are not agents of Her Majesty, which it has not
guaranteed, as it is not obligated to do so by law. Provincial Crown agency
obligations described above include, but are not limited to, those issued or
guaranteed by a provincial railway corporation, a provincial hydroelectric or
power commission or authority, a provincial municipal financing corporation or
agency and a provincial telephone commission or authority.
Any Canadian obligation acquired by the Money Market Trust will be
payable in U.S. dollars.
3. CERTIFICATES OF DEPOSIT AND BANKERS' ACCEPTANCES. Certificates of
deposit are certificates issued against funds deposited in a bank or a savings
and loan. They are for a definite period of time and earn a specified rate of
return. Bankers' acceptances are short-term credit instruments evidencing the
obligation of a bank to pay a draft which has been drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the face amount of the instrument upon maturity. They are primarily used to
finance the import, export, transfer or storage of goods. They are termed
"accepted" when a bank guarantees their payment at maturity.
Trust portfolios may acquire obligations of foreign banks and foreign
branches of U.S. banks. These obligations are not insured by the Federal Deposit
Insurance Corporation.
4. COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations to finance short-term credit needs. Commercial
paper is issued in bearer form with maturities generally not exceeding nine
months. Commercial paper obligations may include variable amount master demand
notes. Variable amount master demand notes are obligations that permit the
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangements between a portfolio, as lender, and the borrower. These
notes permit daily changes in the amounts borrowed. The portfolio has the right
to increase the amount under the note at any time up to the full amount provided
by the note agreement, or to decrease the amount, and the borrower may prepay up
to the full amount of the note without penalty. Because variable amount master
demand notes are direct lending arrangements between the lender and borrower, it
is not generally contemplated that such instruments will be traded, and there is
no secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued interest, at
any time. A portfolio will only invest in variable amount master demand notes
issued by companies which at the date of investment have an outstanding debt
issue rated "Aaa" or "Aa" by Moody's or "AAA" or "AA" by S&P and which the
applicable Subadviser has determined present minimal risk of loss to the
portfolio. A Subadviser will look generally at the financial strength of the
issuing company as "backing" for the note and not to any security interest or
supplemental source such as a bank letter of credit. A master demand note will
be valued each day a portfolio's net asset value is determined, which value will
generally be equal to the face value of the note plus accrued interest unless
the financial position of the issuer is such that its ability to repay the note
when due is in question.
5. CORPORATE OBLIGATIONS. Corporate obligations include bonds and notes
issued by corporations to finance long-term credit needs.
6. REPURCHASE AGREEMENTS. Repurchase agreements are arrangements
involving the purchase of obligations by a portfolio and the simultaneous
agreement to resell the same obligations on demand or at a specified future date
and at an agreed upon price. A repurchase agreement can be viewed as a loan made
by a portfolio to the seller of the obligation with such obligation serving as
collateral for the seller's agreement to repay the amount borrowed with
interest. Such transactions afford an opportunity for a portfolio to earn a
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return on cash which is only temporarily available. Repurchase agreements
entered into by the portfolio will be with banks, brokers or dealers. However, a
portfolio will enter into a repurchase agreement with a broker or dealer only if
the broker or dealer agrees to deposit additional collateral should the value of
the obligation purchased by the portfolio decrease below the resale price.
In selecting sellers with whom the portfolio will enter into repurchase
transactions, the Trustees have adopted procedures that establish certain credit
worthiness, asset and collateralization requirements and limit the
counterparties to repurchase transactions to those financial institutions which
are members of the Federal Reserve System and for a primary government
securities dealer reporting to the Federal Reserve Bank of New York's Market
Reports Division or a broker/dealer which meet certain credit worthiness
criteria or which report U.S. Government securities positions to the Federal
Reserve Board. However, the Trustees reserve the right to change the criteria
used to select such financial institutions and broker/dealers. The Trustees will
regularly monitor the use of repurchase agreements and the Subadviser will,
pursuant to procedures adopted by the Trustees, continuously monitor that the
collateral held with respect to a repurchase transaction equals or exceeds the
amount of the obligations.
Should an issuer of a repurchase agreement fail to repurchase the
underlying obligation, the loss to the portfolio, if any, would be the
difference between the repurchase price and the underlying obligation's market
value. A portfolio might also incur certain costs in liquidating the underlying
obligation. Moreover, if bankruptcy or other insolvency proceedings should be
commenced with respect to the seller, realization upon the underlying obligation
by the Trust might be delayed or limited. Generally, repurchase agreements are
of a short duration, often less than one week but on occasion for longer
periods.
OTHER INSTRUMENTS
The following provides a more detailed explanation of some of the other
instruments in which certain portfolios may invest.
1. MORTGAGE SECURITIES
Mortgage securities differ from conventional bonds in that principal is
paid over the life of the securities rather than at maturity. As a result, a
portfolio receives monthly scheduled payments of principal and interest, and may
receive unscheduled principal payments representing prepayments on the
underlying mortgages. When a portfolio reinvests the payments and any
unscheduled prepayments of principal it receives, it may receive a rate of
interest which is higher or lower than the rate on the existing mortgage
securities. For this reason, mortgage securities may be less effective than
other types of debt securities as a means of locking in long term interest
rates.
In addition, because the underlying mortgage loans and assets may be
prepaid at any time, if a portfolio purchases mortgage securities at a premium,
a prepayment rate that is faster than expected will reduce yield to maturity,
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if a portfolio purchases
these securities at a discount, faster than expected prepayments will increase,
while slower than expected payments will reduce, yield to maturity.
Adjustable rate mortgage securities, are similar to the mortgage
securities discussed above, except that unlike fixed rate mortgage securities,
adjustable rate mortgage securities are collateralized by or represent interests
in mortgage loans with variable rates of interest. These variable rates of
interest reset periodically to align themselves with market rates. Most
adjustable rate mortgage securities provide for an initial mortgage rate that is
in effect for a fixed period, typically ranging from three to twelve months.
Thereafter, the mortgage interest rate will reset periodically in accordance
with movements in a specified published interest rate index. The amount of
interest due to an adjustable rate mortgage holder is determined in accordance
with movements in a specified published interest rate index by adding a
pre-determined increment or "margin" to the specified interest rate index. Many
adjustable rate mortgage securities reset their interest rates based on changes
in the one-year, three-year and five-year constant maturity Treasury rates, the
three-month or six-month Treasury Bill rate, the 11th District Federal Home Loan
Bank Cost of Funds, the National Median
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Cost of Funds, the one-month, three-month, six-month or one-year London
Interbank Offered Rate ("LIBOR") and other market rates.
A portfolio will not benefit from increases in interest rates to the
extent that interest rates rise to the point where they cause the current coupon
of adjustable rate mortgages held as investments to exceed any maximum allowable
annual or lifetime reset limits (or "cap rates") for a particular mortgage. In
this event, the value of the mortgage securities in a portfolio would likely
decrease. Also, the portfolio's net asset value could vary to the extent that
current yields on adjustable rate mortgage securities are different than market
yields during interim periods between coupon reset dates. During periods of
declining interest rates, income to a portfolio derived from adjustable rate
mortgages which remain in a mortgage pool will decrease in contrast to the
income on fixed rate mortgages, which will remain constant. Adjustable rate
mortgages also have less potential for appreciation in value as interest rates
decline than do fixed rate investments.
Privately-Issued Mortgage Securities. Privately-issued pass through
securities 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, as further described
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 portfolio will not limit its investments to asset-backed securities
with credit enhancements.
Collateralized Mortgage Obligations ("CMOs"). CMOs generally are bonds
or certificates issued in multiple classes that are collateralized by or
represent an interest in mortgages. CMOs may be issued by single-purpose,
stand-alone finance subsidiaries or trusts of financial institutions, government
agencies, investment banks or other similar institutions. Each class of CMOs,
often referred to as a "tranche", may be issued with a specific fixed coupon
rate (which may be zero) or a floating coupon rate, and has a stated maturity or
final distribution date. Principal prepayments on the underlying mortgages may
cause the CMOs to be retired substantially earlier than their stated maturities
or final distribution dates. Interest is paid or accrued on CMOs on a monthly,
quarterly or semiannual basis. The principal of and interest on the underlying
mortgages may be allocated among the several classes of a series of a CMO in
many ways. The general goal sought to be achieved in allocating cash flows on
the underlying mortgages to the various classes of a series of CMOs is to create
tranches on which the expected cash flows have a higher degree of predictability
than the underlying mortgages. As a general matter, the more predictable the
cash flow is on a CMO tranche, the lower the anticipated yield will be on that
tranche at the time of issuance. As part of the process of creating more
predictable cash flows on most of the tranches in a series of CMOs, one or more
tranches generally must be created that absorb most of the volatility in the
cash flows on the underlying mortgages. The yields on these tranches are
relatively higher than on tranches with more predictable cash flows. Because of
the uncertainty of the cash flows on these tranches, and the sensitivity thereof
to changes in prepayment rates on the underlying mortgages, the market prices of
and yield on these tranches tend to be highly volatile.
CMOs purchased may be:
(1) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. Government;
(2) collateralized by pools of mortgages in which payment of principal
and interest is guaranteed by the issuer and the guarantee is
collateralized by U.S. Government securities; or
(3) securities for which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest is
supported by the credit of an agency or instrumentality of the U.S.
Government.
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STRIPS. In addition to the U.S. Government securities discussed above,
certain portfolios may invest in separately traded interest components of
securities issued or guaranteed by the United States Treasury. The interest
components of selected securities are traded independently under the Separate
Trading of Registered Interest and Principal of Securities program ("STRIPS").
Under the STRIPS program, the interest components are individually numbered and
separately issued by the United States Treasury at the request of depository
financial institutions, which then trade the component parts independently.
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 portfolio invests. Although stripped mortgage
securities are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, stripped mortgage
securities are generally illiquid and to such extent, together with any other
illiquid investments, will not exceed 15% of a portfolio's net assets.
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 portfolio's yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the portfolio may fail to fully recoup its initial
investment in these securities even if the securities are rated AAA by S&P.
As interest rates rise and fall, the value of IOs tends to move in the
same direction as interest rates. The value of the other mortgage securities
described in this Prospectus, like other debt instruments, will tend to move in
the opposite direction to interest rates. Accordingly, the Trust believes that
investing in IOs, in conjunction with the other mortgage securities described
herein, will contribute to a portfolio's relatively stable net asset value.
In addition to the stripped mortgage securities described above, the
Strategic Bond, High Yield and Value Trusts may invest in similar securities
such as Super POs and Levered IOs which are more volatile than POs, IOs and
IOettes. 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
Strategic Bond Trust may also invest in other similar instruments developed in
the future that are deemed consistent with the investment objectives, policies
and restrictions of the portfolio.
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. See "Additional
Information Concerning Taxes."
Inverse Floaters. The Strategic Bond, High Yield and Value Trusts may
invest in inverse floaters which are also derivative mortgage securities.
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 portfolio invests (with the
exception of stripped mortgage securities). Although inverse floaters are
purchased and sold by institutional investors through several investment banking
firms acting as brokers or dealers, the market for such securities has not
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yet been fully developed. Accordingly, inverse floaters are generally illiquid
and to such extent, together with any other illiquid investments, will not
exceed 15% of a portfolio's net assets.
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 and at an accelerated rate. Inverse
floaters may be volatile and there is a risk that their market value will vary
from their amortized cost.
2. ASSET-BACKED SECURITIES
The securitization techniques used to develop mortgage securities are
also being applied to a broad range of other assets. Through the use of trusts
and special purpose corporations, automobile and credit card receivables are
being securitized in pass-through structures similar to mortgage pass-through
structures or in a pay-through structure similar to the CMO structure. Generally
the issuers of asset-backed bonds, notes or pass-through certificates are
special purpose entities and do not have any significant assets other than the
receivables securing such obligations. In general, the collateral supporting
asset-backed securities is of shorter maturity than mortgage loans. As a result,
investment in these securities should result in greater price stability for the
portfolio's shares. Instruments backed by pools of receivables are similar to
mortgage-backed securities in that they are subject to unscheduled prepayments
of principal prior to maturity. When the obligations are prepaid, the portfolio
must reinvest the prepaid amounts in securities the yields of which reflect
interest rates prevailing at the time. Therefore, a portfolio's ability to
maintain a portfolio which includes high-yielding asset-backed securities will
be adversely affected to the extent that prepayments of principal must be
reinvested in securities which have lower yields than the prepaid obligations.
Moreover, prepayments of securities purchased at a premium could result in a
realized loss. A portfolio will only invest in asset-backed securities rated, at
the time of purchase, AA or better by S&P or Aa or better by Moody's or which,
in the opinion of the investment subadviser, are of comparable quality.
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 portfolio 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, such
securities are widely traded by brokers and dealers, and to such extent will not
be considered illiquid securities for the purposes of the investment restriction
under "Investment Restrictions" below.
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. The Trust 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.
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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 thereof and interest thereon, 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.
3. ZERO COUPON SECURITIES AND PAY-IN-KIND BONDS
Zero coupon securities and pay-in-kind bonds involve special risk
considerations. Zero coupon securities are debt securities that pay no cash
income but are sold at substantial discounts from their value at maturity. When
a zero coupon security is held to maturity, its entire return, which consists of
the amortization of discount, comes from the difference between its purchase
price and its maturity value. This 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 zero
coupon securities also are sold at substantial discounts from their maturity
value and provide for the commencement of regular interest payments at a
deferred date. The portfolios also may purchase pay-in-kind bonds. Pay-in-kind
bonds are bonds that pay all or a portion of their interest in the form of debt
or equity securities.
Zero coupon securities and pay-in-kind bonds 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 value of
zero coupon securities appreciates more during periods of declining interest
rates and depreciates more during periods of rising interest rates.
Zero coupon securities and pay-in-kind bonds may be issued by a wide
variety of corporate and governmental issuers. Although zero coupon securities
and pay-in-kind bonds are generally not traded on a national securities
exchange, such securities are widely traded by brokers and dealers and, to such
extent, will not be considered illiquid for the purposes of the investment
restriction under "Investment Restrictions" below.
Current federal income tax law requires the holder of a zero coupon
security or certain pay-in-kind bonds 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, a portfolio 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. See "Taxes--Pay-in-kind Bonds and Zero Coupon Bonds"
below.
4. HIGH YIELD (HIGH RISK) DOMESTIC CORPORATE DEBT SECURITIES
The market for high yield U.S. corporate debt securities has undergone
significant changes in the past decade. Issuers in the U.S. high yield market
originally consisted primarily of growing small capitalization companies and
larger capitalization companies whose credit quality had declined from
investment grade. During the mid-1980's, participants in the U.S. high yield
market issued high yield securities principally in connection with leveraged
buyouts and other leveraged recapitalizations. In late 1989 and 1990, the volume
of new issues of high yield U.S. corporate debt declined significantly and
liquidity in the market decreased. Since early 1991, the volume of new issues of
high yield U.S. corporate debt securities has increased substantially and
secondary market liquidity has improved. During the same periods, the U.S. high
yield debt market exhibited strong returns, and it continues to be an attractive
market in terms of yield and yield spread over U.S. Treasury securities.
Currently, most new offerings of U.S. high yield securities are being issued to
refinance higher coupon debt and to raise funds for general corporate purposes.
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High yield U.S. corporate debt securities in which the portfolios may
invest include bonds, debentures, notes and commercial paper and will generally
be unsecured. Most of these debt securities will bear interest at fixed rates.
However, the portfolios may also invest in debt securities with variable rates
of interest or which involve equity features, such as contingent interest or
participations based on revenues, sales or profits (i.e., interest or other
payments, often in addition to a fixed rate of return, that are based on the
borrower's attainment of specified levels of revenues, sales or profits and thus
enable the holder of the security to share in the potential success of the
venture).
5. HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES
The Strategic Bond, Investment Quality Bond and High Yield Trusts
expect that a significant portion of their emerging market governmental debt
obligations will consist of "Brady Bonds." In addition, the Worldwide Growth,
International Small Cap, Moderate Asset Allocation and Aggressive Asset
Allocation Trusts may also invest in Brady Bonds. Brady Bonds are debt
securities issued under the framework of the "Brady Plan," an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
commercial bank indebtedness. The Brady Plan framework, as it has developed,
contemplates the exchange of external 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.
Investors should recognize that Brady Bonds have been issued only recently, and
accordingly do not have a long payment history. Brady Bonds issued to date
generally have maturities of between 15 and 30 years from the date of issuance
and have traded at a deep discount from their face value. The Trusts may invest
in Brady Bonds of emerging market countries that have been issued to date, as
well as those which may be issued in the future. In addition to Brady Bonds, the
Trusts may invest in emerging market governmental obligations issued as a result
of debt restructuring agreements outside of the scope of the Brady Plan.
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 over time and
bonds issued in exchange for the advancement of new money by existing lenders.
Discount bonds issued to date under the framework of the Brady Plan have
generally borne interest computed semi-annually at a rate equal to 13/16 of one
percent above the current six month LIBOR rate. Regardless of the stated face
amount and stated interest rate of the various types of Brady Bonds, the
portfolios 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 sovereign bonds are entitled to "value recovery
payments" in certain circumstances, which in effect constitute supplemental
interest payments but generally are not collateralized. Certain Brady Bonds have
been collateralized as to principal due at maturity (typically 15 to 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 International Monetary Fund (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. The Trusts 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 transactional
securities depositories. A substantial portion of the Brady Bonds and other
sovereign debt securities in which the portfolios invest are likely to be
acquired at a discount.
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6. HYBRID INSTRUMENTS
Hybrid instruments (a type of potentially high-risk derivative) have
been developed and combine the elements of futures contracts or options with
those of debt, preferred equity or a depository instrument (hereinafter "Hybrid
Instruments"). Generally, a Hybrid Instrument will be a debt security, preferred
stock, depository share, trust certificate, certificate of deposit or other
evidence of indebtedness on which a portion of or all interest payments, and/or
the principal or stated amount payable at maturity, redemption or retirement, is
determined by reference to prices, changes in prices, or differences between
prices, of securities, currencies, intangibles, goods, articles or commodities
(collectively "Underlying Assets") or by another objective index, economic
factor or other measure, such as interest rates, currency exchange rates,
commodity indices, and securities indices (collectively "Benchmarks"). Thus,
Hybrid Instruments may take a variety of forms, including, but not limited to,
debt instruments with interest or principal payments or redemption terms
determined by reference to the value of a currency or commodity or securities
index at a future point in time, preferred stock with dividend rates determined
by reference to the value of a currency, or convertible securities with the
conversion terms related to a particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a portfolio may wish to take advantage of expected declines
in interest rates in several European countries, but avoid the transactions
costs associated with buying and currency-hedging the foreign bond positions.
One solution would be to purchase a U.S. dollar-denominated Hybrid Instrument
whose redemption price is linked to the average three year interest rate in a
designated group of countries. The redemption price formula would provide for
payoffs of greater than par if the average interest rate was lower than a
specified level, and payoffs of less than par if rates were above the specified
level. Furthermore, the portfolio could limit the downside risk of the security
by establishing a minimum redemption price so that the principal paid at
maturity could not be below a predetermined minimum level if interest rates were
to rise significantly. The purpose of this arrangement, known as a structured
security with an embedded put option, would be to give the portfolio the desired
European bond exposure while avoiding currency risk, limiting downside market
risk, and lowering transactions costs. Of course, there is no guarantee that the
strategy will be successful and the portfolio could lose money if, for example,
interest rates do not move as anticipated or credit problems develop with the
issuer of the Hybrid.
The risks of investing in Hybrid Instruments reflect a combination of
the risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that has a
fixed principal amount, is denominated in U.S. dollars or bears interest either
at a fixed rate or a floating rate determined by reference to a common,
nationally published Benchmark. The risks of a particular Hybrid Instrument
will, of course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the Benchmarks or
the prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors which are unrelated to the operations or credit
quality of the issuer of the Hybrid Instrument and which may not be readily
foreseen by the purchaser, such as economic and political events, the supply and
demand for the Underlying Assets and interest rate movements. In recent years,
various Benchmarks and prices for Underlying Assets have been highly volatile,
and such volatility may be expected in the future. Reference is also made to the
discussion below of futures, options, and forward contracts for a description of
certain risks associated with such investments.
Hybrid Instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the structure of
the particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid
Instrument and the Benchmark or Underlying Asset may not move in the same
direction or at the same time.
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Hybrid Instruments may bear interest or pay preferred dividends at
below market (or even relatively nominal) rates. Alternatively, Hybrid
Instruments may bear interest at above market rates but bear an increased risk
of principal loss (or gain). The latter scenario may result if "leverage" is
used to structure the Hybrid Instrument. Leverage risk occurs when the Hybrid
Instrument is structured so that a given change in a Benchmark or Underlying
Asset is multiplied to produce a greater value change in the Hybrid Instrument,
thereby magnifying the risk of loss as well as the potential for gain.
Hybrid Instruments may also carry liquidity risk since the instruments
are often "customized" to meet the portfolio needs of a particular investor, and
therefore, the number of investors that are willing and able to buy such
instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market without the
guarantee of a central clearing organization or in a transaction between the
portfolio and the issuer of the Hybrid Instrument, the creditworthiness of the
counter party or issuer of the Hybrid Instrument would be an additional risk
factor which the portfolio would have to consider and monitor. Hybrid
Instruments also may not be subject to regulation of the Commodities Futures
Trading Commission ("CFTC"), which generally regulates the trading of commodity
futures by U.S. persons, the SEC, which regulates the offer and sale of
securities by and to U.S. persons, or any other governmental regulatory
authority. The various risks discussed above, particularly the market risk of
such instruments, may in turn cause significant fluctuations in the net asset
value of the portfolio.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
As described in the Prospectus under "Hedging and Other Strategic
Transactions", an individual portfolio may be authorized to use a variety of
investment strategies. These strategies will be used for hedging purposes only,
including hedging various market risks (such as interest rates, currency
exchange rates and broad or specific market movements), and managing the
effective maturity or duration of debt instruments held by the portfolio (such
investment strategies and transactions are referred to herein as "Hedging and
Other Strategic Transactions"). The description in the Prospectus of each
portfolio indicates which, if any, of these types of transactions may be used by
the portfolio.
A detailed discussion of Hedging and Other Strategic Transactions
follows below. No portfolio which is authorized to use any of these investment
strategies will be obligated, however, to pursue any of such strategies and no
portfolio makes any representation as to the availability of these techniques at
this time or at any time in the future. In addition, a portfolio's ability to
pursue certain of these strategies may be limited by the Commodity Exchange Act,
as amended, applicable rules and regulations of the CFTC thereunder and the
federal income tax requirements applicable to regulated investment companies
which are not operated as commodity pools.
GENERAL CHARACTERISTICS OF OPTIONS
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Hedging and Other Strategic Transactions
involving options require segregation of portfolio assets in special accounts,
as described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
A portfolio's purchase of a put option on a security, for example, might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
of such instrument by giving the portfolio the right to sell the instrument at
the option exercise price. A call option, upon payment of a premium, gives the
purchaser of the option the right to buy, and the seller the obligation to sell,
the underlying instrument at the exercise price. A portfolio's purchase of a
call option on a security, financial futures contract, index, currency or other
instrument might be intended to protect the portfolio against an increase in the
price of the underlying instrument that it intends to purchase in
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the future by fixing the price at which it may purchase the instrument. An
"American" style put or call option may be exercised at any time during the
option period, whereas a "European" style put or call option may be exercised
only upon expiration or during a fixed period prior to expiration.
Exchange-listed options are issued by a regulated intermediary such as the
Options Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to the options. The discussion below uses the OCC as
an example, but is also applicable to other similar financial intermediaries.
OCC-issued and exchange-listed options, with certain exceptions,
generally settle by physical delivery of the underlying security or currency,
although in the future, cash settlement may become available. Index options and
Eurodollar instruments (which are described below under "Eurodollar
Instruments") are cash settled for the net amount, if any, by which the option
is "in-the-money" (that is, the amount by which the value of the underlying
instrument exceeds, in the case of a call option, or is less than, in the case
of a put option, the exercise price of the option) at the time the option is
exercised. Frequently, rather than taking or making delivery of the underlying
instrument through the process of exercising the option, listed options are
closed by entering into offsetting purchase or sale transactions that do not
result in ownership of the new option.
A portfolio's ability to close out its position as a purchaser or
seller of an OCC-issued or exchange-listed put or call option is dependent, in
part, upon the liquidity of the particular option market. Among the possible
reasons for the absence of a liquid option market on an exchange are: (1)
insufficient trading interest in certain options, (2) restrictions on
transactions imposed by an exchange, (3) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of options or
underlying securities, including reaching daily price limits, (4) interruption
of the normal operations of the OCC or an exchange, (5) inadequacy of the
facilities of an exchange or the OCC to handle current trading volume or (6) a
decision by one or more exchanges to discontinue the trading of options (or a
particular class or series of options), in which event the relevant market for
that option on that exchange would cease to exist, although any such outstanding
options on that exchange would continue to be exercisable in accordance with
their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that would not be reflected in the corresponding option
markets.
Over-the-counter ("OTC") options are purchased from or sold to
securities dealers, financial institutions or other parties (collectively
referred to as "Counterparties" and individually referred to as a
"Counterparty") through direct bilateral agreement with the Counterparty. In
contrast to exchange-listed options, which generally have standardized terms and
performance mechanics, all of the terms of an OTC option, including such terms
as method of settlement, term, exercise price, premium, guaranties and security,
are determined by negotiation of the parties. It is anticipated that any
portfolio authorized to use OTC options will generally only enter into OTC
options that have cash settlement provisions, although it will not be required
to do so.
Unless the parties provide for it, no central clearing or guaranty
function is involved in an OTC option. As a result, if a Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a portfolio or fails to make a cash
settlement payment due in accordance with the terms of that option, the
portfolio will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Thus, the subadviser must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC option will be met. A portfolio will enter into OTC option
transactions only with U.S. Government securities dealers recognized by the
Federal Reserve Bank of New York as "primary dealers," or broker-dealers,
domestic or foreign banks, or other financial institutions that are deemed
creditworthy by the subadviser. In the absence of a change in the current
position of the staff of the Commission, OTC options purchased by a portfolio
and the amount of the portfolio's obligation pursuant to an OTC option sold by
the portfolio (the cost of the sell-back plus the in-the-money amount, if any)
or the value of the assets held to cover such options will be deemed illiquid.
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If a portfolio sells a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments held by the
portfolio or will increase the portfolio's income. Similarly, the sale of put
options can also provide portfolio gains.
If and to the extent authorized to do so, a portfolio may purchase and
sell call options on securities and on Eurodollar instruments that are traded on
U.S. and foreign securities exchanges and in the OTC markets, and on securities
indices, currencies and futures contracts. All calls sold by a portfolio must be
"covered" (that is, the portfolio must own the securities or futures contract
subject to the call) or must otherwise meet the asset segregation requirements
described below for so long as the call is outstanding. Even though a portfolio
will receive the option premium to help protect it against loss, a call sold by
the portfolio will expose the portfolio during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the portfolio to hold a
security or instrument that it might otherwise have sold.
Each portfolio reserves the right to invest in options on instruments
and indices which may be developed in the future to the extent consistent with
applicable law, the portfolio's investment objective and the restrictions set
forth herein.
If and to the extent authorized to do so, a portfolio may purchase and
sell put options on securities (whether or not it holds the securities in its
portfolio) and on securities indices, currencies and futures contracts. A
portfolio will not sell put options if, as a result, more than 50% of the
portfolio's assets would be required to be segregated to cover its potential
obligations under put options other than those with respect to futures
contracts. In selling put options, a portfolio faces the risk that it may be
required to buy the underlying security at a disadvantageous price above the
market price.
GENERAL CHARACTERISTICS OF FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
If and to the extent authorized to do so, a portfolio may trade
financial futures contracts or purchase or sell put and call options on those
contracts as a hedge against anticipated interest rate, currency or market
changes, for duration management and for risk management purposes. Futures
contracts are generally bought and sold on the commodities exchanges on which
they are listed with payment of initial and variation margin as described below.
The sale of a futures contract creates a firm obligation by a portfolio, as
seller, to deliver to the buyer the specific type of financial instrument called
for in the contract at a specific future time for a specified price (or, with
respect to certain instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right, in return for the premium paid,
to assume a position in a futures contract and obligates the seller to deliver
that position.
A portfolio's use of financial futures contracts and options thereon
will in all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the CFTC and will be entered into only
for bona fide hedging, risk management (including duration management) or to
attempt to increase income or gains. Maintaining a futures contract or selling
an option on a futures contract will typically require a portfolio to deposit
with a financial intermediary, as security for its obligations, an amount of
cash or other specified assets ("initial margin") that initially is from 1% to
10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets ("variation margin") may be required
to be deposited thereafter daily as the mark-to-market value of the futures
contract fluctuates. The purchase of an option on a financial futures contract
involves payment of a premium for the option without any further obligation on
the part of a portfolio. If a portfolio exercises an option on a futures
contract it will be obligated to post initial margin (and potentially variation
margin) for the resulting futures position just as it would for any futures
position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction, but no assurance can be given that a
position can be offset prior to settlement or that delivery will occur.
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No portfolio will enter into a futures contract or option thereon if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options thereon would exceed 5% of the current
fair market value of the portfolio's total assets; however, in the case of an
option that is in-the-money at the time of the purchase, the in-the-money amount
may be excluded in calculating the 5% limitation. The value of all futures
contracts sold by a portfolio (adjusted for the historical volatility
relationship between such portfolio and the contracts) will not exceed the total
market value of the portfolio's securities. The segregation requirements with
respect to futures contracts and options thereon are described below under "Use
of Segregated and Other Special Accounts".
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES
If and to the extent authorized to do so, a portfolio may purchase and
sell call and put options on securities indices and other financial indices. In
so doing, the portfolio can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, options on indices
settle by cash settlement; that is, an option on an index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of the index upon which the option is based exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option
(except if, in the case of an OTC option, physical delivery is specified). This
amount of cash is equal to the excess of the closing price of the index over the
exercise price of the option, which also may be multiplied by a formula value.
The seller of the option is obligated, in return for the premium received, to
make delivery of this amount. The gain or loss on an option on an index depends
on price movements in the instruments comprising the market, market segment,
industry or other composite on which the underlying index is based, rather than
price movements in individual securities, as is the case with respect to options
on securities.
CURRENCY TRANSACTIONS
If and to the extent authorized to do so, a portfolio may engage in
currency transactions with Counterparties to hedge the value of portfolio
securities denominated in particular currencies against fluctuations in relative
value. Currency transactions include currency forward contracts, exchange-listed
currency futures contracts and options thereon, exchange-listed and OTC options
on currencies, and currency swaps. A forward currency contract involves a
privately negotiated obligation to purchase or sell (with delivery generally
required) a specific currency at a future date, which may be any fixed number of
days from the date of the contract agreed upon by the parties, at a price set at
the time of the contract. A currency swap is an agreement to exchange cash flows
based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below under "Swaps, Caps,
Floors and Collars". A portfolio may enter into currency transactions only with
Counterparties that are deemed creditworthy by the subadviser.
A portfolio's dealings in forward currency contracts and other currency
transactions such as futures contracts, options, options on futures contracts
and swaps will be limited to hedging and other non-speculative purposes,
including transaction hedging and position hedging. Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a portfolio, which will generally arise in connection with the
purchase or sale of the portfolio's portfolio securities or the receipt of
income from them. Position hedging is entering into a currency transaction with
respect to portfolio securities positions denominated or generally quoted in
that currency. A portfolio will not enter into a transaction to hedge currency
exposure to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held by the portfolio
that are denominated or generally quoted in or currently convertible into the
currency, other than with respect to proxy hedging as described below.
A portfolio may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to increase or decline
in value relative to other currencies to which the portfolio has or in which the
portfolio expects to have exposure. To reduce the effect of currency
fluctuations on the
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value of existing or anticipated holdings of its securities, a portfolio may
also engage in proxy hedging. Proxy hedging is often used when the currency to
which a portfolio's holdings is exposed is difficult to hedge generally or
difficult to hedge against the dollar. Proxy hedging entails entering into a
forward contract to sell a currency, the changes in the value of which are
generally considered to be linked to a currency or currencies in which some or
all of a portfolio's securities are or are expected to be denominated, and to
buy dollars. The amount of the contract would not exceed the market value of the
portfolio's securities denominated in linked currencies.
Currency transactions are subject to risks different from other
portfolio transactions, as discussed below under "Risk Factors". If a portfolio
enters into a currency hedging transaction, the portfolio will comply with the
asset segregation requirements described below under "Use of Segregated and
Other Special Accounts".
COMBINED TRANSACTIONS
If and to the extent authorized to do so, a portfolio may enter into
multiple transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency
contracts), multiple interest rate transactions and any combination of futures,
options, currency and interest rate transactions, instead of a single Hedging
and Other Strategic Transaction, as part of a single or combined strategy when,
in the judgment of the subadviser, it is in the best interests of the portfolio
to do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
will normally be entered into by a portfolio based on the subadviser's judgment
that the combined strategies will reduce risk or otherwise more effectively
achieve the desired portfolio management goal, it is possible that the
combination will instead increase the risks or hinder achievement of the
portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the Hedging and Other Strategic Transactions into which a
portfolio may be authorized to enter are interest rate, currency and index
swaps, the purchase or sale of related caps, floors and collars and other
derivatives. A portfolio 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 portfolio will use these
transactions for non-speculative purposes and 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 portfolio 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). A currency
swap is an agreement to exchange cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a 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. 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. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling the floor to the extent that a specific 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 with a predetermined range of interest
rates or values.
A portfolio 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. Inasmuch as
these swaps, caps, floors, collars and other similar derivatives are entered
into for good faith hedging or other non-speculative purposes, they do not
constitute senior securities under the Investment Company Act of 1940, as
amended, and, thus, will not be treated as being subject to the portfolio's
borrowing restrictions. A portfolio will not enter into any swap, cap, floor,
collar or other derivative transaction unless the Counterparty is
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deemed creditworthy by the subadviser. If a Counterparty defaults, a portfolio
may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, for that reason, they are less liquid than swaps.
The liquidity of swap agreements will be determined by a 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 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 securities that are
not readily marketable.
Each portfolio will maintain cash and appropriate liquid assets in a
segregated custodial account to cover its current obligations under swap
agreements. If a portfolio 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
portfolio's accrued obligations under the swap agreement over the accrued amount
the portfolio is entitled to receive under the agreement. If a portfolio 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 portfolio's accrued obligations under the
agreement. See also, "Use of Segregated and Other Special Accounts."
EURODOLLAR INSTRUMENTS
If and to the extent authorized to do so, a portfolio 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 portfolio 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.
RISK FACTORS
Hedging and Other Strategic Transactions have special risks associated
with them, including possible default by the Counterparty to the transaction,
illiquidity and, to the extent the subadviser's view as to certain market
movements is incorrect, the risk that the use of the Hedging and Other Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options could result in losses to a portfolio, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, or cause a portfolio to hold a security it might otherwise sell.
The use of futures and options transactions entails certain special
risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related securities position of a
portfolio could create the possibility that losses on the hedging instrument are
greater than gains in the value of the portfolio's position. In addition,
futures and options markets could be illiquid in some circumstances and certain
over-the-counter options could have no markets. As a result, in certain markets,
a portfolio might not be able to close out a transaction without incurring
substantial losses. Although a portfolio's use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time it will tend to
limit any potential gain to a portfolio that might result from an increase in
value of the position. Finally, the daily variation margin requirements for
futures contracts create a greater ongoing potential financial risk than would
purchases of options, in which case the exposure is limited to the cost of the
initial premium.
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Currency hedging involves some of the same risks and considerations as
other transactions with similar instruments. Currency transactions can result in
losses to a portfolio if the currency being hedged fluctuates in value to a
degree or in a direction that is not anticipated. Further, the risk exists that
the perceived linkage between various currencies may not be present or may not
be present during the particular time that a portfolio is engaging in proxy
hedging. Currency transactions are also subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be adversely affected by
government exchange controls, limitations or restrictions on repatriation of
currency, and manipulations or exchange restrictions imposed by governments.
These forms of governmental actions can result in losses to a portfolio if it is
unable to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless, resulting in
full currency exposure as well as incurring transaction costs. Buyers and
sellers of currency futures contracts are subject to the same risks that apply
to the use of futures contracts generally. Further, settlement of a currency
futures contract for the purchase of most currencies must occur at a bank based
in the issuing nation. Trading options on currency futures contracts is
relatively new, and the ability to establish and close out positions on these
options is subject to the maintenance of a liquid market that may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Losses resulting from the use of Hedging and Other Strategic
Transactions will reduce a portfolio's net asset value, and possibly income, and
the losses can be greater than if Hedging and Other Strategic Transactions had
not been used.
RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES
When conducted outside the United States, Hedging and Other Strategic
Transactions may not be regulated as rigorously as in the United States, may not
involve a clearing mechanism and related guarantees, and will be subject to the
risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of positions taken as
part of non-U.S. Hedging and Other Strategic Transactions also could be
adversely affected by: (1) other complex foreign political, legal and economic
factors, (2) lesser availability of data on which to make trading decisions than
in the United States, (3) delays in a portfolio's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (4) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and (5) lower
trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Use of many Hedging and Other Strategic Transactions by a portfolio
will require, among other things, that the portfolio segregate cash, liquid high
grade debt obligations or other assets with its custodian, or a designated
sub-custodian, to the extent the portfolio's obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by a portfolio to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade debt obligations
at least equal to the current amount of the obligation must be segregated with
the custodian or sub-custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. A call option on securities written by a
portfolio, for example, will require the portfolio to hold the securities
subject to the call (or securities convertible into the needed securities
without additional consideration) or to segregate liquid high grade debt
obligations sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by a portfolio on an index will require the
portfolio to own portfolio securities that correlate with the index or to
segregate liquid high grade debt obligations equal to the excess of the index
value over the exercise price on a current basis. A put option on securities
written by a portfolio will require the portfolio to segregate liquid high grade
debt obligations equal to the exercise price. Except when a portfolio enters
into a forward contract in connection with the purchase or sale of a security
denominated in a foreign currency or for other non-speculative purposes, which
requires no segregation, a currency contract that obligates the portfolio to buy
or sell a foreign currency will generally require the portfolio to hold an
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amount of that currency or liquid securities denominated in that currency equal
to a portfolio's obligations or to segregate liquid high grade debt obligations
equal to the amount of the portfolio's obligations.
OTC options entered into by a portfolio, including those on securities,
currency, financial instruments or indices, and OCC-issued and exchange-listed
index options will generally provide for cash settlement, although a portfolio
will not be required to do so. As a result, when a portfolio sells these
instruments it will segregate an amount of assets equal to its obligations under
the options. OCC-issued and exchange-listed options sold by a portfolio other
than those described above generally settle with physical delivery, and the
portfolio will segregate an amount of assets equal to the full value of the
option. OTC options settling with physical delivery or with an election of
either physical delivery or cash settlement will be treated the same as other
options settling with physical delivery.
In the case of a futures contract or an option on a futures contract, a
portfolio must deposit initial margin and, in some instances, daily variation
margin in addition to segregating assets sufficient to meet its obligations to
purchase or provide securities or currencies, or to pay the amount owed at the
expiration of an index-based futures contract. These assets may consist of cash,
cash equivalents, liquid debt or equity securities or other acceptable assets. A
portfolio will accrue the net amount of the excess, if any, of its obligations
relating to swaps over its entitlements with respect to each swap on a daily
basis and will segregate with its custodian, or designated sub-custodian, an
amount of cash or liquid high grade debt obligations having an aggregate value
equal to at least the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to a portfolio's net obligation, if
any.
Hedging and Other Strategic Transactions may be covered by means other
than those described above when consistent with applicable regulatory policies.
A portfolio may also enter into offsetting transactions so that its combined
position, coupled with any segregated assets, equals its net outstanding
obligation in related options and Hedging and Other Strategic Transactions. A
portfolio could purchase a put option, for example, if the strike price of that
option is the same or higher than the strike price of a put option sold by the
portfolio. Moreover, instead of segregating assets if it holds a futures
contracts or forward contract, a portfolio could purchase a put option on the
same futures contract or forward contract with a strike price as high or higher
than the price of the contract held. Other Hedging and Other Strategic
Transactions may also be offset in combinations. If the offsetting transaction
terminates at the time of or after the primary transaction, no segregation is
required, but if it terminates prior to that time, assets equal to any remaining
obligation would need to be segregated.
OTHER LIMITATIONS
No portfolio will maintain open short positions in futures contracts,
call options written on futures contracts, and call options written on
securities indices if, in the aggregate, the current market value of the open
positions exceeds the current market value of that portion of its securities
portfolio being hedged by those futures and options plus or minus the unrealized
gain or loss on those open positions, adjusted for the historical volatility
relationship between that portion of the portfolio and the contracts (e.g., the
Beta volatility factor). For purposes of the limitation stated in the
immediately preceding sentence, to the extent the portfolio has written call
options on specific securities in that portion of its portfolio, the value of
those securities will be deducted from the current market value of that portion
of the securities portfolio. If this limitation should be exceeded at any time,
the portfolio will take prompt action to close out the appropriate number of
open short positions to bring its open futures and options positions within this
limitation.
The degree to which a portfolio may utilize Hedging and Other Strategic
Transactions may also be affected by certain provisions of the Internal Revenue
Code of 1986, as amended.
INVESTMENT RESTRICTIONS
There are two classes of investment restrictions to which the Trust is
subject in implementing the investment policies of the portfolios: fundamental
and nonfundamental. Nonfundamental restrictions are
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subject to change by the Trustees of the Trust without shareholder approval.
Fundamental restrictions may only be changed by a vote of the lesser of (i) 67%
or more of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares.
With respect to the submission of a change in an investment restriction
to the holders of the Trust's outstanding voting securities, the matter shall be
deemed to have been effectively acted upon with respect to a particular
portfolio if a majority of the outstanding voting securities of the portfolio
vote for the approval of the matter, notwithstanding (1) that the matter has not
been approved by the holders of a majority of the outstanding voting securities
of any other portfolio affected by the matter, and (2) that the matter has not
been approved by the vote of a majority of the outstanding voting securities of
the Trust.
All of the restrictions through restriction 8. are fundamental.
Restrictions 9. through 15. are nonfundamental.
FUNDAMENTAL
The Trust may not issue senior securities, except to the extent that
the borrowing of money in accordance with restriction 3. may constitute the
issuance of a senior security. (For purposes of this restriction, purchasing
securities on a when-issued or delayed delivery basis and engaging in Hedging
and Other Strategic Transactions will not be deemed to constitute the issuance
of a senior security.) In addition, unless a portfolio is specifically excepted
by the terms of a restriction, each portfolio will not:
(1) Invest more than 25% of the value of its total assets in securities of
issuers having their principal activities in any particular industry,
excluding United States Government securities and obligations of
domestic branches of U.S. banks and savings and loan associations,
except that this restriction shall not apply to the Real Estate
Securities Trust and the Lifestyle Trusts. [The Trust has determined to
forego the exclusion from the above policy of obligations of domestic
branches of U.S. savings and loan associations and to limit the
exclusion of obligations of domestic branches of U.S. banks to the
Money Market Trust.] For purposes of this restriction, neither finance
companies as a group nor utility companies as a group are considered to
be a single industry. Such companies will be grouped instead according
to their services; for example, gas, electric and telephone utilities
will each be considered a separate industry. Also for purposes of this
restriction, foreign government issuers and supranational issuers are
not considered members of any industry.
(2) Purchase the securities of any issuer if the purchase would cause more
than 5% of the value of the portfolio's total assets to be invested in
the securities of any one issuer (excluding United States Government
securities) or cause more than 10% of the voting securities of the
issuer to be held by the portfolio, except that up to 25% of the value
of each portfolio's total assets may be invested without regard to
these restrictions. The Global Government Bond Trust, the Emerging
Growth Trust and the Lifestyle Trusts are not subject to these
restrictions.
(3) Borrow money, except that each portfolio may borrow (i) for temporary
or emergency purposes (not for leveraging) up to 33 1/3% of the value
of the portfolio's total assets (including amounts borrowed) less
liabilities (other than borrowings) and (ii) in connection with reverse
repurchase agreements, mortgage dollar rolls and other similar
transactions.
(4) Underwrite securities of other issuers except insofar as the Trust may
be considered an underwriter under the Securities Act of 1933 in
selling portfolio securities.
(5) Purchase or sell real estate, except that each portfolio may invest in
securities issued by companies which invest in real estate or interests
therein and each of the portfolios other than the Money Market Trust
may invest in mortgages and mortgage backed securities.
(6) Purchase or sell commodities or commodity contracts except that each
portfolio other than the Money Market Trust may purchase and sell
futures contracts on financial instruments and indices and
20
<PAGE> 119
options on such futures contracts and each portfolio other than the
Money Market Trust and U.S. Government Securities Trust may purchase
and sell futures contracts on foreign currencies and options on such
futures contracts.
(7) Lend money to other persons except by the purchase of obligations in
which the portfolio is authorized to invest and by entering into
repurchase agreements. For purposes of this restriction, collateral
arrangements with respect to options, forward currency and futures
transactions will not be deemed to involve the lending of money.
(8) Lend securities in excess of 33 1/3% of the value of its total assets.
For purposes of this restriction, collateral arrangements with respect
to options, forward currency and futures transactions will not be
deemed to involve loans of securities.
NONFUNDAMENTAL
(9) Knowingly invest more than 15% of the value of its net assets in
securities or other investments, including repurchase agreements
maturing in more than seven days but excluding master demand notes,
that are not readily marketable, except that the Money Market Trust may
not invest in excess of 10% of its net assets in such securities or
other investments.
(10) Sell securities short or purchase securities on margin except that it
may obtain such short-term credits as may be required to clear
transactions. For purposes of this restriction, collateral arrangements
with respect to Hedging and Other Strategic Transactions will not be
deemed to involve the use of margin.
(11) Write or purchase options on securities, financial indices or
currencies except to the extent a portfolio is specifically authorized
to engage in Hedging and Other Strategic Transactions.
(12) Purchase securities for the purpose of exercising control or
management.
(13) Purchase securities of other investment companies (A) in reliance on
Section 12(d)(1)(G) of the 1940 Act or (B) if the purchase would cause
more than 10% of the value of the portfolio's total assets to be
invested in investment company securities, provided that (i) no
investment will be made in the securities of any one investment company
if immediately after such investment more than 3% of the outstanding
voting securities of such company would be owned by the portfolio or
more than 5% of the value of the portfolio's total assets would be
invested in such company and (ii) no restrictions shall apply to a
purchase of investment company securities in connection with a merger,
consolidation or reorganization or in connection with the investment of
collateral received in connection with the lending of securities in the
Navigator Securities Lending Trust.* For purposes of this restriction,
privately issued collateralized mortgage obligations will not be
treated as investment company securities if issued by "Exemptive
Issuers". Exemptive Issuers are defined as unmanaged, fixed-asset
issuers that (a) invest primarily in mortgage-backed securities, (b) do
not issue redeemable securities as defined in section 2(a)(32) of the
Investment Company Act of 1940, (c) operate under general exemptive
orders exempting them from "all provisions of the Investment Company
Act of 1940," and (d) are not registered or regulated under the
Investment Company Act of 1940 as investment companies. This
restriction (13) shall not apply to the Lifestyle Trusts.
(14) Pledge, hypothecate, mortgage or transfer (except as provided in
restriction 8.) as security for indebtedness any securities held by the
portfolio except in an amount of not more than 10% (33 1/3% in the case
of the Blue Chip Growth, Equity-Income, International Stock and Science
& Technology Trusts, 15% in the case of the International Small Cap,
Growth, Balanced and Worldwide Growth Trusts and 50% in the case of the
Value Trust) of the value of the portfolio's total assets and then only
to secure borrowings permitted by restrictions 3. and 10. For purposes
of this restriction, collateral arrangements with respect to Hedging
and Other Strategic Transactions will not be deemed to involve a pledge
of assets.
21
<PAGE> 120
(15) Purchase securities of foreign issuers, except that (A) the Aggressive
Asset Allocation Trust may invest up to 35% of its assets in such
securities; (B) the Growth, Balanced and Science & Technology Trusts
may each invest up to 30% of its assets in such securities, (C) the
Equity-Income and Moderate Asset Allocation Trusts may each invest up
to 25% of its assets in such securities; (D) the Pilgrim Baxter Growth
and Conservative Asset Allocation Trusts each may invest up to 15% of
its assets in such securities; (E) the Value Trust may invest up to 5%
of its assets in foreign securities; (F) each other portfolio other
than the U.S. Government Securities and Equity Index Trusts may invest
up to 20% of its total assets in such securities (in the case of the
Small/Mid Cap, Growth, Balanced and Value Trusts, ADRs and U.S.
dollar-denominated securities are not included in the applicable
percentage limit); and (G) the foregoing restriction shall not apply to
the International Small Cap, Worldwide Growth, Global Equity, Pacific
Rim Emerging Markets, International Stock, High Yield, Global
Government Bond, International Growth and Income, Strategic Bond,
Capital Growth Bond, Real Estate Securities and Quantitative Equity
Trusts.
*State Street Bank and Trust Company ("State Street"), the Trust's custodian,
pursuant to an agreement with the Trust provides a security lending service to
the Trust. In connection with the service, collateral from securities lent may
be invested in the Navigator Trust. The Navigator Trust is a registered
investment company managed by State Street that is sold only to mutual fund
lending clients of State Street. In connection with the creation of the
Navigator Trust, State Street received from the Securities and Exchange
Commission exemption from certain provisions of the Investment Company Act of
1940 (the "1940 Act") in order to permit its mutual fund clients to invest in
the Navigator Trust. State Street received exemption from Section 12(d)(1) of
the 1940 Act and various provisions of Section 17 of the 1940 Act.
In addition to the above policies, the Money Market Trust is subject to
certain restrictions required by Rule 2a-7 under the Investment Company Act of
1940. In order to comply with such restrictions, the Money Market Trust will,
inter alia, not purchase the securities of any issuer if it would cause (i) more
than 5% of its total assets to be invested in the securities of any one issuer
(excluding U.S. Government securities and repurchase agreements fully
collateralized by U.S. Government securities), except as permitted by Rule 2a-7
for certain securities for a period of up to three business days after purchase,
(ii) more than 5% of its total assets to be invested in "second tier
securities," as defined by Rule, or (iii) more than the greater of $1 million or
1% of its total assets to be invested in the second tier securities of that
issuer.
If a percentage restriction is adhered to at the time of an investment,
a later increase or decrease in the investment's percentage of the value of a
portfolio's total assets resulting from a change in such values or assets will
not constitute a violation of the percentage restriction, except in the case of
the Money Market Trust where the percentage limitation of restriction 9. must be
met at all times.
PORTFOLIO TURNOVER
The annual rate of portfolio turnover will normally differ for each
portfolio and may vary from year to year. Portfolio turnover is calculated by
dividing the lesser of purchases or sales of portfolio securities during the
fiscal year by the monthly average of the value of the portfolio's securities
(excluding from the computation all securities, including options, with
maturities at the time of acquisition of one year or less). A high rate of
portfolio turnover (100% or more) generally involves correspondingly greater
brokerage commission expenses, which must be borne directly by the portfolio. No
portfolio turnover rate can be calculated for the Money Market Trust due to the
short maturities of the instruments purchased. The portfolio turnover rate may
vary from year to year, as well as within a year. The portfolio turnover rates
for the portfolios of the Trust for the years ended December 31, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Global Equity Trust .................... 63% 52%
Equity Trust ........................... 88% 132%
Blue Chip Growth Trust ................. 57% 33%
</TABLE>
22
<PAGE> 121
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
International Growth and Income Trust* . 112% NA
Growth and Income Trust ................ 39% 42%
Equity-Income Trust .................... 52% 26%
Aggressive Asset Allocation
Trust ............................. 11% 136%
Moderate Asset Allocation
Trust ............................. 129% 180%
Conservative Asset Allocation
Trust ............................. 110% 220%
Strategic Bond Trust ................... 181% 197%
Global Government Bond
Trust ............................. 171% 157%
Investment Quality Bond Trust .......... 137% 140%
U.S. Government Securities
Trust ............................. 212% 387%
</TABLE>
*Annualized
Portfolio turnover rates (based on normal circumstances) for newer portfolios
are not expected to exceed 200%.
Prior rates of portfolio turnover do not provide an accurate guide as
to what the rate will be in any future year, and prior rates and estimated rates
are not a limiting factor when it is deemed appropriate to purchase or sell
securities for a portfolio. Each portfolio of the Trust intends to comply with
the various requirements of the Internal Revenue Code so as to qualify as a
"regulated investment company" thereunder. One such requirement is that a
portfolio must derive less than 30% of its gross income from the sale or other
disposition of stock or securities held for less than three months. Accordingly,
the ability of a particular portfolio to effect certain portfolio transactions
may be limited.
23
<PAGE> 122
MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust, together with information as to
their principal occupations during the past five years, are listed below:
<TABLE>
<CAPTION>
============================================================================================
NAME, ADDRESS AND AGE POSITION WITH THE PRINCIPAL OCCUPATION
TRUST DURING PAST FIVE YEARS
============================================================================================
<S> <C> <C>
Don B. Allen Trustee Senior Lecturer, William E. Simon
136 Knickerbocker Road Graduate School of Business
Pittsford, NY 14534 Administration, University of
Age: 68 Rochester
============================================================================================
John D. DesPrez III President Vice President, Annuities, The
116 Huntington Avenue Manufacturers Life Insurance
Boston, MA 02116 Company, September 1996 to
Age: 39 present; President and Director,
North American Security Life
Insurance Company, September 1996
to present; President, North
American Funds, March 1993 to
September 1996; Vice President and
General Counsel, North American
Security Life Insurance Company,
1991 to 1994.
============================================================================================
Charles L. Bardelis Trustee President and Executive Officer,
297 Dillingham Ave. Island Commuter Corp.(Marine
Falmouth, MA 02540 Transport)
Age: 55
============================================================================================
Samuel Hoar** Trustee Senior Mediator, Judicial
73 Tremont Street Arbitration Mediation Services
Boston, MA 02109 "JAMS/Endispute," June 1, 1994 to
Age: 69 date; Partner, Goodwin, Proctor
and Hoar, prior to June 1, 1994
============================================================================================
John D. Richardson* Chairman of Trustees Senior Vice President and General
200 Bloor Street East Manager, U.S. Operations,
Toronto, Ontario, Canada Manulife, January 1995 to present;
M4W 1E5 Senior Vice President and General
Age: 58 Manager, Canadian Operations,
Manulife, June 1992 to January
1995; Senior Vice President,
Financial Services, Manulife,
prior to June 1992
============================================================================================
</TABLE>
24
<PAGE> 123
<TABLE>
<CAPTION>
============================================================================================
NAME, ADDRESS AND AGE POSITION WITH THE PRINCIPAL OCCUPATION
TRUST DURING PAST FIVE YEARS
============================================================================================
<S> <C> <C>
F. David Rolwing Trustee Chairman, President and CEO,
17810 Meeting House Road Montgomery Mutual Insurance
Sandy Spring, MD 20860 Company, 1991 to present
Age: 62
============================================================================================
Robert J. Myers Trustee Consulting Actuary
9610 Wire Avenue (self-employed), April 1983 to
Silver Springs, MD 20921 date; Member, Prospective Payment
Age: 84 Assessment Commission, June 1993
to present; Chairman, Commission
on Railroad Retirement Reform,
1988 to 1990.
============================================================================================
John G. Vrysen Vice President Vice President, Chief Financial
116 Huntington Avenue Officer, U.S. Operations, of
Boston, MA 02116 Manulife, January 1, 1996 to date;
Age: 40 Vice President and Actuary,
January 1986 to date, North
American Security Life Insurance
Company.
============================================================================================
James D. Gallagher Secretary Vice President, Legal Services, of
116 Huntington Avenue Manulife, January 1, 1996 to date;
Boston, MA 02116 Vice President, Secretary and
Age: 41 General Counsel, June 1994 to
date, North American Security Life
Insurance Company; Vice President
and Associate General Counsel,
1990 to 1994, The Prudential
Insurance Company of America.
============================================================================================
Richard C. Hirtle Vice President Vice President, Chief Financial
116 Huntington Avenue and Treasurer Officer, Annuities, of Manulife,
Boston, MA 02116 January 1996 to date; Vice
Age: 40 President, Treasurer and Chief
Financial Officer, November 1988
to date, North American Security
Life Insurance Company.
============================================================================================
</TABLE>
*Trustee who is an "interested person", as defined in the Investment Company Act
of 1940.
**Trustee who is an "interested person" of the Trust but not the Adviser.
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<PAGE> 124
COMPENSATION OF TRUSTEES
The Trust does not pay any remuneration to its Trustees who are
officers or employees of the Adviser or its affiliates. Trustees not so
affiliated receive an annual retainer of $21,000, a fee of $5,500 for each
meeting of the Trustees that they attend in person and a fee of $200 for each
such meeting conducted by telephone. Trustees are reimbursed for travel and
other out-of-pocket expenses. The officers listed above are furnished to the
Trust pursuant to the Advisory Agreement described below and receive no
compensation from the Trust. These officers spend only a portion of their time
on the affairs of the Trust.
<TABLE>
<CAPTION>
================================================================================================================
NAMES OF PERSON, POSITION AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
FROM TRUST FOR PRIOR FISCAL TRUST COMPLEX FOR PRIOR
YEAR* FISCAL YEAR*#
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Don B. Allen, Trustee $35,000 $42,500
------------------------------------------------------------------------------------------------------
Charles L. Bardelis, Trustee $35,000 $42,500
------------------------------------------------------------------------------------------------------
Samuel Hoar, Trustee $35,000 $42,500
------------------------------------------------------------------------------------------------------
Robert J. Myers, Trustee $35,000 $42,500
======================================================================================================
John D. Richardson, Trustee $ 0 $ 0
======================================================================================================
F. David Rolwing, Trustee $ 0 $12,000
======================================================================================================
</TABLE>
*Compensation received for services as Trustee
#Trust Complex includes all portfolios of the Trust as well as all portfolios of
North American Funds of which NASL Financial is the investment adviser and all
portfolios of Manulife Series Fund, Inc. of which Manufacturers Adviser
Corporation was the investment adviser.
INVESTMENT MANAGEMENT ARRANGEMENTS
The following information supplements the material appearing in the
Prospectus under the caption "Management of the Trust." Copies of the Advisory
and Subadvisory Agreements discussed below have been filed with and are
available from the Securities and Exchange Commission.
The Trust, formerly a Maryland corporation known as "NASL Series Fund,
Inc." (the "Fund"), was reorganized as a Massachusetts business trust effective
December 31, 1988. Pursuant to such reorganization, the Trust assumed all the
assets and liabilities of the Fund and carried on its business and operations
with the same investment management arrangements as were in effect for the Fund
at the time of the reorganization. The assets and liabilities of each of the
Fund's separate portfolios were assumed by the corresponding portfolios of the
Trust. Effective December 31, 1996, Manulife Series Fund, Inc., a registered
management investment company with nine portfolios, was merged into the Trust.
The net assets of four of the portfolios of Manulife Series Fund, Inc. were
transferred to comparable portfolios of the Trust, and the remaining five
portfolios -- the Pacific Rim Emerging Markets, Real Estate Securities, Common
Stock, Capital Growth and Equity Index Portfolios -- were transferred to the
Trust and reconstituted as new portfolios of the Trust.
NASL Financial (the "Adviser") is a Massachusetts corporation whose
principal offices are located at 116 Huntington Avenue, Boston, Massachusetts
02116. NASL Financial is registered as an investment adviser under the
Investment Advisers Act of 1940 and as a broker-dealer under the Securities
Exchange Act of 1934. It is a member of the National Association of Securities
Dealers, Inc. (the "NASD"). In addition, NASL Financial serves as principal
underwriter of certain contracts issued by Security Life.
26
<PAGE> 125
The Advisory Agreement, each Subadvisory Agreement (except those
described below) and the Salomon Brothers Asset Management Limited Consulting
Agreement were approved by the Trustees on September 28, 1995 and by the
shareholders of the portfolios on December 5, 1995. These approvals occurred in
connection with the change of control of NASL Financial as a result of the
merger of North American Life Assurance Company, the ultimate controlling parent
of NASL Financial, with The Manufacturers Life Insurance Company on January 1,
1996.
On December 15, 1995, the Trustees appointed Fred Alger Management,
Inc. ("Alger") pursuant to a new Subadvisory Agreement with Alger ("Alger
Subadvisory Agreement") to manage the Small/Mid Cap Trust. The Alger Subadvisory
Agreement and an amendment to the Advisory Agreement, both to provide for the
management of the Small/Mid Cap Trust, were approved by the Trustees, including
a majority of the Trustees who are not parties to the agreements or interested
persons of any party to such agreements. The Alger Subadvisory Agreement and the
related amendment to the Advisory Agreement have been approved by the sole
shareholder of the Small/Mid Cap Trust.
On December 15, 1995, the Trustees appointed Founders Asset Management,
Inc. ("Founders") pursuant to a new Subadvisory Agreement with Founders
("Founders Subadvisory Agreement") to manage the International Small Cap Trust
and on June 20, 1996, the Trustees appointed Founders pursuant to an amendment
to the Founders Subadvisory Agreement to manage the Growth Trust. The Founders
Subadvisory Agreement (and in the case of the Growth Trust, the amendment to the
Founders Subadvisory Agreement) and amendments to the Advisory Agreement, both
to provide for the management of the Growth and International Small Cap Trust,
were approved by the Trustees, including a majority of the Trustees who are not
parties to the agreements or interested persons of any party to such agreements.
The Founders Subadvisory Agreement (and in the case of the Growth Trust, the
amendment to the Founders Subadvisory Agreement) and the related amendments to
the Advisory Agreement have been approved by the sole shareholders of the Growth
and the International Small Cap Trust.
Effective October 1, 1996, Oechsle International, Wellington
Management, Goldman Sachs Asset Management and Roger Engemann Management Co.,
Inc., the Subadvisers of the Global Equity, Money Market, Equity-Income and Blue
Chip Growth Trusts, respectively, resigned their positions as Subadvisers of
those portfolios. On September 27, 1996, the Trustees (i) appointed Morgan
Stanley Asset Management Inc. ("Morgan Stanley") pursuant to a new Subadvisory
Agreement with Morgan Stanley ("Morgan Stanley Subadvisory Agreement") to manage
the Global Equity Trust, (ii) appointed T. Rowe Price Associates, Inc. ("T. Rowe
Price") pursuant to a new Subadvisory Agreement with T. Rowe Price ("T. Rowe
Price Subadvisory Agreement") to manage the Blue Chip Growth and Equity-Income
Trusts, and (iii) appointed Manufacturers Adviser Corporation ("MAC") pursuant
to a new Subadvisory Agreement with MAC ("MAC Subadvisory Agreement") to manage
the Money Market Trust. All such Subadvisory Agreements were approved by the
Trustees, including a majority of the Trustees who are not parties to the
agreements or interested persons of any party to such agreements, on September
27, 1996 (with an effective date of October 1, 1996) and by the shareholders of
the respective portfolios on December 20, 1996.
Also on September 27, 1996, the Trustees (i) appointed Miller Anderson
& Sherrerd, LLP ("MAS") pursuant to a new Subadvisory Agreement with MAS ("MAS
Subadvisory Agreement") to manage the Value and High Yield Trusts, (ii)
appointed Warburg Pincus Counsellors, Inc. ("Warburg") pursuant to an agreement
with Warburg ("Warburg Subadvisory Agreement") to manage the Emerging Growth
Trust, (iii) appointed T. Rowe Price pursuant to the T. Rowe Price Subadvisory
Agreement to also manage the Science & Technology Trust, (iv) appointed Rowe
Price-Fleming International, Inc. ("Price-Fleming") pursuant to a new
Subadvisory Agreement with Price Fleming ("Price-Fleming Subadvisory Agreement")
to manage the International Stock Trust, (v) appointed Founders pursuant to an
amendment to the Founders Subadvisory Agreement to manage the Worldwide Growth
and Balanced Trusts, (vi) appointed Pilgrim Baxter & Associates, Inc. ("PBHG")
to manage the Pilgrim Baxter Growth Trust pursuant to an agreement with PBHG
("PBHG Subadvisory Agreement"), (vii) appointed MAC pursuant to the MAC
Subadvisory Agreement to also manage the Pacific Rim Emerging Markets, Real
Estate Securities, Common Stock, Capital Growth Bond and Equity Index Trusts and
(viii) appointed the Adviser to manage the Lifestyle Trusts
27
<PAGE> 126
pursuant to an amendment to the Advisory Agreement. Such Subadvisory Agreements
or amended Subadvisory Agreement and amendments to the Advisory Agreement, to
provide for the management of the newly-established portfolios, were approved by
the Trustees, including a majority of the Trustees who are not parties to the
agreements or interested persons of any party to such agreements, on September
27, 1996.
On December 13, 1996, the Trustees appointed MAC pursuant to the amended MAC
Subadvisory Agreement to also manage each of the Lifestyle Trusts. The amended
MAC Subadvisory Agreement was approved by the Trustees, including a majority of
the Trustees who are not parties to the agreement or interested persons of any
party to such agreement, on December 13, 1996.
THE ADVISORY AGREEMENT
Under the terms of the Advisory Agreement, the Adviser administers the
business and affairs of the Trust. The Adviser is responsible for performing or
paying for various administrative services for the Trust, including providing at
the Adviser's expense (i) office space and all necessary office facilities and
equipment, (ii) necessary executive and other personnel for managing the affairs
of the Trust and for performing certain clerical, accounting and other office
functions, and (iii) all other information and services, other than services of
counsel, independent accountants or investment subadvisory services provided by
any subadviser under a subadvisory agreement, required in connection with the
preparation of all tax returns and documents required to comply with the federal
securities laws. The Adviser pays the cost of any advertising or sales
literature relating solely to the Trust, the cost of printing and mailing
Prospectuses to persons other than current holders of Trust shares or of
variable contracts funded by Trust shares and the compensation of the Trust's
officers and Trustees that are officers, directors or employees of the Adviser
or its affiliates. In addition, advisory fees are reduced or the Adviser
reimburses the Trust if the total of all expenses (excluding advisory fees,
taxes, portfolio brokerage commissions, interest, litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary course of
the Trust's business) applicable to a portfolio exceeds an annual rate of .75%
in the case of the International Small Cap, Global Equity, Global Government
Bond, Worldwide Growth, International Growth and Income, International Stock and
Pacific Rim Emerging Markets Trusts, .50% in the case of all other portfolios
except for the Equity Index Trust, or .15% in the case of the Equity Index Trust
of the average annual net assets of such portfolio. The expense limitation will
continue in effect from year to year unless otherwise terminated at any year end
by the Adviser on 30 days' notice to the Trust. (For a limited period of one
year ending December 31, 1997, the expense limitation applicable to the Real
Estate Securities, Common Stock and Capital Growth Bond Trusts will include all
expenses of such portfolios, so that their total expenses for that year,
including advisory fees, will not exceed .50%.) In addition, in the case of the
Lifestyle Trusts, the Adviser has agreed to pay the expenses of the Lifestyle
Trusts (other than the expenses of the Underlying Trusts) for a period of one
year commencing January 1, 1997. After this one year period, this expense
reimbursement may be terminated at any time.
In addition to providing the services and expense limitation described
above, the Adviser selects, contracts with and compensates subadvisers to manage
the investment and reinvestment of the assets of the Trust portfolios, except
for the Lifestyle Trusts. The Adviser monitors the compliance of such
subadvisers with the investment objectives and related policies of each
portfolio and reviews the performance of such subadvisers and reports
periodically on such performance to the Trustees of the Trust.
As compensation for its services, the Adviser receives a fee from the
Trust computed separately for each portfolio. The fee for each portfolio is
stated as an annual percentage of the current value of the net assets of such
portfolio. The fee, which is accrued daily and payable monthly, is calculated
for each day by multiplying the daily equivalent of the annual percentage
prescribed for a portfolio by the value of its net assets at the close of
business on the previous business day of the Trust. The management fees each
portfolio currently is obligated to pay the Adviser is as set forth in the
Prospectus. No management fees are currently payable by the Lifestyle Trusts.
28
<PAGE> 127
For the years ended December 31, 1995, 1994 and 1993 the aggregate
investment advisory fee payable by the Trust under the fee schedule then in
effect, absent the expense limitation provision, was $33,808,255, $27,076,438
and $16,988,737 allocated among the portfolios as follows:
<TABLE>
<CAPTION>
PORTFOLIO 1995 1994 1993
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity .................... $5,513,312 $4,916,694 $1,813,650
Blue Chip Growth ................. $2,115,434 $1,255,314 $ 675,183
Equity ........................... $5,643,363 $3,483,279 $1,953,233
Equity-Income .................... $2,459,247 $1,274,807 $ 308,485
Growth and Income ................ $3,922,671 $2,670,229 $1,544,607
International Growth & Income .... $ 450,200* N/A N/A
Strategic Bond ................... $ 767,448 $ 588,051 $ 189,565
Global Government Bond ........... $1,757,909 $ 1,742,81 $ 947,963
Investment Quality Bond .......... $ 798,045 $ 709,069 $ 529,433
U.S. Government Securities ....... $1,291,668 $1,350,850 $1,153,241
Money Market Trust ............... $1,318,573 $1,158,400 $ 606,603
Aggressive Asset Allocation ...... $1,463,421 $1,354,682 $1,226,006
Moderate Asset Allocation ........ $4,667,061 $4,783,431 $4,341,909
Conservative Asset Allocation .... $1,639,903 $1,788,821 $1,698,859
</TABLE>
*For the period January 9, 1995 (commencement of operations) to December 31,
1995.
THE SUBADVISORY AGREEMENTS
Under the terms of each of the current subadvisory agreements,
including the SBAM Limited Consulting Agreement (collectively "Subadvisory
Agreements"), the Subadviser manages the investment and reinvestment of the
assets of the assigned portfolios, subject to the supervision of the Trust's
Trustees. The Subadviser formulates a continuous investment program for each
such portfolio consistent with its investment objectives and policies outlined
in the Prospectus. Each Subadviser implements such programs by purchases and
sales of securities and regularly reports to the Adviser and the Trustees of the
Trust with respect to the implementation of such programs. Each Subadviser, at
its expense, furnishes all necessary investment and management facilities,
including salaries of personnel required for it to execute its duties, as well
as administrative facilities, including bookkeeping, clerical personnel, and
equipment necessary for the conduct of the investment affairs of the assigned
portfolios.
As compensation for their services, the Subadvisers receive fees from
the Adviser computed separately for each portfolio. The fee for each portfolio
is stated as an annual percentage of the current value of the net assets of the
portfolio. The fees are calculated on the basis of the average of all valuations
of net assets of each portfolio made at the close of business on each business
day of the Trust during the period for which such fees are paid. Once the
average net assets of a portfolio exceed specified amounts, the fee is reduced
with respect to such excess. The schedule of the management fees the Adviser
currently is obligated to pay the Subadvisers out of the advisory fee it
receives from each portfolio is as set forth in the Prospectus.
The prospectus refers to a subadvisory consulting agreement between
SBAM and Salomon Brothers Asset Management Limited ("SBAM Limited") which is
subject to certain conditions as set forth in the prospectus. Under that
agreement SBAM Limited provides certain investment advisory services to SBAM
relating to currency transactions and investments in non-dollar denominated debt
securities for the benefit of the Strategic Bond Trust. SBAM pays SBAM Limited,
as full compensation for all services provided under the subadvisory consulting
agreement, a portion of its subadvisory fee, such amount being an amount equal
to the fee payable under SBAM's subadvisory agreement multiplied by the current
value of the net assets of the portion of the assets of the Strategic Bond Trust
that SBAM Limited has been delegated to manage divided by the current value of
the net assets of the portfolio. The Trust will not incur any expenses in
connection with SBAM Limited's services. SBAM Limited is a wholly owned
subsidiary of Salomon Brothers Europe
29
<PAGE> 128
Limited ("SBEL"). Salomon (International) Finance A G ("SIF") owns 100% of
SBEL's Convertible Redeemable Preference Shares and 36.8% of SBEL's Ordinary
Shares, while the remaining 63.2% of SBEL's Ordinary Shares are owned by Salomon
Brothers Holding Company Inc. ("SBH"). SIF is wholly owned by SBH, which is in
turn, a wholly owned subsidiary of Salomon Inc.
For the years ended December 31, 1995, 1994 and 1993, the Adviser paid
aggregate subadvisory fees of $12,007,940 $9,905,072, and $6,285,555,
respectively, allocated among the portfolios as follows:
<TABLE>
<CAPTION>
PORTFOLIO 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity ............................................................... $2,415,918 $2,192,713 $ 905,318
Blue Chip Growth ............................................................ $ 978,146 $ 558,057 $ 280,422
Equity ...................................................................... $1,628,673 $1,166,032 $ 710,703
Equity-Income ............................................................... $ 864,812 $ 525,739 $ 148,581
Growth and Income ........................................................... $1,267,236 $ 926,068 $ 579,977
International Growth & Income ............................................... $ 232,320* N/A N/A
Strategic Bond .............................................................. $ 322,077+ $ 252,633 $ 85,576
Global Government Bond ...................................................... $ 771,716 $ 766,324 $ 427,234
Investment Quality Bond ..................................................... $ 276,246 $ 245,447 $ 183,265
U.S. Government Securities .................................................. $ 442,603 $ 458,245 $ 395,910
Money Market Trust .......................................................... $ 197,786 $ 173,760 $ 90,990
Aggressive Asset Allocation ................................................. $ 560,019 $ 521,717 $ 474,535
Moderate Asset Allocation ................................................... $1,433,417 $ 456,691 $1,368,386
Conservative Asset Allocation ............................................... $ 616,971 $ 661,646 $ 634,658
</TABLE>
* For the period January 9, 1995 (commencement of operations) to December
31, 1995.
+ Of this amount, $63,231 was paid by SBAM to SBAM Limited under the
Subadvisory Consulting Agreement.
Subject to the expense limitations discussed above, the Trust is
responsible for the payment of all expenses of its organization, operations and
business, except those which the Adviser or Subadvisers have agreed to pay
pursuant to the Advisory or Subadvisory Agreements. Expenses borne by the Trust
include charges and expenses of the custodian, independent accountants and
transfer, bookkeeping and dividend disbursing agent appointed by the Trust;
brokers' commissions and issue and transfer taxes on securities transactions to
which the Trust is a party; taxes and fees payable by the Trust; and legal fees
and expenses in connection with the affairs of the Trust, including registering
and qualifying its shares with regulatory authorities and in connection with any
litigation.
The Advisory Agreement and each Subadvisory Agreement will continue in
effect as to a portfolio for a period no more than two years from the date of
its execution or the execution of an amendment making the agreement applicable
to that portfolio only so long as such continuance is specifically approved at
least annually either by the Trustees or by the vote of a majority of the
outstanding voting securities of the Trust, provided that in either event such
continuance shall also be approved by the vote of the majority of the Trustees
who are not interested persons of any party to the Agreements, cast in person at
a meeting called for the purpose of voting on such approval. The required
shareholder approval of any continuance of any of the Agreements shall be
effective with respect to any portfolio if a majority of the outstanding voting
securities of the series of shares of beneficial interest of that portfolio vote
to approve such continuance, notwithstanding that such continuance may not have
been approved by a majority of the outstanding voting securities of (i) any
other portfolio affected by the Agreement or (ii) all of the portfolios of the
Trust.
If the holders of any series of shares of beneficial interest of any
portfolio fail to approve any continuance of the Advisory Agreement or the
Subadvisory Agreement, the Adviser or Subadviser (including SBAM Limited) may
continue to act as investment adviser or subadviser with respect to such
portfolio pending the required approval of the continuance of such Agreement, of
a new contract with the Adviser or Subadviser or different adviser or
subadviser, or other definitive action. In the case of the Adviser, the
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<PAGE> 129
compensation received in respect of such a portfolio during such period will be
no more than its actual costs incurred in furnishing investment advisory and
management services to such portfolio or the amount it would have received under
the Advisory Agreement in respect of such portfolio, whichever is less. In the
case of the Subadvisers, the compensation received in respect of such a
portfolio during such period will be no more than that permitted by Rule 15a-4
under the Investment Company Act of 1940.
The Advisory Agreement and the Subadvisory Agreements may be terminated
at any time without the payment of any penalty on 60 days' written notice to the
other party or parties to the Agreements, and to the Trust in the case of the
Subadvisory Agreements, (i) by the Trustees of the Trust; (ii) by the vote of a
majority of the outstanding voting securities of the Trust, or with respect to
any portfolio, by the vote of a majority of the outstanding voting securities of
the series of shares of beneficial interest of such portfolio; and (iii) by the
Adviser, and in the case of the Subadvisory Agreements, by the respective
Subadvisers. The Agreements will automatically terminate in the event of their
assignment.
The Advisory Agreement may be amended by the Trust and the Adviser and
the Subadvisory Agreements by the Adviser and respective Subadvisers provided
such amendment is specifically approved by the vote of a majority of the
outstanding voting securities of the Trust and by the vote of a majority of the
Trustees of the Trust who are not interested persons of the Trust, the Adviser
or the applicable Subadviser (including SBAM Limited) cast in person at a
meeting called for the purpose of voting on such approval. The required
shareholder approval of any amendment shall be effective with respect to any
portfolio if a majority of the outstanding voting securities of that portfolio
vote to approve the amendment, notwithstanding that the amendment may not have
been approved by a majority of the outstanding voting securities of (i) any
other portfolio affected by the amendment or (ii) all the portfolios of the
Trust.
AGREEMENT WITH PRIOR SUBADVISER
The Conservative, Moderate and Aggressive Asset Allocation Trusts for
which Sass Investors acted as Subadviser up until December 13, 1991, and the
Bond Trust (now Investment Quality Bond Trust) for which Sass Investors acted as
Subadviser up until April 23, 1991, acquired certain taxable revenue bonds, the
value of which has declined substantially due to the default of the bonds caused
by the Conservatorship of Executive Life Insurance Company. The Trust retained
legal counsel to advise it as to any potential claims it may have arising out of
its purchase of such bonds. On the basis of the advice received and, to avoid
any prejudice resulting from the passage of time, the Trust has sought to obtain
agreements from certain persons which would toll the running of statutes of
limitations that might in time bar the assertion of any claims related to its
purchase of the bonds. In February 1991 the Trust entered into an agreement with
Sass Investors, its principals and affiliated companies concerning any claims
the Trust may have arising out of Sass Investors' performance under the Sass
Subadvisory Agreement in connection with the purchase or sale of the
aforementioned bonds. The parties agreed that the running of time under any
statute of limitations or by way of laches with respect to any claims or
defenses arising out of such purchase or sale would be tolled until thirty days
after termination of the agreement by either party giving written notice to the
other.
PORTFOLIO BROKERAGE
Pursuant to the Subadvisory Agreements, the Subadvisers are responsible
for placing all orders for the purchase and sale of portfolio securities of the
Trust, except for the Lifestyle Trusts the portfolio transactions for which are
the responsibility of the Adviser. The Subadvisers have no formula for the
distribution of the Trust's brokerage business, their intention being to place
orders for the purchase and sale of securities with the primary objective of
obtaining the most favorable overall results for the Trust. The cost of
securities transactions for each portfolio will consist primarily of brokerage
commissions or dealer or underwriter spreads. Bonds and money market instruments
are generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes.
Occasionally, securities may be purchased directly from the issuer. For
securities traded primarily in the over-the-counter market, the Subadvisers
will, where possible, deal directly with dealers who make a
31
<PAGE> 130
market in the securities unless better prices and execution are available
elsewhere. Such dealers usually act as principals for their own account.
In selecting brokers or dealers through whom to effect transactions,
the Subadvisers will give consideration to a number of factors, including price,
dealer spread or commission, if any, the reliability, integrity and financial
condition of the broker-dealer, size of the transaction and difficulty of
execution. Consideration of these factors by a Subadviser, either in terms of a
particular transaction or the Subadviser's overall responsibilities with respect
to the Trust and any other accounts managed by the Subadviser, could result in
the Trust paying a commission or spread on a transaction that is in excess of
the amount of commission or spread another broker-dealer might have charged for
executing the same transaction. In selecting brokers and dealers, the
Subadvisers will also give consideration to the value and quality of any
research, statistical, quotation or valuation services provided by the broker or
dealer. In placing a purchase or sale order, a Subadviser may use a broker whose
commission in effecting the transaction is higher than that of some other broker
if the Subadviser determines in good faith that the amount of the higher
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker, viewed in terms of either the particular
transaction or the Subadviser's overall responsibilities with respect to the
Trust and any other accounts managed by the Subadviser. Brokerage and research
services provided by brokers and dealers include advice, either directly or
through publications or writings, as to the value of securities, the
advisability of purchasing or selling securities, the availability of securities
or purchasers or sellers of securities, and analyses and reports concerning
issuers, industries, securities, economic factors and trends and portfolio
strategy. Consistent with the foregoing considerations and the Rules of Fair
Practice of the NASD, sales of contracts for which the broker-dealer or an
affiliate thereof is responsible may be considered as a factor in the selection
of such brokers or dealers. A higher cost broker-dealer will not be selected,
however, solely on the basis of sales volume but will be selected in accordance
with the criteria set forth above.
To the extent research services are used by the Subadvisers in
rendering investment advice to the Trust, such services would tend to reduce the
Subadvisers' expenses. However, the Subadvisers do not believe that an exact
dollar value can be assigned to these services. Research services received by
the Subadvisers from brokers or dealers executing transactions for the Trust
will be available also for the benefit of other portfolios managed by the
Subadvisers.
The Subadvisers manage a number of accounts other than the Trust's
portfolios. Although investment recommendations or determinations for the
Trust's portfolios will be made by the Subadvisers independently from the
investment recommendations and determinations made by them for any other
account, investments deemed appropriate for the Trust's portfolios by the
Subadvisers may also be deemed appropriate by them for other accounts, so that
the same security may be purchased or sold at or about the same time for both
the Trust's portfolios and other accounts. In such circumstances, the
Subadvisers may determine that orders for the purchase or sale of the same
security for the Trust's portfolios and one or more other accounts should be
combined, in which event the transactions will be priced and allocated in a
manner deemed by the Subadvisers to be equitable and in the best interests of
the Trust Portfolios and such other accounts. While in some instances combined
orders could adversely affect the price or volume of a security, the Trust
believes that its participation in such transactions on balance will produce
better overall results for the Trust.
For the years ended December 31, 1995, 1994 and 1993, the Trust paid
brokerage commissions in connection with portfolio transactions of $6,609,957,
$5,510,656 and $2,877,317, respectively, allocated among the portfolios as
follows:
<TABLE>
<CAPTION>
PORTFOLIO 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity .............................................................. $2,684,254 $2,358,799 $1,196,630
Blue Chip Growth ........................................................... $ 388,904 $ 187,089 $ 114,811
Equity ..................................................................... $ 861,497 $1,011,437 $ 600,555
Equity-Income .............................................................. $ 606,918 $ 383,033 $ 181,956
Growth and Income .......................................................... $ 697,618 $ 487,223 $ 308,818
</TABLE>
32
<PAGE> 131
<TABLE>
<CAPTION>
PORTFOLIO 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Growth and Income ............................................ $ 374,962* NA NA
Aggressive Asset Allocation ................................................ $ 286,517 $ 280,679 $ 122,305
Moderate Asset Allocation .................................................. $ 604,766 $ 682,814 $ 292,232
Conservative Asset Allocation .............................................. $ 104,521 $ 119,582 $ 60,010
</TABLE>
* For the period January 9, 1995 (commencement of operations) to December
31, 1995.
Salomon Brothers Inc. ("Salomon"), J.P. Morgan Securities Inc. and J.P.
Morgan Securities Ltd. (J.P. Morgan"), Dresdner Bank, Fidelity Capital Markets
and Morgan Stanley & Co. Incorporated are affiliated brokers of the Trust due to
the positions of Salomon, J.P. Morgan, Oechsle International, FMTC and Morgan
Stanley, respectively, as Subadvisers to Trust portfolios. Prior to October 1,
1996, Goldman Sachs & Co. ("Goldman") was an affiliated broker of the Trust due
to the position of Goldman as Subadviser to the Equity-Income Trust.
33
<PAGE> 132
For the years ended December 31, 1995, 1994 and 1993, brokerage
commissions were paid to GOLDMAN, SACHS & CO. by the portfolios as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
% OF AGGREGATE
% OF PORTFOLIO'S BROKERAGE $ AMOUNT OF
COMMISSIONS REPRESENTED TRANSACTIONS
PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity ................. $ 6,951 0.26% 0.08%
Blue Chip Growth ............. $24,855 6.39% 0.52%
Equity ........................ $13,799 1.60% 0.62%
Equity-Income ................. $63,836 10.52% 0.19%
Growth and Income ............. $33,000 4.73% 0.46%
International Growth and Income $ 6,651* 1.77% 1.05%
Aggressive Asset Allocation ... $ 7,202 2.51% 0.43%
Moderate Asset Allocation ..... $11,975 1.98% 0.69%
Conservative Asset Allocation . $ 2,080 1.99% 0.80%
</TABLE>
* For the period January 9, 1995 (commencement of operations) to December 31,
1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
% OF AGGREGATE
% OF PORTFOLIO'S BROKERAGE $ AMOUNT OF
COMMISSIONS REPRESENTED TRANSACTIONS
PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Blue Chip Growth .............. $ 6,376 3.41% 5.71%
Equity ........................ $ 8,032 0.79% 0.03%
Equity-Income ................. $20,741 5.41% 3.98%
Growth and Income ............. $12,612 2.59% 1.14%
Aggressive Asset Allocation ... $10,644 3.79% 0.53%
Moderate Asset Allocation ..... $25,501 3.73% 3.21%
Conservative Asset Allocation . $ 676 0.57% 0.08%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
% OF AGGREGATE
% OF PORTFOLIO'S BROKERAGE $ AMOUNT OF
COMMISSIONS REPRESENTED TRANSACTIONS
PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity ................. $15,566 1.30% 1.95%
Blue Chip Growth .............. $ 4,500 3.92% 9.33%
Equity ........................ $ 5,755 0.96% 1.71%
Equity-Income ................. $27,565 15.15% 16.68%
Growth and Income ............. $ 9,480 3.07% 3.73%
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, brokerage
commissions were paid to SALOMON BROTHERS INC. by the portfolios as follows:
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<PAGE> 133
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
% OF AGGREGATE
% OF PORTFOLIO'S BROKERAGE $ AMOUNT OF
COMMISSIONS REPRESENTED TRANSACTIONS
PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity .................. $ 34,352 1.28% 0.19%
Blue Chip Growth ............... $ 16,380 4.21% 0.26%
Equity ......................... $ 13,968 1.62% 0.14%
Equity-Income .................. $ 35,568 5.86% 0.14%
Growth and Income .............. $128,844 18.47% 1.45%
Aggressive Asset Allocation .... $ 3,072 1.07% 0.88%
Moderate Asset Allocation ...... $ 3,967 0.66% 1.42%
Conservative Asset Allocation .. $ 999 0.96% 1.87%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
% OF AGGREGATE
% OF PORTFOLIO'S BROKERAGE $ AMOUNT OF
COMMISSIONS REPRESENTED TRANSACTIONS
PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity .................. $17,818 0.76% 0.43%
Blue Chip Growth ............... $ 4,200 2.24% 2.08%
Equity ......................... $24,110 2.38% 2.59%
Equity-Income .................. $17,052 4.45% 4.09%
Growth and Income .............. $46,848 9.62% 3.08%
Aggressive Asset Allocation .... $ 1,063 0.38% 4.74%
Moderate Asset Allocation ...... $ 2,641 0.39% 6.03%
Conservative Asset Allocation .. $ 607 0.51% 2.07%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
% OF AGGREGATE
% OF PORTFOLIO'S BROKERAGE $ AMOUNT OF
COMMISSIONS REPRESENTED TRANSACTIONS
PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity ................. $14,144 1.18% 0.71%
Equity ........................ $15,426 2.57% 1.58%
Equity-Income ................. $ 8,748 4.81% 3.34%
Growth and Income ............. $23,534 7.62% 6.93%
</TABLE>
For the year ended December 31, 1995, brokerage commissions were paid
to J.P. Morgan Securities by the portfolios as follows:
35
<PAGE> 134
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
% OF AGGREGATE
% OF PORTFOLIO'S BROKERAGE $ AMOUNT OF
COMMISSIONS REPRESENTED TRANSACTIONS
PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity ................... $15,349 0.57% 0.90%
Blue Chip Growth ................ $ 2,482 0.64% 0.03%
Equity .......................... $ 8,890 1.03% 0.06%
Equity-Income ................... $40,124 6.61% 0.20%
Growth and Income ............... $12,798 1.83% 0.30%
International Growth and Income.. $ 554* 0.15% 0.41%
Aggressive Asset Allocation ..... $ 721 0.25% 0.24%
Moderate Asset Allocation ....... $ 1,680 0.28% 0.31%
Conservative Asset Allocation ... $ 397 0.38% 0.14%
</TABLE>
* For the period January 9, 1995 (commencement of operations) to December 31,
1995.
For the year ended December 31, 1995, brokerage commissions were paid to
Dresdner Bank by the portfolios as follows:
<TABLE>
<CAPTION>
% OF AGGREGATE
% OF PORTFOLIO'S BROKERAGE $ AMOUNT OF
COMMISSIONS REPRESENTED TRANSACTIONS
PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity ......................... $277 0.03% .00%
International Growth & Income .. 408* 0.11% .04%
</TABLE>
* For the period January 9, 1995 (commencement of operations) to December 31,
1995.
For the year ended December 31, 1995, brokerage commissions were paid to
Fidelity Capital Markets by the portfolios as follows:
<TABLE>
<CAPTION>
% OF AGGREGATE
% OF PORTFOLIO'S BROKERAGE $ AMOUNT OF
COMMISSIONS REPRESENTED TRANSACTIONS
PORTFOLIO COMMISSIONS FOR THE PERIOD FOR THE PERIOD
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Global Equity ................. $31,110 1.16% 0.77%
International Growth & Income . 197* 0.05% 0.15%
Aggressive Asset Allocation ... 3,240 1.13% 0.08%
Moderate Asset Allocation ..... 8,815 1.46% 0.07%
Conservative Asset Allocation . 1,920 1.84% 0.05%
</TABLE>
* For the period January 9, 1995 (commencement of operations)
to December 31, 1995.
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<PAGE> 135
PURCHASE AND REDEMPTION OF SHARES
The Trust will redeem all full and fractional portfolio shares for cash
at the net asset value per share of each portfolio. Payment for shares redeemed
will generally be made within seven days after receipt of a proper notice of
redemption. However, the Trust may suspend the right of redemption or postpone
the date of payment beyond seven days during any period when (a) trading on the
New York Stock Exchange is restricted, as determined by the Securities and
Exchange Commission, or such Exchange is closed for other than weekends and
holidays; (b) an emergency exists, as determined by the Commission, as a result
of which disposal by the Trust of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Trust fairly to
determine the value of its net assets; or (c) the Commission by order so permits
for the protection of security holders of the Trust.
DETERMINATION OF NET ASSET VALUE
The following supplements the discussion of the valuation of portfolio
assets set forth in the Prospectus under the caption "Purchase and Redemption of
Shares."
Securities held by the portfolios, except for debt instruments with
remaining maturities of 60 days or less, all debt instruments held by the Money
Market Trust and shares of the Underlying Portfolios held by the Lifestyle
Trusts, will be valued as follows: securities which are traded on stock
exchanges (including securities traded in both the over-the-counter market and
on an exchange) are valued at the last sales price as of the close of the
regularly scheduled trading of the New York Stock Exchange on the day the
securities are being valued, or, lacking any sales, at the closing bid prices.
Securities traded only in the over-the-counter market are valued at the last bid
prices quoted by brokers that make markets in the securities at the close of
trading on the New York Stock Exchange. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Trustees. Shares of the Underlying
Portfolios held by the Lifestyle Trusts are valued at their net asset value as
described in the Prospectus under "Purchase and Redemption of Shares."
Generally, trading in non-U.S. securities, as well as U.S. Government
securities and money market instruments, is substantially completed each day at
various times prior to the close of the regularly scheduled trading of the New
York Stock Exchange. The values of such securities used in computing the net
asset value of a portfolio's shares are generally determined as of such times.
Occasionally, events which affect the values of such securities may occur
between the times at which they are generally determined and the close of the
New York Stock Exchange and would therefore not be reflected in the computation
of a portfolio's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be valued
at their fair value as determined in good faith by the Subadvisers under
procedures established and regularly reviewed by the Trustees.
Debt instruments with a remaining maturity of 60 days or less held by
each of the portfolios other than the Money Market Trust, and all instruments
held by the Money Market Trust, will be valued on an amortized cost basis. Under
this method of valuation, the instrument is initially valued at cost (or in the
case of instruments initially valued at market value, at the market value on the
day before its remaining maturity is such that it qualifies for amortized cost
valuation); thereafter, the Trust assumes a constant proportionate amortization
in value until maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price that
would be received upon sale of the instrument.
The Money Market Trust uses the amortized cost valuation method in
reliance upon Rule 2a-7 under the Investment Company Act of 1940. As required by
the Rule, the Money Market Trust will maintain a dollar weighted average
maturity of 90 days or less. In addition, the Money Market Trust is permitted to
purchase only securities that the Trustees determine to present minimal credit
risks and which are at the time of purchase "eligible securities," as defined by
the Rule. Generally, eligible securities must be rated by a nationally
recognized statistical rating organization in one of the two highest rating
categories for short-term
37
<PAGE> 136
debt obligations or be of comparable quality. The Money Market Trust will invest
only in obligations that have remaining maturities of thirteen months or less.
The Trustees have established procedures designed to stabilize, to the
extent reasonably possible, the Money Market Trust's price per share as computed
for the purpose of sales and redemptions at $10.00. Such procedures include a
direction to the Adviser to establish procedures which will allow for the
monitoring of the propriety of the continued use of amortized cost valuation to
maintain a constant net asset value of $10.00 per share. Such procedures include
a directive to the Adviser that requires that on determining net asset value per
share based upon available market quotations, the Money Market Trust shall value
weekly (a) all portfolio instruments for which market quotations are readily
available at market, and (b) all portfolio instruments for which market
quotations are not readily available or are not obtainable from a pricing
service, at their fair value as determined in good faith by the Trustees,
although the actual calculations may be made by persons acting pursuant to the
direction of the Trustees. If the fair value of a security needs to be
determined, the Subadviser will provide determinations, in accordance with
procedures and methods established by the Trustees of the Trust, of the fair
value of securities held by the Money Market Trust for which market quotations
are not readily available for purposes of enabling the Money Market Trust's
Custodian to calculate net asset value. The Adviser, with the Subadviser's
assistance, periodically (but no less frequently than annually) shall prepare a
written report to the Trustees verifying the accuracy of the pricing system or
estimate. A non-negotiable security which is not treated as an illiquid security
because it may be redeemed with the issuer, subject to a penalty for early
redemption, shall be assigned a value that takes into account the reduced amount
that would be received if it were currently liquidated. In the event that the
deviation from the amortized cost exceeds .50 of 1% or more or a difference of
$.05 per share in net asset value, the Adviser shall promptly call a special
meeting of the Trustees to determine what, if any, action should be initiated.
Where the Trustees believe the extent of any deviation from the Money Market
Trust's amortized cost price per share may result in material dilution or other
unfair results to investors or existing shareholders, they shall take such
action as they deem appropriate to eliminate or reduce to the extent reasonably
practical such dilution or unfair results. The actions that may be taken by the
Trustees include, but are not limited to: (a) redeeming shares in kind; (b)
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten the average portfolio maturity of the Money Market Trust;
(c) withholding or reducing dividends;(d) utilizing a net asset value per share
based on available market quotations; (e)investing all cash in instruments with
a maturity on the next business day. The Money Market Trust may also reduce the
number of shares outstanding by redeeming proportionately from shareholders,
without the payment of any monetary compensation, such number of full and
fractional shares as is necessary to maintain the net asset value at $10.00 per
share. Any such redemption will be treated as a negative dividend for purposes
of the Net Investment Factor under the contracts issued by North American
Security Life Insurance Company.
PERFORMANCE DATA
Each of the portfolios may quote total return figures in its
advertising and sales materials. Such figures will always include the average
annual total return for recent one year and, when applicable, five and ten year
periods and where less than five or ten years, the period since the portfolio,
including its predecessor prior to the reorganization of the Fund on December
31, 1988, became available for investment. In the case of the Pacific Rim
Emerging Markets, Real Estate Securities, Common Stock, Capital Growth Bond and
Equity Index Trusts, such quotations will be for periods that include the
performance of the predecessor portfolios of Manulife Series Trust, Inc. Where
the period since inception is less than one year, the total return quoted will
be the aggregate return for the period. The average annual total return is the
average annual compounded rate of return that equates the initial amount
invested to the market value of such investment on the last day of the period
for which such return is calculated. For purposes of the calculation it is
assumed that an initial payment of $1,000 is made on the first day of the period
for which the return is calculated and that all dividends and distributions are
reinvested at the net asset value on the reinvestment dates during the period.
All recurring fees such as advisory fees charged to the Trust and all Trust
expenses are reflected in the calculations. There are no non-recurring fees such
as sales loads, surrender charges or account fees charged by the Trust. If the
period since inception is less than one year, the figures will be based on an
aggregate total return rather than an average annual total return. Because the
Investment Quality Bond
38
<PAGE> 137
Trust changed its investment objective and investment subadviser effective April
23, 1991, the Trust has elected to quote performance for that portfolio only
since the date of the change in order to quote returns representative of its
current objectives and/or produced by its current portfolio manager
TOTAL ANNUALIZED RETURN
[UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Trust One Year Ended Five Years Since Inception or 10 Date first
6/30/96 Ended Years, whichever is Available
6/30/96 shorter through 6/30/96
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pacific Rim Emer'g Mar't # 15.80% N/A 7.05% 10/04/94
International Small Cap N/A N/A 6.24%* 03/04/96
Small/Mid Cap N/A N/A 5.04%* 03/04/96
Global Equity 14.62% 10.99% 8.44% 03/18/88
Blue Chip Growth 23.09% N/A 7.94% 12/11/92
Common Stock # 25.55% 13.44% 10.31% 04/30/87
Equity Index # N/A N/A 3.71%**** 02/14/96
GROWTH N/A N/A N/A*** 07/11/96
Equity 26.18% 15.46% 13.31%** 06/18/85
Equity-Income 14.68% N/A 13.34% 02/19/93
Real Estate Securities # 15.34% 15.78% 11.24% 04/30/87
Growth and Income 21.06% 14.20% 13.53% 04/23/91
International Growth and 13.09% N/A 8.78% 01/09/95
Income
Strategic Bond 14.19% N/A 7.83% 02/19/93
Global Government Bond 13.68% 11.14% 8.91% 03/18/88
Capital Growth Bond # 4.43% 7.94% 7.50% 06/26/84
Investment Quality Bond 4.63% 8.17% 8.04% 04/23/91
U.S. Government 3.66% 7.27% 7.74% 05/01/89
Securities
Money Market 5.28% 4.11% 5.55%** 06/18/85
Cons. Asset Allocation 9.04% 9.07% 6.96% 08/03/89
Mod. Asset Allocation 12.24% 10.05% 7.66% 08/03/89
Aggr. Asset Allocation 16.01% 10.90% 8.22% 08/03/89
</TABLE>
* Aggregate total return from March 4, 1996 (inception date) to June 30,
1996.
** 10 Years
*** Aggregate total return from July 11, 1996 (inception date) to June 30,
1996.
39
<PAGE> 138
**** Aggregate total return from February 14, 1996 (inception date) to June 30,
1996. #Performance presented for these NASL portfolios is based upon the
performance of their respective predecessor Manulife portfolios for
periods prior to the consummation of the reorganization effective December
31, 1996. Performance presented for each of these NASL portfolios is based
on the historical expenses and performance of its predecessor Manulife
portfolio and does not reflect the current expenses that an investor would
incur as a holder of shares of such NASL portfolio.
The Trust may also from time to time include in advertising and sales
literature the following: 1) information regarding its portfolio subadvisers,
such as information regarding a subadvisers specific investment expertise,
client base, assets under management or other relevant information; 2)
quotations about the Trust, its portfolios or its investment subadvisers that
appear in various publications and media; and 3) general discussions of economic
theories, including but not limited to discussions of how demographics and
political trends may effect future financial markets, as well as market or other
relevant information.
ORGANIZATION OF THE TRUST
SHARES OF THE TRUST
The Declaration of Trust authorizes the Trustees of the Trust to issue
an unlimited number of full and fractional shares of beneficial interest having
a par value of $.01 per share, to divide such shares into an unlimited number of
series of shares and to designate the relative rights and preferences thereof,
all without shareholder approval. The Trust currently has thirty-five series of
shares as described in the Prospectus. The shares of each portfolio, when issued
and paid for, will be fully paid and non-assessable and will have no preemptive
or conversion rights. Holders of shares of any portfolio are entitled to redeem
their shares as set forth under "Purchase and Redemption of Shares." The Trust
reserves the right to later issue additional series of shares or separate
classes of existing series of shares without the consent of outstanding
shareholders.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared by the respective portfolio and upon
liquidation in the net assets of such portfolio remaining after satisfaction of
outstanding liabilities. For these purposes and for purposes of determining the
sale and redemption prices of shares, any assets which are not clearly allocable
to a particular portfolio will be allocated in the manner determined by the
Trustees. Accrued liabilities which are not clearly allocable to one or more
portfolios will also be allocated among the portfolios in the manner determined
by the Trustees.
Shareholders of each portfolio of the Trust are entitled to one vote
for each full share held (and fractional votes for fractional shares held)
irrespective of the relative net asset values of the shares of the portfolio.
All shares entitled to vote are voted by series, except that when voting for the
election of Trustees and when otherwise permitted by the Investment Company Act
of 1940, shares are voted in the aggregate and not by series. Only shares of a
particular portfolio are entitled to vote on matters determined by the Trustees
to affect only the interests of that portfolio. Pursuant to the Investment
Company Act of 1940 and the rules and regulations thereunder, certain matters
approved by a vote of a majority of all the shareholders of the Trust may not be
binding on a portfolio whose shareholders have not approved such matter. There
will normally be no meetings of shareholders for the purpose of electing
Trustees unless and until less than a majority of the Trustees holding office
has been elected by shareholders, at which time the Trustees then in office will
call a shareholders' meeting for the election of Trustees. Holders of not less
than two-thirds of the outstanding shares of the Trust may remove a Trustee by a
vote cast in person or by proxy at a meeting called for such purpose. Shares of
the Trust do not have cumulative voting rights, which means that the holders of
more than 50% of the Trust's shares voting for the election of Trustees can
elect all of the Trustees if they so choose. In such event, the holders of the
remaining shares would not be able to elect any Trustees.
Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held personally liable for the obligations of the Trust. The
Declaration of Trust contains an express disclaimer of 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 Trustees or any officer of the Trust.
40
<PAGE> 139
The Declaration of Trust provides for indemnification out of the property of a
Trust portfolio for all losses and expenses of any shareholder held personally
liable for the obligations of such portfolio. The Declaration of Trust also
provides that the Trust shall, upon request, assume the defense of any claim
made against any shareholder for any act or obligation of the Trust and satisfy
any judgment thereon, but only out of the property of a particular portfolio.
Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a particular
portfolio would be unable to meet its obligations.
PRINCIPAL HOLDERS OF SECURITIES
The Trust currently has three shareholders: The Manufacturers Life
Insurance Company of America ("Manulife America"), Security Life and First North
American Life Assurance Company ("FNAL"). Each shareholder holds Trust shares
attributable to variable and variable life contracts in their separate accounts.
Each shareholder will solicit voting instructions from such variable and
variable life contract owners and vote all shares held in proportion to the
instructions received.
Reflecting the conditions of section 817(h) and other provisions of the
Internal Revenue Code and regulations thereunder, the By-laws of the Trust
provide that shares of the Trust may be purchased only by the following eligible
shareholders: (a) separate accounts of Security Life or of other insurance
companies; (b) Security Life; (c) NASL Financial; (d) any corporation related in
a manner specified in section 267(b) of the Internal Revenue Code to Security
Life or to NASL Financial, and (e) any Trustee of a qualified pension of
retirement plan. As a matter of operating policy, shares of the Trust may be
purchased only by the eligible shareholders of categories (a), (b) and (d).
REPORTS TO SHAREHOLDERS
The financial statements of the Trust at June 30, 1996 and December 31,
1995 are incorporated herein by reference from its annual and semi annual
reports to shareholders filed with the Securities and Exchange Commission
pursuant to Section 30(b) of the Investment Company Act of 1940 and Rule 30b2-1.
The annual and semi-annual reports have been sent to contract owners.
The following financial statements of the Growth Trust at November 30,
1996 are attached hereto:
Financial Highlights for the period ended November 30, 1996
Statement of Assets and Liabilities at November 30, 1996
Statement of Operations for the period ended November 30, 1996
Statement of Changes in Net Assets for the period ended
November 30, 1996 Portfolios of Investments at November 30,
1996 Notes to Financial Statements
The financial statements of the Common Stock, Pacific Rim Emerging
Markets, Real Estate Securities, Capital Growth Bond and Equity Index portfolios
of Manulife Series Fund, Inc. at June 30, 1996 and December 31, 1995 are
incorporated herein by reference from the Manulife Series Fund, Inc.
annual and semi-annual reports to shareholders filed with the Securities and
Exchange Commission pursuant to Section 30(b) of the Investment Company Act of
1940 and Rule 30b2-1. Annual and semi-annual reports containing financial
statements of the Trust have been sent to contract owners.
INDEPENDENT ACCOUNTANTS
The financial statements of the Trust at December 31, 1995,
including the related Financial Highlights which appear in the Prospectus, have
been audited by Coopers & Lybrand,
41
<PAGE> 140
L.L.P., independent accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon said report given on the
authority of said firm as experts in accounting and auditing. Coopers & Lybrand
LLP has offices at One Post Office Square, Boston, MA 02109.
The financial statements of the Common Stock, Pacific Rim Emerging
Markets, Real Estate Securities, Capital Growth Bond and Equity Index portfolios
of Manulife Series Fund, Inc. at December 31, 1995, including the related
Financial Highlights which appear in the Prospectus, have been audited by Ernst
& Young LLP, independent auditors, as indicated in their report with respect
thereto, and are included herein in reliance upon said report given on the
authority of said firm as experts in accounting and auditing. Ernst & Young has
offices at the John Hancock Tower, 200 Clarendon Street, Boston, MA 02116.
LEGAL COUNSEL
Messrs. Jones & Blouch L.L.P., 1025 Thomas Jefferson Street, N.W.,
Washington, DC 20007, have passed upon certain legal matters relating to the
federal securities laws.
42
<PAGE> 141
NASL SERIES TRUST
STATEMENT OF ASSETS AND LIABILITIES - NOVEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH
TRUST
------------
<S> <C>
ASSETS
Investments in securities, at value* (Includes
a repurchase agreement of $12,217,000 in the
Growth Trust)(See accompanying portfolio of
investments) ........................................... $ 51,978,963
Cash ...................................................... 380
Foreign currency (Cost: $318) ............................. 311
Receivables:
Investments sold ..................................... 218,379
Dividends ............................................ 24,658
Interest ............................................. 3,224
Other assets ......................................... 25
------------
Total assets ..................................... 52,225,940
------------
LIABILITIES
Payables:
Investments purchased ................................ 142,841
Dividend withholding tax ............................. 700
Custodian fee ........................................ 15,953
Other accrued expenses ............................... 32,587
------------
Total liabilities ................................ 192,081
------------
NET ASSETS ................................................ $ 52,033,859
============
Net assets consist of:
Accumulated undistributed net investment
income (Note 2) ................................... $ 333,874
Accumulated undistributed net realized loss
on investments .................................... (717,426)
Unrealized appreciation (depreciation) on:
Investments ........................................ 3,950,057
Foreign currency and forward foreign currency
contracts ........................................ (7)
Capital shares at par value of $.01 (Note 3) ......... 36,509
Additional paid-in capital ........................... 48,430,852
------------
Net assets ....................................... $ 52,033,859
============
Capital shares outstanding (Note 3) ...................... 3,650,890
------------
Net asset value, offering price and redemption price
per share ............................................ $ 14.25
============
Investments in securities, at identified cost (Note 2) .... $ 48,028,906
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 142
NASL SERIES TRUST
STATEMENT OF OPERATION- FOR THE PERIOD ENDED NOVEMBER 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH
TRUST *
-----------
<S> <C>
Investment Income:
Interest ................................................ $ 123,214
Dividends (Net of $1,212 withholding tax) ............... 308,643
-----------
Total income ....................................... 431,857
-----------
Expenses:
Investment adviser fee (Note 5) ......................... 80,229
Custodian fee ........................................... 16,312
Trustee fees and expenses (Note 6) ...................... 245
Registration and filing fees ............................ 320
Audit and legal fees .................................... 868
Miscellaneous ........................................... 9
-----------
Total expenses ..................................... 97,983
-----------
Net investment income .............................. 333,874
-----------
Realized and unrealized gain on investments and
foreign currency:
Net realized gain (loss) on:
Investment transactions ............................... (711,435)
Foreign currency and forward foreign
currency contracts .................................. (5,991)
Change in unrealized appreciation (depreciation) on:
Investments ........................................... 3,950,057
Translation of foreign currency and forward
foreign currency contracts .......................... (7)
Net gain on investments and
foreign currency ................................ 3,232,624
-----------
Net increase in net assets
resulting from operations ................................. $ 3,566,498
===========
</TABLE>
* For the period July 15, 1996 (commencement of
operations) to November 30, 1996.
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 143
NASL SERIES TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Growth
Trust
------------
07/15/96*
to
11/30/96
(Unaudited)
------------
<S> <C>
Increase in net assets:
Operations:
Net investment income ............................... $ 333,874
Net realized gain (loss) on:
Investment transactions ........................... (711,435)
Foreign currency and forward foreign
currency contracts .............................. (5,991)
Change in unrealized appreciation
(depreciation) on:
Investments ....................................... 3,950,057
Foreign currency and forward foreign
currency contracts .............................. (7)
------------
Net increase in net assets
resulting from operations ........................... 3,566,498
Increase in net assets from
capital share transactions (Note 3) ................. 48,467,361
------------
Increase in net assets ................................ 52,033,859
Net assets at beginning of period ..................... --
------------
Net assets at end of period ........................... $ 52,033,859
============
Accumulated undistributed net
investment income ................................... $ 333,874
============
</TABLE>
- ------------------------
* Commencement of operations
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 144
NASL SERIES TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH
TRUST
-----------
07/15/96*
TO
11/30/96
(UNAUDITED)
-----------
<S> <C>
Net asset value, beginning of period ............. $ 12.50
Income from investment operations:
Net investment income ............................ 0.09
Net realized and unrealized gain on investments .. 1.66
--------
Total from investment
operations .................................. 1.75
Net asset value, end of period ................... $ 14.25
========
Total return .................................... 14.00%
Net assets, end of period (000's) ............... $ 52,034
Ratio of operating expenses to
average net assets ............................. 1.04%(A)
Ratio of net investment income to
average net assets ............................. 3.54%(A)
Portfolio turnover rate .......................... 202%(A)
Average commission rate per share (B)............. $ 0.046
</TABLE>
- --------------------
* Commencement of operations.
(A) Annualized
(B) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share of all security
trades on which commissions are charged. In certain foreign markets the
relationship between the translated U.S. dollar price per share and
commission paid per share may vary from that of domestic markets.
The accompanying notes are an integral part of the financial statements
4
<PAGE> 145
NASL SERIES TRUST
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 1996 - Unaudited
(showing percentage of total value of investments)
- --------------------------------------------------------------------------------
GROWTH TRUST
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
COMMON STOCKS - 76.06%
AEROSPACE - 4.10%
Boeing Company 6,350 $ 631,031
Computer Sciences Corporation 6,975 548,409
Gulfstream Aerospace Corporation 24,000 576,000
Lockheed Martin Corporation 4,150 376,094
----------
2,131,534
BANKING - 1.11%
BankAmerica Corporation 5,600 576,800
----------
BUSINESS SERVICES - 2.25%
First Data Corporation 7,450 297,069
Fiserv, Incorporated 10,200 385,050
Gartner Group, Incorporated 11,325 413,362
Oakley, Incorporated 5,275 73,191
----------
1,168,672
CHEMICALS - 1.15%
Arcadian Corporation 7,200 182,700
The B.F. Goodrich Company 9,275 416,216
----------
598,916
COMPUTERS & BUSINESS EQUIPMENT - 8.14%
3Com Corporation 6,500 488,312
Cisco Systems, Incorporated 19,775 1,342,228
Compaq Computer Corporation 8,000 634,000
Fore Systems, Incorporated 9,400 368,950
International Business Machines
Corporation 4,725 753,047
Oce-Van Der Grinten NV 3,700 403,410
Sun Microsystems, Incorporated 4,175 243,194
----------
4,233,141
CONGLOMERATES - 0.34%
Hunter Douglas NV 2,700 176,628
----------
DOMESTIC OIL - 0.61%
Phillips Petroleum Company 7,025 317,003
----------
DRUGS & HEALTH CARE - 11.35%
ASTRA AB, Series B, SEK 9,500 446,312
ASTRA AB, ADR 2,600 122,850
Baxter International, Incorporated 5,450 231,625
Bristol-Myers Squibb Company 3,425 389,594
Cardinal Health, Incorporated 5,450 455,756
Columbia/HCA Healthcare Corporation 14,562 582,480
Johnson & Johnson 6,550 347,969
Oxford Health Plans, Incorporated 9,600 556,800
Pacificare Health System, Incorporated 2,150 178,450
Phycor, Incorporated 17,175 554,967
SmithKline Beecham PLC, ADR 7,625 525,172
United States Surgical Corporation 11,500 461,437
Warner-Lambert Company 14,550 1,040,325
----------
5,893,737
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
ELECTRICAL EQUIPMENT - 2.35%
Duracell International, Incorporated 5,550 $ 369,769
General Electric Company 8,200 852,800
----------
1,222,569
ELECTRONICS - 10.73%
ADC Telecommunication, Incorporated 21,575 782,094
Altera Corporation 7,825 590,787
Andrew Corporation 3,800 219,925
Intel Corporation 11,325 1,436,859
Linear Technology Corporation 2,150 101,319
Maxim Integrated Products,
Incorporated 13,250 614,469
Picturetel Corporation 9,725 269,869
Tellabs, Incorporated 12,250 486,937
Xilinx, Incorporated 24,500 1,074,938
----------
5,577,197
FINANCIAL SERVICES - 3.54%
Associates First Capital Corporation 13,275 642,178
The Chase Manhattan Corporation 4,450 420,525
Federal Home Loan Mortgage
Corporation 2,625 299,906
Federal National Mortgage Association 11,525 475,407
----------
1,838,016
FOOD & BEVERAGES - 1.72%
The Coca-Cola Company 6,400 327,200
Coca-Cola Enterprises,
Incorporated 12,575 567,447
----------
894,647
HOTELS AND RESTAURANTS - 3.00%
The Cheesecake Factory, Incorporated 6,750 136,687
HFS, Incorporated 2,900 187,775
Host Marriott Corporation 14,950 227,987
ITT Corporation 3,525 162,591
Marriott International, Incorporated 8,825 491,994
Planet Hollywood International,
Incorporated 4,725 108,675
Sun International Hotels, Ltd. 4,950 245,644
----------
1,561,353
HOUSEHOLD APPLIANCES FURNISHING - 1.07%
Sunbeam Corporation 20,150 556,644
----------
INSURANCE - 1.34%
Everest Reinsurance Holdings 9,100 255,938
General Re Corporation 950 160,312
Progressive Corporation 4,025 280,744
----------
696,994
INTERNATIONAL OIL - 1.78%
The British Petroleum Company
PLC, ADR 1,250 173,437
Exxon Corporation 1,800 170,325
Gulf Canada Resources, Ltd. 18,000 117,000
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE> 146
<TABLE>
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
INTERNATIONAL OIL - CONTINUED
Royal Dutch Petroleum Company 1,100 $ 186,863
Texaco, Incorporated 2,800 277,550
----------
925,175
LEISURE TIME - 1.73%
Circus Circus Enterprises, Incorporated 14,075 513,737
International Game Technology 19,800 386,100
----------
899,837
OFFICE FURNISHING & SUPPLIES - 0.93%
Staples, Incorporated 24,450 482,887
----------
PETROLEUM SERVICES - 1.43%
Global Marine, Incorporated 7,500 146,250
Rowan Companies, Incorporated 12,000 283,500
Schlumberger, Ltd. 3,000 312,000
----------
741,750
RETAIL GROCERY - 1.48%
Kroger Company 6,800 313,650
Safeway, Incorporated 11,200 455,000
----------
768,650
RETAIL TRADE - 2.35%
Borders Group, Incorporated 3,650 133,225
Consolidated Stores Corporation 8,075 298,775
Federated Department Stores,
Incorporated 11,250 383,906
Fila Holdings SPA, ADR 3,275 242,350
The Home Depot, Incorporated 3,125 162,891
----------
1,221,147
SOFTWARE - 8.02%
BMC Software, Incorporated 12,750 554,625
Cadence Design Systems, Incorporated 11,700 466,538
Computer Associates International,
Incorporated 11,575 761,056
Documentum, Incorporated 2,350 89,300
HBO & Company 6,000 341,250
Microsoft Corporation 1,025 160,797
Parametric Technology Corporation 16,025 871,359
PeopleSoft, Incorporated 6,325 578,737
Shared Medical Systems Corporation 6,975 347,006
----------
4,170,668
TELECOMMUNICATION SERVICES - 4.59%
Advanced Fibre Communications 650 31,769
Ascend Communications, Incorporated 9,375 666,797
Cascade Communications Corporation 8,300 573,738
Korea Mobile Telecommunication, ADR 6,750 87,750
Lucent Technologies, Incorporated 8,900 456,125
Premisys Communications,
Incorporated 7,400 382,025
TeleCom Brazil-Telebras, ADR 2,475 187,481
----------
2,385,685
<CAPTION>
Shares Value
------ -----
<S> <C> <C>
TELEPHONE - 0.95%
DDI Corporation 10 $ 71,554
WorldCom, Incorporated 18,275 422,609
-----------
494,163
TOTAL COMMON STOCKS
(Cost: $35,610,299) $39,533,813
-----------
WARRENTS - 0.44%
ELECTRONICS - 0.44%
Intel Corporation (Expiration date
03/14/98; Strike price $41.75) 2,600 228,150
-----------
TOTAL WARRANTS
(Cost: $201,607) $ 228,150
-----------
</TABLE>
REPURCHASE AGREEMENT - 23.50%
<TABLE>
<CAPTION>
Principal
Amount Value
------ -----
<S> <C> <C>
$12,217,000 Repurchase Agreement with State
Street Bank & Trust Company dated
11/29/96 at 4.75%, to be repurchased
at $12,221,836 on 12/02/96,
collateralized by $12,370,000
U.S. Treasury Notes, 6.5% due
05/15/97 (valued at $12,464,878
including interest) $12,217,000
-----------
TOTAL INVESTMENTS
(Growth Trust) (Cost: $48,028,906) $51,978,963
===========
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE> 147
NASL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - (UNAUDITED)
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE TRUST. The Growth Trust is a portfolio of the NASL Series
Trust (the "Trust"), a no-load, open-end management investment company organized
as a Massachusetts business trust. The Trust is a series company, which means
that it has several portfolios, each with a stated investment objective which it
pursues through separate investment policies. The Trust currently offers the
following seventeen portfolios: The Small/Mid Cap Trust ("Small/Mid Cap"), the
International Small Cap Trust ("International Small Cap"), the Global Equity
Trust ("Global Equity"), the Blue Chip Growth Trust ("Blue Chip"), the Growth
Trust ("Growth"), the Equity Trust ("Equity"), the Value Equity Trust ("Value
Equity"), the Growth and Income Trust ("Growth and Income"), the International
Growth and Income Trust ("International Growth and Income"), the Strategic Bond
Trust ("Strategic Bond"), the Global Government Bond Trust ("Global Government
Bond"), the Investment Quality Bond Trust ("Investment Quality Bond"), the U.S.
Government Securities Trust ("U.S. Government Securities"), the Money Market
Trust ("Money Market"), the Aggressive Asset Allocation Trust ("Aggressive Asset
Allocation"), the Moderate Asset Allocation Trust ("Moderate Asset Allocation"),
and the Conservative Asset Allocation Trust ("Conservative Asset Allocation").
Each of the Trusts with the exception of Global Government Bond is diversified
for purposes of the Investment Company Act of 1940.
Shares of the Trust are presently offered only to the NASL Variable Account, the
NASL Group Variable Account and the NASL Variable Life Account, separate
accounts of North American Security Life Insurance Company ("Security Life"), to
the FNAL Variable Account, a separate account of First North American Life
Assurance Company ("First North American") and in case of certain portfolios, to
Separate Accounts One, Two, Three and Four, separate accounts of The
Manufacturers Life Insurance Company of America ("Manulife America"). Security
Life is controlled by The Manufacturers Life Insurance Company ("Manulife"), a
mutual life insurance company based in Toronto, Canada. First North American is
a wholly-owned subsidiary of Security Life and Manulife America is a
wholly-owned subsidiary of Manulife.
At November 30, 1996, Security Life owned seed money shares in Growth and Growth
and Income.
NASL Financial Services, Inc. ("NASL Financial"), a wholly-owned subsidiary of
Security Life, serves as investment adviser for the Trust (Note 5). NASL
Financial is also the principal underwriter of the variable contracts issued by
Security Life and First North American.
NEW PORTFOLIOS. On July 15, 1996, Growth commenced operations. The subadviser to
this portfolio is Founders Asset Management, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES. The policies described below are followed by
the Trust in the preparation of the financial statements for its portfolios in
conformity with generally accepted accounting principles ("GAAP").
BASIS OF PRESENTATION. The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments necessary for a fair presentation of the financial position and the
results of operations have been included. Results for the period July 15, 1996
(commencement of operations) to November 30, 1996 are not necessarily indicative
of annual results.
SECURITY VALUATION. Short term instruments with remaining maturities of 60 days
or less are valued on an amortized cost basis or at original cost plus accrued
interest, both of which approximate current market value. All other securities
held by the Trust are valued at the last sale price as of the close of business
on a principal securities exchange (domestic or foreign) or, lacking any sales,
at the closing bid prices. Securities traded only in the over-the-counter market
are valued at the last bid prices quoted by brokers making markets in the
securities at the close of trading on the Exchange.
Trust securities for which there are no such quotations, principally debt
securities, are valued on the basis of the valuation provided by a pricing
service which utilizes both dealer-supplied and electronic data processing
techniques. Other assets and securities for which no such quotations are readily
available are valued at their fair value as determined in good faith under
consistently applied procedures established by and under the general supervision
of the Board of Trustees.
FOREIGN CURRENCY TRANSLATIONS. The accounting records of the Trust are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) market value of securities, other assets and other liabilities at the
current rate of exchange of such currencies against U.S. dollars;
(ii) purchases and sales of securities, income and expenses at the rate of
exchange quoted on the respective dates of such transactions.
7
<PAGE> 148
NASL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES- CONTINUED
Gains and losses that arise from changes in foreign exchange rates have been
segregated from gains and losses that arise from changes in the market prices of
investments. These gains and losses are included with gains and losses on
foreign currency and forward foreign currency contracts in the Statements of
Operations.
FORWARD FOREIGN CURRENCY CONTRACTS. Growth may purchase and sell forward foreign
currency contracts in order to hedge a specific transaction or portfolio
position.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held at the end of the period and the resulting net unrealized
appreciation (depreciation) and related net receivable or payable amount are
determined using forward foreign currency exchange rates supplied by a quotation
service. The Trust could be exposed to risks if the counterparties to the
contracts are unable to meet the terms of their contracts or if the value of the
foreign currency changes unfavorably.
Net realized gains (losses) on foreign currency and forward foreign currency
contracts shown in the Statements of Operations, includes net gains or losses
realized by a portfolio on contracts which have matured or which the portfolio
has terminated by entering into an offsetting commitment with the same broker.
FUTURES. Growth may purchase and sell financial futures contracts and options on
those contracts. The portfolio invests in contracts based on financial
instruments such as U.S. Treasury bonds or notes or on securities indices such
as the S&P 500 Index, in order to hedge against a decline in the value of
securities owned by the portfolio.
When a portfolio sells a futures contract based on a financial instrument, the
portfolio becomes obligated to deliver that kind of instrument at an agreed upon
date for a specified price. The portfolio realizes a gain or loss depending on
whether the price of an offsetting purchase is less or more than the price of
the initial sale or on whether the price of an offsetting sale is more or less
than the price of the initial purchase . The Trust could be exposed to risks if
it could not close out futures positions because of an illiquid secondary market
or the inability of counterparties to meet the terms of their contracts. Upon
entering into futures contracts, the Trust is required to deposit with a broker
an amount, initial margin, which represents 5% of the purchase price indicated
in the futures contract.
Payments to and from the broker, known as variation margin, are required to be
made on a daily basis as the price of the futures contract fluctuates, making
the long or short positions in the contract more or less valuable. If the
position is closed out by taking an opposite position prior to the settlement
date of the futures contract, a final determination of variation margin is made,
cash is required to be paid to or released by the broker, and the portfolio
realizes a gain or loss.
FORWARD COMMITMENTS. Growth may purchase debt securities on a when issued or
forward delivery basis, which means that the obligations will be delivered to
the portfolios of the Trust at a future date, which may be a month or more after
the date of commitment. The price of the underlying securities and the date when
the securities will be delivered and paid for are fixed at the time the
transaction is negotiated. The value of the securities underlying a forward
commitment to purchase securities, and the subsequent fluctuations in their
value, is taken into account when determining the Trust's net asset value
starting on the day the Trust agrees to purchase the securities.
SECURITIES LENDING. Growth may lend securities in amounts up to 33 1/3% of its
total non-cash assets to brokers, dealers and other financial institutions,
provided such loans are callable at any time and are at all times fully secured
by cash, cash equivalents or securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities, marked to market to the value
of the loaned securities on a daily basis. The Trust may bear the risk of delay
in recovery of, or even loss of rights in, the securities loaned should the
borrower of the securities fail financially. Consequently, loans of portfolio
securities will only be made to firms deemed by the subadvisers to be
creditworthy. The Trust receives compensation for lending its securities either
in the form of fees or by retaining a portion of interest on the investment of
any cash received as collateral. Income generated from the investment of cash
collateral is included as interest income in the Statements of Operations. All
collateral received will be in an amount equal to at least 100% of the market
value of the loaned securities and must be maintained at that level during the
period of the loan. During the loan period, the fund continues to retain rights
of ownership, including dividends and interest of the loaned securities. At
November 30, 1996, Growth had no securities on loan.
FEDERAL INCOME TAXES. The Trust's policy is to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code, as amended,
and to distribute all of its taxable income to its shareholders. Accordingly, no
federal income tax provision is required. Each portfolio of the Trust is treated
as a separate taxpayer for federal income tax purposes.
8
<PAGE> 149
NASL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTION OF INCOME AND GAINS. During any particular year, net realized gains
from investment transactions of each portfolio, in excess of available capital
loss carryforwards of each portfolio would be taxable to such portfolio if not
distributed. Therefore, the Trust intends to distribute all of its investment
company taxable income and any net realized capital gains in order to avoid
federal income tax. The Trust is exempt from federal excise tax. Net investment
income is reported in the accompanying statements under GAAP. The Trust's
distributions are based on income amounts determined in accordance with federal
income tax regulations. Overdistributions of net investment income as determined
in accordance with GAAP have been presented in the financial statements as
distributions in excess of net investment income. Net investment income and net
realized gains differ for financial statement and tax purposes due to
distributions in accordance with income tax regulations which may differ from
GAAP: marking-to-market of certain financial instruments, the deferral of
certain losses for tax purposes and the treatment of currency gains or losses.
As a result, the character of distributions made during the year from net
investment income may differ from its ultimate characterization for tax
purposes.
EXPENSE ALLOCATION. Expenses not directly attributable to a particular portfolio
are allocated based on the relative share of net assets of each portfolio for
the time during which the expense was incurred.
REPURCHASE AGREEMENTS. Growth may enter into repurchase agreements. When a
portfolio enters into a repurchase agreement through its custodian, it receives
delivery of the underlying securities, the amount of which at the time of
purchase and each subsequent business day is required to be maintained at such a
level that the market value is generally at least 102% of the repurchase amount.
Each portfolio will take constructive receipt of all securities underlying the
repurchase agreements they have entered into until such agreements expire. If
the seller defaults, the portfolio would suffer a loss to the extent that
proceeds from the sale of underlying securities were less than the repurchase
amount.
OTHER. Investment security transactions are accounted for on a trade date plus
one basis. Interest income is accrued as earned. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. All original
issue discounts are accreted for financial and tax reporting purposes. The Trust
uses the First In, First Out method for determining realized gain or loss on
investments for both financial and federal income tax reporting purposes. The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amount of assets and
liabilities. Actual results may differ from these estimates.
3. CAPITAL SHARES. Share activity for the period July 15, 1996 (commencement of
operations) to November 30, 1996, was as follows:
<TABLE>
<CAPTION>
ADDITIONAL
SHARES PAR VALUE PAID-IN CAPITAL
---------- ------------ ---------------
<S> <C> <C> <C>
GROWTH
Outstanding at July 15, 1996 (commencement
of operations) ............................ -- -- --
Sold ........................................ 3,797,013 $ 37,970 $ 50,403,511
Redeemed .................................... (146,123) (1,461) (1,972,659)
---------- ------------ ------------
Net increase .............................. 3,650,890 36,509 48,430,852
---------- ------------ ------------
Outstanding at November 30, 1996 ............ 3,650,890 $ 36,509 $ 48,430,852
========== ============ ============
</TABLE>
4. PURCHASES AND SALES OF SECURITIES. The following summarizes the securities
transactions (except for short-term investments) for the period July 15, 1996
(commencement of operations) to November 30, 1996:
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------- -------------------------
U.S U. S.
PORTFOLIO GOVERNMENT OTHER ISSUES GOVERNMENT OTHER ISSUES
- ------------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Growth ............. -- $56,107,398 -- $19,580,968
</TABLE>
5. INVESTMENT ADVISORY AGREEMENTS. Effective March 20, 1987, the Trust entered
into an Investment Advisory Agreement with NASL Financial, a wholly-owned
subsidiary of Security Life and the principal underwriter of the variable
annuity.
9
<PAGE> 150
NASL SERIES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY AGREEMENTS- CONTINUED
contracts issued by Security Life and First North American. The Adviser is
responsible for managing the corporate and business affairs of the Trust and for
selecting and compensating subadvisers to handle the investment and reinvestment
of the assets of each portfolio of the Trust, subject to the supervision of the
Trust's Board of Trustees. As compensation for its services, NASL Financial
receives an advisory fee from the Trust cmputed seperately for each portfolio at
an annual percentage of average net assets as follows:
<TABLE>
<CAPTION>
PORTFOLIO FEE
----------- -----
<S> <C>
Growth................................. .85%
</TABLE>
EXPENSE REIMBURSEMENT. Pursuant to the Advisory Agreement, NASL Financial
reimburses the Trust for expenses (excluding advisory fees, taxes, portfolio
brokerage commissions, and interest) incurred in excess of 0.50% of the average
annual net assets on an annualized basis in Growth . There were no expenses
reimbursed by NASL Financial for the period July 15, 1996 (commencement of
operations) to November 30, 1996.
6. TRUSTEES' FEES. The Trust pays each Trustee who is not an employee or a
director of the Adviser or its affiliates a fee of $5,500 plus travel expenses
for each Board of Trustees meeting attended. The Trust also pays each Trustee
who is not an employee of the Adviser or its affiliates an annual retainer of
$21,000.
7. SUBSEQUENT EVENT. On September 7, 1995, North American Life announced plans
to "amalgamate" with The Manaufacturers Life Insurance company ("MLI"). An
amalgamation is the exclusive method of combining federally chartered mutual
life insurers under the applicable Insurance Companies Act (Canada).
The amalgamation required and received the approval of the Superintendent of
Financial Institutions in Canada, certain US regulatory approvals and the
approval of the policyholders of both mutual companies. The amalgamation of
North American Life and MLI became effective as of January 1, 1996.
MLI is a Canadian federally chartered mutual life insurance company with $29.9
billion (US) in consolidated assets and $2.4 billion (US) in policyholder
surplus as of June 30, 1995. North American Life, also a Canadian federally
chartered mutual life insurance company, had $4.5 billion (US) in assets and
$0.6 billion (US) in policyholders surplus as June 30, 1995.
The survivng company will conduct business under the "The Manufacturers Life
Insurance Company".
Effective January 1, 1996, immediately following the amalgamation, Security Life
experienced a corporate restructuring which resulted in the formation of a newly
organized holding company, NAWL Holding Company, Inc. ("NAWL"). NAWL holds all
of the outstanding shares of Security Life and Wood Logan Associates, Inc.
("WLA"). WLA is a broker-dealer registered with the Securities and Exchange
Commission and is a member of the National Association of Securities Dealers,
Inc. WLA acts as the promotional agent for distribution of the Trust.
MLI owns all of the class A shares of NAWL, representing 85% of the voting
shares of NAWL. Certain employees of WLA own all of the class B shares, which
represent the remaining 15% voting interest in NAWL.
10
<PAGE> 151
PART C
OTHER INFORMATION
<PAGE> 152
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C> <C>
(a) Financial Statements:
NASL SERIES TRUST
(1) Audited Financial Statements for periods ended December 31, 1995
Report of Independent Auditors, February 15, 1996 -- Part B
Statements of Assets and Liabilities, December 31, 1995 -- Part B
Statements of Operations for the year ended December 31, 1995 -- Part B
Statements of Changes in Net Assets for the years ended December 31, 1995
and December 31, 1994 -- Part B
Notes to Financial Statements, December 31, 1995 -- Part B
Portfolios of Investments, December 31, 1995 -- Part B
Financial Highlights -- Parts A and B
(2) Unaudited Financial Statements for periods ended June 30, 1996
Statements of Assets and Liabilities, June 30, 1996 -- Part B
Statements of Operations for the periods ended June 30, 1996 -- Part B
Statements of Changes in Net Assets for the periods ended June 30, 1996 --
Part B
Notes to Financial Statements, June 30, 1996 -- Part B
Portfolios of Investments, June 30, 1996 -- Part B
Financial Highlights -- Parts A and B
(3) Growth Trust Unaudited Financial Statements for period ended November 30,
1996
Statements of Assets and Liabilities, November 30, 1996 -- Part B
Statements of Operations for the periods ended November 30, 1996 -- Part B
</TABLE>
<PAGE> 153
<TABLE>
<S> <C> <C>
Statements of Changes in Net Assets for the periods ended November 30,
1996 -- Part B
Notes to Financial Statements, November 30, 1996 -- Part B
Portfolios of Investments, November 30, 1996 -- Part B
Financial Highlights -- Parts A and B
MANULIFE SERIES FUND, INC. (COMMON STOCK, PACIFIC RIM
EMERGING MARKETS, REAL ESTATE SECURITIES, CAPITAL
GROWTH BOND AND EQUITY INDEX PORTFOLIOS ONLY)
(1) Audited Financials
Report of Independent Accountants, February 2, 1996 -- Part B
Statements of Assets and Liabilities, December 31, 1995 -- Part B
Statements of Operations for the year ended December 31, 1995 -- Part B
Statements of Changes in Net Assets for the years ended December 31, 1995
and December 31, 1994 -- Part B
Notes to Financial Statements, December 31, 1995 -- Part B
Portfolios of Investments, December 31, 1995 -- Part B
Financial Highlights -- Parts A and B
(2) Unaudited Financial Statements for periods ended June 30, 1996
Statements of Assets and Liabilities, June 30, 1996 -- Part B
Statements of Operations for the periods ended June 30, 1996 -- Part B
Statements of Changes in Net Assets for the periods ended June 30, 1996 --
Part B
Notes to Financial Statements, June 30, 1996 -- Part B
</TABLE>
2
<PAGE> 154
Portfolios of Investments, June 30, 1996 -- Part B
Financial Highlights -- Parts A and B
(b) Exhibits:
(1)(a) Agreement and Declaration of Trust dated September 29, 1988 --
previously filed as exhibit (1)(a) to post-effective amendment
no. 31 filed on February 28, 1996.
(1)(b) Establishment and Designation of Additional Series of Shares
of Beneficial Interest Redesignation of the Series of Shares
known as the "Convertible Securities Trust" to the "U.S.
Government Bond Trust" dated May 1, 1989 -- previously filed
as exhibit (1)(b) to post-effective amendment no. 31 filed on
February 28, 1996.
(1)(c) Establishment and Designation of Additional Series of Shares
of Beneficial Interest Conservative, Moderate and Aggressive
Asset Allocation Trusts dated May 1, 1989 -previously filed as
exhibit (1)(c) to post-effective amendment no. 31 filed on
February 28, 1996.
(1)(d) Establishment and Designation of Additional Series of Shares
of Beneficial Interest Growth & Income Trust dated February 1,
1991 -- previously filed as exhibit (1)(d) to post-effective
amendment no. 31 filed on February 28, 1996.
(1)(e) Establishment and Designation of Additional Series of Shares
of Beneficial Interest Redesignation of the Series of Shares
known as the "Bond Trust" to the "Investment Quality Bond
Trust" dated April 16, 1991 -- previously filed as exhibit
(1)(e) to post-effective amendment no. 31 filed on February
28, 1996.
(1)(f) Establishment and Designation of Additional Series of Shares
of Beneficial Interest Redesignation of the Series of Shares
known as the "U.S. Government Bond Trust" to the "U.S.
Government Securities Trust" dated June 14, 1991 -- previously
filed as exhibit (1)(f) to post-effective amendment no. 31
filed on February 28, 1996.
(1)(g) Establishment and Designation of Additional Series of Shares
of Beneficial Interest Pasadena Growth Trust, Growth Trust and
Strategic Income Trust dated August 7, 1992 -previously filed
as exhibit (1)(g) to post-effective amendment no. 31 filed on
February 28, 1996.
(1)(h) Establishment and Designation of Additional Series of Shares
of Beneficial Interest Redesignation of the Series of Shares
known as the "Strategic
3
<PAGE> 155
Income Trust" to the "Strategic Bond Trust" and the Series of
Shares known as the "Growth Trust" to the "Value Equity Trust"
dated April 4,1993 -- previously filed as exhibit (1)(h) to
post-effective amendment no. 31 filed on February 28, 1996.
(1)(i) Establishment and Designation of Additional Series of Shares
of Beneficial Interest International Growth and Income Trust
dated December 28, 1994 -- previously filed as exhibit (1)(i)
to post-effective amendment no. 31 filed on February 28, 1996.
(1)(j) Establishment and Designation of Additional Series of Shares
of Beneficial Interest - Small/Mid Cap Trust, dated February
1, 1996 -- previously filed as exhibit (1)(j) to
post-effective amendment no. 34 filed on October 4, 1996.
(1)(k) Establishment and Designation of Additional Series of Shares
of Beneficial Interest - International Small Cap Trust dated
February 1, 1996 -previously filed as exhibit (1)(k) to
post-effective amendment no. 34 filed on October 4, 1996.
(1)(l) Establishment and Designation of Additional Series of Shares
of Beneficial Interest - Growth Trust dated July 9, 1996 --
previously filed as exhibit (1)(l) to post-effective amendment
no. 34 filed on October 4, 1996.
(l)(m) Establishment and Designation of Additional Series of Shares
of Beneficial Interest - Value Trust, High Yield Trust,
International Stock Trust, Science & Technology Trust,
Balanced Trust, Worldwide Growth Trust, Emerging Growth Trust,
Pilgrim Baxter Growth Trust, Pacific Rim Emerging Markets
Trust, Real Estate Securities Trust, Capital Growth Bond
Trust, Equity Index Trust, Common Stock Trust, Lifestyle
Conservative 280 Trust, Lifestyle Moderate 460 Trust,
Lifestyle Balanced 640 Trust, Lifestyle Growth 820 Trust,
Lifestyle Aggressive 1000 Trust -- and Redesignation of the
Series of Shares known as the "Pasadena Growth Trust" to the
"Blue Chip Growth Trust" and the Series of Shares known as the
"Value Equity Trust" to the "Equity-Income Trust" -- Filed
herewith.
(2) By-laws of NASL Series Trust -- previously filed as exhibit
(2) to post-effective amendment no. 7 filed on October 31,
1988.
(4)(a) Specimen Share Certificate for Equity Trust -- previously
filed as exhibit (4)(a) to post-effective amendment no. 7
filed on October 31, 1988.
4
<PAGE> 156
(4)(b) Specimen Share Certificate for Growth and Income Trust --
previously filed as exhibit (4)(b) to post-effective amendment
no. 13 filed on February 15, 1991.
(4)(c) Specimen Share Certificate for Investment Quality Bond Trust
--previously filed as exhibit (4)(c) to post-effective
amendment no. 14 filed on April 15, 1991.
(4)(d) Specimen Share Certificate for Money Market Trust --
previously filed as exhibit (4)(c) to post-effective amendment
no. 7 filed on October 31, 1988.
(4)(e) Specimen Share Certificate for Global Equity Trust --
previously filed as exhibit (4)(d) to post-effective amendment
no. 7 filed on October 31, 1988.
(4)(f) Specimen Share Certificate for Global Government Bond Trust
-previously filed as exhibit (4)(e) to post-effective
amendment no. 7 filed on October 31, 1988.
(4)(g) Specimen Share Certificate for U.S. Government Securities
Trust -- previously filed as exhibit (4)(g) to post-effective
amendment no. 14 filed on April 15, 1991.
(4)(h) Specimen Share Certificate for Conservative Asset Allocation
Trust -- previously filed as exhibit (4)(g) to post-effective
amendment no. 10 filed on May 19, 1989.
(4)(i) Specimen Share Certificate for Moderate Asset Allocation Trust
--previously filed as exhibit (4)(h) to post-effective
amendment no. 10 filed on May 19, 1989.
(4)(j) Specimen Share Certificate for Aggressive Asset Allocation
Trust -- previously filed as exhibit (4)(i) to post-effective
amendment no. 10 filed on May 19, 1989.
(4)(k) Specimen Share Certificate for Value Equity Trust --
previously filed as exhibit (4)(k) to post-effective amendment
no. 21 filed on August 24, 1992.
(4)(l) Specimen Share Certificate for Strategic Bond Trust --
previously filed as exhibit (4)(l) to post-effective amendment
no. 21 filed on August 24, 1992.
(4)(m) Specimen Share Certificate for Pasadena Growth Trust --
previously filed as exhibit (4)(m) to post-effective amendment
no. 21 filed on August 24, 1992.
5
<PAGE> 157
(4)(n) Specimen Share Certificate for International Growth and Income
Trust -- previously filed as exhibit (4)(n) to post-effective
amendment no. 27 filed October 20, 1994.
(4)(o) Specimen Share Certificate for the Small/Mid Cap Trust --
previously filed as exhibit (4)(o) to post effective amendment
no. 30 filed December 14, 1995.
(4)(p) Specimen Share Certificate for the International Small Cap
Trust -- previously filed as exhibit (4)(p) to post effective
amendment no. 30 filed December 14, 1995.
(4)(q) Specimen Share Certificate for the Growth Trust -- previously
filed as exhibit (4)(q) to post-effective amendment no. 32
filed May 13, 1996.
(4)(r) Specimen Share Certificate for the Emerging Growth Trust --
previously filed as exhibit (4)(r) to post-effective amendment
no. 34 filed on October 4, 1996.
(4)(s) Specimen Share Certificate for the Pilgrim Baxter Growth Trust
-- previously filed as exhibit (4)(s) to post-effective
amendment no. 34 filed on October 4, 1996.
(4)(t) Specimen Share Certificate for the Pacific Rim Emerging
Markets Trust -- previously filed as exhibit (4)(t) to
post-effective amendment no. 34 filed on October 4, 1996.
(4)(u) Specimen Share Certificate for the International Stock Trust
-- previously filed as exhibit (4)(u) to post-effective
amendment no. 34 filed on October 4, 1996.
(4)(v) Specimen Share Certificate for the Worldwide Growth Trust --
previously filed as exhibit (4)(v) to post-effective amendment
no. 34 filed on October 4, 1996.
(4)(w) Specimen Share Certificate for the Science & Technology Trust
-- previously filed as exhibit (4)(w) to post-effective
amendment no. 34 filed on October 4, 1996.
(4)(x) Specimen Share Certificate for the Common Stock Trust --
previously filed as exhibit (4)(x) to post-effective amendment
no. 34 filed on October 4, 1996.
6
<PAGE> 158
(4)(y) Specimen Share Certificate for the Real Estate Securities
Trust -- previously filed as exhibit (4)(y) to post-effective
amendment no. 34 filed on October 4, 1996.
(4)(z) Specimen Share Certificate for the Value Trust -- previously
filed as exhibit (4)(z) to post-effective amendment no. 34
filed on October 4, 1996.
(4)(aa) Specimen Share Certificate for the Equity Index Trust --
previously filed as exhibit (4)(aa) to post-effective
amendment no. 34 filed on October 4, 1996.
(4)(bb) Specimen Share Certificate for the Balanced Trust --
previously filed as exhibit (4)(bb) to post-effective
amendment no. 34 filed on October 4, 1996.
(4)(cc) Specimen Share Certificate for the High Yield Trust --
previously filed as exhibit (4)(cc) to post-effective
amendment no. 34 filed on October 4, 1996.
(4)(dd) Specimen Share Certificate for the Capital Growth Bond Trust
-- previously filed as exhibit (4)(dd) to post-effective
amendment no. 34 filed on October 4, 1996.
(5)(a)(1) Advisory Agreement between NASL Series Trust and NASL
Financial Services, Inc. -- previously filed as exhibit
(5)(a)(1) to post effective amendment no. 30 filed December
14, 1995.
(5)(a)(2) Amendment to Advisory Agreement between NASL Series Trust and
NASL Financial Services, Inc. adding the Growth Trust --
previously filed as exhibit (5)(a)(1) to post effective
amendment no. 30 filed December 14, 1995.
(5)(a)(3) Amendment to Advisory Agreement between NASL Series Trust and
NASL Financial Services, Inc. dated October 1, 1996, reducing
advisory fee for Blue Chip Growth Trust -- previously filed as
exhibit (5)(a)(3) to post-effective amendment no. 34 filed on
October 4,1996.
(5)(a)(4) Amendment to Advisory Agreement between NASL Series Trust and
NASL Financial Services, Inc. adding Emerging Growth Trust,
Pilgrim Baxter Growth Trust, Pacific Rim Emerging Markets
Trust, International Stock Trust, Worldwide Growth Trust,
Science & Technology Trust, Common Stock Trust, Real Estate
Securities Trust, Value Trust, Equity Index Trust, Balanced
Trust, High Yield Trust, Capital Growth Bond Trust, Lifestyle
Conservative 280 Trust, Lifestyle Moderate 460 Trust.
Lifestyle Balanced 640 Trust, Lifestyle Growth 820 Trust and
Lifestyle Aggressive 1000 Trust--Filed herewith.
7
<PAGE> 159
(5)(b)(i) Restated Subadvisory Agreement Between NASL Financial
Services, Inc. and Oechsle International Advisors, L.P. --
previously filed as exhibit (5) (b) (ii) to post-effective
amendment no. 16 on October 23, 1991.
(5)(b)(ii) Subadvisory Agreement Between NASL Financial Services, Inc.
and Wellington Management Company -- previously filed as
exhibit (5) (b) (iii) to post-effective amendment no. 16 on
October 23, 1991.
(5)(b)(iii) Amendment to Subadvisory Agreement Between NASL Financial
Services, Inc. and Wellington Management Company dated
December 13, 1991, -- previously filed as exhibit (5)(b)(iii)
to post-effective amendment no. 18 on December 19, 1991.
(5)(b)(iv) Subadvisory Agreement Between NASL Financial and Fidelity
Management Trust Company dated December 6, 1991 -- previously
filed as exhibit (5)(b)(iv) to post-effective amendment no. 18
on December 19, 1991.
(5)(b)(v) Subadvisory Agreement Between NASL Financial and Salomon
Brothers Asset Management Inc. dated December 6, 1991 --
previously filed as exhibit (5)(b)(v) to post-effective
amendment no. 18 on December 19, 1991.
(5)(b)(vi) Amendment to Subadvisory Agreement Between NASL Financial and
Salomon Brothers Asset Management Inc. dated August 20, 1992
-- previously filed as exhibit no. (5)(a)(3) to post-effective
amendment no. 22 filed on October 30, 1992.
(5)(b)(vii) Subadvisory Consulting Agreement Between Salomon Brothers
Asset Management Inc. and Salomon Brothers Asset Management
Limited dated February 19, 1993. -- previously filed as
exhibit (5)(b)(ix) to post effective amendment 24 on April 2,
1993.
(5)(b)(viii) Subadvisory Agreement between NASL Financial Services, Inc.
and J.P. Morgan Investment Management Inc. dated December 1,
1994 -- previously filed as exhibit (5)(b)(xi) to
post-effective amendment no. 28 on March 2, 1995.
(5)(b)(ix) Form of Subadvisory Agreement between NASL Financial Services,
Inc. and Fred Alger Management, Inc. -- previously filed as
exhibit (5)(b)(xi) to post effective amendment no. 30 filed
December 14, 1995.
8
<PAGE> 160
(5)(b)(x) Form of Subadvisory Agreement between NASL Financial Services,
Inc. and Founders Asset Management, Inc. -- previously filed
as exhibit (5)(b)(xii) to post effective amendment no. 30
filed December 14, 1995.
(5)(b)(xi) Amendment to Subadvisory Agreement between NASL Financial
Services, Inc. and Founders Asset Management, Inc. adding the
Growth Trust -- previously filed as exhibit (5)(b)(xiii) to
post effective amendment no. 33 filed July 10, 1996.
(5)(b)(xii) Form of Amendment to Subadvisory Agreement between NASL
Financial Services, Inc. and Founders Asset Management, Inc.
dated October 1, 1996 adding the Worldwide Growth and Balanced
Trusts -- previously filed as exhibit (5)(b)(xii) to
post-effective amendment no. 34 filed on October 4,1996.
(5)(b)(xiii) Subadvisory Agreement between NASL Financial Services, Inc.
and T. Rowe Price Associates, Inc. dated October 1, 1996
providing for the Blue Chip Growth and Equity-Income Trusts --
Filed herewith.
(5)(b)(xiv) Form of Subadvisory Agreement between NASL Financial Services,
Inc. and Rowe Price-Fleming International, Inc. adding the
International Stock Trust -- previously filed as exhibit
(5)(b)(xiv) to post-effective amendment no. 34 filed on
October 4, 1996.
(5)(b)(xv) Subadvisory Agreement between NASL Financial Services, Inc.
and Morgan Stanley Asset Management, Inc. dated October 1,
1996 providing for the Global Equity Trust -- Filed herewith.
(5)(b)(xvi) Subadvisory Agreement between NASL Financial Services, Inc.
and Miller Anderson & Sherrerd, LLP dated October 1, 1996
adding the Value and High Yield Trusts -- Filed herewith.
(5)(b)(xvii) Form of Subadvisory Agreement between NASL Financial Services,
Inc. and Warburg Pincus Counsellors, Inc. adding the Emerging
Growth Trust -- previously filed as exhibit (5)(b)(xvii) to
post-effective amendment no. 34 filed on October 4,1996.
(5)(b)(xviii) Form of Subadvisory Agreement between NASL Financial Services,
Inc. and Manufacturers Adviser Corporation dated October 1,
1996 providing for the Money Market Trust -- previously filed
as exhibit (5)(b)(xviii) to post-effective amendment no.34
filed on October 4,1996.
9
<PAGE> 161
(5)(b)(xix) Subadvisory Agreement between NASL Financial Services, Inc.
and Pilgrim Baxter & Associates, Inc. dated December 31, 1996
adding the Pilgrim Baxter Growth Trust -- Filed herewith.
(5)(b)(xx) Form of Amendment to Subadvisory Agreement between NASL
Financial Services, Inc. and Manufacturers Adviser Corporation
dated December 31, 1996 adding the Pacific Rim Emerging
Markets, Common Stock, Real Estate Securities, Equity Index,
Capital Growth Bond, Lifestyle Conservative 280, Lifestyle
Moderate 460, Lifestyle Balanced 640, Lifestyle Growth 820 and
Lifestyle Aggressive 1000 Trusts -- Filed herewith.
(5)(b)(xxi) Subadvisory Agreement between NASL Financial Services, Inc.
and Fidelity Management Trust Company dated January 1, 1996 as
amended December 31, 1996 providing for the Equity,
Conservative Asset Allocation, Moderate Asset Allocation and
Aggressive Asset Allocation Trusts -- Filed herewith.
(5)(b)(xxii) Form of Amendment to Subadvisory Agreement between NASL
Financial Services, Inc. and T. Rowe Price Associates, Inc.
dated December 31, 1996 adding the Science & Technology Trust
-- Filed herewith.
(8)(a) Custodian Agreement Between NASL Series Fund, Inc. and State
Street Bank and Trust Company -- previously filed as exhibit
(8)(b) to post-effective amendment no. 6 filed on March 14,
1988.
(10)(a)(i) Opinion and Consent of Ropes & Gray -- previously filed as
exhibit (10)(a) to post-effective amendment no. 7 filed on
October 31, 1988.
(10)(a)(ii) Opinion and Consent of Tina M. Perrino, Esq. -- previously
filed as exhibit (10)(a)(ii) to post-effective amendment no.
14 filed April 15, 1991.
(10)(a)(iii) Opinion and Consent of Tina M. Perrino, Esq. -- previously
filed as exhibit (10)(a)(iii) to post-effective amendment no.
22 filed October 30, 1992.
(10)(a)(iv) Opinion and Consent of Betsy A. Seel, Esq.-- previously filed
as exhibit (10)(a)(iv) to post-effective amendment no. 27
filed October 20, 1994.
(10)(a)(v) Opinion and Consent of Betsy A. Seel, Esq. -- previously filed
as exhibit (10)(a)(v) to post effective amendment no. 30 filed
December 14,1995.
(10)(a)(vi) Opinion and Consent of Betsy A. Seel, Esq. -- previously
filed as exhibit (10)(a)(vi) to post effective amendment no.
33 filed July 10, 1996.
10
<PAGE> 162
(10)(a)(vii) Opinion and Consent of Betsy Anne Seel, Esq. -- Filed
herewith.
(10)(b) Consent of Jones & Blouch L.L.P. -- Filed herewith.
(11)(a) Consent of Coopers & Lybrand L.L.P. -- Filed herewith.
(11)(b) Consent of Ernst & Young - Filed herewith
(13) Letter Containing Investment Undertaking of North American
Life Assurance Company -- previously filed as exhibit 13 to
post-effective amendment no. 4 filed on December 24, 1987.
(16)(a) Schedule of computations of Total Return Figures for the U.S.
Government Securities, Growth and Income and Investment
Quality Bond Trusts -- previously filed as exhibit (16) (a) to
post-effective amendment no. 16 filed on October 23, 1991.
(16)(b) Schedule of Computations of Total Return Figures for the
Equity, Global Equity and Global Government Bond -- previously
filed as exhibit 16 to post-effective amendment no. 10 filed
on May 19, 1989.
(16)(c) Schedule of Computations of Total Return Figures for the Asset
Allocation Trusts, Value Equity Trust, Pasadena Growth Trust
and the Strategic Bond Trust -- previously filed as exhibit
16(c) to post-effective amendment no. 25 filed on March 2,
1994.
(16)(d) Schedule of Computations of Total Return Figures for the
International Growth & Income Trust. -- previously filed as
Exhibit 16(d) to post-effective amendment no. 29 on June 29,
1995.
(16)(e) Additional Schedule of Computations - general formula --
previously filed as exhibit (b)(16)(e) to post-effective
amendment no. 31 filed February 28, 1996.
(18)(a) Power of Attorney - Trustees -- previously filed as Exhibit
(17) to post-effective amendment no. 23 filed on February 2,
1993.
(18)(b) Power of Attorney - Richard C. Hirtle, Vice President and
Treasurer (Principal Financial and Accounting Officer) --
previously filed as exhibit 17(b) to post effective amendment
no. 24 filed April 2, 1993.
(18)(c) Powers of Attorney -- previously filed as exhibit 17(d) to
post effective amendment no. 27 filed October 20, 1994.
11
<PAGE> 163
(18)(d) Power of Attorney -- John D. DesPrez, President -- previously
filed as exhibit (18)(e) to post-effective amendment no. 34
filed on October 4, 1996.
(27)(a) NASL Series Trust - Financial Data Schedules for December 31,
1995, June 30,1996 and November 30, 1996 financial statements.
-- Filed herewith.
(27)(b) Manulife Series Fund, Inc. - Financial Data Schedules (Common
Stock, Pacific Rim Emerging Markets, Real Estate Securities,
Capital Growth Bond and Equity Index portfolios only) for
June 30, 1996 and December 31, 1995 - Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Trust has three shareholders: (i) North American Security Life
Insurance Company ("Security Life"), (ii) its wholly-owned subsidiary, First
North American Life Assurance Company ("FNAL") and (iii) The Manufacturers Life
Insurance Company of America ("Manulife America"). Security Life, FNAL and
Manulife America hold Trust shares attributable to variable contracts in their
respective separate accounts and will solicit voting instructions from variable
contract owners and vote all shares held in proportion to the instructions
received.
THE MANUFACTURERS LIFE INSURANCE COMPANY
(Subsidiaries Organization Chart
- - including certain Significant Investments)
The Manufacturers Life Insurance Company (Canada)
1. ManuLife Holdings (Hong Kong) Limited - H.K. (100%)
2. ManuLife Financial Systems (Hong Kong) Limited - H.K. (100%)
3. P.T. Asuransi Jiwa Dharmala Manulife - Indonesia (51%)
4. WT (SW) Properties Ltd. - U.K. (100%)
5. OUB Manulife Pte. Ltd. - Singapore (50%)
6. Manulife (Malaysia) SDN. BHD. - Malaysia (100%)
7. Manulife (Thailand) Ltd. - Thailand (100%)
12
<PAGE> 164
8. Young Poong Manulife Insurance Company - Korea (50%)
9. Ennal, Inc. - Ohio (100%)
10. First North American Realty, Inc. - Minnesota (100%)
11. NAL Resources Limited - Alberta (100%) (a) Nottingham Gas Limited -
Saskatchewan (31%)
12. Nottingham Gas Limited - Saskatchewan (31%)
13. 484551 Ontario Limited - Ontario (100%) (a) 911164 Ontario Limited - Ontario
(100%)
14. Peel-de Maisonneuve Investments Ltd. - Canada (50%) (a) 2932121 Canada Inc.
- Canada (100%)
15. Balmoral Developments Inc. - Canada (100%)
16. KY Holding Corporation - Canada (100%)
17. 165351 Canada Limited - Canada (100%)
18. 172846 Canada Limited - Canada (100%)
19. 576986 Ontario Inc. - Ontario (100%)
20. Cantay Holdings Inc. - Ontario (100%)
21. Manufacturers Life Capital Corporation Inc. - Canada (100%)
22. Elliott & Page Asset Management Ltd. - Canada (100%)
23. 495603 Ontario Limited - Ontario (100%)
24. 994744 Ontario Inc. - Ontario (100%)
25. The North American Group Inc. - Ontario (100%)
26. Manulife Investment Management Corporation - Canada (100%)
(a) 159139 Canada Inc. - Canada (50%)
i. Altamira Management Ltd. - Canada (60.96%)
A. ACI2 Limited - Cayman (100%)
13
<PAGE> 165
a/ Regent Pacific Group Limited-Cayman (63.8%)
a.1 Manulife Regent Investment Corporation -
Barbados (100%) [50% by Regent Pacific Group Limited
and 50% by Manulife Data Services Inc.]
b.1 Manulife Regent Investment Asia Limited -
Hong Kong (100%)
B. Altamira Financial Services Inc. - Ontario (100%)
a/ AIS Securities (Partnership) - Ontario (100%) [5% by
Altamira Financial Services, Inc. and 95% by
Altamira Investment Services Inc.]
b/ Altamira Investment Services Inc. - Ontario (100%)
(a) AIS Securities (Partnership) - Ontario (100%)[95% by
by Altamira Investment Services Inc. and 5% by
Altamira Financial Services Inc.]
(b) Altamira (Alberta) Ltd. - Alberta (100%)
(c) Capital Growth Financial Services Inc. -
Ontario (100%)
27. Manulife International Investment Management Limited - U.K. (100%)
(a) Manulife International Fund Management Limited - U.K. (100%)
28. Manulife (International) Limited - Bermuda (100%)
(a) The Manufacturers (Pacific Asia) Insurance Company Limited
- Hong Kong (100%)
(b) Newtime Consultants Limited - Hong Kong (100%)
29. Manulife Data Services Inc.- Barbados (100%)
(a) Manulife Regent Investment Corporation - Barbados - (100%)
[50% by Manulife Data Services Inc. and 50% by Regent
Pacific Group Limited]
(b) Manulife Regent Investment Asia Limited - Hong Kong (100%)
30. FNA Financial Inc. - Canada (100%)
(a) NAL Trustco Inc. - Ontario (100%)
(b) First North America Insurance Company - Canada (100%)
(c) Elliott & Page Limited - Ontario (100%)
(d) Seamark Asset Management Ltd. - Canada (69.175%)
(e) NAL Resources Management Limited - Canada (100%)
(i) NAL Energy Inc. - Alberta (100%)
31. ManuCab Ltd. - Canada (100%)
(a) Plazcab Service Limited - Canada (100%)
14
<PAGE> 166
32. Townvest Inc. - Ontario (100%)
33. Manulife Reinsurance Corporation (U.S.A.) - Michigan (100%)
(a) The Manufacturers Life Insurance Company (U.S.A.) - Michigan (100%)
(b) Manulife Holding Corporation - Delaware (100%)
i. Manufacturers Life Mortgage Securities
Corporation - Delaware (100%)
ii. Manulife Property Management of Washington, D.C., Inc.
- Washington D.C. (100%)
iii. Capital Design Corporation - California - (100%)
iv. ManEquity, Inc. - Colorado (100%)
v. Manulife Service Corporation - Colorado (100%)
vi. Succession Planning International Inc. - Wisconsin (100%)
(c) The Manufacturers Life Insurance Company of America - Michigan (100%)
i. Manulife Series Fund, Inc. - Maryland (100%)
ii. Manufacturers Adviser Corporation - Colorado (100%)
(d) Manulife Reinsurance Limited - Bermuda (100%)
34. The Manufacturers Investment Corporation - Michigan (100%)
35. Capitol Bankers Life Insurance Company - Minnesota (100%)
36. NAWL (North American Wood Logan Holding Company) - Delaware (85%)
(a) Wood Logan Associates Inc. - Connecticut (100%)
(i) Wood Logan Distributors - Connecticut (100%)
(b) North American Security Life Insurance Company - Delaware (100%)
(i) NASL Financial Services, Inc. - Massachusetts (100%)
(ii) First North American Life Assurance Company - New York (100%)
37. Manulife (International) Reinsurance Limited - Bermuda (100%)
(a) Manulife (International) P&C Limited - Bermuda (100%)
(b) Manufacturers P&C Limited - Barbados (100%)
38. Manulife Financial Holdings Limited - Ontario (100%)
(a) 742166 Ontario Inc. - Ontario (100%)
(b) Family Realty Firstcorp Limited - Ontario (100%)
(c) Thos. N. Shea Investment Corporation Limited - Ontario (100%)
(d) Manulife Bank of Canada - Canada (100%)
i. Manulife Securities International Ltd. - Canada (100%)
15
<PAGE> 167
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of November 30, 1996 the number of holders of the shares of beneficial
interest of each series of shares of the Registrant is as follows:
<TABLE>
<CAPTION>
Title of Series Number of Record Holders
--------------- ------------------------
<S> <C>
Global Equity Trust Shares of
Beneficial Interest 2
Blue Chip Growth Trust Shares of
Beneficial Interest 2
Equity Trust Shares of
Beneficial Interest 3
Equity-Income Trust Shares of
Beneficial Interest 3
Growth and Income Trust Shares
of Beneficial Interest 3
Strategic Bond Trust Shares
of Beneficial Interest 2
Global Government Bond Trust
Shares of Beneficial Interest 2
Investment Quality Bond Trust Shares
of Beneficial Interest 2
U.S. Government Securities Trust
Shares of Beneficial Interest 3
Money Market Trust Shares of
Beneficial Interest 2
Conservative Asset Allocation Trust
Shares of Beneficial Interest 3
Moderate Asset Allocation Trust
Shares of Beneficial Interest 3
Aggressive Asset Allocation Trust
Shares of Beneficial Interest 3
International Growth and Income Trust
Shares of Beneficial Interest 2
Small/Mid Cap Trust
Shares of Beneficial Interest 2
International Small Cap Trust
Shares of Beneficial Interest 2
Growth Trust
Shares of Beneficial Interest 2
</TABLE>
16
<PAGE> 168
<TABLE>
<S> <C>
Pacific Rim Emerging Markets Trust
Shares of Beneficial Interest 0
Science & Technology Trust
Shares of Beneficial Interest 0
Emerging Growth Trust
Shares of Beneficial Interest 0
Pilgrim Baxter Growth Trust
Shares of Beneficial Interest 0
International Stock Trust
Shares of Beneficial Interest 0
Worldwide Growth Trust
Shares of Beneficial Interest 0
Common Stock Trust
Shares of Beneficial Interest 0
Equity Index Trust
Shares of Beneficial Interest 0
Value Trust
Shares of Beneficial Interest 0
Real Estate Securities Trust
Shares of Beneficial Interest 0
Balanced Trust
Shares of Beneficial Interest 0
High Yield Trust
Shares of Beneficial Interest 0
Capital Growth Bond Trust
Shares of Beneficial Interest 0
Lifestyle Conservative 280 Trust
Shares of Beneficial Interest 0
Lifestyle Moderate 460 Trust
Shares of Beneficial Interest 0
Lifestyle Balanced 640 Trust
Shares of Beneficial Interest 0
Lifestyle Growth 820 Trust
Shares of Beneficial Interest 0
Lifestyle Aggressive 1000 Trust
Shares of Beneficial Interest 0
</TABLE>
ITEM 27. INDEMNIFICATION
Sections 6.4 and 6.5 of the Agreement and Declaration of Trust of the
Registrant provide that the Registrant shall indemnify each of its Trustees and
officers against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and against
all expenses, including but not limited to accountants and counsel fees,
reasonably incurred in connection with the defense or disposition of any action,
17
<PAGE> 169
suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Trustee or officer may be or
may have been involved as a party or otherwise or with which such person may be
or may have been threatened, while in office or thereafter, by reason of being
or having been such a Trustee or officer, except that indemnification shall not
be provided if it shall have been finally adjudicated in a decision on the
merits by the court or other body before which the proceeding was brought that
such Trustee or officer (i) did not act in good faith in the reasonable belief
that his or her action was in the best interests of the Registrant or (ii) is
liable to the Registrant or its shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Trust" in the Prospectus and "Investment
Management Arrangements" in the Statement of Additional Information for
information regarding the business of the Adviser and each of the Subadvisers.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of the Adviser and each
of the Subadvisers, reference is made to the respective Form ADV, as amended,
filed under the Investment Advisers Act of 1940, each of which is herein
incorporated by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained under
Section 31(a) of the Investment Company Act of 1940 are kept by NASL Financial
Services, Inc., the Registrant's investment adviser, at its offices at 116
Huntington Avenue, Boston, Massachusetts 02116, by Fidelity Management Trust
Company, the investment subadviser to the Equity, Conservative Asset Allocation,
Moderate Asset Allocation and Aggressive Asset Allocation Trusts, at its offices
at 82 Devonshire Street, Boston, MA 02109, by Oechsle International Advisors,
L.P., the investment subadviser to the Global Government Bond Trust, at its
offices at One International Place, Boston, Massachusetts 02110, by Wellington
Management Company, the investment subadviser to the Growth and Income and
Investment Quality Bond Trusts, at its offices at 75 State Street, Boston,
Massachusetts 02109, by Salomon Brothers Asset Management Inc., the investment
subadviser to the U.S. Government Securities and Strategic Bond Trusts, at its
offices at 7 World Trade Center, New York, New York 10048, by Fred Alger
Management, Inc., the investment subadviser for the Small/Mid Cap Trust, at its
offices at 75 Maiden Lane, New York, NY 10038, by Founders Asset Management,
Inc., the investment subadviser for the Growth, International Small Cap,
18
<PAGE> 170
Worldwide Growth and Balanced Trusts, at its offices at 2930 East Third Avenue,
Denver, Colorado 80206, by J.P. Morgan Investment Management Inc., the
investment subadviser to the International Growth and Income Trust, at its
offices at 522 5th Avenue, New York, New York, 10036, by T. Rowe Price
Associates, Inc., the investment subadviser to the Blue Chip Growth, Science &
Technology and Equity-Income Trusts, at its offices at 100 East Pratt Street,
Baltimore, MD 21202, by Rowe Price-Fleming International, Inc., the investment
subadviser to the International Stock Trust, at its offices at 100 East Pratt
Street, Baltimore, MD 21202, by Morgan Stanley Asset Management, Inc., the
investment subadviser of the Global Equity Trust, at its offices at 1221 Avenue
of the Americas, New York, New York 10020, by Miller Anderson & Sherrerd, LLP,
the investment subadviser to the Value and High Yield Trusts, at its offices at
One Tower Bridge, Conshohocken PA 19428, by Warburg Pincus Counsellors, Inc.,
the investment subadviser to the Emerging Growth Trust, at its offices at 466
Lexington Avenue, New York, New York 10017-3147, by Pilgrim Baxter & Associates,
Inc., the investment subadviser to the Pilgrim Baxter Growth Trust, at its
offices at 355 Lexington Avenue, New York, New York by Manufacturers Adviser
Corporation, the investment subadviser to the Pacific Rim Emerging Markets,
Common Stock, Real Estate Securities, Equity Index, Capital Growth Bond,
Lifestyle and Money Market Trusts, at its offices at 200 Bloor Street East,
Toronto, Ontario, Canada M4W lE5, by the Registrant at its principal business
office located at 116 Huntington Avenue, Boston, Massachusetts 02116, or by
State Street Bank and Trust Company, the custodian and transfer agent for the
Trust, at its offices at 225 Franklin Street, Boston, Massachusetts 02110.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Not applicable.
19
<PAGE> 171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant, NASL Series Trust, has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Boston, and
Commonwealth of Massachusetts, on the 17th day of December, 1996.
NASL SERIES TRUST
-----------------
(Registrant)
By: /s/ JOHN D. DESPREZ III
-----------------------
John D. DesPrez III, President
Attest:
/s/ JAMES D. GALLAGHER
- ----------------------
James D. Gallagher, Secretary
<PAGE> 172
Pursuant to the requirements of the Securities Act of 1933, this
amended Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C>
* Trustee December 17, 1996
---------------------- -----------------
Don B. Allen (Date)
/s/ JOHN D. DESPREZ III President - December 17, 1996
- ----------------------- -----------------
John D. DesPrez III (Chief Executive Officer) (Date)
* Trustee December 17, 1996
---------------------- -----------------
Charles L. Bardelis (Date)
* Trustee December 17, 1996
---------------------- -----------------
Samuel Hoar (Date)
* Trustee December 17, 1996
---------------------- and Chairman -----------------
Brian L. Moore (Date)
* Trustee December 17, 1996
---------------------- -----------------
Robert J. Myers (Date)
/s/ RICHARD C. HIRTLE Vice President and December 17, 1996
---------------------- Treasurer (Prin- -----------------
Richard C. Hirtle cipal Financial and (Date)
Accounting Officer)
*By:/s/ JAMES D. GALLAGHER December 17, 1996
------------------------ -----------------
James D. Gallagher (Date)
Attorney-in-Fact Pursuant to
Powers of Attorney
</TABLE>
<PAGE> 173
EXHIBITS
<PAGE> 174
EXHIBIT INDEX
NO. DESCRIPTION
(l)(m) Establishment and Designation of Additional Series of Shares
of Beneficial Interest - Value Trust, High Yield Trust,
International Stock Trust, Science & Technology Trust,
Balanced Trust, Worldwide Growth Trust, Emerging Growth Trust,
Pilgrim Baxter Growth Trust, Pacific Rim Emerging Markets
Trust, Real Estate Securities Trust, Capital Growth Bond
Trust, Equity Index Trust, Common Stock Trust, Lifestyle
Conservative 280 Trust, Lifestyle Moderate 460 Trust,
Lifestyle Balanced 640 Trust, Lifestyle Growth 820 Trust,
Lifestyle Aggressive 1000 Trust -- and Redesignation of the
Series of Shares known as the "Pasadena Growth Trust" to the
"Blue Chip Growth Trust" and the Series of Shares known as the
"Value Equity Trust" to the "Equity-Income Trust"
(5)(a)(4) Amendment to Advisory Agreement between NASL Series Trust and
NASL Financial Services, Inc. adding Emerging Growth Trust,
Pilgrim Baxter Growth Trust, Pacific Rim Emerging Markets
Trust, International Stock Trust, Worldwide Growth Trust,
Science & Technology Trust, Common Stock Trust, Real Estate
Securities Trust, Value Trust, Equity Index Trust, Balanced
Trust, High Yield Trust, Capital Growth Bond Trust, Lifestyle
Conservative 280 Trust, Lifestyle Moderate 460 Trust.
Lifestyle Balanced 640 Trust, Lifestyle Growth 820 Trust, and
Lifestyle Aggressive 1000 Trust
(5)(b)(xiii) Subadvisory Agreement between NASL Financial Services, Inc.
and T. Rowe Price Associates, Inc. dated October 1, 1996
providing for the Blue Chip Growth and Equity-Income Trusts
(5)(b)(xv) Subadvisory Agreement between NASL Financial Services, Inc.
and Morgan Stanley Asset Management, Inc. dated October 1,
1996 providing for the Global Equity Trust
(5)(b)(xvi) Subadvisory Agreement between NASL Financial Services, Inc.
and Miller Anderson & Sherrerd, LLP dated October 1, 1996
adding the Value and High Yield Trusts
(5)(b)(xix) Subadvisory Agreement between NASL Financial Services, Inc.
and Pilgrim Baxter & Associates, Inc. dated December 31, 1996
adding the Pilgrim Baxter Growth Trust
<PAGE> 175
(5)(b)(xx) Form of Amendment to Subadvisory Agreement between NASL
Financial Services, Inc. and Manufacturers Adviser Corporation
dated December 31, 1996 adding the Pacific Rim Emerging
Markets, Common Stock, Real Estate Securities, Equity Index,
Capital Growth Bond, Lifestyle Conservative 280, Lifestyle
Moderate 460, Lifestyle Balanced 640, Lifestyle Growth 820 and
Lifestyle Aggressive 1000 Trusts
(5)(b)(xxi) Subadvisory Agreement between NASL Financial Services, Inc.
and Fidelity Management Trust Company dated December 31, 1996
providing for the Equity, Conservative Asset Allocation,
Moderate Asset Allocation and Aggressive Asset Allocation
Trusts
(5)(b)(xxii) Form of Amendment to Subadvisory Agreement between NASL
Financial Services, Inc. and T. Rowe Price Associates, Inc.
dated December 31, 1996 adding the Science & Technology Trust
(10)(a)(vii) Opinion and Consent of Betsy Anne Seel, Esq.
(10)(b) Consent of Jones & Blouch L.L.P.
(11)(a) Consent of Coopers & Lybrand L.L.P.
(11)(b) Consent of Ernst & Young LLP
(27)(a) Financial Data Schedules for NASL Series Trust December 31,
1995, June 30,1996 and November 30, 1996 financial statements
(27)(b) Financial Data Schedules for Manulife Series Fund, Inc.
(Common Stock, Pacific Rim Emerging Markets, Real Estate
Securities, Capital Growth Bond and Equity Index portfolios
only) June 30, 1996 and December 31, 1995 financial
statements.
2
<PAGE> 1
EXHIBIT 99.B1(M)
NASL SERIES TRUST
Establishment and Designation
of Additional Series of Shares of Beneficial Interest
($0.01 par value per share)
The undersigned, being a majority of the Trustees of NASL Series Trust
(the "Trust"), acting pursuant to Section 4.1(a) of the Agreement and
Declaration of Trust of the Trust dated September 29, 1988 (the "Declaration of
Trust") hereby establish and designate thirteen new Series of Shares (as defined
in the Declaration of Trust), such Series of Shares to have the following
special and relative rights:
1. The new Series of Shares shall be designated the:
1. "Value" 14. "Lifestyle Conservative 280"
2. "High Yield" 15. "Lifestyle Moderate 460"
3. "International Stock" 16. "Lifestyle Balanced 640"
4. "Science & Technology" 17. "Lifestyle Growth 820"
5. "Balanced" 18. "Lifestyle Aggressive 1000"
6. "Worldwide Growth"
7. "Emerging Growth"
8. "Pilgrim Baxter Growth"
9. "Pacific Rim Emerging Markets"
10. "Real Estate Securities"
11. "Capital Growth Bond"
12. "Equity Index"
13. "Quantitative Equity"
2. The new Series of Shares shall have the relative rights and preferences
described in Section 4.2 of the Declaration of Trust, provided that the
Trustees, in their absolute discretion, may amend any previously
established relative rights and preferences as they may deem necessary
or desirable to enable the Trust to comply with the Investment Company
Act of 1940 or other applicable law.
<PAGE> 2
In witness whereof, the undersigned have executed this instrument in
duplicate original counterparts and have caused a duplicate original to be
lodged among the records of the Trust this _____ day of ____________, 199__.
- --------------------------------
Don B. Allen
- --------------------------------
Charles L. Bardelis
- --------------------------------
Samuel Hoar
- --------------------------------
Robert J. Myers
- --------------------------------
Brian L. Moore
The Agreement and Declaration of Trust of the Trust, September 29, 1988, a copy
of which together with all amendments thereto is on file in the office of the
Secretary of The Commonwealth of Massachusetts, provides that this instrument
was executed by the Trustees of the Trust as Trustees and not individually and
that the obligations of this instrument are not binding upon any of them or the
shareholders of the Trust individually but are binding only upon the assets
belonging to the Trust, or the particular Series of Shares in question, as the
case may be.
<PAGE> 3
NASL SERIES TRUST
Establishment and Designation
of Additional Series of Shares of Beneficial Interest
($0.01 par value per share)
The undersigned, being a majority of the Trustees of NASL Series Trust
(the "Trust"), acting pursuant to Section 4.1(a) of the Agreement and
Declaration of Trust of the Trust dated September 29, 1988 (the "Declaration of
Trust") hereby redesignate the Series of Shares set forth below, such Series to
continue to have the relative rights and preferences described in Section 4.2 of
the Declaration of Trust, provided that the Trustees, in their absolute
discretion, may amend any previously established relative rights and preferences
as they may deem necessary or desirable to enable the Trust to comply with the
Investment Company Act of 1940 or other applicable law.
"Pasadena Growth" redesignated as "Blue Chip Growth."
In witness whereof, the undersigned have executed this instrument in
duplicate original counterparts and have caused a duplicate original to be
lodged among the records of the Trust this 1st day of October, 1996.
/s/ Don B. Allen
- --------------------------------
Don B. Allen
/s/ Charles L. Bardelis /s/ Brian L. Moore
- -------------------------------- --------------------------------
Charles L. Bardelis Brian L. Moore
/s/ Samuel Hoar /s/ Robert J. Myers
- -------------------------------- --------------------------------
Samuel Hoar Robert J. Myers
The Agreement and Declaration of Trust of the Trust, September 29, 1988, a copy
of which together with all amendments thereto is on file in the office of the
Secretary of The Commonwealth of Massachusetts, provides that this instrument
was executed by the Trustees of the Trust as Trustees and not individually and
that the obligations of this instrument are not binding upon any of them or the
shareholders of the Trust individually but are binding only upon the assets
belonging to the Trust, or the particular Series of Shares in question, as the
case may be.
<PAGE> 4
NASL SERIES TRUST
Establishment and Designation
of Additional Series of Shares of Beneficial Interest
($0.01 par value per share)
The undersigned, being a majority of the Trustees of NASL Series Trust
(the "Trust"), acting pursuant to Section 4.1(a) of the Agreement and
Declaration of Trust of the Trust dated September 29, 1988 (the "Declaration of
Trust") hereby redesignate the Series of Shares set forth below, such Series to
continue to have the relative rights and preferences described in Section 4.2 of
the Declaration of Trust, provided that the Trustees, in their absolute
discretion, may amend any previously established relative rights and preferences
as they may deem necessary or desirable to enable the Trust to comply with the
Investment Company Act of 1940 or other applicable law.
"Value Equity" redesignated as "Equity-Income."
<PAGE> 5
In witness whereof, the undersigned have executed this instrument in
duplicate original counterparts and have caused a duplicate original to be
lodged among the records of the Trust this ____ day of _________, 199__.
- --------------------------------
Don B. Allen
- -------------------------------- --------------------------------
Charles L. Bardelis Brian L. Moore
- -------------------------------- --------------------------------
Samuel Hoar Robert J. Myers
The Agreement and Declaration of Trust of the Trust, September 29, 1988, a copy
of which together with all amendments thereto is on file in the office of the
Secretary of The Commonwealth of Massachusetts, provides that this instrument
was executed by the Trustees of the Trust as Trustees and not individually and
that the obligations of this instrument are not binding upon any of them or the
shareholders of the Trust individually but are binding only upon the assets
belonging to the Trust, or the particular Series of Shares in question, as the
case may be.
<PAGE> 1
EXHIBIT 99.B5(A)(4)
NASL SERIES TRUST
AMENDMENT TO ADVISORY AGREEMENT
AMENDMENT made this 31st day December, 1996, to the Advisory Agreement
dated January 1, 1996, as amended June 20, 1996 and October 1, 1996 between NASL
Series Trust, a Massachusetts business trust (the "Trust") and NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser").
In consideration of the mutual covenants contained herein, the parties agree as
follows:
1. CHANGE IN APPENDIX A
Appendix A to this Agreement is revised to reflect the appointment and
compensation of NASL Financial as investment adviser for the additional
portfolios (the "Portfolios") as set forth in Appendix A to this
Amendment.
2. CHANGE IN APPENDIX B
Appendix B to this Agreement is revised to include the Portfolios as
set forth in Appendix B to this Amendment.
3. CHANGE IN SECTION 2 "DUTIES OF THE ADVISER'
Section 2 "Duties of the Adviser" is amended to add the following:
"With respect to the Lifestyle Trusts (the "fund of funds"), the
Adviser may elect to manage the investments and determine the
composition of the assets of a Lifestyle Trust, subject to the approval
of the Trustees of the Trust."
4. EFFECTIVE DATE
This Amendment shall become effective with respect to each Portfolio on
the later of (i) the date of its execution, (ii) the effective date of the
post-effective amendment to the registration statement of NASL Series Trust
under the Securities Act of 1933 that incorporates with respect to the Portfolio
the terms of the Agreement as amended herein and (iii) the date of the meeting
of shareholders (or sole shareholder if applicable) of the Portfolio called for
the purpose of voting on this Amendment, at which meeting this Amendment shall
have been approved by the vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act of 1940, as amended) of the
Portfolio.
NASL SERIES TRUST
BY:______________________
NASL FINANCIAL SERVICES, INC.
BY:______________________
BY:______________________
<PAGE> 2
APPENDIX A
1. Global Equity Trust: .90% of the current net assets of the Portfolio.
2. Blue Chip Growth Trust: .925% of the current net assets of the
Portfolio.
3. Equity Trust: .75% of the current net assets of the Portfolio.
4. Equity-Income Trust: .80% of the current net assets of the Portfolio.
5. Growth and Income Trust: .75% of the current net assets of the
Portfolio.
6. Strategic Bond Trust: .775% of the current net assets of the Portfolio.
7. Global Government Bond Trust: .80% of the current net assets of the
Portfolio.
8. Investment Quality Bond Trust: .65% of the current net assets of the
Portfolio.
9. U.S. Government Securities Trust: .65% of the current net assets of the
Portfolio.
10. Money Market Trust: .50% of the current net assets of the Portfolio.
11. Aggressive Asset Allocation Trust: .75% of the current net assets of
the Portfolio.
12. Moderate Asset Allocation Trust: .75% of the net assets of the
Portfolio.
13. Conservative Asset Allocation Trust: .75% of the net assets of the
Portfolio.
14. International Growth and Income Trust: .95% of the net assets of the
Portfolio.
15. Small/Mid Cap Trust: 1.0% of the net assets of the Portfolio.
16. International Small Cap Trust: 1.10% of the net assets of the
Portfolio.
17. Growth Trust: .85% of the net assets of the Portfolio.
18. Value Trust: .80% of the current net assets of the Portfolio.
19. High Yield Trust: .775% of the current net assets of the Portfolio.
20. International Stock Trust: 1.05% of the current net assets of the
Portfolio.
21. Science & Technology Trust: 1.10% of the current net assets of the
Portfolio.
22. Balanced Trust: .80% of the current net assets of the Portfolio.
<PAGE> 3
23. Worldwide Growth Trust: 1.00% of the current net assets of the
Portfolio.
24. Emerging Growth Trust: 1.05% of the current net assets of the
Portfolio.
25. Pilgrim Baxter Growth Trust: 1.05% of the current net assets of the
Portfolio.
26. Pacific Rim Emerging Markets Trust: .85% of the current net assets of
the Portfolio.
27. Real Estate Securities Trust: .70% of the current net assets of the
Portfolio.
28. Capital Growth Bond Trust: .65% of the current net assets of the
Portfolio.
29. Equity Index Trust: .25% of the current net assets of the Portfolio.
30. Common Stock Trust: .70% of the current net assets of the Portfolio.
31. Lifestyle Conservative 280 Trust: 0% of the current net assets of the
Portfolio.
32. Lifestyle Moderate 460 Trust: 0% of the current net assets of the
Portfolio.
33. Lifestyle Balanced 640 Trust: 0% of the current net assets of the
Portfolio.
34. Lifestyle Growth 820 Trust: 0% of the current net assets of the
Portfolio.
35. Lifestyle Aggressive 1000 Trust: 0% of the current net assets of the
Portfolio.
The Percentage Fee for each Portfolio shall be accrued for each
calendar day and the sum of the daily fee accruals shall be payable monthly to
the Adviser. The daily fee accruals will be computed by multiplying the fraction
of one over the number of calendar days in the year by the applicable annual
rate described in the preceding paragraph, and multiplying this product by the
net assets of the Portfolio as determined in accordance with the Trust's
prospectus and statement of additional information as of the close of business
on the previous business day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of such month
or from the beginning of such month to the date of termination, as the case may
be, shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
<PAGE> 4
APPENDIX B
----------
The Expense Limit for each Portfolio for the purposes of paragraph 2.d.i(C)
shall be .50% for each Portfolio except the following:
Portfolio Percent
--------- -------
Global Equity Trust .75%
Global Government Bond Trust .75%
International Growth and Income Trust .75%
International Small Cap Trust .75%
International Stock Trust .75%
Worldwide Growth Trust .75%
Pacific Rim Emerging Markets Trust .75%
Equity Index Trust .15%
Lifestyle Conservative 280 Trust No expense limit is applicable
Lifestyle Moderate 460 Trust No expense limit is applicable
Lifestyle Balanced 640 Trust No expense limit is applicable
Lifestyle Growth 820 Trust No expense limit is applicable
Lifestyle Aggressive 1000 Trust No expense limit is applicable
<PAGE> 1
EXHIBIT 99.B5(B)(xiii)
NASL SERIES TRUST
SUBADVISORY AGREEMENT
AGREEMENT made this 1st day of October, 1996, between NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and T. Rowe Price Associates, Inc., a Maryland Corporation (the "Subadviser").
In consideration of the mutual covenants contained herein, the parties agree as
follows:
1. APPOINTMENT OF SUBADVISER
The Subadviser undertakes to act as investment subadviser to, and,
subject to the supervision of the Trustees of NASL Series Trust (the "Trust")
and the terms of this Agreement, to manage the investment and reinvestment of
the assets of the Portfolios specified in Appendix A to this Agreement as it
shall be amended by the Adviser and the Subadviser from time to time (the
"Portfolios"). The Subadviser will be an independent contractor and will have no
authority to act for or represent the Trust or Adviser in any way except as
expressly authorized in this Agreement or another writing by the Trust and
Adviser.
2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST
a. Subject always to the direction and control of the Trustees of the
Trust, the Subadviser will manage the investments and determine the
composition of the assets of the Portfolios in accordance with the
Portfolios' registration statement, as amended. In fulfilling its
obligations to manage the investments and reinvestments of the assets
of the Portfolios, the Subadviser will:
i. obtain and evaluate pertinent economic, statistical, financial
and other information affecting the economy generally and
individual companies or industries the securities of which are
included in the Portfolios or are under consideration for
inclusion in the Portfolios;
ii. formulate and implement a continuous investment program for
each Portfolio consistent with the investment objectives and
related investment policies for each such Portfolio as
described in the Trust's registration statement, as amended;
iii. take whatever steps are necessary to implement these
investment programs by the purchase and sale of securities
including the placing of orders for such purchases and sales;
iv. regularly report to the Trustees of the Trust with respect to
the implementation of these investment programs; and
v. provide assistance to the Trust's Custodian regarding the fair
value of securities held by the Portfolios for which market
quotations are not readily available.
b. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of personnel
required for it to execute its duties faithfully, and (ii)
administrative facilities, including bookkeeping, clerical personnel
and equipment necessary for the efficient conduct of the investment
affairs of the Portfolios (excluding determination of net asset value
and shareholder accounting services).
c. The Subadviser will select brokers and dealers to effect all
transactions subject to the following conditions: The Subadviser will
place all orders with brokers, dealers, or issuers, and will negotiate
brokerage commissions if applicable. The Subadviser is directed at all
times to seek to execute brokerage transactions for the Portfolios in
accordance with such policies or practices as may be established by the
Trustees and described in the Trust's registration statement as
amended. The Subadviser may pay a broker-dealer which provides research
and brokerage services a higher spread or commission for a particular
transaction than otherwise might have been charged by another
broker-dealer, if the Subadviser determines that the higher spread or
commission is reasonable in relation to the value of the brokerage and
research services that such
<PAGE> 2
broker-dealer provides, viewed in terms of either the particular
transaction or the Subadviser's overall responsibilities with respect
to accounts managed by the Subadviser. The Subadviser may use for the
benefit of the Subadviser's other clients, or make available to
companies affiliated with the Subadviser or to its directors for the
benefit of its clients, any such brokerage and research services that
the Subadviser obtains from brokers or dealers.
d. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
clients of the Subadviser, the Subadviser to the extent permitted by
applicable laws and regulations, may, but shall be under no obligatioin
to, aggregate the securities to be purchased or sold to attempt to
obtain a more favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transactiion, will be made by the Subadviser in the manner the
Subadviser considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and to its other clients.
e. The Subadviser will maintain all accounts, books and records with
respect to the Portfolios as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act of
1940 (the "Investment Company Act") and Investment Advisers Act of 1940
(the "Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its employees shall be liable to the
Adviser or Trust for any loss suffered by the Adviser or Trust resulting from
any error of judgment made in the good faith exercise of the Subadviser's
investment discretion in connection with selecting Portfolio investments except
for losses resulting from willful misfeasance, bad faith or gross negligence of,
or from reckless disregard of, the duties of the Subadviser or any of its
partners or employees; and neither the Subadviser nor any of its employees shall
be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust
resulting from any other matters to which this Agreement relates (i.e., those
other matters specified in Sections 2 and 8 of this Agreement), except for
losses resulting from willful misfeasance, bad faith, or gross negligence in the
performance of, or from disregard of, the duties of the Subadviser or any of its
partners or employees.
5. SUPPLEMENTAL ARRANGEMENTS
The Subadviser may enter into arrangements with other persons
affiliated with the Subadviser to better enable it to fulfill its obligations
under this Agreement for the provision of certain personnel and facilities to
the Subadviser.
6. CONFLICTS OF INTEREST
It is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in the Subadviser as trustees, officers,
partners or otherwise; that directors, officers, agents and partners of the
Subadviser are or may be interested in the Trust as trustees, officers,
shareholders or otherwise; that the Subadviser may be interested in the Trust;
and that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Certificate of
Incorporation of the Subadviser, respectively, or by specific provision of
applicable law.
2
<PAGE> 3
7. REGULATION
The Subadviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Portfolio on
the later of (i) its execution, (ii) the effective date of the registration
statement of the Portfolio and (iii) with respect to each Portfolio except the
Value Equity and Blue Chip Growth Portfolios, the date of the meeting of the
shareholders of the Portfolio, at which meeting this Agreement is approved by
the vote of a majority of the outstanding voting securities (as defined in the
Investment Company Act) of the Portfolio. The Agreement will continue in effect
for a period more than two years from the date of its execution only so long as
such continuance is specifically approved at least annually either by the
Trustees of the Trust or by a majority of the outstanding voting securities of
each of the Portfolios, provided that in either event such continuance shall
also be approved by the vote of a majority of the Trustees of the Trust who are
not interested persons (as defined in the Investment Company Act) of any party
to this Agreement cast in person at a meeting called for the purpose of voting
on such approval. The required shareholder approval of the Agreement or of any
continuance of the Agreement shall be effective with respect to any Portfolio if
a majority of the outstanding voting securities of the series (as defined in
Rule 18f-2(h) under the Investment Company Act) of shares of that Portfolio
votes to approve the Agreement or its continuance, notwithstanding that the
Agreement or its continuance may not have been approved by a majority of the
outstanding voting securities of (a) any other Portfolio affected by the
Agreement or (b) all the portfolios of the Trust.
If the shareholders of any Portfolio fail to approve the Agreement or
any continuance of the Agreement, the Subadviser will continue to act as
investment subadviser with respect to such Portfolio pending the required
approval of the Agreement or its continuance or of any contract with the
Subadviser or a different adviser or subadviser or other definitive action;
provided, that the compensation received by the Subadviser in respect of such
Portfolio during such period is in compliance with Rule 15a-4 under the
Investment Company Act.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
on sixty days' written notice to the Adviser and the Subadviser, or by the
Adviser or Subadviser on sixty days' written notice to the Trust and the other
party. This agreement will automatically terminate, without the payment of any
penalty, in the event of its assignment (as defined in the Investment Company
Act) or in the event the Advisory Agreement between the Adviser and the Trust
terminates for any reason.
9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER
The Subadviser will promptly notify the Adviser in writing of the
occurrence of any of the following events:
a. the Subadviser fails to be registered as an investment adviser under
the Investment Advisers Act or under the laws of any jurisdiction in
which the Subadviser is required to be registered as an investment
adviser in order to perform its obligations under this Agreement;
b. the Subadviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity, before
or by any court, public board or body, involving the affairs of the
Trust; and
c. any change in actual control or management of the Subadviser or the
portfolio manager of any Portfolio.
3
<PAGE> 4
10. PROVISION OF CERTAIN INFORMATION BY THE ADVISER
The Adviser shall furnish the Subadviser with copies of the Trust's
Prospectus and Statement of Additional Information, and any reports made by the
Trust to its shareholders, as soon as practicable after such documents become
available. The Adviser shall furnish the Subadviser with any further documents,
materials or informaiton that the Subadviser may reasonably request to enable it
to perform its duties pursuant to this Agreement."
11. SERVICES TO OTHER CLIENTS
The Adviser understand, and has advised the Trust's Board of Trustees,
that the Subadviser now acts, or may in the future act, as an investment adviser
to fiduciary and other managed accounts and as investment adviser or subadviser
to other investment companies. Further, the Adviser understands, and has advised
the Trust's Board of Trustees that the Subadviser and its affiliates may give
advice and take action for its accounts, including investment companies, which
differs from advice given on the timing or nature of action taken for the
Portfolio. The Subadviser is not obligated to initiate transaction for the
Portoflio in any security which the Subadviser, its principals, affiliates or
employees may purchase or sell for their own acounts or other clients."
12. AMENDMENTS TO THE AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of a majority of the outstanding voting
securities of each of the Portfolios affected by the amendment and by the vote
of a majority of the Trustees of the Trust who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to any Portfolio if a majority of the outstanding voting securities
of that Portfolio vote to approve the amendment, notwithstanding that the
amendment may not have been approved by a majority of the outstanding voting
securities of (a) any other Portfolio affected by the amendment or (b) all the
portfolios of the Trust.
13. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
14. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
15. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or
applicable party in person or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.
16. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
17. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
4
<PAGE> 5
18. LIMITATION OF LIABILITY
The Agreement and Declaration of Trust dated September 28, 1988, a copy
of which, together with all amendments thereto (the "Declaration"), is on file
in the office of the Secretary of The Commonwealth of Massachusetts, provides
that the name "NASL Series Trust" refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private property, for the
satisfaction of any obligation or claim, in connection with the affairs of the
Trust or any portfolio thereof, but only the assets belonging to the Trust, or
to the particular portfolio with which the obligee or claimant dealt, shall be
liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
[SEAL] NASL Financial Services, Inc.
by: /s/ Richard C. Hirtle by: /s/ James D. Gallagher
-------------------------- ------------------------
Richard C. Hirtle, James D. Gallagher
Vice President and Vice President &
Treasurer General Counsel
[SEAL] T. Rowe Price Associates, Inc.
by: /s/ Nancy Morris
--------------------------
Nancy Morris
5
<PAGE> 6
APPENDIX A
----------
The Subadviser shall serve as investment subadviser for the following
portfolio of the Trust. The Adviser will pay the Subadviser, as full
compensation for all services provided under this Agreement, the fee computed
separately for each such Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
Value Equity Portfolio: .400% of the first $50,000,000, .300% between
$50,000,000 and $200,000,000, .200% between $200,000,000 and
$500,000,000 and .200% on the excess over $500,000,000 of the current
value of the net assets of the Portfolio;
Blue Chip Growth Portfolio: .500% of the first $50,000,000, .450%
between $50,000,000 and $200,000,000, .400% between $200,000,000 and
$500,000,000 and .325% on the excess over $500,000,000 of the current
value of the net assets of the Portfolio;
The Subadviser Percentage Fee for each Portfolio shall be accrued for
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Subadviser. The daily fee accruals will be computed by multiplying the
fraction of one over the number of calendar days in the year by the applicable
annual rate described in the preceding paragraph, and multiplying this product
by the net assets of the Portfolio as determined in accordance with the Trust's
prospectus and statement of additional information as of the close of business
on the previous business day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
6
<PAGE> 1
Exhibit 99.B5(B)(xv)
NASL SERIES TRUST
SUBADVISORY AGREEMENT
AGREEMENT made this 1st day of October, 1996, between NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and Morgan Stanley Asset Management Inc., a Delaware Corporation (the
"Subadviser"). In consideration of the mutual covenants contained herein, the
parties agree as follows:
1. APPOINTMENT OF SUBADVISER
The Subadviser undertakes to act as investment subadviser to, and,
subject to the supervision of the Trustees of NASL Series Trust (the "Trust")
and the terms of this Agreement, to manage the investment and reinvestment of
the assets of the Portfolios specified in Appendix A to this Agreement as it
shall be amended by the Adviser and the Subadviser from time to time (the
"Portfolios"). The Subadviser will be an independent contractor and will have no
authority to act for or represent the Trust or Adviser in any way except as
expressly authorized in this Agreement or another writing by the Trust and
Adviser.
2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST
a. Subject always to the direction and control of the Trustees of the
Trust, the Subadviser will manage the investments and determine the
composition of the assets of the Portfolios in accordance with the
Portfolios' registration statement, as amended. In fulfilling its
obligations to manage the investments and reinvestments of the assets
of the Portfolios, the Subadviser will:
i. obtain and evaluate pertinent economic, statistical, financial
and other information affecting the economy generally and
individual companies or industries the securities of which are
included in the Portfolios or are under consideration for
inclusion in the Portfolios;
ii. formulate and implement a continuous investment program for
each Portfolio consistent with the investment objectives and
related investment policies for each such Portfolio as
described in the Trust's registration statement, as amended;
iii. take whatever steps are necessary to implement these
investment programs by the purchase and sale of securities
including the placing of orders for such purchases and sales;
iv. regularly report to the Trustees of the Trust with respect to
the implementation of these investment programs; and
v. provide determinations, in accordance with procedures and
methods established by the Trustees of the Trust, of the fair
value of securities held by the Portfolios for which market
quotations are not readily available for purposes of enabling
the Trust's Custodian to calculate net asset value.
b. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of personnel
required for it to execute its duties faithfully, and (ii)
administrative facilities, including bookkeeping, clerical personnel
and equipment necessary for the efficient conduct of the investment
affairs of the Portfolios (excluding determination of net asset value
and shareholder accounting services).
c. The Subadviser will select brokers and dealers to effect all
transactions subject to the following conditions: The Subadviser will
place all orders with brokers, dealers, or issuers, and will negotiate
brokerage commissions if applicable. The Subadviser is directed at all
times to seek to execute brokerage transactions for the Portfolios in
accordance with such policies or practices as may be established by the
Trustees and described in the Trust's registration statement as
amended. The Subadviser may pay a broker-dealer which provides research
and brokerage services a higher spread or commission for a particular
transaction than otherwise might have been charged by another
broker-dealer, if the Subadviser determines that the higher
<PAGE> 2
spread or commission is reasonable in relation to the value of the
brokerage and research services that such broker-dealer provides,
viewed in terms of either the particular transaction or the
Subadviser's overall responsibilities with respect to accounts managed
by the Subadviser. The Subadviser may use for the benefit of the
Subadviser's other clients, or make available to companies affiliated
with the Subadviser or to its directors for the benefit of its clients,
any such brokerage and research services that the Subadviser obtains
from brokers or dealers. In accordance with Section 11(a) of the
Securities Exchange Act of 1934, as amended and Rule 11a2-2(T)
thereunder, and subject to any other applicable laws and regulations
including Section 17(e) of the Investment Company Act of 1940 (the
"1940 Act") and Rule 17e-1 thereunder, the Subadviser may engage its
affiliates as broker-dealers to effect portfolio transactions in
securities for the Portfolios.
d. The Subadviser will maintain all accounts, books and records with
respect to the Portfolios as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act of
1940 (the "Investment Company Act") and Investment Advisers Act of 1940
(the "Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its affiliates, officers, partners or
employees nor anyone who controls the Subadviser (or any of its affiliates,
officers, partners or employees) within the meaning of Section 15 of the
Securities Act of 1933 (the "1933 Act") shall be liable to the Adviser or Trust
for any loss suffered by the Adviser or Trust resulting from any error of
judgment made in the good faith exercise of the Subadviser's investment
discretion in connection with selecting Portfolio investments except for losses
resulting from willful misfeasance, bad faith or gross negligence of, or from
reckless disregard of, the duties of the Subadviser or any of its affiliates,
partners or employees; and neither the Subadviser nor any of its affiliates,
officers, partners or employees, nor anyone who controls the Subadviser (or any
of its affiliates, officers, partners or employees) within the meaning of
Section 15 of the 1933 Act shall be liable to the Adviser or Trust for any loss
suffered by the Adviser or Trust resulting from any other matters to which this
Agreement relates (i.e., those other matters specified in Sections 2 and 8 of
this Agreement), except for losses resulting from willful misfeasance, bad
faith, or gross negligence in the performance of, or from disregard of, the
duties of the Subadviser or any of its affiliates partners or employees.
5. SUPPLEMENTAL ARRANGEMENTS
The Subadviser may enter into arrangements with other persons
affiliated with the Subadviser, including but not limited to, Morgan Stanley
Asset Management Limited, to better enable it to fulfill its obligations under
this Agreement for the provision of certain personnel and facilities to the
Subadviser.
6. CONFLICTS OF INTEREST
It is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in the Subadviser as trustees, officers,
partners or otherwise; that directors, officers, agents and partners of the
Subadviser are or may be interested in the Trust as trustees, officers,
shareholders or otherwise; that the Subadviser may be interested in the Trust;
and that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Certificate of
Incorporation of the Subadviser, respectively, or by specific provision of
applicable law.
2
<PAGE> 3
7. REGULATION
The Subadviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Portfolio on
the later of (i) its execution, (ii) the effective date of the registration
statement of the Portfolio and (iii) with respect to each Portfolio except the
Global Equity Portfolio, the date of the meeting of the shareholders of the
Portfolio, at which meeting this Agreement is approved by the vote of a majority
of the outstanding voting securities (as defined in the Investment Company Act)
of the Portfolio. The Agreement will continue in effect for a period more than
two years from the date of its execution only so long as such continuance is
specifically approved at least annually either by the Trustees of the Trust or
by a majority of the outstanding voting securities of each of the Portfolios,
provided that in either event such continuance shall also be approved by the
vote of a majority of the Trustees of the Trust who are not interested persons
(as defined in the Investment Company Act) of any party to this Agreement cast
in person at a meeting called for the purpose of voting on such approval. The
required shareholder approval of the Agreement or of any continuance of the
Agreement shall be effective with respect to any Portfolio if a majority of the
outstanding voting securities of the series (as defined in Rule 18f-2(h) under
the Investment Company Act) of shares of that Portfolio votes to approve the
Agreement or its continuance, notwithstanding that the Agreement or its
continuance may not have been approved by a majority of the outstanding voting
securities of (a) any other Portfolio affected by the Agreement or (b) all the
portfolios of the Trust.
If the shareholders of any Portfolio fail to approve the Agreement or
any continuance of the Agreement that is submitted to shareholders for approval,
the Subadviser will continue to act as investment subadviser with respect to
such Portfolio pending the required approval of the Agreement or its continuance
or of any contract with the Subadviser or a different adviser or subadviser or
other definitive action; provided, that the compensation received by the
Subadviser in respect of such Portfolio during such period is in compliance with
Rule 15a-4 under the Investment Company Act.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
on sixty days' written notice to the Adviser and the Subadviser, or by the
Adviser or Subadviser on sixty days' written notice to the Trust and the other
party. This agreement will automatically terminate, without the payment of any
penalty, in the event of its assignment (as defined in the Investment Company
Act) or in the event the Advisory Agreement between the Adviser and the Trust
terminates for any reason.
9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER
The Subadviser will promptly notify the Adviser in writing of the
occurrence of any of the following events:
a. the Subadviser fails to be registered as an investment adviser under
the Investment Advisers Act or under the laws of any jurisdiction in
which the Subadviser is required to be registered as an investment
adviser in order to perform its obligations under this Agreement;
b. the Subadviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity, before
or by any court, public board or body, involving the affairs of the
Trust; and
c. there is a change of control of the Subadviser which constitutes an
assignment of this Agreement under the 1940 Act;
d. the portfolio manager of any Portfolio changes.
3
<PAGE> 4
10. AMENDMENTS TO THE AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of a majority of the outstanding voting
securities of each of the Portfolios affected by the amendment and by the vote
of a majority of the Trustees of the Trust who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to any Portfolio if a majority of the outstanding voting securities
of that Portfolio vote to approve the amendment, notwithstanding that the
amendment may not have been approved by a majority of the outstanding voting
securities of (a) any other Portfolio affected by the amendment or (b) all the
portfolios of the Trust.
11. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
12. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or
applicable party in person or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.
13. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
14. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
15. LIMITATION OF LIABILITY
The Agreement and Declaration of Trust dated September 28, 1988, a copy
of which, together with all amendments thereto (the "Declaration"), is on file
in the office of the Secretary of The Commonwealth of Massachusetts, provides
that the name "NASL Series Trust" refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private property, for the
satisfaction of any obligation or claim, in connection with the affairs of the
Trust or any portfolio thereof, but only the assets belonging to the Trust, or
to the particular portfolio with which the obligee or claimant dealt, shall be
liable.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
[SEAL] NASL Financial Services, Inc.
by: /s/ Richard C. Hirtle by: /s/ James D. Gallagher
-------------------------- ------------------------
Richard C. Hirtle, James D. Gallagher
Vice President, Treasurer Vice President &
& CFO General Counsel
[SEAL] Morgan Stanley Asset Management Inc.
by: /s/ James M. Allwin
--------------------------
James M. Allwin,
President
5
<PAGE> 6
APPENDIX A
----------
The Subadviser shall serve as investment subadviser for the following
portfolio of the Trust. The Adviser will pay the Subadviser, as full
compensation for all services provided under this Agreement, the fee computed
separately for each such Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
Global Equity Portfolio: .500% of the first $50,000,000, .450% between
$50,000,000 and $200,000,000, .375% between $200,000,000 and
$500,000,000 and .325% on the excess over $500,000,000 of the current
value of the net assets of the Portfolio;
The Subadviser Percentage Fee for each Portfolio shall be accrued for
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Subadviser. The daily fee accruals will be computed by multiplying the
fraction of one over the number of calendar days in the year by the applicable
annual rate described in the preceding paragraph, and multiplying this product
by the net assets of the Portfolio as determined in accordance with the Trust's
prospectus and statement of additional information as of the close of business
on the previous business day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
6
<PAGE> 1
Exhibit 99.B5(B)(xvi)
NASL SERIES TRUST
SUBADVISORY AGREEMENT
AGREEMENT made this 31st day of December, 1996, between NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and Miller Anderson & Sherrerd, LLP, a Pennsylvania limited liability
partnership (the "Subadviser"). In consideration of the mutual covenants
contained herein, the parties agree as follows:
1. APPOINTMENT OF SUBADVISER
The Subadviser undertakes to act as investment subadviser to, and,
subject to the supervision of the Trustees of NASL Series Trust (the "Trust")
and the terms of this Agreement, to manage the investment and reinvestment of
the assets of the Portfolios specified in Appendix A to this Agreement as it
shall be amended by the Adviser and the Subadviser from time to time (the
"Portfolios"). The Subadviser will be an independent contractor and will have no
authority to act for or represent the Trust or Adviser in any way except as
expressly authorized in this Agreement or another writing by the Trust and
Adviser.
2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST
a. Subject always to the direction and control of the Trustees of the
Trust, the Subadviser will manage the investments and determine the
composition of the assets of the Portfolios in accordance with the
Portfolios' registration statement, as amended. In fulfilling its
obligations to manage the investments and reinvestments of the assets
of the Portfolios, the Subadviser will:
i. obtain and evaluate pertinent economic, statistical, financial
and other information affecting the economy generally and
individual companies or industries the securities of which are
included in the Portfolios or are under consideration for
inclusion in the Portfolios;
ii. formulate and implement a continuous investment program for
each Portfolio consistent with the investment objectives and
related investment policies for each such Portfolio as
described in the Trust's registration statement, as amended;
iii. take whatever steps are necessary to implement these
investment programs by the purchase and sale of securities
including the placing of orders for such purchases and sales;
iv. regularly report to the Trustees of the Trust with respect to
the implementation of these investment programs; and
v. provide determinations, in accordance with procedures and
methods established by the Trustees of the Trust, of the fair
value of securities held by the Portfolios for which market
quotations are not readily available for purposes of enabling
the Trust's Custodian to calculate net asset value.
b. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of personnel
required for it to execute its duties faithfully, and (ii)
administrative facilities, including bookkeeping, clerical personnel
and equipment necessary for the efficient conduct of the investment
affairs of the Portfolios (excluding determination of net asset value
and shareholder accounting services).
c. The Subadviser will select brokers and dealers to effect all
transactions subject to the following conditions: The Subadviser will
place all orders with brokers, dealers, or issuers, and will negotiate
brokerage commissions if applicable. The Subadviser is directed at all
times to seek to execute brokerage transactions for the Portfolios in
accordance with such policies or practices as may be established by the
Trustees and described in the Trust's registration statement as
amended. The Subadviser may pay a broker-dealer which provides research
and brokerage services a higher spread or commission for a particular
transaction than otherwise might have been charged by another
broker-dealer, if the Subadviser determines that the higher spread or
commission is
<PAGE> 2
reasonable in relation to the value of the brokerage and research
services that such broker-dealer provides, viewed in terms of either
the particular transaction or the Subadviser's overall responsibilities
with respect to accounts managed by the Subadviser. The Subadviser may
use for the benefit of the Subadviser's other clients, or make
available to companies affiliated with the Subadviser or to its
directors for the benefit of its clients, any such brokerage and
research services that the Subadviser obtains from brokers or dealers.
In accordance with Section 11(a) of the Securities Exchange Act of
1934, as amended and Rule 11a2-2(T) thereunder, and subject to any
other applicable laws and regulations including Section 17(e) of the
Investment Company Act of 1940 (the "1940 Act") and Rule 17e-1
thereunder, the Subadviser may engage its affiliates as broker-dealers
to effect portfolio transactions in securities for the Portfolios.
d. The Subadviser will maintain all accounts, books and records with
respect to the Portfolios as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act of
1940 (the "Investment Company Act") and Investment Advisers Act of 1940
(the "Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its affiliates, officers, partners or
employees nor anyone who controls the Subadviser (or any of its affiliates,
officers, partners or employees) within the meaning of Section 15 of the
Securities Act of 1933 (the "1933 Act") shall be liable to the Adviser or Trust
for any loss suffered by the Adviser or Trust resulting from any error of
judgment made in the good faith exercise of the Subadviser's investment
discretion in connection with selecting Portfolio investments except for losses
resulting from willful misfeasance, bad faith or gross negligence of, or from
reckless disregard of, the duties of the Subadviser or any of its affiliates,
partners or employees; and neither the Subadviser nor any of its affiliates,
officers, partners or employees, nor anyone who controls the Subadviser (or any
of its affiliates, officers, partners or employees) within the meaning of
Section 15 of the 1933 Act shall be liable to the Adviser or Trust for any loss
suffered by the Adviser or Trust resulting from any other matters to which this
Agreement relates (i.e., those other matters specified in Sections 2 and 8 of
this Agreement), except for losses resulting from willful misfeasance, bad
faith, or gross negligence in the performance of, or from disregard of, the
duties of the Subadviser or any of its affiliates partners or employees.
5. SUPPLEMENTAL ARRANGEMENTS
The Subadviser may enter into arrangements with other persons
affiliated with the Subadviser to better enable it to fulfill its obligations
under this Agreement for the provision of certain personnel and facilities to
the Subadviser.
6. CONFLICTS OF INTEREST
It is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in the Subadviser as trustees, officers,
partners or otherwise; that directors, officers, agents and partners of the
Subadviser are or may be interested in the Trust as trustees, officers,
shareholders or otherwise; that the Subadviser may be interested in the Trust;
and that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Partnership Agareement
of the Subadviser, respectively, or by specific provision of applicable law.
2
<PAGE> 3
7. REGULATION
The Subadviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
8. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Portfolio on
the later of (i) its execution, (ii) the effective date of the registration
statement of the Portfolio and (iii) the date of the meeting of the shareholders
of the Portfolio, at which meeting this Agreement is approved by the vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Portfolio. The Agreement will continue in effect for a
period more than two years from the date of its execution only so long as such
continuance is specifically approved at least annually either by the Trustees of
the Trust or by a majority of the outstanding voting securities of each of the
Portfolios, provided that in either event such continuance shall also be
approved by the vote of a majority of the Trustees of the Trust who are not
interested persons (as defined in the Investment Company Act) of any party to
this Agreement cast in person at a meeting called for the purpose of voting on
such approval. The required shareholder approval of the Agreement or of any
continuance of the Agreement shall be effective with respect to any Portfolio if
a majority of the outstanding voting securities of the series (as defined in
Rule 18f-2(h) under the Investment Company Act) of shares of that Portfolio
votes to approve the Agreement or its continuance, notwithstanding that the
Agreement or its continuance may not have been approved by a majority of the
outstanding voting securities of (a) any other Portfolio affected by the
Agreement or (b) all the portfolios of the Trust.
If the shareholders of any Portfolio fail to approve the Agreement or
any continuance of the Agreement that is submitted to shareholders for approval,
the Subadviser will continue to act as investment subadviser with respect to
such Portfolio pending the required approval of the Agreement or its continuance
or of any contract with the Subadviser or a different adviser or subadviser or
other definitive action; provided, that the compensation received by the
Subadviser in respect of such Portfolio during such period is in compliance with
Rule 15a-4 under the Investment Company Act.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Portfolio by
the vote of a majority of the outstanding voting securities of such Portfolio,
on sixty days' written notice to the Adviser and the Subadviser, or by the
Adviser or Subadviser on sixty days' written notice to the Trust and the other
party. This agreement will automatically terminate, without the payment of any
penalty, in the event of its assignment (as defined in the Investment Company
Act) or in the event the Advisory Agreement between the Adviser and the Trust
terminates for any reason.
9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER
The Subadviser will promptly notify the Adviser in writing of the
occurrence of any of the following events:
a. the Subadviser fails to be registered as an investment adviser under
the Investment Advisers Act or under the laws of any jurisdiction in
which the Subadviser is required to be registered as an investment
adviser in order to perform its obligations under this Agreement;
b. the Subadviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity, before
or by any court, public board or body, involving the affairs of the
Trust; and
c. there is a change in the membership of the subadvisers partnership;
d. there is a change of control of the Subadviser which constitutes an
assignment of this Agreement under the 1940 Act;
e. the portfolio manager of any Portfolio changes.
10. AMENDMENTS TO THE AGREEMENT
3
<PAGE> 4
Except to the extent permitted by the Investment Company Act or the
rules and regulations thereunder or pursuant to any exemptive order issued
thereunder, this Agreement may be amended by the parties only if such amendment
is specifically approved by the vote of a majority of the outstanding voting
securities of each of the Portfolios affected by the amendment and by the vote
of a majority of the Trustees of the Trust who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to any Portfolio if a majority of the outstanding voting securities
of that Portfolio vote to approve the amendment, notwithstanding that the
amendment may not have been approved by a majority of the outstanding voting
securities of (a) any other Portfolio affected by the amendment or (b) all the
portfolios of the Trust.
11. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
12. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or
applicable party in person or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.
13. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
14. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
15. LIMITATION OF LIABILITY
The Agreement and Declaration of Trust dated September 28, 1988, a copy
of which, together with all amendments thereto (the "Declaration"), is on file
in the office of the Secretary of The Commonwealth of Massachusetts, provides
that the name "NASL Series Trust" refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private property, for the
satisfaction of any obligation or claim, in connection with the affairs of the
Trust or any portfolio thereof, but only the assets belonging to the Trust, or
to the particular portfolio with which the obligee or claimant dealt, shall be
liable.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
[SEAL] NASL Financial Services, Inc.
by: ______________________________
by: ______________________________
[SEAL] Miller Anderson & Sherrerd LLP
by: ______________________________
5
<PAGE> 6
APPENDIX A
----------
The Subadviser shall serve as investment subadviser for the following
portfolio of the Trust. The Adviser will pay the Subadviser, as full
compensation for all services provided under this Agreement, the fee computed
separately for each such Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
Value Portfolio: .400% of the first $50,000,000, .300% between
$50,000,000 and $200,000,000, .200% between $200,000,000 and
$500,000,000 and .200% on the excess over $500,000,000 of the current
value of the net assets of the Portfolio;
High Yield Portfolio: .350% of the first $50,000,000, .300% between
$50,000,000 and $200,000,000, .250% between $200,000,000 and
$500,000,000 and .200% on the excess over $500,000,000 of the current
value of the net assets of the Portfolio;
The Subadviser Percentage Fee for each Portfolio shall be accrued for
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Subadviser. The daily fee accruals will be computed by multiplying the
fraction of one over the number of calendar days in the year by the applicable
annual rate described in the preceding paragraph, and multiplying this product
by the net assets of the Portfolio as determined in accordance with the Trust's
prospectus and statement of additional information as of the close of business
on the previous business day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
6
<PAGE> 1
Exhibit 99.B5(B)(xix)
NASL SERIES TRUST
SUBADVISORY AGREEMENT
AGREEMENT made this 31st day of December, 1996, between NASL Financial
Services, Inc., a Massachusetts corporation ("NASL Financial" or the "Adviser"),
and Pilgrim Baxter & Associates, Ltd. a Delaware Corporation (the
"Subadviser"). In consideration of the mutual covenants contained herein, the
parties agree as follows:
1. APPOINTMENT OF SUBADVISER
The Subadviser undertakes to act as investment subadviser to, and,
subject to the supervision of the Trustees of NASL Series Trust (the "Trust")
and the terms of this Agreement, to manage the investment and reinvestment of
the assets of the Portfolios specified in Appendix A to this Agreement as it
shall be amended by the Adviser and the Subadviser from time to time (the
"Portfolios"). The Subadviser will be an independent contractor and will have no
authority to act for or represent the Trust or Adviser in any way except as
expressly authorized in this Agreement or another writing by the Trust and
Adviser.
2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST
a. Subject always to the direction and control of the Trustees of the
Trust, the Subadviser will manage the investments and determine the
composition of the assets of the Portfolios in accordance with the
Portfolios' registration statement, as amended. In fulfilling its
obligations to manage the investments and reinvestments of the assets
of the Portfolios, the Subadviser will:
i. obtain and evaluate pertinent economic, statistical, financial
and other information affecting the economy generally and
individual companies or industries the securities of which are
included in the Portfolios or are under consideration for
inclusion in the Portfolios;
ii. formulate and implement a continuous investment program for
each Portfolio consistent with the investment objectives and
related investment policies for each such Portfolio as
described in the Trust's registration statement, as amended;
iii. take whatever steps are necessary to implement these
investment programs by the purchase and sale of securities
including the placing of orders for such purchases and sales;
iv. regularly report to the Trustees of the Trust with respect to
the implementation of these investment programs; and
v. provide assistance to the Trust's Custodian or other agent
regarding the fair value of securities held by the Portfolios
for which market quotations are not readily available.
b. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of personnel
required for it to execute its duties faithfully, and (ii)
administrative facilities, including bookkeeping, clerical personnel
and equipment necessary for the efficient conduct of the investment
affairs of the Portfolios (excluding determination of net asset value
and shareholder accounting services).
c. The Subadviser will select brokers and dealers to effect all
transactions subject to the following conditions: The Subadviser will
place all orders with brokers, dealers, or issuers, and will negotiate
brokerage commissions if applicable. The Subadviser is directed at all
times to seek to execute brokerage transactions for the Portfolios in
accordance with such policies or practices as may be established by the
Trustees and described in the Trust's registration statement as
amended. The Subadviser may pay a broker-dealer which provides research
and brokerage services a higher spread or commission for a particular
transaction than otherwise might have been charged by another
broker-dealer, if the Subadviser determines that the higher spread or
commission is reasonable in relation to the value of the brokerage and
research services that such broker-dealer provides,
<PAGE> 2
viewed in terms of either the particular transaction or the
Subadviser's overall responsibilities with respect to accounts managed
by the Subadviser. The Subadviser may use for the benefit of the
Subadviser's other clients, or make available to companies affiliated
with the Subadviser or to its directors for the benefit of its clients,
any such brokerage and research services that the Subadviser obtains
from brokers or dealers.
d. On occasions when the Subadviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
clients of the Subadviser, the Subadviser to the extent permitted by
applicable laws and regulations, may, but shall be under no obligatioin
to, aggregate the securities to be purchased or sold to attempt to
obtain a more favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transactiion, will be made by the Subadviser in the manner the
Subadviser considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and to its other clients.
e. The Subadviser will maintain all accounts, books and records with
respect to the Portfolios as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act of
1940 (the "Investment Company Act") and Investment Advisers Act of 1940
(the "Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its officer, directors, employees or
agents shall be liable to the Adviser or Trust for any loss suffered by the
Adviser or Trust or the Trust's shareholders resulting from any error of
judgment or mistake of law made in the good faith exercise of the Subadviser's
investment discretion in connection with selecting Portfolio investments except
for losses resulting from willful misfeasance, bad faith or gross negligence of,
or from reckless disregard of, the duties of the Subadviser or any of its
partners or employees; and neither the Subadviser nor any of its employees shall
be liable to the Adviser or Trust for any loss suffered by the Adviser or Trust
resulting from any other matters to which this Agreement relates (i.e., those
other matters specified in Sections 2 and 8 of this Agreement), except for
losses resulting from willful misfeasance, bad faith, or gross negligence in the
performance of, or from disregard of, the duties of the Subadviser or any of its
officers, directors, employees or agents.
5. SUPPLEMENTAL ARRANGEMENTS
The Subadviser may (at its own cost) employ, retain, or otherwise avail
itself of the services and facilities of persons and entities within its own
organization or any other organization for the purpose of providing the
Subadviser, Adviser and the Trust with such information, advice or assistance,
including but not limited to advice regarding economic factors and trends and
advice as to transactions in specific securities, as the Subadviser may deem
necessary, appropriate, or convenient for the discharge of its obligtions
hereunder.
6. CONFLICTS OF INTEREST
It is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in the Subadviser as officers, directors or
otherwise; that directors, officers and agents of the Subadviser are or may be
interested in the Trust as trustees, officers, shareholders or otherwise; that
the Subadviser may be interested in the Trust; and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided in the Agreement and Declaration of Trust
of the Trust and the Certificate of Incorporation of the Subadviser,
respectively, or by specific provision of applicable law.
7. REGULATION
2
<PAGE> 3
The Subadviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may reasonably request or require pursuant to applicable laws and
regulations.
8. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to Pilgrim Baxter
Growth Portfolio the day and year first above written and with respect to any
other Portfolio, as of the date it is added to Appendix A. The Agreement will
continue in effect for a period more than two years from the date of its
execution only so long as such continuance is specifically approved at least
annually either by the Trustees of the Trust or by a majority of the outstanding
voting securities of each of the Portfolios, provided that in either event such
continuance shall also be approved by the vote of a majority of the Trustees of
the Trust who are not interested persons (as defined in the Investment Company
Act) ("Independent Trustees") of any party to this Agreement cast in person at a
meeting called for the purpose of voting on such approval. The required
shareholder approval of the Agreement or of any continuance of the Agreement
shall be effective with respect to any Portfolio if a majority of the
outstanding voting securities of the series (as defined in Rule 18f-2(h) under
the Investment Company Act) of shares of that Portfolio votes to approve the
Agreement or its continuance, notwithstanding that the Agreement or its
continuance may not have been approved by a majority of the outstanding voting
securities of (a) any other Portfolio affected by the Agreement or (b) all the
portfolios of the Trust.
If the shareholders of any Portfolio fail to approve the Agreement or
any continuance of the Agreement, the Subadviser may, if it so elects, continue
to act as investment subadviser with respect to such Portfolio in accordance
with Rule 15a-4 under the Investment Company Act pending the required approval
of the Agreement or its continuance or of any contract with the Subadviser or a
different adviser or subadviser or other definitive action; provided, that the
compensation received by the Subadviser in respect of such Portfolio during such
period is in compliance with Rule 15a-4 under the Investment Company Act.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees of the Trust, including a majority of the
Independent Trustees, by the vote of a majority of the outstanding voting
securities of the Trust, or with respect to any Portfolio by the vote of a
majority of the outstanding voting securities of such Portfolio, on sixty days'
written notice to the Adviser and the Subadviser, or by the Adviser or
Subadviser on sixty days' written notice to the Trust and the other party. This
agreement will automatically terminate, without the payment of any penalty, in
the event of its assignment (as defined in the Investment Company Act) or in the
event the Advisory Agreement between the Adviser and the Trust is assigned or
terminates for any other reason. This Agreement shall also terminate upon
written notice to the other party that the other party to this Agreement is in
material breach of this Agreement, unless the other party in material breach of
this Agreement cures such breach to the reasonable satisfaction of the party
alleging the breach within thirty days after written notice.
9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER AND ADVISER
a. The Subadviser will promptly notify the Adviser in writing of the
occurrence of any of the following events:
(1) the Subadviser fails to be registered as an investment adviser under
the Investment Advisers Act or under the laws of any jurisdiction in
which the Subadviser is required to be registered as an investment
adviser in order to perform its obligations under this Agreement;
(2) the Subadviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity, before
or by any court, public board or body, involving the affairs of the
Trust; and
(3) any change in actual control or management of the Subadviser or any
change in the portfolio manager of any Portfolio.
b. The Adviser will promptly notify the Subadviser in writing of the
occurrence of any of the following events:
3
<PAGE> 4
(1) the Adviser fails to be registered as an investment adviser under the
Investment Advisers Act or under the laws of any jurisdiction in which
the Adviser is required to be registered as an investment adviser in
order to perform its obligations under this Agreement;
(2) the Adviser is served or otherwise receives notice of any action, suit,
proceeding, inquiry or investigation, at law or in equity, before or by
any court, public board or body, involving the affairs of the Trust;
and
(3) any change in actual control or management of the Adviser or
termination of the Adviser as investment adviser to the Trust.
10. SERVICES TO OTHER CLIENTS
The services provided by the Subadviser hereunder are not to be deemed
exclusive, and the Subadviser shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby.
Nothing in this Agreement shall limit or restrict the right of any director,
officer, or employee of the Subadviser to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any other business, whether of a similar nature or a dissimilar nature, nor
to limit or restrict the right of the Subadviser to engage in any other business
or to render services of any kind to any other corporation, firm, individual or
association.
11. AMENDMENTS TO THE AGREEMENT
Except to the extent permitted by the Investment Company Act or the
rules and regulations thereunder or pursuant to any exemptive order issued
thereunder, this Agreement may be amended by the parties only if such amendment,
if material, is specifically approved by the vote of a majority of the
outstanding voting securities of each of the Portfolios affected by the
amendment (unless such approval is not required by Section 15 of the Investment
Company Act as interpreted by the staff of the Securities and Exchange
Commission) and by the vote of a majority of the Independent Trustees of the
Trust cast in person at a meeting called for the purpose of voting on such
approval. The required shareholder approval shall be effective with respect to
any Portfolio if a majority of the outstanding voting securities of that
Portfolio vote to approve the amendment, notwithstanding that the amendment may
not have been approved by a majority of the outstanding voting securities of (a)
any other Portfolio affected by the amendment or (b) all the portfolios of the
Trust.
12. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
13. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
14. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or
applicable party in person or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.
15. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
16. GOVERNING LAW
4
<PAGE> 5
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
17. LIMITATION OF LIABILITY
The Agreement and Declaration of Trust dated September 28, 1988, a copy
of which, together with all amendments thereto (the "Declaration"), is on file
in the office of the Secretary of The Commonwealth of Massachusetts, provides
that the name "NASL Series Trust" refers to the Trustees under the Declaration
collectively as Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of the Trust shall be held to any
personal liability, nor shall resort be had to their private property, for the
satisfaction of any obligation or claim, in connection with the affairs of the
Trust or any portfolio thereof, but only the assets belonging to the Trust, or
to the particular portfolio with which the obligee or claimant dealt, shall be
liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
[SEAL] NASL Financial Services, Inc.
by: ______________________________
by: ______________________________
[SEAL] Pilgrim Baxter & Associates, Ltd.
by: ______________________________
5
<PAGE> 6
APPENDIX A
----------
The Subadviser shall serve as investment subadviser for the following
portfolio of the Trust. The Adviser will pay the Subadviser, as full
compensation for all services provided under this Agreement, the fee computed
separately for each such Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
Pilgrim Baxter Growth Portfolio: .60% of the first $50,000,000, .60%
between $50,000,000 and $200,000,000, .50% between $200,000,000 and
$500,000,000 and .50% on the excess over $500,000,000 of the current
value of the net assets of the Portfolio;
The Subadviser Percentage Fee for each Portfolio shall be accrued for
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Subadviser. The daily fee accruals will be computed by multiplying the
fraction of one over the number of calendar days in the year by the applicable
annual rate described in the preceding paragraph, and multiplying this product
by the net assets of the Portfolio as determined in accordance with the Trust's
prospectus and statement of additional information as of the close of business
on the previous business day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
6
<PAGE> 1
Exhibit 99.B5(B)(xx)
AMENDMENT TO
SUBADVISORY AGREEMENT
NASL SERIES TRUST
AMENDMENT made as of this 31st day of December 1996 to the Subadvisory
Agreement dated October 1, 1996 (the "Agreement"), between NASL Financial
Services, Inc., a Massachusetts corporation (the "Adviser"), and Manufacturers
Adviser Corporation, a Colorado corporation (the "Subadviser"). In consideration
of the mutual covenants contained herein, the parties agree as follows:
1. CHANGE IN APPENDIX A
Providing for the appointment and compensation of the Subadviser for
the new Pacific Rim Emerging Markets, Real Estate Securities, Capital Growth
Bond, Equity Index, Common Stock and five Lifestyle Portfolios. Section 3 of the
Agreement, "Compensation of Subadviser," is hereby amended by adding an
additional portfolio to Appendix A as follows:
1. Pacific Rim Emerging Markets Portfolio: .400% of the first
$50,000,000, .350% between $50,000,000 and $200,000,000, .275% between
$200,000,000 and $500,000,000 and .225% on the excess over $500,000,000
of the average daily value of the net assets of the Portfolio.
2. Real Estate Securities Portfolio: .275% of the first
$50,000,000, .225% between $50,000,000 and $200,000,000, .175% between
$200,000,000 and $500,000,000 and .150% on the excess over $500,000,000
of the average daily value of the net assets of the Portfolio.
3. Capital Growth Bond Portfolio: .225% of the first $50,000,000,
.225% between $50,000,000 and $200,000,000, .150% between $200,000,000
and $500,000,000 and .100% on the excess over $500,000,000 of the
average daily value of the net assets of the Portfolio.
4. Equity Index Portfolio: .100% of the first $50,000,000, .100%
between $50,000,000 and $200,000,000, .100% between $200,000,000 and
$500,000,000 and .100% on the excess over $500,000,000 of the average
daily value of the net assets of the Portfolio.
5. Common Stock Portfolio: .275% of the first $50,000,000, .225%
between $50,000,000 and $200,000,000, .175% between $200,000,000 and
$500,000,000 and .150% on the excess over $500,000,000 of the average
daily value of the net assets of the Portfolio.
6. Lifestyle Conservative 280 Portfolio: no fee
7. Lifestyle Moderate 460 Portfolio: no fee
8. Lifestyle Balanced 640 Portfolio: no fee
<PAGE> 2
9. Lifestyle Growth 820 Portfolio: no fee
10. Lifestyle Aggressive 1000 Portfolio: no fee
2. SUBADVISORY AGREEMENT
In all other respects, the Agreement is confirmed and remains in full
force and effect.
3. EFFFECTIVE DATE
This Amendment shall become effective with respect to each Portfolio on
the later of: (i) the date of its execution, (ii) the effective date of the
post-effective amendment to the registration statement of NASL Series Trust
under the Securities Act of 1933 that incorporates with respect to the Portfolio
the terms of the Agreement as amended herein and (iii) the date of the meeting
of shareholders (or sole shareholder if applicable) of the Portfolio called for
the purpose of voting on this Amendment, at which meeting this Amendment shall
have been approved by the vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act of 1940, as amended) of the
Portfolio.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
NASL Financial Services, Inc.
By: _____________________________
By: _____________________________
Manufacturers Adviser Corporation
By: _____________________________
<PAGE> 1
Exhibit 99.B5(B)(xxi)
NASL SERIES TRUST
AMENDED SUBADVISORY AGREEMENT
AGREEMENT made this 1st day of January, 1996, as amended December 31,
1996, between NASL Financial Services, Inc., a Massachusetts Corporation ("NASL
Financial" or the "Adviser"), and Fidelity Management Trust Company, a
Massachusetts Corporation (the "Subadviser"). In consideration of the mutual
covenants contained herein, the parties agree as follows:
1. APPOINTMENT OF SUBADVISER
The Subadviser undertakes to act as investment subadviser to, and,
subject to the supervision of the Trustees of NASL Series Trust (the"Trust") and
terms of this Agreement, to manage the investment and reinvestment of the assets
of each of the portfolios of the Trust specified in Appendix A to this Agreement
as it shall be amended by the Adviser and the Subadviser from time to time (the
"Portfolio" or "Portfolios"). The Subadviser will be an independent contractor
and will have no authority to act for or represent the Trust or Adviser in any
way or otherwise be deemed an agent unless expressly authorized in this
Agreement or another writing by the Trust and Adviser.
2. SERVICES TO BE RENDERED BY THE SUBADVISER TO THE TRUST
a. The Subadviser will manage the investments and determine the
composition of the assets of the Portfolios, subject always to the
direction and control of the Trustees of the Trust, and in accordance
with the provisions of the Trust's registration statement. In
fulfilling its obligations to manage the investments and reinvestments
of the assets of the Portfolios, the Subadviser will:
i. obtain and evaluate pertinent economic, statistical,
financial and other information affecting the economy
generally and individual companies or industries the
securities of which are included in the Portfolios or
are under consideration for inclusion in the
Portfolios;
ii. formulate and implement a continuous investment
program for each Portfolio consistent with the
investment objectives and related investment policies
for each such Portfolio as described in the Trust's
registration statement, as amended;
iii. take whatever steps are necessary to implement these
investment programs by the purchase and sale of
securities and other investments authorized under the
Trust's registration statement including the placing
of orders for such purchases and sales.
iv. regularly report to the Trustees of the Trust with
respect to the implementation of these investment
programs; and
v. provide determinations of the fair value of certain
securities when market quotations are not readily
available for purposes of calculating net asset value
for the Trust's Custodian in accordance with
procedures and methods established by the Trustees of
the Trust.
b. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of personnel
required for it to execute its duties faithfully, and (ii)
administrative facilities, including bookkeeping, clerical personnel
and equipment necessary for the efficient conduct of the investment
affairs of the Portfolios (excluding determination of net asset value
and shareholder accounting services).
c. The Subadviser will select brokers and dealers to effect all
transactions subject to the following conditions: the Subadviser will
place all necessary orders with brokers, dealers, or issuers, and will
negotiate brokerage commissions if applicable. The Subadviser is
directed at all times to seek to execute brokerage
<PAGE> 2
transactions for the Portfolios in accordance with such policies or
practices as may be established by the Trustees and described in the
Trust's registration statement as amended. The Subadviser may pay a
broker-dealer which provided research and brokerage services a higher
commission for a particular transaction than otherwise might have been
charged by another broker-dealer, if the Subadviser determines that the
higher commission is reasonable in relation to the value of the
brokerage and research services that such broker-dealer provides,
viewed in terms of either the particular transaction or the
Subadviser's overall responsibilities with respect to accounts managed
by the Subadviser. The Subadviser may use for the benefit of the
Subadviser's other clients, or make available to companies affiliated
with the Subadviser or to its directors for the benefit of its clients,
any such brokerage and research services that the Subadviser obtains
from brokers or dealers.
d. The Subadviser will maintain all accounts, books and records with
respect to the Portfolios as are required of an investment adviser of a
registered investment company pursuant to the Investment Company Act of
1940 (the "Investment Company Act") and Investment Advisers Act of 1940
(the "Investment Advisers Act") and the rules thereunder.
3. COMPENSATION OF SUBADVISER
The Adviser will pay the Subadviser with respect to each Portfolio the
compensation specified in Appendix A to this Agreement.
4. LIABILITY OF SUBADVISER
Neither the Subadviser nor any of its directors, officers or employees
shall be liable to the Adviser or Trust for any loss suffered by the Adviser or
Trust resulting from its acts or omissions as Subadviser to the Portfolios,
except for losses resulting from willful misfeasance, bad faith, or gross
negligence in the performance of, or from reckless disregard of, the duties of
the Subadviser or any of its directors, officers or employees. The Subadviser,
its directors, officers or employees shall not be liable to the Adviser or Trust
for any loss suffered as a consequence of any action or inaction of the
Custodian in failing to observe the instructions of the Subadviser.
5. SUPPLEMENTAL ARRANGEMENTS
The Subadviser may enter into arrangements with other persons
affiliated with the Subadviser to better enable it to fulfill its obligations
under this Agreement for the provision of certain personnel and facilities to
the Subadviser.
6. CONFLICTS OF INTEREST
It is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in the Subadviser as trustees, officers,
stockholders or otherwise; that directors, officers, agents and stockholders of
the Subadviser are or may be interested in the Trust as Trustees, officers,
shareholders or otherwise; that the Subadviser may be interested in the Trust;
and that the existence of any such dual interest shall not affect the validity
hereof or of any transactions hereunder except as otherwise provided in the
Agreement and Declaration of Trust of the Trust and the Articles of
Incorporation of the Subadviser, respectively, or by specific provision of
applicable law.
7. REGULATION
The Subadviser shall submit to all regulatory and administrative bodies
having jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request of require pursuant to applicable laws and regulations.
2
<PAGE> 3
8. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Portfolio on
the later of (i) its execution and (ii) approval by the vote of a majority of
the outstanding voting securities (as defined in the Investment Company Act) of
the Portfolio. Thereafter, the Agreement will continue in effect for a period
more than two years from the date of its execution only so long as such
continuance is specifically approved at least annually either by the Trustees of
the Trust or by a majority of the outstanding voting securities of each of the
Portfolios, provided that in either event such continuance shall also be
approved by the vote of a majority of the Trustees of the Trust who are not
interested persons (as defined in the Investment Company Act) of any party to
this Agreement cast in person at a meeting called for the purpose of voting on
such approval. The required shareholder approval of the Agreement or any
continuance of the Agreement shall be effective with respect to any Portfolio if
a majority of the outstanding voting securities of that Portfolio vote to
approve the Agreement or its continuance, notwithstanding that the Agreement or
its continuance may not have been approved by a majority of the outstanding
voting securities of (a) any other Portfolio affected by the Agreement or (b)
all the portfolios of the Trust.
If the Shareholders of any Portfolio fail to approve the Agreement or
any continuance of the Agreement, the Subadviser will continue to act as
investment subadviser with respect to such Portfolio pending the required
approval of the Agreement or its continuance or of any contract with the
Subadviser or a different adviser or subadviser or other definitive action;
provided, that the compensation received by the Subadviser in respect of such
Portfolio during such period is in compliance with Rule 15a-4 under the
Investment Company Act.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees of the Trust or, with respect to any Portfolio, by
the vote of a majority of the outstanding voting securities of such Portfolio,
on sixty days' written notice to the Adviser and the Subadviser, or by the
Adviser or Subadviser on sixty days' written notice to the Trust and the other
party. This agreement will automatically terminate, without the payment of any
penalty, in the event of its assignment (as defined in the Investment Company
Act) or in the event the Advisory Agreement between the Adviser and the Trust
terminates for any reason.
9. PROVISION OF CERTAIN INFORMATION BY SUBADVISER
The Subadviser will promptly notify the Adviser in writing of the
occurrence of any of the following events:
a. the Subadviser fails to be registered as an investment adviser under
the Investment Advisers Act or under the laws of any jurisdiction in
which the Subadviser is required to be registered as an investment
adviser in order to perform its obligations under this Agreement;
b. the Subadviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity, before
or by any court, public board or body, involving the affairs of the
Trust; and
c. the chief executive officer or controlling stockholder of the
Subadviser or the portfolio manager of any Portfolio changes.
10. USE OF SUBADVISER'S NAME
The Adviser will not use the Subadviser's name (or that of any
affiliate) in Trust literature without prior review and approval by the
Subadviser, which will not be unreasonably withheld or delayed.
3
<PAGE> 4
11. AMENDMENTS TO THE AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of a majority of the outstanding voting
securities of each of the Portfolios affected by the amendment and by the vote
of a majority of the Trustees of the Trust who are not interested persons of any
party to this Agreement cast in person at a meeting called for the purpose of
voting on such approval. The required shareholder approval shall be effective
with respect to any Portfolio if a majority of the outstanding voting securities
of that Portfolio vote to approve the amendment, notwithstanding that the
amendment may not have been approved by a majority of the outstanding voting
securities of (a) any other Portfolio affected by the amendment or (b) all the
Portfolios of the Trust.
12. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties with respect to the Portfolios listed in Appendix A.
13. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
14. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust or
applicable party in person or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.
15. SEVERABILITY
Should any portion of this Agreement for any reason be held to void in
law or in equity, the Agreement shall be construed, insofar as is possible, as
if such portion had never been contained herein.
16. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
17. LIMITATION OF LIABILITY
The Declaration of Trust establishing the Trust, dated September 28,
1988, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the office of the Secretary of The Commonwealth of Massachusetts,
provides that the name "NASL Series Trust" refers to the Trustees under the
declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of the Trust shall be held
to any personal liability, nor shall resort be had to their private property,
for the satisfaction of any obligation or claim, in connection with the affairs
of the Trust or any Portfolio thereof, but only the assets belonging to the
Trust, or to the particular portfolio with which the obligee or claimant dealt,
shall be liable.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
[SEAL] NASL Financial Services, Inc.
by: ______________________________
[SEAL] Fidelity Management Trust Company
by: ______________________________
5
<PAGE> 6
APPENDIX A
----------
The Subadviser shall serve as investment subadviser for the following
portfolios of the Trust. The Adviser will pay the subadviser, as full
compensation for all services provided under this Agreement, the fee computed
separately for each such Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
1. Equity Trust - .375% of the first $50,000,000 and .325% between
$50,000,000 and $200,000,000, .275% between $200,000,000 and
$500,000,000 and .200% on the excess over $500,000,000 of the current
value of the net assets of the Portfolio;
2. Conservative Asset Allocation Trust - .350% of the first $50,000,000
and .300% between $50,000,000 and $200,000,000, .250% between
$200,000,000 and $500,000,000 and .175% on the excess over $500,000,000
of the current value of the net assets of the Portfolio;
3. Moderate Asset Allocation Trust - .375% of the first $50,000,000 and
.325% between $50,000,000 and $200,000,000, .275% between $200,000,000
and $500,000,000 and .200% on the excess over $500,000,000 of the
current value of the net assets of the Portfolio;
4. Aggressive Asset Allocation Trust - .400% of the first $50,000,000 and
.350% between $50,000,000 and $200,000,000, .300% between $200,000,000
and $500,000,000 and .225% on the excess over $500,000,000 of the
current value of the net assets of the Portfolio;
The Subadviser Percentage Fee for each Portfolio shall be accrued for
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Subadviser. The daily fee accruals will be computed by multiplying the
fraction of one over the number of calendar days in the year by the applicable
annual rate described in the preceding paragraph, and multiplying this product
by the net assets of the Portfolio as determined in accordance with the Trust's
prospectus and statement of additional information as of the close of business
on the previous business day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
6
<PAGE> 1
Exhibit 99.B5(B)(xxii)
AMENDMENT TO
SUBADVISORY AGREEMENT
NASL SERIES TRUST
AMENDMENT made as of this 31st day of December 1996 to the Subadvisory
Agreement dated October 1, 1996 (the "Agreement"), between NASL Financial
Services, Inc., a Massachusetts corporation (the "Adviser"), and T. Rowe Price
Associates, Inc., a Maryland corporation (the "Subadviser"). In consideration of
the mutual covenants contained herein, the parties agree as follows:
1. CHANGE IN APPENDIX A
Providing for the appointment and compensation of the Subadviser for
the new Science & Technology Portfolio. Section 3 of the Agreement,
"Compensation of Subadviser," is hereby amended by adding an additional
portfolio to Appendix A as follows:
1. Science & Technology Portfolio: .600% of the first $50,000,000,
.600% between $50,000,000 and $200,000,000, .600% between $200,000,000
and $500,000,000 and .600% on the excess over $500,000,000 of the
average daily value of the net assets of the Portfolio.
2. SUBADVISORY AGREEMENT
In all other respects, the Agreement is confirmed and remains in full
force and effect.
3. EFFECTIVE DATE
This Amendment shall become effective with respect to the Science &
Technology Portfolio on the later of: (i) the date of its execution, (ii) the
effective date of the post-effective amendment to the registration statement of
NASL Series Trust under the Securities Act of 1933 that incorporates with
respect to the Portfolio the terms of the Agreement as amended herein and (iii)
the date of the meeting of shareholders (or sole shareholder if applicable) of
the Portfolio called for the purpose of voting on this Amendment, at which
meeting this Amendment shall have been approved by the vote of a majority of the
outstanding voting securities (as defined in the Investment Company Act of 1940,
as amended) of the Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
NASL Financial Services, Inc.
By: __________________________
T. Rowe Price Associates, Inc.
By: __________________________
<PAGE> 1
EXHIBIT 99.B10(a)(vii)
North American Security Life Insurance Company
116 Huntington Avenue
Boston, Massachusetts 02116
(617) 266-6008
December 17, 1996
To Whom it may concern:
This opinion is written in reference to the shares of beneficial interest, $.01
par value (the "Shares") of the portfolios listed below of NASL Series Trust, a
Massachusetts business trust (the "Trust"), to be offered and sold pursuant to a
Registration Statement on Form N-1A (registration no. 2-94157) (the
"Registration Statement") filed by the Trust pursuant to the Securities Act of
1933.
I have examined such records and documents and reviewed such questions of law as
I deemed necessary for purposes of this opinion.
1. The Trust has been duly recorded under the laws of the Commonwealth
of Massachusetts and is a validly existing Massachusetts business trust.
2. The Shares have been duly authorized and, when sold, issued and paid
for in the manner contemplated by the Registration Statement, will be legally
issued, fully paid and non-assessable.
Value
High Yield
International Stock
Science & Technology
Balanced
Worldwide Growth
Emerging Growth
Pilgrim Baxter Growth
Pacific Rim Emerging Markets
Real Estate Securities
Capital Growth Bond
Equity Index
Quantitative Equity
Lifestyle Conservative 280 Trust
Lifestyle Moderate 460 Trust
Lifestyle Balanced 640 Trust
Lifestyle Growth 820 Trust
Lifestyle Aggressive 1000 Trust
I consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement.
Very truly yours,
/s/ BETSY ANNE SEEL
Betsy Anne Seel, Esq.
<PAGE> 1
EXHIBIT 99.B10(B)
Jones & Blouch L.L.P.
Suite 405 West
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007-0805
December 17, 1996
NASL Series Trust
116 Huntington Avenue
Boston, MA 02116
Dear Sirs:
We hereby consent to the reference to this firm under the caption
"Legal Counsel" in the Statement of Additional Information included in
Post-Effective Amendment No. 35 under the Securities Act of 1933 and Amendment
No. 36 under the Investment Company Act of 1940 to the Registration Statement
for NASL Series Trust to be filed with the Securities and Exchange Commission,
File No. 2-94157.
Very truly yours,
/s/ JONES & BLOUCH L.L.P.
Jones & Blouch L.L.P.
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion through incorporation by reference into this
Post-Effective Amendment No. 35 under the Securities Act of 1933 and Amendment
No. 36 under the Investment Company Act of 1940 to the Registration Statement on
Form N-1A (File No. 2-94157) of our report dated February 15, 1996, on our
audits of the financial statements and financial highlights of NASL Series
Trust, which are included in the Registration Statement. We also consent to the
reference to our Firm as "Experts" under the captions "Financial Highlights" in
Part A and "Independent Accountants" in Part B of the Registration Statement.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 18, 1996
<PAGE> 1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Accountants" in the Statement of
Additional Information in Post-Effective Amendment No. 35 to the Registration
Statement (Form N-1A, No. 2-94157) of NASL Series Trust.
We also consent to the inclusion and incorporation by reference of our report
dated February 2, 1996 on the financial statements included in the Annual
Report of the Common Stock, Pacific Rim Emerging Markets, Real Estate
Securities, Capital Growth Bond and Equity Index portfolios of Manulife Series
Fund, Inc. for the year ended December 31, 1995.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 18, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 01
<NAME> EQUITY TRUST
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 810,537,978
<INVESTMENTS-AT-VALUE> 976,065,248
<RECEIVABLES> 14,193,954
<ASSETS-OTHER> 8,285
<OTHER-ITEMS-ASSETS> 750,444
<TOTAL-ASSETS> 991,017,931
<PAYABLE-FOR-SECURITIES> 2,081,617
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 136,109
<TOTAL-LIABILITIES> 2,217,726
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 722,594,064
<SHARES-COMMON-STOCK> 47,562,040
<SHARES-COMMON-PRIOR> 36,452,063
<ACCUMULATED-NII-CURRENT> 4,695,040
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 95,984,414
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 165,526,687
<NET-ASSETS> 988,800,205
<DIVIDEND-INCOME> 8,022,622
<INTEREST-INCOME> 2,722,339
<OTHER-INCOME> 0
<EXPENSES-NET> 6,041,617
<NET-INVESTMENT-INCOME> 4,703,344
<REALIZED-GAINS-CURRENT> 103,129,315
<APPREC-INCREASE-CURRENT> 142,486,886
<NET-CHANGE-FROM-OPS> 250,319,545
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,092,853
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,461,830
<NUMBER-OF-SHARES-REDEEMED> 4,613,712
<SHARES-REINVESTED> 261,859
<NET-CHANGE-IN-ASSETS> 454,238,254
<ACCUMULATED-NII-PRIOR> 4,079,883
<ACCUMULATED-GAINS-PRIOR> (7,140,235)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,643,363
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,041,617
<AVERAGE-NET-ASSETS> 752,448,449
<PER-SHARE-NAV-BEGIN> 14.66
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> 6.14
<PER-SHARE-DIVIDEND> .11
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.79
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 02
<NAME> INVESTMENT QUALITY BOND TRUST
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 134,606,419
<INVESTMENTS-AT-VALUE> 142,715,378
<RECEIVABLES> 2,941,297
<ASSETS-OTHER> 1,227
<OTHER-ITEMS-ASSETS> 809
<TOTAL-ASSETS> 145,658,711
<PAYABLE-FOR-SECURITIES> 2,524,479
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,628
<TOTAL-LIABILITIES> 2,556,107
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131,176,104
<SHARES-COMMON-STOCK> 11,618,055
<SHARES-COMMON-PRIOR> 10,123,550
<ACCUMULATED-NII-CURRENT> 8,478,262
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,660,721)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,108,959
<NET-ASSETS> 143,102,604
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,389,063
<OTHER-INCOME> 0
<EXPENSES-NET> 902,846
<NET-INVESTMENT-INCOME> 8,486,217
<REALIZED-GAINS-CURRENT> 934,173
<APPREC-INCREASE-CURRENT> 12,443,229
<NET-CHANGE-FROM-OPS> 21,863,619
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,077,320
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,829,840
<NUMBER-OF-SHARES-REDEEMED> 3,987,022
<SHARES-REINVESTED> 651,687
<NET-CHANGE-IN-ASSETS> 31,679,248
<ACCUMULATED-NII-PRIOR> 7,074,815
<ACCUMULATED-GAINS-PRIOR> (5,600,344)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 798,045
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 902,846
<AVERAGE-NET-ASSETS> 122,776,116
<PER-SHARE-NAV-BEGIN> 11.01
<PER-SHARE-NII> .77
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> .74
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.32
<EXPENSE-RATIO> .74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 03
<NAME> MONEY MARKET TRUST
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 258,581,602
<INVESTMENTS-AT-VALUE> 258,581,602
<RECEIVABLES> 446,107
<ASSETS-OTHER> 2,865
<OTHER-ITEMS-ASSETS> 701
<TOTAL-ASSETS> 259,031,275
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 914,312
<TOTAL-LIABILITIES> 914,312
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 258,116,963
<SHARES-COMMON-STOCK> 25,811,696
<SHARES-COMMON-PRIOR> 27,667,381
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 258,116,963
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,862,051
<OTHER-INCOME> 0
<EXPENSES-NET> 1,423,581
<NET-INVESTMENT-INCOME> 14,438,470
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 14,438,470
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,438,470
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 31,669,307
<NUMBER-OF-SHARES-REDEEMED> 34,968,839
<SHARES-REINVESTED> 1,443,847
<NET-CHANGE-IN-ASSETS> (18,556,843)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,318,573
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,423,581
<AVERAGE-NET-ASSETS> 263,714,662
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> .54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 04
<NAME> GLOBAL EQUITY TRUST
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 581,007,795
<INVESTMENTS-AT-VALUE> 641,380,864
<RECEIVABLES> 4,340,162
<ASSETS-OTHER> 6,862
<OTHER-ITEMS-ASSETS> 65,525,750
<TOTAL-ASSETS> 711,253,638
<PAYABLE-FOR-SECURITIES> 691,930
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62,379,070
<TOTAL-LIABILITIES> 63,071,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 594,157,053
<SHARES-COMMON-STOCK> 40,249,612
<SHARES-COMMON-PRIOR> 39,140,838
<ACCUMULATED-NII-CURRENT> 11,144,253
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (17,623,479)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60,504,811
<NET-ASSETS> 648,182,638
<DIVIDEND-INCOME> 9,309,807
<INTEREST-INCOME> 891,167
<OTHER-INCOME> 0
<EXPENSES-NET> 6,453,250
<NET-INVESTMENT-INCOME> 3,747,724
<REALIZED-GAINS-CURRENT> (7,229,061)
<APPREC-INCREASE-CURRENT> 48,856,611
<NET-CHANGE-FROM-OPS> 45,375,274
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,969,604
<DISTRIBUTIONS-OF-GAINS> 27,013,345
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,207,847
<NUMBER-OF-SHARES-REDEEMED> 7,147,089
<SHARES-REINVESTED> 2,048,016
<NET-CHANGE-IN-ASSETS> 32,044,758
<ACCUMULATED-NII-PRIOR> 2,412,913
<ACCUMULATED-GAINS-PRIOR> 24,386,140
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,513,312
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,453,250
<AVERAGE-NET-ASSETS> 612,590,163
<PER-SHARE-NAV-BEGIN> 15.74
<PER-SHARE-NII> .29
<PER-SHARE-GAIN-APPREC> .84
<PER-SHARE-DIVIDEND> .08
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.10
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 05
<NAME> GLOBAL GOVERNMENT BOND TRUST
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 215,527,656
<INVESTMENTS-AT-VALUE> 227,153,803
<RECEIVABLES> 6,750,983
<ASSETS-OTHER> 2,355
<OTHER-ITEMS-ASSETS> 65,468,463
<TOTAL-ASSETS> 299,375,604
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,132,670
<TOTAL-LIABILITIES> 64,132,670
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 210,172,142
<SHARES-COMMON-STOCK> 16,160,125
<SHARES-COMMON-PRIOR> 16,716,312
<ACCUMULATED-NII-CURRENT> 20,496,692
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,654,732)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,228,832
<NET-ASSETS> 235,242,934
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,051,448
<OTHER-INCOME> 0
<EXPENSES-NET> 2,046,737
<NET-INVESTMENT-INCOME> 15,004,711
<REALIZED-GAINS-CURRENT> 8,387,712
<APPREC-INCREASE-CURRENT> 22,355,680
<NET-CHANGE-FROM-OPS> 45,748,103
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,483,093
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,271,665
<NUMBER-OF-SHARES-REDEEMED> 4,742,839
<SHARES-REINVESTED> 914,987
<NET-CHANGE-IN-ASSETS> 26,730,264
<ACCUMULATED-NII-PRIOR> 13,288,441
<ACCUMULATED-GAINS-PRIOR> (12,355,812)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,757,909
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,046,737
<AVERAGE-NET-ASSETS> 219,738,532
<PER-SHARE-NAV-BEGIN> 12.47
<PER-SHARE-NII> 1.16
<PER-SHARE-GAIN-APPREC> 1.62
<PER-SHARE-DIVIDEND> .69
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.56
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 06
<NAME> US GOVERNMENT SECURITIES TRUST
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 251,263,091
<INVESTMENTS-AT-VALUE> 256,049,772
<RECEIVABLES> 14,437,731
<ASSETS-OTHER> 2,075
<OTHER-ITEMS-ASSETS> 183
<TOTAL-ASSETS> 270,489,761
<PAYABLE-FOR-SECURITIES> 53,664,033
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,309
<TOTAL-LIABILITIES> 53,701,342
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 201,843,207
<SHARES-COMMON-STOCK> 15,880,625
<SHARES-COMMON-PRIOR> 14,941,588
<ACCUMULATED-NII-CURRENT> 12,847,931
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,689,400)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,786,681
<NET-ASSETS> 216,788,419
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,251,650
<OTHER-INCOME> 0
<EXPENSES-NET> 1,408,938
<NET-INVESTMENT-INCOME> 12,842,712
<REALIZED-GAINS-CURRENT> 6,615,440
<APPREC-INCREASE-CURRENT> 9,054,850
<NET-CHANGE-FROM-OPS> 28,513,002
<EQUALIZATION> 0
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROMNASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 13
<NAME> STRATEGIC BOND TRUST
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NASL SERIES
TRUST ANNUAL REPORT DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 14
<NAME> INTERNATIONAL GROWTH AND INCOME TRUST
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-09-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 84,712,979
<INVESTMENTS-AT-VALUE> 87,198,943
<RECEIVABLES> 798,208
<ASSETS-OTHER> 1,477
<OTHER-ITEMS-ASSETS> 22,669,438
<TOTAL-ASSETS> 110,668,066
<PAYABLE-FOR-SECURITIES> 21,913,390
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 116,642
<TOTAL-LIABILITIES> 22,030,032
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,188,482
<SHARES-COMMON-STOCK> 8,462,125
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (70,205)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (233,834)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,753,591
<NET-ASSETS> 88,638,034
<DIVIDEND-INCOME> 689,974
<INTEREST-INCOME> 344,831
<OTHER-INCOME> 0
<EXPENSES-NET> 696,285
<NET-INVESTMENT-INCOME> 338,520
<REALIZED-GAINS-CURRENT> 1,232,130
<APPREC-INCREASE-CURRENT> 2,753,591
<NET-CHANGE-FROM-OPS> 4,324,241
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 998,757
<DISTRIBUTIONS-OF-GAINS> 875,932
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,066,223
<NUMBER-OF-SHARES-REDEEMED> 3,783,494
<SHARES-REINVESTED> 179,396
<NET-CHANGE-IN-ASSETS> 88,638,034
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 450,200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 696,285
<AVERAGE-NET-ASSETS> 48,418,212
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> .59
<PER-SHARE-DIVIDEND> .12
<PER-SHARE-DISTRIBUTIONS> .11
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 01
<NAME> EQUITY TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,027,123,797
<INVESTMENTS-AT-VALUE> 1,170,006,146
<RECEIVABLES> 87,984,423
<ASSETS-OTHER> 4,497
<OTHER-ITEMS-ASSETS> 986,692
<TOTAL-ASSETS> 1,258,981,758
<PAYABLE-FOR-SECURITIES> 74,608,223
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,080,169
<TOTAL-LIABILITIES> 75,688,392
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 909,369,303
<SHARES-COMMON-STOCK> 56,646,151
<SHARES-COMMON-PRIOR> 47,562,040
<ACCUMULATED-NII-CURRENT> 4,415,313
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 126,626,833
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 142,881,917
<NET-ASSETS> 1,183,293,366
<DIVIDEND-INCOME> 6,195,998
<INTEREST-INCOME> 2,687,317
<OTHER-INCOME> 0
<EXPENSES-NET> (4,468,001)
<NET-INVESTMENT-INCOME> 4,415,314
<REALIZED-GAINS-CURRENT> 129,007,748
<APPREC-INCREASE-CURRENT> (22,644,770)
<NET-CHANGE-FROM-OPS> 110,778,292
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,695,040)
<DISTRIBUTIONS-OF-GAINS> (98,365,329)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,615,887
<NUMBER-OF-SHARES-REDEEMED> (5,715,900)
<SHARES-REINVESTED> 5,184,124
<NET-CHANGE-IN-ASSETS> 194,493,162
<ACCUMULATED-NII-PRIOR> 4,695,040
<ACCUMULATED-GAINS-PRIOR> 95,984,414
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,147,286
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,468,001
<AVERAGE-NET-ASSETS> 1,108,981,379
<PER-SHARE-NAV-BEGIN> 20.79
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 2.10
<PER-SHARE-DIVIDEND> (.09)
<PER-SHARE-DISTRIBUTIONS> (1.98)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.89
<EXPENSE-RATIO> .81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 2
<NAME> INVESTMENT QUALITY BOND TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 141,087,282
<INVESTMENTS-AT-VALUE> 139,671,676
<RECEIVABLES> 2,556,284
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 142,227,960
<PAYABLE-FOR-SECURITIES> 260,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,913
<TOTAL-LIABILITIES> 290,913
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,904,938
<SHARES-COMMON-STOCK> 12,258,141
<SHARES-COMMON-PRIOR> 11,618,055
<ACCUMULATED-NII-CURRENT> 4,898,836
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,457,121)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,415,606)
<NET-ASSETS> 141,937,047
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,440,151
<OTHER-INCOME> 0
<EXPENSES-NET> 541,315
<NET-INVESTMENT-INCOME> 4,898,836
<REALIZED-GAINS-CURRENT> 1,209,600
<APPREC-INCREASE-CURRENT> (9,524,565)
<NET-CHANGE-FROM-OPS> (3,416,129)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,478,262)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,364,598
<NUMBER-OF-SHARES-REDEEMED> 1,211,500
<SHARES-REINVESTED> 756,988
<NET-CHANGE-IN-ASSETS> (1,165,557)
<ACCUMULATED-NII-PRIOR> 8,478,262
<ACCUMULATED-GAINS-PRIOR> (4,660,721)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 467,996
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 541,315
<AVERAGE-NET-ASSETS> 144,394,360
<PER-SHARE-NAV-BEGIN> 12.32
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> (.65)
<PER-SHARE-DIVIDEND> (.71)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.33
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 3
<NAME> MONEY MARKET TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 337,731,474
<INVESTMENTS-AT-VALUE> 337,731,474
<RECEIVABLES> 872,582
<ASSETS-OTHER> 4591
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 338,608,847
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 173,879
<TOTAL-LIABILITIES> 173,879
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 338,434,768
<SHARES-COMMON-STOCK> 33,843,477
<SHARES-COMMON-PRIOR> 25,811,696
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 338,434,768
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,745,941
<OTHER-INCOME> 0
<EXPENSES-NET> 790,621
<NET-INVESTMENT-INCOME> 6,955,320
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,955,320
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,955,320
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,204,293
<NUMBER-OF-SHARES-REDEEMED> 17,854,338
<SHARES-REINVESTED> 681,826
<NET-CHANGE-IN-ASSETS> 80,317,805
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 828,560
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,021,147
<AVERAGE-NET-ASSETS> 292,246,018
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.40)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> .54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENT FOR THE PERIOD ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 4
<NAME> GLOBAL EQUITY TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 635,915,005
<INVESTMENTS-AT-VALUE> 722,374,797
<RECEIVABLES> 3,089,652
<ASSETS-OTHER> 3,252
<OTHER-ITEMS-ASSETS> 4,631,709
<TOTAL-ASSETS> 730,099,410
<PAYABLE-FOR-SECURITIES> 2,971,826
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 439,709
<TOTAL-LIABILITIES> 3,411,535
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 638,113,069
<SHARES-COMMON-STOCK> 42,909,906
<SHARES-COMMON-PRIOR> 40,249,612
<ACCUMULATED-NII-CURRENT> 2,432,121
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (304,130)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,446,815
<NET-ASSETS> 726,687,875
<DIVIDEND-INCOME> 5,286,886
<INTEREST-INCOME> 958,901
<OTHER-INCOME> 0
<EXPENSES-NET> (3,687,519)
<NET-INVESTMENT-INCOME> 2,558,268
<REALIZED-GAINS-CURRENT> 17,319,349
<APPREC-INCREASE-CURRENT> 25,942,004
<NET-CHANGE-FROM-OPS> 45,819,621
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,270,400)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,844,983
<NUMBER-OF-SHARES-REDEEMED> (1,861,184)
<SHARES-REINVESTED> 676,495
<NET-CHANGE-IN-ASSETS> 78,505,237
<ACCUMULATED-NII-PRIOR> 11,144,253
<ACCUMULATED-GAINS-PRIOR> (17,623,479)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,122,712
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,687,519
<AVERAGE-NET-ASSETS> 695,842,404
<PER-SHARE-NAV-BEGIN> 16.10
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 1.06
<PER-SHARE-DIVIDEND> (.27)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.94
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 5
<NAME> GLOBAL GOVERNMENT BOND TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 227,541,639
<INVESTMENTS-AT-VALUE> 231,878,438
<RECEIVABLES> 118,180,412
<ASSETS-OTHER> 1165
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 350,060,015
<PAYABLE-FOR-SECURITIES> 3,777,325
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 108,747,148
<TOTAL-LIABILITIES> 112,524,473
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 227,334,529
<SHARES-COMMON-STOCK> 17,466,005
<SHARES-COMMON-PRIOR> 16,716,312
<ACCUMULATED-NII-CURRENT> 6,855,539
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,305,822)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,651,296
<NET-ASSETS> 237,535,542
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,527,798
<OTHER-INCOME> 0
<EXPENSES-NET> 1,105,814
<NET-INVESTMENT-INCOME> 7,421,484
<REALIZED-GAINS-CURRENT> 6,348,909
<APPREC-INCREASE-CURRENT> (7,577,532)
<NET-CHANGE-FROM-OPS> 6,192,861
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (21,062,640)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,271,665
<NUMBER-OF-SHARES-REDEEMED> 4,742,839
<SHARES-REINVESTED> 914,987
<NET-CHANGE-IN-ASSETS> 2,292,608
<ACCUMULATED-NII-PRIOR> 20,496,692
<ACCUMULATED-GAINS-PRIOR> (7,654,732)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 938,869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,105,814
<AVERAGE-NET-ASSETS> 235,362,028
<PER-SHARE-NAV-BEGIN> 14.56
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> (.08)
<PER-SHARE-DIVIDEND> (1.31)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.60
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 6
<NAME> U.S. GOVERNMENT SECURITIES TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 255,611,040
<INVESTMENTS-AT-VALUE> 253,942,816
<RECEIVABLES> 1,558,475
<ASSETS-OTHER> 1,185
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 255,502,476
<PAYABLE-FOR-SECURITIES> 43,316,525
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,693
<TOTAL-LIABILITIES> 43,385,218
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213,012,115
<SHARES-COMMON-STOCK> 16,659,449
<SHARES-COMMON-PRIOR> 15,880,625
<ACCUMULATED-NII-CURRENT> 6,812,474
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,039,107)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,668,224)
<NET-ASSETS> 212,117,258
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,609,799
<OTHER-INCOME> 0
<EXPENSES-NET> 797,325
<NET-INVESTMENT-INCOME> 6,812,474
<REALIZED-GAINS-CURRENT> (3,349,707)
<APPREC-INCREASE-CURRENT> (6,454,905)
<NET-CHANGE-FROM-OPS> (2,992,138)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12,847,931
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,361,615
<NUMBER-OF-SHARES-REDEEMED> 2,602,468
<SHARES-REINVESTED> 1,019,677
<NET-CHANGE-IN-ASSETS> (4,671,161)
<ACCUMULATED-NII-PRIOR> 12,847,931
<ACCUMULATED-GAINS-PRIOR> (2,689,400)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 714,327
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 797,325
<AVERAGE-NET-ASSETS> 220,396,652
<PER-SHARE-NAV-BEGIN> 13.65
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> (1.25)
<PER-SHARE-DIVIDEND> (.07)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.73
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENT FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 7
<NAME> CONSERVATIVE ASSET ALLOCATION TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 204,043,959
<INVESTMENTS-AT-VALUE> 213,424,354
<RECEIVABLES> 2,474,715
<ASSETS-OTHER> 842
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 215,899,911
<PAYABLE-FOR-SECURITIES> 13,502
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 120,924
<TOTAL-LIABILITIES> 134,426
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197,453,068
<SHARES-COMMON-STOCK> 19,518,069
<SHARES-COMMON-PRIOR> 19,363,198
<ACCUMULATED-NII-CURRENT> 5,062,232
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,840,025
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,410,160
<NET-ASSETS> 215,765,485
<DIVIDEND-INCOME> 567,297
<INTEREST-INCOME> 5,516,081
<OTHER-INCOME> 0
<EXPENSES-NET> 1,021,147
<NET-INVESTMENT-INCOME> 5,062,231
<REALIZED-GAINS-CURRENT> 3,921,358
<APPREC-INCREASE-CURRENT> (5,376,465)
<NET-CHANGE-FROM-OPS> 3,607,124
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,622,367)
<DISTRIBUTIONS-OF-GAINS> (3,004,794)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 319,270
<NUMBER-OF-SHARES-REDEEMED> 1,419,202
<SHARES-REINVESTED> 1,254,803
<NET-CHANGE-IN-ASSETS> (8,624,515)
<ACCUMULATED-NII-PRIOR> 10,622,367
<ACCUMULATED-GAINS-PRIOR> 2,923,461
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 828,560
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,021,147
<AVERAGE-NET-ASSETS> 221,556,407
<PER-SHARE-NAV-BEGIN> 11.59
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> (.09)
<PER-SHARE-DIVIDEND> (.56)
<PER-SHARE-DISTRIBUTIONS> (.16)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.05
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 8
<NAME> MODERATE ASSET ALLOCATION TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 574,882,508
<INVESTMENTS-AT-VALUE> 622,150,600
<RECEIVABLES> 7,413,662
<ASSETS-OTHER> 806
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 629,565,068
<PAYABLE-FOR-SECURITIES> 386,568
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 343,902
<TOTAL-LIABILITIES> 730,470
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 549,816,620
<SHARES-COMMON-STOCK> 53,670,880
<SHARES-COMMON-PRIOR> 52,461,719
<ACCUMULATED-NII-CURRENT> 13,451,645
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 17,995,438
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,571,075
<NET-ASSETS> 628,834,598
<DIVIDEND-INCOME> 2,819,886
<INTEREST-INCOME> 13,444,696
<OTHER-INCOME> 0
<EXPENSES-NET> 2,813,117
<NET-INVESTMENT-INCOME> 13,451,465
<REALIZED-GAINS-CURRENT> 18,293,354
<APPREC-INCREASE-CURRENT> (11,940,292)
<NET-CHANGE-FROM-OPS> 19,804,527
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26,460,562)
<DISTRIBUTIONS-OF-GAINS> (26,425,885)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 313,296
<NUMBER-OF-SHARES-REDEEMED> 3,714,985
<SHARES-REINVESTED> 4,610,850
<NET-CHANGE-IN-ASSETS> (21,301,539)
<ACCUMULATED-NII-PRIOR> 26,460,562
<ACCUMULATED-GAINS-PRIOR> 26,127,969
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,401,378
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,813,117
<AVERAGE-NET-ASSETS> 642,126,786
<PER-SHARE-NAV-BEGIN> 12.39
<PER-SHARE-NII> .27
<PER-SHARE-GAIN-APPREC> .10
<PER-SHARE-DIVIDEND> (.52)
<PER-SHARE-DISTRIBUTIONS> (.52)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.72
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 9
<NAME> AGGRESSIVE ASSET ALLOCATION TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 194,441,389
<INVESTMENTS-AT-VALUE> 219,426,526
<RECEIVABLES> 1,832,464
<ASSETS-OTHER> 581
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 221,259,571
<PAYABLE-FOR-SECURITIES> 167,024
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187,919
<TOTAL-LIABILITIES> 354,943
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 184,491,238
<SHARES-COMMON-STOCK> 17,633,320
<SHARES-COMMON-PRIOR> 16,484,402
<ACCUMULATED-NII-CURRENT> 3,044,817
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,140,214
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 25,228,359
<NET-ASSETS> 220,904,628
<DIVIDEND-INCOME> 1,519,848
<INTEREST-INCOME> 2,570,266
<OTHER-INCOME> 0
<EXPENSES-NET> 1,045,298
<NET-INVESTMENT-INCOME> 3,044,816
<REALIZED-GAINS-CURRENT> 8,268,097
<APPREC-INCREASE-CURRENT> (89,893)
<NET-CHANGE-FROM-OPS> 11,223,020
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,427,633)
<DISTRIBUTIONS-OF-GAINS> (10,578,038)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 748,718
<NUMBER-OF-SHARES-REDEEMED> 912,816
<SHARES-REINVESTED> 1,313,016
<NET-CHANGE-IN-ASSETS> 9,147,676
<ACCUMULATED-NII-PRIOR> 5,427,633
<ACCUMULATED-GAINS-PRIOR> 10,450,155
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 815,819
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,045,298
<AVERAGE-NET-ASSETS> 218,146,400
<PER-SHARE-NAV-BEGIN> 12.85
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> .48
<PER-SHARE-DIVIDEND> (.33)
<PER-SHARE-DISTRIBUTIONS> (.64)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.53
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 10
<NAME> GROWTH AND INCOME TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 683346326
<INVESTMENTS-AT-VALUE> 833769748
<RECEIVABLES> 5037723
<ASSETS-OTHER> 5504
<OTHER-ITEMS-ASSETS> 12334
<TOTAL-ASSETS> 838825309
<PAYABLE-FOR-SECURITIES> 5945600
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71189
<TOTAL-LIABILITIES> 6016789
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 649971088
<SHARES-COMMON-STOCK> 48597789
<SHARES-COMMON-PRIOR> 40893098
<ACCUMULATED-NII-CURRENT> 6492368
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25922016
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 150423048
<NET-ASSETS> 832808520
<DIVIDEND-INCOME> 8726519
<INTEREST-INCOME> 776613
<OTHER-INCOME> 0
<EXPENSES-NET> (3010764)
<NET-INVESTMENT-INCOME> 6492368
<REALIZED-GAINS-CURRENT> 25922016
<APPREC-INCREASE-CURRENT> 29385053
<NET-CHANGE-FROM-OPS> 61799437
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11667389)
<DISTRIBUTIONS-OF-GAINS> (15781628)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6418602
<NUMBER-OF-SHARES-REDEEMED> (383559)
<SHARES-REINVESTED> 1669648
<NET-CHANGE-IN-ASSETS> 163421276
<ACCUMULATED-NII-PRIOR> 11667389
<ACCUMULATED-GAINS-PRIOR> 15781628
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2824747
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3010764
<AVERAGE-NET-ASSETS> 755335229
<PER-SHARE-NAV-BEGIN> 16.37
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> (.26)
<PER-SHARE-DISTRIBUTIONS> (.36)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.14
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 11
<NAME> PASADENA GROWTH TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 266844625
<INVESTMENTS-AT-VALUE> 352666413
<RECEIVABLES> 2330628
<ASSETS-OTHER> 21367
<OTHER-ITEMS-ASSETS> 489
<TOTAL-ASSETS> 355018897
<PAYABLE-FOR-SECURITIES> 3173896
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21932
<TOTAL-LIABILITIES> 3195828
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 271823259
<SHARES-COMMON-STOCK> 27150902
<SHARES-COMMON-PRIOR> 24363208
<ACCUMULATED-NII-CURRENT> 169072
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5991049)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 85821788
<NET-ASSETS> 351823070
<DIVIDEND-INCOME> 1396739
<INTEREST-INCOME> 298171
<OTHER-INCOME> 0
<EXPENSES-NET> (1525839)
<NET-INVESTMENT-INCOME> 169071
<REALIZED-GAINS-CURRENT> 4569744
<APPREC-INCREASE-CURRENT> 35388252
<NET-CHANGE-FROM-OPS> 40127067
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (908877)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4349706
<NUMBER-OF-SHARES-REDEEMED> (1637815)
<SHARES-REINVESTED> 75803
<NET-CHANGE-IN-ASSETS> 74148875
<ACCUMULATED-NII-PRIOR> 908877
<ACCUMULATED-GAINS-PRIOR> (10560793)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1525839
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1525839
<AVERAGE-NET-ASSETS> 313852557
<PER-SHARE-NAV-BEGIN> 11.40
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 1.59
<PER-SHARE-DIVIDEND> (.04)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.96
<EXPENSE-RATIO> .975
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 12
<NAME> VALUE EQUITY TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 440,219,032
<INVESTMENTS-AT-VALUE> 490,835,031
<RECEIVABLES> 939,396
<ASSETS-OTHER> 1,147
<OTHER-ITEMS-ASSETS> 199
<TOTAL-ASSETS> 491,775,773
<PAYABLE-FOR-SECURITIES> 3,947,617
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,075
<TOTAL-LIABILITIES> 3,982,692
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 425,016,792
<SHARES-COMMON-STOCK> 35,114,976
<SHARES-COMMON-PRIOR> 28,733,585
<ACCUMULATED-NII-CURRENT> 3,355,978
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,804,336
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 50,615,975
<NET-ASSETS> 487,793,081
<DIVIDEND-INCOME> 1,086,249
<INTEREST-INCOME> 4,152,481
<OTHER-INCOME> 0
<EXPENSES-NET> (1,882,752)
<NET-INVESTMENT-INCOME> 3,355,978
<REALIZED-GAINS-CURRENT> 8,817,608
<APPREC-INCREASE-CURRENT> 27,750,781
<NET-CHANGE-FROM-OPS> 32,924,367
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,009,152)
<DISTRIBUTIONS-OF-GAINS> (25,904,015)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,773,095
<NUMBER-OF-SHARES-REDEEMED> (678,181)
<SHARES-REINVESTED> 2,286,477
<NET-CHANGE-IN-ASSETS> 90,966,525
<ACCUMULATED-NII-PRIOR> 5,009,152
<ACCUMULATED-GAINS-PRIOR> 25,890,743
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,784,702
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,882,752
<AVERAGE-NET-ASSETS> 447,401,352
<PER-SHARE-NAV-BEGIN> 13.81
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> 1.00
<PER-SHARE-DIVIDEND> (.16)
<PER-SHARE-DISTRIBUTIONS> (.84)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.89
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 13
<NAME> STRATEGIC BOND TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 156,191,742
<INVESTMENTS-AT-VALUE> 158,163,955
<RECEIVABLES> 29,932,780
<ASSETS-OTHER> 807
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 188,097,542
<PAYABLE-FOR-SECURITIES> 5,433,649
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,342,786
<TOTAL-LIABILITIES> 32,776,435
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 148,842,826
<SHARES-COMMON-STOCK> 14,105,687
<SHARES-COMMON-PRIOR> 10,898,515
<ACCUMULATED-NII-CURRENT> 6,300,895
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,807,244)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,984,630
<NET-ASSETS> 155,321,107
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,711,601
<OTHER-INCOME> 0
<EXPENSES-NET> 650,970
<NET-INVESTMENT-INCOME> 6,060,631
<REALIZED-GAINS-CURRENT> 1,414,296
<APPREC-INCREASE-CURRENT> 23,746
<NET-CHANGE-FROM-OPS> 7,498,673
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,621,746)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,295,435
<NUMBER-OF-SHARES-REDEEMED> 1,091,260
<SHARES-REINVESTED> 1,002,998
<NET-CHANGE-IN-ASSETS> 32,616,931
<ACCUMULATED-NII-PRIOR> 10,644,655
<ACCUMULATED-GAINS-PRIOR> (3,633,638)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 547,675
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 650,970
<AVERAGE-NET-ASSETS> 141,723,788
<PER-SHARE-NAV-BEGIN> 11.26
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> .30
<PER-SHARE-DIVIDEND> (.85)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.01
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 14
<NAME> INTERNATIONAL GROWTH AND INCOME TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 126,710,904
<INVESTMENTS-AT-VALUE> 129,952,515
<RECEIVABLES> 59,665,900
<ASSETS-OTHER> 715
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 189,619,130
<PAYABLE-FOR-SECURITIES> 3,103,430
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 45,418,050
<TOTAL-LIABILITIES> 48,521,480
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131,485,203
<SHARES-COMMON-STOCK> 12,753,935
<SHARES-COMMON-PRIOR> 8,462,125
<ACCUMULATED-NII-CURRENT> 1,137,788
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,863,545
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,611,114
<NET-ASSETS> 141,097,650
<DIVIDEND-INCOME> 1,535,382
<INTEREST-INCOME> 541,930
<OTHER-INCOME> 0
<EXPENSES-NET> 665,915
<NET-INVESTMENT-INCOME> 1,411,397
<REALIZED-GAINS-CURRENT> 4,507,347
<APPREC-INCREASE-CURRENT> 857,525
<NET-CHANGE-FROM-OPS> 6,776,269
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (203,407)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,019,136
<NUMBER-OF-SHARES-REDEEMED> 1,746,195
<SHARES-REINVESTED> 18,869
<NET-CHANGE-IN-ASSETS> 52,459,615
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (70,205)
<OVERDIST-NET-GAINS-PRIOR> (233,834)
<GROSS-ADVISORY-FEES> 557,492
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 665,915
<AVERAGE-NET-ASSETS> 117,689,113
<PER-SHARE-NAV-BEGIN> 10.47
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> .49
<PER-SHARE-DIVIDEND> (.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.06
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENT FOR THE PERIOD ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 15
<NAME> SMALL / MID CAP TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAR-04-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 85,525,212
<INVESTMENTS-AT-VALUE> 85,932,273
<RECEIVABLES> 473,702
<ASSETS-OTHER> 86
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 86,406,061
<PAYABLE-FOR-SECURITIES> 2,753,780
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,529
<TOTAL-LIABILITIES> 2,761,309
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,623,670
<SHARES-COMMON-STOCK> 6,370,197
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 33,073
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,419,052)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 407,061
<NET-ASSETS> 83,644,752
<DIVIDEND-INCOME> 23,784
<INTEREST-INCOME> 170,107
<OTHER-INCOME> 0
<EXPENSES-NET> 160,818
<NET-INVESTMENT-INCOME> 33,073
<REALIZED-GAINS-CURRENT> (1,419,052)
<APPREC-INCREASE-CURRENT> 407,061
<NET-CHANGE-FROM-OPS> (978,918)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,623,563
<NUMBER-OF-SHARES-REDEEMED> (253,366)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 83,644,752
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 138,143
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 160,818
<AVERAGE-NET-ASSETS> 42,371,567
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .62
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.13
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NASL
SERIES TRUST FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 16
<NAME> INTERNATIONAL SMALL CAP TRUST
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAR-04-1996
<PERIOD-END> JUN-04-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 49,320,262
<INVESTMENTS-AT-VALUE> 50,588,021
<RECEIVABLES> 323,080
<ASSETS-OTHER> 2,329
<OTHER-ITEMS-ASSETS> 1,071,213
<TOTAL-ASSETS> 51,984,643
<PAYABLE-FOR-SECURITIES> 4,888,659
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,941
<TOTAL-LIABILITIES> 4,896,600
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,740,733
<SHARES-COMMON-STOCK> 3,545,412
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 117,294
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (36,019)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,266,035
<NET-ASSETS> 47,088,043
<DIVIDEND-INCOME> 90,886
<INTEREST-INCOME> 125,426
<OTHER-INCOME> 0
<EXPENSES-NET> (99,018)
<NET-INVESTMENT-INCOME> 117,294
<REALIZED-GAINS-CURRENT> (36,019)
<APPREC-INCREASE-CURRENT> 1,266,035
<NET-CHANGE-FROM-OPS> 1,347,310
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,562,091
<NUMBER-OF-SHARES-REDEEMED> (16,679)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 47,088,043
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 75,732
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 99,018
<AVERAGE-NET-ASSETS> 21,116,934
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .75
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.28
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the NASL
Series Trust financial statements for the period ended November 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000756913
<NAME> NASL SERIES TRUST
<SERIES>
<NUMBER> 17
<NAME> GROWTH
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-15-1996
<PERIOD-END> NOV-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 48,028,906
<INVESTMENTS-AT-VALUE> 51,978,963
<RECEIVABLES> 246,261
<ASSETS-OTHER> 25
<OTHER-ITEMS-ASSETS> 691
<TOTAL-ASSETS> 52,225,940
<PAYABLE-FOR-SECURITIES> 142,841
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,240
<TOTAL-LIABILITIES> 192,081
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,467,361
<SHARES-COMMON-STOCK> 3,650,890
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 333,874
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (717,426)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,950,050
<NET-ASSETS> 52,033,859
<DIVIDEND-INCOME> 308,643
<INTEREST-INCOME> 123,214
<OTHER-INCOME> 0
<EXPENSES-NET> 97,983
<NET-INVESTMENT-INCOME> 333,874
<REALIZED-GAINS-CURRENT> (717,426)
<APPREC-INCREASE-CURRENT> 3,950,050
<NET-CHANGE-FROM-OPS> 3,566,498
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,797,013
<NUMBER-OF-SHARES-REDEEMED> 146,123
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 52,033,859
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 80,229
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 97,983
<AVERAGE-NET-ASSETS> 24,785,113
<PER-SHARE-NAV-BEGIN> 12.50
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 1.66
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.25
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MANULIFE
SERIES FUND SEMI-ANNUAL REPORT DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000724340
<NAME> MANULIFE SERIES FUND
<SERIES>
<NUMBER> 3
<NAME> CAPITAL GROWTH BOND
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 40,692,493
<INVESTMENTS-AT-VALUE> 40,621,944
<RECEIVABLES> 724,488
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,346,432
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,168
<TOTAL-LIABILITIES> 17,168
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,367,287
<SHARES-COMMON-STOCK> 3,744,236
<SHARES-COMMON-PRIOR> 3,779,382
<ACCUMULATED-NII-CURRENT> 1,294,996
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,262,470)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (70,549)
<NET-ASSETS> 41,329,264
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,398,946
<OTHER-INCOME> 0
<EXPENSES-NET> 105,547
<NET-INVESTMENT-INCOME> 1,293,399
<REALIZED-GAINS-CURRENT> (202,432)
<APPREC-INCREASE-CURRENT> (2,083,239)
<NET-CHANGE-FROM-OPS> (992,272)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 651,493
<NUMBER-OF-SHARES-REDEEMED> 686,639
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,364,522)
<ACCUMULATED-NII-PRIOR> 1,597
<ACCUMULATED-GAINS-PRIOR> (1,060,038)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 105,547
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 105,547
<AVERAGE-NET-ASSETS> 42,157,421
<PER-SHARE-NAV-BEGIN> 11.30
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> (.61)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.04
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MANULIFE
SERIES FUND SEMI-ANNUAL REPORT DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000724340
<NAME> MANULIFE SERIES FUND
<SERIES>
<NUMBER> 5
<NAME> COMMON STOCK
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 67,403,016
<INVESTMENTS-AT-VALUE> 76,128,531
<RECEIVABLES> 721,585
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,850,116
<PAYABLE-FOR-SECURITIES> 787,207
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 30,811
<TOTAL-LIABILITIES> 818,018
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,370,162
<SHARES-COMMON-STOCK> 4,059,539
<SHARES-COMMON-PRIOR> 3,532,074
<ACCUMULATED-NII-CURRENT> 1,463,845
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,472,576
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,725,515
<NET-ASSETS> 76,032,098
<DIVIDEND-INCOME> 650,953
<INTEREST-INCOME> 151,112
<OTHER-INCOME> 0
<EXPENSES-NET> 172,981
<NET-INVESTMENT-INCOME> 629,084
<REALIZED-GAINS-CURRENT> 4,965,989
<APPREC-INCREASE-CURRENT> 4,889
<NET-CHANGE-FROM-OPS> 5,599,962
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 743,819
<NUMBER-OF-SHARES-REDEEMED> 216,354
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15,036,170
<ACCUMULATED-NII-PRIOR> 834,761
<ACCUMULATED-GAINS-PRIOR> 1,506,587
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172,981
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 172,981
<AVERAGE-NET-ASSETS> 71,085,179
<PER-SHARE-NAV-BEGIN> 17.27
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 1.34
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.73
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MANULIFE
SERIES FUND SEMI-ANNUAL REPORT DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000724340
<NAME> MANULIFE SERIES FUND
<SERIES>
<NUMBER> 6
<NAME> REAL ESTATE FUND
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 54,187,059
<INVESTMENTS-AT-VALUE> 55,797,294
<RECEIVABLES> 2,541,726
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58,339,020
<PAYABLE-FOR-SECURITIES> 1,455,685
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,972
<TOTAL-LIABILITIES> 1,478,657
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,830,850
<SHARES-COMMON-STOCK> 3,550,678
<SHARES-COMMON-PRIOR> 3,472,861
<ACCUMULATED-NII-CURRENT> 3,697,651
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,721,627
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,610,235
<NET-ASSETS> 56,860,363
<DIVIDEND-INCOME> 1,374,851
<INTEREST-INCOME> 91,455
<OTHER-INCOME> 0
<EXPENSES-NET> 134,516
<NET-INVESTMENT-INCOME> 1,331,790
<REALIZED-GAINS-CURRENT> 1,881,741
<APPREC-INCREASE-CURRENT> 9,993
<NET-CHANGE-FROM-OPS> 3,223,524
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 320,217
<NUMBER-OF-SHARES-REDEEMED> 242,400
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,420,246
<ACCUMULATED-NII-PRIOR> 2,365,861
<ACCUMULATED-GAINS-PRIOR> 839,886
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 134,516
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 134,516
<AVERAGE-NET-ASSETS> 54,606,832
<PER-SHARE-NAV-BEGIN> 15.10
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> .55
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.01
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MANULIFE
SERIES FUND SEMI-ANNUAL REPORT DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000724340
<NAME> MANULIFE SERIES FUND
<SERIES>
<NUMBER> 8
<NAME> PACIFIC RIM EMERGING MARKETS
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 16,757,169
<INVESTMENTS-AT-VALUE> 17,814,408
<RECEIVABLES> 2,080,614
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 19,895,022
<PAYABLE-FOR-SECURITIES> 240,472
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,967
<TOTAL-LIABILITIES> 268,439
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,033,411
<SHARES-COMMON-STOCK> 1,770,794
<SHARES-COMMON-PRIOR> 1,260,885
<ACCUMULATED-NII-CURRENT> 105,491
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 431,405
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,056,276
<NET-ASSETS> 19,626,583
<DIVIDEND-INCOME> 148,867
<INTEREST-INCOME> 79,854
<OTHER-INCOME> 0
<EXPENSES-NET> 123,627
<NET-INVESTMENT-INCOME> 105,094
<REALIZED-GAINS-CURRENT> 420,900
<APPREC-INCREASE-CURRENT> 431,223
<NET-CHANGE-FROM-OPS> 957,217
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 633,886
<NUMBER-OF-SHARES-REDEEMED> 123,977
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,569,484
<ACCUMULATED-NII-PRIOR> 397
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 70,055
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 123,627
<AVERAGE-NET-ASSETS> 17,180,878
<PER-SHARE-NAV-BEGIN> 10.36
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .66
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.08
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MANULIFE
SERIES FUND SEMI-ANNUAL REPORT DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000724340
<NAME> MANULIFE SERIES FUND
<SERIES>
<NUMBER> 9
<NAME> EQUITY INDEX FUND
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> FEB-14-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 2,408,731
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<DIVIDEND-INCOME> 596
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000724340
<NAME> MANULIFE SERIES FUND
<SERIES>
<NUMBER> 03
<NAME> CAPITAL GROWTH BOND FUND
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000724340
<NAME> MANULIFE SERIES FUND
<SERIES>
<NUMBER> 05
<NAME> COMMON STOCK FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000724340
<NAME> MANULIFE SERIES FUND
<SERIES>
<NUMBER> 06
<NAME> REAL ESTATE FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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<NUMBER-OF-SHARES-SOLD> 815,153
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<GROSS-EXPENSE> 232,000
<AVERAGE-NET-ASSETS> 46,763,291
<PER-SHARE-NAV-BEGIN> 13.34
<PER-SHARE-NII> 0.67
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<PER-SHARE-DIVIDEND> (0.26)
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<PER-SHARE-NAV-END> 15.10
<EXPENSE-RATIO> 0.50
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000724340
<NAME> MANULIFE SERIES FUND
<SERIES>
<NUMBER> 08
<NAME> PACIFIC RIM EMERGING MARKETS FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
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<NUMBER-OF-SHARES-SOLD> 546,094
<NUMBER-OF-SHARES-REDEEMED> (114,449)
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<NET-CHANGE-IN-ASSETS> 5,399,882
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 169,000
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<PER-SHARE-NII> 0.12
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<PER-SHARE-DIVIDEND> (0.13)
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<PER-SHARE-NAV-END> 10.36
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
