<PAGE> 1
Registration No. 2-94157/811-4146
As filed with the Securities and Exchange Commission on October 27, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM N-1A
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 44
and
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 45
-------------------------
MANUFACTURERS INVESTMENT TRUST
(formerly NASL Series Trust)
(Exact Name of Registrant as Specified in Charter)
73 Tremont Street
Boston, Massachusetts 02108
(Address of Principal Executive Offices)
-------------------------
James D. Gallagher, Esq.
Secretary
Manufacturers Investment Trust
73 Tremont Street
Boston, Massachusetts 02108
(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
-------------------------
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
_X__ on October 31, 2000 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
PART A
Prospectus
<PAGE> 3
MANUFACTURERS INVESTMENT TRUST
73 Tremont Street, Boston, Massachusetts 02108
Manufacturers Investment Trust is an open-end management investment company,
commonly known as a mutual fund which is sold without a sales charge. 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. Manufacturers Investment Trust provides a range of
investment objectives through forty-eight separate investment portfolios. The
names of those portfolios are as follows:
PACIFIC RIM EMERGING MARKETS TRUST
INTERNET TECHNOLOGIES TRUST
SCIENCE & TECHNOLOGY TRUST
INTERNATIONAL SMALL CAP TRUST
AGGRESSIVE GROWTH TRUST
EMERGING SMALL COMPANY TRUST
SMALL COMPANY BLEND TRUST
DYNAMIC GROWTH TRUST
MID CAP STOCK TRUST
ALL CAP GROWTH TRUST
OVERSEAS TRUST
INTERNATIONAL STOCK TRUST
INTERNATIONAL VALUE TRUST
CAPITAL APPRECIATION TRUST
MID CAP BLEND TRUST
SMALL COMPANY VALUE TRUST
GLOBAL EQUITY TRUST
GROWTH TRUST
LARGE CAP GROWTH TRUST
QUANTITATIVE EQUITY TRUST
BLUE CHIP GROWTH TRUST
REAL ESTATE SECURITIES TRUST
VALUE TRUST
TACTICAL ALLOCATION TRUST
EQUITY INDEX TRUST
GROWTH & INCOME TRUST
U.S. LARGE CAP VALUE TRUST
EQUITY-INCOME TRUST
INCOME & VALUE TRUST
BALANCED TRUST
HIGH YIELD TRUST
STRATEGIC BOND TRUST
GLOBAL BOND TRUST
TOTAL RETURN TRUST
INVESTMENT QUALITY BOND TRUST
DIVERSIFIED BOND TRUST
U.S. GOVERNMENT SECURITIES TRUST
MONEY MARKET TRUST
SMALL CAP INDEX TRUST
INTERNATIONAL INDEX TRUST
MID CAP INDEX TRUST
TOTAL STOCK MARKET INDEX TRUST
500 INDEX TRUST
LIFESTYLE AGGRESSIVE 1000 TRUST
LIFESTYLE GROWTH 820 TRUST
LIFESTYLE BALANCED 640 TRUST
LIFESTYLE MODERATE 460 TRUST
LIFESTYLE CONSERVATIVE 280 TRUST
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO PERSON, INCLUDING ANY DEALER OR SALESPERSON, HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, UNLESS THE INFORMATION OR
REPRESENTATION IS SET FORTH IN THIS PROSPECTUS. IF ANY SUCH INFORMATION OR
REPRESENTATION IS GIVEN, IT SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY MANUFACTURERS INVESTMENT TRUST, THE ADVISER OR ANY SUBADVISERS TO THE TRUST
OR THE PRINCIPAL UNDERWRITER OF THE CONTRACTS. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SHARES OF THE TRUST IN ANY STATE WHERE SUCH OFFER OR SALE WOULD BE
PROHIBITED.
The date of this Prospectus is November 1, 2000.
<PAGE> 4
MANUFACTURERS INVESTMENT TRUST
TABLE OF CONTENTS
RISK/RETURN SUMMARY......................................................3
Risks of Investing in Each Portfolio..............................3
Performance Information for Each Portfolio........................3
Pacific Rim Emerging Markets Trust..........................4
Internet Technologies Trust.................................5
Science & Technology Trust..................................5
International Small Cap Trust...............................6
Aggressive Growth Trust.....................................7
Emerging Small Company Trust................................8
Small Company Blend Trust...................................9
Dynamic Growth Trust........................................10
Mid Cap Stock Trust.........................................10
All Cap Growth Trust........................................10
Overseas Trust..............................................12
International Stock Trust...................................13
International Value Trust...................................13
Capital Appreciation Trust..................................14
Mid Cap Blend Trust.........................................14
Small Company Value Trust...................................16
Global Equity Trust.........................................17
Growth Trust................................................18
Large Cap Growth Trust......................................18
Quantitative Equity Trust ..................................20
Blue Chip Growth Trust .....................................20
Real Estate Securities Trust................................21
Value Trust.................................................22
Tactical Allocation Trust...................................23
Equity Index Trust..........................................24
Growth & Income Trust.......................................25
U.S. Large Cap Value Trust..................................26
Equity-Income Trust ........................................26
Income & Value Trust........................................27
Balanced Trust..............................................28
High Yield Trust............................................29
Strategic Bond Trust........................................30
Global Bond Trust...........................................32
Total Return Trust..........................................33
Investment Quality Bond Trust...............................33
Diversified Bond Trust......................................34
U.S. Government Securities Trust............................35
Money Market Trust..........................................36
The Index Trusts............................................37
The Lifestyle Trusts........................................39
Risks of Investing in Certain Types of Securities.................44
INVESTMENT OBJECTIVES AND POLICIES.......................................46
Pacific Rim Emerging Markets Trust................................46
Internet Technologies Trust.......................................47
Science & Technology Trust........................................47
International Small Cap Trust.....................................48
Aggressive Growth Trust...........................................49
Emerging Small Company Trust......................................50
Small Company Blend Trust.........................................51
Dynamic Growth Trust..............................................51
Mid Cap Stock Trust...............................................52
All Cap Growth Trust..............................................52
Overseas Trust....................................................53
International Stock Trust.........................................53
<PAGE> 5
International Value Trust.........................................55
Capital Appreciation Trust........................................56
Mid Cap Blend Trust...............................................57
Small Company Value Trust.........................................58
Global Equity Trust...............................................58
Growth Trust......................................................59
Large Cap Growth Trust............................................59
Quantitative Equity Trust ........................................60
Blue Chip Growth Trust ...........................................61
Real Estate Securities Trust......................................62
Value Trust.......................................................62
Tactical Allocation Trust.........................................63
Equity Index Trust................................................64
Growth & Income Trust.............................................65
U.S. Large Cap Value Trust........................................66
Equity-Income Trust ..............................................66
Income & Value Trust..............................................67
Balanced Trust....................................................68
High Yield Trust..................................................69
Strategic Bond Trust..............................................70
Global Bond Trust.................................................72
Total Return Trust................................................73
Investment Quality Bond Trust.....................................74
Diversified Bond Trust............................................75
U.S. Government Securities Trust..................................75
Money Market Trust................................................76
The Index Trusts..................................................77
The Lifestyle Trusts..............................................80
ADDITIONAL INVESTMENT POLICIES AND TRANSACTIONS..........................82
Additional Investment Policies....................................82
Hedging and Other Strategic Transactions..........................83
Other Risks of Investing..........................................84
MANAGEMENT OF THE TRUST..................................................87
Advisory Arrangements.............................................87
Subadvisory Arrangements..........................................89
Portfolio Turnover................................................104
GENERAL INFORMATION......................................................104
Taxes.............................................................104
Dividends.........................................................105
Purchase and Redemption of Shares.................................105
Year 2000 Issues..................................................106
FINANCIAL HIGHLIGHTS.....................................................106
<PAGE> 6
RISK/RETURN SUMMARY
Manufacturers Investment Trust is a series trust, which means that it
has a number of portfolios, each with a stated investment objective and separate
investment policies. Currently, there are forty-eight such portfolios. The
investment objectives, principal investment strategies and principal risks of
investing in each portfolio are set forth below. In addition, performance
information for each portfolio is included with each portfolio description. An
investment in any of the portfolios is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
RISKS OF INVESTING IN EACH PORTFOLIO
The risks of investing in each portfolio are described below. If these
risks materialize, an investor could lose money in the portfolio. Since many of
the forty-eight portfolios described below have similar investment policies or
invest in similar types of securities, the risks of investing in the following
types of securities are described below at the end of the Risk/Return section
under "Risks of Investing in Certain Types of Securities."
- Non-Diversified Portfolios
- Equity Securities
- Fixed Income Securities
- Investment Grade Fixed Income Securities in the Lowest Rating
Category
- Lower Rated Fixed Income Securities
- Small and Medium Size Companies
- Foreign Securities
- Internet Related Investments
The definition of a non-diversified portfolio and the risks associated with such
a portfolio are also contained in this section.
There can be no assurance that a portfolio will achieve its investment
objective.
PERFORMANCE INFORMATION FOR EACH PORTFOLIO
Each portfolio description contains a bar chart and a performance
table.
Bar Chart. The bar chart provides some indication of the risk of
investing in each portfolio by showing changes in the performance of each
portfolio from year to year over a ten year period. Portfolios with less than
ten years of performance history show performance from the inception date of the
portfolio.
Performance Table. The table compares each portfolio's one, five and
ten year average annual returns as of December 31, 1999 to those of a broad
market index. If the period since inception of the portfolio is less than one
year, the performance will be aggregate total return rather than an average
annual total return.
Performance information in the Bar Chart and the Performance Table
reflect all fees charged to each portfolio such as advisory fees and all
portfolio expenses. None of the portfolios charge a sales load or a surrender
fee.
The bar chart and table shown below provide some indication of the
risks of investing in each portfolio of the Trust. During 1999, certain of the
Trust portfolios had very high rates of return (some exceeding 50% of more).
These returns were due, in part, to (1) the aggressive nature of these
portfolios, (2) extremely favorable market conditions during that year and (3)
in the case of certain funds, significant exposure to technology related
securities. A portfolio's past performance does not necessarily indicate how the
portfolio will perform in the future. Investors should not assume that these
funds future performance will be as favorable.
* * * * *
3
<PAGE> 7
PACIFIC RIM EMERGING MARKETS TRUST
Investment Objective
The investment objective of the Pacific Rim Emerging Markets Trust is
to achieve long-term growth of capital.
Investment Policies
Manufacturers Adviser Corporation ("MAC"), the subadviser to the
portfolio, seeks to achieve this investment objective by investing the
portfolio's assets primarily in common stocks and equity-related securities of
companies in countries located in the Pacific Rim region. The countries of the
Pacific Rim region are:
- Australia - Hong Kong - Pakistan - Taiwan
- China - Japan - Philippines - Thailand
- India - Malaysia - Singapore
- Indonesia - New Zealand - South Korea
The Pacific Rim Emerging Markets Trust, under normal conditions,
invests at least 65% of its net assets in common stocks and equity-related
securities of established, larger-capitalization non-U.S. companies located in
the Pacific Rim region that have attractive long-term prospects for growth of
capital.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities and the portfolio
may invest up to 100% of its assets in foreign securities including
securities of companies in emerging market countries. The risks of
investing in equity securities and foreign securities are set forth
below under "Risks of Investing in Certain Types of Securities."
- Since the portfolio concentrates its investments in the Pacific Rim
region, the portfolio will be affected by economic and political events
in this area.
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
[BAR GRAPH]
<TABLE>
<S> <C>
1995 11.3%
1996 9.8%
1997 -34.1%
1998 -4.6%
1999 62.9%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
24.41% (for the quarter ended 12/31/98) and the lowest return was -26.12% (for
the quarter ended 12/31/97).
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets Trust 62.87% 4.59% 3.30% 10/04/94
MSCI Pacific Index(B) 57.96% 2.70% 2.08%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) On December 31, 1996, Manulife Series Fund, Inc. merged with the Trust.
Performance presented for this portfolio is based upon the performance of
the respective predecessor Manulife Series Fund, Inc. portfolio for periods
prior to December 31, 1996.
(B) The return of the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for the index is only provided as of a month end.
4
<PAGE> 8
INTERNET TECHNOLOGIES TRUST
Investment Objective
The investment objective of the Internet Technologies Trust is to seek
long-term capital appreciation.
Investment Policies
Munder Capital Management ("Munder"), the subadviser to the portfolio,
seeks to achieve this objective by investing primarily in companies engaged in
Internet-related business (such businesses also include Intranet-related
businesses).
Under normal market conditions, the Internet Technologies Trust will
invest at least 65% of its total assets in equity securities of companies that
are:
(a) engaged in the research, design, development, manufacturing of
products, processes or services for use with the Internet related
businesses, or
(b) engaged to a significant extent in the business of distributing
products, processes or services for use with the Internet related
businesses.
There is no limit on the market capitalization of the companies the
portfolio may invest in, or in the length of operating history for the
companies. The portfolio may invest without limit in initial public offerings.
The portfolio may also invest up to 25% of its assets in foreign securities.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in internet related companies. The risks of
investing in these companies is set forth below under "Risks of Investing
in Certain Types of Securities."
- The portfolio invests primarily in equity securities including those of
small companies. The risks of investing in equity securities and small
companies are set forth below under "Risks of Investing in Certain Types of
Securities." Many internet companies are start-up companies and, therefore,
the risks associated with investing in small companies are heightened for
these companies.
- The portfolio is subject to "industry risk" since it will invest primarily
in companies engaged in Internet and Intranet related activities. Industry
risk is the possibility that a group of related stocks will decline in
price due to industry-specific developments. Companies in the same or
similar industries may share common characteristics and are more likely to
react similarly to industry-specific market or economic developments.
Therefore, the portfolio's performance may be more volatile than that of a
portfolio that does not concentrate in a particular sector.
- The portfolio may invest in foreign securities. The risks of investing in
foreign securities are set forth below under "Risks of Investing in Certain
Types of Securities."
- Due to the portfolio's emphasis on Internet related investments, an
investment in the portfolio should be considered extremely risky even as
compared to other portfolios that investment primarily in small cap
securities. Investing in the portfolio alone cannot provide a balanced
investment program.
Performance
Performance is not provided for the Internet Technologies Trust since
it commenced operations in May 2000.
SCIENCE & TECHNOLOGY TRUST
Investment Objective
The investment objective of the Science & Technology Trust is long-term
growth of capital. Current income is incidental to the portfolio's objective.
Investment Policies
T. Rowe Price Associates, Inc. ("T. Rowe Price"), the subadviser to the
portfolio, seeks to achieve this objective by investing at least 65% of the
portfolio's total assets in the common stocks of companies expected to benefit
from the development, advancement, and use of science and technology.
Principal Risks of Investing in this Portfolio
- The products and services of companies in the science and technology
sectors may not prove commercially successful or may become obsolete
quickly. Therefore, a portfolio of these securities may be riskier or more
volatile in price than one that invests in more market sectors.
- The portfolio invests extensively in internet related companies. The risks
of investing in these companies is set forth below under "Risks of
Investing in Certain Types of Securities."
- The portfolio invests primarily in equity securities, including securities
of small or unseasoned companies (less than 3 years operating experience).
The risks of investing in equity securities and small or unseasoned
companies are set forth below under "Risks of Investing in Certain Types of
Securities."
5
<PAGE> 9
- The portfolio may invest up to 30% of its assets in foreign securities
which increases the risk of investing in the portfolio as described below
under "Risk of Investing in Certain Types of Securities."
- Due to the portfolio's emphasis on science and technology sectors,
including Internet related investments, an investment in the portfolio
should be considered extremely risky even as compared to other portfolios
that investment primarily in small cap securities. Investing in the
portfolio alone cannot provide a balanced investment program.
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
[BAR GRAPH]
<TABLE>
<S> <C>
1997 10.7%
1998 43.3%
1999 99.5%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
47.10% (for the quarter ended 12/31/98) and the lowest return was -16.91% (for
the quarter ended 09/30/98).
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Science & Technology Trust 99.49% N/A 46.88% 1/01/97
Lipper Science & Tech Index(A) 113.90% N/A 50.21%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for the index is only provided as of a month end.
INTERNATIONAL SMALL CAP TRUST
Investment Objective
The investment objective of the International Small Cap Trust is to
seek long-term capital appreciation.
Investment Policies
Founders Asset Management LLC ("Founders"), the subadviser to the
portfolio, seeks to achieve this objective by investing the portfolio's assets
primarily in the common stocks of foreign companies which have a market value or
annual revenues of $1 billion or less. These foreign companies may be located in
both developed and lesser developed countries. The International Small Cap Trust
may also invest in fixed income securities if Founders believes they may
increase in value.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in foreign equity securities, especially
securities of small companies. The risks of investing in foreign
securities, equity securities and small companies are set forth below under
"Risks of Investing in Certain Types of Securities."
- Because the portfolio invests primarily in foreign securities, which are
generally riskier investments than U.S. securities, investing in this
portfolio is riskier than investing in a portfolio that invests primarily
in U.S. small companies.
6
<PAGE> 10
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
[BAR GRAPH]
<TABLE>
<S> <C>
1997 0.8%
1998 11.9%
1999 84.9%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
58.65% (for the quarter ended 12/31/99) and the lowest return was -18.90% (for
the quarter ended 09/30/98).
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
International Small Cap Trust 84.92% N/A 23.98% 3/04/96
MSCI World ex US Index(A) 28.27% N/A 14.21%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The return of the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for the index is only provided as of a month end.
AGGRESSIVE GROWTH TRUST
Investment Objective
The investment objective of the Aggressive Growth Trust is to seek
long-term capital appreciation.
Investment Policies
A I M Capital Management, Inc. ("AIM"), the subadviser to the
portfolio, seeks to achieve this investment objective by investing the
portfolio's assets principally in common stocks, convertible bonds, convertible
preferred stocks and warrants of companies which in the opinion of AIM are
expected to achieve earnings growth over time at a rate in excess of 15% per
year. Many of these companies are in the small and medium-sized category. The
Aggressive Growth Trust's strategy does not preclude investment in large,
seasoned companies which in the judgment of AIM possess superior potential
returns similar to companies with formative growth profiles. The portfolio may
also invest in established smaller companies (under $500 million in market
capitalization) which offer exceptional value based upon substantially above
average earnings growth potential relative to market value. The portfolio may
invest up to 25% of its total assets in foreign securities.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities with emphasis on
medium-sized and smaller emerging growth companies. The risks of investing
in equity securities and small and medium sized companies are set forth
below under "Risks of Investing in Certain Types of Securities."
- The portfolio may invest up to 25% of its assets in foreign securities. The
risks of investing in foreign securities are set forth below under "Risks
of Investing in Certain Types of Securities." Since the portfolio will only
invest at most 25% of its assets in foreign securities, the risks
associated with foreign securities will not affect the portfolio as much as
a portfolio that invests more of its assets in foreign securities.
- The portfolio may invest in internet related companies. The risks of
investing in these companies is set forth below under "Risks of Investing
in Certain Types of Securities."
7
<PAGE> 11
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1997 0.0%
1998 4.3%
1999 33.0%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
32.25% (for the quarter ended 12/31/98) and the lowest return was -24.73% (for
the quarter ended 09/30/98).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Aggressive Growth Trust 32.98% N/A 11.54% 1/01/97
Russell 2000 Growth Index(B) 43.09% N/A 17.83%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective May 1, 1999, the portfolio changed its subadviser and its
investment objective. Performance reflects results prior to these changes.
(B) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for the index is only provided as of a month end.
EMERGING SMALL COMPANY TRUST
Investment Objective
The investment objective of the Emerging Small Company Trust is to seek
long-term growth of capital.
Investment Policies
Franklin Advisers, Inc. ("Franklin"), the subadviser to the portfolio,
seeks to achieve the portfolio's investment objective by investing, under normal
market conditions, at least 65% of the portfolio's total assets in common stock
equity securities of companies with market capitalizations that approximately
match the range of capitalizations of the Russell 2000 Index ("small cap
stocks") at the time of purchase. Equity securities also include preferred
stocks, securities convertible into common stocks, and warrants for the purchase
of common stocks.
The portfolio may also invest up to 35% (measured at the time of
purchase) of its assets in larger capitalization companies which Franklin
believes have strong growth potential. The portfolio may invest up to 25% of its
total assets in foreign securities, although the portfolio currently intends to
limit its investments in foreign securities to 10% of its total assets. The
portfolio may also invest up to 10% of its total assets in real estate
investment trusts ("REITS").
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in small cap equity securities. The risks
of investing in equity securities and the risks of investing in small cap
(small and medium size companies) securities are set forth below under
"Risks of Investing in Certain Types of Securities."
- The portfolio may invest in internet related companies. The risks of
investing in these companies is set forth below under "Risks of Investing
in Certain Types of Securities."
8
<PAGE> 12
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1997 17.1%
1998 0.1%
1999 73.5%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
59.08% (for the quarter ended 12/31/99) and the lowest return was -21.09% (for
the quarter ended 09/30/98).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Emerging Small Company Trust 73.53% N/A 26.71% 1/1/97
Russell 2000 Growth Index(B) 43.09% N/A 17.83%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective May 1, 1999, the portfolio changed its subadviser and its
investment objective. Performance reflects results prior to these changes.
(B) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for the index is only provided as of a month end.
SMALL COMPANY BLEND TRUST
Investment Objective
The investment objective of the Small Company Blend is to seek
long-term growth of capital and income. Generation of current dividends will be
a secondary consideration.
Investment Policies
Capital Guardian Trust Company ("CGTC"), the subadviser to the
portfolio, seeks to achieve this investment objective by investing the
portfolio's assets, under normal market conditions, primarily in equity and
equity-related securities of companies with market capitalizations that
approximately match the range of capitalization of the Russell 2000 Index
("small cap stocks") at the time of purchase. In determining market
capitalization, CGTC may consider the value of shares which are publicly traded.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities, especially securities
of small or unseasoned companies (less than 3 years operating experience).
The risks of investing in equity securities and small or unseasoned
companies are set forth below under "Risks of Investing in Certain Types of
Securities."
Performance
Performance is not provided for the Small Company Blend Trust since it
commenced operations in May 1999.
9
<PAGE> 13
DYNAMIC GROWTH TRUST
Investment Objective
The investment objective of the Dynamic Growth Trust is to seek
long-term growth of capital.
Investment Policies
Janus Capital Corporation ("Janus"), the subadviser to the portfolio,
seeks to achieve this investment objective by investing primarily in equity
securities selected for their growth potential with normally at least 50% of its
equity assets in medium-sized companies. Medium-sized companies are those whose
market capitalization falls within the range of companies in the S&P Mid Cap-400
Index. Market capitalization is a commonly used measure of the size and value of
a company. The market capitalizations within the S&P Mid Cap-400 Index will
vary, but as of December 31, 1999, they ranged from approximately $170 million
to $37 billion.
The Dynamic Growth Trust may invest in foreign securities. There are no
limitations on the countries in which the Dynamic Growth Trust may invest and
the portfolio may, at times, have significant foreign exposure.
The Dynamic Growth Trust may also invest to a lesser degree in (a) debt
securities, (b) indexed/structured securities and (c) high yield/high risk bonds
(not to exceed 35% of the portfolio's assets).
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities including those of
small companies. The risks of investing in equity securities and small
companies are set forth below under "Risks of Investing in Certain Types of
Securities."
- The portfolio may invest in foreign securities. The risks of investing in
foreign securities are set forth below under "Risks of Investing in Certain
Types of Securities."
- The portfolio is non-diversified. The definition of a non-diversified
portfolio and the risks associated with such a portfolio are set forth
below under "Risk of Investing in Certain Types of Securities."
- The portfolio may invest in internet related companies. The risks of
investing in these companies is set forth below under "Risks of Investing
in Certain Types of Securities."
Performance
Performance is not provided for the Dynamic Growth Trust since it commenced
operations in May 2000.
MID CAP STOCK TRUST
Investment Objective
The investment objective of the Mid Cap Stock Trust is to seek
long-term growth of capital.
Investment Policies
Wellington Management Company, LLP ("Wellington Management"), the
subadviser to the portfolio, seeks to achieve the Trust's objective by investing
the portfolio's assets primarily in equity securities with significant capital
appreciation potential, with emphasis on medium-sized companies.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities. The risks of
investing in equity securities are set forth below under "Risks of
Investing in Certain Types of Securities."
- To the extent that the portfolio emphasizes a mid-capitalization growth
style, the portfolio may underperform in markets that favor other styles.
Performance
Performance is not provided for the Mid Cap Stock Trust since it commenced
operations in May 1999.
ALL CAP GROWTH TRUST
Investment Objective
The investment objective of the All Cap Growth Trust (formerly, Mid Cap
Growth Trust) is to seek long-term capital appreciation.
Investment Policies
A I M Capital Management, Inc. ("AIM"), the subadviser to the
portfolio, seeks to achieve this investment objective by investing the
portfolio's assets, under normal market conditions, principally in common stocks
of companies that are likely to benefit from new or innovative products,
services or processes as well as those that have experienced above-average,
10
<PAGE> 14
long-term growth in earnings and have excellent prospects for future growth. Any
income received from securities held by the portfolio will be incidental.
The All Cap Growth Trust's portfolio is primarily comprised of
securities of two basic categories of companies:
- "core" companies, which AIM considers to have experienced
above-average and consistent long-term growth in earnings and to
have excellent prospects for outstanding future growth, and
- "earnings acceleration" companies which AIM believes are
currently enjoying a dramatic increase in profits.
The portfolio may also purchase the common stocks of foreign companies.
It is not anticipated, however, that foreign securities will constitute more
than 20% of the value of the portfolio.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities. The risks of
investing in equity securities are set forth below under "Risks of
Investing in Certain Types of Securities."
- The portfolio may invest up to 20% of its assets in foreign securities. The
risks of investing in foreign securities are set forth below under "Risks
of Investing in Certain Types of Securities." Since the portfolio will only
invest at most 20% of its assets in foreign securities, the risks
associated with foreign securities will not affect the portfolio as much as
a portfolio that invests more of its assets in foreign securities.
- The portfolio may invest in internet related companies. The risks of
investing in these companies is set forth below under "Risks of Investing
in Certain Types of Securities."
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1997 15.3%
1998 28.3%
1999 44.7%
</TABLE>
During the time period shown in the bar chart, the highest quarterly
return was 36.09% (for the quarter ended 12/31/99) and the lowest return was
-16.12% (for the quarter ended 09/30/98).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
All Cap Growth Trust (formerly, Mid Cap Growth Trust) 44.69% N/A 24.15% 3/4/96
Russell Mid Cap Growth Index(B)(D) 51.29% N/A 26.07%
Russell 2000 Growth Index(D) 43.09% N/A 15.81%
S&P Mid Cap-400 Index(D) 14.72% N/A 20.65%
50%/50% Composite Index(C)(D) 28.53% N/A 18.45%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective May 1, 1999, the portfolio changed its subadviser and its
investment objective. Performance reflects results prior to these changes.
(B) For the prior fiscal year, the broad based index was the Russell 2000
Growth Index. For the current fiscal year, the Russell Mid Cap Growth Index
is the broad based index. The change to the Russell Mid Cap Growth Index
was made since the index more accurately reflects the investment objective
of the Mid Cap Growth Trust.
(C) Comprised of 50% of the return of the S&P Mid Cap-400 Index and 50% of the
return of the Russell Growth Index. Index was prepared by the adviser using
Ibbotson Associates Software and Data.
(D) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
11
<PAGE> 15
OVERSEAS TRUST
Investment Objective
The investment objective of the Overseas Trust is to seek growth of
capital.
Investment Policies
Fidelity Management Trust Company ("FMTC"), the subadviser to the
portfolio, normally invests at least 65% of the portfolio's total assets in
foreign securities (including American Depositary Receipts (ADRs) and European
Depositary Receipts (EDRs)). The portfolio may also invest in U.S. issuers. FMTC
normally invests the portfolio's assets primarily in common stocks. FMTC
normally allocates investments across countries and regions considering the size
of the market in each country and region relative to the size of the
international market as a whole. FMTC uses fundamental analysis of each issuer's
financial condition and industry position and market and economic conditions to
select investments.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in foreign equity securities. The risks of
investing in equity securities and in foreign securities are set forth
below under "Risks of Investing in Certain Types of Securities."
- The portfolio may also invest up to 35% of its assets in non-investment
grade debt securities. The risks of investing in these types of securities
are set forth below under "Risks of Investing in Certain Types of
Securities."
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1995 7.0%
1996 12.6%
1997 -0.1%
1998 8.0%
1999 40.5%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
25.75% (for the quarter ended 12/31/99) and the lowest return was -20.76% (for
the quarter ended 09/30/98).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Overseas Trust 40.51% N/A 12.87% 1/09/95
MSCI EAFE Index(B)(C) 27.30% N/A 13.15%
MSCI All Country World ex-US Index(C) 29.77% N/A 12.19%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective May 1, 1999, the portfolio changed its subadviser and its
investment objective. Performance reflects results prior to these changes.
(B) For the prior fiscal year, the broad based index was the MSCI All Country
World ex-US Index. For the current fiscal year, the MSCI EAFE Index is the
broad based index. The change to the MSCI EAFE Index was made since this
index more accurately reflects the investment objective of the Overseas
Trust.
(C) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
12
<PAGE> 16
INTERNATIONAL STOCK TRUST
Investment Objective
The investment objective of the International Stock Trust is long-term
growth of capital.
Investment Policies
T. Rowe Price International, Inc. ("T. Rowe International"), the
subadviser to the portfolio, seeks to attain this objective by investing the
portfolio's assets primarily in common stocks of established, non-U.S.
companies. The portfolio may also invest up to 35% of its assets in fixed income
securities and equity-related securities such as preferred stocks, warrants and
convertible securities. T. Rowe International expects geographic diversification
will be wide, including both developed and emerging markets.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in foreign equity securities including
securities of companies in emerging markets. This and other risks of
investing in foreign securities and equity securities are set forth below
under "Risks of Investing in Certain Types of Securities." Because the
portfolio may invest in foreign securities in emerging markets, an
investment in the portfolio will be riskier than a portfolio that only
invests in developed foreign countries.
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1997 1.4%
1998 14.9%
1999 29.7%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
23.58% (for the quarter ended 12/31/99) and the lowest return was -13.59% (for
the quarter ended 09/30/98).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
International Stock Trust 29.71% N/A 14.76% 1/01/97
MSCI EAFE Index(A) 27.30% N/A 16.06%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for the index is only provided as of a month end.
INTERNATIONAL VALUE TRUST
Investment Objective
The investment objective of the International Value Trust is to seek
long-term growth of capital.
Investment Policies
Templeton Investment Counsel, Inc. ("Templeton"), the subadviser to the
portfolio, seeks to achieve this investment objective by investing, under normal
market conditions, primarily in equity securities of companies located outside
the U.S., including in emerging markets.
Equity securities generally entitle the holder to participate in a
company's general operating results. These include common stocks and preferred
stocks. The portfolio also invests in American, European and Global Depositary
Receipts, which are certificates typically issued by a bank or trust company
that give their holders the right to receive securities issued
13
<PAGE> 17
by a foreign or domestic company. Depending upon current market conditions, the
portfolio generally invests up to 25% of its total assets in debt securities of
companies and governments located anywhere in the world. Debt securities
represent an obligation of the issuer to repay a loan of money to it, and
generally provide for the payment of interest. Debt securities include bonds,
notes and debentures.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in foreign equity securities. The risks of
investing in equity securities and in foreign securities are set forth
below under "Risks of Investing in Certain Types of Securities."
- The portfolio may invest up to 25% of its assets in debt (fixed income)
securities including foreign debt securities. The risks of investing in
fixed income securities and in foreign securities is set forth below under
"Risks of Investing in Certain Types of Securities." Because the portfolio
has a 25% limit on debt securities, these risks will not affect the
portfolio to the same degree as the risks of foreign equity securities.
Performance
Performance is not provided for the International Value Trust since it
commenced operations in May 1999.
CAPITAL APPRECIATION TRUST
Investment Objective
The principal investment objective of the Capital Appreciation Trust is
long term growth of capital.
Investment Policies
Jennison Associates LLC ("Jennison"), the subadviser to the Capital
Appreciation Trust seeks to attain this objective by investing at least 65% of
the portfolio's total assets in equity-related securities of companies that
exceed $1 billion in market capitalization and that Jennison believes have
above-average growth prospects. These companies are generally medium- to
large-capitalization companies. Jennison follows a highly disciplined investment
selection and management process of identifying companies that show superior
absolute and relative earnings growth and also are attractively valued.
The Capital Appreciation Trust may invest up to 35% of its total assets
in equity-related securities of companies that are undergoing changes in
management or product or changes in marketing dynamics that have not yet been
reflected in reported earnings (but are expected to affect earnings in the
intermediate term.) These securities often are not widely known and favorably
valued.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities. The risks of
investing in equity securities are set forth below under "Risks of
Investing in Certain Types of Securities."
Performance
Performance is not provided for the Capital Appreciation Trust since it
commenced operations in November 2000.
MID CAP BLEND TRUST
Investment Objective
The principal investment objective of the Mid Cap Blend Trust is growth
of capital. Although current income is a secondary objective, growth of income
may accompany growth of capital.
Investment Policies
Fidelity Management Trust Company ("FMTC"), the subadviser to the
portfolio, seeks to attain this objective by investing the portfolio's assets
primarily in common stocks of U.S. issuers or securities convertible into or
which carry the right to buy common stocks. The portfolio may also invest in
non-convertible preferred stocks and fixed income securities. Normally, the
portfolio will not invest more than 15% of its assets in these securities.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities. The risks of
investing in equity securities are set forth below under "Risks of
Investing in Certain Types of Securities."
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
14
<PAGE> 18
<TABLE>
<S> <C>
1990 -11.8%
1991 17.9%
1992 7.9%
1993 16.3%
1994 -0.5%
1995 42.8%
1996 20.1%
1997 19.3%
1998 9.4%
1999 27.8%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
19.51% (for the quarter ended 12/31/98) and the lowest return was -18.05% (for
the quarter ended 9/30/98).
15
<PAGE> 19
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Mid Cap Blend Trust 27.75% 23.38% 14.02% 6/18/85
Russell Mid Cap Index 18.23% 21.86% 15.92%
S&P 500 Index 21.04% 28.55% 18.20%
Blended Index(B) 18.23% 24.91% 16.51%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective December 13, 1991, the portfolio changed its subadviser.
Performance reflects results prior to this change.
(B) Prior to July 1997, Blended Index reflects the performance of the S&P
500. On and after July 1997, Blended Index reflects return of the
Russell Mid Cap Index. Blended Index reflects change from S&P 500 Index
to the Russell Mid Cap Index as primary benchmark, effective July 1997.
This change was made to more accurately reflect the investment style of
the portfolio which changed July 1997. Index was prepared by the
adviser using Ibbotson Associates Software and Data.
SMALL COMPANY VALUE TRUST
Investment Objective
The investment objective of the Small Company Value Trust is to seek
long-term growth of capital.
Investment Policies
AXA Rosenberg Investment Management LLC ("AXA Rosenberg"), the
subadviser to the portfolio, seeks to obtain this objective by investing, under
normal market conditions, at least 65% of the portfolio's assets in equity
securities of companies with total market capitalization that approximately
match the range of capitalization of the Russell 2000 Index and are traded
principally in the markets of the United States. AXA Rosenberg utilizes several
computer models to assist in the stock selection process.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities, especially
securities of small or unseasoned companies (less than 3 years
operating experience). The risks of investing in equity securities and
small or unseasoned companies are set forth below under "Risks of
Investing in Certain Types of Securities."
- The computer models used in the stock selection process may not
identify securities of companies that have long-term growth.
- The portfolio may invest up to 100% of its assets in U.S. dollar
denominated foreign common stocks. The risks of investing in foreign
securities are set forth below under "Risks of Investing in Certain
Types of Securities." Since the portfolio only invests in U.S. dollar
denominated securities, it will not be subject to the risks of
maintaining assets in a foreign country described in this section.
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1998 -4.7%
1999 8.0%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
11.80% (for the quarter ended 12/31/98) and the lowest return was -18.31% (for
the quarter ended 09/30/98).
16
<PAGE> 20
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Small Company Value Trust 8.00% N/A -0.77% 10/01/97
Russell 2000 Value Index(A)(B) -1.49% N/A -2.85%
Russell 2000 Index(B) 21.26% N/A 6.08%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) For the prior fiscal year, the broad based index was the Russell 2000
Index. For the current fiscal year, the Russell 2000 Value Index is the
broad based index. The change to the Russell 2000 Value Index was made
since this index more accurately reflects the investment objective of the
Small Company Value Trust.
(B) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
GLOBAL EQUITY TRUST
Investment Objective
The investment objective of the Global Equity Trust is long-term
capital appreciation.
Investment Policies
Morgan Stanley Asset Management Inc. ("MSAM"), the subadviser to the
portfolio, seeks to achieve this objective by investing the portfolio's assets
primarily in equity securities of issuers throughout the world, including U.S.
issuers and emerging markets.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in foreign equity securities including
securities of companies in emerging markets. Because the portfolio may
invest in foreign securities in emerging markets, an investment in the
portfolio will be riskier than an investment in a portfolio that only
invests in developed foreign countries. The risks of investing in foreign
securities and equity securities are set forth below under "Risks of
Investing in Certain Types of Securities."
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1990 -10.4%
1991 12.8%
1992 -0.7%
1993 32.9%
1994 1.7%
1995 7.7%
1996 12.6%
1997 20.8%
1998 12.2%
1999 3.7%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
16.79% (for the quarter ended 12/31/98) and the lowest return was -16.38% (for
the quarter ended 09/30/90).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Global Equity Trust 3.66% 11.25% 8.74% 3/18/88
MSCI World Index 25.34% 20.25% 11.96%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective October 1, 1996, the portfolio changed its subadviser.
Performance reflects results prior to this change.
17
<PAGE> 21
GROWTH TRUST
Investment Objective
The investment objective of the Growth Trust is to seek long-term
growth of capital.
Investment Policies
State Street Global Advisors ("SSgA"), the subadviser to the portfolio,
seeks to achieve this investment objective by investing primarily in large
capitalization growth securities (market capitalizations of approximately $1
billion or greater). In selecting securities for the portfolio, SSgA uses
independent investment perspectives, such as value and growth, to identify
securities that are undervalued and have superior growth potential. The
portfolio is constructed to take advantage of those securities with the greatest
investment potential while seeking to minimize risk by maintaining portfolio
characteristics similar to the large capitalization growth segment of the U.S.
equity market, as measured by the Russell 1000 Growth Index.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities. The risks of
investing in equity securities are set forth below under "Risks of
Investing in Certain Types of Securities."
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1997 25.4%
1998 24.0%
1999 37.2%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
23.59% (for the quarter ended 12/31/99) and the lowest return was -12.49% (for
the quarter ended 09/30/98).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Growth Trust 37.20% N/A 28.08% 7/15/96
Russell 1000 Growth Index(B) 33.16% N/A 32.07%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective May 1, 1999, the portfolio changed its subadviser and its
investment objective. Performance reflects results prior to these changes.
(B) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
LARGE CAP GROWTH TRUST
Investment Objective
The investment objective of the Large Cap Growth Trust is to seek
long-term growth of capital.
Investment Policies
Fidelity Management Trust Company ("FMTC"), the subadviser to the
portfolio, normally invests the portfolio's assets primarily in common stocks.
FMTC normally invests at least 65% of the portfolio's total assets in securities
of companies with large market capitalizations. FMTC defines large market
capitalization companies as those with market capitalizations of $1 billion or
more at the time of the portfolio's investment. FMTC may invest the portfolio's
assets in securities of foreign issuers in addition to securities of domestic
issuers. FMTC is not constrained by any particular investment style. At any
given time, FMTC may tend to buy "growth" stocks or "value" stocks, or a
combination of both
18
<PAGE> 22
types. FMTC uses fundamental analysis of each issuer's financial condition and
industry position and market and economic conditions to select investments.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities. The risks of investing
in equity securities are set forth below under "Risks of Investing in
Certain Types of Securities."
- The portfolio may invest in foreign securities. The risks of investing in
foreign securities are set forth below under "Risks of Investing in Certain
Types of Securities."
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1990 -7.3%
1991 23.0%
1992 8.2%
1993 10.3%
1994 -0.7%
1995 22.8%
1996 13.0%
1997 19.1%
1998 19.1%
1999 25.3%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
20.83% (for the quarter ended 12/31/99) and the lowest return was -13.23% (for
the quarter ended 09/30/90).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Large Cap Growth Trust 25.28% 19.78% 12.79% 8/03/89
Russell 1000 Growth Index(B) 33.16% 32.41% 20.32%
Wilshire 5000 Index 23.56% 27.07% 17.59%
Lehman Brothers Aggregate Bond Index -0.83% 7.73% 7.69%
MSCI EAFE Index 27.30% 13.15% 7.33%
Customized Benchmark(C) 16.95% 17.94% 12.60%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective May 1, 1999, the portfolio changed its investment objective.
Performance reflects results prior to these changes.
(B) For the prior fiscal year, the broad based index was the Wilshire 5000
Index. For the current fiscal year, the Russell 1000 Growth Index is the
broad based index. The change to the Russell 1000 Growth Index was made
since this index more accurately reflects the investment objective of Large
Cap Growth Trust.
(C) Customized Benchmark is comprised of 47.5% of the return of the Wilshire
5000, 20% of the MSCI EAFE Index, 15% of the return of the Lehman Brothers
Aggregate Bond Index, 10% of the return of the 90 Day T-Bill, and 7.5% of
the return of the Merrill Lynch High Yield Index. Customized Benchmark was
prepared by the adviser using Ibbotson Associates Software and Data.
19
<PAGE> 23
QUANTITATIVE EQUITY TRUST
Investment Objective
The investment objective of the Quantitative Equity Trust is
intermediate- and long-term growth through capital appreciation and current
income by investing the portfolio's assets in common stocks and other equity
securities of well established companies with promising prospects for providing
an above average rate of return.
Investment Policies
Manufacturers Adviser Corporation ("MAC"), the subadviser to the
portfolio, seeks to achieve this objective by investing principally in common
stocks or in securities convertible into common stock or carrying rights or
warrants to purchase common stocks or to participate in earnings.
Principal Risks of Investing in this Portfolio
- MAC is assisted by computer models in determining a company's potential to
provide an above average rate of return. If the computer model is not
correct, the securities of the company purchased by the portfolio may not
increase in value and could even decrease in value.
- The portfolio invests primarily in equity securities. The risks of investing
in equity securities are set forth below under "Risks of Investing in
Certain Types of Securities."
- The portfolio may invest up to 100% of its assets in U.S. dollar denominated
foreign securities. The risks of investing in foreign securities are set
forth below under "Risks of Investing in Certain Types of Securities." Since
the portfolio only invests in U.S. dollar denominated securities, it will
not be subject to the risks of maintaining assets in a foreign country
described in this section.
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1990 -4.1%
1991 30.2%
1992 6.1%
1993 13.4%
1994 -4.2%
1995 29.2%
1996 17.9%
1997 29.8%
1998 26.4%
1999 22.3%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
24.79% (for the quarter ended 12/31/98) and the lowest return was -11.71% (for
the quarter ended 9/30/98).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Quantitative Equity Trust 22.30% 25.05% 15.97% 4/30/87
S&P 500 Index 21.04% 28.55% 18.20%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) On December 31, 1996, Manulife Series Fund, Inc. merged with the Trust.
Performance presented for this portfolio is based upon the performance of
the respective predecessor Manulife Series Fund, Inc. portfolio for periods
prior to December 31, 1996.
BLUE CHIP GROWTH TRUST
Investment Objective
The primary investment objective of the Blue Chip Growth Trust is to
provide long-term growth of capital. Current income is a secondary objective.
Investment Policies
T. Rowe Price Associates, Inc. ("T. Rowe Price"), the subadviser to the
portfolio, seeks to achieve this objective by investing at least 65% of the
portfolio's total assets in the common stocks of large and medium-sized blue
chip companies as
20
<PAGE> 24
defined by T. Rowe Price. These are firms that in T. Rowe Price's view, are
well-established in their industries and have the potential for above-average
earnings growth. T. Rowe Price considers blue chip companies to include
companies which have (i) a leading market position, (ii) a seasoned management
team and (iii) strong financial fundamentals. Most of the portfolio's assets
will be invested in U.S. common stocks. However, the portfolio may also purchase
other types of securities such as foreign securities, convertible stocks and
bonds and warrants if consistent with the portfolio's investment objective.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities and to a limited extent
in fixed income securities. The risks of investing in equity securities and
fixed income securities are set forth below under "Risks of Investing in
Certain Types of Securities." Since the portfolio will only invest a limited
extent in fixed income securities, the risks associated with fixed income
securities will not affect the portfolio as much as a portfolio that invests
more of its assets in fixed income securities.
- During periods when growth stocks are not in favor with other investors, the
portfolio may not perform as well as a portfolio that invests in value
stocks that can cushion share prices in a down market.
- The portfolio may invest up to 20% of its assets in foreign securities. The
risks of investing in foreign securities is set forth below under "Risks of
Investing in Certain Types of Securities." Since the portfolio will only
invest at most 20% of its assets in foreign securities, the risks associated
with foreign securities will not affect the portfolio as much as a portfolio
that invests more of its assets in foreign securities.
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1993 -3.8%
1994 -4.8%
1995 26.5%
1996 25.9%
1997 26.9%
1998 28.5%
1999 19.4%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
24.80% (for the quarter ended 12/31/98) and the lowest return was -12.12% (for
the quarter ended 09/30/98).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Blue Chip Growth Trust 19.43% 25.42% 15.84% 12/11/92
S&P 500 Index(B) 21.04% 28.55% 21.46%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective October 1, 1996, the portfolio changed its subadviser. Performance
reflects results prior to this change.
(B) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
REAL ESTATE SECURITIES TRUST
Investment Objective
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 fixed income securities.
Investment Policies
Manufacturers Adviser Corporation ("MAC"), the subadviser to the
portfolio, seeks to achieve this objective by investing the portfolio's assets
in real estate investment trusts (also referred to as REITs) and equity and
fixed income securities issued by companies which invest in real estate or real
estate related interests. REITs are pooled investment vehicles which invest
primarily in income producing real estate or real estate related loans or
interests.
21
<PAGE> 25
Principal Risks of Investing in this Portfolio
- Investing in REITs and real estate related securities involves the risks
associated with real estate investing, such as declines in real estate
values, deterioration in general and local economic conditions and increases
in interest rates. Any such developments could negatively affect the
securities held by the portfolio and the value of the portfolio may decline.
- REITs and real estate related securities are also subject to the risks
associated with financial building projects such as management skills, heavy
cash flow dependency and increases in operating and building expenses.
Problems which affect the building projects could negatively affect the
securities held by the portfolio and the value of the portfolio may decline.
- Shares of REITs may trade less frequently and, therefore are subject to more
erratic price movements than securities of larger issuers.
- The portfolio may invest in both equity and fixed income real estate related
securities. The risks of investing in both of these types of securities are
set forth below under "Risks of Investing in Certain Types of Securities."
- The portfolio may invest up to 100% of its assets in U.S. dollar denominated
foreign securities. The risks of investing in foreign securities are
described below under "Risks of Investing in Certain Types of Securities."
Since the portfolio only invests in U.S. dollar denominated securities, it
will not be subject to the exchange rate risks described in this section.
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1990 -4.5%
1991 41.1%
1992 21.3%
1993 22.6%
1994 -2.8%
1995 15.1%
1996 34.7%
1997 18.4%
1998 -16.4%
1999 -8.0%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
21.09% (for the quarter ended 3/31/91) and the lowest return was -11.18% (for
the quarter ended 9/30/90).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Real Estate Securities Trust -8.00% 7.14% 10.64% 4/30/87
NAREIT Index -6.48% 7.71% 8.10%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) On December 31, 1996, Manulife Series Fund, Inc. merged with the Trust.
Performance presented for this portfolio is based upon the performance of
the respective predecessor Manulife Series Fund, Inc. portfolio for periods
prior to December 31, 1996.
VALUE TRUST
Investment Objective
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.
Investment Policies
Miller Anderson & Sherrerd, LLP ("MAS"), the subadviser to the
portfolio, seeks to attain this objective by investing the portfolio's assets
primarily in equity securities of companies with market values usually greater
than $300 million. MAS seeks to select equity securities which MAS believes to
be undervalued by the market.
22
<PAGE> 26
Principal Risks of Investing in this Portfolio
- The price of the securities purchased by the portfolio will increase if
other investors in the stock market subsequently believe that the securities
are undervalued and are willing to pay a higher price for them. If other
investors in the stock market continue indefinitely to undervalue these
securities, or if in fact these securities are not undervalued, the value of
the portfolio may decline.
- The portfolio invests primarily in equity securities. The risks of investing
in equity securities are set forth below under "Risks of Investing in
Certain Types of Securities."
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1997 22.1%
1998 -1.7%
1999 -2.8%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
14.12% (for the quarter ended 06/30/97) and the lowest return was -17.46% (for
the quarter ended 09/30/98).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Value Trust -2.79% N/A 5.28% 1/01/97
Russell Mid Cap Value Index(A) -0.11% N/A 12.15%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
TACTICAL ALLOCATION TRUST
Investment Objective
The investment objective of the Tactical Allocation Trust is to seek
total return, consisting of long-term capital appreciation and current income.
Investment Policies
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), the
subadviser to the portfolio, seeks to achieve this investment objective by
allocating the portfolio's assets between:
- A stock portion that is designed to track the performance of the S&P 500
Composite Stock Price Index (the "S&P 500 Index") and
- A fixed income portion that consists of either five-year U.S. Treasury notes
or U.S. Treasury bills with remaining maturities of 30 days.
The subadviser reallocates the portfolio's assets in accordance with the
recommendations of its own Tactical Allocation Model on the first business day
of each month. The Tactical Allocation Model attempts to track the performance
of the S&P 500 Index in periods of strong market performance. The Model attempts
to take a more defensive posture by reallocating assets to bonds or cash when
the Model signals a potential bear market, prolonged downturn in stock prices or
significant loss in value. By using the Tactical Allocation Model, the portfolio
seeks to achieve total return during all economic and financial markets cycles,
with lower volatility than that of the S&P 500 Index.
23
<PAGE> 27
Principal Risks of Investing in This Portfolio
- The portfolio may invest up to 100% of its assets in equity securities, as
directed by the Tactical Allocation Model. The risks of investing in equity
securities are set forth below under "Risks of Investing in Certain Types of
Securities."
- The portfolio may invest up to 100% of its assets in fixed income
securities, as directed by the Tactical Allocation Model. The risks of
investing in fixed income securities are set forth below under "Risk of
Investing in Certain Types of Securities." In addition, because interest
rate risk is the primary risk presented by U.S. government and other very
high quality fixed income securities, changes in interest rates may actually
have a larger effect on the value of those bonds than on lower quality
bonds.
- The portfolio is subject to sector allocation risk in that the Tactical
Allocation Model may not correctly predict the appropriate times to shift
the portfolio's assets from one type of investment to another.
- The portfolio expects a close correlation between the performance of the
portion of its assets allocated to stocks and that of the S&P 500 Index in
both rising and falling markets. While the portfolio attempts to replicate,
before deduction of fees and operating expenses, the investment results of
the S&P 500 Index, the portfolio's investment results generally will not be
identical to those of the S&P 500 Index. Deviations from the performance of
the S&P 500 Index may result from shareholder purchases and sales of shares
that can occur daily. In addition, the portfolio must pay fees and expenses
that are not borne by the S&P 500 Index.
Performance
Performance is not provided for the Tactical Allocation Trust since it
commenced operations in May 2000.
EQUITY INDEX TRUST
Investment Objective
The investment objective of the Equity Index Trust is to approximate
the aggregate total return of publicly traded common stocks which are included
in the S&P Composite Stock Price Index (the "S&P 500 Index").
Investment Policies
The portfolio is designed to provide a less costly and convenient way
to invest in the equity securities of a diversified group of U.S. companies. The
portfolio is not actively managed; rather, Manufacturers Adviser Corporation
("MAC"), the subadviser to the portfolio, tries to match the performance of the
S&P 500 Index by investing the portfolio's assets in common stocks that are
included in the S&P 500 Index in approximately the proportion of their
respective market value weightings in the S&P 500 Index. The S&P 500 Index
fluctuates in value with changes in the market value of the stocks included in
the S&P 500 Index at any point in time.
Principal Risks of Investing in this Portfolio
- An investment in the Equity Index Trust involves risks similar to the risks
of investing directly in the equity securities included in the S&P 500
Index. The risks of investing in equity securities are set forth below under
"Risks of Investing in Certain Types of Securities."
- Since the portfolio is not actively managed, if the S&P 500 Index does not
perform well, MAC will not have the ability to transfer portfolio assets
into other investments.
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower. During the time period shown in the chart, certain of the Equity
Index Trust's expenses were reimbursed. If such expenses had not been
reimbursed, returns would be lower.
<TABLE>
<S> <C>
1997 33.5%
1998 28.6%
1999 20.6%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
21.22% (for the quarter ended 12/31/98) and the lowest return was -9.79% (for
the quarter ended 09/30/98).
24
<PAGE> 28
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Equity Index Trust 20.58% N/A 25.01% 2/14/96
S&P 500 Index(B) 21.04% N/A 25.96%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) On December 31, 1996, Manulife Series Fund, Inc. merged with the Trust.
Performance presented for this portfolio is based upon the performance of
the respective predecessor Manulife Series Fund, Inc. portfolio for periods
prior to December 31, 1996.
(B) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
GROWTH & INCOME TRUST
Investment Objective
The investment objective of the Growth & Income Trust is to provide
long-term growth of capital and income consistent with prudent investment risk.
Investment Policies
Wellington Management Company, LLP ("Wellington Management"), the
subadviser to the portfolio, seeks to achieve the Trust's objective by investing
the portfolio's assets primarily in 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 financial condition, steady or increasing dividend pay-out
and strong management skills. The portfolio may also invest in securities
convertible into or which carry the right to buy common stocks. The portfolio
may also invest up to 20% of its assets in foreign securities.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities. The risks of investing
in equity securities is set forth below under "Risks of Investing in Certain
Types of Securities."
- Because the portfolio invests primarily in high quality equity securities,
it may underperform portfolios invested in more speculative growth
securities when these securities are in favor in the market.
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1992 10.2%
1993 9.6%
1994 2.9%
1995 29.2%
1996 22.8%
1997 32.8%
1998 26.5%
1999 18.9%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
20.16% (for the quarter ended 12/31/98) and the lowest return was -9.63% (for
the quarter ended 09/30/98).
25
<PAGE> 29
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Growth & Income Trust 18.87% 25.96% 18.47% 4/23/91
S&P 500 Index(A) 21.04% 28.55% 19.80%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
U.S. LARGE CAP VALUE TRUST
Investment Objective
The investment objective of the U.S. Large Cap Value Trust is to seek
long-term growth of capital and income.
Investment Policies
Capital Guardian Trust Company ("CGTC"), the subadviser to the
portfolio, seeks to achieve this investment objective by investing the
portfolio's assets, under normal market conditions, primarily in equity and
equity-related securities of companies with market capitalization greater than
$500 million at the time of purchase. In selecting investments, greater
consideration is given to potential appreciation and future dividends than to
current income.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in equity securities, including securities
of medium sized companies. The risks of investing in equity securities and
medium sized companies are set forth below under "Risks of Investing in
Certain Types of Securities."
Performance
Performance is not provided for the U.S. Large Cap Value Trust since it
commenced operations in May 1999.
EQUITY-INCOME TRUST
Investment Objective
The investment objective of the Equity-Income Trust is to provide
substantial dividend income and also long-term capital appreciation.
Investment Policies
T. Rowe Price Associates, Inc. ("T. Rowe Price"), the subadviser to the
portfolio, seeks to attain this objective by investing primarily in common
stocks of well established companies paying above-average dividends. T. Rowe
Price believes that income can contribute significantly to total return over
time. T. Rowe Price seeks to select equity securities that appear to be
undervalued by various measures and may be temporarily out of favor, but have
good prospects for capital appreciation and dividend growth. The portfolio may
purchase other types of securities, such as foreign securities, preferred
stocks, convertible stocks and bonds, warrants and fixed income securities when
considered consistent with the portfolio's investment objective.
Principal Risks of Investing in this Portfolio
- The portfolio's emphasis on stocks of established companies paying high
dividends, and its potential investments in fixed income securities, may
limit its potential appreciation in a broad market advance. The portfolio's
value approach carries the risk that the market will not recognize a
security's intrinsic value for a long time, or that a stock judged to be
undervalued may actually be appropriately priced.
- The portfolio invests primarily in equity securities. The risks of investing
in equity securities are set forth below under "Risks of Investing in
Certain Types of Securities."
- The portfolio may invest up to 25% of its assets in foreign securities. The
risks of investing in foreign securities are set forth below under "Risks of
Investing in Certain Types of Securities." Since the portfolio will only
invest at most 25% of its assets in foreign securities, the risks associated
with foreign securities will not affect the portfolio as much as a portfolio
that invests more of its assets in foreign securities.
26
<PAGE> 30
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1994 0.8%
1995 23.7%
1996 19.9%
1997 29.7%
1998 9.2%
1999 3.4%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
13.20% (for the quarter ended 6/30/99) and the lowest return was -8.63% (for the
quarter ended 09/30/99).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Equity-Income Trust 3.40% 16.77% 14.11% 2/19/93
Russell 1000 Value Index(B) 7.35% 23.07% 18.19%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective October 1, 1996, the portfolio changed its subadviser. Performance
reflects results prior to this change.
(B) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for the index is only provided as of a month end.
INCOME & VALUE TRUST
Investment Objective
The investment objective of the Income & Value Trust is to seek the
balanced accomplishment of (a) conservation of principal and (b) long-term
growth of capital and income.
Investment Policies
Capital Guardian Trust Company ("CGTC"), the subadviser to the
portfolio, seeks to achieve this investment objective by investing the
portfolio's assets in both equity and fixed income securities. CGTC has full
discretion to determine the allocation of assets between equity and fixed income
securities. Generally, between 25% and 75% of the portfolio's assets will be
invested in fixed income securities unless CGTC determines that some other
proportion would better serve the portfolio's investment objective.
Principal Risks of Investing in this Portfolio
- The portfolio invests in equity securities. The risks of investing in equity
securities are set forth below under "Risks of Investing in Certain Types of
Securities."
- The portfolio invests in fixed income securities, including those rated
below investment grade. The risks of investing in these securities are set
forth below under "Risks of Investing in Certain Types of Securities."
- The portfolio may invest in mortgage-backed and other asset-backed
securities. Investing in these securities subjects the portfolio to
prepayment risk. Prepayments of underlying mortgages or pools of assets
result in a loss of anticipated interest payments and all or part of any
premium paid for the security. Therefore, the portfolio could make less
money than expected or could lose money. Mortgage prepayments generally
increase with falling interest rates and decrease with rising interest
rates.
27
<PAGE> 31
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1990 -6.2%
1991 21.2%
1992 8.3%
1993 10.1%
1994 -1.6%
1995 20.7%
1996 10.0%
1997 15.9%
1998 15.1%
1999 8.5%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
11.17% (for the quarter ended 12/31/98) and the lowest return was -10.28% (for
the quarter ended 09/30/90).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Income & Value Trust 8.52% 13.98% 9.87% 8/03/89
Salomon Brothers Broad Investment Grade Bond Index(B) -0.83% 7.74% 7.75%
Wilshire 5000 Index 23.56% 27.07% 17.59%
60%/40% Composite Index(C) 12.00% 20.09% 14.12%
S&P 500 Index 21.04% 28.55% 18.20%
Customized Benchmark(D) 10.37% 14.49% 11.10%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective May 1, 1999, the portfolio changed its subadviser and its
investment objective. Performance reflects results prior to these changes.
(B) For the prior fiscal year, the broad based index was the Wilshire 5000
Index. For the current fiscal year, the Salomon Brothers Broad Investment
Grade Bond Index is the broad based index. The change to the Salomon
Brothers Broad Investment Grade Bond Index was made since this index more
accurately reflects the investment objective of Income & Value Trust.
(C) The 60%/40% Composite Index is comprised of 60% of the returns of the S&P
500 Index and 40% of the returns of the Salomon Brothers Broad Investment
Grade Bond Index. The 60%/40% Composite Index was prepared by the adviser
using Ibbotson Associates Software and Data.
(D) Customized Benchmark is comprised of 32.5% of the return of the Wilshire
5000, 10% of the MSCI EAFE Index, 40% of the return of the Lehman Brothers
Aggregate Bond Index, 10% of the return of the 90 Day T-Bill, and 7.5% of
the return of the Merrill Lynch High Yield Index. Customized Benchmark was
prepared by the adviser using Ibbotson Associates Software and Data.
BALANCED TRUST
Investment Objective
The investment objective of the Balanced Trust is current income and
capital appreciation.
Investment Policies
Founders Asset Management LLC ("Founders"), the subadviser to the
portfolio, 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 up
to 75% of its total assets in common stocks, securities convertible into common
stocks and preferred stocks. The portfolio will invest at least 25% of its total
assets in investment grade fixed income securities. The portfolio may invest,
however, in an unlimited amount of fixed income securities.
28
<PAGE> 32
Principal Risks of Investing in this Portfolio
- The portfolio invests significantly in equity securities and also invests in
fixed income securities. The risks of investing in equity securities and
fixed income securities are set forth below under "Risks of Investing in
Certain Types of Securities."
- The portfolio may invest up to 30% of its assets in foreign securities (with
no more than 25% invested in any one foreign country) and may invest without
limitation in American Depository Receipts which increases the risk of
investing in the portfolio as described below under "Foreign Securities."
American Depository Receipts are receipts for the shares of a foreign-based
corporation held in the vault of a U.S. bank. Since these receipts are U.S.
dollar denominated, they are not subject to the risks of maintaining assets
in a foreign country described under "Foreign Securities."
- The portfolio will invest at least 25% of its assets in investment grade
fixed income securities. Investment grade fixed income securities in the
lowest rating category involve more risk than these securities in the higher
rating categories as described under "Risks of Investing in Certain Types of
Securities."
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1997 17.8%
1998 14.3%
1999 -1.7%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
10.22% (for the quarter ended 6/30/97) and the lowest return was -3.71% (for the
quarter ended 09/30/99).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Balanced Trust -1.65% N/A 9.79% 1/01/97
S&P 500 Index(B) 21.04% N/A 27.56%
Lehman Brothers Aggregate Bond Index -0.83% N/A 5.73%
50%/50% Composite Index(A) 9.80% N/A 16.57%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Comprised of 50% of the return of the S&P 500 Index and 50% of the return of
the Lehman Brothers Aggregate Bond Index. The Composite Index was prepared
by the adviser using Ibbotson Associates Software and Data.
(B) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
HIGH YIELD TRUST
Investment Objective
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.
Investment Policies
Miller Anderson & Sherrerd, LLP ("MAS"), the subadviser to the
portfolio, seeks to attain this objective by investing the portfolio's assets
primarily in high yield fixed income securities, including corporate bonds and
other fixed income securities. The portfolio's average weighted maturity for the
securities that it purchases will be greater than five years. High yield fixed
income securities are securities rated Ba and lower by Moody's Investors
Service, Inc. ("Moody's") and BB and lower by Standard & Poor's Corporation
("Standard & Poor's"). Securities rated Baa and lower by Moody's and BBB by
29
<PAGE> 33
Standard & Poor's are non-investment grade securities commonly known as "junk
bonds." At times, more than 50% of the portfolio's assets may be invested in
mortgage-backed securities. The portfolio may invest up to 100% of its assets in
foreign securities, including emerging market securities.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in non-investment grade fixed income
securities. The risks of investing in these types of securities are set
forth below under "Risks of Investing in Certain Types of Securities."
- The portfolio may invest up to 100% of its assets in foreign securities
including securities of companies in emerging markets. The risks of
investing in foreign securities are set forth below under "Risks of
Investing in Foreign Securities." Because the portfolio may invest up to
100% of its assets in foreign securities, which are generally riskier
investments than U.S. securities, investing in this portfolio is riskier
than investing in a portfolio that invests primarily in U.S. high yield
fixed income securities.
- The portfolio may invest in mortgage-backed securities. Investing in
mortgage-backed securities subjects the portfolio to prepayment risk.
Prepayments of underlying mortgages result in a loss of anticipated interest
payments and all or part of any premium paid for the security. Therefore,
the portfolio could make less money than expected or could lose money.
Mortgage prepayments generally increase with falling interest rates and
decrease with rising interest rates.
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1997 12.7%
1998 2.8%
1999 8.0%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
6.79% (for the quarter ended 06/30/97) and the lowest return was -6.52% (for the
quarter ended 09/30/98).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
High Yield Trust 8.00% N/A 7.75% 1/01/97
Salomon Brothers High Yield Market Index(A) 1.73% N/A 6.06%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
STRATEGIC BOND TRUST
Investment Objective
The investment objective of the Strategic Bond Trust is to seek a high
level of total return consistent with preservation of capital.
Investment Policies
Salomon Brothers Asset Management Inc. ("SaBAM"), the subadviser to the
portfolio, invests the Strategic Bond Trust's assets among five segments of the
fixed income market in amounts which SaBAM believes will best contribute to the
achievement of the portfolio's objective, (a) U.S. Government obligations, (b)
investment grade domestic corporate fixed income securities, (c) high yield
corporate fixed income securities, (d) mortgage-backed securities and (e)
investment grade and high yield international fixed income securities. SaBAM
will determine the amount of assets to be allocated to each type of security in
30
<PAGE> 34
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.
Principal Risks of Investing in this Portfolio
- Whether the portfolio achieves its investment objective is significantly
dependent on the ability of SaBAM to allocate the portfolio effectively
among the different investment categories. If SaBAM does not correctly
assess the returns that can be achieved from a particular category of
assets, the returns for the portfolio could be volatile and the value of the
portfolio may decline.
- The portfolio invests substantially all of its assets in fixed income
securities, including a significant amount in non-investment grade fixed
income securities. The risks of investing in fixed income securities is set
forth below under "Risks of Investing in Certain Types of Securities."
- The portfolio may invest up to 100% of its assets in foreign securities
including securities of companies in emerging markets. Investing in foreign
securities increases the risk of investing in the portfolio. However, the
ability of the portfolio to spread its investments among the fixed income
markets in a number of different countries may reduce the overall level of
market risk of the portfolio to the extent it may reduce the portfolio's
exposure to a single market. The risks of investing in foreign securities
are set forth below under "Risks of Investing in Foreign Securities."
- The portfolio may invest in mortgage-backed securities. Investing in
mortgage-backed securities subjects the portfolio to prepayment risk.
Prepayments of underlying mortgages result in a loss of anticipated interest
payments and all or part of any premium paid for the security. Therefore,
the value of the portfolio may decline. Mortgage prepayments generally
increase with falling interest rates and decrease with rising interest
rates.
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1994 -6.0%
1995 19.2%
1996 14.7%
1997 11.0%
1998 1.3%
1999 2.2%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
9.55% (for the quarter ended 6/30/95) and the lowest return was -4.04% (for the
quarter ended 3/31/94).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Strategic Bond Trust 2.22% 9.46% 7.16% 2/19/93
Lehman Brothers Aggregate Bond Index(A) -0.83% 7.73% 6.21%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The return for the index under "Life of Portfolio" is calculated from the
month end closest to the inception date of the portfolio since information
for this index is only provided as of a month end.
31
<PAGE> 35
GLOBAL BOND TRUST
Investment Objective
The investment objective of the Global Bond Trust is to seek to realize
maximum total return, consistent with preservation of capital and prudent
investment management.
Investment Policies
Pacific Investment Management Company ("PIMCO"), the subadviser to the
portfolio, seeks to achieve this investment objective by investing the
portfolio's assets primarily in fixed income securities denominated in major
foreign currencies, baskets of foreign currencies (such as the ECU), and the
U.S. dollar.
Under normal circumstances, at least 65% of its assets will be invested
in fixed income securities of issuers located in at least three countries (one
of which may be the United States). These securities may be represented by
futures contracts (including related options) with respect to such securities,
and options on such securities, when PIMCO deems it appropriate to do so.
Depending on PIMCO's current opinion as to the proper allocation of assets among
domestic and foreign issuers, investments in the securities of issuers located
outside the United States will normally vary between 25% and 75% of the
portfolio's assets. The average portfolio duration of the Global Bond Trust will
normally vary within a three- to seven- year time frame. (Duration is a measure
of the expected life of a fixed income security on a present value basis.)
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in foreign fixed income securities. The
risks of investing in fixed income securities and in foreign securities are
set forth below under "Risks of Investing in Certain Types of Securities."
- The portfolio is non-diversified. The definition of a non-diversified
portfolio and the risks associated with such a portfolio are set forth below
under "Risk of Investing in Certain Types of Securities."
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1990 13.5%
1991 15.9%
1992 2.3%
1993 19.0%
1994 -5.8%
1995 23.2%
1996 13.0%
1997 3.0%
1998 7.6%
1999 -6.7%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
8.89% (for the quarter ended 9/30/91) and the lowest return was -4.81% (for the
quarter ended 3/31/99).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Global Bond Trust -6.67% 7.55% 8.06% 3/18/88
JP Morgan Global Unhedged Bond Index(B) -4.33% 6.86% 7.81%
Salomon Brothers World Government Bond Index -4.27% 6.42% 8.03%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective May 1, 1999, the portfolio changed its subadviser and its
investment objective. Performance reflects results prior to these changes.
(B) For the prior fiscal year, the broad based index was the Salomon Brothers
World Government Bond Index. For the current fiscal year, the JP Morgan
Global Unhedged Bond Index is the broad based index. The change to the JP
Morgan Global unhedged Bond Index was made since this index more accurately
reflects the investment objective of Global Bond Trust.
32
<PAGE> 36
TOTAL RETURN TRUST
Investment Objective
The investment objective of the Total Return Trust is to seek to
realize maximum total return, consistent with preservation of capital and
prudent investment management.
Investment Policies
Pacific Investment Management Company ("PIMCO"), the subadviser to the
portfolio, seeks to achieve this investment objective by investing, under normal
market conditions, at least 65% of the portfolio's assets in a diversified
portfolio of fixed income securities of varying maturities. The average
portfolio duration of the Total Return Trust will normally vary within a three-
to six- year time frame based on PIMCO's forecast for interest rates. (Duration
is a measure of the expected life of a fixed income security on a present value
basis.) The portfolio may also invest up to 20% of its assets in securities
denominated in foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. Portfolio holdings will be
concentrated in areas of the bond market (based on quality, sector, coupon or
maturity) which PIMCO believes to be relatively undervalued.
Principal Risks of Investing in this Portfolio
- The portfolio invests primarily in fixed income securities. The risks of
investing in fixed income securities are set forth below under "Risks of
Investing in Certain Types of Securities."
- The portfolio may also invest in foreign securities. The risks of investing
in foreign securities are set forth below under "Risks of Investing in
Certain Types of Securities."
Performance
Performance is not provided for the Total Return Trust since it
commenced operations is May 1999.
INVESTMENT QUALITY BOND TRUST
Investment Objective
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.
Investment Policies
Wellington Management Company, LLP ("Wellington Management"), the
subadviser to the portfolio, seeks to achieve the Trust's objective by investing
primarily in investment grade corporate bonds and U.S. Government bonds with
intermediate to longer term maturities. At least 65% of the portfolio's assets
will be invested in (i) fixed income securities of U.S. and foreign issuers
(payable in U.S. dollars) rated "A" or better by Moody's or Standard & Poor's
(or, if unrated, of comparable quality), (ii) U.S. government securities and
(iii) cash and cash equivalents. The portfolio may also invest up to 20% of its
assets in domestic and foreign high yield corporate and government fixed income
securities, commonly known as "junk bonds."
Principal Risks of Investing in this Portfolio
- The portfolio invests substantially all of its assets in fixed income
securities, including non-investment grade fixed income securities. Because
the portfolio invests in fixed income securities with intermediate to longer
term maturities, the portfolio will be more sensitive to interest rate
changes than a portfolio that invests in fixed income securities with
shorter maturities. The risks of investing in these types of securities are
set forth below under "Risks of Investing in Certain Types of Securities."
33
<PAGE> 37
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1990 -2.7%
1991 16.1%
1992 7.2%
1993 10.0%
1994 -4.6%
1995 19.5%
1996 2.6%
1997 9.8%
1998 8.7%
1999 -1.8%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
6.57% (for the quarter ended 9/30/91) and the lowest return was -6.06% (for the
quarter ended 3/31/90).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Investment Quality Bond Trust -1.79% 7.51% 6.19% 6/18/85
Lehman Brothers Aggregate Bond Index -0.83% 7.73% 7.69%
Customized Benchmark(B) -2.09% 7.81% 7.85%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective April 23, 1991, the portfolio changed its subadviser and
investment objective. Performance reflects results prior to these changes.
(B) Customized Benchmark is comprised of 50% of the return of the Lehman
Brothers Government Bond Index and 50% of the return of the Lehman Brothers
Corporate Bond Index. Customized Benchmark was prepared by the adviser using
Ibbotson Associates Software and Data.
DIVERSIFIED BOND TRUST
Investment Objective
The investment objective of the Diversified Bond Trust is to seek high
total return as is consistent with the conservation of capital.
Investment Policies
Capital Guardian Trust Company ("CGTC"), the subadviser to the
portfolio, seeks to achieve this investment objective by investing the
portfolio's assets in fixed income securities, including up to 20% in fixed
income securities rated below investment grade.
Principal Risks of Investing in this Portfolio
- The portfolio invests in fixed income securities, including those rated
below investment grade. The risks of investing in these types of securities
are set forth below under "Risks of Investing in Certain Types of
Securities."
34
<PAGE> 38
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1990 -3.8%
1991 18.8%
1992 7.4%
1993 9.0%
1994 -1.8%
1995 18.1%
1996 7.0%
1997 11.4%
1998 10.7%
1999 0.7%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
6.17% (for the quarter ended 3/31/91) and the lowest return was -6.26% (for the
quarter ended 09/30/90).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Diversified Bond Trust 0.72% 9.44% 7.50% 8/03/89
Salomon Brothers Broad Investment Grade Bond Index(B) -0.83% 7.74% 7.75%
90 Day T-Bill 4.82% 5.43% 5.19%
Lehman Brothers Aggregate Bond Index -0.83% 7.73% 7.69%
Customized Benchmark(C) 6.60% 11.27% 9.17%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective May 1, 1999, the portfolio changed its subadviser and its
investment objective. Performance reflects results prior to these changes.
(B) For the prior fiscal year, the broad based index was the Lehman Brothers
Aggregate Bond Index. For the current fiscal year, the Salomon Brothers
Broad Investment Grade Bond Index is the broad based index. The change to
the Salomon Brothers Broad Investment Grade Bond Index was made since this
index more accurately reflects the investment objective of Diversified Bond
Trust.
(C) Customized Benchmark is comprised of 20% of the return of the Wilshire 5000,
5% of the MSCI EAFE Index, 50% of the return of the Lehman Brothers
Aggregate Bond Index, 25% of the return of the 90 Day T-Bill. Customized
Benchmark was prepared by the adviser using Ibbotson Associates Software and
Data.
U.S. GOVERNMENT SECURITIES TRUST
Investment Objective
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.
Investment Policies
Salomon Brothers Asset Management Inc ("SaBAM"), the subadviser to the
portfolio, seeks to attain this objective by investing a substantial portion (at
least 80%) of the portfolio's assets in fixed income 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.
35
<PAGE> 39
Principal Risks of Investing in this Portfolio
- While the portfolio invests a substantial portion of its assets in
securities which are guaranteed as to principal and interest by the U.S.
Government or one of its agencies or instrumentalities, the market value of
the portfolio could still decline due to interest rate changes. When
interest rates decline, the market value of the portion of the portfolio
invested at higher yields can be expected to rise. Conversely, when interest
rates rise, the market value of a portfolio invested at lower yields can be
expected to decline. Fixed-income securities with longer maturities are
generally more sensitive to interest rate changes than those with shorter
maturities.
- Investing in mortgage backed securities subjects the portfolio to prepayment
risk. Prepayment of underlying mortgages result in a loss of anticipated
interest payments and all or part of any premium paid for the security.
Therefore, the portfolio could make less money than expected or could lose
money. Mortgage prepayments generally increase with falling interest rates
and decrease with rising interest rates.
Performance(A)
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1990 8.6%
1991 14.0%
1992 6.2%
1993 7.6%
1994 -1.2%
1995 15.6%
1996 3.4%
1997 8.5%
1998 7.5%
1999 -0.2%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
5.40% (for the quarter ended 6/30/95) and the lowest return was -2.02% (for the
quarter ended 03/31/92).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
U.S. Government Securities Trust -0.23% 6.81% 6.87% 3/18/88
Salomon Brothers 1-10yr Government Index 0.51% 6.95% 7.11%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Effective December 13, 1991, the portfolio changed its subadviser and its
investment objective. Performance reflects results prior to these changes.
MONEY MARKET TRUST
Investment Objective
The investment objective of the Money Market Trust is to obtain maximum
current income consistent with preservation of principal and liquidity.
Investment Policies
Manufacturers Adviser Corporation ("MAC"), the subadviser to the
portfolio, seeks to achieve this objective by investing in high quality, U.S.
dollar denominated money market instruments. The portfolio may also invest up to
20% of its assets in high quality, U.S. dollar denominated foreign money market
instruments.
Principal Risks of Investing in this Portfolio
- An investment in the Money Market Trust is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the Money Market Trust seeks to preserve the value of a
shareholder's investment at $10.00 per share, it is possible to lose money
by investing in this portfolio. For example, the portfolio could lose money
if a security purchased by the portfolio is downgraded and the portfolio
must sell the security at less than the cost of the security.
36
<PAGE> 40
- The portfolio may invest up to 20% of its assets in U.S. dollar denominated
foreign securities which increases the risk of investing in the portfolio as
described below under "Risks of Investing in Certain Types of Securities."
Since the portfolio only invests in U.S. dollar denominated securities, it
will not be subject to the exchange rate risks described in this section.
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower.
<TABLE>
<S> <C>
1990 7.8%
1991 5.7%
1992 3.4%
1993 2.7%
1994 3.8%
1995 5.6%
1996 5.1%
1997 5.2%
1998 5.0%
1999 4.6%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
1.93% (for the quarter ended 6/30/90) and the lowest return was 0.64% (for the
quarter ended 06/30/93).
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Date First
Portfolio Available
<S> <C> <C> <C> <C>
Money Market 4.60% 5.09% 4.88% 6/18/85
U.S. 90 Day T-Bill(A) 4.82% 5.43% 5.19%
U.S. 30 Day T-Bill 4.68% 5.12% 4.92%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) For the prior fiscal year, the broad based index was the U.S. 30 Day T-Bill.
For the current fiscal year the U.S. 90 Day T-Bill is the broad based index.
The change to the 90 Day T-Bill was made since this index more accurately
reflects the investment objective of Money Market Trust.
The 7 day yield of the Money Market Trust as of December 31, 1999 was
4.86%.
THE INDEX TRUSTS
There are five Index Trusts - International Index, Small Cap Index, Mid
Cap Index, Total Stock Market Index, and 500 Index (the "Index Trusts") - each
with its own investment objective and policy. The Index Trusts differ from the
actively managed portfolios described in this prospectus. Actively managed
portfolios seek to outperform their respective indices through research and
analysis. Over time, their performance may differ significantly from their
respective indices. Index portfolios, however, seek to mirror the performance of
their target indices, minimizing performance differences over time.
An index is an unmanaged group of securities whose overall performance
is used as an investment benchmark. Indices may track broad investment markets,
such as the global equity market, or more narrow investment markets, such as the
U.S. small cap equity market. Each Index Trust attempts to match the performance
of a particular index by: (a) holding all, or a representative sample, of the
securities that comprise the index and/or (b) by holding securities (which may
or may not be included in the index) that MAC believes as a group will behave in
a manner similar to the index. However, an index portfolio has operating
expenses and transaction costs, while a market index does not. Therefore, an
Index Trust, while it attempts to track its target index closely, typically will
be unable to match the performance of the index exactly.
37
<PAGE> 41
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio Investment Objective Investment Strategy*
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Small Cap Index To seek to approximate the aggregate Attempts to track the performance of the
total return of a small cap U.S. Russell 2000 Index, an unmanaged index
domestic equity market index composed of the stocks of the 2,000 smallest
of the 3,000 largest U.S. companies.
International Index To seek to approximate the aggregate Attempts to track the performance of the Morgan
total return of a foreign equity market Stanley European Australian Far East Free
index Index ("MSCI EAFE Index"), an unmanaged index of
approximately 1,000 securities traded in
non-U.S. markets.
Mid Cap Index To seek to approximate the aggregate Attempts to track the performance of the S&P
total return of a mid cap U.S. domestic Mid Cap 400, an unmanaged index composed of the
equity market index securities of 400 medium sized U.S. companies.
Total Stock Market Index To seek to approximate the aggregate Attempts to track the performance of the
total return of a broad U.S. domestic Wilshire 5000 Index, an unmanaged index
equity market index. composed of more than 7,000 stocks including
all of the U.S. common stocks regularly traded
on the New York and American Stock Exchanges
and the Nasdaq over-the-counter markets.
500 Index To seek to approximate the aggregate Attempts to track the performance of the S&P
total return of a broad U.S. domestic 500 Index, an unmanaged index which is composed
equity market index. of 500 selected common stocks, primarily the
stocks of large U.S. companies.
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*"Standard & Poor's(R)," "S&P 500(R)," "Standard & Poor's 500(R)," and "Standard
& Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc. "Russell
2000(R)" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is a
trademark of Wilshire Associates. "Morgan Stanley European Australian Far East
Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of
the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by
any of these companies, and none of these companies make any representation
regarding the advisability of investing in the Trust.
Principal Risks of Investing in the Index Trusts
Risks Applicable to All of the Index Trusts
- Since each of the Index Trusts are not actively managed, each Index Trust
will generally reflect the perform of the index its attempts to track even
in markets when this index does not perform well.
Risks Applicable to the International Index Trust
- An investment in the International Index Trust involves risks similar to the
risks of investing directly in the foreign securities in the MSCI EAFE
Index. The risks of investing in foreign securities are set forth below
under "Risks of Investing in Certain Types of Securities."
Risks Applicable to the Small Cap Index Trust
- An investment in the Small Cap Index Trust involves risks similar to the
risks of investing directly in the equity securities included in the Russell
2000 Index which are primarily small and mid cap securities. The risks of
investing in equity securities and the risks of investing in small and mid
cap securities (small and medium companies) are set forth below under "Risks
of Investing in Certain Types of Securities."
38
<PAGE> 42
Risks Applicable to the Mid Cap Index Trust
- An investment in the Mid Cap Index Trust involves risks similar to the risks
of investing directly in the equity securities included in the Mid Cap
Index. The risks of investing in equity securities and Mid Cap securities
(medium size companies) are set forth below under "Risks of Investing in
Certain Types of Securities."
Risks Applicable to the Total Stock Market Index Trust
- An investment in the Total Stock Market Index Trust involves risks similar
to the risks of investing directly in the equity securities included in the
Wilshire 5000 Index. The risks of investing in equity securities are set
forth below under "Risks of Investing in Certain Types of Securities."
Risks Applicable to the 500 Index Trust
- An investment in the 500 Index Trust involves risks similar to the risks of
investing directly in the equity securities included in the S&P 500 Index.
The risks of investing in equity securities are set forth below under "Risks
of Investing in Certain Types of Securities."
Performance
Performance is not provided for the Index Trusts since they commenced
operations in May 2000.
THE LIFESTYLE TRUSTS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Portfolio Investment Objective Investment Policies Principal Risks
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000 To provide long-term growth of capital. 100% Equity* See below
Current income is not a consideration
Lifestyle Growth 820 To provide long-term growth of capital. 80% Equity* See below
Current income is also a consideration. 20% Fixed Income*
Lifestyle Balanced 640 To provide a balance between a high level of 60% Equity* See below
current income and growth of capital with a 40% Fixed Income*
greater emphasis on growth of capital.
Lifestyle Moderate 460 To provide a balance between a high level of 40% Equity* See below
current income and growth of capital with a 60% Fixed Income*
greater emphasis on income.
Lifestyle Conservative 280 To provide a high level of current income 20% Equity* See below
with some consideration given to growth of 80% Fixed Income*
capital.
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Manufacturers Adviser Corporation ("MAC"), the subadviser to the Lifestyle
Trusts, achieves these percentages by investing in other portfolios of the Trust
which invest primarily in either equity securities and fixed income securities,
as applicable ("Underlying Portfolios"). Variations in the percentages are
permitted up to 10% in either direction.
Within the prescribed percentage allocations between the two types of
Underlying Portfolios, MAC selects the percentage levels to be maintained in
specific portfolios. Allocations are made based on MAC's assessment of what
portfolio mix will best achieve the particular Lifestyle Trust's investment
objective.
The portfolios that invest primarily in fixed income securities are:
(a) the High Yield Trust, (b) the Strategic Bond Trust, (c) the Global Bond
Trust, (d) the Total Return Trust, (e) the Investment Quality Bond Trust, (f)
the Diversified Bond Trust, (g) the U.S. Government Securities Trust and (h) the
Money Market Trust. All the other portfolios of the Trust invest primarily in
equity securities.
39
<PAGE> 43
Principal Risks of Investing in the Lifestyle Trusts
The Lifestyle portfolios are ranked in order of risk. The Lifestyle
Aggressive 1000 portfolio is the riskiest of the Lifestyle portfolios since it
invests 100% of its assets in other portfolios of the Trust which invest
primarily in equity securities. The Lifestyle Conservative 280 portfolio is the
least risky of the Lifestyle portfolios since it invests approximately 80% of
its assets in other portfolios of the Trust which invest primarily in fixed
income securities. Each Lifestyle portfolio is subject to the same risks as the
portfolios in which it invests.
The principal risks of investing in each of the Lifestyle Trusts are:
- To the extent a Lifestyle portfolio invests in other portfolios that invest
primarily in equity securities, the Lifestyle portfolio will be subject to
the risks of investing in equity securities. The risks of investing in
equity securities are set forth below under "Risks of Investing in Certain
Types of Securities."
- To the extent a Lifestyle portfolio invests in other portfolios that invest
primarily in fixed income securities, the portfolio will be subject to the
risks of investing in fixed income securities. Some of the fixed income
portfolios may invest in non-investment grade securities. The risks of
investing in fixed income securities, including non-investment grade
securities, are set forth below under "Risks of Investing in Certain Types
of Securities."
- Each of the Lifestyle portfolios is a non-diversified portfolio so that it
may invest substantially all of its assets in other portfolios of the Trust.
The risks of investing in a non-diversified portfolio are set forth below
under "Risks of Investing in Certain Types of Securities."
Performance
The performance information below does not reflect fees and expenses of
any variable insurance contract which may use the Trust as its underlying
investment medium. If such fees and expenses had been reflected, performance
would be lower. The Adviser is currently reimbursing certain of the expenses of
each Lifestyle Trust. If such expenses were not being reimbursed, performance
would be lower. The Adviser may terminate this expense reimbursement at any
time.
LIFESTYLE AGGRESSIVE 1000
<TABLE>
<S> <C>
1997 10.9%
1998 4.9%
1999 14.6%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
17.52% (for the quarter ended 12/31/98) and the lowest return was -17.78% (for
the quarter ended 09/30/98). During the time period show in the bar chart,
certain of the Lifestyle Aggressive 1000 Trust's expenses were reimbursed. If
such expenses had not been reimbursed, returns would be lower.
40
<PAGE> 44
LIFESTYLE GROWTH 820
<TABLE>
<S> <C>
1997 13.8%
1998 6.2%
1999 16.6%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
13.90% (for the quarter ended 12/31/98) and the lowest return was -13.65% (for
the quarter ended 09/30/98). During the time period show in the bar chart,
certain of the Lifestyle Growth 820 Trust's expenses were reimbursed. If such
expenses had not been reimbursed, returns would be lower.
LIFESTYLE BALANCED 640
<TABLE>
<S> <C>
1997 14.1%
1998 5.7%
1999 12.4%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
10.78% (for the quarter ended 12/31/98) and the lowest return was -10.36% (for
the quarter ended 09/30/98). During the time period show in the bar chart,
certain of the Lifestyle Balanced 640 Trust's expenses were reimbursed. If such
expenses had not been reimbursed, returns would be lower.
LIFESTYLE MODERATE 460
<TABLE>
<S> <C>
1997 13.7%
1998 9.8%
1999 7.9%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
8.36% (for the quarter ended 12/31/98) and the lowest return was -5.15% (for the
quarter ended 09/30/98). During the time period show in the bar chart, certain
of the Lifestyle Moderate 460 Trust's expenses were reimbursed. If such expenses
had not been reimbursed, returns would be lower.
41
<PAGE> 45
LIFESTYLE CONSERVATIVE 280
<TABLE>
<S> <C>
1997 12.2%
1998 10.2%
1999 4.2%
</TABLE>
During the time period shown in the bar chart, the highest quarterly return was
5.17% (for the quarter ended 6/30/97) and the lowest return was -0.53% (for the
quarter ended 09/30/98). During the time period show in the bar chart, certain
of the Lifestyle Conservative 280 Trust's expenses were reimbursed. If such
expenses had not been reimbursed, returns would be lower.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
One Year(K) Five Years(K) Life of Portfolio(K) Date First
Available
<S> <C> <C> <C> <C>
Lifestyle Aggressive 1000 14.61% N/A 10.11% 1/07/97
Russell 2000 Index(A) 21.26% N/A 13.08%
Lifestyle Aggressive Composite Index(A)(B) 19.70% N/A 12.59%
Lifestyle Growth 820 16.56% N/A 12.20% 1/07/97
S&P 500 Index(A) 21.04% N/A 27.56%
Lifestyle Growth Composite Index(A)(C) 17.04% N/A 15.46%
Lehman Brothers Gov't/Corp. Bond Index(A) -2.15% N/A 5.54%
Customized Benchmark(A)(D) 18.81% N/A 16.20%
Lifestyle Balanced 640 12.42% N/A 10.76% 1/07/97
S&P 500 Index(A) 21.04% N/A 27.56%
Lifestyle Balanced Composite Index(A)(E) 13.23% N/A 14.27%
Customized Benchmark(A)(F) 13.42% N/A 14.65%
Lifestyle Moderate 460 7.89% N/A 10.50% 1/07/97
S&P 500 Index(A) 21.04% N/A 27.56%
Lifestyle Moderate Composite Index(A)(G) 9.85% N/A 12.25%
Customized Benchmark(A)(H) 9.17% N/A 12.38%
Lifestyle Conservative 280 4.21% N/A 8.86% 1/07/97
S&P 500 Index(A) 21.04% N/A 27.56%
Lehman Brothers Government/ Corporate Bond -2.15% N/A 5.54%
Index(A)
Lifestyle Conservative Composite Index(A)(I) 3.52% N/A 6.58%
Blended Benchmark(A)(J) 2.24% N/A 9.88%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) The return for the index or benchmark under "Life of Portfolio" is
calculated from the month end closest to the inception date of the
portfolio since information for this index or benchmark is only provided as
of a month end.
42
<PAGE> 46
(B) The Lifestyle Aggressive Composite Index is a blend of returns of the
previous benchmark, the Russell 2000 Index since inception and the new
blended benchmark (41% Russell 1000 Index, 27% Russell 2000 Index, and 32%
MSCI EAFE Index) since May 1, 1999. The Lifestyle Aggressive Composite
Index was added to more accurately reflect the investment objective of the
Lifestyle Aggressive Trust. The Lifestyle Aggressive Composite was prepared
by the adviser using Ibbotson Associates Software and Data.
(C) The Lifestyle Growth Composite Index is a blend of returns of the previous
benchmark (20% Russell 1000 Index, 50% Russell 2500 Index, 10% MSCI EAFE
Index, 15% Lehman Brothers Government/Corporate Bond Index, 5% U.S. 30-day
T-Bill) since inception and the new blended benchmark (42% Russell 1000
Index, 17% Russell 2000 Index, 21% MSCI EAFE Index, 20% Lehman Brothers IT
Government/Corporate Bond Index) since May 1, 1999. The Lifestyle Growth
Composite Index was added to more accurately reflect the investment
objective of the Lifestyle Growth Trust. The Lifestyle Growth Composite was
prepared by the adviser using Ibbotson Associates Software and Data.
(D) Customized Benchmark is comprised of 20% of the return of the Russell 1000,
50% of the Russell 2500, 10% of the MSCI EAFE, 15% of the Lehman Brothers
Gov't/Corp Bond Index, 5% of the US 30-day T-Bill. Customized Benchmark was
prepared by the adviser using Ibbotson Associates Software and Data
(E) The Lifestyle Balanced Composite is a blend of returns of the previous
benchmark (25% Russell 1000 Index, 30% Russell 2500 Index, 5% MSCI EAFE
Index, 30% Lehman Brothers Government/Corporate Bond Index, 10% U.S. 30-day
T-Bill) since inception and the new blended benchmark (35% Russell 1000
Index, 10% Russell 2000 Index, 15% MSCI EAFE, 35% Lehman Brothers IT
Government/Corporate Bond Index, and 5% of the 3-month Treasury Bill)
since May 1, 1999. The Lifestyle Balanced Composite Index was added to more
accurately reflect the investment objective of the Lifestyle Balanced
Trust. The Lifestyle Balanced Composite was prepared by the adviser using
Ibbotson Associates Software and Data.
(F) Customized Benchmark is comprised of 25% of the return of the Russell 1000,
30% of the Russell 2500, 5% of the MSCI EAFE, 30% of the Lehman Brothers
Gov't/Corp Bond Index, 10% of the US 30-day T-Bill. Customized Benchmark
was prepared by the adviser using Ibbotson Associates Software and Data.
(G) The Lifestyle Moderate Composite Index is a blend of returns of the
previous benchmark (25% Russell 1000 Index, 10% Russell 2500 Index, 5% MSCI
EAFE Index, 35% Lehman Brothers Government/Corporate Bond Index, 25% U.S.
30-day T-Bill) since inception and the new blended benchmark (22% Russell
1000 Index, 8% Russell 2000 Index, 10% MSCI EAFE Index, 50% Lehman Brothers
IT Government/Corporate Bond Index, and 10% of the 3-month Treasury Bill)
since May 1, 1999. The Lifestyle Moderate Composite Index was added to more
accurately reflect the investment objective of the Lifestyle Moderate
Trust. The Lifestyle Moderate Composite was prepared by the adviser using
Ibbotson Associates Software and Data.
(H) Customized Benchmark is comprised of 25% of the return of the Russell 1000,
10% of the Russell 2500, 5% of the MSCI EAFE, 35% of the Lehman Brothers
Gov't/Corp Bond Index, 25% of the US 30-day T-Bill. Customized Benchmark
was prepared by the adviser using Ibbotson Associates Software and Data.
(I) The Lifestyle Conservative Composite Index is a blend of returns of the
previous benchmark, the Lehman Brothers Government/Corporate Bond Index
since inception and the new blended benchmark (15% Russell 1000 Index, 5%
MSCI EAFE Index, 65% Lehman Brothers IT Government/Corporate Bond Index,
and 15% of the 3-month Treasury Bill) since May 1, 1999. The Lifestyle
Conservative Composite Index was added to more accurately reflect the
investment objective of the Lifestyle Conservative Trust. The Lifestyle
Conservative Composite was prepared by the adviser using Ibbotson
Associates Software and Data.
(J) Blended Benchmark consists of 20% of the return of the S&P 500 Index and
80% of the return of the Lehman Brothers Government/Corporate Bond Index.
Customized Benchmark was prepared by the adviser using Ibbotson Associates
Software and Data.
(K) During the time periods shown in the chart, certain of the Lifestyle
Trusts' expenses were reimbursed. If such expenses had not been reimbursed,
returns would be lower.
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<PAGE> 47
RISKS OF INVESTING IN CERTAIN TYPES OF SECURITIES
The risks of investing in certain types of securities are described
below. The value of an individual security or a particular type of security can
be more volatile than the market as a whole and can perform differently than the
value of the market as a whole. Additional information regarding these risks is
set forth under "Additional Investment Policies and Transactions - Other Risks
of Investing" below.
NON-DIVERSIFIED PORTFOLIOS
Definition of Non-Diversified. Any portfolio that is non-diversified is limited
as to the percentage of its assets that may be invested in any one issuer only
by its own investment restrictions and the diversification requirements of the
Internal Revenue Code (the "Code").
Risks. Since a non-diversified portfolio may invest a high percentage of its
assets in the securities of a small number of companies, a non-diversified
portfolio may be affected more than a diversified portfolio by a change in the
financial condition of any of these companies or by the financial markets'
assessment of any of these companies. In the case of the Lifestyle Trusts, this
risk is greatly reduced since each Lifestyle Trust invests its assets in other
portfolios of the Trust which have diverse holdings.
EQUITY SECURITIES
Stock markets are volatile. The price of equity securities will
fluctuate and can decline and reduce the value of a portfolio investing in
equities. The price of equity securities fluctuates based on changes in a
company's financial condition and overall market and economic conditions. The
value of equity securities purchased by a portfolio could decline if the
financial condition of the companies the portfolio is invested in decline or if
overall market and economic conditions deteriorate. Even portfolios that invest
in high quality or "blue chip" equity securities or securities of established
companies with large market capitalizations (which generally have strong
financial characteristics) can be negatively impacted by poor overall market and
economic conditions. Companies with large market capitalizations may also have
less growth potential than smaller companies and may be able to react less
quickly to change in the marketplace.
FIXED INCOME SECURITIES
Fixed income securities are generally subject to two principal types of
risks: (a) interest rate risk and (b) credit quality risk.
Interest Rate Risk. Fixed income securities are affected by changes in interest
rates. When interest rates decline, the market value of the fixed income
securities generally can be expected to rise. Conversely, when interest rates
rise, the market value of fixed income securities generally can be expected to
decline.
Credit Quality Risk. Fixed income securities are subject to the risk that the
issuer of the security will not repay all or a portion of the principal borrowed
and will not make all interest payments. If the credit quality of a fixed income
security deteriorates after a portfolio has purchased the security, the market
value of the security may decrease and lead to a decrease in the value of the
portfolio's investments. Portfolios that may invest in lower rated fixed income
securities are riskier than portfolios that may invest in higher rated fixed
income securities. Additional information on the risks of investing in
investment grade fixed income securities in the lowest rating category and lower
rated fixed income securities is set forth below.
INVESTMENT GRADE FIXED INCOME SECURITIES IN THE LOWEST RATING CATEGORY
Investment grade fixed income securities in the lowest rating category
(rated "Baa" by Moody's or "BBB" by Standard & Poor's and comparable unrated
securities) involve a higher degree of risk than fixed income securities in the
higher rating categories. While such securities are considered investment grade
quality and are deemed to have adequate capacity for payment of principal and
interest, such securities lack outstanding investment characteristics and have
speculative characteristics as well.
LOWER RATED FIXED INCOME SECURITIES
Lower rated fixed income securities are defined as securities rated
below investment grade (rated "Ba" and below by Moody's and "BB" and below by
Standard & Poor's). The principal risks of investing in these securities are as
follows:
- Risk to Principal and Income. Investing in lower rated fixed
income securities is considered speculative. While these
securities generally provide greater income potential than
investments in higher rated securities, there is a greater
risk that principal and interest payments will not be made.
- Price Volatility. The price of lower rated fixed income
securities may be more volatile than securities in the higher
rating categories. This volatility may increase during periods
of economic uncertainty or change.
- Liquidity. The market for lower rated fixed income securities
may have more limited trading than the market for investment
grade fixed income securities. Therefore, it may be more
difficult to sell these securities.
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<PAGE> 48
- Dependence on Subadviser's Own Credit Analysis. While a
subadviser to a portfolio may rely on ratings by established
credit rating agencies, the assessment of the credit risk of
lower rated fixed income securities is more dependent on the
subadviser's evaluation than the assessment of the credit risk
of higher rated securities.
SMALL AND MEDIUM SIZE COMPANIES
Small or Unseasoned Companies
- Survival of Small or Unseasoned Companies. Companies that are
small or unseasoned (less than 3 years of operating history)
are more likely than larger or established companies to fail
or not to accomplish their goals. As a result, the value of
their securities could decline significantly.
- Changes in Earnings and Business Prospects. Small or
unseasoned companies often have a greater degree of change in
earnings and business prospects than larger or established
companies, resulting in more volatility in the price of their
securities.
- Liquidity. The securities of small or unseasoned companies may
have limited marketability and may be difficult to sell.
- Impact of Buying or Selling Shares. Small or unseasoned
companies usually have fewer outstanding shares than larger or
established companies. Therefore, it may be more difficult to
buy or sell large amounts of these shares without unfavorably
impacting the price of the security.
- Publicly Available Information. There may be less publicly
available information about small or unseasoned companies.
Therefore, when making a decision to purchase a security for a
portfolio, a subadviser may not be aware of problems
associated with the company issuing the security.
Medium Size Companies
Investments in the securities of medium sized companies present risks
similar to those associated with small or unseasoned companies although to a
lesser degree due to the larger size of the companies.
FOREIGN SECURITIES
The principal risks of investing in foreign securities are set forth
below. As noted below, many of these risks are heightened in the case of
investments in emerging market countries.
- Currency Fluctuations. Investments in foreign securities may
cause a portfolio to lose money when converting investments
from foreign currencies into U.S. dollars.
- Political and Economic Conditions. Investments in foreign
securities subject a portfolio to the political or economic
conditions of the foreign country. These conditions could
cause portfolio investments to lose value if these conditions
deteriorate for any reason. This risk increases in the case of
emerging market countries which are more likely to be
politically unstable.
- Removal of Proceeds of Investments from a Foreign Country.
Foreign countries, especially emerging market countries, often
have currency controls or restrictions which may prevent or
delay a portfolio from taking money out of the country or may
impose additional taxes on money removed from the country.
- Nationalization of Assets. Investments in foreign securities
subject a portfolio to the risk that the company issuing the
security may be nationalized. If the company is nationalized,
the value of the company's securities could decrease in value
or even become worthless.
- Settlement of Sales. Foreign countries, especially emerging
market countries, may have problems associated with settlement
of sales. Such problems could cause the portfolio to suffer a
loss if a security to be sold declines in value while
settlement of the sale is delayed.
- Investor Protection Standards. Foreign countries, especially
emerging market countries, may have less stringent investor
protection and disclosure standards than the U.S. Therefore,
when making a decision to purchase a security for a portfolio,
a subadviser may not be aware of problems associated with the
company issuing the security and may not enjoy the same legal
rights as those provided in the U.S.
INTERNET RELATED INVESTMENTS
- The value of companies engaged in Internet related activities,
which is a developing industry, is particularly vulnerable to
(a) rapidly changing technology, (b) extensive government
regulation and (c) relatively high risk of obsolescence caused
by scientific and technological advances. Not all companies
engaged in these activities will succeed.
- Companies engaged in Internet related activities are difficult
to value and many have high share prices relative to their
earnings. Not all of these companies will be able to maintain
such high share prices over the long-term.
- Many Internet companies are not yet profitable and will need
additional financing to continue their operations. There is no
guarantee that such financing will be available when needed.
- Many internet companies are start-up companies and, therefore,
the risks associated with investing in small companies are
heightened for these companies.
- Any portfolio that invests a significant portion of its assets
in Internet related companies should be considered extremely
risky even as compared to other portfolios that invest
primarily in small cap securities.
45
<PAGE> 49
INVESTMENT OBJECTIVES AND POLICIES
Each portfolio has a stated investment objective which it pursues
through separate investment policies and which may only be changed with the
approval of the shareholders of the portfolio. There can be no assurance that
the portfolio will achieve its investment objective. 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 risks of investing in each portfolio are
described in the "Risk/Return Summary" above.
The following is a description of the investment objectives and
policies of each portfolio. Additional investment policies of each portfolio are
set forth below under "Additional Investment Policies and Transactions." In
addition, more complete descriptions of the money market instruments and certain
other instruments in which certain portfolios of 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 or Standard & Poor's is included in Appendix I in
the Statement of Additional Information.
PACIFIC RIM EMERGING MARKETS TRUST
Investment Objective
The investment objective of the Pacific Rim Emerging Markets Trust is
to achieve long-term growth of capital.
Investment Policies
Manufacturers Adviser Corporation ("MAC") manages the Pacific Rim
Emerging Markets Trust. MAC seeks to achieve this investment objective by
investing the portfolio's assets primarily in common stocks and equity-related
securities of companies in countries located in the Pacific Rim region. Current
income from dividends and interest will not be an important consideration in the
selection of portfolio securities.
The Pacific Rim Emerging Markets Trust under normal conditions, invests
at least 65% of its net assets in common stocks and equity-related securities of
established, larger-capitalization non-U.S. companies located in the Pacific Rim
region that have attractive long-term prospects for growth of capital.
Equity-related securities in which the portfolio may invest include: (i)
preferred stocks, (ii) warrants and (iii) securities convertible into or
exchangeable into common stocks.
The countries of the Pacific Rim region are:
- Australia - Hong Kong - Pakistan - Taiwan
- China - Japan - Philippines - Thailand
- India - Malaysia - Singapore
- Indonesia - New Zealand - South Korea
The Pacific Rim Emerging Markets Trust may also invest up to 35% of its
assets in countries outside the Pacific Rim region. MAC's decision to invest in
a particular country or particular region will be based upon its evaluation of
political, economic and market trends in the country or region and throughout
the world. MAC will shift investments among countries and the world's capital
markets in accordance with its ongoing analyses of trends and developments
affecting such markets and securities.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Pacific Rim Emerging Markets Trust may
invest all or a portion of its assets in non-convertible, fixed income
securities and cash and cash equivalents. These investments may be denominated
in either U.S. or non-U.S. dollars. These securities may include debt of
corporations, foreign governments and supranational organizations. To the extent
the portfolio is in a defensive position, the ability to achieve its investment
objective will be limited.
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 currencies in
the portfolio, and
- OTC foreign currency futures contracts on 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.
See "Hedging and Other Strategic Transactions" for further information on these
investment strategies.
46
<PAGE> 50
INTERNET TECHNOLOGIES TRUST
Investment Objective
The investment objective of the Internet Technologies Trust is to seek
long-term capital appreciation.
Investment Policies
Munder Capital Management ("Munder") manages the Internet Technologies
Trust. Munder pursues this investment objective by investing the portfolio's
assets primarily in companies engaged in Internet-related business (such
businesses also include Intranet-related businesses).
Under normal market conditions, the Internet Technologies Trust will
invest at least 65% of its total assets in equity securities of companies that
are:
(a) engaged in the research, design, development, manufacturing of
products, processes or services for use with Internet related
businesses, or
(b) engaged to a significant extent in the business of
distributing products, processes or services for use with
Internet related businesses.
Equity securities include common stocks, preferred stocks and securities
convertible into common stocks.
The Internet is a world-wide network of computers designed to permit
users to share information and transfer data quickly and easily. The World Wide
Web ("WWW"), which is a means of graphically interfacing with the Internet, is a
hyper-text based publishing medium containing text, graphics, interactive
feedback mechanisms and links with WWW documents and to other WWW documents. An
Intranet is the application of WWW tools and concepts to a company's internal
documents and databases.
There is no limit on the market capitalization of the companies the
portfolio may invest in, or in the length of operating history for the
companies. The portfolio may invest without limit in initial public offerings.
The portfolio may also invest up to 25% of its assets in foreign
securities. Foreign securities include investments in non-U.S.
dollar-denominated securities traded outside of the United States and
dollar-denominated securities of foreign issuers traded in the United States.
Foreign securities also include investments such as American Depository Receipts
("ADRs") which are U.S. dollar-denominated receipts representing shares of
foreign-based corporations. ADRs are issued by U.S. banks or trust companies,
and entitle the holder to all dividends and capital gains that are paid out on
the underlying foreign shares.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Internet Technologies Trust may invest all
or a portion of its assets in short-term bonds, cash and cash equivalents. To
the extent the portfolio is in a defensive position, the ability to achieve its
investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Internet Technologies Trust is authorized to use all of the various
investment strategies referred to under "Hedging and Other Strategic
Transactions."
SCIENCE & TECHNOLOGY TRUST
Investment Objective
The investment objective of the Science & Technology Trust is long-term
growth of capital. Current income is incidental to the portfolio's objective.
Investment Policies
T. Rowe Price Associates, Inc. ("T. Rowe Price") manages the Science &
Technology Trust. The Science & Technology Trust invests 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, including software and electronic components,
- telecommunications,
- media and information services,
- health care, including pharmaceuticals, medical devices, and
biotechnology,
- environmental services,
- chemicals and synthetic materials, and
- defense and aerospace.
The Science & Technology Trust may also invest in companies that are expected to
benefit from technological advances even if they are not directly involved in
research and development.
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<PAGE> 51
Most of the assets of the Science & Technology Trust are invested in
U.S. common stocks. However, the portfolio may also purchase other types of
securities, for example, (i) U.S. and non U.S. dollar denominated foreign
securities (up to 30% of total assets), (ii) convertible stocks and bonds, and
(iii) warrants.
The selection of investments for the portfolio is based on an
assessment of a company's fundamental prospects, rather than on a company's
size. As a result, portfolio holdings can range from securities of small
companies developing new technologies to securities of blue chip firms with
established track records of developing and marketing technological advances.
Temporary Defensive Investing
The Science & Technology Trust holds a certain portion of its assets in
money market reserves which can consist of shares of the T. Rowe Price Reserve
Investment Fund (an internal money market fund) as well as U.S. and foreign
dollar-denominated money market securities, including repurchase agreements, in
the two highest rating categories, maturing in one year or less. To meet
redemption requests or pending investment of its assets or during unusual market
conditions, the portfolio may invest without limitation in these securities. To
the extent the portfolio is in a defensive position, the ability to achieve its
investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Science & Technology Trust may also engage in a variety of
investment practices, such as buying and selling futures and options. The
portfolio may invest up to 10% of its total assets in hybrid instruments. Hybrid
instruments are a type of high-risk derivative which can combine the
characteristics of securities, futures and options.
The Science & Technology Trust is currently authorized to use all of
the various investment strategies referred to under "Hedging and Other Strategic
Transactions" below.
INTERNATIONAL SMALL CAP TRUST
Investment Objective
The investment objective of the International Small Cap Trust is to
seek long-term capital appreciation.
Investment Policies
Founders Asset Management LLC ("Founders") manages the International
Small Cap Trust. Founders pursues this investment objective by investing
primarily in securities issued by foreign companies which have total stock
market capitalizations or annual revenues of $1 billion or less ("small company
securities"). These securities may represent companies in both developed and
lesser developed countries throughout the world.
At least 65% of the portfolio's total assets are normally invested in
foreign securities representing a minimum of three countries (other than the
United States). The portfolio may invest in larger foreign companies or U.S.
based companies if, in Founders' opinion, they represent better prospects for
capital appreciation.
Foreign investments of the International Small Cap Trust may include
securities issued by companies located in countries not considered to be major
industrialized nations (emerging markets). Investments in the portfolio also 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 - Brady Bonds" in the Statement of Additional Information.
The International Small Cap Trust invests primarily in equity
securities. When Founders believes that other investments offer opportunities
for capital appreciation, the portfolio may also invest in:
- convertible securities,
- bonds,
- debentures, and
- other corporate obligations
The portfolio only invests in fixed income securities that, at the time
of purchase, have the following ratings (or, if unrated, are determined to be of
comparable quality by Founders):
<TABLE>
<CAPTION>
Bonds, Debentures and Corporate Convertible Securities and Preferred
Rating Agency Obligations Stocks
--------------------------------------- ------------------------------------ ---------------------------------------
<S> <C> <C>
Moody's Baa or higher (Investment Grade) B or higher
Standard & Poor's BBB or higher (Investment Grade) B or higher
</TABLE>
The portfolio will never have more than 5% of its total assets invested in any
fixed income securities (excluding preferred stocks) which are unrated or rated
below investment grade (measured at the time of purchase or as a result of a
reduction in rating after
48
<PAGE> 52
purchase). The portfolio is not required to dispose of fixed income securities
whose ratings are downgraded below investment grade subsequent to the
portfolio's purchase of such securities, unless such a disposition is necessary
to reduce the portfolio's holdings of such securities to less than 5% of its
total assets. The risks of investing in these securities are set forth above
under "Risks of Investing in Certain Types of Securities." Because the portfolio
normally will invest primarily in equity securities, the risks associated with
fixed income securities will not affect the portfolio as much as a portfolio
that invests more of its assets in fixed income securities.
The International Small Cap Trust is actively traded (for the fiscal
year ending 1999, the portfolio turnover rate was 309%). A high portfolio
turnover rate generally results in greater brokerage commission expenses which
must be borne directly by the portfolio.
Temporary Defense Investing
To meet redemptions or pending investment of its assets or during
unusual market conditions, the International Small Cap Trust may invest up to
100% of its assets temporarily in the following securities:
- cash, cash equivalents,
- U.S. government obligations, U.S. Treasury STRIPS,
- 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. To the extent
the portfolio is in a defensive position, the ability to achieve its investment
objective will be limited.
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 "Hedging and Other Strategic
Transactions."
AGGRESSIVE GROWTH TRUST
Investment Objective
The investment objective of the Aggressive Growth Trust is to seek
long-term capital appreciation.
Investment Policies
A I M Capital Management, Inc. ("AIM") manages the Aggressive Growth
Trust. AIM seeks to achieve this investment objective by investing the
portfolio's assets principally in common stocks, convertible bonds, convertible
preferred stocks and warrants of companies which in the opinion of AIM are
expected to achieve earnings growth over time at a rate in excess of 15% per
year. Many of these companies are in the small and medium-sized category. AIM
will be particularly interested in investing the portfolio's assets in companies
that are likely to benefit from new or innovative products, services or
processes that should enhance such companies' prospects for future growth in
earnings. As a result of this policy, the market prices of many of the
securities purchased and held by the portfolio may fluctuate widely. Any income
received from securities held by the portfolio will be incidental.
Aggressive Growth Trust's portfolio is primarily comprised of
securities of two basic categories of companies:
- "core" companies, which AIM considers to have experienced
above-average and consistent long-term growth in earnings and
to have excellent prospects for outstanding future growth, and
- "earnings acceleration" companies which AIM believes are
currently enjoying a dramatic increase in profits.
The Aggressive Growth Trust's strategy does not preclude investment in
large, seasoned companies which in the judgment of AIM possess superior
potential returns similar to companies with formative growth profiles. The
portfolio may also invest in established smaller companies (under $500 million
in market capitalization) which offer exceptional value based upon substantially
above average earnings growth potential relative to market value.
The Aggressive Growth Trust may invest in non-equity securities, such
as corporate bonds or U.S. Government obligations during periods when, in the
opinion of AIM, prevailing market, financial, or economic conditions warrant, as
well as when such holdings are advisable in light of a change in circumstances
of a particular company or within a particular industry.
The portfolio may invest up to 25% of its total assets in foreign
securities. American Depository Receipts ("ADRs") and European Depository
Receipts ("EDRs") and other securities representing underlying securities of
foreign issuers are treated as foreign securities and included in this 25%
limitation.
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Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Aggressive Growth Trust may invest all or
a portion of its assets in bonds, repurchase agreements, cash and cash
equivalents. To the extent the portfolio is in a defensive position, the ability
to achieve its investment objective will be limited.
Use of Hedging and Other Strategic Transactions
Aggressive Growth Trust may:
- purchase and sell stock index futures contracts,
- purchase options on stock index futures as a hedge against
changes in market conditions,
- purchase and sell futures contracts and purchase related
options in order to hedge the value of its portfolio against
changes in market conditions,
- write (sell) covered call options (up to 25% of the value of
the portfolio's net assets),
- enter into foreign exchange transactions to hedge against
possible variations in foreign exchange rates between
currencies of countries in which the portfolio is invested
including: the direct purchase or sale of foreign currency,
the purchase or sale of options on futures contracts with
respect to foreign currency, the purchase or sale of forward
contracts, exchange traded futures contracts and options of
futures contracts.
See "Hedging and Other Strategic Transactions" for further information
on these investment strategies.
EMERGING SMALL COMPANY TRUST
Investment Objective
The investment objective of the Emerging Small Company Trust is to seek
long-term growth of capital.
Investment Policies
Franklin Advisers, Inc. ("Franklin") manages the Emerging Small Company
Trust. Franklin seeks to achieve the portfolio's investment objective by
investing, under normal market conditions, at least 65% of the portfolio's total
assets in common stock equity securities of companies with market
capitalizations that approximately match the range of capitalization of the
Russell 2000 Index ("small cap stocks") at the time of purchase. The market
capitalizations within the Russell 2000 Index will vary, but as of December 31,
1999, they ranged from approximately $2 million to $13.2 billion. The securities
of small cap companies are traded on the New York Stock Exchange, the American
Stock Exchange and in the over-the-counter market. Equity securities also
include preferred stocks, securities convertible into common stocks, and
warrants for the purchase of common stocks.
The portfolio may also invest up to 35% (measured at the time of
purchase) of its total assets in any combination of the following if the
investment presents a favorable investment opportunity consistent with the
portfolio's investment goal:
- equity securities of larger capitalization companies which
Franklin believes have the potential for strong growth
potential, and
- relatively well-known, larger companies in mature industries
which Franklin believes have the potential for capital
appreciation.
Franklin will choose small cap companies that it believes are
positioned for rapid growth in revenues, earnings or assets, and that it can
acquire at a price it believes to be reasonable. Franklin looks for companies it
believes have distinct and sustainable competitive advantages, such as a
particular marketing or product niche, proven technology and industry
leadership. Franklin uses a disciplined "bottoms up" approach to stock
selection, blending fundamental and quantitative analysis. Franklin diversifies
the portfolio's assets across many industries, and from time to time may invest
substantially in certain sectors, including technology and biotechnology. Small
companies often pay no dividends, and current income is not a factor in the
selection of stocks.
The portfolio may invest up to 5% of its total assets in corporate debt
securities that Franklin believes have the potential for capital appreciation as
a result of improvements in the creditworthiness of the issuer. Debt securities
may include bonds, notes and debentures. The portfolio may invest in both rated
and unrated debt securities. The portfolio will only purchase securities rated
"B" or above by Moody's or Standard & Poor's (or comparable unrated securities).
The portfolio will not invest more than 5% of its total assets in non-investment
grade securities (rated lower than "BBB" by Standard & Poor's or "Baa" by
Moody's or comparable unrated securities). The receipt of income from debt
securities is incidental to the portfolio's investment goal of capital growth.
The portfolio may invest up to 25% of its total assets in foreign
securities, including those of developing or undeveloped markets, and sponsored
or unsponsored American, European and Global Depositary Receipts. The portfolio
currently intends to limit its investments in foreign securities to 10% of its
total assets.
The portfolio may also invest up to 10% of its total assets in real
estate investment trusts ("REITS"). See "Real Estate Securities Trust" below for
a discussion of REITS and the risks of investing in these trusts.
Temporary Defensive Investing
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To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Emerging Small Company Trust may invest
all or a portion of its assets in repurchase agreements, cash and cash
equivalents. To the extent the portfolio is in a defensive position, the ability
to achieve its investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Emerging Small Company Trust may:
- write (sell) covered put and call options and may buy put and
call options on securities and securities indices, and
- buy and sell futures and options on futures with respect to
securities, indices and currencies.
See "Hedging and Other Strategic Transactions" for further information on these
investment strategies.
SMALL COMPANY BLEND TRUST
Investment Objective
The investment objective of the Small Company Blend Trust is to seek
long-term growth of capital and income. Generation of current dividends will be
a secondary consideration.
Investment Policies
Capital Guardian Trust Company ("CGTC") manages the Small Company Blend
Trust. CGTC seeks to achieve this investment objective by investing the
portfolio's assets, under normal market conditions, primarily in equity and
equity-related securities of companies with market capitalizations that
approximately match the range of capitalization of the Russell 2000 Index
("small cap stocks") at the time of purchase. The market capitalizations within
the Russell 2000 Index will vary, but as of December 31, 1999, they ranged from
approximately $2 million to $13.2 billion. In determining market capitalization,
CGTC may consider the value of shares which are publicly traded. The portfolio
may hold ADRs and other U.S. registered securities of foreign issuers which are
denominated in U.S. dollars.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Small Company Blend Trust may invest all
or a portion of its assets in bonds, cash and cash equivalents. CGTC's judgment
regarding the current investment outlook will determine the relative amounts to
be invested in these different asset classes. To the extent the portfolio is in
a defensive position, the ability to achieve its investment objective will be
limited.
Use of Hedging and Other Strategic Transactions
The Small Company Blend 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.
DYNAMIC GROWTH TRUST
Investment Objective
The investment objective of the Dynamic Growth Trust is to seek
long-term growth of capital.
Investment Policies
Janus Capital Corporation ("Janus") manages the Dynamic Growth Trust.
Janus pursues this investment objective by investing the portfolio's assets
primarily in equity securities selected for their growth potential with normally
at least 50% of its equity assets in medium-sized companies. Medium-sized
companies are those whose market capitalization falls within the range of
companies in the S&P Mid Cap 400 Index. Market capitalization is a commonly used
measure of the size and value of a company. The market capitalizations within
the S&P Mid Cap 400 Index will vary, but as of December 31, 1999, they ranged
from approximately $170 million to $37 billion. Equity securities include common
stocks, preferred stocks, warrants and securities convertible into common or
preferred stocks.
The Dynamic Growth Trust may invest in foreign securities. Janus seeks
companies that meet its selection criteria, regardless of where a company is
located. Foreign securities are generally selected on a stock-by-stock basis
without regard to any defined allocation among countries or geographic regions.
However, certain factors such as expected levels of inflation, government
policies influencing business conditions, the outlook for currency
relationships, and prospects for economic growth among countries, regions or
geographic areas may warrant greater consideration in selecting foreign
securities. There are no limitations on the countries in which the Dynamic
Growth Trust may invest and the portfolio may, at times, have significant
foreign exposure.
Janus generally takes a "bottom up" approach to selecting companies. In
other words, they seek to identify individual companies with earnings growth
potential that may not be recognized by the market at large. They make this
assessment by looking at companies one at a time, regardless of size, country of
organization, place of principal business activity, or other similar selection
criteria. Realization of income is not a significant consideration when choosing
investments for the Dynamic Growth Trust.
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The Dynamic Growth Trust may invest in special situations. A special
situation arises when, in the opinion of Janus, the securities of a particular
issuer will be recognized and appreciate in value due to a specific development
with respect to that issuer. Developments creating a special situation might
include, among others, a new product or process, a technological breakthrough, a
management change or other extraordinary corporate event, or a differences in
market supply of and demand for the security. The portfolio's performance could
suffer if the anticipated development in a "special situation" investment does
not occur or does not attract the expected attention.
The Dynamic Growth Trust may also invest to a lesser degree in (a) debt
securities, (b) indexed/structured securities and (c) high yield/high risk bonds
(not to exceed 35% of the portfolio's assets).
Cash Positions
When Janus believes that market conditions are unfavorable for
profitable investing, or when Janus is unable to locate attractive investment
opportunities, the portfolio's cash or similar investments may increase. In
other words, the portfolio does not always stay fully invested in stocks and
bonds. In addition, Janus may also temporarily increase the portfolio's cash
position to protect its assets or maintain liquidity.
Use of Hedging and Other Strategic Transactions
The Dynamic Growth Trust is authorized to use all of the various
investment strategies referred to under "Hedging and Other Strategic
Transactions."
MID CAP STOCK TRUST
Investment Objective
The investment objective of the Mid Cap Stock Trust is to seek
long-term growth of capital.
Investment Policies
Wellington Management Company, LLP ("Wellington Management") manages
the Mid Cap Stock Trust. Wellington Management seeks to achieve the Trust's
objective by investing primarily in equity securities with significant capital
appreciation potential, with emphasis on medium-sized companies.
Wellington Management's investment approach while based primarily on
proprietary fundamental analysis, may also be shaped by secular and industry
themes. Fundamental analysis involves the assessment of a company through such
factors as its business environment, management, balance sheet, income
statement, anticipated earnings, revenues, earnings and other related measures
of value. In analyzing companies for investment, Wellington Management looks
for, among other things, a strong balance sheet, strong earnings growth,
attractive industry dynamics, strong competitive advantages (eg., great
management teams), and attractive relative value within the context of a
security's primary trading market. Securities are sold when the investment has
achieved its intended purpose, or because it is no longer considered attractive.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Mid Cap Stock Trust may invest all or a
portion of its assets in bonds, cash and cash equivalents. To the extent the
portfolio is in a defensive position, the ability to achieve its investment
objective will be limited.
Use of Hedging and Other Strategic Transactions
The Mid Cap Stock Trust does not currently intend to use any of the
investment strategies referred to under "Hedging and Other Strategic
Transactions".
ALL CAP GROWTH TRUST
Investment Objective
The investment objective of the All Cap Growth Trust (formerly, the Mid
Cap Growth Trust) is to seek long-term capital appreciation.
Investment Policies
A I M Capital Management, Inc. ("AIM") manages the All Cap Growth
Trust. AIM seeks to achieve this investment objective by investing the
portfolio's assets, under normal market conditions, principally in common stocks
of companies that are likely to benefit from new or innovative products,
services or processes as well as those that have experienced above-average,
long-term growth in earnings and have excellent prospects for future growth. As
a result of this policy, the market prices of many of the securities purchased
and held by the portfolio may fluctuate widely. Any income received from
securities held by the portfolio will be incidental.
The All Cap Growth Trust's portfolio is primarily comprised of
securities of two basic categories of companies:
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- "core" companies, which AIM considers to have experienced
above-average and consistent long-term growth in earnings and
to have excellent prospects for outstanding future growth, and
- "earnings acceleration" companies which AIM believes are
currently enjoying a dramatic increase in profits.
The All Cap Growth Trust may also purchase the common stocks of foreign
companies. It is not anticipated, however, that foreign securities will
constitute more than 20% of the value of the portfolio. American Depository
Receipts ("ADRs") and European Depositary Receipts ("EDRs") and other securities
representing underlying securities of foreign issuers are treated as foreign
securities and included in this 20% limitation.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the All Cap Growth Trust may invest all or a
portion of its assets in bonds, repurchase agreements, cash and cash equivalents
denominated in U.S. dollars or foreign currency. To the extent the portfolio is
in a defensive position, the ability to achieve its investment objective will be
limited.
Use of Hedging and Other Strategic Transactions
The All Cap Growth Trust may:
- purchase and sell stock index futures contracts,
- purchase options on stock index futures as a hedge against
changes in market conditions,
- purchase and sell futures contracts and purchase related
options in order to hedge the value of its portfolio against
changes in market conditions,
- write (sell) covered call options (up to 25% of the value of
the portfolio's net assets),
- foreign exchange transactions to hedge against possible
variations in foreign exchange rates between currencies of
countries in which the portfolio is invested including: the
direct purchase of sale of foreign currency, the purchase or
sale of options on futures contract with respect to foreign
currency, the purchase or sale of forward contracts, exchange
traded futures contracts and options of futures contracts.
See "Hedging and Other Strategic Transactions" for further information on these
investment strategies.
OVERSEAS TRUST
Investment Objective
The investment objective of the Overseas Trust is to seek growth of
capital.
Investment Policies
Fidelity Management Trust Company ("FMTC") manages the Overseas Trust.
FMTC normally invests at least 65% of the portfolio's total assets in foreign
securities (including American Depositary Receipts (ADRs) and European
Depositary Receipts (EDRs)). FMTC normally invests the portfolio's assets
primarily in common stocks.
The portfolio normally diversifies its investments across different
countries and regions. In allocating the portfolio's assets across countries and
region, FMTC will consider the size of the market in each country and region
relative to the size of the international market as a whole.
In buying and selling securities for the portfolio, FMTC relies on
fundamental analysis of each issuer and its potential for success in light of
its current financial condition, its industry position and economic and market
conditions. Factors include growth potential, earnings estimates and management.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Overseas Trust may invest all or a portion
of its assets in bonds, preferred stocks, repurchase agreements, cash and cash
equivalents denominated in either U.S. dollars or foreign currencies. During
unusual market conditions, the Overseas Trust may also temporarily use a
different investment strategy for defensive purposes. To the extent the
portfolio is in a defensive position, the ability to achieve its investment
objective will be limited.
Use of Hedging and Other Strategic Transactions
The Overseas Trust is currently authorized to use all of the various
investment strategies referred to under "Hedging and Other Strategic
Transactions."
INTERNATIONAL STOCK TRUST
Investment Objective
The investment objective of the International Stock Trust is long-term
growth of capital.
Investment Policies
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T. Rowe International International, Inc. ("T. Rowe International")
manages the International Stock Trust. T. Rowe International seeks to attain
this objective by investing the portfolio's assets primarily in common stocks of
established, non-U.S. companies. Geographic diversification will be wide,
including both developed and emerging markets. The portfolio invests in at least
three countries outside the United States.
The International Stock Trust invests 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.
The portfolio will not purchase any debt security which at the time of purchase
is rated below investment grade ("B" or below by Moody's or "BB" or below by
Standard & Poor's or comparable unrated securities). However, the portfolio may
retain a security which is downgraded to below investment grade after purchase.
Under normal market conditions, the portfolio's investment in securities other
than common stocks, is limited to no more than 35% of total assets. 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.
This reserve position provides flexibility in meeting redemptions, requests and
expenses, and the timing of new investments.
T. Rowe International blends a "bottom-up" approach, based on its
fundamental research, with an awareness of a country's economic status and T.
Rowe International's outlook. A company's prospects for achieving and sustaining
above-average, long-term earnings growth is generally T. Rowe International's
primary focus. However, valuation factors, such as price/earnings, price/cash
flow, and price/book value are also important considerations.
It is the present intention of T. Rowe International 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, the United Kingdom, Germany, Hungary,
Poland, Netherlands, France, Spain and Switzerland),
- South Africa,
- Australia,
- Canada,
- Latin America, and
- such other areas and countries as T. Rowe International may
determine from time to time to be consistent with the
portfolio's investment objective.
It is expected that the portfolio's investments will ordinarily be traded on
exchanges located in the respective countries in which the various issuers of
such securities are principally based.
In determining the appropriate distribution of investments among
various countries and geographic regions, T. Rowe International 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, T. Rowe International ordinarily
looks for one or more of the following characteristics:
- 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 marketplace.
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.
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
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proportionate share of the International Stock Trust's expenses (management fees
and operating expenses), shareholders will also indirectly bear similar expenses
of such passive foreign investment companies. 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; deductions for losses are
allowable only to the extent of any gains resulting from these deemed sales for
prior taxable years 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 portfolio may also invest a limited amount in fixed income
securities. The risks of investing in these securities are set forth above under
"Risks of Investing in Certain Types of Securities." Because the portfolio will
only invest a limited amount in fixed income securities, the risks associated
with these securities will not affect the portfolio as much as a portfolio that
invests more of its assets in fixed income securities.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the International Stock Trust may invest all
or a significant portion of its assets in:
- U.S. Government and corporate debt obligations rated
investment grade or above (or comparable unrated securities);
- U.S. and foreign dollar-denominated money market securities,
including repurchase agreements, in the two highest rating
categories, maturing in one year or less; and
- shares of the T. Rowe Price Reserve Investment Fund, an
internal T. Rowe Price money market fund that was established
for the exclusive use of the T. Rowe Price family of mutual
funds and other clients of T. Rowe Price and T. Rowe
International.
When the portfolio is in a defensive position, the ability to achieve its
investment objective will be limited.
Use of Hedging and Other Strategic Transactions
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. Hybrid instruments are a type
of high-risk derivative which can combine the characteristics of securities,
futures and options. The Statement of Additional Information contains a more
complete description of such instruments and the risks associated therewith.
The International Stock Trust is currently authorized to use all of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions."
INTERNATIONAL VALUE TRUST
Investment Objective
The investment objective of the International Value Trust is to seek
long-term growth of capital.
Investment Policies
Templeton Investment Counsel, Inc. ("Templeton") manages the
International Value Trust. Templeton seeks to achieve this investment objective
by investing, under normal market conditions, primarily in equity securities of
companies located outside the U.S., including in emerging markets.
Equity securities generally entitle the holder to participate in a
company's general operating results. These include common stocks and preferred
stocks. The portfolio also invests in American, European and Global Depositary
Receipts, which are certificates typically issued by a bank or trust company
that give their holders the right to receive securities issued by a foreign or
domestic company. Depending upon current market conditions, the portfolio
generally invests up to 25% of its total assets in debt securities of companies
and governments located anywhere in the world. Debt securities represent an
obligation of the issuer to repay a loan of money to it, and generally provide
for the payment of interest. Debt securities include bonds, notes and
debentures.
Templeton's investment philosophy is "bottom-up," value-oriented, and
long-term. In choosing equity investments, Templeton will focus on the market
price of a company's securities relative to its evaluation of the company's
long-term earnings, asset value and cash flow potential. A company's historical
value measure, including price/earnings ratio, profit margins and liquidation
value, will also be considered.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the International Value Trust may not invest,
or may invest less, in international stocks. At these times, the International
Value Trust may invest all or a portion of its assets in U.S. securities, cash
and cash equivalents. To the extent the portfolio is in a defensive position,
the ability to achieve its investment objective will be limited.
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Use of Hedging and Other Strategic Transactions
The International Value Trust does not currently intend to use any of
the investment strategies referred to under "Hedging and Other Strategic
Transactions."
CAPITAL APPRECIATION TRUST
Investment Objective
The principal investment objective of the Capital Appreciation Trust is
long term growth of capital.
Investment Policies
Jennison Associates LLC ("Jennison") manages the Capital Appreciation
Trust. Jennison seeks to attain this objective by investing at least 65% of the
portfolio's total assets in equity-related securities of companies that exceed
$1 billion in market capitalization and that Jennison believes have
above-average growth prospects. These companies are generally medium- to
large-capitalization companies.
Jennison follows a highly disciplined investment selection and
management process of identifying companies that show superior absolute and
relative earnings growth and also are attractively valued. Jennison seeks to
invest in companies that experience some or all of the following: (i) above
average revenue and earnings per share growth, (ii) strong market position,
(iii) improving profitability and distinctive attributes such as unique
marketing ability, (iv) strong research and development and productive new
product flow and (v) financial strength. Such companies generally trade at high
prices relative to their current earnings. Earnings predictability and
confidence in earnings forecasts are important parts of the selection process.
Securities in which the Capital Appreciation Trust invests have
historically been more volatile than the S&P 500 Index. Also, companies that
have an earnings growth rate higher than that of the average S&P 500 company
tend to reinvest their earnings rather than distribute them. Therefore, the
portfolio is not likely to receive significant dividend income on its portfolio
securities.
In addition to common stocks, nonconvertible preferred stock and
convertible securities, equity-related securities in which the Capital
Appreciation Trust invests include: (i) American Depository Receipts (ADRs);
(ii) warrants and rights that can be exercised to obtain stock; (iii)
investments in various types of business ventures, including partnerships and
joint ventures; (iv) real estate investment trusts (REITS) and similar
securities. (Convertible securities are securities - like bonds, corporate notes
and preferred stocks - that the portfolio can convert into the company's common
stock or some other equity security.)
The Capital Appreciation Trust may invest up to 35% of its total assets
in equity-related securities of companies that are undergoing changes in
management or product or changes in marketing dynamics that have not yet been
reflected in reported earnings (but are expected to affect earnings in the
intermediate term.) These securities often are not widely known and favorably
valued.
In addition to the principal strategies discussed above, the Capital
Appreciation Trust may also use the following investment strategies to attempt
to increase the portfolio's return or protect its assets if market conditions
warrant:
1. The portfolio may invest up to 35% of its total assets in
equity-related securities of companies that are undergoing
changes in management or product or changes in marketing
dynamics that have not yet been reflected in reported earnings
(but are expected to affect earnings in the intermediate
term.) These securities often are not widely known and
favorably valued.
2. The portfolio may make short sales of a security including
short sales "against the box."
3. The portfolio may invest up to 20% of the portfolio's total
asset in foreign equity securities. (For purposes of this 20%
limit, ADRs and other similar receipts or shares are not
considered to be foreign securities.)
4. The portfolio may invest in U.S. government securities issued
or guaranteed by the U.S. government or by an agency or
instrumentality of the U.S. government.
5. The portfolio may invest in mortgage-related securities issued
or guaranteed by U.S. governmental entities, including
collateralized mortgage obligations, multi-class pass through
securities and stripped mortgage backed securities.
6. The portfolio may invest in fixed-income securities rated
investment-grade (Baa or higher by Moody's Investor Service,
Inc. or BBB or higher by Standard & Poor's Ratings Group or
the equivalent rating by another rating service.) These
include corporate debt and other debt obligations of U.S. and
foreign issuers. The portfolio may invest in obligations that
are not rated, but that the Jennison believes are of
comparable quality to these obligations.
7. The portfolio may invest in repurchase agreements.
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Jennison considers selling or reducing a stock position when, in the
opinion of the investment adviser, the stock has experienced a fundamental
disappointment in earnings, it has reached an intermediate price objective and
its outlook no longer seems sufficiently promising, a relatively more attractive
stock emerges or the stock has experienced adverse price movement.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Capital Appreciation Trust may place any
portion of its assets in:
- money market instruments (which include commercial paper,
certificates of deposit, bankers' acceptances and other
obligations of domestic and foreign banks, nonconvertible debt
securities and short term obligations issued or guaranteed by
the U.S. government or its agencies or instrumentalities), and
- cash.
When the portfolio is in a defensive position or awaiting investment of its
assets, the ability to achieve its investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Capital Appreciation Trust is currently authorized to use all of
the various investment strategies referred to under "Hedging and Other Strategic
Transactions."
MID CAP BLEND TRUST
Investment Objective
The principal investment objective of the Mid Cap Blend Trust is growth
of capital. Although current income is a secondary objective, growth of income
may accompany growth of capital.
Investment Policies
Fidelity Management Trust Company ("FMTC") manages the Mid Cap Blend
Trust. FMTC seeks to attain this objective by investing the portfolio's assets
primarily in common stocks of U.S. issuers or securities convertible into or
which carry the right to buy common stocks. The Mid Cap Blend Trust invests
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.
Portfolio securities may be selected with a view toward either short-term or
long-term capital growth.
The portfolio may also invest in non-convertible preferred stocks and
fixed income securities. Normally, the portfolio will not invest more than 15%
of its assets in these securities. The risks of investing in these securities
are set forth above under "Risks of Investing in Certain Types of Securities."
Since the portfolio will only invest a limited extent in fixed income
securities, the risks associated with fixed income securities will not affect
the portfolio as much as a portfolio that invests more of its assets in fixed
income securities.
The portfolio may invest up to 20% of its assets in foreign securities.
The risks of investing in foreign securities are set forth above under "Risks of
Investing in Certain Types of Securities." Since the portfolio will, at most,
invest 20% of its assets in foreign securities, the risks associated with
foreign securities will not affect the portfolio as much as a portfolio that
invests more of its assets in foreign securities.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Mid Cap Blend Trust may place any portion
of its assets in:
- investment grade debt securities (i.e., rated in one of the
four highest bond rating categories assigned by Moody's or
Standard & Poor's). The Mid Cap Blend Trust is not required to
dispose of such instruments in the event they are downgraded.
- preferred stocks,
- U.S. Government Securities, or
- cash.
When the portfolio is in a defensive position or awaiting investment of its
assets, the ability to achieve its investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Mid Cap Blend 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.
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SMALL COMPANY VALUE TRUST
Investment Objective
The investment objective of the Small Company Value Trust is to seek
long-term growth of capital.
Investment Policies
AXA Rosenberg Investment Management LLC ("AXA Rosenberg") manages the
Small Company Value Trust. AXA Rosenberg pursues this objective by investing,
under normal circumstances, at least 65% of the portfolio's assets in common
stocks of companies with total market capitalization that approximately match
the range of capitalization of the Russell 2000 Index and are traded principally
in the markets of the United States. The market capitalizations within the
Russell 2000 Index will vary, but as of December 31, 1999, they ranged from
approximately $2 million to $13.2 billion. Because the companies in which the
Small Company Value Trust invests typically do not distribute significant
amounts of company earnings to shareholders, the Small Company Value Trust's
objective places relatively greater emphasis on capital appreciation than on
current income.
AXA Rosenberg uses a quantitative stock selection process to seek
long-term growth of capital. AXA Rosenberg identifies and purchases those stocks
which are undervalued (i.e., stocks which are currently cheaper than stocks with
similar characteristics). AXA Rosenberg seeks to construct a portfolio with
characteristics similar to those of the Small Company Value Trust's benchmark
(currently the Russell 2000 Index). These characteristics include market
capitalization, historic volatility or "beta" (a stock's relative volatility)
and industry weightings. In managing the portfolio, AXA Rosenberg utilizes
several computer models to assess a company's fundamental value and earnings
potential as well as investor sentiment about the company. For additional
information on AXA Rosenberg's computer models, general investment philosophy
and strategy, see "Additional Information Regarding Subadvisers" in the
Statement of Additional Information.
The Small Company Value Trust may also invest without limit in
common stocks of foreign issuers which are listed on a United States securities
exchange or trade in the United States in the over-the-counter market. The Small
Company Value Trust will not invest in securities which are principally traded
outside of the United States.
Temporary Defensive Investing
To meet redemption requests or pending investment in common
stocks or during unusual market conditions, the Small Company Value Trust may
also temporarily hold a portion of its assets not invested in small
capitalization securities in the following instruments:
- full faith and credit obligations of the United States
government (e.g. U.S. Treasury Bills), and
- short-term notes, commercial paper or other money market
instruments of high quality (i.e., rated at least "A-2" or
"AA" by Standard & Poor's or "Prime 2" or "Aa" by Moody's)
issued by companies having an outstanding debt issue rated at
least "AA" by Standard & Poor's or at least "Aa" by Moody's or
determined by AXA Rosenberg to be of comparable quality to any
of the foregoing.
When the portfolio is in a defensive position, the ability to achieve its
investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Small Company Value Trust is currently authorized to use all of the
investment strategies referred to under "Hedging and Other Strategic
Transactions."
GLOBAL EQUITY TRUST
Investment Objective
The investment objective of the Global Equity Trust is long-term
capital appreciation.
Investment Policies
Morgan Stanley Asset Management Inc. ("MSAM") manages the Global Equity
Trust. MSAM seeks to attain this objective by investing the portfolio's assets
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 markets.
Under normal circumstances, at least 65% of the value of the total
assets of the Global Equity Trust are invested in equity securities and at least
20% of the value of the portfolio's total assets are 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 traded on a regulated market. As a result of the absence of a public trading
market, such securities may pose liquidity risks.
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In selecting stocks for the portfolio, MSAM initially identifies those
stocks that it believes to be undervalued in relation to the issuer's assets,
cash flow, earnings and revenues. MSAM 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. Portfolio holdings are reviewed regularly and
fundamental analysis of the holdings is conducted to determine whether they
continue to conform to MSAM'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.
Temporary Defensive Investing
To meet redemption requests or pending investments of its assets or
during unusual market conditions, the Global Equity Trust may invest up to 100%
of its assets temporarily in the following securities:
- 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.
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 ability to achieve its investment
objective will be limited.
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.
GROWTH TRUST
Investment Objective
The investment objective of the Growth Trust is to seek long-term
growth of capital.
Investment Policies
State Street Global Advisors ("SSgA") manages the Growth Trust. SSgA
seeks to achieve this investment objective by investing primarily in large
capitalization growth securities (market capitalizations of approximately $1
billion or greater). In selecting securities for the portfolio, SSgA uses
independent investment perspectives, value and growth, to identify securities
that are undervalued and have superior growth potential. The portfolio is
constructed to take advantage of those securities with the greatest investment
potential while seeking to minimize risk by maintaining portfolio
characteristics similar to the large capitalization growth segment of the U.S.
equity market, as measured by the Russell 1000 Growth Index.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Growth Trust may invest all or a portion
of its assets in bonds, cash and cash equivalents. To the extent the portfolio
is in a defensive position, the ability to achieve its investment objective will
be limited.
Use of Hedging and Other Strategic Transactions
The Growth Trust may purchase and sell futures contracts. See "Hedging
and Other Strategic Transactions" for further information on these strategies.
LARGE CAP GROWTH TRUST
Investment Objective
The investment objective of the Large Cap Growth Trust is to seek
long-term growth of capital.
Investment Policies
Fidelity Management Trust Company ("FMTC") manages the Large Cap Growth
Trust. FMTC normally invests the portfolio's assets primarily in common stocks.
FMTC normally invests at least 65% of the portfolio's total assets in securities
of companies with large market capitalizations. FMTC defines large market
capitalization companies as those with market capitalizations of $1 billion or
more at the time of the portfolio's investment. Companies whose capitalization
falls below this level after purchase continue to be considered to have a large
market capitalization for purposes of the 65% policy.
FMTC may invest the portfolio's assets in securities of foreign issuers
in addition to securities of domestic issuers.
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FMTC is not constrained by any particular investment style. At any
given time, FMTC may tend to buy "growth" stocks or "value" stocks, or a
combination of both types. In buying and selling securities for the portfolio,
FMTC relies on fundamental analysis of each issuer and its potential for success
in light of its current financial condition, its industry position, and economic
and market conditions. Factors considered include growth potential, earnings
estimates and management.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Large Cap Growth Trust may invest all or a
portion of its assets in bonds, preferred stocks, repurchase agreements, cash
and cash equivalents denominated in either U.S. dollars or foreign currencies.
During unusual market conditions, the Overseas Trust may also temporarily use a
different investment strategy for defensive purposes. To the extent the
portfolio is in a defensive position, the ability to achieve its investment
objective will be limited.
Use of Hedging and Other Strategic Transactions
The Large Cap Growth Trust is currently authorized to use all of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions."
QUANTITATIVE EQUITY TRUST
Investment Objective
The investment objective of the Quantitative Equity 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.
Investment Policies
Manufacturers Adviser Corporation ("MAC") manages the Quantitative
Equity Trust. MAC pursues this investment objective by investing principally in
common stocks or in securities convertible into common stock or carrying rights
or warrants to purchase common stocks or to participate in earnings.
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, MAC places emphasis 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 portfolio's investments are not limited to securities of any particular type
or size of company, but high-quality growth and income stocks are emphasized.
Investments are made primarily in securities listed on national
securities exchanges, but the Quantitative Equity Trust may purchase securities
traded in the United States over-the-counter market. The portfolio may purchase
securities on a forward-commitment, when-issued or delayed-delivery basis.
The Quantitative Equity Trust may invest in the following types of
foreign securities:
- U.S. dollar denominated obligations of foreign branches of
U.S. banks,
- securities represented by ADRs listed on a national securities
exchange or traded in the U.S. over-the-counter market,
- securities of a corporation organized in a jurisdiction other
than the U.S. and listed on the New York Stock Exchange or
NASDAQ, and
- 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).
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Quantitative Equity Trust may place all or
a portion of its assets in fixed income securities, and cash and cash
equivalents. To the extent the portfolio is in a defensive position, the ability
to achieve its investment objective will be limited.
Use of Hedging and Other Strategic Transactions
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The Quantitative Equity Trust does not presently use any of the
investment strategies referred to under "Hedging and Other Strategic
Transactions" although it is authorized to use all of them.
BLUE CHIP GROWTH TRUST
Investment Objective
The primary investment objective of the Blue Chip Growth Trust is to
provide long-term growth of capital. Current income is a secondary objective.
Investment Policies
T. Rowe Price Associates, Inc. ("T. Rowe Price") manages the Blue Chip
Growth Trust. The portfolio invests at least 65% of its total assets in the
common stocks of large and medium-sized blue chip companies. These are firms
that in T. Rowe Price's view, are well established in their industries and have
the potential for above-average earnings growth.
In identifying blue chip companies, T. Rowe Price generally considers
the following characteristics:
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.
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.
T. Rowe Price evaluates the growth prospects of companies and the
industries in which they operate. T. Rowe Price seeks to identify companies with
strong market franchises in industries that appear to be strategically poised
for long-term growth. This 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
which are attractively priced relative to their anticipated long-term value.
Most of the assets of the portfolio are invested in U.S. common stocks.
However, the portfolio may also purchase other types of securities, for example,
(i) U.S. and non-U.S. dollar denominated foreign securities (up to 20% of its
total assets) including ADRs, (ii) convertible stocks and bonds, and (iii)
warrants. Investments in convertible securities, preferred stocks and debt
securities are limited to 25% of total assets.
The Blue Chip Growth Trust may invest in debt securities of any type
without regard to quality or rating. Such securities would be issued by
companies which meet the investment criteria for the portfolio but may include
non-investment grade debt securities (junk bonds). The portfolio will not
purchase a non-investment-grade debt security if, immediately after such
purchase, the portfolio would have more than 5% of its total assets invested in
such securities.
Temporary Defensive Investing
The Blue Chip Growth Trust may hold a certain portion of its assets in
money market reserves which can consist of shares of the T. Rowe Price Reserve
Investment Fund (an internal money market fund) as well as U.S. and foreign
dollar-denominated money market securities, including repurchase agreements, in
the two highest rating categories, maturing in one year or less. To meet
redemption requests or pending investment of its assets or during unusual market
conditions, the Blue Chip Growth Trust may invest without limitation in such
securities. To the extent the portfolio is in a defensive position, the ability
to achieve its investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Blue Chip Growth Trust may also engage in a variety of investment
management practices, such as buying and selling futures and options and is
currently authorized to use all of the various investment strategies referred to
under "Hedging and Other Strategic Transactions." 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. The Statement of Additional Information contains a description of these
strategies and of certain risks associated therewith.
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REAL ESTATE SECURITIES TRUST
Investment Objective
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 fixed income securities.
Investment Policies
Manufacturers Adviser Corporation ("MAC") manages the Real Estate
Securities Trust. MAC seeks to attain this objective by investing principally
(at least 65% of total assets) in real estate investment trust ("REIT") equity
and debt securities and other securities issued by companies which invest in
real estate or real estate related interests. REITs are pooled investment
vehicles which invest primarily in income producing real estate or real estate
related loans or interests.
The Real Estate Securities Trust may also purchase common stocks,
preferred stocks, convertible securities and fixed income securities of
companies operating in industry groups related to the real estate industry. Such
companies include entities engaged in the ownership, development, construction,
financing and servicing of real estate as well as companies involved in other
market segments related to real estate. For example, securities of banks,
finance and mortgage companies, property management, hotel and lodging
companies, homebuilders, building product manufacturers and building product
retailers may be purchased. The portfolio will not invest directly in real
property nor will it purchase mortgage notes directly. Up to 5% of the
portfolio's net assets may be invested in non-real estate related securities.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Real Estate Securities Trust may place all
or a portion of its assets in fixed income securities which may or may not be
real estate debt related securities, including cash or short-term debt
securities. To the extent the portfolio is in a defensive position, the ability
to achieve its investment objective will be limited.
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
Investment Objective
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.
Investment Policies
Miller Anderson & Sherrerd, LLP ("MAS") manages the Value Trust. MAS
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 invests 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 coupon bonds, 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. The Value Trust
may invest without limit in ADRs and may invest up to 5% of its total assets in
foreign equities excluding ADRs.
MAS' approach is to select equity securities which are deemed to be
undervalued relative to the stock market in general as measured by the S&P 500
Index. MAS bases it evaluations on value measures such as price/earnings ratios
and price/book ratios, as well as fundamental research. While MAS emphasizes
capital return 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 and which normally sell at higher price/earnings
ratios.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Value Trust may place all or a portion of
its assets in fixed income securities, and cash and cash equivalents. To the
extent the portfolio is in a defensive position, the ability to achieve its
investment objective will be limited.
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.
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Special Risks
The principal risks of investing in the Value Trust are described in
the "Risk/Return Summary" in the beginning of this Prospectus. Some of the
companies whose securities are purchased by the Value Trust may be small or
medium sized. The risks of investing in small or medium sized companies are set
forth under "Risks of Investing in Certain Types of Securities" above.
TACTICAL ALLOCATION TRUST
Investment Objective
The investment objective of the Tactical Allocation Trust is to seek
total return, consisting of long-term capital appreciation and current income.
Investment Policies
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") manages
the Tactical Allocation Trust. Mitchell Hutchins seeks to achieve this
investment objective by allocating the portfolio's assets between:
- A stock portion that is designed to track the performance of
the S&P 500 Composite Stock Price Index (the "S&P 500 Index")
and
- A fixed income portion that consists of either five-year U.S.
Treasury notes or U.S. Treasury bills with remaining
maturities of 30 days.
The portfolio's subadviser reallocates the portfolio's assets in
accordance with the recommendations of its own Tactical Allocation Model on the
first business day of each month.
The Tactical Allocation Model attempts to track the performance of the
S&P 500 Index in periods of strong market performance. The Model attempts to
take a more defensive posture by reallocating assets to bonds or cash when the
Model signals a potential bear market, prolonged downturn in stock prices or
significant loss in value. The Model can recommend stock allocations of 100%,
75%, 50%, 25% or 0%. By using the Tactical Allocation Model, the portfolio seeks
to achieve total return during all economic and financial markets cycles, with
lower volatility than that of the S&P 500 Index.
If the Tactical Allocation Model recommends a stock allocation of less
than 100%, the Model also recommends a fixed income allocation for the remainder
of the portfolio's assets. The Model uses a bond risk premium determination to
decide whether to recommend five-year U.S. Treasury notes or 30-day U.S.
Treasury bills. This bond risk premium is calculated based on the
yield-to-maturity of the five-year U.S. Treasury note and the one-year U.S.
Treasury bill.
The basic premise of the Tactical Allocation Model is that investors
accept the risk of owning stocks, measured as volatility of return, because they
expect a return advantage. This expected return advantage of owning stocks is
called the equity risk premium ("ERP"). The Model projects the stock market's
expected ERP based on several factors, including the current price of stocks and
their expected future dividends and the yield-to-maturity of the one-year U.S.
Treasury bill. When the stock market's ERP is high, the Model signals the
portfolio to invest 100% in stocks. Conversely, when the ERP decreases below
certain threshold levels, the Model signals the portfolio to reduce its exposure
to stocks.
When the Tactical Allocation Model recommends a fixed income allocation
of more than 50%, the Tactical Allocation Trust must invest in other high
quality bonds or money market instruments to the extent needed to limit the
portfolio's investments in U.S. Treasury obligations to no more than 55% of its
assets. This limit is imposed by Internal Revenue Code diversification
requirements for segregated asset accounts used to fund variable annuity or
variable life contracts.
The Tactical Allocation Trust deviates from the recommendations of the
Tactical Allocation Model only to the extent necessary to:
- Maintain an amount in cash, not expected to exceed 2% of its
total assets under normal market conditions, to pay portfolio
operating expenses, dividends and other distributions on its
shares and to meet anticipated redemptions of shares;
- Qualify as a regulated investment company for federal income
tax purposes; and
- Meet the diversification requirements imposed by the Internal
Revenue Code on segregated asset accounts used to fund
variable annuity and/or life insurance contracts as discussed
above.
In its stock portion, Tactical Allocation Trust attempts to duplicate,
before the deduction of operating expenses, the investment results of the S&P
500 Index. Securities in the S&P 500 Index are selected, and may change from
time to time, based on a statistical analysis of such factors as the issuer's
market capitalization (the S&P 500 Index emphasizes large capitalization
stocks), the security's trading activity and its adequacy as a representative of
stocks in a particular industry section. The portfolio's investment results for
its stock portion will not be identical to those of the S&P 500 Index.
Deviations from the performance of the S&P 500 Index may result from purchases
and redemptions of fund shares that may occur daily, as well as from expenses
borne by the portfolio. Instead, the portfolio attempts to achieve a correlation
of at least 0.95 between the performance of the portfolio's stock
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portion, before the deduction of operating expenses, and that of the S&P 500
Index (a correlation of 1.00 would mean that the net asset value of the stock
portion increased or decreased in exactly the same proportion as changes in the
S&P 500 Index). The S&P 500 Index can include U.S. dollar-denominated stocks of
foreign issuers, and the portfolio invests in those securities to the extent
needed to track the performance of the S&P 500 Index.
For its bond investments, the Tactical Allocation Trust seeks to invest
in U.S. Treasury notes having five years remaining until maturity at the
beginning of the then-current calendar year. However, if those instruments are
not available at favorable prices, the portfolio may invest in U.S. Treasury
notes that have either remaining maturities as close as possible to five years
or overall durations that are as close as possible to the duration of five year
U.S. Treasury notes. Similarly, for its cash investments, the portfolio seeks to
invest in U.S. Treasury bills with remaining maturities of 30 days. However, if
those instruments are not available at favorable prices, the portfolio may
invest in U.S. Treasury bills that have either remaining maturities as close as
possible to 30 days or overall durations that are as close as possible to the
duration of 30-day U.S. Treasury bills.
In addition to any reallocation of assets directed by the Tactical
Allocation Model on the first business day of the month, any material amounts
resulting from appreciation or receipt of dividends, other distributions,
interest payments and proceeds from securities maturing in each of the asset
classes are reallocated (or "rebalanced") to the extent practicable to establish
the Model's recommended asset mix. Any cash maintained to pay fund operating
expenses, pay dividends and other distributions and to meet share redemptions is
invested on a daily basis.
The portfolio may sell short "against the box" (sale of a security a
portfolio owns or has the right to acquire at no additional cost.)
Temporary Defensive Investing
Other than its investments in U.S. Treasury bills or other high quality
money market instruments as indicated by the Tactical Allocation Model, the
Tactical Allocation Trust may invest to a limited extent in money market
instruments for cash management purposes. To the extent the portfolio is in a
defensive position, the ability to achieve its investment objective will be
limited.
Use of Hedging and Other Strategic Transactions
The Tactical Allocation Trust may (but is not required to) use options
and futures and other derivatives to adjust its exposure to different asset
classes or to maintain exposure to stocks or bonds while maintaining a cash
balance for fund management purposes. The subadviser also may use these
instruments to reduce the risk of adverse price movements while investing in
cash received when investors buy portfolio shares, to facilitate trading and to
reduce transaction costs. See "Hedging and Other Strategic Transactions."
EQUITY INDEX TRUST
Investment Objective
The investment objective of the Equity Index Trust is to approximate
the aggregate total return of publicly traded common stocks which are included
in the S&P 500 Composite Stock Price Index (the "S&P 500 Index").
Investment Policies
The portfolio is designed to provide a less costly and convenient way
to invest in the equity securities of a diversified group of U.S. companies. The
portfolio is not actively managed; rather MAC tries to duplicate the performance
of the S&P 500 Index by investing the portfolio's assets in the common stocks
that are included in the S&P 500 Index in approximately the proportion of their
respective market value weightings in the S&P 500 Index.
The portfolio uses the S&P 500 Index as its standard performance
comparison because the S&P 500 Index (i) represents more than 70% of the total
market value of all publicly traded common stocks in the U.S. and (ii) is widely
viewed among investors as representative of the performance of publicly traded
common stocks in the U.S.
The S&P 500 Index is an unmanaged index composed of 500 selected common
stocks, over 95% of which are listed on the New York Stock Exchange. The
performance of the S&P 500 Index is based on changes in the prices of stocks
comprising the S&P 500 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 S&P 500 Index. Standard & Poor's(1) selects the
stocks to be included in the S&P 500 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 S&P 500 Index are weighted according to their market
capitalization (i.e., the number of shares outstanding multiplied by the stock's
current price).
Since MAC attempts to match the performance of the S&P 500 Index, the
adverse financial situation of a company will not result in its elimination from
the portfolio unless, of course, the company in question is removed from the S&P
500 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.
--------
(1) "Standard & Poor's(R)," "S&P 500(R)," "S&P(R)," "Standard & Poor's
500(R)" and "500" are trademarks of McGraw-Hill, Inc.
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Under normal circumstances, the net assets of the Equity Index Trust
will be invested in any combination of the following investments:
- representative common stocks
- Standard & Poor's Stock Index Futures Contracts ("S&P 500
Futures Contracts"), and
- 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 S&P 500 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 S&P 500 Index.
There is no minimum or maximum number of stocks included in the S&P 500
Index which the Equity Index Trust must hold. Under normal circumstances, it is
expected that the portion of the portfolio invested in stocks would be between
300 and 500 different stocks included in the S&P 500 Index. The portfolio may
compensate for the omission of a stock that is included in the S&P 500 Index, or
for purchasing stocks in other than the same proportion that they are
represented in the S&P 500 Index, by purchasing stocks that are believed by MAC
to have characteristics that correspond to those of the omitted stocks.
Tracking error is measured by the difference between the total return
for the S&P 500 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 S&P
500 Index. If deviation accuracy is not maintained, the Equity Index Trust will
rebalance its composition by selecting securities which, in the opinion of MAC,
will provide a more representative sampling of the capitalization of the
securities in the S&P 500 Index as a whole or a more representative sampling of
the sector diversification in the S&P 500 Index.
The portfolio may also invest in short-term debt securities to maintain
liquidity or pending investment in stocks or S&P 500 Futures Contracts.
Standard & Poor's licenses certain trademarks and trade names to the
Trust but disclaims any responsibility or liability to the Trust and its
shareholders. See Appendix II in the Statement of Additional Information for
such disclaimer.
Use of Hedging and Other Strategic Transactions
The Equity Index Trust may invest in S&P 500 Futures Contracts. A more
complete description of this investment strategy appears under "Hedging and
Other Strategic Transactions" below in this Prospectus and in the Statement of
Additional Information.
GROWTH & INCOME TRUST
Investment Objective
The investment objective of the Growth & Income Trust is to provide
long-term growth of capital and income consistent with prudent investment risk.
Investment Policies
Wellington Management Company, LLP ("Wellington Management") manages
the Growth & Income Trust. Wellington Management seeks to achieve the
portfolio'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 Growth & Income Trust's investments primarily emphasize dividend-paying
stocks of larger companies. The portfolio may also invest in securities
convertible into or which carry the right to buy common stocks. These securities
include those convertible securities issued in the Euromarket, preferred stocks
and debt securities.
Wellington Management selects portfolio investments on the basis of
fundamental analysis, which it utilizes to identify those securities that
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 also monitors and evaluates
the economic and political climate and the principal securities markets of the
country in which each company is located. Securities are sold when the
investment has achieved its intended purpose, or because it is no longer
considered attractive.
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The Growth & Income Trust invests 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 & Income Trust may
also invest up to 20% of its assets in foreign securities. The risks of
investing in foreign securities are set forth above under "Risks of Investing in
Certain Types of Securities." Since the portfolio will only invest at most 20%
of its assets in foreign securities, the risks associated with foreign
securities will not affect the portfolio as much as a portfolio that invests
more of its assets in foreign securities.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Growth & Income Trust may 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. To the extent the portfolio is in a defensive position, the
ability to achieve its investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Growth & 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.
U.S. LARGE CAP VALUE TRUST
Investment Objective
The investment objective of the U.S. Large Cap Value Trust is to seek
long-term growth of capital and income.
Investment Policies
Capital Guardian Trust Company ("CGTC") manages the U.S. Large Cap
Value Trust. CGTC seeks to achieve this investment objective by investing the
portfolio's assets, under normal market conditions, primarily in equity and
equity-related securities of companies with market capitalization greater than
$500 million at the time of purchase. In selecting investments, greater
consideration is given to potential appreciation and future dividends than to
current income. The portfolio may hold ADRs and other U.S. registered securities
of foreign issuers which are denominated in U.S. dollars.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the U.S. Large Cap Value Trust may invest all
or a portion of its assets in preferred stocks, bonds, cash and cash
equivalents. CGTC's judgment regarding the current investment outlook will
determine the relative amounts to be invested in these different asset classes.
To the extent the portfolio is in a defensive position, the ability to achieve
its investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The U.S. Large Cap Value 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.
EQUITY-INCOME TRUST
Investment Objective
The investment objective of the Equity-Income Trust is to provide
substantial dividend income and also long-term capital appreciation.
Investment Policies
T. Rowe Price Associates, Inc. ("T. Rowe Price") manages the
Equity-Income Trust. T. Rowe Price seeks to attain this objective by investing,
under normal circumstances, at least 65% of the portfolio's total assets in the
common stocks of established companies paying above-average dividends. T. Rowe
Price believes that income can contribute significantly to total return over
time and expects the portfolio's yield to exceed that of the S&P 500 Index.
Dividends can also help reduce the portfolio's volatility during periods of
market turbulence and help offset losses when stock prices are falling.
The Equity-Income Trust will generally consider companies with the
following characteristics:
- established operating histories;
- above-average dividend yield relative to the S&P 500 Index;
- low price/earnings ratios relative to the S&P 500 Index;
- sound balance sheets and other financial characteristics; and
- low stock price relative to a company's underlying value, as
measured by assets, cash flow or business franchises.
The Equity-Income Trust tends to take a "value" approach and invests in
stocks and other securities that appear to be temporarily undervalued by various
measures and may be temporarily out of favor, but have good prospects for
capital appreciation
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and dividend growth. 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 a stock's intrinsic value. Finding undervalued stocks
requires considerable research to identify the particular stocks, to analyze
each company's underlying financial condition and prospects, and to assess the
likelihood that a 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,
- U.S. and non-U.S. dollar denominated foreign securities
including ADRs (up to 25% of total assets),
- preferred stocks,
- convertible stocks and bonds, and
- warrants.
The Equity-Income Trust may also invest in debt securities of any type,
including municipal securities and non-investment grade debt securities
(commonly known as "junk bonds") without regard to quality or rating. The
portfolio will not purchase a non-investment-grade debt security if immediately
after such purchase the portfolio would have more than 10% of its total assets
invested in such securities.
The portfolio may invest in fixed income securities including up to 10%
in non-investment grade fixed income securities. The risks of investing in fixed
income securities are set forth above under "Risks of Investing in Certain Types
of Securities." Since the portfolio invests primarily in equity securities, the
risks associated with fixed income securities will not affect the portfolio as
much as a portfolio that invests more of its assets in fixed income securities.
Temporary Defensive Investing
The Equity-Income Trust may hold a certain portion of its assets in
money market reserves which can consist of shares of the T. Rowe Price Reserve
Investment Fund (an internal money market fund) as well as U.S. and foreign
dollar-denominated money market securities, including repurchase agreements, in
the two highest rating categories, maturing in one year or less. To meet
requests or pending investment of its assets or during unusual market
conditions, the portfolio may invest without limitation in such securities. To
the extent the portfolio is in a defensive position, the ability to achieve its
investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Equity-Income 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. Hybrid
instruments are a type of high-risk derivative which can combine the
characteristics of securities, futures and options. Such securities may bear
interest or pay dividends at below market (or even relatively nominal) rates.
The Statement of Additional Information contains more complete description of
such instruments and the risks associated therewith.
The Equity-Income Trust is currently authorized to use all of the
various investment strategies referred to under "Hedging and Other Strategic
Transactions."
INCOME & VALUE TRUST
Investment Objective
The investment objective of the Income & Value Trust is to seek the
balanced accomplishment of (a) conservation of principal and (b) long-term
growth of capital and income.
Investment Policies
Capital Guardian Trust Company ("CGTC") manages the Income & Value
Trust. CGTC seeks to achieve this investment objective by investing the
portfolio's assets in both equity and fixed income securities. CGTC has full
discretion to determine the allocation of assets between equity and fixed income
securities. Generally, between 25% and 75% of the portfolio's assets will be
invested in fixed income securities unless CGTC determines that some other
proportion would better serve the portfolio's investment objective.
Fixed Income Securities. At least 80% of the fixed income portion of
the portfolio will consist of the following:
- securities rated "Baa" or better at the time of purchase by
Moody's or "BBB" by Standard & Poor's or deemed by CGTC to be
of equivalent investment quality including mortgage-related
and asset-backed securities (see "Other Risks of Investing"
below for a description of these securities);
- securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
- cash or cash equivalents including commercial bank obligations
and commercial paper.
Fixed-income securities may include ADRs, Yankee Bonds and Eurodollar
instruments which are U.S. dollar denominated.
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<PAGE> 71
Equity Securities. Equity securities shall be listed on national
securities exchanges or in the national OTC market (also known as NASDAQ) and
may include ADRs and other U.S. registered securities of foreign issuers which
are denominated in U.S. dollars.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Income & Value Trust may invest all or a
portion of its assets in fixed income securities, cash and cash equivalents. To
the extent the portfolio is in a defensive position, the ability to achieve its
investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Income & Value 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.
BALANCED TRUST
Investment Objective
The investment objective of the Balanced Trust is current income and
capital appreciation.
Investment Policies
Founders Asset Management LLC ("Founders") is the manager of the
Balanced Trust. Founders seeks to attain this objective by investing the
portfolio's assets in a balanced portfolio of (i) common stocks, (ii) U.S. and
foreign government obligations and (iii) a variety of corporate fixed income
securities.
The Balanced Trust normally invests 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 stocks if, in Founders'
opinion, they offer better prospects for capital appreciation.
The Balanced Trust may invest in fixed income securities, convertible
securities and preferred stocks that have the following ratings:
<TABLE>
<CAPTION>
Convertible Securities and
Rating Agency Fixed Income Securities Preferred Stocks
--------------------------------------- ------------------------------------- ---------------------------------------
<S> <C> <C>
Moody's B or higher B or higher*
Standard & Poor's B or higher B or higher*
</TABLE>
* Subject to the 5% limitation on convertible securities set forth below.
The Balanced Trust will invest at least 25% of its total assets in investment
grade fixed income securities. The portfolio may invest however, in an unlimited
amount of fixed income securities.
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 Standard & Poor's) or
unrated fixed income and convertible securities (commonly referred to as junk
bonds), where Founders determines that such securities present attractive
opportunities. Investments in preferred stocks are not subject to this 5% limit
and the portfolio may invest without limitation in unrated preferred stocks. The
portfolio will not, however, invest in fixed income securities, convertible
securities or preferred stocks rated lower than "B" (or comparable unrated
securities). The portfolio is not required to dispose of fixed income
securities, convertible securities or preferred stocks 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 fixed income securities and convertible securities to less that 5%
of its total assets.
The Balanced Trust may invest without limit in ADRs and may invest 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
issuers located in any one foreign country.
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<PAGE> 72
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, up to 100% of the assets of the Balanced Trust
may be invested temporarily in the following securities:
- U.S. Government obligations,
- U.S. Treasury STRIPS,
- 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.
The portfolio may also acquire certificates of deposit and bankers' acceptances
of banks which meet criteria established by the Trust's Board of Trustees. To
the extent the portfolio is in a defensive position, the ability to achieve its
investment objective will be limited.
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."
HIGH YIELD TRUST
Investment Objective
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.
Investment Policies
Miller Anderson & Sherrerd, LLP ("MAS") manages the High Yield Trust.
MAS seeks to attain this objective by investing primarily (at least 65% under
normal market conditions) of the portfolio's total assets in high yield debt
securities, including corporate bonds and other fixed income securities (such as
preferred stocks and convertible securities) which have the following ratings
(or, if unrated, are considered to be of equivalent quality):
<TABLE>
<CAPTION>
Corporate Bonds, Preferred Stocks and
Rating Agency Convertible Securities
--------------------------------- --------------------------------------------
<S> <C>
Moody's Ba through C
Standard & Poor's BB through D
</TABLE>
Securities rated less than "Baa" by Moody's or "BBB" by Standard & Poor's are
classified as non-investment grade securities and are commonly referred to as
junk bonds.
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.
MAS invests the portfolio's assets in high yield securities, which are
chosen based on its analysis of economic and industry trends and individual
security characteristics. MAS conducts a credit analysis on each security
considered for investment to evaluate the security's potential return relative
to its risk. In-depth financial analysis is used to uncover opportunities in
undervalued issues. A high level of diversification is also maintained to limit
credit exposure to individual issuers.
MAS' fixed income strategy has two primary components: (i) value
investing and (ii) maturity and duration management. Value investing is where
MAS seeks to identify undervalued sectors and securities through analysis of
credit quality, option characteristics and liquidity. MAS uses quantitative
models 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 represent opportunities for price appreciation. Successful value
investing will permit a portfolio to benefit from the price appreciation of
individual securities during periods when interest rates are unchanged.
Maturity and duration management of a portfolio is the active
management of the portfolio 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. MAS makes adjustments to shorten
portfolio maturity and duration to limit capital losses during periods when
interest rates are expected to rise. Conversely, MAS makes adjustments to
lengthen maturity 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.
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The High Yield Trust may invest greater than 50% of its total assets 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. 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 rated investment
grade by Moody's or Standard & Poor's (or deemed by MAS to be of comparable
investment quality). It is not anticipated that greater than 25% of the
portfolio's assets will be invested in mortgage pools comprised of private
organizations. See the discussion regarding mortgage-backed securities under
"Other Risks of Investing" as well as "Investment Policies -- Other Instruments"
in the Statement of Additional Information for a more detailed description of
these investments and of certain risks associated therewith.
The High Yield Trust may invest up to 100% of its assets in foreign
bonds and other fixed income securities denominated in foreign currencies,
where, in the opinion of MAS, the combination of current yield and currency
value offer attractive expected returns. Foreign securities in which the
portfolio may invest include emerging market securities. MAS' approach to
emerging markets investing is based on its 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. The portfolio may
also invest in securities created through the Brady Plan. The Brady Plan is a
program under which heavily indebted countries have restructured their bank debt
into bonds.
Temporary Defensive Investing
To meet redemptions or pending investment of its assets or during
unusual market conditions, up to 100% of the High Yield Trust's assets may be
invested in cash, cash equivalents and repurchase agreements. To the extent that
the portfolio is in a defensive position, the ability to achieve its investment
objective will be limited.
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."
STRATEGIC BOND TRUST
Investment Objective
The investment objective of the Strategic Bond Trust is to seek a high
level of total return consistent with preservation of capital.
Investment Policies
Salomon Brothers Asset Management Inc ("SaBAM") manages the Strategic
Bond Trust. SaBAM seeks to achieve this objective by allocating the portfolio's
assets among five sectors of the fixed income market listed below.
- U.S. Government obligations,
- investment grade U.S. corporate fixed income securities,
- high yield corporate fixed income securities,
- mortgage-backed securities, and
- investment grade and high yield international fixed income
securities.
SaBAM's allocation process is based on its analysis of current economic
and market conditions and the relative risks and opportunities presented in
these markets. SaBAM determines the amount of assets to be allocated to each
type of security in which the portfolio 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, SaBAM relies in part on quantitative analytical
techniques that measure relative risks and opportunities of each type of
security. SaBAM also relies on its own assessment of economic and market
conditions both on a global and local (country) basis. SaBAM considers economic
factors which include current and projected levels of growth and inflation,
balance of payment status and monetary policy. The allocation of assets to
international debt securities is further 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 SaBAM
believes that such investments would impair the portfolio's ability to preserve
shareholder capital. SaBAM 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.
SaBAM 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.
The types and characteristics of the U.S. government obligations,
mortgage-backed securities, investment grade corporate fixed income securities
and investment grade international fixed income securities purchased by the
Strategic Bond Trust are set forth in the discussion of investment objectives
and policies for the Investment Quality Bond, U.S. Government Securities and
Global Bond
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<PAGE> 74
Trusts, and in the section entitled "Other Instruments" in the Statement of
Additional Information. The types and characteristics of the money market
securities purchased by the portfolio are set forth in the discussion of
investment objectives of the Money Market Trust. Potential investors should
review these other discussions in considering an investment in shares of the
Strategic Bond Trust. The Strategic Bond Trust may invest without limitation in
high yield domestic and foreign fixed income securities and up to 100% of the
Strategic Bond Trust's assets may be invested in foreign securities. SaBAM has
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 high yield sovereign fixed income securities in which the Strategic
Bond Trust may invest are U.S. dollar-denominated and non-dollar-denominated
fixed income securities issued or guaranteed by governments or governmental
entities of developing and emerging countries. SaBAM 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.
SaBAM intends to concentrate the portfolio's investments in sovereign
debt in Latin American countries, including Mexico and Central and South
American and Caribbean countries. SaBAM also 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 authority to impose taxes. Governmental entities may include
the agencies and instrumentalities of such governments, as well as state-owned
enterprises.
Although SaBAM does not anticipate investing in excess of 75% of the
portfolio's assets in domestic and developing country fixed income securities
that are rated below investment grade, the portfolio may invest a greater
percentage in such securities when, in the opinion of the SaBAM, 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-backed securities and international debt
securities, as described below, SaBAM seeks to provide investors with a higher
yield than a high-quality domestic corporate bond fund with 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 Standard & Poor's
(i.e., rated "C" by Moody's or "CCC" or lower by Standard & Poor's).
In light of the risks associated with investing in high yield corporate
and sovereign debt securities, SaBAM considers various factors in evaluating the
credit worthiness of an issue. These factors will typically include:
<TABLE>
<CAPTION>
Corporate Debt Securities Sovereign Debt Instruments
----------------------------------------------------- --------------------------------------------------
<S> <C>
- issuer's financial resources - economic and political conditions
- issuer's sensitivity to economic within the issuer's country
conditions and trends - issuer's external and overall amount of
- operating history of the issuer debt, and its ability to pay principal and
- experience and track record of the interest when due
issuer's management - issuer's access to capital markets and
other sources of funding
- issuer's debt service payment history
</TABLE>
SaBAM also reviews the ratings, if any, assigned to a security by any
recognized rating agencies, although its 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 SaBAM's credit analysis than would be the case if it
invested in higher quality debt securities.
Temporary Defensive Investing
The Strategic Bond Trust currently intends to invest substantially all
of its assets in fixed income securities. To meet redemption requests or pending
investment of assets, however, the Strategic Bond Trust may invest in
high-quality short-term money market instruments. During unusual market
conditions, the Strategic Bond Trust may invest its assets without limit in
high-quality short-term money market instruments. To the extent the portfolio is
in a defensive position, the ability to achieve its investment objective will be
limited.
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.
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GLOBAL BOND TRUST
Investment Objective
The investment objective of the Global Bond Trust is to seek to realize
maximum total return, consistent with preservation of capital and prudent
investment management.
Investment Policies
Pacific Investment Management Company ("PIMCO") manages the Global Bond
Trust. PIMCO seeks to achieve this investment objective by investing the
portfolio's assets primarily in fixed income securities denominated in major
foreign currencies, baskets of foreign currencies (such as the euro), and the
U.S. dollar.
Under normal circumstances, at least 65% of its assets will be invested
in fixed income securities of issuers located in at least three countries (one
of which may be the United States). These securities may be represented by
futures contracts (including related options) with respect to such securities,
and options on such securities, when PIMCO deems it appropriate to do so.
Depending on PIMCO's current opinion as to the proper allocation of assets among
domestic and foreign issuers, investments in the securities of issuers located
outside the United States will normally vary between 25% and 75% of the
portfolio's assets. The portfolio may invest up to 10% of its assets in fixed
income securities that are rated below investment grade but rated "B" or higher
by Moody's or Standard & Poor's (or, if unrated, determined by PIMCO to be of
comparable quality). The average portfolio duration of the Global Bond Trust
will normally vary within a three to seven year time frame. (Duration is a
measure of the expected life of a fixed income security on a present value
basis.)
In selecting securities for the portfolio, PIMCO utilizes economic
forecasting, interest rate anticipation, credit and call risk analysis, foreign
currency exchange rate forecasting, and other security selection techniques. The
proportion of the Global Bond Trust's assets committed to investment in
securities with particular characteristics (such as maturity, type and coupon
rate) will vary based on PIMCO's outlook for the U.S. and foreign economies, the
financial markets, and other factors.
The types of fixed income securities in which the Global Bond Trust may
invest include the following securities which unless otherwise noted may be
issued by domestic or foreign issuers and may be denominated in U.S. dollars or
foreign currencies:
- securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities;
- corporate debt securities, including convertible securities
and corporate commercial paper;
- mortgage-backed and other asset-backed securities;
- inflation-indexed bonds issued by both governments and
corporations;
- structured notes, including hybrid or "indexed" securities,
- catastrophe bonds;
- loan participations;
- delayed funding loan and revolving credit facilities;
- bank certificates of deposit, fixed time deposits and bankers'
acceptances;
- debt securities issued by states or local governments and
their agencies, authorities and other instrumentalities;
- repurchase agreements and reverse repurchase agreements;
- obligations of foreign governments or their subdivisions,
agencies and instrumentalities; and
- obligations of international agencies or supranational
entities.
Fixed-income securities may have fixed, variable, or floating rates of interest,
including rates of interest that vary inversely at a multiple of a designated or
floating rate, or that vary according to change in relative values of
currencies.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Global Bond Trust may invest all or a
portion of its assets in repurchase agreements, cash and cash equivalents
denominated in either U.S. dollars or foreign currencies. To the extent the
portfolio is in a defensive position, the ability to achieve its investment
objective will be limited.
Use of Hedging and Other Strategic Transactions
Global Bond Trust may:
- purchase and sell options on domestic and foreign securities,
securities indexes and currencies,
- purchase and sell futures and options on futures,
- purchase and sell currency or securities on a forward basis,
- enter into interest rate, index, equity and currency rate swap
agreements.
The Global Bond Trust may use the above-mentioned strategies to obtain market
exposure to the securities in which the portfolio primarily invests and to hedge
currency risk. See "Hedging and Other Strategic Transactions" for further
information on these investment strategies.
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TOTAL RETURN TRUST
Investment Objective
The investment objective of the Total Return Trust is to seek to
realize maximum total return, consistent with preservation of capital and
prudent investment management.
Investment Policies
Pacific Investment Management Company ("PIMCO") manages the Total
Return Trust. PIMCO seeks to achieve this investment objective by investing,
under normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration of the Total Return Trust will normally vary within a
three to six year time frame based on PIMCO's forecast for interest rates.
(Duration is a measure of the expected life of a fixed income security on a
present value basis.)
The portfolio may invest up to 10% of its assets in fixed income
securities that are rated below investment grade but rated "B" or higher by
Moody's or Standard & Poor's (or if unrated, determined by PIMCO to be of
comparable quality). The portfolio may also invest up to 20% of its assets in
securities denominated in foreign currencies, and may invest beyond this limit
in U.S. dollar-denominated securities of foreign issuers. Portfolio holdings
will be concentrated in areas of the bond market (based on quality, sector,
coupon or maturity) which PIMCO believes to be relatively undervalued.
In selecting securities for the portfolio, PIMCO utilizes economic
forecasting, interest rate anticipation, credit and call risk analysis, foreign
currency exchange rate forecasting, and other security selection techniques. The
proportion of the Total Return Trust's assets committed to investment in
securities with particular characteristics (such as maturity, type and coupon
rate) will vary based on PIMCO's outlook for the U.S. and foreign economies, the
financial markets, and other factors.
The types of fixed income securities in which the Total Return Trust
may invest include the following securities which unless otherwise noted may be
issued by domestic or foreign issuers and may be denominated in U.S. dollars or
foreign currencies:
- securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities;
- corporate debt securities, including convertible securities
and corporate commercial paper;
- mortgage-backed and other asset-backed securities;
- inflation-indexed bonds issued by both governments and
corporations;
- structured notes, including hybrid or "indexed" securities,
- catastrophe bonds;
- loan participations;
- delayed funding loan and revolving credit facilities;
- bank certificates of deposit, fixed time deposits and bankers'
acceptances;
- debt securities issued by states or local governments and
their agencies, authorities and other instrumentalities;
- repurchase agreements and reverse repurchase agreements;
- obligations of foreign governments or their subdivisions,
agencies and instrumentalities; and
- obligations of international agencies or supranational
entities.
Fixed-income securities may have fixed, variable, or floating rates of interest,
including rates of interest that vary inversely at a multiple of a designated or
floating rate, or that vary according to change in relative values of
currencies.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Total Return Trust may invest all or a
portion of its assets in repurchase agreements, cash and cash equivalents. To
the extent the portfolio is in a defensive position, the ability to achieve its
investment objective will be limited.
Use of Hedging and Other Strategic Transactions
Total Return Trust may:
- purchase and sell options on domestic and foreign securities,
securities indexes and currencies,
- purchase and sell futures and options on futures,
- purchase and sell currency or securities on a forward basis,
- enter into interest rate, index, equity and currency rate swap
agreements.
The Total Return Trust may use the above-mentioned strategies to obtain market
exposure to the securities in which the portfolio primarily invests and to hedge
currency risk. As a non-fundamental operating policy, PIMCO intends to use
foreign currency-related strategic transactions in an effort to hedge foreign
currency risk with respect to at least 75% of the assets of the portfolio
denominated in currencies other than the U.S. dollar. See "Hedging and Other
Strategic Transactions" for further information on these investment strategies.
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INVESTMENT QUALITY BOND TRUST
Investment Objective
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.
Investment Policies
Wellington Management Company, LLP ("Wellington Management") manages
the Investment Quality Bond Trust. Wellington Management seeks to achieve the
portfolio's objective by investing primarily in investment grade corporate bonds
and U.S. government bonds with intermediate to longer term maturities.
Wellington Management's investment decisions derive from a three-pronged
analysis, including:
- sector analysis,
- credit research, and
- call protection.
Sector analysis focuses on the differences in yields among security types,
issuers, and industry sectors. Credit research focuses on both quantitative and
qualitative criteria established by Wellington Management, such as call
protection (payment guarantees), an issuer's industry, operating and financial
profiles, business strategy, management quality, and projected financial and
business conditions. Individual purchase and sale decisions are made on the
basis of relative value and the contribution of a security to the desired
characteristics of the overall portfolio. Factors considered include:
- relative valuation of available alternatives,
- impact on portfolio yield, quality and liquidity, and
- impact on portfolio maturity and sector weights.
Wellington Management attempts to maintain a high, steady and possibly growing
income stream.
At least 65% of the Investment Quality Bond Trust's assets are invested
in bonds and debentures, including:
- marketable debt securities of U.S. and foreign issuers
(payable in U.S. dollars) rated at the time of purchase "A" or
better by Moody's or Standard & Poor's (or, if unrated, of
comparable quality as determined by Wellington Management);
- 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
"Other Risks of Investing"); and
- cash and cash equivalent securities which are
authorized for purchase by the Money Market Trust.
The balance (no more than 35%) of the Investment Quality Bond Trust's
assets may be invested in:
- U.S. and foreign debt securities rated below "A" by Moody's
and Standard & Poor's (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, asset-backed securities and
privately issued and commercial mortgage-backed securities.
In pursuing its investment objective, the Investment Quality Bond Trust
may invest up to 20% of its assets in U.S. and foreign high yield (high risk)
corporate and government debt securities (commonly known as "junk bonds"). These
instruments are rated "Ba" or below by Moody's or "BB" or below by Standard &
Poor's (or, if unrated, are deemed 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 of high yield securities by
the portfolio. While the Investment Quality Bond Trust may only invest up to 20%
of its assets in securities rated in these rating categories at the time of
investment, it is not required to dispose of bonds that may be downgraded after
purchase, even though such downgrade may cause the portfolio to exceed this 20%
maximum.
The risks of investing in foreign securities are set forth above under
"Risks of Investing in Certain Types of Securities." Since the portfolio will,
at most, invest 20% of its assets in foreign securities, the risks associated
with foreign securities will not affect the portfolio as much as a portfolio
that invests more of its assets in foreign 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
Standard & Poor's) and unrated securities of comparable quality as determined by
Wellington Management, subject to the 35% limitation described above.
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Temporary Defensive Investing
To meet redemptions or pending investment of its assets or during
unusual market conditions, the Investment Quality Bond Trust may invest in cash
and cash equivalents. To the extent the portfolio is in a defensive position,
the ability to achieve its investment objective will be limited.
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."
Special Risks
The Investment Quality Bond Trust will be subject to certain risks as a
result of its ability to invest up to 20% in foreign securities. The principal
risks of investing in the Investment Quality Bond Trust are described in the
"Risk/Return Summary" in the beginning of this Prospectus.
DIVERSIFIED BOND TRUST
Investment Objective
The investment objective of the Diversified Bond Trust is to seek high
total return as is consistent with the conservation of capital.
Investment Policies
Capital Guardian Trust Company ("CGTC") manages the Diversified Bond
Trust. CGTC seeks to achieve this investment objective by investing at least 80%
of the portfolio's assets in one or a combination of the following categories:
- fixed income securities rated at the time of purchase "Baa" or
better by Moody's or "BBB" or better by Standard & Poor's or
fixed income securities not rated by Moody's or Standard &
Poor's deemed by CGTC to be of equivalent investment quality;
- up to 20% of the portfolio's assets in Eurodollar fixed income
securities;
- securities issued or guaranteed by the U.S. Government, the
Canadian Government or its Provinces, or their respective
agencies and instrumentalities;
- interest bearing short-term investments, such as commercial
paper, bankers' acceptances, bank certificates of deposit and
other cash equivalents, and cash.
The remaining 20% of the portfolio's assets may be invested in other fixed
income securities, including securities rated below investment grade ratings
described above. Fixed-income securities may include ADRs, Yankee Bonds and
Eurodollar instruments which are U.S. dollar denominated.
All portfolio investment percentages described above are measured at
the time of purchase of a security for the portfolio.
Temporary Defensive Investing
To meet redemption requests or pending investment of its assets or
during unusual market conditions, the Diversified Bond Trust may invest all or a
portion of its assets in cash and cash equivalents. To the extent the portfolio
is in a defensive position, the ability to achieve its investment objective will
be limited.
Use of Hedging and Other Strategic Transactions
The Diversified 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.
U.S. GOVERNMENT SECURITIES TRUST
Investment Objective
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.
Investment Policies
Salomon Brothers Asset Management Inc ("SaBAM") manages the U.S.
Government Securities Trust. SaBAM seeks to attain this objective by investing a
substantial portion of the portfolio's 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.
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At least 80% of the total assets of the U.S. Government Securities
Trust are invested in:
- 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;
- U.S. Treasury obligations (including repurchase agreements
collateralized by U.S. Treasury obligations);
- 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 (including repurchase agreements
collateralized by these obligations);
- 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
- 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 U.S. Government Securities Trust must comply with diversification
requirements established pursuant to the Code for investments of separate
accounts funding contracts. Under these requirements, the value of the assets of
the portfolio are subject to the following restrictions:
- no more than 55% of the value of the portfolio's assets may be
represented by any one investment;
- no more than 70% of the value of the portfolio's assets may be
represented by any two investments;
- no more than 80% of the value of the portfolio's assets may be
represented by any three investments; and
- no more than 90% of the value of the portfolio's assets may be
represented by any four investments.
To determine the portfolio's compliance with the requirements above, all
securities of the same issuer are treated as a single investment and each U.S.
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 U.S. Government agency or
instrumentality.
Mortgage-Backed Securities
See "Other Risks of Investing" for a description of mortgage-backed
securities and the risks associated with investing in them.
Use of Hedging and Other Strategic Transactions
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,
- 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.
MONEY MARKET TRUST
Investment Objective
The investment objective of the Money Market Trust is to obtain maximum
current income consistent with preservation of principal and liquidity.
Investment Policies
Manufacturers Adviser Corporation ("MAC") manages the Money Market
Trust. MAC seeks to achieve the portfolio's objective by investing the
portfolio's assets in high quality, U.S. dollar denominated money market
instruments of the following types:
- obligations issued or guaranteed as to principal and interest
by the U.S. 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 ("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 portfolio must be
payable in U.S. dollars);
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- 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);
- 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 NRSRO (such as
"P-1" or "P-2" by Moody's or "A-1" or "A-2" by Standard &
Poor's) or, if not rated, is issued by a company which MAC
acting pursuant to guidelines established by the Trust's Board
of Trustees, has determined to be of minimal credit risk and
comparable quality;
- 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 Standard & Poor's);
- short-term obligations issued by state and local governmental
issuers;
- 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 features for credit enhancement or
for shortening effective maturity; and
- 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. MAC monitors the creditworthiness of the note issuer
and its earning power and cash flow. MAC 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 maintains 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
invests only in securities which the Trust's Board of 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, as
amended (the "1940 Act"). The Money Market Trust also intends to maintain, to
the extent practicable, a constant per share net asset value of $10.00. There is
no assurance that the portfolio will be able to do so.
The Money Market Trust may invest up to 20% of its assets in any of the
U.S. dollar denominated foreign securities described above.
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 INDEX TRUSTS
There are five Index Trusts - Small Cap Index, International Index, Mid
Cap Index, Total Stock Market Index, and 500 Index (the "Index Trusts") - each
with its own investment objective and policy. The Index Trusts differ from the
actively managed portfolios described in this prospectus. Actively managed
portfolios seek to outperform their respective indices through research and
analysis. Over time, their performance may differ significantly from their
respective indices. Index portfolios, however, seek to mirror the performance of
their target indices, minimizing performance differences over time.
An index is an unmanaged group of securities whose overall performance
is used as an investment benchmark. Indices may track broad investment markets,
such as the global equity market, or more narrow investment markets, such as the
U.S. small cap equity market. Each Index Trust attempts to match the performance
of a particular index by: (a) holding all, or a representative sample, of the
securities that comprise the index and/or (b) by holding securities (which may
or may not be included in the index) that MAC believes as a group will behave in
a manner similar to the index. However, an index portfolio has operating
expenses and transaction costs, while a market index does not. Therefore, an
Index Trust, while it attempts to track its target index closely, typically will
be unable to match the performance of the index exactly.
SMALL CAP INDEX TRUST
Investment Objective
The investment objective of the Small Cap Index Trust is to seek to
approximate the aggregate total return of a small cap U.S. domestic equity
market index.
Investment Strategy
The Small Cap Index Trust seeks to achieve this objective by attempting
to track the performance of the Russell 2000 Index. The Russell 2000 Index is an
unmanaged index composed of the stocks of smaller U.S. companies. The index is
composed of the 2,000 smallest companies out of the 3,000 largest U.S.
companies.
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Investment Policies
The Small Cap Index Trust invests primarily in (a) the common stocks
that are included in the Russell 2000 Index and (b) securities (which may or may
not be included in the Russell 2000 Index) that MAC believes as a group will
behave in a manner similar to the index.
The portfolio may also invest in short-term debt securities to maintain
liquidity or cover futures positions or pending investment in stocks or Futures
Contracts.
Use of Hedging and Other Strategic Transactions
The Small Cap Index Trust may invest in Futures Contacts. A more
complete description of this investment strategy appears under "Hedging and
Other Strategic Transactions" below in this Prospectus and in the Statement of
Additional Information.
INTERNATIONAL INDEX TRUST
Investment Objective
The investment objective of the International Index Trust is to seek to
approximate the aggregate total return of a foreign equity market index.
Investment Strategy
The International Index Trust seeks to achieve this objective by
attempting to track the performance of the Morgan Stanley European Australian
Far East Free* Index (the "MSCI EAFE Index"). The MSCI EAFE Index is an
unmanaged index of approximately 1,000 securities traded in non-U.S. markets.
Countries and geographical areas such as Europe, Australia and Japan typically
comprise a greater percentage of the MSCI EAFE Index than other geographical
areas and, therefore, tend to have a greater impact on the performance of the
index.
*The designation "Free" in the name of the index refers to the securities that
the index tracks. Some countries restrict foreign investment in certain
industries, so only stocks that can be bought freely by the portfolio are
traded.
Investment Policies
The International Index Trust invests primarily in (a) the common
stocks that are included in the MSCI EAFE Index and (b) securities (which may or
may not be included in the MSCI EAFE Index) that MAC believes as a group will
behave in a manner similar to the index.
The portfolio may also invest in short-term debt securities to maintain
liquidity or cover futures positions or pending investment in stocks or Futures
Contracts.
Use of Hedging and Other Strategic Transactions
The International Index Trust may invest in Futures Contracts. A more
complete description of this investment strategy appears under "Hedging and
Other Strategic Transactions" below in this Prospectus and in the Statement of
Additional Information.
MID CAP INDEX TRUST
Investment Objective
The investment objective of the Mid Cap Index Trust is to seek to
approximate the aggregate total return of a mid cap U.S. domestic equity market
index.
Investment Strategy
The Mid Cap Index Trust seeks to achieve this objective by attempting
to track the performance of the S&P Mid Cap-400 Index (the "S&P 400 Index"). The
S&P 400 Index is an unmanaged index composed of the securities of 400 medium
sized U.S. companies.
Investment Policies
The Mid Cap Index Trust invests primarily in (a) the common stocks that
are included in the S&P 400 Index and (b) securities (which may or may not be
included in the S&P 400 Index) that MAC believes as a group will behave in a
manner similar to the index.
The portfolio may also invest in short-term debt securities to maintain
liquidity or cover futures positions or pending investment in stocks or Futures
Contracts.
Use of Hedging and Other Strategic Transactions
The Mid Cap Index Trust may invest in Futures Contracts and Depository
Receipts. A more complete description of this investment strategy appears under
"Hedging and Other Strategic Transactions" below in this Prospectus and in the
Statement of Additional Information.
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TOTAL STOCK MARKET INDEX TRUST
Investment Objective
The investment objective of the Total Stock Market Index Trust is to
seek to approximate the aggregate total return of a broad U.S. domestic equity
market index.
Investment Strategy
The Total Stock Market Index Trust seeks to achieve this objective by
attempting to track the performance of the Wilshire 5000 Equity Index ("Wilshire
5000 Index"). The Wilshire 5000 Index is an unmanaged index composed of more
than 7,000 stocks including all of the U.S. common stocks regularly traded on
the New York and American Stock Exchanges and the Nasdaq over-the-counter
markets.
Investment Policies
The Total Stock Market Index Trust invests primarily in (a) the common
stocks that are included in the Wilshire 5000 Index and (b) securities (which
may or may not be included in the Wilshire 5000 Index) that MAC believes as a
group will behave in a manner similar to the index.
The portfolio may also invest in short-term debt securities to maintain
liquidity or cover futures positions or pending investment in stocks or Futures
Contracts.
Use of Hedging and Other Strategic Transactions
The Total Stock Market Index Trust may invest in Futures Contracts. A
more complete description of this investment strategy appears under "Hedging and
Other Strategic Transactions" below in this Prospectus and in the Statement of
Additional Information.
500 INDEX TRUST
Investment Objective
The investment objective of the 500 Index Trust is to seek to
approximate the aggregate total return of a broad U.S. domestic equity market
index.
Investment Strategy
The 500 Index Trust seeks to achieve this objective by attempting to
track the performance of the S&P 500 Composite Stock Price Index (the "S&P 500
Index"). The S&P 500 Index is an unmanaged index composed of 500 selected common
stocks, primarily the stocks of large U.S. companies.
Investment Policies
The 500 Index Trust invests primarily in (a) the common stocks that are
included in the S&P 500 Index and (b) securities (which may or may not be
included in the S&P 500 Index) that MAC believes as a group will behave in a
manner similar to the index.
The portfolio may also invest in short-term debt securities to maintain
liquidity or cover futures positions or pending investment in stocks or Standard
& Poor's Stock Index Futures Contracts.
Standard & Poor's licenses certain trademarks and trade names to the
Trust but disclaims any responsibility or liability to the Trust and its
shareholders. See Appendix II in the Statement of Additional Information for
such disclaimer.
Use of Hedging and Other Strategic Transactions
The 500 Index Trust may invest in Futures Contract and Depository
Receipts. A more complete description of this investment strategy appears under
"Hedging and Other Strategic Transactions" below in this Prospectus and in the
Statement of Additional Information.
* * * * *
"Standard & Poor's(R)," "S&P 500(R)," "Standard & Poor's 500(R)," and
"Standard & Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc.
"Russell 2000(R)" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is
a trademark of Wilshire Associates. "Morgan Stanley European Australian Far East
Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of
the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by
any of these companies, and none of these companies make any representation
regarding the advisability of investing in the Trust.
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THE LIFESTYLE TRUSTS
There are five Lifestyle Trusts (each of which is a fund of funds) --
Aggressive 1000, Growth 820, Balanced 640, Moderate 460 and Conservative 280.
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
Investment Objective
The investment objective of the Lifestyle Aggressive 1000 Trust is to
provide long-term growth of capital. Current income is not a consideration.
Investment Policies
Manufacturers Adviser Corporation ("MAC") seeks to achieve this
objective by investing 100% of the portfolio's assets in Underlying Portfolios
which invest primarily in equity securities.
LIFESTYLE GROWTH 820 TRUST
Investment Objective
The investment objective of the Lifestyle Growth 820 Trust is to
provide long-term growth of capital. Current income is also a consideration.
Investment Policies
MAC seeks to achieve this objective by investing approximately 20% of
the portfolio'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
Investment Objective
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 on growth of capital.
Investment Policies
MAC seeks to achieve this objective by investing approximately 40% of
the portfolio'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
Investment Objective
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 on income.
Investment Policies
MAC seeks to achieve this objective by investing approximately 60% of
the portfolio'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
Investment Objective
The investment objective of the Lifestyle Conservative 280 Trust is to
provide a high level of current income with some consideration given to growth
of capital.
Investment Policies
MAC seeks to achieve this objective by investing approximately 80% of
the portfolio'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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Additional Information Concerning the Lifestyle Trusts
The Lifestyle Trusts are designed to provide a variety of comprehensive
investment programs 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
securities are the:
- High Yield Trust
- Strategic Bond Trust
- Global Bond Trust
- Total Return Trust
- Investment Quality Bond Trust
- Diversified Bond Trust
- U.S. Government Securities Trust
- Money Market Trust
The other Underlying Portfolios invest primarily in equity securities. 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 1940 Act.
Each Lifestyle Trust has a target percentage allocation between the two
types of Underlying Portfolios (fixed income and equity). Variations in the
percentages are permitted up to 10% in either direction. For example, based on
its investment allocation of approximately 80% of assets in fixed income
securities and 20% of assets in equity securities, 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.
However, in light of market or economic conditions, the Adviser may determine
that the normal percentage limitations should be exceeded to protect the
portfolio or to achieve the portfolio's objective.
Within the prescribed percentage allocations between the two types of
Underlying Portfolios, MAC selects the percentage levels to be maintained in
specific portfolios. On each valuation day, the assets of each Lifestyle Trust
are rebalanced to maintain the selected percentage levels for the specific
portfolios. MAC may from time to time adjust the percent of assets invested in
any specific 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.
Investors in any of the Lifestyle Trusts bear both the expenses of a
particular Lifestyle Trust and indirectly the expenses of its Underlying
Portfolios. Therefore, investors may be able to realize lower aggregate expenses
by investing directly in the Underlying Portfolios of a Lifestyle Trust instead
of in the Lifestyle Trust itself. An investor who chooses to invest directly in
the Underlying Portfolios rather than by investing in the Lifestyle Trusts
would, however, not receive the asset allocation services provided by MAC, with
the assistance of SSgA, in its management of the Lifestyle Trusts.
Temporary Defensive Investing
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 money market instruments of the
type in which the Money Market Trust is authorized to invest for the purpose of:
- meeting redemption requests,
- making other anticipated cash payments, or
- protecting the portfolio in the event MAC determines that
market or economic conditions warrant a defensive posture.
To the extent a Lifestyle portfolio is in a defensive position, the ability to
achieve its investment objective will be limited.
Use of Hedging and Other Strategic Transactions
The Lifestyle Trusts are not authorized to use any of the various
investment strategies referred to under "Hedging and Other Strategic
Transactions."
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ADDITIONAL INVESTMENT POLICIES AND TRANSACTIONS
ADDITIONAL INVESTMENT POLICIES
Subject to certain restrictions, each of the portfolios of the Trust
may use the following investment strategies and purchase the following types of
securities.
LENDING OF PORTFOLIO SECURITIES
Each portfolio may lend its securities so long as such loans do not
represent more than 33 1/3% of a portfolio's total assets. As collateral for the
lent securities, the borrower gives the lending portfolio collateral equal to at
least 100% of the value of the lent securities. The collateral may consist of
cash, cash equivalents or securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities. The borrower must also agree to increase
the collateral if the value of the lent securities increases. 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. These terms mean 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. 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. 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.
U.S. GOVERNMENT SECURITIES
Certain of the portfolios may invest in U.S. government securities
issued or guaranteed by the U.S. government or by an agency or instrumentality
of the U.S. government. Not all U.S. government securities are backed by the
full faith and credit of the United States, which means that payment of
principal and interest are guaranteed, but market value is not. Some are
supported only by the credit of the issuing agency and depend entirely on their
own resources to repay their debt.
REPURCHASE AGREEMENTS
Each of the portfolios may enter into 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. The arrangement is in
economic effect a loan collateralized by securities. The 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, the instrument purchased may decline in value, interest
payable on the instrument may be lost and there may be possible delays and
expense in liquidating the instrument. 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 repurchased obligation, including the interest accrued thereon.
REVERSE REPURCHASE AGREEMENTS
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 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. 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.
FOREIGN REPURCHASE AGREEMENTS
The Overseas Trust may enter into foreign repurchase agreements.
Foreign repurchase agreements may be less well secured than U.S. repurchase
agreements, and may be denominated in foreign currencies. They also may involve
greater risk of loss if the counterparty defaults. Some counterparties in these
transactions may be less creditworthy than those in U.S. markets.
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. At the time a portfolio enters into a mortgage dollar roll, it will
establish a segregated account with its custodian bank in which it will
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maintain cash, U.S. Government Securities or other liquid assets equal in value
to its obligations in respect of dollar rolls, and accordingly, such dollar
rolls will not be considered borrowings.
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.
WARRANTS
Subject to certain restrictions, each portfolio of the Trust, 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.
ILLIQUID SECURITIES
Each portfolio of the Trust 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. Investment in illiquid securities involves the risk that, because of
the lack of consistent market demand for such securities, the Trust may be
forced to sell them at a discount from the last offer price.
INDEXED/STRUCTURED SECURITIES
Each of the portfolios, except the Lifestyle Trusts, may invest in
indexed/structured securities. These securities are typically short- to
intermediate-term debt securities whose value at maturity or interest rate is
linked to currencies, interest rates, equity securities, indices, commodity
prices or other financial indicators. Such securities may be positively or
negatively indexed (i.e., their value may increase or decrease if the reference
index or instrument appreciates). Index/structured securities may have return
characteristics similar to direct investments in the underlying instruments. A
portfolio bears the market risk of an investment in the underlying instruments,
as well as the credit risk of the issuer.
SHORT SALES
Certain of the portfolios may make short sales of a security. This
means that the portfolio may sell a security that it does not own when the
subadviser to the portfolio thinks the value of the security will decline. The
portfolio generally borrows the security to deliver to the buyer in a short
sale. The portfolio must then buy the security at its market price when the
borrowed security must be returned to the lender. Short sales involve costs and
risk. The portfolio must pay the lender interest on the security it borrows, and
the portfolio will lose money if the price of the security increases between the
time of the short sale and the date when the portfolio replaces the borrowed
security. Use of short sales may magnify underlying investment losses of the
price and the interest costs on the borrowed securities may exceed potential
underlying investment gains.
Certain of the portfolios may also make short sales "against the box."
In a short sale against the box, at the time of sale, the portfolio owns or has
the right to acquire the identical security at no additional cost. When selling
short against the box, the portfolio gives up the opportunity for capital
appreciation in the security.
When making a short sale, a portfolio will maintain in a segregated
account with its custodian, the securities that could be used to cover the short
sale.
* * * *
These investment strategies and securities are described further in the
Statement of Additional Information.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
Individual portfolios may be authorized to use a variety of investment
strategies. These strategies will be used primarily for hedging purposes,
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.
Hedging refers to protecting against possible changes in the market value of
securities a portfolio already owns or plans to buy or protecting unrealized
gains in the portfolio. These strategies may also be used to gain exposure to a
particular securities market. The hedging and other strategic transactions which
may be used are described below:
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- exchange-listed and over-the-counter put and call options on
securities, financial futures contracts and fixed income
indices and other financial instruments,
- financial futures contracts (including stock index futures),
- interest rate transactions*, and
- currency transactions**
Collectively, these transactions are referred to in this Prospectus as "Hedging
and Other Strategic Transactions." The description in this Prospectus of each
portfolio indicates which, if any, of these types of transactions may be used by
the portfolio.
* A portfolio's interest rate transactions may take the form of swaps, caps,
floors and collars.
** 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 for the following
purposes:
- 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 a portfolio's 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
substitute for purchasing or selling securities in a
particular market.
The ability of a portfolio to utilize Hedging and Other Strategic Transactions
successfully will depend in part on its Subadviser's ability to predict
pertinent market movements, which cannot be assured. The skills required to
successfully utilize Hedging and Other Strategic Transactions are different from
those needed to select a portfolio's securities. While a Subadviser will only
use Hedging and Other Strategic Transactions in a portfolio for hedging
purposes, if the transaction is not successful it could result in a loss to the
portfolio. These transactions may also increase the volatility of a portfolio
and may involve a small investment of cash relative to the magnitude of the
risks assumed. In addition, these transactions could result in a loss to the
portfolio if the counterparty to the transaction does not perform as promised. 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, appears in the Statement of
Additional Information.
OTHER RISKS OF INVESTING
The information below regarding the risks of investing in certain types
of securities supplements the disclosure in the "Risk/Return Summary."
INVESTMENT GRADE FIXED INCOME SECURITIES IN THE LOWEST RATING CATEGORY
Investment grade fixed income securities in the lowest rating category
(rated "Baa" by Moody's or "BBB" by Standard & Poor's and comparable unrated
securities) involve a higher degree of risk than fixed income securities in the
higher rating categories. While such securities are considered investment grade
quality and are deemed to have adequate capacity for payment of principal and
interest, such securities lack outstanding investment characteristics and 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 securities.
LOWER RATED FIXED INCOME SECURITIES
Lower rated fixed income securities are defined as securities rated
below investment grade (rated "Ba" and below by Moody's and "BB" and below by
Standard & Poor's).
General Risks
- Risk to Principal and Income. Investing in lower rated fixed
income securities is considered speculative. While these
securities generally provide greater income potential than
investments in higher rated securities, there is a greater
risk that principal and interest payments will not be made.
Issuers of these securities may even go into default or become
bankrupt.
- Price Volatility. The price of lower rated fixed income
securities may be more volatile than securities in the higher
rating categories. This volatility may increase during periods
of economic uncertainty or change. The price of these
securities is affected more than higher rated fixed income
securities by the market's perception of their credit quality
especially during times of adverse publicity. In the past,
economic downturns or an increase in interest rates have, at
times, caused more defaults by issuers of these securities and
may do so in the future. Economic downturns and increases in
interest rates have an even greater affect on highly leveraged
issuers of these securities.
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- Liquidity. The market for lower rated fixed income securities
may have more limited trading than the market for investment
grade fixed income securities. Therefore, it may be more
difficult to sell these securities and these securities may
have to be sold at prices below their market value in order to
meet redemption requests or to respond to changes in market
conditions.
- Dependence on Subadviser's Own Credit Analysis. While a
subadviser to a portfolio may rely on ratings by established
credit rating agencies, it will also supplement such ratings
with its own independent review of the credit quality of the
issuer. Therefore, the assessment of the credit risk of lower
rated fixed income securities is more dependent on the
subadviser's evaluation than the assessment of the credit risk
of higher rated securities.
Additional Risks Regarding Lower Rated Corporate Fixed Income
Securities
Lower rated corporate debt securities (and comparable unrated
securities) tend to be more sensitive to individual corporate developments and
changes in economics conditions than higher-rated corporate fixed income
securities. Issuers of lower rated corporate debt securities may also be highly
leveraged, increasing the risk that principal and income will not be repaid.
Additional Risks Regarding Lower Rated Foreign Government Fixed Income
Securities
Lower rated foreign government fixed income securities are subject to
the risks of investing in emerging market countries described below under
"Foreign Securities." In addition, the ability and willingness of a foreign
government to make payments on debt when due may be affected by the prevailing
economic and political conditions within the country. Emerging market countries
may experience high inflation, interest rates and unemployment as well as
exchange rate trade difficulties and political uncertainty or instability. These
factors increase the risk that a foreign government will not make payments when
due.
SMALL AND MEDIUM SIZE COMPANIES
Small or Unseasoned Companies
- Survival of Small or Unseasoned Companies. Companies that are
small or unseasoned (less than 3 years of operating history)
are more likely than larger or established companies to fail
or not to accomplish their goals. As a result, the value of
their securities could decline significantly. These companies
are less likely to survive since they are often dependent upon
a small number of products, may have limited financial
resources and a small management group.
- Changes in Earnings and Business Prospects. Small or
unseasoned companies often have a greater degree of change in
earnings and business prospects than larger or established
companies, resulting in more volatility in the price of their
securities.
- Liquidity. The securities of small or unseasoned companies may
have limited marketability. This factor could cause the value
of a portfolio's investments to decrease if it needs to sell
such securities when there are few interested buyers.
- Impact of Buying or Selling Shares. Small or unseasoned
companies usually have fewer outstanding shares than larger or
established companies. Therefore, it may be more difficult to
buy or sell large amounts of these shares without unfavorably
impacting the price of the security.
- Publicly Available Information. There may be less publicly
available information about small or unseasoned companies.
Therefore, when making a decision to purchase a security for a
portfolio, a subadviser may not be aware of problems
associated with the company issuing the security.
Medium Size Companies
- Investments in the securities of medium sized companies
present risks similar to those associated with small or
unseasoned companies although to a lesser degree due to the
larger size of the companies.
FOREIGN SECURITIES
The principal risks of investing in foreign securities are set forth
below. As noted below, many of these risks are greater in the case of
investments in emerging market countries.
- Currency Fluctuations. Investments in foreign securities may
cause a portfolio to lose money when converting investments
from foreign currencies into U.S. dollars. A portfolio may
attempt to lock in an exchange rate by purchasing a foreign
currency exchange contract prior to the settlement of an
investment in a foreign security. However, it may not always
be successful in doing so and the portfolio could still lose
money.
- Political and Economic Conditions. Investments in foreign
securities subject a portfolio to the political or economic
conditions of the foreign country. These conditions could
cause portfolio investments to lose value if these conditions
deteriorate for any reason. This risk increases in the case of
emerging market countries which are more likely to be
politically unstable. Political instability could cause the
value of any investment in the securities of an issuer based
in a foreign country to decrease or could prevent or delay the
portfolio from selling its investment and taking the money out
of the country.
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- Removal of Proceeds of Investments from a Foreign Country.
Foreign countries, especially emerging market countries, often
have currency controls or restrictions which may prevent or
delay a portfolio from taking money out of the country or may
impose additional taxes on money removed from the country.
Therefore, a portfolio could lose money if it is not permitted
to remove capital from the country or if there is a delay in
taking the assets out of the country, since the value of the
assets could decline during this period or the exchange rate
to convert the assets into U.S. dollars could worsen.
- Nationalization of Assets. Investments in foreign securities
subject a portfolio to the risk that the company issuing the
security may be nationalized. If the company is nationalized,
the value of the company's securities could decrease in value
or even become worthless.
- Settlement of Sales. Foreign countries, especially emerging
market countries, may also have problems associated with
settlement of sales. Such problems could cause the portfolio
to suffer a loss if a security to be sold declines in value
while settlement of the sale is delayed.
- Investor Protection Standards. Foreign countries, especially
emerging market countries, may have less stringent investor
protection and disclosure standards than the U.S. Therefore,
when making a decision to purchase a security for a portfolio,
a subadviser may not be aware of problems associated with the
company issuing the security and may not enjoy the same legal
rights as those provided in the U.S.
STRIPPED SECURITIES
Stripped securities are the separate income or principal components of
a debt security. The risks associated with stripped securities are similar to
those of other debt securities, although stripped securities may be more
volatile, and the value of certain types of stripped securities may move in the
same direction as interest rates. U.S. Treasury securities that have been
stripped by a Federal Reserve Bank are obligations issued by the U.S. Treasury.
ASSET-BACKED SECURITIES
Asset-backed securities include interests in pools of debt securities,
commercial or consumer loans, or other receivables. The value of these
securities depends on many factors, including changes in interest rates, the
availability of information concerning the pool and its structure, the credit
quality of the underlying assets, the market's perception of the servicer of the
pool, and any credit enhancement provided. In addition, these securities may be
subject to prepayment risk.
MORTGAGE-BACKED SECURITIES
The mortgage-backed securities 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 relates to the principal and interest payments and not the market
value of such securities. In addition, the guarantee only relates to the
mortgage-backed securities held by the portfolio 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 the periodic payment
of interest in fixed amounts (usually semiannually) with principal payments at
maturity or on specified dates. Mortgage-backed securities provide periodic
payments which are, in effect, a "pass-through" of the interest and principal
payments (including any prepayments) made by the individual borrowers on the
pooled mortgage loans.
The yield of mortgage-backed securities is based on the average life of
the underlying pool of mortgage loans. The actual life of any particular pool
may be shortened by unscheduled or early payments of principal and interest.
Principal prepayments may result from the sale of the underlying property or the
refinancing or foreclosure of underlying mortgages. 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. The actual prepayment experience of a pool of
mortgage loans may cause the yield realized by the portfolio to differ from the
yield calculated on the basis of the average life of the pool. In addition, if
the portfolio purchases mortgage-backed securities 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 are likely to decline.
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 their prepayment feature.
* * *
Additional risks of investing in the types of securities mentioned above are
contained in the Statement of Additional Information.
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MANAGEMENT OF THE TRUST
ADVISORY ARRANGEMENTS
Manufacturers Securities Services, LLC (the "Adviser") is the adviser
to the Trust. The Adviser is a Delaware limited liability company whose
principal offices are located at 73 Tremont Street, Boston, Massachusetts 02108.
The Adviser is registered as an investment adviser under the Investment Advisers
Act of 1940, as amended, and as a broker-dealer under the Securities Exchange
Act of 1934, as amended, and it is a member of the National Association of
Securities Dealers, Inc. (the "NASD"). In addition, the Adviser serves as
principal underwriter of certain contracts issued by The Manufacturers Life
Insurance Company of North America and The Manufacturers Life Insurance Company
of New York.
The Adviser administers the business and affairs of the Trust. The
Adviser also 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 also (i)
monitors the compliance of the Subadvisers with the investment objectives and
related policies of each portfolio, (ii) reviews the performance of the
Subadvisers and (iii) 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 the terms of
a subadvisory agreement 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. This order does not, however,
permit the Adviser to appoint a Subadviser that is an affiliate of the Adviser
or the Trust (other than by reason of serving as Subadviser to a portfolio) (an
"Affiliated Subadviser") or to change a subadvisory fee of an Affiliated
Subadviser without the approval of shareholders. Currently, MAC is an Affiliated
Subadviser.
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 the
portfolio. The fee, which is accrued daily and payable daily, 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 table presents (i) a schedule of the management fees each
portfolio currently is obligated to pay the Adviser as a percentage of average
annual net assets and (ii) the investment advisory fee paid by each portfolio of
the Trust for the year ended December 31, 1999.
<TABLE>
<CAPTION>
ADVISORY FEE AS A
PERCENTAGE OF AVERAGE ADVISORY FEE AS A
PORTFOLIO ANNUAL NET ASSETS DOLLAR AMOUNT
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pacific Rim Emerging Markets Trust............................ 0.850% $ 404,135
Internet Technologies Trust................................... 1.150% N/A
Science & Technology Trust.................................... 1.100% 5,474,674
International Small Cap Trust................................. 1.100% 1,657,308
Aggressive Growth Trust....................................... 1.000% 1,025,508
Emerging Small Company Trust.................................. 1.050% 3,143,468
Small Company Blend Trust..................................... 1.050% 200,337(B)
Dynamic Growth Trust.......................................... 1.000% N/A
Mid Cap Stock Trust........................................... 0.925% 433,859(B)
All Cap Growth Trust(A)....................................... 0.950% 4,393,840
Overseas Trust................................................ 0.950% 2,657,549
International Stock Trust..................................... 1.050% 2,089,623
International Value Trust..................................... 1.000% 475,140(B)
Capital Appreciation Trust.................................... 0.900%(D) N/A
Mid Cap Blend Trust........................................... 0.850% 12,412,481
Small Company Value Trust..................................... 1.050% 1,101,422
Global Equity Trust........................................... 0.900% 7,901,467
Growth Trust.................................................. 0.850% 3,716,979
Large Cap Growth Trust........................................ 0.875% 2,555,311
Quantitative Equity Trust..................................... 0.700% 2,425,280
Blue Chip Growth Trust........................................ 0.875% 12,535,949
Real Estate Securities Trust.................................. 0.700% 1,118,824
Value Trust................................................... 0.800% 1,497,638
Tactical Allocation Trust..................................... 0.900% N/A
Equity Index Trust............................................ 0.250% 220,248
Growth & Income Trust......................................... 0.750% 20,739,640
U.S. Large Cap Value Trust.................................... 0.875% 790,211(B)
Equity-Income Trust........................................... 0.875% $9,004,174
</TABLE>
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<TABLE>
<S> <C> <C>
Income & Value Trust.......................................... 0.800% 4,950,340
Balanced Trust................................................ 0.800% 2,172,887
High Yield Trust.............................................. 0.775% 1,660,951
Strategic Bond Trust.......................................... 0.775% 3,064,500
Global Bond Trust............................................. 0.800% 1,337,692
Total Return Trust............................................ 0.775% 925,369(B)
Investment Quality Bond Trust................................. 0.650% 2,011,248
Diversified Bond Trust........................................ 0.750% 1,597,677
U.S. Government Securities Trust.............................. 0.650% 2,588,073
Money Market Trust............................................ 0.500% 4,033,204
Small Cap Index Trust......................................... 0.525% N/A
International Index Trust..................................... 0.550% N/A
Mid Cap Index Trust........................................... 0.525% N/A
Total Stock Market Index Trust................................ 0.525% N/A
500 Index Trust............................................... 0.525% N/A
Lifestyle Aggressive 1000 Trust............................... 0.075%(C) N/A
Lifestyle Growth 820 Trust.................................... 0.075%(C) N/A
Lifestyle Balanced 640 Trust.................................. 0.075%(C) N/A
Lifestyle Moderate 460 Trust.................................. 0.075%(C) N/A
Lifestyle Conservative 280 Trust.............................. 0.075%(C) N/A
Total for all Portfolios Not Applicable $122,317,006
</TABLE>
(A) Formerly, the Mid Cap Growth Trust.
(B) For period beginning May 1, 1999 (commencement of operations) and ending
December 31, 1999.
(C) 0.075% up to $100 million; 0.05% of net assets in excess of $100 million.
(D) 0.900% on the first $300 million of net assets, 0.850% on net assets over
$300 million
Advisory Fee Waiver
The Adviser has voluntarily agreed to waive a portion of its advisory
fee for the Science & Technology Trust, the Blue Chip Growth Trust, the
Equity-Income Trust and the International Stock Trust. The fee reduction is
based on the combined asset level of all four portfolios. Once the combined
assets exceed specified amounts, the fee reduction is increased. The percentage
fee reduction for each asset level is as follows:
<TABLE>
<CAPTION>
COMBINED ASSET LEVELS FEE REDUCTION
(AS A PERCENTAGE OF THE ADVISORY FEE)
<S> <C>
First $750 million 0.0%
Between $750 million and $1.5 billion 2.5%
Between $1.5 billion and $3.0 billion 3.75%
Over $3.0 billion 5.0%
</TABLE>
The fee reductions are applied to the advisory fees of each of the four
portfolios. This voluntary fee waiver may be terminated at any time by the
Adviser.
Expense Reimbursement.
All Portfolios Except the Lifestyle Trusts. 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 the
annual rate specified below of the average annual net assets of the portfolio:
- 0.15% in the case of the Equity Index Trust,
- 0.050% in the case of the International Index Trust and the 500 Index
Trust,
- 0.075% in the case of the Small Cap Index Trust, the Mid Cap Index Trust
and the Total Stock Market Index Trust,
- 0.75% in the case of the International Small Cap, Global Equity, Global
Bond, International Value, Overseas, International Stock and Pacific Rim
Emerging Markets Trusts,
- 0.50% in the case of all other portfolios except the Lifestyle Trusts.
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<PAGE> 92
Lifestyle Trusts. If total expenses of a Lifestyle Trust (absent reimbursement)
exceed 0.075%, the Adviser will reduce the advisory fee or reimburse expenses of
that Lifestyle Trust by an amount such that total expenses of the Lifestyle
Trust, equal 0.075%. If the total expenses of a Lifestyle Trust (absent
reimbursement) are equal to or less than 0.075%, then no expenses will be
reimbursed by the Adviser. (For purposes of the expense reimbursement total
expenses of a Lifestyle Trust includes the advisory fee but excludes (a) the
expenses of the Underlying Portfolios, (b) taxes, (c) portfolio brokerage, (d)
interest, (e) litigation and (f) indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Trust's
business.)
These expense limitations will continue in effect unless otherwise
terminated by the Adviser upon notice to the Trust. These voluntary expense
reimbursements may be terminated at any time.
SUBADVISORY ARRANGEMENTS
The subadvisers to each of the Trust portfolios are as follows:
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
<S> <C>
A I M Capital Management, Inc. All Cap Growth Trust(A)
Aggressive Growth Trust
AXA Rosenberg Investment Management LLC Small Company Value Trust
Capital Guardian Trust Company Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust
Diversified Bond Trust
Fidelity Management Trust Company Mid Cap Blend Trust
Large Cap Growth Trust
Overseas Trust
Founders Asset Management LLC International Small Cap Trust
Balanced Trust
Franklin Advisers, Inc. Emerging Small Company Trust
Janus Capital Corporation Dynamic Growth Trust
Jennison Associates LLC Capital Appreciation Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Real Estate Securities Trust
Equity Index Trust
Money Market Trust
Index Trusts
Lifestyle Trusts(B)
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Mitchell Hutchins Asset Management Inc. Tactical Allocation Trust
Morgan Stanley Asset Management Inc. Global Equity Trust
Munder Capital Management Internet Technologies Trust
Pacific Investment Management Company Global Bond Trust
Total Return Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
</TABLE>
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<PAGE> 93
<TABLE>
<S> <C>
State Street Global Advisors Growth Trust
Lifestyle Trusts(B)
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
T. Rowe Price International, Inc. International Stock Trust
Templeton Investment Counsel, Inc. International Value Trust
Wellington Management Company, LLP Growth & Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
</TABLE>
-----------------
(A) Formerly, the Mid Cap Stock Trust.
(B) State Street Global Advisors provides subadvisory consulting
services to Manufacturers Adviser Corporation regarding
management of the Lifestyle Trusts.
Each of the Trust's Subadvisers, except Capital Guardian Trust Company,
Fidelity Management Trust Company and State Street Global Advisors, is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended.
Under the terms of each of the Subadvisory Agreements, the Subadviser
manages the assets of the assigned portfolios, subject to the supervision of the
Adviser and 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 regularly
reports to the Adviser and the Trustees of the Trust with respect to the
implementation of such programs.
A I M CAPITAL MANAGEMENT, INC.
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
All Cap Growth Trust Robert M. Kippes (since May, 1999)
Charles D. Scavone (since May, 1999)
David P. Barnard (since May, 1999)
Kenneth A. Zschappel (since May, 1999)
Christopher P. Perras (since August, 1999)
Steven A. Brase (since May, 2000)
Brant H. DeMuth (since May, 2000)
Aggressive Growth Trust Robert M. Kippes (since May, 1999)
Ryan E. Crane (since August, 1999)
</TABLE>
INFORMATION REGARDING A I M CAPITAL MANAGEMENT, INC.
A I M Capital Management, Inc. ("AIM") is an indirect wholly owned
subsidiary of A I M Management Group Inc., whose principal business address is
11 Greenway Plaza, Houston, Texas 77046. A I M Management Group, Inc. founded in
1976, is a holding company engaged in the financial services business and is an
indirect wholly owned subsidiary of AMVESCAP PLC. AMVESCAP PLC and its
subsidiaries are an independent investment management group engaged in
institutional investment management and retail mutual fund businesses in the
United States, Europe and the Pacific Region.
AIM, and/or its affiliates, is the investment adviser for mutual funds,
separately managed accounts, such as corporate and municipal pension plans,
charitable institutions and private individuals. AIM and its affiliates managed
over $176 billion of assets as of June 30, 2000.
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<PAGE> 94
PORTFOLIO MANAGERS
David P. Barnard. Mr. Barnard is vice president of AIM and a senior portfolio
manager. He is involved in managing several of the AIM funds, including the AIM
Aggressive Growth Fund and the AIM Constellation Fund. Mr. Barnard joined AIM in
1982.
Steven A. Brase. Mr. Brase is a portfolio manager with AIM. Prior to joining AIM
in 1998, Mr. Brase was an Associate Portfolio Manager and Partner for Bricoleur
Capital Management, Inc. He is a Chartered Financial Analyst.
Ryan E. Crane. Mr. Crane is a portfolio manager with AIM. Mr. Crane joined AIM
in 1994 as a portfolio administrator and in 1995 was promoted to equity analyst
focusing on small capitalization companies. He became a senior analyst in 1997
and was promoted to his current position in 1999. He is a Chartered Financial
Analyst.
Brant H. DeMuth. Mr. DeMuth is a senior portfolio manger with AIM. Prior to
joining AIM in 1996, Mr. DeMuth was a Manager for Colorado Public Employees'
Retirement Association. He is a Chartered Financial Analyst. Robert M. Kippes.
Mr. Kippes is vice president of AIM and senior portfolio manager for several of
the AIM funds, including the AIM Aggressive Growth Fund and the AIM
Constellation Fund. Mr. Kippes also serves as head of AIM's Small/Mid Cap Growth
investment management unit. Mr. Kippes joined AIM in 1989 as a research
assistant. In 1992 he was named head of equity research and portfolio manager.
In 1994 he was promoted to his current position.
Christopher P. Perras. Mr. Perras is a portfolio manager with AIM. Prior to
joining AIM in 1999, he was an equity analyst at Van Wagoner Capital Management.
Prior to joining Van Wagoner in 1997, Mr. Perras was associate portfolio manager
for Van Kampen American Capital Asset Management, Inc. He is a Chartered
Financial Analyst and a Chartered Financial Consultant.
Charles D. Scavone. Mr. Scavone is vice president and senior portfolio manager
of AIM. He is involved in managing several of the AIM funds, including the AIM
Aggressive Growth Fund and the AIM Constellation Fund. Mr. Scavone has been in
the investment business since 1991. Prior to joining AIM in 1996, he was
associate portfolio manager at Van Kampen American Capital Management, Inc.
Prior to joining Van Kampen in 1994, he was an equity research analyst/assistant
portfolio manager at Texas Commerce Investment Management Company in Houston.
Kenneth A. Zschappel. Mr. Zschappel is assistant vice president and senior
portfolio manager of AIM. He is involved in managing several of the AIM funds,
including the AIM Aggressive Growth Fund and the AIM Constellation Fund. Mr.
Zschappel joined AIM in 1990 and in 1992 became a portfolio analyst for equity
securities, specializing in technology and health care. He was elected
investment officer of AIM in 1995.
AXA ROSENBERG INVESTMENT MANAGEMENT LLC
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)*
<S> <C>
Small Company Value Trust Barr M. Rosenberg (since October, 1997)
Kenneth Reid (since October, 1997)
Floyd Coleman (since October, 1997)
Stephen O. Dean (since October, 1997)
</TABLE>
*Management of the Small Company Value Trust is overseen by Dr. Rosenberg and
Dr. Reid who are responsible for research and the design and maintenance of AXA
Rosenberg's portfolio system, and by Mr. Coleman who is responsible for
monitoring the Small Company Value Trust's performance against the relevant
benchmark and for monitoring cash balances.
INFORMATION REGARDING AXA ROSENBERG INVESTMENT MANAGEMENT LLC
AXA Rosenberg Investment Management LLC ("AXA Rosenberg") is a
professional investment management firm which provides investment advisory
services to a substantial number of institutional investors. AXA Rosenberg is a
Delaware limited liability company whose principal business address is Four
Orinda Way, Suite 300E, Orinda, California 94563. AXA Rosenberg is part of a
global group of investment adviser companies under common ownership. In January
of 1999, AXA Investment Managers, an affiliate of AXA, a French insurance
company, acquired an interest in AXA Rosenberg's predecessor, Rosenberg
Institutional Equity Management LP. The owner of AXA Rosenberg is AXA Rosenberg
Group LLC. AXA Rosenberg Group LLC is owned by AXA Investment Managers, Barr M.
Rosenberg, Marlis S. Fritz and Kenneth Reid. As of August 31, 2000, AXA
Rosenberg manages approximately $8.1 billion of assets.
PORTFOLIO MANAGERS
Floyd Coleman. Mr. Coleman has been a trader and portfolio manager for AXA
Rosenberg since 1988. He received a BS from Northwestern University in 1982, a
M.S. from Polytechnic Institute, Brooklyn in 1984 and a MBA from Harvard
Business School in 1988.
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<PAGE> 95
Stephen O. Dean. Mr. Dean joined AXA Rosenberg in 1995 as a portfolio engineer
and is Director of Client Services. He received a BA from Hamilton College and a
MBA from the University of California at Berkeley. Mr. Dean is a Chartered
Financial Analyst.
Kenneth Reid. Dr. Reid has been employed by AXA Rosenberg for the past thirteen
years. Dr. Reid is a Chief Executive Officer for AXA Rosenberg. His work is
focused on the design and estimation of AXA Rosenberg's valuation models and he
has primary responsibility for analyzing the empirical evidence that validates
and supports the day-to-day recommendations of AXA Rosenberg's securities
valuation models. Dr. Reid earned both a BA degree in 1973 and a MDS in 1975
from Georgia State University, Atlanta. In 1982, he earned a PhD from the
University of California, Berkeley, where he was awarded the American Bankers
Association Fellowship.
Barr M. Rosenberg. Dr. Rosenberg has been employed by AXA Rosenberg since the
company's inception in 1985. Dr. Rosenberg is the managing director of Barr
Rosenberg Research Center, an affiliated company. As such, he has ultimate
responsibility for AXA Rosenberg's securities valuation and portfolio
optimization systems used to manage the Small Company Value Trust and for the
implementation of the decisions developed therein. His area of special
concentration is the design of AXA Rosenberg's proprietary securities valuation
model. Dr. Rosenberg earned a BA degree from the University of California,
Berkeley in 1963. He earned a MSc from the London School of Economics in 1965,
and a PhD from Harvard University, Cambridge, Massachusetts, in 1968.
CAPITAL GUARDIAN TRUST COMPANY
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Small Company Blend Trust Michael R. Ericksen (since May, 1999)
James S. Kang (since May, 1999)
Robert G. Kirby (since May, 1999)
Lawrence R. Solomon (since May, 2000)
Karen A. Miller (since May, 2000)
Research Team*
U.S. Large Cap Value Trust David I. Fisher (since May, 1999)
Eugene P. Stein (since May, 1999)
Donnalisa P. Barnum (since May, 1999)
Michael R. Ericksen (since May, 1999)
Theodore R. Samuels (since May, 1999)
Terry Berkemeier (since July, 1999)
Allen J. Wilson (since June, 2000)
Research Team*
Income & Value Trust David I. Fisher (since May, 1999)
John W. Ressner (since May, 1999)
Eugene P. Stein (since May, 1999)
Donnalisa P. Barnum (since May, 1999)
Michael R. Ericksen (since May, 1999)
James R. Mulally (since May, 1999)
Theodore R. Samuels (since May, 1999)
James S. Baker (since May, 1999)
Terry Berkemeier (since July, 1999)
Research Team*
Diversified Bond Trust James S. Baker (since May, 1999)
James R. Mulally (since May, 1999)
John W. Ressner (since May, 1999)
</TABLE>
*A portion of the portfolio is managed by individual members of the research
team.
INFORMATION REGARDING CAPITAL GUARDIAN TRUST COMPANY
Capital Guardian Trust Company ("CGTC") is located at 333 South Hope
Street, Los Angeles, California 90071. CGTC is a wholly-owned subsidiary of
Capital Group International, Inc. which itself is a wholly-owned subsidiary of
The Capital Group Companies, Inc. CGTC has been providing investment management
services since 1968 and manages approximately $130 billion of assets as of June
30, 2000. CGTC is a bank as defined in the Investment Advisers Act of 1940 and
is therefore not a registered investment adviser.
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<PAGE> 96
PORTFOLIO MANAGERS
James S. Baker. Mr. Baker is a Vice President and portfolio manager for CGTC. He
joined the Capital Group organization in 1987.
Donnalisa P. Barnum. Ms. Barnum is a Senior Vice President and portfolio manager
for CGTC. She joined the Capital Group organization in 1986.
Terry Berkemeier. Mr. Berkemeier is a Vice President and portfolio manager for
CGTC. He joined the Capital Group organization in 1992.
Michael R. Ericksen. Mr. Ericksen is a Senior Vice President and portfolio
manager for CGTC. He joined the Capital Group organization in 1987.
David I. Fisher. Mr. Fisher is Chairman of the Board of Capital Guardian Trust
Company. He joined the Capital Group organization in 1969.
James S. Kang. Mr. Kang is Senior Vice President for Capital International
Research Inc. He joined the Capital Group organization in 1988.
Robert G. Kirby. Mr. Kirby is a Senior Partner of The Capital Group Partners
L.P. and Chairman Emeritus and a portfolio manager of CGTC. He joined the
Capital Group organization in 1965.
Karen A. Miller. Ms. Miller is a Vice President of Capital International
Research, Inc. She joined the Capital Group organization in 1990.
James R. Mulally. Mr. Mulally is Senior Vice President, a Director, and Chairman
of the Fixed Income Investment Sub-Committee for CGTC. He joined the Capital
Group organization in 1980.
John W. Ressner. Mr. Ressner is Executive Vice President, Fixed Income Research
Director, member of the Management Committee for Capital International Research
Inc. He joined the Capital Group organization in 1988.
Theodore R. Samuels. Mr. Samuels is a Senior Vice President and a Director for
CGTC. He joined the Capital Group organization in 1981.
Lawrence R. Solomon. Mr. Solomon is a Senior Vice President and a Director of
Capital International Research, Inc. He also serves as a Director of Capital
Management Services, Inc. Mr. Solomon joined the organization 1985.
Eugene P. Stein. Mr. Stein is Executive Vice President and a Director. He joined
the Capital Group organization in 1972.
Allen J. Wilson. Mr. Wilson is Vice President of Capital International Research,
Inc. with research responsibilities covering U.S. oil services and household
products. Mr. Wilson has been managing a diversified U.S. equity portion of
CTGC's portfolios and accounts since January 1999. Mr. Wilson joined CTGC in
1991.
FIDELITY MANAGEMENT TRUST COMPANY
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Mid Cap Blend Trust Richard B. Fentin (since July, 1997)
Bahaa Fam (since August, 1999)
Large Cap Growth Trust Karen Firestone (since May, 1999)
Overseas Trust Richard R. Mace, Jr. (since May, 1999)
</TABLE>
INFORMATION REGARDING FIDELITY MANAGEMENT TRUST COMPANY
Fidelity Management Trust Company ("FMTC") is located at 82 Devonshire
Street, Boston, Massachusetts 02109. FMTC is a wholly-owned subsidiary of
Fidelity Investments which was founded in 1946. Headquartered in Boston,
Fidelity Investments also has offices in London, Tokyo and Hong Kong. Today,
Fidelity Investments, along with its affiliates, is the largest privately-held
investment management firm in the United States, managing over $973 billion as
of June 30, 2000. Fidelity Investments is a privately-held company (there is no
outside ownership), and no ownership changes are anticipated.
FMTC was established by Fidelity Investments in 1981 to provide investment
management services for institutional clients. FMTC is a bank as defined in the
Investment Advisers Act of 1940 and is therefore not a registered investment
adviser. FMTC
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<PAGE> 97
currently manages in excess of $58 billion for more than 267 institutional
clients. FMTC offers institutional investors clearly-defined equity, fixed
income, international, high yield bond, real estate and alternative disciplines.
Each discipline serves either as a stand-alone investment option or in
combination with other disciplines to meet specific client investment
objectives.
PORTFOLIO MANAGERS
Bahaa Fam. Mr. Fam is Director of Quantitative Research for Fidelity Management
& Research Company, a division of Fidelity investments. Mr. Fam directs a team
of research analysts in the design of novel methods for stock selection and
portfolio construction, and serves as an advisor on portfolio strategy and asset
allocation for Fidelity's funds. Mr. Fam also directly manages several U.S.
equity (sub)portfolios. Prior to joining Fidelity in 1994, Mr. Fam was Managing
Director and Consulting Scientist for the MITRE Corporation.
Richard B. Fentin. Mr. Fentin, Senior Vice President, joined Fidelity
Investments in 1979. He has also managed the Fidelity Value Fund since March,
1996, and previously managed the same fund during 1992. Prior to 1993, Mr.
Fentin also managed Fidelity Puritan Fund, Fidelity Growth Company Fund,
Fidelity Select Precious Metal Portfolio and Fidelity Trust Portfolio: Growth
Fund and served as a research assistant for the Fidelity Magellan Fund.
Karen Firestone. Ms. Firestone joined Fidelity Investments in 1983 and has
worked as an analyst and manager. Ms. Firestone also manages Fidelity Advisor
Large Cap Fund.
Richard R. Mace, Jr. Mr. Mace jointed Fidelity Investments in 1987 and has
worked as an analyst and manager. Mr. Mace also manages Fidelity Advisor
Overseas Fund.
FOUNDERS ASSET MANAGEMENT LLC
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)*
<S> <C>
Balanced Trust Curtis J. Anderson (December, 1999)
International Small Cap Trust Tracy P. Stouffer (July, 1999)
</TABLE>
*To facilitate the day-to-day investment management of each Trust, Founders uses
a lead manager and team system. The management team is composed of members of
the Investment Department, including lead portfolio managers, portfolio traders
and research analysts. Each individual offers ideas, information, knowledge and
expertise to assist in the management of the portfolios. Daily decisions on
security selection are made by the lead portfolio manager. Through participation
in the team process, the manager uses the input, research and advice if the rest
of the management team in making purchase and sale decisions. The lead portfolio
manager is listed for each Trust.
INFORMATION REGARDING FOUNDERS ASSET MANAGEMENT LLC
Founders Asset Management LLC ("Founders"), located at 2930 East Third
Avenue, Denver, Colorado 80206, is a registered investment adviser which was
first established as an asset manager in 1938. Founders is a 90%-owned
subsidiary of Mellon Bank, N.A., with the remaining 10% held by certain Founders
executives and portfolio managers. Mellon Financial is a wholly-owned subsidiary
of Mellon Bank Corporation, a publicly-owned multibank holding company which
provides a comprehensive range of financial products and services in domestic
and selected international markets. As of September 30, 2000, Founders had over
$9.39 billion of assets under management, including approximately $7.17 billion
in mutual fund accounts and $2.22 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 less emphasis to 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.
PORTFOLIO MANAGERS
Curtis J. Anderson. Mr. Anderson, Vice President of Investments and Chartered
Financial Analyst, joined Founders in 1999. Prior to joining Founders, Mr.
Anderson was a senior vice president, director of research and a portfolio
manager with First Security Investment Management (1991 to 1999). Mr. Anderson
holds a BA and MBA from the University of Utah.
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<PAGE> 98
Tracy P. Stouffer. Ms. Stouffer, Vice President of Investments and Chartered
Financial Analyst, joined Founders in 1999. Prior to joining Founders, she was a
vice president and portfolio manager with Federated Global Incorporated (1995 to
1999) and a vice president and portfolio manager with Clariden Asset Management
Inc. (1988 to 1995). A graduate of Cornell University, Ms. Stouffer received an
MBA with a concentration in marketing from the University of Western Ontario,
Canada.
FRANKLIN ADVISERS, INC.
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Emerging Small Company Trust Edward Jamieson (since May, 1999)
Michael McCarthy (since May, 1999)
Aidan O'Connell (since May, 1999)
</TABLE>
INFORMATION REGARDING FRANKLIN ADVISERS, INC.
Franklin Advisers, Inc. ("Franklin"), located at 777 Mariners Island
Blvd, San Mateo, California 94404, has been in the business of providing
investment advisory services since 1985. Franklin is wholly owned by Franklin
Resources, a publicly owned company engaged in the financial services industry
through its subsidiaries. Charles B. Johnson and Rupert H. Johnson are the
principal shareholders of Franklin Resources. As of December 31, 1999, Franklin
and its affiliates manage over $235 billion of assets.
PORTFOLIO MANAGERS
Edward Jamieson. Mr. Jamieson joined the Franklin Templeton Group in 1987.
Michael McCarthy. Mr. McCarthy joined the Franklin Templeton Group in 1992. He
is a Chartered Financial Analyst.
Aidan O'Connell. Mr. O'Connell joined the Franklin Templeton Group in 1998.
Before joining Franklin Templeton, Mr. O'Connell was a research associate and a
corporate finance associate at Hambrecht & Quist.
JANUS CAPITAL CORPORATION
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Dynamic Growth Trust Matthew A. Ankrum (since May, 2000)
</TABLE>
INFORMATION REGARDING JANUS CAPITAL CORPORATION
Janus Capital Corporation ("Janus"), 100 Fillmore Street, Denver,
Colorado 80206-4928, currently serves as investment adviser to all of the Janus
funds, acts as sub-adviser for a number of private-label mutual funds and
provides separate account advisory services for institutional accounts. Stilwell
Financial Inc. ("Stilwell") owns approximately 81.5% of the outstanding voting
stock of Janus. Stilwell is a publicly trading holding company with principal
operations in financial asset management businesses. Thomas H. Bailey, President
and Chairman of the Board of Janus, owns approximately 12% of Janus' voting
stock and, by agreement with Stilwell, selects at least a majority of Janus'
Board subject to the approval of Stilwell, which approval cannot be unreasonably
withheld. As of September 30, 2000, Janus had approximately $306.7 billion in
assets under management.
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<PAGE> 99
PORTFOLIO MANAGERS
Matthew A. Ankrum. Mr. Ankrum joined Janus in June, 1996 as an intern and became
an equity research analyst in August, 1997. Prior to joining Janus, Mr. Ankrum
worked as a corporate finance analyst at William Blair and Company from
1993-1995. He was also a fixed income research analyst at Conseco Capital
Management. Mr Ankrum is currently an assistant portfolio manager of Janus
Enterprise Fund. He has an undergraduate degree in Business Administration from
the University of Wisconsin and a Master of Business Administration from the
University of Chicago. Mr. Ankrum has earned the right to use the Chartered
Financial Analyst designation.
JENNISON ASSOCIATES LLC
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISED PORTFOLIO MANAGER(S)*
<S> <C>
Capital Appreciation Trust Kathleen A. McCarragher (since November, 2000)
Michael Del Balso (since _November, 2000)
Spiros Segalas (since November, 2000)
</TABLE>
ADDITIONAL INFORMATION REGARDING JENNISON ASSOCIATES LLC
Jennison Associates LLC ("Jennison"), 466 Lexington Avenue, New York,
New York 10017, is a Delaware limited liability company and has been in the
investment advisory business since 1969. The Prudential Insurance Company of
America indirectly, through wholly-owned subsidiaries, Prudential Asset
Management Holding Company (PAMHC) and PAMHC's wholly-owned subsidiary, The
Prudential Investment Corporation, owns 100% of Jennison. As of June 30, 2000,
Jennison had approximately $63.5 billion in assets under management.
PORTFOLIO MANAGERS
Kathleen A. McCarragher. Ms. McCarragher joined Jennison in 1998 and is a
Director and Executive Vice President at Jennison. She is also Jennison's Growth
Equity Investment Strategist. Prior to joining Jennison, she was employed at
Weiss, Peck & Greer as a managing director and director of large cap growth
equities for six years. Ms McCarragher received her B.B.A. degree from the
University of Wisconsin and her M.B.A. from Harvard University Graduate School
of Business Administration.
Michael Del Balso. Mr. Del Balso joined Jennison in 1972 and is currently an
Executive Vice President and Jennison's Director of Equity Research. Mr. Del
Baslo is a graduate of Yale University and received his M.B.A. from Columbia
University.
Spiros Segalas. Mr. Segalas was a founding director of Jennison in 1969 and is
currently President and Chief Investment Officer as well as a portfolio manager.
He received his B.A. from Princeton University and is a member of the New York
Society of Security Analysts.
MANUFACTURERS ADVISER CORPORATION
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISED PORTFOLIO MANAGER(S)*
<S> <C>
Pacific Rim Emerging Markets Trust Samantha Ho (since June, 2000)
Seton Lor (since June, 2000)
Quantitative Equity Trust Mark Schmeer (since August, 1995)
Rhonda Chang (since August, 1995)
Real Estate Securities Trust Robert Lutzko (since August, 1999)
Brett Hryb (since August, 1999)
Equity Index Trust Martin Ayow (since May, 2000)
Angelo Sirignano (since May, 2000)
Index Trusts:
Small Cap Index Trust Martin Ayow (since May, 2000)
Angelo Sirignano (since May, 2000)
International Index Trust Martin Ayow (since May, 2000)
Angelo Sirignano (since May, 2000)
Mid Cap Index Trust Martin Ayow (since May, 2000)
</TABLE>
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<PAGE> 100
<TABLE>
<S> <C>
Angelo Sirignano (since May, 2000)
Total Stock Market Index Trust Martin Ayow (since May, 2000)
Angelo Sirignano (since May, 2000)
500 Index Trust Martin Ayow (since May, 2000)
Angelo Sirignano (since May, 2000)
Lifestyle Trusts Committee
</TABLE>
*Dates also include the time period the portfolio manager managed any
predecessor Manulife Series Fund, Inc. portfolio.
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.
ADDITIONAL INFORMATION REGARDING MANUFACTURERS ADVISER CORPORATION
Manufacturers Adviser Corporation ("MAC") is a Colorado corporation.
Its principal business at the present time is to provide investment management
services to the portfolios listed above. MAC is an indirect wholly-owned
subsidiary of Manulife Financial Corporation ("MFC") based in Toronto, Canada.
MFC is the holding company of The Manufacturers Life Insurance Company and its
subsidiaries, collectively known as Manulife Financial. The address of MAC is
200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5. As of June 30, 2000,
2000, MAC together with Manulife Financial had approximately $82.8 billion of
assets under management.
PORTFOLIO MANAGERS
Martin Ayow. Mr. Ayow joined MAC in 2000. He has been managing and hedging fixed
income and equity exposures for Manulife Financial using financial derivatives
since 1994. Prior to joining Manulife Financial, he was Senior Treasury Officer
at the Ontario Hydro Treasury Division.
Rhonda Chang. Ms. Chang joined MAC in 1995. She has been an investment manager
at Manulife Financial since 1994. From 1990 to 1994, Ms. Chang was an investment
analyst with AIG Global Investors. She is a Chartered Financial Analyst.
Samantha Ho. Ms. Ho joined MAC in 2000. Prior to joining MAC, she was a senior
portfolio manager at SEB Investment Management where she served from 1994 to
2000. Prior to that, she was an investment analyst at Jardine Fleming.
Brett Hryb. Mr. Hryb joined MAC in 1996. Mr. Hryb is a research analyst
specializing in equity index portfolios. Prior to joining MAC, he worked for
Global Accounting at Elliott & Page, an affiliate of MAC. Mr. Hryb is a
Chartered Financial Analyst.
Seton Lor. Mr. Lor joined MAC in 2000. Prior to joining MAC, he was Director of
Balanced Investments at AXA Investment Managers in Hong Kong where he served
from 1996 to 2000.
Robert Lutzko. Mr. Lutzko joined MAC in 1995. Prior to joining MAC, he worked
for OMERS, one of the largest retirement funds in Canada and for Workers
Compensation Board, serving as portfolio manager for U.S. small cap investments
and for U.S. large cap equities. Mr. Lutzko is a Chartered Financial Analyst.
Mark Schmeer. Mr. Schmeer joined MAC in 1995. He is an investment manager of
U.S. Equities at Manulife Financial. Prior to 1995, Mr. Schmeer was a Vice
President of Sun Life Investment Management, where he served from 1993 to 1995.
He is a Chartered Financial Analyst.
Angelo Sirignano. Mr. Sirignano joined MAC in 2000. He has been managing and
hedging fixed income and equity exposures for Manulife Financial using financial
derivatives since 1997. Prior to joining Manulife, Angelo was employed by Canada
Life in a similar capacity.
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<PAGE> 101
MILLER ANDERSON & SHERRERD, LLP
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Value Trust Robert J. Marcin (since January, 1997)
Richard M. Behler (since January, 1997)
Nicholas J. Kovich (since January, 1997)
High Yield Trust Robert E. Angevine (since January, 1997)
Stephen F. Esser (since January, 1997)
Gordon Loery (since May, 2000)
</TABLE>
INFORMATION REGARDING MILLER ANDERSON & SHERRERD, LLP
Miller Anderson & Sherrerd, LLP ("MAS") is a Pennsylvania limited
liability partnership founded in 1969 and is located at One Tower Bridge, West
Conshohocken, Pennsylvania 19428. MAS provides investment services to employee
benefit plans, endowment funds, foundations and other institutional investors.
MAS is a division of Morgan Stanley Dean Witter Investment Management Inc. which
as of December 31, 1999 had approximately $66 billion in assets under
management. MAS is an indirectly wholly-owned subsidiary of Morgan Stanley Dean
Witter & Co.
PORTFOLIO MANAGERS
Robert E. Angevine. Mr. Angevine joined Morgan Stanley Asset Management in 1988.
He is primarily responsible for the management of the High Yield portfolios of
MAS Funds, Morgan Stanley Dean Witter Institutional Funds, Inc. and The
Universal Institutional Funds, Inc.
Richard M. Behler. Mr. Behler joined MAS as a portfolio manager in 1995. He is
also primarily responsible for the management of the Value Portfolios of MAS
Funds, Van Kampen Series Fund, Inc. and The Universal Institutional Funds, Inc.
Prior to joining MAS, Mr. Behler served as portfolio manager from 1992 to 1995
for Moore Capital Management.
Stephen F. Esser. Mr. Esser joined MAS in 1988. He is also primarily responsible
for the management of the High Yield portfolios of MAS Funds, Morgan Stanley
Dean Witter Institutional Funds, Inc. and The Universal Institutional Funds,
Inc.
Nicholas J. Kovich. Mr. Kovich joined MAS as a portfolio manager in 1988. He is
also primarily responsible for the management of the Value Portfolios of MAS
Funds, Van Kampen Series Fund, Inc. and The Universal Institutional Funds, Inc.
Gordon Loery. Mr. Loery joined MAS as a Principal in 1996. Previously, he was
employed at Morgan Stanley Co. Incorporated as a fixed income analyst. He is
also primarily responsible for the High Yield portfolios of MAS Funds, Morgan
Stanley Dean Witter Institutional Funds, Inc. and The Universal Institutional
Funds, Inc.
Robert J. Marcin. Mr. Marcin joined MAS as a portfolio manager in 1988. He is
primarily responsible for the management of the Value and Core Equity Portfolios
of MAS Funds, and the value portfolios of Van Kampen Series Fund, Inc. and The
Universal Institutional Funds, Inc.
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Tactical Allocation Trust T. Kirkham Barneby (since May, 2000)
</TABLE>
INFORMATION REGARDING MITCHELL HUTCHINS ASSET MANAGEMENT INC.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), 51 West
52nd Street, New York, New York 10019, is a wholly owned asset management
subsidiary of PaineWebber Incorporated, which is wholly owned by Paine Webber
Group Inc. ("PW Group"), a publicly owned financial services holding company. As
of August 31, 2000, Mitchell Hutchins had approximately $57.7 billion in
investment company assets under management.
On July 12, 2000 PW Group and UBS AG ("UBS") announced that they had entered
into an agreement and plan of merger under which PW Group will merge into a
wholly owned subsidiary of UBS. If all required approvals are obtained and the
required conditions are satisfied, PW Group and UBS expect to complete the
transaction in November 2000. UBS, with headquarters in Zurich, Switzerland, is
an internationally diversified organization with operations in many areas of the
financial services industry.
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<PAGE> 102
PORTFOLIO MANAGERS
T. Kirkham Barneby. Mr. Barneby is a managing director and chief investment
officer - quantitative investments of Mitchell Hutchins. Mr. Barneby rejoined
Mitchell Hutchins in 1994, after being with Vantage Global Management for one
year. During the eight years that Mr. Barneby was previously with Mitchell
Hutchins, he was a senior vice president responsible for quantitative management
and asset allocation models. Mr. Barneby also manages the PaineWebber Tactical
Allocation Fund and the Mitchell Hutchins Series Trust Tactical Allocation
Portfolio.
MORGAN STANLEY ASSET MANAGEMENT INC.
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Global Equity Trust Frances Campion (since January, 1997)
Richard Boon (since February, 1999)
Paul Boyne (since February, 1999)
</TABLE>
INFORMATION REGARDING MORGAN STANLEY ASSET MANAGEMENT
Morgan Stanley Asset Management ("MSAM"), 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. MSAM, a wholly-owned
subsidiary of Morgan Stanley Dean Witter & Co., conducts a worldwide portfolio
management business, providing a broad range of portfolio management services to
customers in the United States and abroad. At June 30, 2000, MSAM and its
institutional investment management affiliates had approximately $177 billion of
combined assets under management including assets under fiduciary advice.
Morgan Stanley Dean Witter & Co. is a global financial services firm
with three major businesses: close number securities, asset management and
credit services.
On December 1, 1998, Morgan Stanley Asset Management Inc. changed its
name to Morgan Stanley Dean Witter Investment Management Inc. but continues to
do business in certain instances using the name Morgan Stanley Asset Management
Inc.
PORTFOLIO MANAGERS
Paul Boyne. Mr. Boyne joined MSAM in 1993 after working as a Chartered
Accountant with Grant Thornton International in Dublin. At MSAM, he assists in
the implementation of the Global Equity Program and the analysis of North
American and Irish equities. He is currently completing a post-graduate degree
with University College, Dublin. Mr. Boyne became a Principal in December 1998.
Frances Campion. Ms. Campion joined MSAM in January 1990 as a global equity fund
manager and is now a Managing Director 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 MSAM, 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 eleven years global
investment experience. She is a graduate of University College, Dublin.
MUNDER CAPITAL MANAGEMENT
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Internet Technologies Trust Managed by Committee
</TABLE>
INFORMATION REGARDING MUNDER CAPITAL MANAGEMENT
Munder Capital Management ("Munder"), 480 Pierce Street, Birmingham,
Michigan 48009, currently serves as investment adviser to all of the Munder
funds, acts as sub-adviser for a number of private-label mutual funds and
provides separate account advisory services for institutional accounts. As of
December 31, 1999, Munder had approximately $56.2 billion of assets under
management.
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<PAGE> 103
PACIFIC INVESTMENT MANAGEMENT COMPANY
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Global Bond Trust Lee R. Thomas, III (since May, 1999)
Total Return Trust William H. Gross (since May, 1999)
</TABLE>
INFORMATION REGARDING PACIFIC INVESTMENT MANAGEMENT COMPANY
Pacific Investment Management Company LLC ("PIMCO"), a Delaware
limited liability company, is a subsidiary of PIMCO Advisors L.P. ("PIMCO
Advisors"). PIMCO Advisors was organized as a limited partnership under
Delaware law in 1987. PIMCO Advisors' sole general partner is
Pacific-Allianz Partners LLC. Pacific-Allianz Partners LLC is a Delaware
limited liability company with two members, Allianz GP Sub LLC, a Delaware
limited liability company and Pacific Asset Management LLC, a Delaware
limited liability company. Allianz GP Sub LLC is a wholly-owned subsidiary
of Allianz of America, Inc., which is wholly owned by Allianz AG. Pacific
Asset Management LLC is a wholly-owned subsidiary of Pacific Life Insurance
Company, which is a wholly-owned subsidiary of Pacific Mutual Holding
Company.
PIMCO is located at 840 Newport Center Drive, Suite 300, Newport
Beach, California 92660. PIMCO had approximately $199.3 billion of assets
under management as of June 30, 2000.
On May 5, 2000 the general partners of PIMCO Advisors closed the
transactions contemplated by the Implementation and Merger Agreement dated
as of October 31, 1999 ("Implementation Agreement"), as amended March 3,
2000, with Allianz of America, Inc., Pacific Asset Management LLC, PIMCO
Partners, LLC, PIMCO Holding LLC, PIMCO Partners, G.P., and other parties
to the Implementation Agreement. As a result of completing these
transactions, PIMCO Advisors is now majority-owned indirectly by Allianz
AG, with subsidiaries of Pacific Life Insurance Company retaining a
significant minority interest. Allianz AG is a German based insurer.
Pacific Life Insurance Company is a Newport Beach, California based
insurer.
In connection with the closing, Allianz of America entered into a
put/call arrangement for the possible disposition of Pacific Life's
indirect interest in PIMCO Advisors. The put option held by Pacific Life
will allow it to require Allianz of America, on the last business day of
each calendar quarter following the closing, to purchase at a formula-based
price all of the PIMCO Advisors' units owned directly or indirectly by
Pacific Life. The call option held by Allianz of America will allow it,
beginning January 31, 2003 or upon a change in control of Pacific Life, to
require Pacific Life to sell or cause to be sold to Allianz of America, at
the same formula-based price, all of the PIMCO Advisors' units owned
directly or indirectly by Pacific Life. Allianz AG's address is
Koniginstrasse 28, D-80802, Munich, Germany.
Allianz AG, the parent of Allianz of America, is a publicly traded
German company which, together with its subsidiaries, comprises the world's
second largest insurance company as measured by premium income. Allianz AG
is a leading provider of financial services, particularly in Europe, and is
represented in 68 countries world-wide through subsidiaries, branch and
representative offices, and other affiliated entities. As of June 30, 2000,
the Allianz Group (including PIMCO) had assets under management of more
than $650 billion, and in its last fiscal year wrote approximately $50
billion in gross insurance premiums.
PORTFOLIO MANAGERS
William H. Gross. Mr. Gross is a Managing Director and a Fixed-income Portfolio
Manager at PIMCO. Mr. Gross is one of the founders of PIMCO. He is a Chartered
Financial Analyst.
Lee R. Thomas, III. Mr. Thomas is a Managing Director and Senior International
Portfolio Manager at PIMCO. Mr. Thomas joined PIMCO in 1995.
SALOMON BROTHERS ASSET MANAGEMENT INC
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)*
<S> <C>
U.S. Government Securities Trust Roger Lavan (since December, 1991)
Strategic Bond Trust Roger Lavan (since February, 1993)
</TABLE>
*Mr. Lavan has been assisted in the management of the Strategic Bond Trust by
Peter Wilby since February, 1993 and by David Scott since January, 1995.
INFORMATION REGARDING SALOMON BROTHERS ASSET MANAGEMENT INC
Salomon Brothers Asset Management Inc ("SaBAM") is a wholly-owned
subsidiary of Citigroup. SaBAM 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. Citigroup is a
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<PAGE> 104
diversified financial services company engaged in investment services, asset
management, consumer finance and insurance services. As of June 30, 2000,
SaBAM and its worldwide investment advisory affiliates manage approximately
$26 billion in assets. SaBAM's business offices are located at Seven World
Trade Center, New York, New York 10048.
In connection with SaBAM's service as Subadviser to the Strategic Bond
Trust, SaBAM's London-based affiliate, Salomon Brothers Asset Management Limited
("SaBAM Limited"), whose business address is Victoria Plaza, 111 Buckingham
Palace Road, London SW1W OSB, England, provides certain advisory services to
SaBAM with regard to currency transactions and investments in non-dollar
denominated debt securities for the benefit of the Strategic Bond Trust. SaBAM
Limited is compensated by SaBAM at no additional expense to the Strategic Bond
Trust. SaBAM Limited is a subsidiary of Salomon Smith Barney Holdings Inc, which
is in turn a subsidiary of Travelers. SaBAM 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.
PORTFOLIO MANAGERS
Roger Lavan. Mr. Lavan joined SaBAM in 1990 and is a Director in the fixed
income department. He is a Portfolio Manager responsible for SaBAM's investment
company and institutional portfolios which invest primarily in mortgage-backed
and U.S. government debt securities. He is a Chartered Financial Analyst.
David Scott. Mr. Scott is Managing Director and a Senior Portfolio Manager with
SaBAM 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 Trust.
Peter Wilby. Mr. Wilby, who joined SaBAM in 1989, is a Managing Director and
Senior Portfolio Manager responsible for investment company and institutional
portfolio investments in high yield U.S. corporate debt securities and high
yield foreign sovereign debt securities. He is a Chartered Financial Analyst and
a Certified Public Accountant.
STATE STREET GLOBAL ADVISORS
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Growth Trust Jennifer W. Sjostedt (since May, 1999)
E. Matthew Griswold (since July, 2000)
David A. Hanna (since May, 1999)
Richard B. Weed (since August, 1999)
</TABLE>
INFORMATION REGARDING STATE STREET GLOBAL ADVISORS
State Street Global Advisors ("SSgA"), located at Two International
Place, Boston, Massachusetts 02110, has been in the business of providing
investment advisory services since 1978. As of June 30, 2000, SSgA had
approximately $738 billion in assets under management. SSgA is a division of
State Street Bank and Trust Company.
PORTFOLIO MANAGERS
Jennifer W. Sjostedt. Ms. Sjostedt is a Principal and Senior Portfolio Manager
at SSgA. Her responsibilities within the firm include portfolio management,
product development, and research for the U.S. Active Equity Group. Ms. Sjostedt
developed and manages the Special Small Cap Strategy. Ms. Sjostedt joined SSgA
as a member of the Investment Systems group and transferred into the U.S. Active
Equities Group in 1995. She has been working in the investment management field
since she joined SSgA in 1993.
F. Matthew Griswold. Mr. Griswold is a principal at SSgA and is assistant
portfolio manager in the U.S. Active Equity group at SSgA. He supports the large
cap growth, U.S. aggressive growth and small cap strategies in this group. He
joined State Street Corporation in 1989.
David A. Hanna. Mr. Hanna is a Principal at SSgA and is head of the U.S. Active
Equity Group, which manages over $10 billion in assets. He participates in group
research projects involving development of modeling and portfolio construction
techniques. Immediately prior to joining SSgA in 1997, Mr. Hanna was the head of
equity quantitative research at Standish, Ayer, & Wood.
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<PAGE> 105
Richard Weed. Mr. Weed is a Principal at SSgA and a Senior Portfolio Manager in
the U.S. Active Equity Group. His responsibilities include portfolio management,
product development, and research for the U.S. Active Equity Group. Mr. Weed
also created and manages the U.S. Aggressive Growth Strategy. He joined SSgA in
1994 in the Credit and Risk Policy Area where he was responsible for quantifying
market risk for the corporation across equity, bond, and foreign exchange
positions.
T. ROWE PRICE ASSOCIATES, INC.
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Blue Chip Growth Trust Investment advisory committee composed of the following members:
Larry J. Puglia, Chairman (since October, 1996)
Brian W.H. Berghuis
Thomas J. Huber
Robert W. Smith
William J. Stromberg
Equity-Income Trust Investment advisory committee composed of the following members:
Brian C. Rogers, Chairman (since October, 1996)
Stephen W. Boesel
Richard P. Howard
Michael F. Sola
William J. Stromberg
Science & Technology Trust Investment advisory committee composed of the following members:
Charles A. Morris, Chairman (since January, 1997)
Jill L. Hauser
Ethan McAfee
Terral Jordan
Giri Devulapally
Robert Gensler
Eric Gerster
Stephen Jansen
Michael Sola
</TABLE>
INFORMATION REGARDING T. ROWE PRICE ASSOCIATES, INC.
T. Rowe Price Associates, Inc. ("T. Rowe Price"), whose address is at
100 East Pratt Street, Baltimore, Maryland 21202, was founded in 1937 by the
late Thomas Rowe Price, Jr. As of June 30, 2000, T. Rowe Price and its
affiliates manage over $179 billion for over eight million individual and
institutional investor accounts.
PORTFOLIO MANAGERS
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.
Charles A. Morris. Mr. Morris, who joined T. Rowe Price in 1987, is a Managing
Director of T. Rowe Price and has been managing investments since 1991. He is a
Chartered Financial Analyst.
Larry J. Puglia. Mr. Puglia, who joined T. Rowe Price in 1990, is a Managing
Director of T. Rowe Price and has been managing investments since 1993. He is a
Chartered Financial Analyst and a Certified Public Accountant.
Brian C. Rogers. Mr. Rogers, who joined T. Rowe Price in 1982, is a Managing
Director of T. Rowe Price and has been managing investments since 1983. He is a
Chartered Financial Analyst.
T. ROWE PRICE INTERNATIONAL, INC.
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
International Stock Trust Committee
</TABLE>
INFORMATION REGARDING T. ROWE PRICE INTERNATIONAL, INC.
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<PAGE> 106
Rowe Price-Fleming International, Inc.("Rowe Price Fleming") was
incorporated in Maryland in 1979 as a joint venture between T. Rowe Price
Associates, Inc. ("T. Rowe Price") and Robert Fleming Holdings Limited
("Flemings") and has been the subadviser to the International Stock Trust since
December 1996. On August 8, 2000, T. Rowe Price International, Inc. ("T. Rowe
International") became the subadviser to the International Stock Trust when T.
Rowe Price purchased Flemings 50% joint venture interest in Rowe Price-Fleming.
Rowe Price-Fleming was renamed T. Rowe Price International, Inc. to reflect the
change in ownership and T. Rowe International's status as a wholly-owned
subsidiary of T. Rowe Price. T. Rowe International is located at 100 East Pratt
Street, Baltimore, Maryland 21202. T. Rowe International has offices in
Baltimore, London, Tokyo, Hong Kong, Paris, Singapore and Buenos Aires. As of
June 30, 2000, T. Rowe International had approximately $39.2 billion of assets
under management.
TEMPLETON INVESTMENT COUNSEL, INC.
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
International Value Trust Lead Portfolio Manager
Gary R. Clemens (since May, 1999)
The following individual has secondary portfolio management
responsibilities:
Edgerton Scott, III (since May, 1999)
</TABLE>
INFORMATION REGARDING TEMPLETON INVESTMENT COUNSEL, INC.
Templeton Investment Counsel, Inc. ("Templeton"), located at 500 E.
Broward Blvd., Suite 2100, Ft. Lauderdale, FL 33716, has been in the business of
providing investment advisory services since 1979. As of December 31, 1999,
Templeton and its affiliates manage over $235 billion in assets. Templeton
Investment is an indirect wholly owned subsidiary of Franklin Resources, Inc.
PORTFOLIO MANAGERS
Gary R. Clemens. Mr. Clemens is a Senior Vice President of Templeton. He joined
the Franklin Templeton Group in 1990.
Edgerton Scott, III. Mr. Scott is Vice President of Templeton. He joined the
Franklin Templeton Group in 1996. Prior to joining Franklin Templeton, Mr. Scott
served as an investment analyst for the Portola Group and Aeltus Investment
Management. He is a Chartered Financial Analyst.
WELLINGTON MANAGEMENT COMPANY, LLP
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
Growth & Income Trust Matthew E. Megargel (since February, 1992)
Investment Quality Bond Trust Thomas L. Pappas (since March, 1994)
Mid Cap Stock Trust Michael Carmen (since April, 2000)
</TABLE>
INFORMATION REGARDING WELLINGTON MANAGEMENT COMPANY, LLP
Wellington Management Company, LLP ("Wellington Management"), a
Massachusetts limited liability partnership, is a professional investment
counseling firm with its principal business offices located at 75 State Street,
Boston, Massachusetts 02109. Wellington Management and its predecessor
organizations have provided investment services to investment companies,
employee benefit plans, endowments, foundations and other institutions since
1928. As of June 30, 2000, Wellington Management had investment management
authority with respect to approximately $254 billion of client assets. The
managing partners of Wellington Management are Laurie A. Gabriel, Duncan M.
McFarland and John R. Ryan.
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<PAGE> 107
PORTFOLIO MANAGERS
Michael Carmen. Mr. Carmen, Vice President of Wellington Management, joined
Wellington Management in 1999 as an equity portfolio manager. Prior to joining
Wellington Management, Mr. Carmen was an equity portfolio manager at Kobrick
Funds (1997-1999), State Street Research and Management (1992-1996, 1997) and
Montgomery Asset Management (1996). He is a Chartered Financial Analyst.
Matthew E. Megargel. Mr. Megargel, Senior Vice President of Wellington
Management, 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. He is a Chartered
Financial Analyst.
Thomas L. Pappas. Mr. Pappas, Senior Vice President of Wellington Management,
has been a portfolio manager with Wellington Management since 1987. He is a
Chartered Financial Analyst.
PORTFOLIO TURNOVER
Each of the portfolios, except the Global Equity, Blue Chip Growth,
Equity, Equity-Income, All Cap Growth and Growth & 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. Portfolio Turnover rates are set forth in the Financial
Highlights at the end of this Prospectus. See also "Portfolio Turnover" in the
Statement of Additional Information.
GENERAL INFORMATION
TAXES
QUALIFICATION AS A REGULATED INVESTMENT COMPANY
DIVERSIFICATION REQUIREMENTS APPLICABLE TO INSURANCE COMPANY SEPARATE ACCOUNTS
The Trust intends to take the steps necessary to qualify each portfolio
as a regulated investment company under Subchapter M of the Internal Revenue
Code (the "Code") and believes that each portfolio will so qualify. As a result
of qualifying as a regulated investment company, each portfolio will not be
subject to U.S. Federal income tax on its net investment income and net capital
gain) that it distributes to its shareholders in each taxable year provided that
it distributes to its shareholders at least 90% of its net investment income for
such taxable year. Net investment income is defined as investment company
taxable income, as that term is defined in the Code, determined without regard
to the deduction for dividends paid. Net capital gain is defined as the excess
of its net realized long-term capital gain over its net realized short-term
capital loss. Each portfolio is subject to a nondeductible 4% excise tax
calculated as a percentage of certain undistributed amounts of ordinary income
and capital gain net income. To the extent possible, each portfolio intends to
make sufficient distributions to avoid the application of both corporate income
and excise taxes.
Because only insurance company separate accounts will beneficially own
shares in the portfolios, each insurance company separate account will be
treated as owning its proportionate share of the assets of any portfolio in
which it invests, provided that the portfolio qualifies as a regulated
investment company. Therefore, each portfolio intends to meet the additional
diversification requirements that are applicable to insurance company separate
accounts under Subchapter L of the Code. These requirements generally provide
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.
If a portfolio failed to qualify as a regulated investment company,
owners of contracts based on the portfolio:
- would be treated as owning shares of the portfolio (rather
than their proportionate share of the assets of such
portfolio) for purposes of the diversification requirements
under Subchapter L of the Code, and as a result might be taxed
currently on the investment earnings under their contracts and
thereby lose the benefit of tax deferral, and
- the portfolio would incur regular corporate federal income tax
on its taxable income for that year and be subject to certain
distribution requirements upon requalification.
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 might 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.
104
<PAGE> 108
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 imposed 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.
TAX IMPLICATIONS FOR INSURANCE CONTRACTS WITH INVESTMENTS ALLOCATED TO THE TRUST
For information regarding the tax implications for the purchaser of a
variable annuity or life insurance contracts who allocates investments to a
portfolio of 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. The Code and Regulations are subject to change,
possibly with retroactive effect. See "Additional Information Concerning Taxes"
in the Statement of Additional Information for additional information on taxes.
DIVIDENDS
The Trust intends to declare as dividends substantially all of the net
investment income, if any, of each portfolio. Dividends from the net investment
income and the net capital gain, 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 capital gain, if any, for the Money
Market Trust will be declared and reinvested, or paid in cash, daily.
PURCHASE AND REDEMPTION OF SHARES
Shares of each portfolio of the Trust are offered continuously, without
sales charge, at a price equal to their net asset value. The Trust sells its
shares directly without the use of any underwriter. Shares of each portfolio 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 value 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.
Calculation of Net Asset Value
The net asset value of the shares of each portfolio is determined once
daily as of the close of day-time 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, Martin Luther King, Jr.'s Birthday, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset values per share of all portfolios, except the Money
Market Trust, are computed by:
(i) adding the sum of the value of the securities held by each
portfolio plus any cash or other assets it holds,
(ii) subtracting all its liabilities, and
(iii) dividing the result by the total number of shares outstanding
of that portfolio at such time.
Securities held by each of the portfolios, except securities held by the Money
Market and Lifestyle Trusts and money market instruments with remaining
maturities of 60 days or less, 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 or their designee although the
actual calculations may be made by persons acting pursuant to the direction of
the Trustees.
105
<PAGE> 109
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. Underlying Portfolio shares
held by the Lifestyle Trust are valued at their net asset value.
Generally, trading (i) in non-U.S. securities, (ii) U.S. Government
Securities and (iii) money market instruments is substantially completed each
day at various times prior to the close of 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. In such event, these securities will then be valued at their fair
value as determined in good faith by the Trustees or their designee. Fair value
pricing in these circumstances will help ensure that shareholders buying and
selling shares on this date receive a price that accurately reflects the value
of the securities as of the close of the New York Stock Exchange as opposed to a
price that reflects values of securities which are no longer accurate. Fair
value pricing in these circumstances will also help ensure that aggressive
traders are not able to purchase shares of a portfolio at a deflated price that
reflects stale security valuations and then immediately sell these shares at a
gain.
YEAR 2000 ISSUES
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect us, including those
related to customers, suppliers, or other third parties, have been fully
resolved.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help investors understand
the financial performance of each portfolio of the Trust for the past five years
(or since inception in the case of portfolios whose commencement of operations
was less than five years ago). Certain information reflects financial results
for a single share of a Trust portfolio. The total returns presented in the
table represent the rate that an investor would have earned (or lost) on an
investment in a particular Trust portfolio (assuming reinvestment of all
dividends and distributions). The financial statements of the Trust as of
December 31, 1999, have been audited by PricewaterhouseCoopers LLP independent
accountants. The report of PricewaterhouseCoopers LLP is included, along with
the Trust's financial statements, in the Trust's annual report which has been
incorporated by reference into the Statement of Additional Information and is
available upon request. The Trust's unaudited semi-annual report dated June 30,
2000 has also been incorporated by reference into the Statement of Additional
Information and is available upon request.
106
<PAGE> 110
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS TRUST
-------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@ -----------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.88 $ 6.83 $ 7.16 $ 10.90 $ 10.36 $ 9.41
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income 0.03 0.09 0.08 0.05 0.07 0.12
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.66) 4.17 (0.41) (3.77) 0.94 0.96
----------- --------- --------- ----------- --------- ---------
Total from investment operations (0.63) 4.26 (0.33) (3.72) 1.01 1.08
----------- --------- --------- ----------- --------- ---------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income (0.04) (0.21) -- -- (0.08) (0.09)
Distributions from capital gains -- -- -- (0.02) (0.39) (0.04)
----------- --------- --------- ----------- --------- ---------
Total distributions (0.04) (0.21) -- (0.02) (0.47) (0.13)
----------- --------- --------- ----------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.21 $ 10.88 $ 6.83 $ 7.16 $ 10.90 $ 10.36
=========== ========= ========= =========== ========= =========
TOTAL RETURN (5.83%) + 62.87% (4.61%) (34.12%) 9.81% 11.47%
Net assets, end of period (000's) $ 101,178 $ 94,753 $ 27,995 $ 23,850 $ 23,241 $ 13,057
Ratio of operating expenses to average net assets 1.04% (A) 1.11% 1.21% 1.42% 1.50% 1.50%
Ratio of net investment income to average net assets 0.71% (A) 0.90% 1.21% 0.65% 0.78% 1.01%
Portfolio turnover rate 26% (A) 42% 62% 63% 48% 55%
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
107
<PAGE> 111
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNET
TECHNOLOGIES
TRUST
------------
5/01/2000*
TO
6/30/2000@
(UNAUDITED)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net realized and unrealized gain on
investments and foreign currency transactions 0.54
----------
Total from investment operations 0.54
----------
NET ASSET VALUE, END OF PERIOD $ 13.04
==========
TOTAL RETURN 4.32% +
Net assets, end of period (000's) $ 31,003
Ratio of operating expenses to average net assets 1.56% (A)
Ratio of net investment loss to average net assets (0.17%) (A)
Portfolio turnover rate 1% (A)
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares
method for the period May 1, 2000 (commencement of operations) to June
30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
108
<PAGE> 112
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCIENCE & TECHNOLOGY TRUST
-------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/1/1997*
6/30/2000@ -------------------------------- TO
(UNAUDITED) 1999 1998 12/31/97
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 36.17 $ 19.52 $ 13.62 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment loss (0.07) (0.06) (0.09) (0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (1.08) 19.43 5.99 1.38
------------- ------------- ------------- -------------
Total from investment operations (1.15) 19.37 5.90 1.34
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS:
-------------------
Distributions from capital gains (0.92) (2.72) -- (0.04)
Distributions in excess of capital gains -- -- -- (0.18)
------------- ------------- ------------- -------------
Total distributions (0.92) (2.72) -- (0.22)
------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 34.10 $ 36.17 $ 19.52 $ 13.62
============= ============= ============= =============
TOTAL RETURN (3.25%) + 99.49% 43.32% 10.71%
Net assets, end of period (000's) $ 1,629,293 $ 1,144,454 $ 179,285 $ 67,348
Ratio of operating expenses to average net assets 1.14% (A) 1.16% 1.21% 1.26%
Ratio of net investment loss to average net assets (0.67%) (A) (0.40%) (0.73%) (0.54%)
Portfolio turnover rate 122% (A) 113% 105% 121%
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares
method for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
109
<PAGE> 113
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP TRUST
--------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 3/04/1996*
6/30/2000@ --------------------------------------- TO
(UNAUDITED) 1999 1998 1997 12/31/96
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 28.16 $ 15.28 $ 13.70 $ 13.60 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income (loss) (0.01) (0.07) 0.07 0.08 0.06
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (1.76) 13.00 1.56 0.03 1.09
----------- ----------- ----------- ----------- -----------
Total from investment operations (1.77) 12.93 1.63 0.11 1.15
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income -- (0.05) (0.05) (0.01) (0.05)
Distributions from capital gains (5.28) -- -- -- --
----------- ----------- ----------- ----------- -----------
Total distributions (5.28) (0.05) (0.05) (0.01) (0.05)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 21.11 $ 28.16 $ 15.28 $ 13.70 $ 13.60
=========== =========== =========== =========== ===========
TOTAL RETURN (8.81%) + 84.92% 11.86% 0.79% 9.20% +
Net assets, end of period (000's) $ 296,718 $ 239,961 $ 147,898 $ 128,576 $ 97,218
Ratio of operating expenses to average net assets 1.49% (A) 1.37% 1.25% 1.31% 1.29% (A)
Ratio of net investment income (loss) to average net assets (0.56%)(A) (0.41%) 0.44% 0.63% 0.93% (A)
Portfolio turnover rate 568% (A) 309% 45% 74% 50% (A)
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
110
<PAGE> 114
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH TRUST
-------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/01/1997*
6/30/2000@ ---------------------------- TO
(UNAUDITED) 1999 1998 12/31/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.34 $ 13.04 $ 12.50 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment loss (0.01) (0.06) (0.07) (0.03)
Net realized and unrealized gain on
investments 3.55 4.36 0.61 0.03
----------- ----------- ----------- -----------
Total from investment operations 3.54 4.30 0.54 --
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 20.88 $ 17.34 $ 13.04 $ 12.50
=========== =========== =========== ===========
TOTAL RETURN 20.42% + 32.98% 4.32% 0.00%
Net assets, end of period (000's) $ 332,366 $ 135,503 $ 143,010 $ 93,335
Ratio of operating expenses to average net assets 1.07% (A) 1.15% 1.14% 1.18%
Ratio of net investment loss to average net assets (0.58%) (A) (0.59%) (0.64%) (0.46%)
Portfolio turnover rate 94% (A) 161% 189% 63%
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
111
<PAGE> 115
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING SMALL COMPANY TRUST
-------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/01/1997*
6/30/2000@ ---------------------------- TO
(UNAUDITED) 1999 1998 12/31/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 40.74 $ 23.82 $ 24.13 $ 20.60
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment loss (0.01) (0.09) (0.12) (0.02)
Net realized and unrealized gain on
investments 5.06 17.35 0.17 3.55
----------- ----------- ----------- -----------
Total from investment operations 5.05 17.26 0.05 3.53
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
-------------------
Distributions from capital gains (4.37) (0.34) (0.36) --
----------- ----------- ----------- -----------
Total distributions (4.37) (0.34) (0.36) --
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 41.42 $ 40.74 $ 23.82 $ 24.13
=========== =========== =========== ===========
TOTAL RETURN 13.19% + 73.53% 0.07% 17.14%
Net assets, end of period (000's) $ 612,075 $ 453,152 $ 300,637 $ 275,774
Ratio of operating expenses to average net assets 1.10% (A) 1.12% 1.10% 1.11%
Ratio of net investment loss to average net assets (0.06%) (A) (0.35%) (0.54%) (0.13%)
Portfolio turnover rate 22% (A) 136% 77% 120%
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares
method for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
112
<PAGE> 116
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL COMPANY
BLEND TRUST
---------------------------
SIX MONTHS
ENDED 5/01/1999*
6/30/2000@ TO
(UNAUDITED) 12/31/99
----------- ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.76 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income (loss) (0.01) (0.01)
Net realized and unrealized gain on
investments 1.38 3.58
------------ ------------
Total from investment operations 1.37 3.57
------------ ------------
LESS DISTRIBUTIONS:
-------------------
Distributions from capital gains (0.11) (0.31)
------------ ------------
Total distributions (0.11) (0.31)
------------ ------------
NET ASSET VALUE, END OF PERIOD $ 17.02 $ 15.76
============ ============
TOTAL RETURN 8.72% + 25.86% +
Net assets, end of period (000's) $ 89,790 $ 53,514
Ratio of operating expenses to average net assets 1.20% (A) 1.30% (A)
Ratio of net investment loss to average net assets (0.19%) (A) (0.12%) (A)
Portfolio turnover rate 63% (A) 28% (A)
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
113
<PAGE> 117
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DYNAMIC
GROWTH
TRUST
-----------
5/01/2000*
TO
6/30/2000@
(UNAUDITED)
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income --
Net realized and unrealized loss on
investments (0.48)
----------
Total from investment operations (0.48)
----------
NET ASSET VALUE, END OF PERIOD $ 12.02
==========
TOTAL RETURN (3.84%) +
Net assets, end of period (000's) $ 60,219
Ratio of operating expenses to average net assets 1.12% (A)
Ratio of net investment income to average net assets 1.87% (A)
Portfolio turnover rate 18% (A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the period May 1, 2000 (commencement of operations) to June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
114
<PAGE> 118
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID CAP STOCK TRUST
----------------------------
SIX MONTHS
ENDED 5/01/1999*
6/30/2000@ TO
(UNAUDITED) 12/31/99
------------ -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.60 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment loss -- (0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.45) 0.11
------------ -----------
Total from investment operations (0.45) 0.10
------------ -----------
NET ASSET VALUE, END OF PERIOD $ 12.15 $ 12.60
============ ===========
TOTAL RETURN (3.57%) + 0.80% +
Net assets, end of period (000's) $ 83,401 $ 99,504
Ratio of operating expenses to average net assets 1.01% (A) 1.025% (A)
Ratio of net investment income to average net assets (0.02%) (A) (0.15%) (A)
Portfolio turnover rate 358% (A) 36% (A)
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares
method for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
115
<PAGE> 119
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL CAP GROWTH TRUST
(FORMERLY, MID CAP GROWTH TRUST)
------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 3/04/1996*
6/30/2000@ -------------------------------------- TO
(UNAUDITED) 1999 1998 1997 12/31/96
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 24.89 $ 19.77 $ 15.41 $ 13.37 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment loss (0.02) (0.08) (0.04) (0.04) --
Net realized and unrealized gain on
investments and foreign currency transactions 2.00 7.87 4.40 2.08 0.87
------------ ----------- ----------- ----------- -----------
Total from investment operations 1.98 7.79 4.36 2.04 0.87
------------ ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
-------------------
Distributions from capital gains (1.83) (2.67) -- -- --
------------ ----------- ----------- ----------- -----------
Total distributions (1.83) (2.67) -- -- --
------------ ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 25.04 $ 24.89 $ 19.77 $ 15.41 $ 13.37
=-========== =========== =========== =========== ===========
TOTAL RETURN 8.18% + 44.69% 28.29% 15.26% 6.96% +
Net assets, end of period (000's) $ 932,037 $ 662,674 $ 395,109 $ 268,377 $ 176,062
Ratio of operating expenses to average net assets 1.00% (A) 1.03% 1.04% 1.05% 1.10% (A)
Ratio of net investment loss to average net assets (0.44%) (A) (0.46%) (0.27%) (0.33%) (0.02%) (A)
Portfolio turnover rate 119% (A) 193% 150% 151% 67% (A)
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
116
<PAGE> 120
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OVERSEES TRUST
------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/09/1995
6/30/2000@ --------------------------------------------- TO
(UNAUDITED) 1999 1998 1997 1996 12/31/95
----------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.92 $ 11.33 $ 11.01 $ 11.77 $ 10.47 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income 0.02 0.08 0.06 0.23 0.17 0.11
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.89) 4.51 0.88 (0.26) 1.15 0.59
----------- --------- --------- --------- --------- ----------
Total from investment operations (0.87) 4.59 0.94 (0.03) 1.32 0.70
----------- --------- --------- --------- --------- ----------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income (0.13) -- (0.26) (0.22) (0.02) (0.12)
Distributions from capital gains (1.09) -- (0.36) (0.51) -- (0.11)
----------- --------- --------- --------- --------- ----------
Total distributions (1.22) -- (0.62) (0.73) (0.02) (0.23)
----------- --------- --------- --------- --------- ----------
NET ASSET VALUE, END OF PERIOD $ 13.83 $ 15.92 $ 11.33 $ 11.01 $ 11.77 $ 10.47
=========== ========= ========= ========= ========= ==========
TOTAL RETURN (5.62%) + 40.51% 8.04% 0.08% 12.61% 6.98% +
Net assets, end of period (000's) $ 508,671 $ 404,223 $ 218,551 $ 203,776 $ 189,010 $ 88,638
Ratio of operating expenses to average net assets 1.17% (A) 1.21% 1.16% 1.12% 1.11% 1.47% (A)
Ratio of net investment income to average net assets 0.70% (A) 0.73% 0.61% 2.08% 1.82% 0.71% (A)
Portfolio turnover rate 116% (A) 147% 150% 166% 148% 112% (A)
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares
method for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
117
<PAGE> 121
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL STOCK TRUST
-------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/01/1997*
6/30/2000@ --------------------------- TO
(UNAUDITED) 1999 1998 12/31/97
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.43 $ 12.98 $ 11.47 $ 11.47
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income 0.05 0.08 0.09 0.04
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.74) 3.76 1.62 0.12
------------ ---------- ----------- -----------
Total from investment operations (0.69) 3.84 1.71 0.16
------------ ---------- ----------- -----------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income (0.01) (0.07) (0.09) (0.03)
Distributions from capital gains (0.06) (1.32) (0.11) (0.13)
------------ ---------- ----------- -----------
Total distributions (0.07) (1.39) (0.20) (0.16)
------------ ---------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 14.67 $ 15.43 $ 12.98 $ 11.47
============ ========== =========== ===========
TOTAL RETURN (4.46%) + 29.71% 14.91% 1.38%
Net assets, end of period (000's) $ 285,712 $ 231,729 $ 234,103 $ 145,253
Ratio of operating expenses to average net assets 1.24% (A) 1.25% 1.25% 1.38%
Ratio of net investment income to average net assets 0.50% (A) 0.58% 0.82% 0.56%
Portfolio turnover rate 50% (A) 39% 27% 43%
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
118
<PAGE> 122
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL
VALUE TRUST
--------------------------------
SIX MONTHS
ENDED 5/01/1999*
6/30/2000@ TO
(UNAUDITED) 12/31/99
------------- ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.98 $12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income 0.15 0.08
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.24) 0.40
------------- -----------
Total from investment operations (0.09) 0.48
------------- -----------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income (0.05) -
Distributions from capital gains (0.03) -
------------- -----------
Total distributions (0.08) -
------------- -----------
NET ASSET VALUE, END OF PERIOD $12.81 $12.98
============= ===========
TOTAL RETURN (0.64%)+ 3.84%+
Net assets, end of period (000's) $137,839 $100,970
Ratio of operating expenses to average net assets 1.19% (A) 1.23% (A)
Ratio of net investment income to average net assets 2.51% (A) 1.27% (A)
Portfolio turnover rate 46% (A) 4% (A)
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
119
<PAGE> 123
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID CAP BLEND TRUST
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@ -------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.90 $ 19.48 $ 21.50 $ 22.62 $ 20.79 $ 14.66
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income 0.03 0.07 0.08 0.08 0.13 0.10
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.13) 4.75 2.13 3.31 3.77 6.14
---------- ---------- ---------- ---------- ---------- --------
Total from investment operations (0.10) 4.82 2.21 3.39 3.90 6.24
---------- ---------- ---------- ---------- ---------- --------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income (0.07) (0.09) (0.07) (0.14) (0.09) (0.11)
Distributions from capital gains (3.19) (2.31) (4.16) (4.37) (1.98) --
---------- ---------- ---------- ---------- ---------- --------
Total distributions (3.26) (2.40) (4.23) (4.51) (2.07) (0.11)
---------- ---------- ---------- ---------- ---------- --------
NET ASSET VALUE, END OF PERIOD $ 18.54 $ 21.90 $ 19.48 $ 21.50 $ 22.62 $ 20.79
========== ========== ========== ========== ========== ========
TOTAL RETURN (0.92%)+ 27.75% 9.41% 19.25% 20.14% 42.79%
Net assets, end of period (000's) $1,566,458 $1,673,228 $1,556,169 $1,521,382 $1,345,461 $988,800
Ratio of operating expenses to average net assets 0.90% (A) 0.88% 0.80% 0.80% 0.80% 0.80%
Ratio of net investment income to average net assets 0.34% (A) 0.34% 0.42% 0.35% 0.71% 0.63%
Portfolio turnover rate 158% (A) 129% 93% 224% 223% 88%
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
120
<PAGE> 124
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL COMPANY VALUE TRUST
-------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 10/1/1997*
6/30/2000@ ---------------------------- TO
(UNAUDITED) 1999 1998 12/31/97
----------- ---------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.27 $ 11.37 $ 11.94 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income -- 0.02 0.01 0.01
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.09 0.89 (0.57) (0.57)
----------- ----------- ----------- -----------
Total from investment operations 0.09 0.91 (0.56) (0.56)
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income (0.02) (0.01) (0.01) --
Distributions from capital gains -- -- -- --
----------- ----------- ----------- -----------
Total distributions (0.02) (0.01) (0.01) --
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.34 $ 12.27 $ 11.37 $ 11.94
=========== =========== =========== ===========
TOTAL RETURN 0.71% + 8.00% (4.72%) (4.48%)+
Net assets, end of period (000's) $ 103,742 $ 89,167 $ 162,335 $ 67,091
Ratio of operating expenses to average net assets 1.26% (A) 1.22% 1.23% 1.19% (A)
Ratio of net investment income to average net assets 0.16% (A) 0.15% 0.16% 0.54% (A)
Portfolio turnover rate 236% (A) 142% 131% 81% (A)
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
121
<PAGE> 125
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL EQUITY TRUST
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
06/30/2000@ --------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.79 $ 20.38 $ 19.38 $ 17.84 $ 16.10 $ 15.74
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income 0.08 0.23 0.17 0.19 0.12 0.29
Net realized and unrealized gain on
investments and foreign currency transactions 0.61 0.38 2.27 3.16 1.89 0.84
----------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 0.69 0.61 2.44 3.35 2.01 1.13
----------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income (0.35) (0.13) (0.36) (0.27) (0.27) (0.08)
Distributions from capital gains (1.99) (2.07) (1.08) (1.54) -- (0.69)
----------- ---------- ---------- ---------- ---------- ----------
Total distributions (2.34) (2.20) (1.44) (1.81) (0.27) (0.77)
----------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 17.14 $ 18.79 $ 20.38 $ 19.38 $ 17.84 $ 16.10
=========== ========== ========== ========== ========== ==========
TOTAL RETURN 4.06% + 3.66% 12.24% 20.80% 12.62% 7.68%
Net assets, end of period (000's) $ 754,005 $ 837,728 $ 928,564 $ 868,413 $ 726,842 $ 648,183
Ratio of operating expenses to average net assets 1.03% (A) 1.06% 1.01% 1.01% 1.01% 1.05%
Ratio of net investment income to average net assets 1.63% (A) 1.14% 0.84% 1.02% 0.78% 0.61%
Portfolio turnover rate 65% (A) 43% (B) 32% 33% 169% 63%
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non - annualized
(A) Annualized
(B) The portfolio turnover rate excludes assets acquired in the merger.
122
<PAGE> 126
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH TRUST
----------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 7/15/1996*
6/30/2000@ ----------------------------------------- TO
(UNAUDITED) 1999 1998 1997 12/31/96
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 26.88 $ 20.50 $ 17.21 $ 13.73 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income (loss) (0.01) (0.04) 0.06 0.08 0.09
Net realized and unrealized gain on
investments and foreign currency transactions 1.13 7.46 4.00 3.40 1.23
----------- ----------- ----------- ----------- -----------
Total from investment operations 1.12 7.42 4.06 3.48 1.32
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income -- (0.05) (0.07) -- (0.09)
Distributions from capital gains (2.61) (0.99) (0.70) -- --
----------- ----------- ----------- ----------- -----------
Total distributions (2.61) (1.04) (0.77) -- (0.09)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 25.39 $ 26.88 $ 20.50 $ 17.21 $ 13.73
=========== =========== =========== =========== ===========
TOTAL RETURN 4.07% + 37.20% 23.95% 25.35% 10.53% +
Net assets, end of period (000's) $ 816,448 $ 642,948 $ 299,994 $ 167,388 $ 56,807
Ratio of operating expenses to average net assets 0.89% (A) 0.90% 0.90% 0.95% 1.01% (A)
Ratio of net investment income (loss) to average net assets (0.18%) (A) (0.18%) 0.42% 0.74% 2.57% (A)
Portfolio turnover rate 110% (A) 156% 136% 179% 215% (A)
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
123
<PAGE> 127
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LARGE CAP GROWTH TRUST
--------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
06/30/2000@ ------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.23 $ 15.26 $ 14.36 $ 13.45 $ 12.85 $ 11.17
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income (loss) -- 0.06 0.24 0.29 0.36 0.35
Net realized and unrealized gain on
investments and foreign currency transactions 0.13 3.52 2.43 2.01 1.21 2.07
----------- --------- --------- --------- --------- ---------
Total from investment operations 0.13 3.58 2.67 2.3 1.57 2.42
----------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income (0.05) (0.23) (0.29) (0.38) (0.33) (0.33)
Distributions from capital gains (2.56) (1.38) (1.48) (1.01) (0.64) (0.41)
----------- --------- --------- --------- --------- ---------
Total distributions (2.61) (1.61) (1.77) (1.39) (0.97) (0.74)
----------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 14.75 $ 17.23 $ 15.26 $ 14.36 $ 13.45 $ 12.85
=========== ========= ========= ========= ========= =========
TOTAL RETURN 0.55% + 25.28% 19.12% 19.09% 13.00% 22.77%
Net assets, end of period (000's) $ 551,594 $ 402,585 $ 262,882 $ 243,533 $ 226,699 $ 211,757
Ratio of operating expenses to average net assets 0.94% (A) 0.94% 0.88% 0.90% 0.90% 0.91%
Ratio of net investment income (loss) to average net assets (0.06%) (A) 0.45% 1.58% 1.99% 2.73% 2.76%
Portfolio turnover rate 89% (A) 164% 64% 91% 75% 111%
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
124
<PAGE> 128
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUANTITATIVE EQUITY TRUST
------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@ --------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------ --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 28.16 $ 25.22 $ 22.50 $ 17.33 $ 17.27 $ 13.36
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income 0.05 0.10 0.20 0.26 0.26 0.24
Net realized and unrealized gain on
investments and foreign currency transactions 2.80 5.26 5.42 4.91 2.83 3.67
------------ --------- --------- --------- -------- --------
Total from investment operations 2.85 5.36 5.62 5.17 3.09 3.91
------------ --------- --------- --------- -------- --------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income (0.12) (0.18) (0.25) -- (0.50) --
Distributions from capital gains (3.67) (2.24) (2.65) -- (2.51) --
------------ --------- --------- --------- -------- --------
Total distributions (3.79) (2.42) (2.90) -- (3.03) --
------------ --------- --------- --------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 27.22 $ 28.16 $ 25.22 $ 22.50 $ 17.33 $ 17.27
============ ========= ========= ========= ======== ========
TOTAL RETURN (B) 10.19% + 22.30% 26.35% 29.83% 17.92% 29.23%
Net assets, end of period (000's) $ 523,757 $ 431,909 $ 254,475 $ 167,530 $ 91,900 $ 60,996
Ratio of operating expenses to average net assets (C) 0.75% (A) 0.76% 0.76% 0.50% 0.50% 0.50%
Ratio of net investment income to average net assets (0.28%) (A) 0.57% 1.06% 1.50% 1.81% 1.76%
Portfolio turnover rate 155% (A) 159% 225% 114% 105% 109%
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
(B) The total return for the year ended December 31, 1997 would have been lower
had operating expenses not been reduced.
(C) The ratios of operating expenses, before reimbursement from the investment
adviser, was 0.77% for the year ended December 31, 1997.
125
<PAGE> 129
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BLUE CHIP GROWTH TRUST
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@ -----------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
------------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.64 $ 18.92 $ 15.00 $ 14.31 $ 11.40 $ 9.05
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------
Net investment income (loss) (0.01) 0.01 0.05 0.09 0.03 0.03
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.44 3.58 4.19 3.13 2.92 2.36
------------- ----------- ----------- --------- --------- ---------
Total from investment operations 1.43 3.59 4.24 3.22 2.95 2.39
------------- ----------- ----------- --------- --------- ---------
LESS DISTRIBUTIONS:
-------------------
Dividends from net investment income (0.01) (0.05) (0.08) (0.03) (0.04) (0.04)
Distributions from capital gains (0.98) (0.82) (0.24) (2.50) -- --
------------- ----------- ----------- --------- --------- ---------
Total distributions (0.99) (0.87) (0.32) (2.53) (0.04) (0.04)
------------- ----------- ----------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 22.08 $ 21.64 $ 18.92 $ 15.00 $ 14.31 $ 11.40
============= =========== =========== ========= ========= =========
TOTAL RETURN (B) 6.66% + 19.43% 28.49% 26.94% 25.90% 26.53%
Net assets, end of period (000's) $ 2,046,297 $ 1,734,233 $ 1,141,162 $ 708,807 $ 422,571 $ 277,674
Ratio of operating expenses to average net assets (C) 0.91% (A) 0.94% 0.97% 0.975% 0.975% 0.975%
Ratio of net investment income to average net assets (0.09%) (A) 0.06% 0.37% 0.74% 0.26% 0.42%
Portfolio turnover rate 46% (A) 42% 42% 37% 159% 57%
</TABLE>
--------------------------------------------------------------------------------
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
(B) The total return for the six months ended June 30, 2000 and the years ended
December 31, 1996 and 1995 would have been lower had operating expenses not
been reduced.
(C) The ratios of operating expenses, before reimbursement from the investment
adviser, was 0.91% for the six months ended June 30, 2000, 1.02% and 1.03%
for the years ended December 31, 1996 and 1995, respectively.
126
<PAGE> 130
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES TRUST
----------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@ -------------------------------------------------------
(UNAUDITED) 1999@ 1998 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.89 $14.76 $20.07 $16.95 $15.10 $13.34
Income from investment operations:
Net investment income 0.37 0.78 0.78 0.80 0.74 0.67
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.61 (1.94) (3.72) 2.32 4.31 1.35
----------------------------------------------------------------------
Total from investment operations 0.98 (1.16) (2.94) 3.12 5.05 2.02
----------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.52) (0.71) (0.53) - (1.39) (0.26)
Distributions from capital gains - - (1.84) - (1.81) -
----------------------------------------------------------------------
Total distributions (0.52) (0.71) (2.37) 0.00 (3.20) (0.26)
----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.35 $12.89 $14.76 $20.07 $16.95 $15.10
======================================================================
Total return (B) 7.78% + (8.00%) (16.44%) 18.41% 34.69% 15.14%
Net assets, end of period (000's) $204,979 $196,756 $161,832 $161,759 $76,220 $52,440
Ratio of operating expenses to average net assets (C) 0.77% (A) 0.77% 0.76% 0.50% 0.50% 0.50%
Ratio of net investment income to average net assets 4.91% (A) 5.88% 5.57% 5.42% 5.22% 5.06%
Portfolio turnover rate 205% (A) 201% 122% 148% 231% 136%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000 and the fiscal year 1999.
+ Non-annualized
(A) Annualized
(B) The total return for the year ended December 31, 1997 would have been lower
had operating expenses not been reduced.
(C) The ratios of operating expenses, before reimbursement from the investment
adviser, was 0.77% for the year ended December 31, 1997.
127
<PAGE> 131
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
VALUE TRUST
---------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/01/1997*
6/30/2000@ TO
(UNAUDITED) 1999 1998 12/31/1997
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.23 $14.06 $14.81 $12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.01 0.20 0.18 0.10
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.50) (0.59) (0.45) 2.67
---------------------------------------------------------------------
Total from investment operations (0.49) (0.39) (0.27) 2.77
---------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income - (0.20) (0.18) (0.10)
Distributions from capital gains - (0.24) (0.30) (0.36)
---------------------------------------------------------------------
Total distributions - (0.44) (0.48) (0.46)
---------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.74 $13.23 $14.06 $14.81
=====================================================================
TOTAL RETURN (3.70%) + (2.79%) (1.72%) 22.14%
Net assets, end of period (000's) $134,117 $146,279 $255,554 $144,672
Ratio of operating expenses to average net assets 0.87% (A) 0.87% 0.85% 0.96%
Ratio of net investment income to average net assets 1.05% (A) 1.12% 1.50% 1.50%
Portfolio turnover rate 83% (A) 54% 45% 43%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
128
<PAGE> 132
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
TACTICAL
ALLOCATION
TRUST
5/01/2000*
TO
6/30/2000@
(UNAUDITED)
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.50
INCOME FROM INVESTMENT OPERATIONS:
Net realized and unrealized loss on
investments and foreign currency transactions (0.04)
--------
Total from investment operations (0.04)
--------
NET ASSET VALUE, END OF PERIOD $12.46
========
TOTAL RETURN (0.32%) +
Net assets, end of period (000's) $42,274
Ratio of operating expenses to average net assets 1.31% (A)
Ratio of net investment income to average net assets 1.97% (A)
Portfolio turnover rate 36% (A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the period May 1, 2000 (commencement of operations) to June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
129
<PAGE> 133
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
EQUITY INDEX TRUST
-------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 2/14/1996*
6/30/2000@ TO
-------------------------------
(UNAUDITED) 1999 1998 1997 12/31/1996
----------- -------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.13 $ 15.43 $ 12.48 $ 10.69 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.17 0.18 0.32 0.19
Net realized and unrealized gain (loss) on
investments (0.16) 3.00 3.36 3.26 1.29
-------- -------- ------- ------- ------
Total from investment operations (0.11) 3.17 3.54 3.58 1.48
-------- -------- ------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income -- (0.17) (0.18) (0.32) (0.19)
Distributions from capital gains (0.05) (0.30) (0.41) (1.47) (0.60)
-------- -------- ------- ------- ------
Total distributions (0.05) (0.47) (0.59) (1.79) (0.79)
-------- -------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 17.97 $ 18.13 $ 15.43 $ 12.48 $10.69
======== ======== ======= ======= ======
TOTAL RETURN (B) (0.60%)+ 20.58% 28.56% 33.53% 14.86%+
Net assets, end of period (000's) $123,351 $114,775 $63,292 $27,075 $7,818
Ratio of operating expenses to average net assets (C) 0.38%(A) 0.40% 0.40% 0.40% 0.40%(A)
Ratio of net investment income to average net assets 1.03%(A) 1.17% 1.70% 3.64% 4.74%(A)
Portfolio turnover rate 7%(A) 10% 3% 7% 27%(A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for the years ended December 31, 1999, 1998 and 1997 would
have been lower had operating expenses not been reduced.
(C) The ratios of operating expenses, before reimbursement from the investment
adviser, was 0.41%, 0.55% and 0.57% for the years ended December 31, 1999,
1998 and 1997, respectively.
130
<PAGE> 134
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
GROWTH & INCOME TRUST
-----------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
6/30/2000@
-----------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 32.67 $ 28.43 $ 23.89 $ 19.38 $ 16.37 $ 13.04
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.06 0.17 0.19 0.22 0.22 0.27
Net realized and unrealized gain on
investments and foreign currency
transactions 0.21 5.12 5.98 5.73 3.41 3.45
---------- ---------- ---------- ---------- ---------- --------
Total from investment operations 0.27 5.29 6.17 5.95 3.63 3.72
---------- ---------- ---------- ---------- ---------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.17) (0.19) (0.22) (0.24) (0.26) (0.26)
Distributions from capital gains (1.84) (0.86) (1.41) (1.20) (0.36) (0.13)
---------- ---------- ---------- ---------- ---------- --------
Total distributions (2.01) (1.05) (1.63) (1.44) (0.62) (0.39)
---------- ---------- ---------- ---------- ---------- --------
NET ASSET VALUE, END OF PERIOD $ 30.93 $ 32.67 $ 28.43 $ 23.89 $ 19.38 $ 16.37
========== ========== ========== ========== ========== ========
TOTAL RETURN 0.65%+ 18.87% 26.52% 32.83% 22.84% 29.20%
Net assets, end of period (000's) $3,227,506 $3,187,220 $2,290,118 $1,605,387 $1,033,738 $669,387
Ratio of operating expenses to average net
assets 0.79%(A) 0.80% 0.79% 0.79% 0.80% 0.80%
Ratio of net investment income to average
net assets 0.31%(A) 0.63% 0.85% 1.14% 1.56% 2.23%
Portfolio turnover rate 27%(A) 19% 16% 34% 49% 39%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
131
<PAGE> 135
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
U.S. LARGE CAP
VALUE TRUST
-------------------------------
SIX MONTHS
ENDED 5/01/1999*
6/30/2000@ TO
(UNAUDITED) 12/31/1999
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.84 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.01 0.04
Net realized and unrealized gain on
investments and foreign currency transactions 0.36 0.30
------------ ------------
Total from investment operations 0.37 0.34
------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.03) --
Distributions from capital gains (0.08) --
------------ ------------
Total distributions (0.11) --
------------ ------------
NET ASSET VALUE, END OF PERIOD $ 13.10 $ 12.84
============ ============
TOTAL RETURN 2.86%+ 2.72%+
Net assets, end of period (000's) $ 354,382 $ 210,725
Ratio of operating expenses to average net assets 0.92%(A) 0.945%(A)
Ratio of net investment income to average net assets 0.60%(A) 0.64%(A)
Portfolio turnover rate 23%(A) 30%(A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
132
<PAGE> 136
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
EQUITY-INCOME TRUST
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@
---------------------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
--------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.05 $ 17.78 $ 17.24 $ 15.41 $ 13.81 $ 11.33
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.13 0.35 0.34 0.34 0.21 0.17
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.57) 0.25 1.26 3.68 2.39 2.49
-------- ---------- ---------- -------- -------- --------
Total from investment operations (0.44) 0.60 1.60 4.02 2.60 2.66
-------- ---------- ---------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.34) (0.37) (0.33) (0.21) (0.16) (0.08)
Distributions from capital gains (1.81) (0.96) (0.73) (1.98) (0.84) (0.10)
-------- ---------- ---------- -------- -------- --------
Total distributions (2.15) (1.33) (1.06) (2.19) (1.00) (0.18)
-------- ---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 14.46 $ 17.05 $ 17.78 $ 17.24 $ 15.41 $ 13.81
======== ========== ========== ======== ======== ========
TOTAL RETURN (2.92%)+ 3.40% 9.21% 29.71% 19.85% 23.69%
Net assets, end of period (000's) $884,590 $1,011,260 $1,088,342 $941,705 $599,486 $396,827
Ratio of operating expenses to average net assets 0.92%(A) 0.91% 0.85% 0.85% 0.85% 0.85%
Ratio of net investment income to average net assets 2.11%(A) 1.83% 2.13% 2.47% 1.78% 1.63%
Portfolio turnover rate 33%(A) 30% 21% 25% 158% 52%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
133
<PAGE> 137
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
INCOME & VALUE TRUST
------------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@
------------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.91 $ 13.36 $ 12.95 $ 12.49 $ 12.39 $ 10.79
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.10 0.32 0.40 0.48 0.54 0.50
Net realized and unrealized gain on
investments and foreign currency
transactions 0.25 0.77 1.51 1.29 0.60 1.65
-------- -------- -------- -------- -------- --------
Total from investment operations 0.35 1.09 1.91 1.77 1.14 2.15
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.32) (0.40) (0.46) (0.57) (0.52) (0.45)
Distributions from capital gains (2.63) (1.14) (1.04) (0.74) (0.52) (0.10)
-------- -------- -------- -------- -------- --------
Total distributions (2.95) (1.54) (1.50) (1.31) (1.04) (0.55)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.31 $ 12.91 $ 13.36 $ 12.95 $ 12.49 $ 12.39
======== ======== ======== ======== ======== ========
TOTAL RETURN 2.45% + 8.52% 15.27% 15.87% 9.96% 20.68%
Net assets, end of period (000's) $597,447 $639,824 $618,011 $609,142 $624,821 $650,136
Ratio of operating expenses to average net
assets 0.85%(A) 0.86% 0.84% 0.85% 0.84% 0.84%
Ratio of net investment income to average net
assets 2.59%(A) 2.39% 2.89% 3.37% 4.17% 4.09%
Portfolio turnover rate 50%(A) 165% 85% 78% 78% 129%
</TABLE>
+ Non-annualized
(A) Annualized
134
<PAGE> 138
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
BALANCED TRUST
--------------------------------------------------------------
SIX MONTH
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@ 1/01/1997*
----------- --------------------------- TO
(UNAUDITED) 1999@ 1998 12/31/1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.82 $ 19.40 $ 19.33 $ 16.41
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.16 0.55 0.41 0.51
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.01 (0.85) 2.23 2.41
----------- ----------- ----------- -----------
Total from investment operations 0.17 (0.30) 2.64 2.92
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.62) (0.37) (0.48) --
Distributions from capital gains (0.17) (0.91) (2.09) --
----------- ----------- ----------- -----------
Total distributions (0.79) (1.28) (2.57) --
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 17.20 $ 17.82 $ 19.40 $ 19.33
=========== =========== =========== ===========
TOTAL RETURN 0.87%+ (1.65%) 14.25% 17.79%
Net assets, end of period (000's) $ 233,150 $ 258,158 $ 254,454 $ 177,045
Ratio of operating expenses to average net assets 0.87%(A) 0.87% 0.87% 0.88%
Ratio of net investment income to average net assets 1.72%(A) 2.98% 2.71% 2.97%
Portfolio turnover rate 189%(A) 215% 199% 219%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000 and the fiscal year 1999.
* Commencement of operations
+ Non-annualized
(A) Annualized
135
<PAGE> 139
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
HIGH YIELD TRUST
--------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/01/1997*
6/30/2000@ TO
----------------------------
(UNAUDITED) 1999@ 1998 12/31/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.83 $ 12.92 $ 13.56 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.16 1.14 0.91 0.46
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.32) (0.12) (0.53) 1.13
----------- ----------- ----------- -----------
Total from investment operations (0.16) 1.02 0.38 1.59
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.04) (1.11) (0.89) (0.46)
Distributions from capital gains -- -- (0.13) (0.07)
----------- ----------- ----------- -----------
Total distributions (0.04) (1.11) (1.02) (0.53)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.63 $ 12.83 $ 12.92 $ 13.56
=========== =========== =========== ===========
TOTAL RETURN (1.31%)+ 8.00% 2.78% 12.68%
Net assets, end of period (000's) $ 251,611 $ 241,054 $ 192,354 $ 92,748
Ratio of operating expenses to average net assets 0.84%(A) 0.84% 0.84% 0.89%
Ratio of net investment income to average net assets 9.55%(A) 8.59% 8.34% 7.40%
Portfolio turnover rate 50%(A) 62% 94% 75%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000 and the fiscal year 1999.
* Commencement of operations
+ Non-annualized
(A) Annualized
136
<PAGE> 140
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
STRATEGIC BOND TRUST
-------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@
---------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.14 $ 11.72 $ 12.38 $ 11.94 $ 11.26 $ 9.91
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.20 1.00 0.76 0.67 0.62 0.78
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.04 (0.75) (0.59) 0.57 0.92 1.04
-------- -------- -------- -------- -------- --------
Total from investment operations 0.24 0.25 0.17 1.24 1.54 1.82
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.98) (0.83) (0.71) (0.71) (0.86) (0.47)
Distributions from capital gains -- -- (0.12) (0.09) -- --
-------- -------- -------- -------- -------- --------
Total distributions (0.98) (0.83) (0.83) (0.80) (0.86) (0.47)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.40 $ 11.14 $ 11.72 $ 12.38 $ 11.94 $ 11.26
======== ======== ======== ======== ======== ========
TOTAL RETURN 2.18%+ 2.22% 1.31% 10.98% 14.70% 19.22%
Net assets, end of period (000's) $329,471 $368,380 $443,414 $365,590 $221,277 $122,704
Ratio of operating expenses to average net assets 0.87%(A) 0.87% 0.85% 0.87% 0.86% 0.92%
Ratio of net investment income to average net assets 8.35%(A) 8.15% 7.59% 7.54% 8.20% 8.76%
Portfolio turnover rate 111%(A) 107% 209% 131% 165% 181%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
137
<PAGE> 141
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
GLOBAL BOND TRUST
-------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@
--------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.60 $ 13.73 $ 14.07 $ 14.97 $ 14.56 $ 12.47
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.27 0.67 0.81 0.93 0.93 1.16
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.35) (1.55) 0.20 (0.57) 0.79 1.62
-------- -------- -------- -------- -------- --------
Total from investment operations (0.08) (0.88) 1.01 0.36 1.72 2.78
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.36) (1.25) (0.95) (1.23) (1.31) (0.69)
Distributions from capital gains -- -- (0.40) (0.03) -- --
-------- -------- -------- -------- -------- --------
Total distributions (0.36) (1.25) (1.35) (1.26) (1.31) (0.69)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.16 $ 11.60 $ 13.73 $ 14.07 $ 14.97 $ 14.56
======== ======== ======== ======== ======== ========
TOTAL RETURN (0.63%)+ (6.67%) 7.61% 2.95% 13.01% 23.18%
Net assets, end of period (000's) $120,120 $145,992 $196,990 $216,117 $249,793 $235,243
Ratio of operating expenses to average net assets 1.02%(A) 0.98% 0.94% 0.93% 0.90% 0.93%
Ratio of net investment income to average net assets 4.63%(A) 4.38% 5.46% 5.87% 6.38% 6.83%
Portfolio turnover rate 527% 471% 140% 160% 167% 171%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
138
<PAGE> 142
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
TOTAL RETURN TRUST
-----------------------------
SIX MONTHS
ENDED 5/01/1999*
6/30/2000@ TO
(UNAUDITED) 12/31/99
----------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.37 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.35 0.35
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.04 (0.48)
----------- -----------
Total from investment operations 0.39 (0.13)
----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.31) --
----------- -----------
Total distributions (0.31) --
----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.45 $ 12.37
=========== ===========
TOTAL RETURN 3.20%+ (1.04%)+
Net assets, end of period (000's) $ 311,428 $ 240,016
Ratio of operating expenses to average net assets 0.84%(A) 0.84%(A)
Ratio of net investment income to average net assets 5.86%(A) 5.72%(A)
Portfolio turnover rate 460%(A) 95%(A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
139
<PAGE> 143
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INVESTMENT QUALITY BOND TRUST
-------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@
----------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.60 $ 12.46 $ 12.13 $ 11.89 $ 12.32 $ 11.01
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.14 0.81 0.62 0.77 0.77 0.77
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.21 (1.02) 0.40 0.30 (0.50) 1.28
-------- -------- -------- -------- -------- --------
Total from investment operations 0.35 (0.21) 1.02 1.07 0.27 2.05
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.89) (0.65) (0.69) (0.83) (0.70) (0.74)
-------- -------- -------- -------- -------- --------
Total distributions (0.89) (0.65) (0.69) (0.83) (0.70) (0.74)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.06 $ 11.60 $ 12.46 $ 12.13 $ 11.89 $ 12.32
======== ======== ======== ======== ======== ========
TOTAL RETURN 3.07%+ (1.79%) 8.73% 9.75% 2.58% 19.49%
Net assets, end of period (000's) $274,050 $288,594 $312,111 $188,545 $152,961 $143,103
Ratio of operating expenses to average net assets 0.74%(A) 0.77% 0.72% 0.74% 0.73% 0.74%
Ratio of net investment income to average net assets 7.05%(A) 6.79% 6.89% 7.15% 6.95% 6.91%
Portfolio turnover rate 67%(A) 36%(B) 41% 47% 68% 137%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
(B) The portfolio turnover rate excludes assets acquired in the merger.
140
<PAGE> 144
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
DIVERSIFIED BOND TRUST
-----------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@
--------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.82 $ 11.83 $ 11.78 $ 11.64 $ 11.59 $ 10.34
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.10 0.56 0.51 0.54 0.57 0.54
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.19 (0.46) 0.69 0.67 0.20 1.26
-------- -------- -------- -------- -------- --------
Total from investment operations 0.29 0.10 1.20 1.21 0.77 1.80
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.58) (0.49) (0.55) (0.59) (0.56) (0.55)
Distributions from capital gains (0.77) (0.62) (0.60) (0.48) (0.16) 0.00
-------- -------- -------- -------- -------- --------
Total distributions (1.35) (1.11) (1.15) (1.07) (0.72) (0.55)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 9.76 $ 10.82 $ 11.83 $ 11.78 $ 11.64 $ 11.59
======== ======== ======== ======== ======== ========
TOTAL RETURN (B) 2.84%+ 0.72% 10.68% 11.44% 7.03% 18.07%
Net assets, end of period (000's) $195,645 $218,868 $196,800 $204,348 $208,466 $224,390
Ratio of operating expenses to average net assets (C) 0.83%(A) 0.84% 0.89% 0.89% 0.87% 0.87%
Ratio of net investment income to average net assets 6.58%(A) 5.18% 4.03% 4.39% 4.59% 4.68%
Portfolio turnover rate 80%(A) 173% 125% 86% 73% 110%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
141
<PAGE> 145
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES TRUST
-------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@
--------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.24 $ 13.82 $ 13.50 $ 13.32 $ 13.65 $ 12.64
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.46 0.74 0.79 0.75 0.83 0.89
Net realized and unrealized gain (loss) on
investments and foreign 0.01 (0.77) 0.18 0.31 (0.41) 0.99
-------- -------- -------- -------- -------- --------
Total from investment operations 0.47 (0.03) 0.97 1.06 0.42 1.88
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (1.02) (0.55) (0.65) (0.88) (0.75) (0.87)
-------- -------- -------- -------- -------- --------
Total distributions (1.02) (0.55) (0.65) (0.88) (0.75) (0.87)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.69 $ 13.24 $ 13.82 $ 13.50 13.32 13.65
======== ======== ======== ======== ======== ========
TOTAL RETURN (B) 3.68%+ (0.23%) 7.49% 8.47% 3.38% 15.57%
Net assets, end of period (000's) $298,437 $363,269 $363,615 $251,277 $204,053 $216,788
Ratio of operating expenses to average net assets (C) 0.73%(A) 0.72% 0.72% 0.72% 0.71% 0.71%
Ratio of net investment income to average net assets 6.70%(A) 6.03% 5.92% 6.27% 6.36% 6.46%
Portfolio turnover rate 58%(A) 40% 287% 110% 178% 212%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
142
<PAGE> 146
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET TRUST
--------------------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
6/30/2000@
----------------------------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from investment operations:
Net investment income 0.27 0.45 0.50 0.50 0.49 0.55
-------- ---------- -------- -------- -------- --------
Total from investment operations 0.27 0.45 0.50 0.50 0.49 0.55
-------- ---------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.27) (0.45) (0.50) (0.50) (0.49) (0.55)
-------- ---------- -------- -------- -------- --------
Total distributions (0.27) (0.45) (0.50) (0.50) (0.49) (0.55)
-------- ---------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ========== ======== ======== ======== ========
TOTAL RETURN (B) 2.73%+ 4.60% 5.03% 5.15% 5.05% 5.62%
Net assets, end of period (000's) $889,296 $1,084,859 $609,837 $439,714 $363,566 $258,117
Ratio of operating expenses to average net assets (C) 0.55%(A) 0.55% 0.55% 0.54% 0.55% 0.54%
Ratio of net investment income to average net assets 5.40%(A) 4.54% 4.94% 5.03% 4.97% 5.48%
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
+ Non-annualized
(A) Annualized
143
<PAGE> 147
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
SMALL CAP
INDEX
TRUST
------------
5/01/2000*
TO
06/30/2000 @
(UNAUDITED)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income --
Net realized and unrealized gain (loss) on
investments and foreign currency transactions --
-------
Total from investment operations --
-------
NET ASSET VALUE, END OF PERIOD $ 12.50
=======
TOTAL RETURN (B) 0.00% +
Net assets, end of period (000's) $31,678
Ratio of operating expenses to average net assets (C) 0.60% (A)
Ratio of net investment income to average net assets 5.79% (A)
Portfolio turnover rate 0% (A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the period May 1, 2000 (commencement of operations) to June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for the period May 1, 2000 (commencement of operations) to
June 30, 2000 would have been lower had the operating expenses not been
reduced.
(C) The ratio of operating expenses, before reimbursement from the investment
adviser, was 0.67% for the period May 1, 2000 to June 30, 2000.
144
<PAGE> 148
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL
INDEX
TRUST
--------------
5/01/2000*
TO
06/30/2000 @
(UNAUDITED)
--------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income --
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.14
-------
Total from investment operations 0.14
-------
NET ASSET VALUE, END OF PERIOD $ 12.64
=======
TOTAL RETURN (B) 1.12% +
Net assets, end of period (000's) $47,178
Ratio of operating expenses to average net assets (C) 0.60% (A)
Ratio of net investment income to average net assets 2.85% (A)
Portfolio turnover rate 2% (A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the period May 1, 2000 (commencement of operations) to June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for the period May 1, 2000 (commencement of operations) to
June 30, 2000 would have been lower had the operating expenses not been
reduced.
(C) The ratio of operating expenses, before reimbursement from the investment
adviser, was 0.66% for the period May 1, 2000 to June 30, 2000.
145
<PAGE> 149
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MID CAP
INDEX
TRUST
------------
5/01/2000*
TO
06/30/2000 @
(UNAUDITED)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income --
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.10)
--------
Total from investment operations (0.10)
--------
NET ASSET VALUE, END OF PERIOD $ 12.40
========
TOTAL RETURN (B) (0.80%) +
Net assets, end of period (000's) $ 16,250
Ratio of operating expenses to average net assets (C) 0.60% (A)
Ratio of net investment income to average net assets 1.20% (A)
Portfolio turnover rate 57% (A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the period May 1, 2000 (commencement of operations) to June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for the period May 1, 2000 (commencement of operations) to
June 30, 2000 would have been lower had the operating expenses not been
reduced.
(C) The ratio of operating expenses, before reimbursement from the investment
adviser, was 0.76% for the period May 1, 2000 to June 30, 2000.
146
<PAGE> 150
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
TOTAL STOCK
MARKET INDEX
TRUST
------------
5/01/2000*
TO
06/30/2000 @
(UNAUDITED)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income --
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.05)
------------
Total from investment operations (0.05)
------------
NET ASSET VALUE, END OF PERIOD $ 12.45
============
TOTAL RETURN (B) (0.40%) +
Net assets, end of period (000's) $47,192
Ratio of operating expenses to average net assets (C) 0.60% (A)
Ratio of net investment income to average net assets 1.10% (A)
Portfolio turnover rate 1% (A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the period May 1, 2000 (commencement of operations) to June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for the period May 1, 2000 (commencement of operations) to
June 30, 2000 would have been lower had the the operating expenses not been
reduced.
(C) The ratio of operating expenses, before reimbursement from the investment
adviser, was 0.63% for the period May 1, 2000 to June 30, 2000.
147
<PAGE> 151
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
500
INDEX
TRUST
-----------
5/01/2000*
TO
06/30/2000 @
(UNAUDITED)
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income --
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.13)
-------
Total from investment operations (0.13)
-------
NET ASSET VALUE, END OF PERIOD $ 12.37
=======
TOTAL RETURN (B) (1.04%) +
Net assets, end of period (000's) $38,715
Ratio of operating expenses to average net assets (C) 0.57% (A)
Ratio of net investment income to average net assets 1.54% (A)
Portfolio turnover rate 47% (A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the period May 1, 2000 (commencement of operations) to June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for the period May 1, 2000 (commencement of operations) to
June 30, 2000 would have been lower had the the operating expenses not been
reduced.
(C) The ratio of operating expenses, before reimbursement from the investment
adviser, was 0.66% for the period May 1, 2000 to June 30, 2000.
148
<PAGE> 152
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIFESTYLE AGGRESSIVE 1000 TRUST
------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/07/1997*
6/30/2000@ ------------------------- TO
(UNAUDITED) 1999 1998 12/31/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.54 $ 13.39 $ 13.47 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.06 0.08 0.07 0.05
Net realized and unrealized gain on
investments 0.14 1.77 0.62 1.26
----------- ----------- ----------- -----------
Total from investment operations 0.20 1.85 0.69 1.31
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.06) (0.08) (0.07) (0.05)
Distributions from capital gains (0.67) (0.62) (0.70) (0.29)
----------- ----------- ----------- -----------
Total distributions (0.73) (0.70) (0.77) (0.34)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 14.01 $ 14.54 $ 13.39 $ 13.47
=========== =========== =========== ===========
TOTAL RETURN (B) 1.36%+ 14.61% 4.86% 10.89%+
Net assets, end of period (000's) $ 127,072 $ 93,073 $ 80,525 $ 49,105
Ratio of operating expenses to average net assets (C) 0.03%(A) 0.00% 0.00% 0.00%(A)
Ratio of net investment income to average net assets 0.86%(A) 0.64% 0.48% 1.29%(A)
Portfolio turnover rate 148%(A) 136% 59% 67%(A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for the six months ended June 30, 2000 and the periods
ended December 31, 1999, 1998 and 1997 would have been lower had operating
expenses not been reduced.
(C) The ratios of operating expenses, before reimbursement from the investment
adviser, was 0.05% for the six months ended June 30, 2000 and 0.03%, 0.02%
and 0.03% for the years ended December 31, 1999, 1998 and 1997,
respectively.
149
<PAGE> 153
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIFESTYLE GROWTH 820 TRUST
-----------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/07/1997*
6/30/2000@ -------------------------- TO
(UNAUDITED) 1999 1998 12/31/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.18 $ 13.78 $ 13.77 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.16 0.23 0.24 0.30
Net realized and unrealized gain on
investments -- 1.94 0.63 1.38
----------- ----------- ----------- -----------
Total from investment operations 0.16 2.17 0.87 1.68
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.16) (0.23) (0.24) (0.30)
Distributions from capital gains (1.02) (0.54) (0.62) (0.11)
----------- ----------- ----------- -----------
Total distributions (1.18) (0.77) (0.86) (0.41)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 14.16 $ 15.18 $ 13.78 $ 13.77
=========== =========== =========== ===========
TOTAL RETURN (B) 1.01%+ 16.56% 6.20% 13.84%+
Net assets, end of period (000's) $ 493,929 $ 414,257 $ 380,309 $ 217,158
Ratio of operating expenses to average net assets (C) 0.02%(A) 0.00% 0.00% 0.00%(A)
Ratio of net investment income to average net assets 2.15%(A) 1.73% 1.74% 2.44%(A)
Portfolio turnover rate 137%(A) 127% 49% 51%(A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000. * Commencement of operations +
Non-annualized
(A) Annualized
(B) The total return for the six months ended June 30, 2000 and the periods
ended December 31, 1999, 1998 and 1997 would have been lower had operating
expenses not been reduced.
(C) The ratios of operating expenses, before reimbursement from the investment
adviser, was 0.04% for the six months ended June 30, 2000 and 0.04%, 0.02%
and 0.03% for the years ended December 31, 1999, 1998 and 1997,
respectively.
150
<PAGE> 154
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIFESTYLE BALANCED 640 TRUST
-------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/07/1997*
6/30/2000@ -------------------------- TO
(UNAUDITED) 1999 1998 12/31/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.24 $ 13.49 $ 13.56 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.28 0.39 0.31 0.50
Net realized and unrealized gain on
investments 0.20 1.20 0.47 1.19
----------- ----------- ----------- -----------
Total from investment operations 0.48 1.59 0.78 1.69
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.28) (0.39) (0.31) (0.50)
Distributions from capital gains (0.77) (0.45) (0.54) (0.13)
----------- ----------- ----------- -----------
Total distributions (1.05) (0.84) (0.85) (0.63)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.67 $ 14.24 $ 13.49 $ 13.56
=========== =========== =========== ===========
TOTAL RETURN (B) 3.42%+ 12.42% 5.72% 14.11%+
Net assets, end of period (000's) $ 489,850 $ 416,706 $ 377,531 $ 186,653
Ratio of operating expenses to average net assets(C) 0.02%(A) 0.00% 0.00% 0.00%(A)
Ratio of net investment income to average net assets 3.93%(A) 2.93% 2.21% 3.24%(A)
Portfolio turnover rate 112%(A) 126% 52% 44%(A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for the six months ended June 30, 2000 and the periods
ended December 31, 1999, 1998 and 1997 would have been lower had operating
expenses not been reduced.
(C) The ratios of operating expenses, before reimbursement from the investment
adviser, was 0.04% for the six months ended June 30, 2000 and 0.03%, 0.02%
and 0.03% for the years ended December 31, 1999, 1998 and 1997,
respectively.
151
<PAGE> 155
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIFESTYLE MODERATE 460 TRUST
------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/07/1997*
6/30/2000@ ------------------------- TO
(UNAUDITED) 1999 1998 12/31/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.13 $ 13.91 $ 13.35 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.60 0.41 0.45 0.65
Net realized and unrealized gain (loss) on
investments (0.22) 0.65 0.84 0.98
----------- ----------- ----------- -----------
Total from investment operations 0.38 1.06 1.29 1.63
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.60) (0.41) (0.45) (0.65)
Distributions from capital gains (1.05) (0.43) (0.28) (0.13)
----------- ----------- ----------- -----------
Total distributions (1.65) (0.84) (0.73) (0.78)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.86 $ 14.13 $ 13.91 $ 13.35
=========== =========== =========== ===========
TOTAL RETURN (B) 2.71%+ 7.89% 9.76% 13.70%+
Net assets, end of period (000's) $ 175,513 $ 167,500 $ 138,128 $ 52,746
Ratio of operating expenses to average net assets(C) 0.02%(A) 0.00% 0.00% 0.00%(A)
Ratio of net investment income to average net assets 8.41%(A) 2.92% 3.03% 3.91%(A)
Portfolio turnover rate 120%(A) 109% 45% 39%(A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for the six months ended June 30, 2000 and the periods
ended December 31, 1999, 1998 and 1997 would have been lower had operating
expenses not been reduced.
(C) The ratios of operating expenses, before reimbursement from the investment
adviser, was 0.05% for the six months ended June 30, 2000 and 0.04%, 0.05%
and 0.03% for the years ended December 31, 1999, 1998 and 1997,
respectively.
152
<PAGE> 156
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIFESTYLE CONSERVATIVE 280 TRUST
------------------------------------------------------------
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31, 1/07/1997*
6/30/2000@ -------------------------- TO
(UNAUDITED) 1999 1998 12/31/97
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.15 $ 13.53 $ 13.01 $ 12.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.47 0.60 0.50 0.76
Net realized and unrealized gain (loss) on
investments (0.10) (0.05) 0.79 0.67
----------- ----------- ----------- -----------
Total from investment operations 0.37 0.55 1.29 1.43
----------- ----------- ----------- -----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.47) (0.60) (0.50) (0.76)
Distributions from capital gains (0.39) (0.33) (0.27) (0.16)
----------- ----------- ----------- -----------
Total distributions (0.86) (0.93) (0.77) (0.92)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.66 $ 13.15 $ 13.53 $ 13.01
=========== =========== =========== ===========
TOTAL RETURN (B) 2.83%+ 4.21% 10.20% 12.15%+
Net assets, end of period (000's) $ 98,282 $ 106,435 $ 78,404 $ 19,750
Ratio of operating expenses to average net assets (C) 0.02%(A) 0.00% 0.00% 0.00%(A)
Ratio of net investment income to average net assets 7.00%(A) 4.40% 2.98% 3.95%(A)
Portfolio turnover rate 61%(A) 93% 32% 38%(A)
</TABLE>
@ Net investment income has been calculated using the average shares method
for the six months ended June 30, 2000.
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for the six months ended June 30, 2000 and the periods
ended December 31, 1999, 1998 and 1997 would have been lower had operating
expenses not been reduced.
(C) The ratios of operating expenses, before reimbursement from the investment
adviser, was 0.06% for the six months ended June 30, 2000 and 0.03%, 0.03%
and 0.03% for the periods ended December 31, 1999, 1998 and 1997,
respectively.
153
<PAGE> 157
Additional information about the Trust's investments is available in
the Trust's annual and semi-annual reports to shareholders. The Trust's annual
report contains a discussion of the market conditions and investment strategies
that significantly affected the Trust's performance during its last fiscal year.
Additional information about the Trust is also contained in the
Statement of Additional Information dated the same date as this Prospectus. The
Statement of Additional Information is incorporated by reference into this
Prospectus. The annual and semi-annual reports, the Statement of Additional
Information and other information about the Trust are available upon request and
without charge by writing the Trust at 73 Tremont Street, Boston, MA 02108 or
calling the Trust at (800) 344-1029. Shareholder inquiries should also be
directed to this address and phone number.
Information about the Trust (including the Statement of Additional
Information) can be reviewed and copied at the SEC's Public Reference Room in
Washington D.C. Information on the operation of the Public Reference Room may be
obtained by calling the Securities and Exchange Commission ("SEC") at
1-202-942-8090. Reports and other information about the Trust are available on
the SEC's Internet site at http://www.sec.gov and copies of this information may
be obtained, upon payment of a duplicating fee, by electronic request at the
following E-mail address: [email protected], or by writing the SEC's Public
Reference Section in Washington D.C. 20549-0102.
154
The Trust's Investment Company and 1933 Act File Numbers are 811-4146 and
2-94157
MIT.PRO11/2000
<PAGE> 158
PART B
Statement of Additional Information
<PAGE> 159
STATEMENT OF ADDITIONAL INFORMATION
MANUFACTURERS INVESTMENT TRUST
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Trust's Prospectus dated November 1, 2000, which
may be obtained from Manufacturers Investment Trust, 73 Tremont Street, Boston,
Massachusetts, 02108. The Annual Report dated December 31, 1999 and the Semi
Annual Report dated June 30, 2000 for Manufacturers Investment Trust are
incorporated by reference into the Statement of Additional Information. The
Annual Report and the Semi Annual Report are available upon request and without
charge by calling (800) 344-1029.
The date of this Statement of Additional Information is November
1, 2000.
2
<PAGE> 160
TABLE OF CONTENTS
INVESTMENT POLICIES 5
Money Market Instruments 5
U.S. Government and Government Agency Obligations 5
Canadian and Provincial Government and Crown Agency
Obligations 5
Certificates of Deposit and Bankers' Acceptances 6
Commercial Paper 6
Corporate Obligations 7
Repurchase Agreements 7
Foreign Repurchase Agreements 7
Other Instruments 8
Warrants 8
Reverse Repurchase Agreements 8
Mortgage Securities 8
Asset-Backed Securities 11
Zero Coupon Securities, Deferred Interest Bond and
Pay-in-Kind Bonds 12
Loans and Other Direct Debt Instruments 12
High Yield (High Risk) Domestic Corporate Debt Securities 12
Brady Bonds 13
Sovereign Debt Obligations 13
Indexed Securities 14
Hybrid Instruments 14
ADRs, EDRs and GDRs 15
Additional Investment Policies 16
Lending Securities 16
When-Issued Securities ("Forward Commitments") 16
Mortgage Dollar Rolls 16
Illiquid Securities 17
Short Sales 17
RISK FACTORS 18
High Yield (High Risk) Securities 18
Foreign Securities 20
HEDGING AND OTHER STRATEGIC TRANSACTIONS 20
General Characteristics of Options 21
General Characteristics of Futures Contracts and Options on
Futures Contracts 22
Stock Index Futures 23
Options on Securities Indices and Other Financial Indices 24
Currency Transactions 24
Combined Transactions 25
Swaps, Caps, Floors and Collars 25
Eurodollar Instruments 26
Risk Factors 26
Risks of Hedging and Other Strategic Transactions Outside the
United States 27
Use of Segregated and Other Special Accounts 27
Other Limitations 28
INVESTMENT RESTRICTIONS 29
Fundamental 29
Nonfundamental 30
Additional Investment Restrictions 31
PORTFOLIO TURNOVER 32
MANAGEMENT OF THE TRUST 33
Duties and Compensation of Trustees 34
INVESTMENT MANAGEMENT ARRANGEMENTS 35
The Advisory Agreement 39
The Subadvisory Agreements 40
Information Applicable to Both the Advisory Agreement and the
Subadvisory Agreements 42
PORTFOLIO BROKERAGE 43
PURCHASE AND REDEMPTION OF SHARES 49
3
<PAGE> 161
DETERMINATION OF NET ASSET VALUE 49
PERFORMANCE DATA 51
THE INSURANCE COMPANIES 53
HISTORY OF THE TRUST 54
ORGANIZATION OF THE TRUST 55
ADDITIONAL INFORMATION CONCERNING TAXES 56
REPORTS TO SHAREHOLDERS 58
INDEPENDENT ACCOUNTANTS 58
CUSTODIAN 58
CODE OF ETHICS 58
APPENDIX I - Debt Security Ratings 59
APPENDIX II Standard & Poor's Corporation Disclaimers 61
4
<PAGE> 162
INVESTMENT POLICIES
The following discussion supplements "Investment Objectives and
Policies" set forth in the Prospectus of the Trust.
MONEY MARKET INSTRUMENTS
The Money Market Trust invests 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. In
addition, each portfolio may purchase money market instruments (and other
securities as noted under each portfolio description) for temporary defensive
purposes, except that the U.S. Government Securities Trust may not invest in
Canadian and Provincial Government and Crown Agency Obligations.
1. U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS
U.S. Government Obligations. U.S. 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. Agency Obligations. 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:
- Student Loan Marketing Association,
- Federal Home Loan Banks,
- Federal Intermediate Credit Banks and
- the Federal National Mortgage Association.
U.S. Instrumentality Obligations. U.S. instrumentality
obligations also 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, are supported by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality. In
addition, other obligations such as those issued by the Student Loan Marketing
Association, are supported only by the credit of the agency or instrumentality.
There are also separately traded interest components of securities issued or
guaranteed by the U.S. Treasury.
No assurance can be given that the U.S. Government will provide
financial support for the obligations of such U.S. Government-sponsored agencies
or instrumentalities in the future, since it is not obligated to do so by law.
In this document, these types of instruments will be referred to collectively as
"U.S. Government securities."
2. CANADIAN AND PROVINCIAL GOVERNMENT AND CROWN AGENCY OBLIGATIONS
Canadian Government 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 Obligations. 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. These 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.
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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. 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
provincial Legislature and approved by the Lieutenant Governor in Council of
such province, where necessary. These securities include treasury bills, notes,
bonds and debentures.
Provincial Crown Agency Obligations. 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 the provincial Legislature and approved by the Lieutenant
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 and 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,
- provincial hydroelectric or power commission or authority,
- provincial municipal financing corporation or agency, and
- 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. Certificates of deposit are
certificates issued against funds deposited in a bank or a savings and loan.
They are issued for a definite period of time and earn a specified rate of
return.
Bankers' Acceptances. 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 obligations 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 "accepted" when a bank guarantees their payment at
maturity.
All portfolios of the Trust 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. 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 investing (i.e., "lending") 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. 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.
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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 variable amount master
demand note will be valued on each day a portfolio's net asset value is
determined. The net asset 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 an
obligation by a portfolio and the simultaneous agreement to resell the same
obligation 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. Repurchase agreements
permit a portfolio the opportunity to earn a return on cash that is only
temporarily available. A portfolio may enter into a repurchase agreement 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.
Generally, repurchase agreements are of a short duration, often less
than one week but on occasion for longer periods. 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.
The Subadvisers, on behalf of the portfolios they advise, shall engage
in a repurchase agreement transactions only with those banks or broker/dealers
who meet the Subadviser's quantitative and qualitative criteria regarding
creditworthiness, asset size and collateralization requirements. The
counterparties to a repurchase agreement transaction are limited to a:
- Federal Reserve System member bank,
- primary government securities dealer reporting to the Federal
Reserve Bank of New York's Market Reports Division, or
- broker/dealer which reports U.S. Government securities
positions to the Federal Reserve Board.
The Subadvisers will continuously monitor the transaction to ensure that the
collateral held with respect to a repurchase agreement equals or exceeds the
amount of the respective obligation.
The risk to a portfolio in a repurchase agreement transaction is
limited to the ability of the seller to pay the agreed-upon sum on the delivery
date. If an issuer of a repurchase agreement fails 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 are commenced with
respect to the seller, realization upon the underlying obligation by the Trust
might be delayed or limited.
7. FOREIGN REPURCHASE AGREEMENTS
Foreign repurchase agreements involve an agreement to purchase a
foreign security and to sell that security back to the original seller at an
agreed-upon price in either U.S. dollars or foreign currency. Unlike typical
U.S. repurchase agreements, foreign repurchase agreements may not be fully
collateralized at all times. The value of a security purchased by a portfolio
may be more or less than the price at which the counterparty has agreed to
repurchase the security. In the event of default by the counterparty, the
portfolio may suffer a loss if the value of the security purchased is less than
the agreed-upon repurchase price, or if the portfolio is unable to successfully
assert a claim to the collateral under foreign laws. As a result, foreign
repurchase agreements may involve higher credit risks than repurchase agreements
in U.S. markets, as well as risks associated with currency fluctuations. In
addition, as with other emerging market investments, repurchase agreements with
counterparties located in emerging markets,
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or relating to emerging markets, may involve issuers or counterparties with
lower credit ratings than typical U.S. repurchase agreements.
OTHER INSTRUMENTS
The following discussion provides an explanation of some of the other
instruments in which certain portfolios (as indicated) may invest.
1. 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 and are valid for a specific period of
time. Warrant 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. The price of a
warrant may be more volatile than the price of its underlying security, and a
warrant may offer greater potential for capital appreciation as well as capital
loss. Warrants cease to have value if not exercised prior to the expiration
date. These factors can make warrants more speculative than other types of
investments.
2. REVERSE REPURCHASE AGREEMENTS
Each portfolio of the Trust may enter into "reverse" repurchase
agreements. Under a reverse repurchase agreement, a portfolio sells a debt
security and agrees 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
payment of interest. 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. 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 its repurchase
agreement transactions by maintaining in a segregated custodial account cash,
Treasury bills or other U.S. Government securities having an aggregate value at
least equal to the amount of such commitment to repurchase including accrued
interest, until payment is made.
3. MORTGAGE SECURITIES
Prepayment of Mortgages. 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 which invests in mortgage
securities 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 increase yield to
maturity. Conversely, if a portfolio purchases these securities at a discount,
faster than expected prepayments will increase yield to maturity, while slower
than expected payments will reduce yield to maturity.
Adjustable Rate Mortgage Securities. Adjustable rate mortgage
securities are similar to the fixed rate 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:
- one-year, three-year and five-year constant maturity Treasury
Bill rates,
- three-month or six-month Treasury Bill rates,
- 11th District Federal Home Loan Bank Cost of Funds,
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- National Median Cost of Funds, or
- one-month, three-month, six-month or one-year London Interbank
Offered Rate ("LIBOR") and other market rates.
During periods of increasing rates, a portfolio will not benefit from
such increase 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. During periods of declining interest rates,
income to a portfolio derived from adjustable rate mortgages which remain in a
mortgage pool may 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. Also, a portfolio's net asset value could vary to the extent that
current yields on adjustable rate mortgage securities held as investments are
different than market yields during interim periods between coupon reset dates.
Privately-Issued Mortgage Securities. Privately-issued
mortgage 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 the Government National Mortgage Association
(GNMA) or Federal Home Loan Mortgage Corporation (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 which invests in mortgage securities 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. Each class of CMO's also 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 of these transactions to changes in prepayment rates on the
underlying mortgages, the market prices of and yields on these tranches tend to
be highly volatile.
CMOs purchased by the portfolios 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 U.S. 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 U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.
Stripped Mortgage Securities. Stripped mortgage securities are
derivative multi-class 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 portfolios invest. 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 may be illiquid and, together with any other illiquid investments,
will not exceed 15% of a portfolio's net assets. See " Other Investment
Policies. - Illiquid Securities".
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 to changes in prevailing interest
rates and the rate of principal payments (including prepayments) on the related
underlying mortgage assets. A rapid rate of principal payments may have a
material adverse effect on an investing portfolio's yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, such portfolio may fail to fully recoup its initial investment in
these securities even if the securities are rated highly.
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 the Prospectus and Statement of Additional Information, 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 in the Prospectus and SAI, will contribute
to a portfolio's relatively stable net asset value.
In addition to the stripped mortgage securities described above, each
of the Strategic Bond, High Yield Trust and Value Trust may invest in similar
securities such as Super principal only and Levered interest only which are more
volatile than POs and IOs. Risks associated with instruments such as Super POs
are similar in nature to those risks related to investments in POs. Risks
associated 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.
Inverse Floaters. Each of the Strategic Bond Trust, High Yield
Trust and Value Trust may invest in inverse floaters. 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 and there is a risk that the market value will vary from the
amortized cost). 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 yet been fully
developed. Accordingly, inverse floaters may be illiquid together with any other
illiquid investments, will not exceed 15% of a portfolio's net assets. See
"Other Investment Policies - Illiquid Securities".
Inverse floaters are derivative mortgage securities which are
structured as a class of security that receives distributions on a pool of
mortgage assets. Yields on inverse floaters move in the opposite direction of
short-term interest rates and at an accelerated rate.
Types of Credit Support. Mortgage securities are often backed
by a pool of assets representing the obligations of a number of different
parties. To lessen the impact of an obligor's failure to make payments on
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underlying assets, mortgage securities may contain elements of credit support. A
discussion of credit support is described below under "Asset-Backed Securities."
4. 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 a shorter maturity than mortgage loans.
As a result, investment in these securities should be subject to less volatility
than mortgage securities. 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 with the
prevailing interest rates at the time. Therefore, a portfolio's ability to
maintain an investment including high-yielding asset-backed securities will be
affected adversely 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 that the
Subadviser believes 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 asset-backed 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 will not be considered
illiquid securities for the purposes of the investment restriction on illiquid
securities under "Additional Investment Policies" below.
Types of Credit Support. To lessen the impact of an obligor's
failure to make payments on underlying assets, mortgage securities and
asset-backed securities may contain elements of credit support. Such credit
support falls into two categories:
- liquidity protection, and
- default protection
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 of assets occurs in a timely fashion.
Default protection provides against losses resulting from ultimate default and
enhances the likelihood of ultimate payment of the obligations on at least a
portion of the assets in the pool. This protection may be provided through
guarantees, insurance policies or letters of credit obtained by the issuer or
sponsor from third parties, through various means of structuring the transaction
or through a combination of such approaches. A portfolio will not pay any
additional fees for such credit support, although the existence of credit
support may increase the price of a security.
Some examples of credit support 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 on the securities and pay any
servicing or other fees).
The ratings of mortgage securities and asset-backed securities for
which third-party credit enhancement provides liquidity protection or default
protection are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of these securities could be
reduced in the event of deterioration
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in the creditworthiness of the credit enhancement provider even in cases where
the delinquency and loss experienced on the underlying pool of assets is better
than expected.
The degree of credit support provided for each issue is generally based
on historical information concerning the level of credit risk associated with
the underlying assets. Delinquency or loss greater than anticipated could
adversely affect the return on an investment in mortgage securities or
asset-backed securities.
5. ZERO COUPON SECURITIES, DEFERRED INTEREST BONDS AND PAY-IN-KIND
BONDS
Zero coupon securities, deferred interest bonds and pay-in-kind bonds
involve special risk considerations. Zero coupon securities and deferred
interest bonds are debt securities that pay no cash income but are sold at
substantial discounts from their value at maturity. While zero coupon bonds do
not require the periodic payment of interest, deferred interest bonds provide
for a period of delay before the regular payment of interest begins. When a zero
coupon security or a deferred interest bond 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 these securities until
maturity know at the time of their investment what the return on their
investment will be. 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, deferred interest bonds and pay-in-kind bonds
are subject to greater price fluctuations in response to changes in interest
rates than ordinary interest-paying debt securities with similar maturities. The
value of zero coupon securities and deferred interest bonds usually appreciate
during periods of declining interest rates and usually depreciates during
periods of rising interest rates.
Issuers of Zero Coupon Securities and Pay-In-Kind Bonds. 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,
these securities are widely traded by brokers and dealers and, to the extent
they are widely traded, will not be considered illiquid for the purposes of the
investment restriction under "Additional Investment Policies" below.
Tax Considerations. 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.
6. LOANS AND OTHER DIRECT DEBT INSTRUMENTS
Each portfolio may invest in loans and other direct debt instruments to
the extent authorized by its investment policies. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other borrower to
lenders or lending syndicates (loans and loan participations), to suppliers of
goods or services (trade claims or other receivables), or to other parties.
Direct debt instruments involve a risk of loss in case of default or insolvency
of the borrower and may offer less legal protection to the purchaser in the
event of fraud or misrepresentation, or there may be a requirement that a
portfolio supply additional cash to a borrower on demand.
7. HIGH YIELD (HIGH RISK) DOMESTIC CORPORATE DEBT SECURITIES
High yield U.S. corporate debt securities in which the portfolios may
invest include bonds, debentures, notes, bank loans, credit-linked notes and
commercial paper. Most of these debt securities will bear interest at fixed
rates except bank loans, which usually have floating rates. The portfolios may
also invest in bonds with variable rates of interest or debt securities which
involve equity features, such as equity warrants or convertible outright and
participation features (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).
The market for high yield U.S. corporate debt securities has undergone
significant changes since it was first established. 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-1980s, 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
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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 as well as to provide financing in connection
with leveraged transactions.
8. 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, involves 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. Brady Bonds issued to date generally have maturities between 15
and 30 years from the date of issuance and have traded at a deep discount from
their face value. In addition to Brady Bonds, the portfolios 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 which carry a below-market stated
rate of interest (generally known as par bonds),
- bonds issued at a discount from face value (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 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.
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 portfolios may purchase Brady Bonds with no or limited
collateralization, and must rely 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.
9. SOVEREIGN DEBT OBLIGATIONS
Each portfolio may invest in sovereign debt obligations to the extent
authorized by its investment polices. Sovereign debt obligations are issued or
guaranteed by foreign governments or their agencies, including debt of Latin
American nations or other developing countries. Sovereign debt may be in the
form of conventional securities or other types of debt instruments such as loan
or loan participations. Sovereign debt of developing countries may involve a
high degree of risk, and may be in default or present the risk of default.
Governmental entities responsible for repayment of the debt may be unable or
unwilling to repay principal and pay interest when due, and may require
renegotiation or rescheduling of debt payments. In addition, prospects for
repayment and payment of interest may depend on political as well as economic
factors. Although some sovereign debt, such as Brady Bonds, is
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collateralized by U.S. Government securities, repayment of principal and payment
of interest is not guaranteed by the U.S. Government.
10. INDEXED SECURITIES
Each portfolio may invest in indexed securities to the extent
authorized by its investment policies. Indexed securities are instruments whose
prices are indexed to the prices of other securities, securities indices,
currencies, or other financial indicators. Indexed securities typically, but not
always, are debt securities or deposits whose value at maturity or coupon rate
is determined by reference to a specific instrument or statistic.
Currency indexed securities typically are short term to intermediate
term debt securities whose maturity values or interest rates are determined by
reference to the values of one or more specified foreign currencies, and may
offer higher yields than U.S. dollar denominated securities. Currency indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign denominated instrument, or their
maturity value may decline when foreign currencies increase, resulting in a
security whose price characteristics are similar to a put on the underlying
currency. Currency indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they are
indexed, and may also be influenced by interest rate changes in the United
States and abroad. Indexed securities may be more volatile than the underlying
instruments. Indexed securities are also subject to the credit risks associated
with the issuer of the security, and their values may decline substantially if
the issuer's creditworthiness deteriorates. Recent issuers of indexed securities
have included banks, corporations, and certain U.S. Government agencies.
11. HYBRID INSTRUMENTS
Hybrid instruments (a type of potentially high-risk derivative) combine
the elements of futures contracts or options with those of debt, preferred
equity or a depository instrument ("Hybrid Instruments").
Characteristics of Hybrid Instruments. Generally, a Hybrid
Instrument is 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 the
following:
- prices, changes in prices, or differences between prices of
securities, currencies, intangibles, goods, articles or
commodities (collectively, "Underlying Assets") or
- an objective index, economic factor or other measure, such as
interest rates, currency exchange rates, commodity indices,
and securities indices (collectively "Benchmarks").
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.
Uses of Hybrid Instruments. Hybrid Instruments provide 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 transaction costs associated with buying and
currency-hedging the foreign bond positions.
One approach is 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 investing 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 type of arrangement, known as a structured security
with an embedded put option, is to give the portfolio the desired European bond
exposure while avoiding currency risk, limiting downside market risk,
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and lowering transactions costs. Of course, there is no guarantee that such a
strategy will be successful and the value of the portfolio may decline; for
example, if interest rates may not move as anticipated or credit problems could
develop with the issuer of the Hybrid Instrument.
Risks of Investing in Hybrid Instruments. The risks of
investing in Hybrid Instruments are a combination of the risks of investing in
securities, options, futures and currencies. Therefore, an investment in a
Hybrid Instrument may include significant risks not associated with a similar
investment in a traditional debt instrument with a fixed principal amount, is
denominated in U.S. dollars, or that 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 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. These risks generally depend upon factors
unrelated to the operations or credit quality of the issuer of the Hybrid
Instrument and that may not be readily foreseen by the purchaser. Such factors
include 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. See " Hedging and Other Strategic Transactions" below
for a description of certain risks associated with investments in futures,
options, and forward contracts.
Volatility. 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.
Leverage Risk. 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). For example, an increased
risk of principal loss (or gain) may result if "leverage" is used to structure a
Hybrid Instrument. Leverage risk occurs when the Hybrid Instrument is structured
so that a 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.
Liquidity Risk. Hybrid Instruments may also carry liquidity
risk since the instruments are often "customized" to meet the portfolio needs of
a particular investor. Therefore, the number of investors that would be willing
and able to buy such instruments in the secondary market may be smaller than 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 a
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.
Lack of US Regulation. Hybrid Instruments 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
Securities and Exchange Commission ("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 with respect to Hybrid Instruments
particularly the market risk of such instruments, may cause significant
fluctuations in the net asset value of a portfolio.
12. ADRs, EDRs AND GDRs
Securities of foreign issuers may include American Depository Receipts,
European Depository Receipts and Global Depository Receipts ("ADRs," "EDRs" and
"GDRs," respectively ). Depository Receipts are certificates typically issued by
a bank or trust company that give their holders the right to receive securities
issued by a foreign or domestic corporation.
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, will reflect any changes in exchange rates and
otherwise involve risks associated with investing in foreign securities.
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.
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ADDITIONAL INVESTMENT POLICES
The following provides a more detailed explanation of some of the
investment policies of the portfolios.
1. LENDING SECURITIES
Each portfolio may lend its securities so long as its loans of
securities do not represent in excess of 33 1/3% of such portfolio's total
assets. This lending limitation is a fundamental restriction which may not be
changed without shareholder approval. 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 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 loaned increase in
value;
(2) the loan must 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 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.
2. 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. Purchasing securities on a when-issued or forward
delivery basis means that the obligations will be delivered to the portfolio at
a future date, which may be one month or longer after the date of the commitment
("forward commitments"). 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.
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, if deemed advisable, sell the securities before the
settlement date. In general, a portfolio does not pay for the securities, or
start earning interest on them, until the obligations are scheduled to be
settled. The portfolio does, however, record the transaction and reflect the
value each day of the securities in determining its net asset value. At the time
of delivery, 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 otherwise manage its investment portfolio will
limit the extent to which the portfolio may purchase when-issued or forward
delivery securities.
3. 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 securities (of the 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
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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 mortgage dollar roll transaction as described above.
4. ILLIQUID SECURITIES
Each of the portfolios, except the Money Market Trust, may not invest
more than 15% of its net assets in securities that are not readily marketable
("illiquid securities"). The Money Market Trust may not invest more than 10% of
its net assets in illiquid securities. Investment in illiquid securities
involves the risk that, because of the lack of consistent market demand for such
securities, a portfolio may be forced to sell them at a discount from the last
offer price.
Rule 144A Securities are Excluded from the Limitation on
Illiquid Securities. Securities that are restricted as to resale but for which a
ready market is available pursuant to an exemption provided by Rule 144A of the
Securities Act of 1933 ("1933 Act") or other exemptions from the registration
requirements of the 1933 Act are excluded from the 10% and 15% limitations on
illiquid securities. The Subadvisers decide, subject to the Trustees' oversight,
whether securities sold according to Rule 144A are readily marketable for
purposes of the Trust's investment restriction. The Subadvisers will also
monitor the liquidity of Rule 144A securities held by the portfolios for which
they are responsible. To the extent that 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.
Section 4(2) Commercial Paper is Excluded from the Limitation
on Illiquid Securities. 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.
5. SHORT SALES
Certain of the portfolios may make short sales of securities or
maintain a short position, provided that at all times when a short position is
open the portfolio owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further consideration,
for an equal amount of the securities of the same issuer as the securities sold
short (a short sale "against-the-box").
Certain of the portfolios may also sell a security it does not own in
anticipation of a decline in the market value of that security (a "short sale").
To complete such a transaction, the portfolio must borrow the security to make
delivery to the buyer. The portfolio is then obligated to replace the security
borrowed by purchasing it at market price at the time of replacement. The price
at such time may be more or less than the price at which the security was sold
by the portfolio. Until the security is replaced, the portfolio is required to
pay the lender any dividends or interest which accrue during the period of the
loan. To borrow the security, the portfolio also may be required to pay a
premium, which would increase the cost of the security sold. The proceeds of the
short sale will be retained by the broker, to the extent necessary to meet
margin requirements, until the short position is closed out. Until the portfolio
replaces a borrowed security, the portfolio will segregate with its custodian
cash or other liquid assets at such a level that (i) the amount segregated plus
the amount deposited with the broker as collateral will equal the current value
of the security sold short and (ii) the amount segregated plus the amount
deposited with the broker as collateral will not be less than the market value
of the security at the time it was sold short. The portfolio will incur a loss
as a result of the short sale if the price of the security increases between the
date of the short sale and the date on which the portfolio replaced the borrowed
security. The portfolio will realize a gain if the security declines in price
between those dates. This result is the opposite of what one would expect from a
cash purchase of a long position in a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium,
dividends or interest the portfolio may be required to pay in connection with a
short sale.
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RISK FACTORS
HIGH YIELD (HIGH RISK) SECURITIES
The following discussion supplements the disclosure regarding the risks
of investing in non-investment grade securities.
GENERAL. Certain of the portfolios may invest in high yield
(high risk) securities. High yield securities are those rated below investment
grade and comparable unrated securities. These 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 have
greater risks than higher rated securities as described below.
Interest Rate Risk. To the extent a portfolio invests
primarily in fixed-income securities, the net asset value of the portfolio's
shares can be expected to change as general levels of interest rates fluctuate.
However, 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 generally rise. Conversely, when interest rates rise, the
value of a fixed-income portfolio will decline.
Liquidity. The secondary markets for high yield corporate and
sovereign debt securities are not as liquid as the secondary markets for
investment grade securities. The secondary markets for high yield debt
securities are concentrated in relatively few market makers and participants are
mostly institutional investors. In addition, the trading volume for high yield
debt securities is generally lower than for investment grade securities.
Furthermore, 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. These factors also may limit the portfolios from obtaining accurate
market quotations to value securities and calculate 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 be more
difficult for the Trustees to value that portfolio's investments. Therefore, 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. 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. These securities 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.
NON-INVESTMENT GRADE 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 non-investment grade
corporate debt securities tend to be more sensitive to individual corporate
developments and changes in economic conditions than higher-rated securities.
In addition, these 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. Therefore, 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.
NON-INVESTMENT GRADE FOREIGN SOVEREIGN DEBT SECURITIES.
Investing in non-investment grade foreign sovereign debt securities will expose
portfolios to the consequences of political, social or economic changes in the
developing and emerging market countries that issue the securities. The ability
and willingness of sovereign obligors in these countries to pay principal and
interest on such debt when due may depend on general economic and political
conditions within the relevant country. Developing and emerging market countries
have historically experienced (and may continue to experience) high inflation
and interest rates, exchange rate trade difficulties, extreme poverty and
unemployment. Many of these countries are also characterized by political
uncertainty or instability.
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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,
- the obligor's access to international credits and investments,
- fluctuations in interest rates, and
- the extent of the obligor's foreign reserves.
Obligor's Balance of Payments. 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.
Obligor's Access to International Credits and Investments. If
a foreign sovereign obligor cannot generate sufficient earnings from foreign
trade to service its external debt, it may need to depend on continuing loans
and aid from foreign governments, commercial banks, and multilateral
organizations, and inflows of foreign investment. The commitment on the part of
these entities to make such disbursements may be conditioned on the government's
implementation of economic reforms and/or economic performance and the timely
service of its obligations. Failure in any of these efforts may result in the
cancellation of these third parties' lending commitments, thereby further
impairing the obligor's ability or willingness to service its debts on time.
Obligor's Fluctuations in Interest Rates. The cost of
servicing external debt is generally adversely affected by rising international
interest rates since many external debt obligations bear interest at rates which
are adjusted based upon international interest rates.
Obligor's Foreign Reserves. 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.
The Consequences of a Default. As a result of the previously
listed factors, a governmental obligor may default on its obligations. If a
default occurs, the portfolio holding foreign sovereign debt securities 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 the foreign sovereign debt securities to obtain
recourse may be subject to the political climate in the relevant country. In
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. This difficulty has 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 a 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.
Securities in the Lowest Rating Categories. Certain 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 Standard & Poor's. These securities are rated
Caa or lower by Moody's or CCC or lower by Standard & Poor's. These securities
are considered to have the following characteristics:
- extremely poor prospects of ever attaining any real investment
standing,
- current identifiable vulnerability to default,
- unlikely to have the capacity to pay interest and repay
principal when due in the event of adverse business, financial
or economic conditions,
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- are speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of
the obligations, and/or
- are default or not current in the payment of interest or
principal.
Accordingly, it is possible that these types of characteristics could, in
certain instances, reduce the value of securities held by a portfolio with a
commensurate effect on the value of the portfolio's shares.
FOREIGN SECURITIES
The following discussion supplements the disclosure regarding the risks
of investing in foreign securities in the Prospectus.
Different Accounting and Reporting Requirements. There may be less
publicly available information about a foreign issuer than a domestic issuer.
Foreign issuers, including foreign branches of U.S. banks, are subject to
different accounting and reporting requirements. These requirements are
generally less extensive than the requirements in the U.S.
Liquidity. Foreign stock markets (other than Japan) have substantially
less volume than the U.S. exchanges. Securities of foreign issuers are generally
less liquid and more volatile than those of comparable domestic issuers.
Less Government Regulation. Foreign exchanges, broker-dealers and
issuers frequently have less governmental regulation than comparable entities in
the United States. In addition, brokerage costs for foreign issuers may be
higher than those for U.S. issuers.
Political Instability; Nationalization. Investments in foreign
companies may be subject to the possibility of :
- nationalization of the foreign company,
- withholding of dividends at the source,
- expropriation or confiscatory taxation,
- currency blockage,
- political or economic instability, and/or
- diplomatic developments that could adversely affect the value
of those investments.
Clearance and Settlement Procedures. Foreign markets, especially
emerging markets, may have different clearance and settlement procedures. In
certain emerging 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 on these assets. 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 value of the portfolio securities or, if the portfolio
has entered into a contract to sell the security, possible liability to the
purchaser.
Enforcement of Judgment in the Case of Default. In the event of a
default on any foreign obligation, it may be difficult for the investing
portfolios to obtain or to enforce a judgment against the foreign issuer.
HEDGING AND OTHER STRATEGIC TRANSACTIONS
The following discussion supplements "Hedging and Other Strategic
Transactions" set forth in the Prospectus of the Trust.
As described in the Prospectus, an individual portfolio may be
authorized to use a variety of investment strategies. Strategies described below
will be used primarily for hedging purposes, 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 portfolios (such investment strategies and transactions
are referred to as "Hedging and Other Strategic Transactions"). These strategies
may also be used to gain exposure to a particular securities market. The
description in the Prospectus of each portfolio indicates which, if any, of
these types of transactions may be used by the portfolios.
A detailed discussion of Hedging and Other Strategic Transactions
follows. No portfolio that is authorized to use any of these investment
strategies will be obligated to pursue any of the strategies and no portfolio
makes any
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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 U.S. Federal income
tax considerations.
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 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."
Put Options. 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.
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.
Risk of Selling Put Options. 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.
Call Options. 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 an underlying instrument might be intended to protect the
portfolio against an increase in the price of the underlying instrument that it
intends to purchase in 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.
Partial Hedge or Income to the Portfolio. 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.
Covering of Options. All call options 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).
Risk of Selling Call Options. Even though a portfolio will
receive the option premium to help protect it against loss, a call option sold
by the portfolio will expose the portfolio during the term of the option to
possible loss of the opportunity to sell the underlying security or instrument
with a gain.
Exchange-listed Options. 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" at the time the option is exercised. "In-the-money" means 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. 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.
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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:
- insufficient trading interest in certain options,
- restrictions on transactions imposed by an exchange,
- trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or
underlying securities, including reaching daily price limits,
- interruption of the normal operations of the OCC or an
exchange,
- inadequacy of the facilities of an exchange or the OCC to
handle current trading volume, or
- 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.
OTC Options. Over-the-counter ("OTC") options are purchased from or
sold to counterparties such as securities dealers, financial institutions
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 SEC, 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.
Types of Options That May Be Purchased. If and to the extent authorized
to do so, a portfolio may purchase and sell call options on securities indices,
currencies, and futures contracts, as well as and on Eurodollar instruments that
are traded on U.S. and foreign securities exchanges and in the OTC markets.
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.
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 (including stock index futures contracts which are
described below) or purchase or sell put and call options on those contracts for
the following purposes:
- as a hedge against anticipated interest rate, currency or
market changes,
- for duration management,
- for risk management purposes,
- to gain exposure to a securities market.
Futures contracts are generally bought and sold on the commodities exchanges
where 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
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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.
Use Will Be Consistent with Applicable Regulatory Requirements. A
portfolio's use of financial futures contracts and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
with the rules and regulations of the CFTC and will be entered into primarily
for bona fide hedging, risk management (including duration management) or to
attempt to increase income or gains.
Margin. 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.
No portfolio will enter into a futures contract or option thereon (for
non-hedging purposes) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon for
nonhedging purposes 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 segregation requirements with respect to
futures contracts and options thereon are described below under "Use of
Segregated and Other Special Accounts."
Settlement. 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.
Value of Futures Contracts Sold by a Portfolio. 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.
STOCK INDEX FUTURES
Definition. A stock index futures contract (an "Index Future") is a
contract to buy a certain number of units of the relevant index at a specified
future date at a price agreed upon when the contract is made. A unit is the
value at a given time of the relevant index.
Uses of Index Futures. Below are some examples of how Index Futures may
be used:
- In connection with a portfolio's investment in common stocks,
a portfolio may invest in Index Futures while the Subadviser
seeks favorable terms from brokers to effect transactions in
common stocks selected for purchase.
- A portfolio may also invest in Index Futures when a subadviser
believes that there are not enough attractive common stocks
available to maintain the standards of diversity and liquidity
set for the portfolio's pending investment in such stocks when
they do become available.
- Through the use of Index Futures, a portfolio may maintain a
pool of assets with diversified risk without incurring the
substantial brokerage costs which may be associated with
investment in multiple issuers. This may permit a portfolio to
avoid potential market and liquidity problems (e.g., driving
up or forcing down the price by quickly purchasing or selling
shares of a portfolio security) which may result from
increases or decreases in positions already held by a
portfolio.
- A portfolio may also invest in Index Futures in order to hedge
its equity positions.
Hedging and Other Strategic Transactions involving futures contracts
and options on futures contracts will be purchased, sold or entered into
primarily for bona fide hedging, risk management or appropriate portfolio
management purposes including gaining exposure to a particular securities
market. None of the portfolios will act as 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 CFTC).
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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
("Options on 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.
Description of Options on Financial Indices. Options on 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 Financial Indices settle by cash settlement. Cash settlement means that the
holder has 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. 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 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 or other composite on which the underlying
index is based, rather than price movements in individual securities, as is the
case for options on securities. In the case of an OTC option, physical delivery
may be used instead of cash settlement.
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:
- forward currency 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 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 similar purposes, including transaction
hedging, position hedging, cross hedging and proxy hedging. 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,
exposed or generally quoted in or currently convertible into the currency, other
than with respect to proxy hedging as described below.
Transaction 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
securities or the receipt of income from them.
Position Hedging. Position hedging is entering into a currency
transaction with respect to portfolio securities positions denominated or
generally quoted in that currency.
Cross Hedging. 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.
Proxy Hedging. To reduce the effect of currency fluctuations on the
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 are exposed is generally difficult to hedge or
specifically 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.
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Risk of Currency Transactions. 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
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. A combined transaction will
usually contain elements of risk that are present in each of its component
transactions. Although a portfolio will normally enter into combined
transactions to 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's objective.
SWAPS, CAPS, FLOORS AND COLLARS
Among the Hedging and Other Strategic Transactions into which a
portfolio may be authorized to enter are (a) interest rate, currency and index
swaps and (b) the purchase or sale of related caps, floors and collars and other
derivatives. A portfolio will enter into these transactions primarily:
- to preserve a return or spread on a particular investment or
portion of its portfolio,
- to protect against currency fluctuations,
- to protect against any increase in the price of securities a
portfolio anticipates purchasing at a later date, or
- as a duration management technique.
A portfolio will use these transactions primarily for hedging 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. Interest rate swaps involve the exchange by a
portfolio with another party of 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).
Currency Swaps. A currency swap is an agreement to exchange cash flows
on a stated amount based on changes in the values of the reference indices.
Caps. The purchase of a cap entitles the purchaser to receive payments
on a stated principal amount from the party selling the cap to the extent that a
specified index exceeds a predetermined interest rate.
Floors. The purchase of a floor entitles the purchaser to receive
payments on a stated principal amount from the party selling the floor to the
extent that a specific index falls below a predetermined interest rate or
amount.
Interest Rate Floors. The purchase of an interest rate floor entitles
the purchaser to receive payments of interest on a stated 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.
Collar. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.
1940 Act Considerations. A portfolio will usually enter into interest
rate swaps on a net basis. A net basis means that the two payment streams are
netted out in a cash settlement on the payment date(s) specified in the
instrument, with the portfolio receiving (or paying, if applicable) only the net
amount of the two payments. If these swaps, caps, floors, collars and other
similar derivatives are entered into for good faith hedging or other similar
purposes, they do not constitute senior securities under the Investment Company
Act of 1940, as amended (the "1940 Act") and, thus, will not be treated as being
subject to the portfolio's borrowing restrictions.
Counterparties to these Transactions. A portfolio will not enter into
any swap, cap, floor, collar or other derivative transaction unless the
counterparty is deemed creditworthy by the Subadviser. If a counterparty
defaults, a portfolio may have contractual remedies pursuant to the agreements
related to the transaction.
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Liquidity. 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 generally less
liquid than swaps.
The liquidity of swap agreements will be determined by a Subadviser
based on various factors, including:
- the frequency of trades and quotations,
- the number of dealers and prospective purchasers in the
marketplace,
- dealer undertakings to make a market,
- the nature of the security (including any demand or tender
features), and
- 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
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 LIBOR. In addition, 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,
- markets for the securities used in these transactions could be
illiquid,
- to the extent the Subadviser's assessment of market movements
is incorrect, the risk that the use of the Hedging and Other
Strategic Transactions could result in losses to the
portfolio.
Losses resulting from the use of Hedging and Other Strategic
Transactions will reduce a portfolio's net asset value, and possibly income.
Losses can be greater than if Hedging and Other Strategic Transactions had not
been used.
Options and Futures Transactions
Options transactions are subject to the following additional risks:
- Option transactions could force the sale or purchase of
portfolio securities at inopportune times or for prices higher
than current market values (in the case of put options) or
lower than current market values (in the case of call
options), or could cause a portfolio to hold a security it
might otherwise sell (in the case of a call option).
- Options markets could become 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.
Futures transactions are subject to the following additional risks:
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- The 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.
- Futures markets could become illiquid. 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 for hedging should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
it will tend, at the same time, to limit the potential gain that might result
from an increase in value.
Currency Hedging. In additional to the general risks of Hedging and
Other Strategic Transactions described above, currency hedging transactions have
the following risks:
- Currency hedging can result in losses to a portfolio if the
currency being hedged fluctuates in value to a degree or
direction that is not anticipated.
- Proxy hedging involves determining the correlation between
various currencies. If the Subadviser's determination of this
correlation is incorrect, the portfolio losses could be
greater than if the proxy hedging were not used.
- Foreign government exchange controls and restrictions on
repatriation of currency can negatively affect currency
transactions. These forms of governmental actions can result
in losses to a portfolio if it is unable to deliver or receive
currency or monies to settle obligations. Such governmental
actions could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well
as incurring transaction costs.
Currency Futures Contracts and Options on Currency Futures Contracts.
Currency futures contracts are subject to the same risks that apply to the use
of futures contracts generally. In addition, 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.
RISKS OF HEDGING AND OTHER STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES
When conducted outside the United States, Hedging and Other Strategic
Transactions will not only be subject to the risks described above but could
also be adversely affected by:
- foreign governmental actions affecting foreign securities,
currencies or other instruments,
- less stringent regulation of these transactions in many
countries as compared to the United States,
- the lack of have clearing mechanisms and related guarantees in
some countries for these transactions,
- more limited availability of data on which to make trading
decisions than in the United States,
- delays in a portfolio's ability to act upon economic events
occurring in foreign markets during non-business hours in the
United States,
- the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States,
and
- lower trading volume and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS
Use of extensive 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 (a) holding
the securities, instruments or currency required to be delivered, or (b) subject
to any regulatory restrictions, segregating an amount of cash or liquid high
grade debt obligations at least equal to the current amount of the obligation.
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. Some
examples of cover requirements are set forth below:
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Call Options. A call option on securities written by a portfolio 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 cash or 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 cash or liquid high grade debt
obligations equal to the excess of the index value over the exercise price on a
current basis.
Put Options. A put option on securities written by a portfolio will
require the portfolio to segregate cash or liquid high grade debt obligations
equal to the exercise price.
OTC Options. OTC options entered into by a portfolio, including those
on securities, currency, financial instruments or indices, and OTC-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 cash or liquid
high grade debt obligations equal to its obligations under the options.
OTC-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 cash or liquid high grade debt securities 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.
Currency Contracts. 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 amount of that
currency or liquid securities denominated in that currency equal to a
portfolio's obligations or to segregate cash or liquid high grade debt
obligations equal to the amount of the portfolio's obligations.
Futures Contracts and Options on Futures Contracts. 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 under the contract. These
assets may consist of cash, cash equivalents, liquid debt, equity securities or
other acceptable assets.
Swaps. A portfolio will calculate the net amount, if any, of its
obligations relating to swaps on a daily basis and will segregate an amount of
cash or liquid high grade debt obligations having an aggregate value at least
equal to this net amount.
Caps. Floors and Collars. 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. A portfolio could purchase a put option, for example, if the
exercise price of that option is the same or higher than the exercise price of a
put option sold by the portfolio. In addition, if it holds a futures contracts
or forward contract, a portfolio could, instead of segregating assets, purchase
a put option on the same futures contract or forward contract with an exercise
price as high or higher than the price of the contract held. Other Hedging and
Strategic Transactions may also be offset in combinations. If the offsetting
transaction terminates on or after the time the primary transaction terminates,
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. The gain or loss on these open
positions will be adjusted for the historical volatility relationship between
that portion of the portfolio and the contracts (e.g., the Beta volatility
factor).
For purposes of this limitation, 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
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<PAGE> 186
action to close out the appropriate number of open short positions to bring its
open futures and options positions within this limitation.
INVESTMENT RESTRICTIONS
There are two classes of investment restrictions to which the Trust is
subject in implementing the investment policies of the portfolios: (a)
fundamental and (b) nonfundamental. Nonfundamental restrictions are 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.
When submitting an investment restriction change 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.
Restrictions (1) 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 U. S. 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 U. S. 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 Bond Trust, the Dynamic 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 33a% 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 1933 Act 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 options on
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<PAGE> 187
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
Unless a portfolio is specifically excepted by the terms of a restriction, each
portfolio will not:
(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. Investment Restriction (10) is
amended as follows for the Capital Appreciation Trust: the Capital
Appreciation Trust may not make short sales of securities or maintain a
short position, if, when added together, more than 25% of the value of
the portfolio's net assets would be (i) deposited as collateral for the
obligation to replace securities borrowed to effect short sales and
(ii) allocated to segregated accounts in connection with short sales.
Short sales "against-the-box" are not subject to this limitation.
(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 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) a merger, consolidation or reorganization,
(b) the investment of collateral received in connection
with the lending of securities in the Navigator
Securities Lending Trust,* or
(c) the purchase of shares of the T. Rowe Price Reserve
Investment Fund, a T. Rowe Price Associates, Inc.
money market fund. (However, a portfolio of the Trust
may not invest more than 25% of its total assets in
the T. Rowe Price Reserve Investment Fund).**
(d) the purchase of shares of the Janus Money Market
Fund. (However, a portfolio of the Trust may not
invest more than 25% of its total assets in the Janus
Money Market Fund).***
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 1940 Act, (c) operate under general
exemptive orders exempting them from all provisions of the 1940 Act,
and (d) are not registered or regulated under the 1940 Act as
investment companies. This restriction (13) shall not apply to the
Lifestyle Trusts.
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<PAGE> 188
*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 Securities Lending Trust. The Navigator Securities
Lending 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 Securities Lending Trust, State Street received from
the SEC exemption from certain provisions of the 1940 Act in order to permit its
mutual fund clients to invest in the Navigator Securities Lending Trust. State
Street received exemption from Section 12(d)(1) of the 1940 Act and various
provisions of Section 17 of the 1940 Act.
**The T. Rowe Price Reserve Investment Fund is a money market fund registered
under the 1940 Act which is managed by T. Rowe Price Associates, Inc. and which
is sold only to advisory clients of T. Rowe Price Associates, Inc. and Rowe
Price-Fleming International, Inc. and their affiliates. T. Rowe Price
Associates, Inc. and Rowe Price-Fleming International, Inc. have received from
the SEC exemptive relief from certain provisions of the 1940 Act in order to
permit their mutual fund sub-advisory clients to invest in the T. Rowe Price
Reserve Investment Fund.
***The Janus Money Market Fund is a money market fund registered under the 1940
Act which is managed by Janus. Janus has received from the SEC exemptive relief
from certain provisions of the 1940 Act in order to permit their mutual fund
subadvisory clients to invest in the Janus Money Market Fund.
(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%* 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.
*33a% in the case of the Small Company Value, Blue Chip Growth, Equity-Income,
International Stock, Science & Technology Trusts, Small Company Blend, U.S.
Large Cap Value, Total Return, International Value and Mid Cap Stock Trusts.
;15% in the case of the International Small Cap, Growth and Balanced Trusts; 50%
in the case of the Value Trust.
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.
ADDITIONAL INVESTMENT RESTRICTIONS
Money Market Trust
In addition to the above policies, the Money Market Trust is subject to
certain restrictions required by Rule 2a-7 under the 1940 Act. In order to
comply with such restrictions, the Money Market Trust will, among other things,
not purchase the securities of any issuer if it would cause:
- 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,
- more than 5% of its total assets to be invested in "second
tier securities," as defined by Rule 2a-7, or
- more than the greater of $1 million or 1% of its total assets
to be invested in the second tier securities of that issuer.
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<PAGE> 189
PORTFOLIO TURNOVER
The annual rate of portfolio turnover will normally differ for each
portfolio and may vary from year to year as well as within a year. 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. 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.
(Excluded from the computation are all securities, including options, with
maturities at the time of acquisition of one year or less). The portfolio
turnover rates for the portfolios of the Trust for the years ended December 31,
1999, and 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO 1999 1998
--------- ---- ----
<S> <C> <C>
Pacific Rim Emerging Markets Trust 42% 62%
Science & Technology Trust 113% 105%
International Small Cap Trust(A) 309% 45%
Aggressive Growth Trust 161% 189%
Emerging Small Company Trust 136% 77%
Small Company Blend Trust 28%(D) N/A
All Cap Growth Trust 193% 150%
Mid Cap Stock Trust 36%(D) N/A
Overseas Trust 147% 150%
International Stock Trust 39% 27%
International Value Trust 4%(D) N/A
Mid Cap Blend Trust 129% 93%
Small Company Value Trust 142% 131%
Global Equity Trust 43% 32%
Growth Trust 156% 136%
Large Cap Growth Trust 164% 64%
Quantitative Equity Trust 159% 225%
Blue Chip Growth Trust 42% 42%
Real Estate Securities Trust 201% 122%
Value Trust 54% 45%
Equity Index Trust 10% 3%
Growth & Income Trust 19% 16%
U.S. Large Cap Value Trust 30%(D) N/A
Equity-Income Trust 30% 21%
Income & Value Trust 165% 85%
Balanced Trust 215% 199%
High Yield Trust 62% 94%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO 1999 1998
--------- ---- ----
<S> <C> <C>
Strategic Bond Trust 107% 209%
Global Bond Trust (B) 471% 140%
Total Return Trust 95%(D) N/A
Investment Quality Bond Trust 36% 41%
Diversified Bond Trust 173% 125%
U.S. Government Securities Trust (C) 40% 287%
Money Market Trust N/A N/A
Lifestyle Aggressive 1000 Trust 136% 59%
Lifestyle Growth 820 Trust 127% 49%
Lifestyle Balanced 640 Trust 126% 52%
Lifestyle Moderate 460 Trust 109% 45%
Lifestyle Conservative 260 Trust 93% 32%
</TABLE>
(A) The significant variation in the portfolio turnover rate for the past two
fiscal years was due primarily to a change in portfolio manager for the
International Small Cap Trust in July 1999.
(B) The significant variation in the portfolio turnover rate for the past two
fiscal years was due primarily to a change of subadviser and investment
objective of the Global Bond Trust effective May 1, 1999.
(C) The significant variation in the portfolio turnover rate of the U.S.
Government Securities Trust for the past two fiscal years was due primarily to
decreased liquidity in bond issuance in the U.S. government securities markets
during 1999.
(D) Annualized - For the period May 1, 1999 (commencement of operations) to
December 31, 1999.
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<PAGE> 190
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 are not a limiting
factor when it is deemed appropriate to purchase or sell securities for a
portfolio.
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>
POSITION WITH PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE THE TRUST DURING PAST FIVE YEARS
--------------------- ------------- --------------------
<S> <C> <C>
Don B. Allen Trustee Senior Lecturer, William E. Simon Graduate School
136 Knickerbocker Road of Business Administration, University of Rochester.
Pittsford, NY 14534
Age: 72
Charles L. Bardelis Trustee President and Executive Officer, Island Commuter
297 Dillingham Avenue Corp. (Marine Transport).
Falmouth, MA 02540
Age: 59
John D. DesPrez III* Trustee Executive Vice President, U.S. Operations, Manulife
73 Tremont Street Financial, January 1999 to date; Senior Vice
Boston, MA 02108 President, US Annuities, Manulife Financial,
Age:43 September 1996 to December, 1998; President, The
Manufacturers Life Insurance Company of North
America, September 1996 to December, 1998; Vice
President, Mutual Funds, Manulife Financial, January
1995 to September 1996.
Samuel Hoar Trustee Senior Mediator, Arbitrator, Regional Manager,
73 Tremont Street JAMS, LLC, August 1999 to date; Senior Mediator,
Boston, MA 02108 Arbitrator, Regional Director of Professional
Age: 73 Services, J.A.M.S./Endispute, Inc., June 1994 to
August 1999.
</TABLE>
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<PAGE> 191
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE THE TRUST DURING PAST FIVE YEARS
--------------------- ------------- --------------------
<S> <C> <C>
John D. Richardson* Chairman of Senior Executive Vice President, U.S. Operations,
200 Bloor Street East Trustees Manulife Financial, January 1999 to date; Executive
Toronto, Ontario, Canada Vice President and General Manager, U.S.
M4W 1E5 Operations, Manulife Financial, January 1995 to
Age: 62 January 1999.
F. David Rolwing Trustee Former Chairman, President and CEO, Montgomery
17810 Meeting House Road Mutual Insurance Company, 1991 to 1999. (Retired
Sandy Spring, MD 20860 1999)
Age: 66
Matthew R. Schiffman President Vice President, Institutional Markets, Manulife
73 Tremont Street Financial, August 1999 to date, Director of
Boston, MA 02108 Marketing, Manulife Wood Logan, Inc., August 1994
Age: 44 to August 1999.
John G. Vrysen Vice President & Vice President and Chief Financial Officer, U.S.
73 Tremont Street Treasurer Operations, Manulife Financial, January 1996 to
Boston, MA 02108 date; Vice President and Actuary, The Manufacturers
Age: 45 Life Insurance Company of North America, January
1986 to date.
James D. Gallagher Secretary Vice President, Legal Services, Manulife Financial,
73 Tremont Street January 1996 to date; President, The Manufacturers
Boston, MA 02108 Life Insurance Company of New York, August 1999 to
Age: 46 present; Vice President, Secretary and General
Counsel, The Manufacturers Life Insurance Company of
North America, June 1994 to date.
</TABLE>
*Trustee who is an "interested person," as defined in the 1940 Act.
DUTIES AND COMPENSATION OF TRUSTEES
The Trust is organized as a Massachusetts Business Trust. Under the
Trust's Declaration of Trust, the Trustees are responsible for managing the
affairs of the Trust, including the appointment of advisers and subadvisers. The
Trustees may appoint officers of the Trust who assist in managing the day-to-day
affairs of the Trust.
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 $45,000, a fee of $7,500 for each
quarterly meeting of the Trustees that they attend in person and a fee of $3,750
per day for attending any duly constituted in person meeting of the Trustees,
other than a quarterly meeting. 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.
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM TRUST TOTAL COMPENSATION FROM TRUST
NAMES OF PERSON, POSITION FOR PRIOR FISCAL YEAR* COMPLEX FOR PRIOR FISCAL YEAR*#
------------------------- --------------------------------- -----------------------------
<S> <C> <C>
Don B. Allen, Trustee $65,000 $65,000
Charles L. Bardelis, Trustee 65,000 65,000
John D. DesPrez III, Trustee -- --
Samuel Hoar, Trustee 65,000 65,000
</TABLE>
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<PAGE> 192
<TABLE>
<S> <C> <C>
John D. Richardson, Trustee -- --
F. David Rolwing, Trustee 65,000 65,000
</TABLE>
*Compensation received for services as Trustee.
#Trust Complex includes all portfolios of the Trust.
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 SEC.
Information Regarding the Adviser. Manufacturers Securities Services,
LLC ("MSS" or the "Adviser"), the successor to NASL Financial Services, Inc., is
a Delaware limited liability corporation whose principal offices are located at
73 Tremont Street, Boston, Massachusetts 02108. The ultimate parent of MSS is
Manulife Financial Corporation ("MFC") based in Toronto, Canada. MFC is the
holding company of The Manufacturers Life Insurance Company and its
subsidiaries, collectively known as Manulife Financial. MSS 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, MSS
serves as principal underwriter of certain contracts issued by The Manufacturers
Life Insurance Company of North America ("Manulife North America") and The
Manufacturers Life Insurance Company of New York.
Approval of the Advisory Agreement and Subadvisory Agreements.
The Advisory Agreement was approved by the Trustees on March 26, 1999
and by the shareholders on April 27, 1999. Each Subadvisory Agreement (except
those described below under "The Subadvisory Agreements") were initially
approved by the Trustees on September 28, 1995, and by the shareholders of the
portfolios on December 5, 1995. These subadvisory agreement approvals occurred
in connection with the change of control of MSS as a result of the merger of
North American Life Assurance Company, the then ultimate controlling parent of
MSS, with Manulife Financial on January 1, 1996.
Appointment of Fred Alger Management, Inc. and Founders Asset
Management, Inc.
On December 15, 1995, the Trustees appointed the following new
subadvisers:
- Fred Alger Management, Inc. ("Alger") pursuant to a new subadvisory
agreement (the "Alger Subadvisory Agreement") to manage the Small/Mid
Cap Trust, and
- Founders Asset Management, Inc. ("Founders") pursuant to a new
subadvisory agreement (the "Founders Subadvisory Agreement") to manage
the International Small Cap Trust.
Both such Subadvisory Agreements to provide for the management of the Small/Mid
Cap Trust and the International Small Cap Trust, were approved by the Trustees,
including a majority of the Trustees who are not parties to these agreements or
interested persons of any party to such agreements on December 15, 1995. Both
such Subadvisory Agreements were approved by the sole shareholder of the
Small/Mid Cap Trust and International Small Cap Trust on March 1, 1996.
October 1, 1996 Subadviser Resignations
Effective October 1, 1996, the following subadvisers resigned their
positions as subadviser to the stated portfolios:
- Oechsle International Advisors, LLC ("Oechsle International") as
subadviser to the Global Equity Trust,
- Wellington Management Company, LLP as subadviser to the Money Market
Trust,
- Goldman Sachs Asset Management as subadviser to the Equity-Income Trust
(formerly, the Value Equity Trust), and
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<PAGE> 193
- Roger Engemann Management Co., Inc. as subadviser to the Blue Chip
Growth Trust (formerly, the Pasadena Growth Trust).
On September 27, 1996, the Trustees then appointed the following new
subadvisers:
- Founders Asset Management, Inc.("Founders") pursuant to a new
subadvisory agreement ("Founders Subadvisory Agreement") to manage the
Balanced and Worldwide Growth Trusts,
- Morgan Stanley Asset Management Inc. ("MSAM") pursuant to a new
subadvisory agreement ("MSAM Subadvisory Agreement") to manage the
Global Equity Trust,
- T. Rowe Price Associates, Inc. ("T. Rowe Price") pursuant to a new
subadvisory agreement ("T. Rowe Price Subadvisory Agreement") to manage
the Blue Chip Growth and Equity-Income Trusts, and
- Manufacturers Adviser Corporation ("MAC") pursuant to a new subadvisory
agreement ("MAC Subadvisory Agreement") to manage the Money Market
Trust as well as the Pacific Rim Emerging Markets, Real Estate
Securities, Quantitative Equity, Capital Growth Bond and Equity Index
Trusts.
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.
New Subadvisers for New Portfolios
On September 27, 1996, the Trustees also appointed the following new
subadvisers:
- T. Rowe Price pursuant to the T. Rowe Price Subadvisory Agreement to
manage the Science and Technology Trust,
- Miller Anderson & Sherrerd, LLP ("MAS") pursuant to a new subadvisory
agreement ("MAS Subadvisory Agreement") to manage the Value and High
Yield Trusts,
- Warburg Pincus Asset Management, Inc. ("Warburg") pursuant to a new
subadvisory agreement ("Warburg Subadvisory Agreement") to manage the
Emerging Small Company Trust (formerly, the Emerging Growth Trust),
- Rowe Price-Fleming International, Inc. ("Rowe Price-Fleming") pursuant
to a new subadvisory agreement ("Rowe Price-Fleming Subadvisory
Agreement") to manage the International Stock Trust, and
- Pilgrim Baxter & Associates, Ltd. ("PBA") pursuant to a new subadvisory
agreement ("PBA Subadvisory Agreement") to manage the Pilgrim Baxter
Growth Trust.
Such Subadvisory Agreements 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 and by the sole shareholder of each portfolio on January 1, 1997.
Appointment of MAC to Manage the Lifestyle Portfolios
On December 13, 1996, the Trustees appointed MAC pursuant to the
amended MAC Subadvisory Agreement to also manage each of the Lifestyle
portfolios. 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
amended MAC Subadvisory Agreement was approved by the sole shareholder of each
of the Lifestyle Trusts on January 1, 1997.
Appointment of Rosenberg Institutional Equity Management to Manage the
Small Company Value Trust
On September 26, 1997, the Trustees appointed Rosenberg Institutional
Equity Management ("Rosenberg") to manage the Small Company Value Trust pursuant
to a new subadvisory agreement (the "Rosenberg Subadvisory Agreement"). The
Rosenberg Subadvisory Agreement and an amendment to the Advisory Agreement, both
to provide for the management of the Small Company Value Trust were 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
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<PAGE> 194
September 26, 1997. The Rosenberg Subadvisory Agreement was approved by the sole
shareholder of the Small Company Value Trust on September 30, 1997.
Change of Control of Salomon Brothers Asset Management Inc
On November 17, 1997, the Trustees appointed Salomon Brothers Asset
Management Inc ("SaBAM") pursuant to a new subadvisory agreement ("SaBAM
Subadvisory Agreement") to manage the U.S. Government Securities and Strategic
Bond Trusts effective upon the change of control of SaBAM with Travelers
becoming the ultimate parent company of SaBAM. This change of control occurred
on November 28, 1997. In addition, on November 17, 1997 the Trustees approved a
new subadvisory consulting agreement with Salomon Brothers Asset Management
Limited ("SaBAM Limited") ("Subadvisory Consulting Agreement") to provide
certain advisory services to SaBAM with regard to currency transactions and
investments in non-dollar denominated debt securities for the benefit of the
Strategic Bond Trust. The SaBAM Subadvisory Agreement and Subadvisory Consulting
Agreement 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 November 17, 1997. SaBAM had previously managed the U.S.
Government Securities and Strategic Bond Trusts pursuant to a Subadvisory
Agreement dated January 1, 1996. SaBAM Limited had previously provided certain
advisory services to SaBAM with regard to currency transactions and investments
in non-dollar denominated debt securities for the benefit of the Strategic Bond
Trust pursuant to a Subadvisory Consulting Agreement dated January 1, 1996.
Change of Control of Founders Asset Management, Inc.
On December 11, 1997, the Trustees appointed Founders Asset Management
LLC ("Founders") pursuant to a new subadvisory agreement (the "Founders
Subadvisory Agreement") to manage the International Small Cap, Growth, Worldwide
Growth and Balanced Trusts, effective upon the merger of Founders Asset
Management, Inc. with and into Founders Asset Management LLC which occurred on
April 4, 1998. The Founders 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 11, 1997.
Founders Asset Management, Inc., previously managed these Trusts pursuant to a
Subadvisory Agreement dated January 4, 1996, as amended June 20, 1996 and
December 31, 1996.
Change of Control of Oechsle International Advisors, L.P.
On June 29, 1998, the Trustees appointed Oechsle International
Advisors, LLC ("Oechsle LLC") pursuant to a new subadvisory agreement (the
"Oechsle LLC Subadvisory Agreement") to manage the Global Government Bond Trust.
The Oechsle LLC 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 June 29, 1998, effective upon the
reorganized and recapitalized Oechsle International Advisors, L.P. which
occurred on October 8, 1998. Oechsle International Advisors, L.P. previously
managed the Global Government Bond Trust pursuant to a Subadvisory Agreement
dated January 1, 1996.
Change of Control of Rosenberg Institutional Equity Management
On December 17, 1998, the Trustees appointed AXA Rosenberg Investment
Management LLC ("AXA Rosenberg") pursuant to a new subadvisory agreement ("AXA
Rosenberg Subadvisory Agreement") to manage the Small Company Value Trust. The
AXA Rosenberg 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 17, 1998, effective upon the
succession of the business and affairs of Rosenberg Institutional Equity
Management to AXA Rosenberg Investment Management LLC, which occurred on January
1, 1999. Rosenberg Institutional Equity Management previously managed the Small
Company Value Trust pursuant to a Subadvisory Agreement dated October 1, 1997.
Resignation/Termination of Certain Subadvisers Effective May 1, 1999
Effective May 1, 1999, the following subadvisers have resigned from
managing the portfolios indicated:
Fidelity Management Trust Company Conservative Asset Allocation Trust
Fidelity Management Trust Company Moderate Asset Allocation Trust
Founders Asset Management LLC Growth Trust
Founders Asset Management LLC Worldwide Growth Trust
37
<PAGE> 195
J.P. Morgan Investment Management, Inc. International Growth and Income Trust
Manufacturers Adviser Corporation Capital Growth Bond Trust
Oechsle International Advisors, LLC Global Government Bond Trust
Pilgrim Baxter & Associates, Ltd. Pilgrim Baxter Growth Trust
Warburg Pincus Asset Management, Inc. Emerging Small Company Trust
Effective May 1, 1999, the subadvisory agreement with Fred Alger
Management, Inc. relating to the Small/Mid Cap Trust (now the Mid Cap Growth
Trust) was terminated.
New Subadvisers to Manage Certain Portfolios Effective May 1, 1999
On March 26, 1999, the Trustees made the following appointments:
- A I M Capital Management, Inc. was appointed, pursuant to a new
subadvisory agreement, to manage:
All Cap Growth Trust (formerly, the Mid Cap Growth Trust),
Aggressive Growth Trust (formerly, the Pilgrim Baxter Growth Trust)
- Capital Guardian Trust Company was appointed, pursuant to a new
subadvisory agreement, to manage:
Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust (formerly the Moderate Asset Allocation Trust)
Diversified Bond Trust (formerly the Conservative Asset Allocation
Trust)
- Fidelity Management Trust Company was appointed, pursuant to a new
subadvisory agreement, to manage the Overseas Trust (formerly, the
International Growth and Income Trust).
- Franklin Advisers, Inc. was appointed, pursuant to a new subadvisory
agreement, to manage the Emerging Small Company Trust.
- Pacific Investment Management Company (PIMCO) was appointed, pursuant
to a new subadvisory agreement, to manage:
Global Bond Trust (formerly, the Global Government Bond Trust)
Total Return Trust
- State Street Global Advisors was appointed, pursuant to a new
subadvisory agreement, to manage the Growth Trust.
- Templeton Investment Counsel, Inc. was appointed, pursuant to a new
subadvisory agreement, to manage the International Value Trust.
- Wellington Management Company, LLP was appointed, pursuant to a new
subadvisory agreement, to manage the Mid Cap Stock Trust.
Such Subadvisory Agreements 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 March 26, 1999 and by the sole
shareholder of each portfolio on May 1, 1999.
Appointment of SSgA as Subadviser Consultant for the Lifestyle Trusts
Effective May 1, 2000
On December 16, 1999, the Trustees appointed SSgA pursuant to a new
subadvisory consulting agreement ("SSgA Subadvisory Consulting Agreement")
between MAC and SSgA to provide MAC subadvisory consulting services in the
management of the Lifestyle Trusts. The SSgA Subadvisory Consulting 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 16, 1999, effective May 1, 2000, subject to the approval of
shareholders of the applicable Lifestyle Trust.
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<PAGE> 196
Change of Control of Rowe Price-Fleming International, Inc.
On June 22, 2000, the Trustees appointed T. Rowe Price International,
Inc. ("T. Rowe International") pursuant to a new subadvisory agreement ("T. Rowe
International Subadvisory Agreement") to manage the International Stock Trust.
The T. Rowe International 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 June 22, 2000, effective
upon the purchase by T. Rowe Price of the 50% joint venture interest in Rowe
Price-Fleming International, Inc. owned by Robert Fleming Holdings Limited,
which occurred on August 8, 2000. Rowe Price-Fleming International, Inc.
previously managed the International Stock Trust pursuant to a Subadvisory
Agreement dated December 31, 1996.
Appointment of Jennison Associates, LLC to Manage the Capital
Appreciation Trust
On September 28, 2000, the Trustees appointed Jennison Associates, LLC
("Jennison") to manage the Capital Appreciation Trust pursuant to a new
subadvisory agreement (the "Jennison Subadvisory Agreement"). The Jennison
Subadvisory Agreement and an amendment to the Advisory Agreement, both to
provide for the management of the Capital Appreciation Trust were 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 September 29,
2000. The Jennison Subadvisory Agreement was approved by the sole shareholder of
the Capital Appreciation Trust on November 1, 2000.
THE ADVISORY AGREEMENT
Duties of the Adviser and Expenses Paid by the Adviser. 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:
- office space and all necessary office facilities and
equipment, and
- individuals who are directors, officers or employees of the
Adviser to serve (if duly elected or appointed) as Trustees,
President, Treasurer or Secretary of the Trust, without
remuneration from or other cost to the Trust.
The Adviser shall, at the Trust's expense, perform all administrative,
compliance, financial, accounting, bookkeeping and recordkeeping functions,
except for those functions that may be performed by a third party pursuant to a
custodian, transfer agency or service agreement executed by the Trust. The
Adviser shall also furnish to the Trust, at the Trust's expense, any personnel
necessary for these functions.
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.
In addition to providing the services described above, the Adviser
selects, contracts with, and compensates subadvisers to manage the investment
and reinvestment of the assets of the Trust portfolios. 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.
Adviser Compensation. 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 and paid
daily, 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.
For the years ended December 31, 1999, 1998 and 1997 the aggregate
investment advisory fee paid by the Trust under the fee schedule then in effect,
absent the expense limitation provision, was $122,317,006, $94,037,629 and
$70,536,995 allocated among the portfolios as follows:
<TABLE>
<CAPTION>
PORTFOLIO 1999 1998 1997
--------- ---- ---- ----
<S> <C> <C> <C>
Pacific Rim Emerging Markets Trust $ 404,135 $ 214,432 $ 229,135
Science & Technology Trust ....... 5,474,674 1,171,088 369,324
International Small Cap Trust .... 1,657,308 1,567,227 1,347,708
</TABLE>
39
<PAGE> 197
<TABLE>
<S> <C> <C> <C>
Aggressive Growth Trust .......... 1,025,508 1,216,141 502,149
Emerging Small Company Trust ..... 3,143,468 2,937,353 2,331,739
Small Company Blend .............. 200,337(2) N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO 1999 1998 1997
--------- ---- ---- ----
<S> <C> <C> <C>
All Cap Growth Trust ............. 4,393,840 3,144,346 2,145,327
Mid Cap Stock Trust .............. 433,859(2) N/A N/A
Overseas Trust ................... 2,657,549 2,086,991 1,965,899
International Stock Trust ........ 2,089,623 2,019,937 860,656
International Value Trust ........ 475,140(2) N/A N/A
Mid Cap Blend Trust .............. 12,412,481 11,504,927 10,703,211
Small Company Value Trust ........ 1,101,422 1,218,609 134,688(1)
Global Equity Trust .............. 7,901,467 8,256,515 7,256,254
Growth Trust ..................... 3,716,979 1,930,442 935,029
Large Cap Growth Trust ........... 2,555,311 1,874,673 1,766,662
Quantitative Equity Trust ........ 2,425,280 1,431,591 913,996
Blue Chip Growth Trust ........... 12,535,949 7,964,796 5,156,008
Real Estate Securities Trust ..... 1,118,824 1,157,366 831,191
Value Trust ...................... 1,497,638 1,695,347 523,446
Equity Index Trust ............... 220,248 106,755 42,212
Growth & Income Trust ............ 20,739,640 14,353,269 10,037,637
U.S. Large Cap Value Trust ....... 790,211(2) N/A N/A
Equity-Income Trust .............. 9,004,174 8,121,714 6,141,959
Income & Value Trust ............. 4,950,340 4,585,154 4,584,121
Balanced Trust ................... 2,172,887 1,699,575 1,261,070
High Yield Trust ................. 1,660,951 1,160,631 314,373
Strategic Bond Trust ............. 3,064,500 3,178,026 2,240,478
Global Bond Trust ................ 1,337,692 1,632,065 1,837,451
Total Return Trust ............... 925,369(2) N/A N/A
Investment Quality Bond Trust .... 2,011,248 1,610,817 1,047,782
Diversified Bond Trust ........... 1,597,677 1,473,082 1,521,047
U.S. Government Securities Trust . 2,588,073 1,952,935 1,401,568
Money Market Trust ............... 4,033,204 2,771,825 2,134,875
Lifestyle Aggressive 1000 Trust .. N/A N/A N/A
Lifestyle Growth 820 Trust ....... N/A N/A N/A
Lifestyle Balanced 640 Trust ..... N/A N/A N/A
Lifestyle Moderate 460 Trust ..... N/A N/A N/A
Lifestyle Conservative 280 Trust . N/A N/A N/A
</TABLE>
(1) For the period October 1, 1997 (commencement of operations) to December 31,
1997.
(2) For the period May 1, 1999 (commencement of operations) to December 31,
1999.
THE SUBADVISORY AGREEMENTS
Duties of the Subadvisers. Under the terms of each of the current
subadvisory agreements, including the SaBAM Limited Consulting Agreement and the
SSgA Subadvisory 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 Board of
Trustees. (In the case of the SaBAM Limited Consulting Agreement and the SSgA
Subadvisory Consulting Agreement, the activities of the Subadviser are also
subject to the supervision of SaBAM and MAC, respectively.) 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 Board of Trustees of the Trust with
respect to the implementation of such programs. (In the case of the SSgA
Subadvisory Consulting Agreement for the Lifestyle Trusts, SSgA does not
purchase and sell securities but rather provides information and services to MAC
to assist MAC in this process as noted below.) 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.
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<PAGE> 198
The information and services SSgA provides to MAC pursuant to the
Subadvisory Consulting Agreement for the Lifestyle Trusts are as follows:
i. SSgA will, using SSgA's "Statistical Process Control
Methodology" and the resources provided by its Office of the
Fiduciary Adviser:
- track the performance of each of the
investment portfolios in which the Lifestyle
Trusts invest (the "non-Lifestyle Trust
portfolios") on an ongoing basis and
identify changes in returns of these
portfolios;
- compare performance of the non-Lifestyle
Trust portfolios to the performance of
comparable portfolios;
- calculate the probability that the
subadvisers to the non-Lifestyle Trust
portfolios will outperform their performance
benchmarks;
ii. SSgA will provide computer models, including its Growth Value
Rotation Model, and statistical information to assist the
Subadviser in making asset allocation determinations for the
Lifestyle Trusts. SSgA will also, if requested by the
Subadviser, make such asset allocation determinations.
Subadvisory Fees. As compensation for their services, the Subadvisers
receive fees from the Adviser computed separately for each portfolio. In respect
of the two subadvisory consulting agreements, the subadvisory fees are paid by
the Subadviser to the entity providing the consulting services as described
below. 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, in the case of certain portfolios, the fee is reduced with
respect to such excess.
SaBAM Limited Subadvisory Consulting Agreement. The Prospectus refers
to a subadvisory consulting agreement between SaBAM and SaBAM Limited which is
subject to certain conditions as set forth in the Prospectus. Under that
agreement SaBAM Limited provides certain investment advisory services to SaBAM
relating to currency transactions and investments in non-dollar denominated debt
securities for the benefit of the Strategic Bond Trust.
Ownership of SaBAM Limited. SaBAM Limited is a wholly owned
subsidiary of Salomon Brothers Europe Limited ("SBEL"). Salomon (International)
Finance AG ("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
Smith Barney Holdings Inc.
Fee Paid to SaBAM Limited. SaBAM pays SaBAM Limited, as full
compensation for all services provided under the subadvisory consulting
agreement, a portion of its subadvisory fee. The amount paid to SaBAM Limited is
equal to the fee payable under SaBAM's subadvisory agreement multiplied by the
current value of the net assets of the portion of the assets of the Strategic
Bond Trust that SaBAM Limited has been delegated to manage divided by the
current value of the net assets of the portfolio. The Trust does not incur any
expenses in connection with SaBAM Limited's services other than the advisory
fee.
SSgA Subadvisory Consulting Agreement for the Lifestyle Trusts. The
Prospectus refers to a subadvisory consulting agreement between MAC and SSgA for
the provision of subadvisory consulting services to MAC in regards to the
Lifestyle Trusts. The entire subadvisory fee paid to MAC by the Adviser is paid
by MAC to SSgA. The Lifestyle Trusts do not incur any expenses in connection
with SSgA's services other than the advisory fee.
Amount of Subadvisory Fees Paid. For the years ended December 31, 1999,
1998 and 1997, the Adviser paid aggregate subadvisory fees of $46,407,309,
$34,400,662 and $26,185,717, respectively, allocated among the portfolios as
follows:
<TABLE>
<CAPTION>
PORTFOLIO 1999 1998 1997
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets Trust.......... $ 186,468 $ 100,909 $ 107,828
Science & Technology Trust.................. 2,986,185 638,775 201,450
International Small Cap Trust............... 927,279 880,024 760,136
Aggressive Growth Trust..................... 544,955 694,939 286,942
Emerging Small Company Trust................ 1,692,250 1,538,613 1,221,387
Small Company Blend Trust................... 104,9382 N/A N/A
</TABLE>
41
<PAGE> 199
<TABLE>
<S> <C> <C> <C>
All Cap Growth Trust........................ 2,139,225 1,556,064 1,078,894
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO 1999 1998 1997
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mid Cap Stock Trust......................... 207,459(2) N/A N/A
Overseas Trust.............................. 1,365,648 1,003,054 951,446
International Stock Trust................... 1,038,237 1,041,875 487,128
International Value Trust................... 273,003(2) N/A N/A
Mid Cap Blend Trust......................... 4,742,303 3,567,981 3,354,190
Small Company Value Trust................... 615,660 679,834 76,634(1)
Global Equity Trust......................... 3,278,306 3,406,519 3,045,314
Growth Trust................................ 1,656,644 991,056 495,015
Large Cap Growth Trust...................... 1,170,905 874,869 831,665
Quantitative Equity Trust................... 731,320 480,575 318,784
Blue Chip Growth Trust...................... 5,164,853 3,298,442 2,298,963
Real Estate Securities Trust................ 384,622 397,010 292,169
Value Trust................................. 596,315 666,493 233,286
Equity-Index Trust.......................... 88,099 42,702 16,885
Growth & Income Trust....................... 4,648,128 3,370,654 2,507,394
U.S. Large Cap Value Trust.................. 361,239(2) N/A N/A
Equity-Income Trust......................... 3,435,222 2,280,428 1,785,490
Income & Value Trust........................ 2,022,980 1,722,708 1,722,433
Balanced Trust.............................. 871,930 707,971 537,310
High Yield Trust............................ 659,722 474,278 138,181
Strategic Bond Trust........................ 1,113,548(3) 1,150,170(4) 847,735(5)
Global Bond Trust........................... 597,740 723,763 801,544
Total Return Trust.......................... 347,709(2) N/A N/A
Investment Quality Bond Trust............... 614,134 521,489 362,694
Diversified Trust........................... 656,706 613,727 631,791
U.S. Government Securities Trust............ 747,248 600,677 473,424
Money Market Trust.......................... 436,329 375,063 319,605
Lifestyle Aggressive 1000 Trust............. N/A N/A N/A
Lifestyle Growth 820 Trust.................. N/A N/A N/A
Lifestyle Balanced 640 Trust................ N/A N/A N/A
Lifestyle Moderate 460 Trust................ N/A N/A N/A
Lifestyle Conservative 280 Trust............ N/A N/A N/A
</TABLE>
(1) For the period October 1, 1997 (commencement of operations) to December 31,
1997.
(2) For the period May 1, 1999 (commencement of operations) to December 31,
1999.
(3) Of this amount, $278,387 was paid by SaBAM to SaBAM Limited under the
Subadvisory Consulting Agreement.
(4) Of this amount, $287,543 was paid by SaBAM to SaBAM Limited under the
Subadvisory Consulting Agreement.
(5) Of this amount, $211,934 was paid by SaBAM to SaBAM Limited under the
Subadvisory Consulting Agreement.
INFORMATION APPLICABLE TO BOTH THE ADVISORY AGREEMENT AND THE SUBADVISORY
AGREEMENTS
Expenses Paid by the Trust. 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 that the Adviser or
Subadvisers have agreed to pay pursuant to the Advisory or Subadvisory
Agreements. Expenses borne by the Trust include:
- reimbursement of the Adviser's expense of providing
administrative, compliance, financial, accounting, bookkeeping
and recordkeeping functions to the Trust,
- charges and expenses of the custodian, independent accountants
and transfer, bookkeeping and dividend disbursing agent
appointed by the Trust;
- brokers' commissions;
- 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;
and
- costs for printing annual and semi-annual reports,
prospectuses and proxy statements and mailing these documents
to shareholders (including holders of variable contracts
funded by Trust shares).
Term of the Advisory Agreement and Each Subadvisory Agreement. The
Advisory Agreement and each Subadvisory Agreement will initially continue in
effect as to a portfolio for a period no more than two years from
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<PAGE> 200
the date of its execution (or the execution of an amendment making the agreement
applicable to that portfolio) and thereafter if such continuance is specifically
approved at least annually either (a) by the Trustees or (b) by the vote of a
majority of the outstanding voting securities of the Trust. 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.
Any 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 that portfolio vote to approve such continuance
even if such 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 of the portfolios of the Trust.
Failure of Shareholders to Approve Continuance of the Advisory
Agreement or any Subadvisory Agreement. If the outstanding voting securities of
any portfolio fail to approve any continuance of the Advisory Agreement or any
Subadvisory Agreement, the party may continue to act as investment adviser or
subadviser (as applicable) with respect to such portfolio pending the required
approval of the continuance of such Agreement or a new agreement with either
that party or a different adviser, or other definitive action. In the case of
the Adviser, the compensation received during such period will be no more than
the amount it would have received under the Advisory Agreement in respect of
such portfolio.
Termination of the Agreements. 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 also to the Trust in the case of the Subadvisory Agreements. The
following parties may terminate the agreements:
- the Board of Trustees of the Trust;
- a majority of the outstanding voting securities of the Trust,
or with respect to any portfolio, a majority of the
outstanding voting securities of such portfolio;
- the Adviser,
- in the case of the Subadvisory Agreements, by the respective
Subadviser.
The Agreements will automatically terminate in the event of their assignment.
Amendments to the Agreements. The Advisory Agreement and the
Subadvisory Agreements may be amended by the parties to the agreement provided
the amendment is approved by the vote of a majority of the outstanding voting
securities of the Trust (except as noted below) and by the vote of a majority of
the Board of Trustees of the Trust who are not interested persons of the Trust,
the Adviser or the applicable Subadviser (including SaBAM Limited).
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, even if 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.
As noted under "Subadvisory Arrangements" in the Prospectus, the Trust
has received an order from the SEC permitting the Adviser to appoint a
subadviser (other than an Affiliated Subadviser) or change a subadvisory fee or
otherwise amendment a subadvisory agreement (other than for an Affiliated
Subadviser) pursuant to an agreement that is not approved by shareholders.
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. The Subadvisers have no formula for the distribution of the Trust's
brokerage business; rather they place orders for the purchase and sale of
securities with the primary objective of obtaining the most favorable overall
results for the applicable portfolio of the Trust. The cost of securities
transactions for each portfolio will consist primarily of brokerage commissions
or dealer or underwriter spreads. Fixed income securities 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 market in the
securities unless better prices and execution are available elsewhere. Such
dealers usually act as principals for their own account.
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<PAGE> 201
Selection of Brokers or Dealers to Effect Trades. In selecting brokers
or dealers to implement 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,
- difficulty of execution, and
- brokerage and research services provided.
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 applicable portfolio of 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.
Soft Dollar Considerations. In selecting brokers and dealers, the
Subadvisers will give consideration to the value and quality of any research,
statistical, quotation or valuation services provided by the broker or dealer to
the Subadviser. 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. A Subadviser may
receive products or research that are used for both research and other purposes,
such as administration or marketing. In such case, the Subadviser will make a
good faith determination as to the portion attributable to research. Only the
portion attributable to research will be paid through Trust brokerage. The
portion not attributable to research will be paid 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 (a) issuers, (b) industries,
(c) securities, (d) economic, political and legal factors and
trends and (e) portfolio strategy.
Research services are received primarily in the form of written reports,
computer generated services, telephone contacts and personal meetings with
security analyst. In addition, such services may be provided in the form of
meetings arranged with corporate and industry spokespersons, economists,
academicians and government representatives. In some cases, research services
are generated by third parties but are provided to the Subadviser by or through
a broker.
To the extent research services are used by the Subadvisers, such
services would tend to reduce such party's 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 portfolios of the Trust will also be available for the benefit
of other portfolios managed by the Subadvisers.
Sales Volume Considerations. Consistent with the foregoing
considerations and the Rules of Fair Practice of the NASD, sales of insurance
contracts which offer Trust portfolios may be considered as a factor in the
selection of 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.
"Step Out" Transactions. A Subadviser may execute an entire transaction
with one broker to obtain best execution of the order and allocate a portion of
the transaction and related commission to another broker in connection with
provision of nonexecution services.
Allocation of Trades by the Subadvisers. The Subadvisers manage a
number of accounts other than the Trust's portfolios. Although investment
determinations for the Trust's portfolios will be made by the Subadvisers
independently from the investment 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.
Therefore, 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
44
<PAGE> 202
sale of the same security for the Trust's portfolios and one or more other
accounts should be combined. In this 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.
Brokerage Commissions Paid. For the years ended December 31, 1999, 1998
and 1997, the Trust paid brokerage commissions in connection with portfolio
transactions of $21,888,116, $11,980,539 and $14,209,750, respectively,
allocated among the portfolios as follows:
<TABLE>
<CAPTION>
PORTFOLIO 1999 1998 1997
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets Trust.......... $231,264 $ 106,176 $ 148,339
Science & Technology Trust.................. 558,599 130,494 71,708
International Small Cap Trust............... 2,670,462 258,535 420,472
Aggressive Growth Trust..................... 192,212 238,538 73,688
Emerging Small Company Trust................ 609,657 369,979 490,019
Small Company Blend Trust................... 54,968(2) N/A N/A
All Cap Growth Trust........................ 1,198,534 1,033,940 645,611
Mid Cap Stock Trust......................... 123,553(2) N/A N/A
Overseas Trust.............................. 1,075,432 837,199 700,640
International Stock Trust................... 353,494 260,776 424,132
International Value Trust................... 220,824(2) N/A N/A
Mid Cap Blend Trust......................... 3,294,528 2,738,492 5,018,862
Small Company Value Trust................... 455,528 501,974 111,673(1)
Global Equity Trust......................... 1,419,066 532,673 1,147,235
Growth Trust................................ 860,907 573,019 352,035
Large Cap Growth Trust...................... 561,368 109,827 214,279
Quantitative Equity Trust................... 938,331 627,626 307,370
Blue Chip Growth Trust...................... 1,002,743 626,069 449,346
Real Estate Securities Trust................ 1,408,916 586,437 736,968
Value Trust................................. 435,054 387,203 210,067
Equity-Index Trust.......................... 4,918 4,150 266
Growth & Income Trust....................... 1,494,630 851,452 1,129,311
U.S. Large Cap Value Trust.................. 267,744(2) N/A N/A
Equity-Income Trust......................... 751,867 433,416 472,154
Income & Value Trust........................ 730,819 194,852 366,800
Balanced Trust.............................. 906,347 549,826 588,464
High Yield Trust............................ 958 N/A N/A
Strategic Bond Trust........................ N/A N/A N/A
Global Bond Trust........................... N/A N/A N/A
Total Return Trust.......................... 25,198(2) N/A N/A
Investment Quality Bond Trust............... 325 N/A N/A
Diversified Bond Trust...................... 39,870 27,886 56,949
U.S. Government Securities Trust............ N/A N/A N/A
Money Market Trust.......................... N/A N/A N/A
Lifestyle Aggressive 1000 Trust............. N/A N/A N/A
Lifestyle Growth 820 Trust.................. N/A N/A N/A
Lifestyle Balanced 640 Trust................ N/A N/A N/A
Lifestyle Moderate 460 Trust................ N/A N/A N/A
Lifestyle Conservative 280 Trust............ N/A N/A N/A
</TABLE>
(1) For the period October 1, 1997 (commencement of operations) to December 31,
1997.
(2) For the period May 1, 1999 (commencement of operations) to December 31,
1999.
45
<PAGE> 203
Brokerage Commissions Paid to Affiliated Brokers
For the year ended December 31, 1999, the following brokers were
affiliated brokers of the listed portfolios:
<TABLE>
<CAPTION>
Broker Portfolio Explanation
--------------------------------------- -------------------------------- ------------------------------------
<S> <C> <C>
Fund Management Company, Inc. Aggressive Growth Trust Affiliated brokers due to the
A I M Distributors, Inc. All Cap Growth Trust position of A I M Capital
Management, Inc. as subadviser to
these Portfolios.
Nomura Securities Small Company Value Trust Affiliated brokers due to the
Nomura Securities International position of AXA Rosenberg
DLJ Investment Management LLC as
Paribas subadviser to this Portfolio.
BNP
Fidelity Capital Markets Overseas Trust Affiliated brokers due to the
FBSI Mid Cap Blend Trust position of Fidelity Management
Large Cap Growth Trust Trust Company as subadviser to
these Portfolios.
Diversified Bond Trust FMTC resigned as subadviser to the
Income & Value Trust Diversified Bond and Income &
Value Trusts on May 1, 1999.
Buck Investment Services, Inc. International Small Cap Trust Affiliated brokers due to the
Dreyfus Financial Services Corp. Balanced Trust position of Founders Asset
Dreyfus Investment Services Corp. Management, LLC as subadviser to
Dreyfus Service Corporation these Portfolios.
Mellon Financial Markets, Inc.
Franklin Templeton Distributors Inc. Emerging Small Company Trust Affiliated brokers due to the
Templeton Franklin Investment International Value Trust position of Franklin Advisers,
Services Inc. Inc. as subadviser to the Emerging
Small Company Trust and the
position of Templeton Investment
Counsel, Inc. as subadviser to the
International Value Trust.
Fred Alger & Company Incorporated All Cap Growth Trust Affiliated broker due to the
position of Fred Alger Management,
Inc. as subadviser to this
Portfolio prior to May 1, 1999.
J.P. Morgan Securities Inc. Overseas Trust Affiliated brokers due to the
J.P. Morgan Securities Ltd. position of J.P. Morgan Investment
Management, Inc. as subadviser to
this portfolio prior to May 1,
1999.
Morgan Stanley & Co. Inc. Global Equity Trust Affiliated brokers due to the
Morgan Stanley International Limited Value Trust position of Morgan Stanley Asset
Dean Witter Reynolds, Inc. High Yield Trust Management. as subadviser to the
Discover Brokerage Direct, Inc. Global Equity Trust and the
AB Asesores position of Miller Anderson &
Sherrerd, LLP as subadviser
to the Value Trust and the
High Yield Trust.
Dresdner Bank Global Bond Trust Affiliated broker due to the
position of Oechsle International
Advisors, LLC as subadviser to
this Portfolio prior to May 1,
1999.
PIMCO Funds Distributors LLC Global Bond Trust Affiliated broker due to the
Total Return Trust position of Pacific Investment
Management Company as subadviser
to these Portfolios.
</TABLE>
46
<PAGE> 204
<TABLE>
<CAPTION>
Broker Portfolio Explanation
--------------------------------------- -------------------------------- ------------------------------------
<S> <C> <C>
Citicorp Financial Services Corp. U.S. Government Securities Affiliated broker due to the
Citicorp Investment Services Trust position of Salomon Asset
Citicorp Securities Services, Inc. Strategic Bond Trust Management Inc. as subadviser to
Citicorp Securities, Inc. these Portfolios.
Copeland Equities, Inc.
Liberty Brokerage
PFS Distributors, Inc.
PFS Investments Inc.
The Robinson-Humphrey Company
Salomon Reinvestment Company Inc
Salomon Smith Barney Inc.
Smith Annuity Services, Inc.
Smith Barney Puerto Rico Inc.
Tower Square Securities, Inc.
Travelers Distribution Company
Tribeca Investments, L.L.C.
State Street Brokerage Services, a Growth Trust Affiliated broker due to the
division of State Street Capital position of State Street Global
Markets, LLC Advisors as subadviser to this
Portfolio.
Robert Fleming International Stock Trust Affiliated broker due to the
Jardine Fleming position of Rowe Price-Fleming
Ord Minnet International, Inc. as subadviser
to this Portfolio.
</TABLE>
Commission Paid to J.P. Morgan Securities
For the year ended December 31, 1998, no brokerage commissions were
paid to J.P. MORGAN SECURITIES INC. by the Overseas Trust. For the years ended
December 31, 1999 and 1997, brokerage commissions were paid 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>
Year ended December 31, 1999:
Overseas Trust.......................... $19,178 1.78% 0.09%
Year ended December 31, 1997:
Overseas Trust............................ $ 516 0.07% 0.34%
</TABLE>
Commissions Paid to Fidelity Capital Markets
For the year ended December 31, 1998, no brokerage commissions were
paid to FIDELITY CAPITAL MARKETS by the Mid Cap Blend Trust, the Large Cap
Growth Trust, the Income & Value Trust and the Diversified Bond Trust. For the
years ended December 31, 1999 and 1997, brokerage commissions were paid 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>
Year ended December 31, 1999:
Overseas Trust............................ $ 445 0.04% 0.00%
Mid Cap Blend Trust....................... $13,286 0.26% 0.08%
Year ended December 31, 1997:
Mid Cap Blend Trust....................... $13,286 0.26% 0.08%
</TABLE>
47
<PAGE> 205
Commissions Paid to Morgan Stanley & Co., Incorporated
For the years ended December 31, 1999, 1998 and 1997, no brokerage
commissions were paid to MORGAN STANLEY & CO., INCORPORATED by the Value Trust
and the High Yield Trust. For the years ended December 31, 1999 and 1997,
brokerage commissions were paid 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>
Year ended December 31, 1999:
Global Equity Trust....................... $ 2,508 0.18% 0.01%
Year ended December 31, 1998:
Global Equity Trust....................... $91,860 0.17% 0.03%
Year ended December 31, 1997:
Global Equity Trust....................... $92,873 8.10% 0.28%
</TABLE>
Commissions Paid to Morgan Stanley International
For the years ended December 31, 1999 and 1998, no brokerage
commissions were paid to MORGAN STANLEY INTERNATIONAL by the Global Equity
Trust, the Value Trust and the High Yield Trust. For the year ended December 31,
1997, brokerage commissions were paid 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>
Year ended December 31, 1997:
Global Equity Trust....................... $711 0.06% 0.00%
</TABLE>
Commissions Paid to Fred Alger & Company Incorporated
For the years ended December 31, 1999, 1998 and 1997, brokerage
commissions were paid to FRED ALGER & COMPANY INCORPORATED 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>
Year ended December 31, 1999:
All Cap Growth Trust...................... $ 471,395 39.33% 2.15%
Year ended December 31, 1998:
All Cap Growth Trust...................... $1,029,644 99.58% 0.05%
Year ended December 31, 1997:
All Cap Growth Trust...................... $ 637,395 98.73% 0.19%
</TABLE>
Commissions Paid to Robert Fleming
For the years ended December 31, 1999, 1998 and 1997 brokerage
commissions were paid to ROBERT FLEMING 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>
Year ended December 31, 1999:
International Stock Trust................. $ 240 0.07% 0.00%
Year ended December 31, 1998:
International Stock Trust................. $8,658 3.32% 0.01%
Year ended December 31, 1997:
International Stock Trust................. $4,839 1.14% 0.00%
</TABLE>
48
<PAGE> 206
Commissions Paid to Ord Minnet
For the year ended December 31, 1999, no brokerage commissions were
paid to ORD MINNET. For the years ended December 31, 1998 and 1997, brokerage
commissions were paid 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>
Year ended December 31, 1998:
International Stock Trust................. $ 415 0.16% 0.00%
Year ended December 31, 1997:
International Stock Trust................. $1,655 0.39% 0.00%
</TABLE>
Commissions Paid to Jardine Fleming
For the years ended December 31, 1998 and 1997, no brokerage
commissions were paid to JARDINE FLEMING. For the year ended December 31, 1999,
brokerage commissions were paid 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>
Year ended December 31, 1999:
International Stock Trust................. $4,138 1.17% 0.02%
</TABLE>
Commissions Paid to DLJ
For the year ended December 31, 1999, brokerage commissions were paid
to DLJ 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>
Year ended December 31, 1999:
Small Company Value Trust................. $8,761 1.92% 0.04%
</TABLE>
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:
- trading on the New York Stock Exchange is restricted, as
determined by the SEC, or such Exchange is closed for other
than weekends and holidays;
- an emergency exists, as determined by the SEC, 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
- the SEC 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 "Purchase and Redemption of Shares."
Except for the types of securities described below, securities held by
the portfolios 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 day-time trading of the
New York Stock Exchange on the day the securities are being valued, or, lacking
any sales, at the closing bid prices.
49
<PAGE> 207
- 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 day-time 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 the
Trustees or their designee.
- 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."
Non-Negotiable Security. A non-negotiable security 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.
Debt Instruments with Remaining Maturities of 60 Days or less; All
Instruments Held by the Money Market Trust. 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). After the initial
valuation, 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.
Money Market Trust - Rule 2a-7. The Money Market Trust uses the
amortized cost valuation method in reliance upon Rule 2a-7 under the 1940 Act.
As required by this rule, the Money Market Trust will maintain a dollar weighted
average maturity of 90 days or less. In addition, the Money Market Trust is only
permitted to purchase securities that the Subadviser determines present minimal
credit risks and at the time of purchase are "eligible securities," as defined
by Rule 2a-7. Generally, eligible securities must be rated by a nationally
recognized statistical rating organization in one of the two highest rating
categories for short-term debt obligations or be of comparable quality. The
Money Market Trust will invest only in obligations that have remaining
maturities of 397 days 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. The procedures include a
direction to the Adviser to establish procedures that 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. The procedures also
include a directive to the Adviser that requires that to determine 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 (the
actual calculations, however, 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.
In the event that the deviation from the amortized cost exceeds 0.50 of
1% or $0.05 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 the
action 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:
- redeeming shares in kind;
- selling portfolio instruments prior to maturity to realize
capital gains or losses or to shorten the average portfolio
maturity of the Money Market Trust;
- withholding or reducing dividends;
- utilizing a net asset value per share based on available
market quotations; or
- 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
50
<PAGE> 208
dividend for purposes of the Net Investment Factor under the contracts issued by
Manulife North America, Manulife New York, Manufacturers America and
Manufacturers USA.
PERFORMANCE DATA
Each of the portfolios may quote total return figures in its
advertising and sales materials. The figures will always include the average
annual total return for recent one period and, when applicable, five and ten
year periods and where less than five or ten years, the period since the
inception date of the portfolio. In the case of the Pacific Rim Emerging
Markets, Real Estate Securities, Quantitative Equity and Equity Index Trusts,
such quotations will be for periods that include the performance of the
predecessor portfolios of Manulife Series Fund, Inc.
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.
TOTAL ANNUALIZED RETURN
<TABLE>
<CAPTION>
----------------------------------------------- -------------- --------------- ------------------- -------------
TRUST PORTFOLIO ONE YEAR FIVE YEARS SINCE INCEPTION DATE FIRST
ENDED ENDED OR 10 YEARS, AVAILABLE
6/30/2000 6/30/2000 WHICHEVER IS
SHORTER THROUGH
6/30/2000
----------------------------------------------- -------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Pacific Rim Emerging Markets Trust(1) 22.30% 14.51% 11.63% 10/04/94
Internet Technologies Trust NA NA 4.32%(3) 5/1/2000
Science and Technology Trust 48.13% N/A 206.25% 01/01/97
International Small Cap Trust 55.82% N/A 107.60% 03/04/96
Aggressive Growth Trust 60.86% N/A 67.04% 01/01/97
Emerging Small Company Trust 85.05% N/A 130.25% 01/01/97
Small Company Blend Trust 28.19% N/A 39.78% 05/01/99
Dynamic Growth Trust N/A NA -3.84%(3) 5/1/2000
Mid Cap Stock Trust -7.81% N/A -2.80% 05/01/99
All Cap Growth Trust 43.07% N/A 147.55% 03/04/96
Overseas Trust 25.42% 72.30% 72.47% 01/09/95
International Stock Trust 21.47% N/A 44.39% 01/01/97
International Value Trust 4.00% N/A 3.17% 05/01/99
Mid-Cap Blend Trust 7.79% 125.62% 270.42%(2) 06/18/85
Small Company Value Trust 6.71% N/A -1.02% 10/01/97
Global Equity Trust 4.00% 76.54% 139.32%(2) 03/18/88
Growth Trust 24.39% N/A 145.22% 07/15/96
Large Cap Growth Trust 18.09% 122.55% 236.60%(2) 08/03/89
Quantitative Equity Trust 21.35% 201.79% 371.10%(2) 04/30/87
Blue Chip Equity Trust 16.33% 182.39% 200.99% 12/11/92
Real Estate Securities Trust(1) -3.12% 43.74% 195.31%(2) 04/30/87
</TABLE>
51
<PAGE> 209
<TABLE>
<S> <C> <C> <C>
Value Trust -16.38% N/A 12.37% 01/01/97
</TABLE>
<TABLE>
<CAPTION>
TRUST PORTFOLIO ONE YEAR FIVE YEARS SINCE INCEPTION DATE FIRST
ENDED ENDED OR 10 YEARS, AVAILABLE
6/30/2000 6/30/2000 WHICHEVER IS
SHORTER THROUGH
6/30/2000
--------------------------------------------------------- -------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Tactical Allocation Trust N/A NA -0.32%(3) 5/1/2000
Equity Index Trust(1) 6.81% N/A 136.33% 02/14/96
Growth & Income Trust 6.11% 175.25% 339.42% 04/23/91
U.S. Large Cap Value Trust 3.91% N/A 5.66% 05/01/99
Equity-Income Trust -10.67% 80.90% 140.30% 02/19/93
Income & Value Trust 4.48% 77.63% 163.50%(2) 08/03/89
Balanced Trust -1.83% N/A 33.51% 01/01/97
High Yield Trust 2.39% N/A 23.44% 01/01/97
Strategic Bond Trust 4.04% 45.55% 64.23% 02/19/93
Global Bond Trust 1.11% 28.55% 108.59%(2) 03/18/88
Total Return Trust 3.20% N/A 2.13% 05/01/99
Investment Quality Bond Trust 3.33% 32.63% 94.35%(2) 06/18/85
Diversified Bond Trust 3.51% 46.74% 116.25%(2) 08/03/89
U.S. Government Securities Trust 4.23% 30.82% 96.24%(2) 03/18/88
Money Market Trust(1) 5.19% 28.09% 59.22%(2) 06/18/85
Small Cap IndexTrust N/A NA 0.00%(3) 5/1/2000
International Index Trust N/A NA 1.12%(3) 5/1/2000
Mid Cap IndexTrust N/A NA -0.80%(3) 5/1/2000
Total Stock Market Index Trust N/A NA -0.40%(3) 5/1/2000
500 Index Trust N/A NA -1.04%(3) 5/1/2000
Lifestyle Aggressive 1000 Trust 13.10% N/A 35.07% 01/07/97
Lifestyle Growth 820 Trust 11.40% N/A 42.36% 01/07/97
Lifestyle Balanced 640 Trust 11.83% N/A 40.26% 01/07/97
Lifestyle Moderate 460 Trust 6.16% N/A 38.31% 01/07/97
Lifestyle Conservative 280 Trust 4.97% N/A 32.43% 01/07/97
</TABLE>
(1) On December 31, 1996, Manulife Series Fund, Inc. merged with the Trust.
Performance presented for these Trust portfolios is based upon the performance
of their respective predecessor Manulife Series Fund, Inc. portfolios for
periods prior to December 31, 1996.
(2) 10 Years
(3) Aggregate Return for the period May 1, 2000 to June 30, 2000.
The Trust may also from time to time include in advertising and sales literature
the following:
- information regarding its portfolio subadvisers, such as
information regarding a subadviser's specific investment
expertise, client base, assets under management or other
relevant information;
52
<PAGE> 210
- quotations about the Trust, its portfolios or its investment
subadvisers that appear in various publications and media; and
- 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.
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,
- Lehman Brothers Bond, Government Corporate, Corporate and
Aggregate Indices,
- S&P 500 Index,
- Value Line Composite, and
- Morgan Stanley Capital International Europe, Australia and Far
East ("EAFE") and World Indices.
The Trust may also advertise the performance rankings assigned to
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,
- Frank Russell International Universe, and
- any other data which may be presented from time to time by
analysts such as Dow Jones, Morningstar, 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 such data may appear in various
publications, including The Wall Street Journal, New York
Times, Forbes, Barrons, Fortune, Money Magazine, Financial
World and Financial Services Week.
THE INSURANCE COMPANIES
The Trust currently serves as the underlying investment medium for sums
invested in variable contracts issued by:
- The Manufacturers Life Insurance Company of North America ("Manulife North
America"), formerly North American Security Life Insurance Company, a
Delaware stock life insurance company controlled by Manulife Financial.
Manulife Financial is a mutual life insurance company located at 73 Tremont
Street, Boston, MA 02108.
- The Manufacturers Life Insurance Company of New York ("Manulife New York"),
formerly First North American Life Assurance Company, a New York stock life
insurance company that is a wholly owned subsidiary of Manulife North
America. Manulife New York's corporate offices are located at 100 Summit
Lake Drive, Second Floor, Valhalla, New York 10595.
- The Manufacturers Life Insurance Company of America ("Manufacturers
America"), a stock life insurance company organized under the laws of
Pennsylvania and redomesticated under the laws of Michigan. Manufacturers
America is an indirect wholly owned subsidiary of Manulife Financial and is
located at 200 Bloor Street in Toronto, Canada, M4W 1E5.
- The Manufacturers Life Insurance Company (U.S.A.) ("Manufacturers USA"), a
stock life insurance company organized under the laws of Pennsylvania and
redomesticated under the laws of Michigan. Manufacturers USA is an indirect
wholly owned subsidiary of Manulife Financial and is located at 200 Bloor
Street in Toronto, Canada, M4W 1E5.
Currently, the four insurance companies described above are the only
shareholders of the Trust (excluding shares of certain portfolios of the Trust
which are held by the Lifestyle Portfolios). Each shareholder holds Trust shares
attributable to variable contracts in their separate accounts. The Trust may be
used for other purposes in the future, such as funding annuity contracts issued
by other insurance companies. Trust shares are not offered directly to, and may
not be purchased directly by members of the public. The paragraph below lists
the entities that are eligible to be shareholders of the Trust.
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Entities Eligible to Be Shareholders of the Trust. In order to reflect
the conditions of Section 817(h) and other provisions of the 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 Manulife North America, Manulife New York,
Manufacturers America, Manufacturers USA or of other insurance
companies;
(b) Manulife North America, Manulife New York, Manufacturers America and
Manufacturers USA;
(c) MSS;
(d) any corporation related in a manner specified in Section 267(b) of the
Code to Manulife North America, Manulife New York, Manufacturers
America, Manufacturers USA or MSS, and
(e) any trustee of a qualified pension or 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).
Voting of Shares by the Insurance Companies. Manulife North America,
Manulife New York, Manufacturers America and Manufacturers USA have the right to
vote upon matters that may be voted upon at any Trust shareholders' meeting.
These companies will vote all shares of the portfolios of the Trust issued to
such companies in proportion to the timely voting instructions received from
owners of the contracts participating in separate accounts of such insurance
companies registered under the Investment Company Act of 1940. In addition, the
Trust will vote all shares of the portfolios issued to Lifestyle Trusts in
proportion to such instructions.
Mixed Variable Annuity and Variable Life Funding. 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.
HISTORY OF THE TRUST
Trust Name Change. Prior to October 1, 1997, the name of the Trust was
NASL Series Trust.
Merger of Manulife Series Fund, Inc. into 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 existing
portfolios of the Trust, and the remaining five portfolios -- the Pacific Rim
Emerging Markets, Real Estate Securities, Common Stock, Capital Growth and
Equity Index Trusts were merged into newly created portfolios of the Trust.
Prior Names of Portfolios. Some of the names of the portfolios have
been changed at various times. The prior name of the portfolio and the date of
the name change are set forth below.
<TABLE>
<CAPTION>
Existing Name Prior Name Date of Change
------------- ---------- --------------
<S> <C> <C>
Blue Chip Growth Pasadena Growth October 1, 1996
Quantitative Equity Common Stock December 31, 1996
Equity-Income Value Equity December 31, 1996
Emerging Small Company Emerging Growth November 2, 1998
Large Cap Growth Aggressive Asset Allocation May 1, 1999
Income & Value Moderate Asset Allocation May 1, 1999
Diversified Bond Conservative Asset Allocation May 1, 1999
Overseas International Growth & Income May 1, 1999
Mid Cap Growth Small/Mid Cap May 1, 1999
Aggressive Growth Pilgrim Baxter Growth May 1, 1999
Global Bond Global Government Bond May 1, 1999
Mid Cap Blend Equity May 1, 1999
</TABLE>
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<TABLE>
<S> <C> <C>
All Cap Growth Mid Cap Growth May 1, 2000
</TABLE>
Organization of the Trust. The Trust was originally organized on August
3, 1984 as "NASL Series Fund, Inc." (the "FUND"), a Maryland corporation.
Effective December 31, 1988, the Fund was reorganized as a Massachusetts
business trust. 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.
ORGANIZATION OF THE TRUST
Classification. The Trust is a no-load, open-end management investment
company registered with the SEC under the 1940 Act. Each of the portfolios,
except the Global Bond Trust and the five Lifestyle Trusts, are diversified for
purposes of the 1940 Act.
Powers of the Trustees 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 Declaration of Trust authorizes the Trustees of the Trust without
shareholder approval to do the following:
- Issue an unlimited number of full and fractional shares of
beneficial interest having a par value of $.01 per share,
- Divide such shares into an unlimited number of series of
shares and to designate the relative rights and preferences
thereof, and
- Issue additional series of shares or separate classes of
existing series of shares.
Shares of the Trust. 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. Shares of each portfolio have equal rights with regard to
redemptions, dividends, distributions and liquidations with respect to that
portfolio. Holders of shares of any portfolio are entitled to redeem their
shares as set forth under "Purchase and Redemption of Shares."
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 that 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.
Shareholder Voting. 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.
However, when voting for the election of Trustees and when otherwise permitted
by the 1940 Act, 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
1940 Act 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.
Shareholder Liability. Under Massachusetts law, shareholders of the
Trust could, under certain circumstances, be held personally liable for the
obligations of the Trust. However, 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. The Declaration of Trust also 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. In addition, the
Declaration of Trust 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
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the property of the affected 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.
ADDITIONAL INFORMATION CONCERNING TAXES
The following discussion is a general and abbreviated summary of
certain additional tax considerations affecting a portfolio and its
shareholders. No attempt is made to present a detailed explanation of all
Federal, state, local and foreign tax concerns, and the discussions set forth
here and in the Prospectus do not constitute tax advice. Investors are urged to
consult their own tax advisors with specific questions relating to Federal,
state, local or foreign taxes.
Since the portfolios' shareholders are the separate accounts of
insurance companies, no discussion is included herein as to the U.S. Federal
income tax consequences to the holder of a variable annuity or life insurance
contract who allocates investments to a portfolio. For information concerning
the U.S. Federal income tax consequences to such holders, see the prospectus for
such contract. Holders of variable annuity or life insurance contracts should
consult their tax advisors about the application of the provisions of the tax
law described in this Statement of Additional Information in light of their
particular tax situations.
The Trust believes that each portfolio will qualify as a regulated
investment company under Subchapter M of the Code. As a result of qualifying as
a regulated investment company, each portfolio will not be subject to U.S.
Federal income tax on its net investment income (i.e., its investment company
taxable income, as that term is defined in the Code, determined without regard
to the deduction for dividends paid) and net capital gain (i.e., the excess of
its net realized long-term capital gain over its net realized short-term capital
loss), if any, that it distributes to its shareholders in each taxable year,
provided that it distributes to its shareholders at least 90% of its net
investment income for such taxable year.
If any portfolio of the Trust does not qualify as a regulated
investment company, it will be subject to U.S. Federal income tax on its net
investment income and net capital gains. A portfolio will be subject to a
non-deductible 4% excise tax to the extent that the portfolio does not
distribute by the end of each calendar year (a) at least 98% of its ordinary
income for the calendar year; (b) at least 98% of its capital gain net income
for the one-year period ending, as a general rule, on October 31 of each year;
and (c) 100% of the undistributed ordinary income and capital gain net income
from the preceding calendar years (if any) pursuant to the calculations in (a)
and (b). For this purpose, any income or gain retained by a portfolio that is
subject to corporate tax will be considered to have been distributed by
year-end. Each portfolio is subject to a nondeductible 4% excise tax calculated
as a percentage of certain undistributed amounts of ordinary income and capital
gain net income. To the extent possible, each portfolio intends to make
sufficient distributions to avoid the application of both corporate income and
excise taxes. Under current law, distributions of net investment income and net
capital gain are not taxed to a life insurance company to the extent applied to
increase the reserves for the company's variable annuity and life insurance
contracts.
To qualify 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.
To qualify 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 only insurance company separate accounts will beneficially own
shares in the portfolios, each insurance company separate account will be
treated as owning its proportionate share of the assets of any portfolio in
which it invests, provided that the portfolio qualifies as a regulated
investment company. Therefore, each portfolio intends to meet the additional
diversification requirements that are applicable to insurance company separate
accounts under Subchapter L of the Code. These requirements generally provide
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
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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.
A portfolio may make investments that produce income that is not
matched by a corresponding cash distribution to the portfolio, such as
investments in pay-in-kind bonds or in obligations such as certain Brady Bonds
and zero-coupon securities having original issue discount (i.e., an amount in
excess of the stated redemption price of the security at maturity over its issue
price), or market discount (i.e., an amount equal to the excess of the stated
redemption price at maturity of the security over its basis immediately after it
was acquired) if the portfolio elects to accrue market discount on a current
basis. In addition, income may continue to accrue for Federal income tax
purposes with respect to a non-performing investment. Any such income would be
treated as income earned by a portfolio and therefore would be subject to the
distribution requirements of the Code. Because such income may not be matched by
a corresponding cash distribution to a portfolio, such portfolio may be required
to borrow money or dispose of other securities to be able to make distributions
to its investors. In addition, if an election is not made to currently accrue
market discount with respect to a market discount bond, all or a portion of any
deduction for any interest expense incurred to purchase or hold such bond may be
deferred until such bond is sold or otherwise disposed.
Certain of the portfolios may engage in hedging or derivatives
transactions involving foreign currencies, forward contracts, options and
futures contracts (including options, futures and forward contracts on foreign
currencies) and short- sales (see "HEDGING AND OTHER STRATEGIC TRANSACTIONS").
Such transactions will be subject to special provisions of the Code that, among
other things, may affect the character of gains and losses realized by a
portfolio (that is, may affect whether gains or losses are ordinary or capital),
accelerate recognition of income of a portfolio and defer recognition of certain
of the portfolio's losses. These rules could therefore affect the character,
amount and timing of distributions to shareholders. In addition, these
provisions (1) will require a portfolio to "mark-to-market" certain types of
positions in its portfolio (that is, treat them as if they were closed out) and
(2) may cause a portfolio to recognize income without receiving cash with which
to pay dividends or make distributions in amounts necessary to satisfy the
distribution requirement and avoid the 4% excise tax. Each portfolio intends to
monitor its transactions, will make the appropriate tax elections and will make
the appropriate entries in its books and records when it acquires any option,
futures contract, forward contract or hedged investment in order to mitigate the
effect of these rules.
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 imposed at a rate
between 10% and 35%. If a portfolio purchases shares in a "passive foreign
investment company" (a "PFIC"), the portfolio may be subject to U.S. Federal
income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income is distributed as a taxable
dividend by the portfolio to its shareholders. Additional charges in the nature
of interest may be imposed on the portfolio in respect of deferred taxes arising
from such distributions or gains. If a portfolio were to invest in a PFIC and
elected to treat the PFIC as a "qualified electing fund" under the Code, in lieu
of the foregoing requirements, the portfolio would be required to include in
income each year a portion of the ordinary earnings and net capital gain of the
qualified electing fund, even if not distributed to the portfolio.
Alternatively, a portfolio can elect to mark-to-market at the end of each
taxable year its shares in a PFIC; in this case, the portfolio would recognize
as ordinary income any increase in the value of such shares, and as ordinary
loss any decrease in such value to the extent it did not exceed prior increases
included in income. Under either election, a portfolio might be required to
recognize in a year income in excess of its distributions from PFICs and its
proceeds from dispositions of PFIC stock during that year, and such income would
nevertheless be subject to the distribution requirements and would be taken into
account for purposes of the 4% excise tax.
Additional Tax Considerations. If a portfolio failed to qualify as a
regulated investment company, (i) owners of contracts based on the portfolio
would be treated as owning shares of the portfolio (rather than their
proportionate share of the assets of such portfolio) for purposes of the
diversification requirements under Subchapter L of the Code, and as a result
might be taxed currently on the investment earnings under their contracts and
thereby lose the benefit of tax deferral, and (ii) the portfolio would incur
regular corporate federal income tax on its taxable income for that year and be
subject to certain distribution requirements upon requalification. 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 might 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
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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 a portfolio of 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, possibly with
retroactive effect.
REPORTS TO SHAREHOLDERS
The financial statements of the Trust at December 31, 1999, and June
30, 2000 are incorporated herein by reference from the Trust's most recent
Annual Report and Semi Annual report to Shareholders filed with the SEC pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1.
INDEPENDENT ACCOUNTANTS
The financial statements of the Trust at December 31, 1999, including
the related financial highlights which appear in the Prospectus, have been
audited by PricewaterhouseCoopers LLP, 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. PricewaterhouseCoopers LLP has offices at 250 West Pratt Street, Suite
2100, Baltimore, MD 21201-2304.
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.
CODE OF ETHICS
The Trusts, the Adviser and each Subadviser have adopted Codes of
Ethics that comply with Rule 17j-1 under the 1940 Act. Each Code permits
personnel subject to the Code to invest in securities including securities that
may be purchased or held by the Trust.
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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 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.
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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
STANDARD & POOR'S CORPORATION DISCLAIMERS
The Equity Index Trust, 500 Index Trust and Mid Cap Index Trust
(collectively, the "S&P Index Trusts") are 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 S&P Index Trusts, or any member
of the public regarding the advisability of investing in securities generally or
in the S&P Index Trusts 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 S&P Index Trusts. S&P has no obligation to take the needs of the
Trust or the shareholders of the S&P Index Trusts 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 S&P Index Trusts or the timing of the issuance or sale of the
shares of the S&P Index Trusts or in the determination or calculation of the
equation by which shares of the S&P Index Trusts are to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the S&P Index Trusts.
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 S&P
Index Trusts, 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.
61
<PAGE> 219
PART C
OTHER INFORMATION
2
<PAGE> 220
ITEM 23. EXHIBITS
(a)(1) 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.
(a)(2) 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.
(a)(3) 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.
(a)(4) 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.
(a)(5) 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.
(a)(6) 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.
(a)(7) 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.
(a)(8) Establishment and Designation of Additional Series of Shares
of Beneficial Interest - Redesignation of the Series of Shares
known as the "Strategic 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.
(a)(9) 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.
(a)(10) 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.
(a)(11) 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.
(a)(12) 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.
(a)(13) Establishment and Designation of Additional Series of Shares
of Beneficial Interest - Value Trust, High Yield Trust,
International Stock Trust, Science & Technology Trust,
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<PAGE> 221
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" --
previously filed as exhibit (1)(m) to post-effective amendment
no. 35 filed on December 18, 1996.
(a)(14) Establishment and Designation of Additional Series of Shares
of Beneficial Interest - Small Company Value Trust dated
September 30, 1997 -- previously filed as exhibit (1)(m) to
post-effective amendment no. 39 filed on March 2, 1998.
(a)(15) Amendment to the Agreement and Declaration of Trust (name
change) -- previously filed as exhibit (1)(n) to
post-effective amendment no. 39 filed on March 2, 1998.
(a)(16) Form of Establishment and Designation of Additional Series of
Shares of Beneficial Interest for the Small Company Blend,
U.S. Large Cap Value, Total Return, International Value and
Mid Cap Stock -- previously filed as exhibit (a)(15) to post
effective amendment no. 41 filed on March 1, 1999.
(a)(17) Form of Establishment and Designation of Additional Series of
Shares of Beneficial Interest for the Dynamic Growth, Internet
Technologies, Tactical Allocation, 500 Index, Mid Cap Index,
Small Cap Index, Total Stock Market Index and International
Index Trusts -- previously filed as exhibit (a)(17) to post
effective amendment no. 42 filed on March 1, 2000.
(a)(18) Form of Establishment and Designation of Additional Series of
Shares of Beneficial Interest for the Capital Appreciation
Trust - previously filed as exhibit (a)(18) to post effective
amendment no. 43 filed on August 17, 2000.
(b) By-laws of Manufacturers Investment Trust -- previously filed
as exhibit (2) to post-effective amendment no. 38 filed
September 17, 1997.
(c) Form of Specimen Share Certificate -- previously filed as
exhibit (2) to post-effective amendment no. 38 filed September
17, 1997.
(d)(1) Amended and Restated Advisory Agreement between Manufacturers
Investment Trust and Manufacturers Securities Services, LLC -
previously filed as exhibit (d)(1) to post-effective amendment
no. 41 filed March 1, 1999.
(d)(1)(a) Form of Amendment to Amended and Restated Advisory Agreement
between Manufacturers Investment Trust and Manufacturers
Securities Services, LLC - previously filed as exhibit (a)(17)
to post effective amendment no. 42 filed on March 1, 2000.
(d)(1)(b) Form of Amendment to Amended and Restated Advisory Agreement
between Manufacturers Investment Trust and Manufacturers
Securities Services, LLC regarding the Capital Appreciation
Trust - previously filed as exhibit (d)(1)(b) to post
effective amendment no. 43 filed on August 17, 2000.
(d)(2) Subadvisory Agreement Between Manufacturers Securities
Services, LLC and Wellington Management Company LLP -
previously filed as exhibit (d)(2) to post effective amendment
no. 41 filed March 1, 1999.
(d)(3) Subadvisory Agreement Between Manufacturers Securities
Services, LLC and Salomon Brothers Asset Management Inc --
previously filed as exhibit (5)(b)(iii) to post-effective
amendment no. 39 filed on March 2, 1998.
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<PAGE> 222
(d)(4) Subadvisory Consulting Agreement Between Salomon Brothers
Asset Management Inc and Salomon Brothers Asset Management
Limited -- previously filed as exhibit (5)(b)(iv) to
post-effective amendment no. 39 filed on March 2, 1998.
(d)(5) Subadvisory Agreement between Manufacturers Securities
Services, LLC and Founders Asset Management LLC - previously
filed as exhibit (5)(b)(vi) to post effective amendment no. 40
filed April 30, 1998.
(d)(6) Subadvisory Agreement between Manufacturers Securities
Services, LLC and T. Rowe Price Associates, Inc. - previously
filed as exhibit (d)(8) to post-effective amendment no. 41
filed March 1, 1999.
(d)(7) 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.
(d)(8) Subadvisory Agreement between NASL Financial Services, Inc.
and Morgan Stanley Asset Management, Inc. dated October 1,
1996 providing for the Global Equity Trust -- previously filed
as exhibit (5)(b)(xv) to post-effective amendment no. 35 filed
on December 18, 1996.
(d)(9) Subadvisory Agreement between NASL Financial Services, Inc.
and Miller Anderson & Sherrerd, LLP dated October 1, 1996
adding the Value and High Yield Trusts -- previously filed as
exhibit (5)(b)(xvi) to post-effective amendment no. 35 filed
on December 18, 1996.
(d)(10) 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.
(d)(11) 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 -- previously filed as
exhibit (5)(b)(xx) to post-effective amendment no. 35 filed on
December 18, 1996.
(d)(11)(a) Form of Amendment to Subadvisory Agreement between NASL
Financial Services, Inc. and Manufacturers Adviser Corporation
regarding the Lifestyle Trusts - -- previously filed as
exhibit (d)(11)(a) to post effective amendment no. 42 filed on
March 1, 2000.
(d)(11)(b) Form of Subadvisory Consulting Agreement between Manufacturers
Adviser Corporation and State Street Global Advisors regarding
the Lifestyle Trusts -- previously filed as exhibit (a)(17) to
post effective amendment no. 42 filed on March 1, 2000.
(d)(12) Subadvisory Agreement between Manufacturers Securities
Services, LLC and Fidelity Management Trust Company --
previously filed as exhibit (d)(14) to post-effective
amendment no. 41 filed on March 1, 1999.
(d)(13) Form of Subadvisory Agreement between Manufacturers Securities
Services, LLC and AXA Rosenberg Investment Management LLC -
previously filed as exhibit (d)(15) to post-effective
amendment no. 41 filed on March 1, 1999.
(d)(14) Subadvisory Agreement between Manufacturers Securities
Services, LLC and A I M Capital Management, Inc. - previously
filed as exhibit (d)(16) to post-effective amendment no. 41
filed on March 1, 1999.
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<PAGE> 223
(d)(15) Subadvisory Agreement between Manufacturers Securities
Services, LLC and Capital Guardian Trust Company -- previously
filed as exhibit (d)(17) to post-effective amendment no. 41
filed on March 1, 1999.
(d)(16) Form of Subadvisory Agreement between Manufacturers Securities
Services, LLC and Franklin Advisers, Inc. -- previously filed
as exhibit (d)(18) to post-effective amendment no. 41 filed on
March 1, 1999.
(d)(17) Form of Subadvisory Agreement between Manufacturers Securities
Services, LLC and Pacific Investment Management Company -
previously filed as exhibit (d)(19) to post-effective
amendment no. 41 filed on March 1, 1999.
(d)(18) Form of Subadvisory Agreement between Manufacturers Securities
Services, LLC and State Street Global Advisors - previously
filed as exhibit (d)(20) to post-effective amendment no. 41
filed on March 1, 1999.
(d)(19) Form of Subadvisory Agreement between Manufacturers Securities
Services, LLC and Templeton Investment Counsel, Inc. -
previously filed as exhibit (d)(21) to post-effective
amendment no. 41 filed on March 1, 1999.
(d)(20) Form of Subadvisory Agreement between Manufacturers Securities
Services, LLC and Jennison Associates LLC - previously filed
as exhibit (d)(20) to post-effective amendment no. 43 filed on
August 17, 2000
(e) Not Applicable
(f) Not Applicable
(g) Custodian Agreement Between NASL Series Fund, Inc. and State
Street Bank and Trust Company dated March 24, 1988 --
previously filed as exhibit (2) to post-effective amendment
no. 38 filed September 17, 1997.
(h) Not Applicable
(i)(1) Opinion and Consent of Ropes & Gray dated October 27, 1988. --
previously filed as exhibit (2) to post-effective amendment
no. 38 filed September 17, 1997.
(i)(2) Opinion and Consent of Tina M. Perrino, Esq. dated April 12,
1991. -- previously filed as exhibit (2) to post-effective
amendment no. 38 filed September 17, 1997.
(i)(3) Opinion and Consent of Tina M. Perrino, Esq. dated October 22,
1992. -- previously filed as exhibit (2) to post-effective
amendment no. 38 filed September 17, 1997.
(i)(4) Opinion and Consent of Betsy A. Seel, Esq. dated October 19,
1994. -- previously filed as exhibit (2) to post-effective
amendment no. 38 filed September 17, 1997.
(i)(5) 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.
(i)(6) 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.
(i)(7) Opinion and Consent of Betsy Anne Seel, Esq. -- previously
filed as exhibit (10)(a)(vii) to post-effective amendment no.
35 filed on December 18, 1996.
(i)(8) Opinion and Consent of Betsy Anne Seel, Esq. -- previously
filed as exhibit (i)(8) to post-effective amendment no. 41
filed on March 1, 1999.
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<PAGE> 224
(i)(9) Opinion and Consent of Betsy Anne Seel, Esq. - previously
filed as exhibit (a)(17) to post effective amendment no. 42
filed on March 1, 2000.
(i)(9) Opinion and Consent of Betsy Anne Seel, Esq. - Filed Herewith
(j) Consent of PricewaterhouseCoopers LLP - Filed Herewith
(k) Not Applicable
(l) Not Applicable
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
(p)(1) Code of Ethics of the Trust, Manufacturers Securities
Services, LLC, A I M Capital Management, Inc., AXA Rosenberg
Investment Management LLC, Capital Guardian Trust Company,
Fidelity Management Trust Company, Founders Asset Management
LLC, Franklin Advisers, Inc., Manufacturers Adviser
Corporation, Miller Anderson & Sherrerd, LLP, Morgan Stanley
Asset Management Inc., Pacific Investment Management Company,
Rowe Price-Fleming International, Inc., Salomon Brothers Asset
Management Inc, State Street Global Advisors, T. Rowe Price
Associates, Inc., Templeton Investment Counsel, Inc.,
Wellington Management Company, LLP - previously filed as
exhibit (a)(17) to post effective amendment no. 42 filed on
March 1, 2000.
(p)(2) Code of Ethics of Jennison Associates, LLC - previously filed
as exhibit (p)(2) to post-effective amendment no. 43 filed on
August 17, 2000.
(p)(3) Code of Ethics of Janus Capital Corporation - previously filed
as exhibit (p)(4) to post-effective amendment no. 43 filed on
August 17, 2000.
(q)(1) Powers of Attorney - Don B. Allen, Charles L. Bardelis, Samuel
Hoar, Robert J. Myers, Trustees, dated September 27, 1996.
previously filed as exhibit (18)(b) to post-effective
amendment no. 38 filed September 17, 1997.
(q)(2) Power of Attorney -- John D. DesPrez III, President --
previously filed as exhibit (18)(e) to post-effective
amendment no. 34 filed on October 4, 1996.
(q)(3) Power of Attorney -- John D. Richardson, Chairman of the
Board, and F. David Rolwing, Trustee -- previously filed as
exhibit (18)(e) to post-effective amendment no. 36 filed on
April 30, 1997.
(q)(4) Power of Attorney - John D. DesPrez, III, Trustee - previously
filed as exhibit (a)(17) to post effective amendment no. 42
filed on March 1, 2000.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The Trust has four shareholders:
(i) The Manufacturers Life Insurance Company of North America (formerly North
American Security Life Insurance Company) ("Manulife North America"),
(ii) its wholly-owned subsidiary, The Manufacturers Life Insurance Company of
New York (formerly First North American Life Assurance Company) ("Manulife
New York"),
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<PAGE> 225
(iii) The Manufacturers Life Insurance Company of America ("Manulife America")
and
(iv) The Manufacturers Life Insurance Company (U.S.A.) ("Manulife USA").
Manulife North America, Manulife New York, Manulife America and Manulife USA
hold Trust shares attributable to variable contracts in their respective
separate accounts. The Lifestyle Trusts are also shareholders of certain of the
non-Lifestyle Trust portfolios. The companies will vote all shares of each
portfolio of the Trust issued to such companies in proportion to timely
instructions received from owners of the contracts participating in separate
accounts registered under the Investment Company Act of 1940. The Trust will
vote all shares of a portfolio issued to a Lifestyle Trust in proportion to such
instructions.
MANULIFE FINANCIAL CORPORATION
CORPORATE ORGANIZATION CHART
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
% OF JURISDICTION OF
AFFILIATE EQUITY INCORPORATION
<S> <C> <C>
MANULIFE FINANCIAL CORPORATION 100 CANADA
The Manufacturers Life Insurance Company 100 Canada
MF Leasing (Canada) Inc.(x) 100 Ontario
1332953 Ontario Inc.(x) 100 Ontario
MLI Resources Inc. 100 Alberta
Stylus Exploration Inc. 24 Alberta
Manulife Financial Services Inc. 100 Canada
1293319 Ontario Inc. 100 Ontario
Enterprise Capital Management Inc. 20 Ontario
Cantay Holdings Inc. 100 Ontario
994744 Ontario Inc. 100 Ontario
3426505 Canada Inc. 100 Canada
Family Realty First Corp. 100 Ontario
Caravan Oil & Gas Ltd. 12.2 Alberta
Integra Resources Ltd. 15.4 Alberta
Manulife Bank of Canada 100 Canada
Manulife Securities International Ltd. 100 Canada
NAL Resources Limited 100 Alberta
Manulife International Capital Corporation Limited 100 Ontario
Golf Town Canada Inc. 59.9 Canada
VFC Inc. 25 Canada
1198184 Ontario Limited 100 Ontario
Regional Power Inc. 80 Ontario
La Regionale Power Port-Cartier Inc. 100 Canada
La Regionale Power Angliers Inc. 100 Canada
Addalam Power Corporation(x) 50 Philippines
Luxell Technologies Inc. 15.1 Ontario
FNA Financial Inc. 100 Canada
NAL Trustco Inc.(x) 100 Ontario
First North American Insurance Company 100 Canada
Elliott & Page Limited 100 Ontario
Seamark Asset Management Ltd. 67.86 Canada
NAL Resources Management Limited 100 Canada
Manucab Ltd.(x) 100 Canada
Plazcab Service Limited(x) 100 Newfoundland
The Manufacturers Investment Corporation 100 Michigan
Manulife Reinsurance Corporation (U.S.A.) 100 Michigan
</TABLE>
8
<PAGE> 226
<TABLE>
<CAPTION>
% OF JURISDICTION OF
AFFILIATE EQUITY INCORPORATION
<S> <C> <C>
Manulife Reinsurance Limited 100 Bermuda
MRL Holding, LLC 99* Delaware
The Manufacturers Life Insurance Company (U.S.A.) 100 Michigan
Flex Holding, LLC/Flex Leasing II 50 Delaware
Ennal, Inc. 100 Ohio
ESLS Investment Limited, LLC 100 Ohio
Thornhill Leasing Investments, LLC 90 Delaware
The Manufacturers Life Insurance Company of America 100 Michigan
Manulife Holding Corporation 100 Delaware
ManEquity, Inc. 100 Colorado
Manufacturers Adviser Corporation 100 Colorado
Manulife Capital Corporation 100 Delaware
MCC Strategic Management Inc. 100 Delaware
MF Private Capital, Inc. 100 Delaware
MF Private Capital Securities, Inc. 100 Delaware
MF Private Capital Ventures, Inc. 100 Delaware
MFPC Insurance Advisors, Inc. 100 Delaware
Manulife Property Management of Washington, D.C., Inc. 100 Wash., D.C.
ManuLife Service Corporation 100 Colorado
Manulife Leasing Co., LLC 80 Delaware
Dover Leasing Investments, LLC 99 Delaware
Ironside Venture Partners I LLC 100 Delaware
Ironside Venture Partners II LLC 100 Delaware
Manulife-Wood Logan Holding Co., Inc. 62.5** Delaware
Manulife Wood Logan, Inc. 100 Connecticut
The Manufacturers Life Insurance Company of North America 100 Delaware
Manufacturers Securities Services, LLC 99.9*** Delaware
The Manufacturers Life Insurance Company of New York 100 New York
Manulife International Investment Management Limited 100 U.K.
Manulife International Fund Management Limited 100 U.K.
WT(SW) Properties Ltd. 100 U.K.
Manulife Europe Ruckversicherungs-Aktiengesellschaft 100 Germany
Manulife International Holdings Limited 100 Bermuda
Manulife Provident Funds Trust Company Limited 100 Hong Kong
Manulife (International) Limited 100 Bermuda
Manulife-Sinochem Life Insurance Co. Ltd. 51 China
The Manufacturers (Pacific Asia) Insurance Company Limited(x) 100 Hong Kong
Manulife Consultants Limited(x) 100 Hong Kong
Manulife Financial Shareholdings Limited(x) 50 Hong Kong
Manulife Financial Management Limited(x) 50 Hong Kong
Manulife Financial Group Limited(x) 50 Hong Kong
Manulife Financial Investment Limited(x) 50 Hong Kong
Manulife Funds Direct (Barbados) Limited 100 Barbados
P.T. Manulife Aset Manajemen Indonesia 55 Indonesia
Manulife Funds Direct (Hong Kong) Limited 100 Hong Kong
Manulife Data Services Inc. 100 Barbados
ManuLife (International) Reinsurance Limited 100 Bermuda
Manufacturers P&C Limited 100 Barbados
Manufacturers Life Reinsurance Limited 100 Barbados
Manulife Management Services Ltd. 100 Barbados
Chinfon-Manulife Insurance Company Limited 60 Vietnam
Chinfon-Manulife Insurance Company Limited(x) 60 Bermuda
OUB Manulife Pte. Ltd. 50 Singapore
The Manufacturers Life Insurance Co. (Phils.), Inc. 100 Philippines
Manulife Financial Plans, Inc. 100 Philippines
</TABLE>
9
<PAGE> 227
<TABLE>
<CAPTION>
% OF JURISDICTION OF
AFFILIATE EQUITY INCORPORATION
<S> <C> <C>
P.T. Asuransi Jiwa Manulife Indonesia 51 Indonesia
P.T. Buanadaya Sarana Informatika 100 Indonesia
P.T. Asuransi Jiwa Arta Mandiri Prima 100 Indonesia
Manulife (Malaysia) SDN.BHD.(x) 100 Malaysia
Manulife (Thailand) Ltd.(x) 100 Thailand
Manulife Holdings (Hong Kong) Limited(x) 100 Hong Kong
Manulife Financial Systems (Hong Kong) Limited(x) 100 Hong Kong
Manulife Century Investments (Alberta) Inc. 100 Alberta
Manulife Century Investments (Bermuda) Limited 87+ Bermuda
Manulife System Service Kabushiki Kaisha 85## Japan
Manulife Century Investments (Luxembourg) S.A. 100 Luxembourg
Manulife Century Investments (Netherlands) B.V. 100 Netherlands
Manulife Century Holdings (Netherlands) B.V. 100 Netherlands
Daihyaku Manulife Holdings (Bermuda) Limited 100 Bermuda
Kyoritsu Confirm Co., Ltd. 90.9++ Japan
Daihyaku Premium Collection Co., Ltd. 57+++ Japan
Manulife Century Life Insurance Company 41.7#,### Japan
Manulife Century Business Company 100 Japan
</TABLE>
(x) Inactive subsidiaries are noted in italics.
* 1% of MRL Holding LLC is owned by Manulife Reinsurance
Corporation.
** 22.4% of Manulife-Wood Logan Holding Co. Inc. is owned by MRL
Holding, LLC.
*** 10% of Manufacturers Securities Services, LLC is owned by The
Manufacturers Life Insurance Company of New York.
+ 13% of Manulife Century Investments (Bermuda) Limited is owned
by MLI.
++ 9.1% of Kyoritsu Confirm Co., Ltd. is owned by Manulife
Century Life Insurance Company
+++ 10% of Daihyaku Premium Collection Co., Ltd. is owned by
Manulife Century Life Insurance Company
# 8.8% of Manulife Century Life Insurance Company is owned by
Daihyaku Manulife Holdings (Bermuda) Limited.
## 10% of Manulife System Service Kabushiki Kaisha is owned by
Manulife Century Life Insurance Company.
### 32.9% of Manulife Century Life Insurance Company is owned by
Manulife Century Holdings (Netherlands) B.V.
ITEM 25. 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,
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 26. 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, except Fidelity
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<PAGE> 228
Management Trust Company, Capital Guardian Trust Company and State Street Global
Advisors, 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.
FMTC OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
Title Name Elected
----- ---- -------
<S> <C> <C>
Chairman of the Board, President and Chief Executive Officer: John F. McNamara* 6/01/98
Vice Chairman: Edward E. Madden* 9/27/95
LEGAL, ADMINISTRATION AND COMPLIANCE
Executive Vice President: John P. O'Reilly, Jr.* 7/01/94
Vice President: Vincent P. Walsh
CLIENT SERVICES
Senior Vice President: Thomas Leavitt III 7/21/99
Garrett Williams 5/21/97
Vice President: Paul M. Cahill, Jr. 6/27/91
James Carroll 12/17/97
Mary Cross 6/27/91
Patrick DeMayo 12/16/98
Kenneth Fazio
HUMAN RESOURCES
Senior Vice President: Eileen M. Pyne 9/16/98
Vice President: Ann McKenzie 11/17/99
OPERATIONS/FINANCE/CHANNELS
Senior Vice President, Chief Financial Officer and Treasurer: John E. Murphy* 4/01/97
Vice President, Finance: Daniel Persechini 11/18/98
Marybeth Richardson 11/18/98
Vice President, Operations: David Censorio 2/12/98
Michael Hall 12/16/98
Ian Johnson 8/18/99
Doug Knox 3/17/99
Louis Russo 2/26/96
Rhonda Snow 2/12/98
Vice President, Channels: Cheryl Gladstone 3/13/95
Steven M. Quackenbush 10/01/95
PRODUCT DEVELOPMENT, MARKETING AND MARKETING SUPPORT
Senior Vice President: Michael Forrester 12/15/93
Bill Fink
John F. Haley
Michael Strong 2/17/99
</TABLE>
11
<PAGE> 229
<TABLE>
<S> <C> <C>
Vice President: Kim Adelman 10/21/98
Jeffrey Gandel 12/16/98
Alan Kirby 8/18/99
Robert Swanson 4/21/99
Derek Young 8/18/99
SALES MANAGEMENT
Executive Vice President David L. Liebrock 4/19/00
Senior Vice President: Arthur J. Greenwood 3/14/94
Thomas Leavitt III 7/21/99
Walter Lindsay 9/20/95
William Lynch 12/15/94
R. Reuel Stanley 12/19/91
David Yearwood 9/18/95
Vice President: Robert Allen 10/21/98
Matthew Appelstein 11/27/95
Stephen Bard 3/18/97
Christopher Blair 4/21/99
James T. Mattera 11/18/98
Jenny Morton 4/19/00
Lawrence Reale 12/16/98
Mark D. Toomey 11/18/98
</TABLE>
12
<PAGE> 230
<TABLE>
<S> <C> <C>
SYSTEMS
Senior Vice President: Margaret Smith 10/15/98
Vice President: Tricia Cristoforo 5/21/97
INVESTMENTS, EQUITY
Senior Vice President: Philip Bullen* 5/17/00
Karen Firestone 3/19/97
Ren Y. Cheng 10/21/98
Jennifer Farrelly 10/21/98
Timothy Heffernan 10/21/98
Cesar Hernandez 7/01/95
Robert L. Macdonald 7/01/95
John McDowell 4/19/90
Neal Miller 2/14/91
Stephen Petersen
Kennedy Richardson
Scott Stewart 4/19/90
George Vanderheiden 9/30/94
Vice President: John Avery 12/16/98
Joseph Day 10/01/95
Stephen DuFour 12/16/98
Bahaa Fam
Robert Scott Feldman 4/19/00
Richard Fentin 9/17/97
Richard Mace 4/21/99
Steve Snider 9/30/94
Tom Sprague 7/01/93
Myra Wonisch 9/19/94
INVESTMENT, FIXED INCOME
Senior Vice President: Dwight Churchill 3/1/95
Boyce Greer 4/14/93
Vice President: Robert K. Duby
Andrew J. Dudley 3/19/97
George Fischer
Robin Lee Foley 4/14/93
Robert Galusza 4/16/97
Kevin Grant 7/01/96
Norm Lind
Charles Morrison 7/15/92
David L. Murphy 6/16/99
Ford E. O'Neil
Thomas J. Silvia 3/19/97
Mark Sommer 4/16/97
Christine Thompson 1/01/95
INVESTMENTS, HIGH YIELD
Senior Vice President: Robert Lawrence 6/23/93
Thomas T. Soviero 2/16/94
Vice President: John Carlson
Barry Coffman
</TABLE>
13
<PAGE> 231
<TABLE>
<S> <C> <C>
Matthew Conti 7/19/00
Tom Hense 3/19/97
Frederick Hoff 7/19/00
Mark Notkin
Jonathan Kelly 1/03/00
INVESTMENTS, REAL ESTATE
Senior Vice President: Lee Sandwen 4/27/94
David Bagnani 1/03/00
Michael Elizondo 8/19/96
Thomas P. Lavin 4/12/95
Steve Rosen 1/03/00
Mark P. Snyderman 4/12/95
PERSONAL TRUST
Senior Vice President: James Cornell 12/17/97
Vice President: David Olaksen 5/17/00
Deborah C. Segal 4/15/98
Trust Officer Kathleen Brooks 11/18/98
Mark Comiskey 5/17/00
Maryanne Duca 7/21/99
Karen Grenthen 6/18/97
Frederick Henrichs 5/17/00
Amy Z. Resnic 1/03/96
Jeffrey Richman 7/21/99
TRADING DESK
Vice President: Jacques Perold 6/16/99
OTHER OFFICERS:
INSTITUTIONAL TRUST John P. O'Reilly, Jr.* 1/20/93
AFFIRMATIVE ACTION OFFICER Eileen M. Pyne
BANK SECRECY ACT COMPLIANCE OFFICER John E. Murphy* 4/01/97
CRA LIAISON Eileen M. Pyne
SECURITY OFFICER John E. Murphy* 4/01/97
CLERK Lisa Menelly 11/15/95
ASSISTANT CLERK William Corson 3/19/97
Douglas Kant 4/22/92
John Kimpel 1/18/90
John P. O'Reilly, Jr.* 4/14/93
</TABLE>
* Denotes Director
FIDELITY MANAGEMENT TRUST COMPANY COMMITTEES
<TABLE>
<CAPTION>
EXECUTIVE COMMITTEE ELECTED
------------------- -------
<S> <C>
John E. Murphy* 4/01/97
</TABLE>
14
<PAGE> 232
<TABLE>
<S> <C>
John F. McNamara* 6/01/98
John P. O'Reilly, Jr.*
TRUST COMMITTEE
Philip Bullen*
Dwight D. Churchill
John F. Haley 5/19/99
Robert A. Lawrence 8/15/95
John F. McNamara*
James M. McKinney
John P. O'Reilly, Jr.* 1/22/92
Richard Spillane
AUDIT COMMITTEE
Denis M. McCarthy* 6/17/98
Ralph B. Vogel*, Chairman 11/17/93
John P. Wilkins* 6/22/94
CRA COMMITTEE
John F. McNamara*
John E. Murphy*
Meg Morton 1/01/96
Daniel Persechini
Eileen Pyne
ASSET LIABILITY COMMITTEE (ALCO)
John F. McNamara*
John E. Murphy*
Daniel Persechini
</TABLE>
* Denotes Director
FMTC DIRECTORS
<TABLE>
<CAPTION>
DIRECTORS ELECTED
--------- -------
<S> <C>
Philip Bullen* 5/17/00
Edward E. Madden* 4/27/94
Denis M. McCarthy 9/27/95
John F. McNamara* 6/01/98
John E. Murphy* 4/01/97
John P. O'Reilly, Jr.* 6/24/92
Robert L. Reynolds 3/20/96
Ralph B. Vogel 11/17/93
John P. Wilkins 6/22/94
</TABLE>
* Denotes Officer
CAPITAL GUARDIAN TRUST COMPANY ---DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME AFFILIATIONS WITHIN LAST TWO YEARS
---- ----------------------------------
<S> <C>
Timothy D. Armour Director, Capital Guardian Trust Company, Capital Research and Management
Company and Capital Management Services, Inc.; Chairman and Chief Executive
Officer, Capital Research Company.
</TABLE>
15
<PAGE> 233
<TABLE>
<CAPTION>
NAME AFFILIATIONS WITHIN LAST TWO YEARS
---- ----------------------------------
<S> <C>
Donnalisa Barnum Senior Vice President, Capital Guardian Trust Company; Vice President,
Capital International, Inc. and Capital International Limited.
Andrew F. Barth Director, Capital Guardian Trust Company and, Capital Research and
Management Company; Director and Research Director, Capital International
Research, Inc.; President, Capital Guardian Research Company; Formerly
Director and Executive Vice President, Capital Guardian Research Company.
Michael D. Beckman Director, Senior Vice President and Treasurer, Capital Guardian Trust
Company; Director, Capital Guardian Trust Company of Nevada; Treasurer,
Capital International Research, Inc. and Capital Guardian Research Company;
Director and Treasurer, Capital Guardian (Canada), Inc.; Formerly Chairman
and Director, Capital International Asia Pacific Management Company.
Michael A. Burik Senior Counsel, The Capital Group Companies, Inc.; Senior Vice President,
Capital Guardian Trust Company.
Elizabeth A. Burns Senior Vice President, Capital Guardian Trust Company.
Larry P. Clemmensen Director, Capital Guardian Trust Company and American Funds Distributors,
Inc.; Chairman and Director, American Funds Service Company; Director and
President, The Capital Group Companies, Inc. and Capital Management
Services, Inc.; Senior Vice President and Director, Capital Research and
Management Company, Treasurer, Capital Strategy, Inc.
Kevin G. Clifford Director and President, American Funds Distributors, Inc.; Director, Capital
Guardian Trust Company
Roberta A. Conroy Senior Vice President, Director and Counsel, Capital Guardian Trust Company;
Senior Vice President and Secretary, Capital International, Inc.; Assistant
General Counsel, The Capital Group Companies, Inc., Secretary, Capital
Guardian International, Inc.; Formerly, Secretary, Capital Management
Services, Inc.
Jon B. Emerson Senior Vice President, Capital Guardian Trust Company; Director, Capital
Guardian Trust Company, a Nevada Corporation
Michael Ericksen Director and Senior Vice President, Capital Guardian Trust Company; Director
and Senior Vice President, Capital International Limited
David I. Fisher Vice Chairman and Director, Capital International, Inc., Capital
International Limited and Capital International K.K.; Chairman and Director,
Capital International S. A. and Capital Guardian Trust Company; Director and
President, Capital International Limited (Bermuda); Director, The Capital
Group Companies, Inc., Capital International Research, Inc., Capital Group
Research, Inc. and Capital Research and Management Company.
Richard N. Havas Senior Vice President, Capital Guardian Trust Company, Capital
International, Inc. and Capital International Limited; Director and Senior
Vice President, Capital International Research, Inc.; Director and Senior
Vice President Capital Guardian (Canada), Inc.
Frederick M. Hughes, Jr Senior Vice President, Capital Guardian Trust Company.
</TABLE>
16
<PAGE> 234
<TABLE>
<CAPTION>
NAME AFFILIATIONS WITHIN LAST TWO YEARS
---- ----------------------------------
<S> <C>
William H. Hurt Director and Senior Vice President, Capital Guardian Trust Company; Chairman
and Director, Capital Guardian Trust Company, a Nevada Corporation and
Capital Strategy Research, Inc.; Formerly, Director, The Capital Group
Companies, Inc.
Peter C. Kelly Senior Vice President, Capital Guardian Trust Company; Assistant General
Counsel, The Capital Group Companies, Inc.; Director and Senior Vice
President, Capital International, Inc.
Robert G. Kirby Chairman Emeritus, Capital Guardian Trust Company; Senior Partner, The
Capital Group Companies, Inc.
Nancy J. Kyle Director and Senior Vice President, Capital Guardian Trust Company;
President and Director, Capital Guardian (Canada), Inc.
Karin L. Larson Director, The Capital Group Companies, Inc., Capital Group Research, Inc.,
Capital Guardian Trust Company, Director and Chairman, Capital Guardian
Research Company and Capital International Research, Inc., Formerly,
Director and Senior Vice President, Capital Guardian Research Company.
D. James Martin Director, Capital Guardian Trust Company, and Director and Senior Vice
President of Capital International Research Inc.
James R. Mulally Director and Senior Vice President, Capital Guardian Trust Company; Senior
Vice President, Capital International Limited; Vice President, Capital
Research Company; Formerly, Director, Capital Guardian Research Company.
Shelby Notkin Senior Vice President, Capital Guardian Trust Company; Director, Capital
Guardian Trust Company, a Nevada Corporation.
Mary M. O'Hern Senior Vice President, Capital Guardian Trust Company and Capital
International Limited; Vice President, Capital International, Inc.
Jeffrey C. Paster Senior Vice President, Capital Guardian Trust Company.
Robert V. Pennington Senior Vice President, Capital Guardian Trust Company; President and
Director Capital Guardian Trust Company, a Nevada Corporation Company.
Jason M. Pilalas Director, Capital Guardian Trust Company; Senior Vice President and
Director, Capital International Research, Inc.; Formerly, Director and
Senior Vice President, Capital Guardian Research Company.
George L. Romine, Jr. Senior Vice President, Capital Guardian Trust Company
Robert Ronus Director and President, Capital Guardian Trust Company; Chairman and
Director, Capital Guardian (Canada), Inc., Director, Capital International,
Inc. and Capital Guardian Research Company; Senior Vice President, Capital
International, Inc.; Capital International Limited and Capital International
S.A.; Formerly, Chairman, Capital Guardian International Research Company
and Director, Capital International, Inc.
</TABLE>
17
<PAGE> 235
<TABLE>
<CAPTION>
NAME AFFILIATIONS WITHIN LAST TWO YEARS
---- ----------------------------------
<S> <C>
James F. Rothenberg Director, American Funds Distributors, Inc., American Funds Service Company,
The Capital Group Companies, Inc., Capital Group Research, Inc., Capital
Guardian Trust Company and Capital Management Services, Inc.; Director and
President, Capital Research and Management, Inc.; Formerly, Director of
Capital Guardian Trust Company, a Nevada Corporation, and Capital Research
Company.
Theodore R. Samuels Director and Senior Vice President, Capital Guardian Trust Company;
Director, Capital International Research, Inc.; Formerly, Director, Capital
Guardian Research Company
Lionel A. Sauvage Director and Senior Vice President, Capital Guardian Trust Company; Vice
President, Capital International Research, Inc.; Formerly, Director, Capital
Guardian Research Company.
John H. Seiter Director and Executive Vice President, Capital Guardian Trust Company;
Senior Vice President, Capital Group International, Inc.; and Vice
President, The Capital Group Companies, Inc.
Eugene P. Stein Director and Executive Vice President, Capital Guardian Trust Company;
Formerly, Director, Capital Guardian Research Company.
Phil A. Swan Senior Vice President, Capital Guardian Trust Company.
Shaw B. Wagener Director, Capital Guardian Trust Company, Capital International Asia Pacific
Management Company S.A., Capital Research and Management Company and Capital
International Management Company S.A.; President and Director, Capital
International, Inc.; Senior Vice President, Capital Group International,
Inc.
Joanne Weckbacher Senior Vice President, Capital Guardian Trust Company.
Eugene M. Waldron Senior Vice President, Capital Guardian Trust Company.
</TABLE>
18
<PAGE> 236
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C>
Directors and Principal Executive Officers:
Marshall N. Carter David A. Spina
Chairman PRESIDENT AND CHIEF EXECUTIVE OFFICER
State Street Bank and Trust Company State Street Bank and Trust Company
225 Franklin Street 225 Franklin Street
Boston, MA 02110 Boston, MA 02110
Nicholas A. Lopardo Ronald E. Logue
Vice Chairman Vice Chairman
State Street Bank and Trust Company State Street Bank and Trust Company
225 Franklin Street 225 Franklin Street
Boston, MA 02110 Boston, MA 02110
Other Directors:
Tenley E. Albright, M.D. David P. Gruber
Chairman Retired Chairman, Chief Executive Officer and Director
Western Resources, Inc. Wyman-Gordon Company
Two Commonwealth Avenue 244 Worcester Street
Boston, MA 02116-3134 P.O. Box 8001
North Grafton, MA 01536-8001
I. MacAllister Booth John M. Kucharski
Retired Chairman, President and Chief Executive Officer Retired Chairman and Chief Executive Officer
Polaroid Corporation EG&G, Inc.
P.O. Box 428 45 William Street
68 Barnes Hill Road Wellesley, MA 02481
Concord, MA 01742
James I. Cash, Jr. Charles R. LaMantia
Professor of Business Administration Retired Chairman and Chief Executive Officer
Harvard University Arthur D. Little, Inc.
Cambridge, MA 25 Acorn Park
Cambridge, MA 02140
Truman S. Casner Richard P. Sergel
Partner President, Chief Executive Officer and Director
Ropes & Gray National Grid USA
One International Place, 37th Floor 25 Research Drive
Boston, MA 02110 Westborough, MA 01582
Nader F. Darehshori Dennis J. Picard
Chairman, President and Chief Executive Officer Retired Chairman and Director
Houghton Mifflin Company Raytheon Company
222 Berkeley Street, 5th Floor 141 Spring Street
Boston, MA 02116-3764 Lexington, MA 02421
Arthur L. Goldstein Diana Chapman Walsh
Chairman and Chief Executive Officer President
Ionics, Incorporated Wellesley College
P.O. Box 9131 106 Central Street
Watertown, MA 02471-9131 Wellesley, MA 02481-8892
</TABLE>
19
<PAGE> 237
ITEM 27. PRINCIPAL UNDERWRITERS
Not applicable.
ITEM 28. 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 Manufacturers
Securities Services, LLC (the successor to NASL Financial Services, Inc.), the
Registrant's investment adviser, at its offices at 73 Tremont Street, Boston,
Massachusetts 02108,
by Fidelity Management Trust Company, the investment subadviser to the Mid Cap
Blend, Large Cap Growth and Overseas Trusts, at its offices at 82 Devonshire
Street, Boston, MA 02109,
by Wellington Management Company, LLP, the investment subadviser to the Mid Cap
Stock, Growth & 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 Founders Asset Management LLC, the investment subadviser for the
International Small Cap and Balanced Trusts, at its offices at 2930 East Third
Avenue, Denver, Colorado 80206,
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 Manufacturers Adviser Corporation, the investment subadviser to the Pacific
Rim Emerging Markets, Real Estate Securities, Equity Index, International Index,
Small Cap Index, Mid Cap Index, Total Stock Market Index, 500 Index,
Quantitative Equity, Lifestyle and Money Market Trusts, at its offices at 200
Bloor Street East, Toronto, Ontario, Canada M4W lE5,
by AXA Rosenberg Investment Management LLC, the investment subadviser to the
Small Company Value Trust, at its offices at Four Orinda Way, Orinda, California
94563,
by A I M Capital Management, Inc., the investment subadviser to the All Cap
Growth and Aggressive Growth Trusts, at its offices at 11 Greenway Plaza,
Houston, Texas, 77046,
by Capital Guardian Trust Company, the investment subadviser to the Small
Company Blend, U.S. Large Cap Value, Income & Value and Diversified Bond Trusts,
at its offices at 333 South Hope Street, Los Angeles, California 90071,
by Pacific Investment Management Company, the investment subadviser to the
Global Bond and Total Return Trusts, at its offices at 840 Newport Center Drive,
Suite 300, Newport Beach, California 92660,
by Templeton Investment Counsel, Inc., the investment subadviser to the
International Value Trust, at its offices at 777 Mariners Island Blvd., San
Mateo, CA 94404.
20
<PAGE> 238
by Franklin Advisers, Inc. the investment adviser to the Emerging Small Company
Trust, at its offices at 777 Mariners Island Blvd., San Mateo, CA 94404.
by State Street Global Advisors, the investment adviser to the Growth Trust, at
its offices at One International Place, Boston, Massachusetts 02110.
by Janus Capital Corporation, the investment adviser to the Dynamic Growth
Trust, at its offices at 100 Fillmore Street, Denver, Colorado 80206-4928.
by Munder Capital Management, the investment adviser to the Internet
Technologies Trust, at its offices at 480 Pierce Street, Birmingham, Michigan
48009.
By Mitchell Hutchins Asset Management Inc., the investment adviser to the
Tactical Allocation Trust, at its offices at 51 West 52nd Street, New York, New
York 10019.
By Jennison Associates LLC, the investment adviser to the Capital Appreciation
Trust, at its offices at 466 Lexington Avenue, New York, NY 10017.
by the Registrant at its principal business offices located at 73 Tremont
Street, Boston, Massachusetts 02108 and 500 Boylston Street, Boston,
Massachusetts 02116 or
by State Street Bank and Trust Company, the custodian for the Trust, at its
offices at 225 Franklin Street, Boston, Massachusetts 02110.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Previously given.
21
<PAGE> 239
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant, Manufacturers Investment Trust,
certifies that it meets all of the requirements for effectiveness of this
registration statement pursuant to Rule 485(b) under the Securities Act of 1933
and 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 27th day of October, 2000.
MANUFACTURERS INVESTMENT TRUST
------------------------------
(Registrant)
By: /s/ Matthew R. Schiffman
-----------------------------------
Matthew R. Schiffman, President
Attest:
/s/ James D. Gallagher
---------------------------------
James D. Gallagher, Secretary
<PAGE> 240
Pursuant to the requirements of the Securities Act of 1933, this
amended Registration Statement has been signed by the following persons in the
capacities indicated on the 27th day of October, 2000.
<TABLE>
<S> <C>
* Trustee
------------------------------------
Don B. Allen
* Trustee
------------------------------------
Charles L. Bardelis
* Trustee
------------------------------------
John D. DesPrez, III
* Trustee
------------------------------------
Samuel Hoar
* Trustee and Chairman
------------------------------------
John D. Richardson
* Trustee
------------------------------------
F. David Rolwing
/s/ Matthew R. Schiffman President
------------------------------------ (Chief Executive Officer)
Matthew R. Schiffman
/s/ John G. Vrysen Vice President and
------------------------------------ Treasurer (Principal Financial and
John G. Vrysen Accounting Officer)
*By /s/ James D. Gallagher
--------------------------------
James D. Gallagher
Attorney-in-Fact Pursuant to
Powers of Attorney
</TABLE>
<PAGE> 241
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
(i)(9) Opinion and Consent of Betsy Anne Seel, Esq.
(j) Consent of PricewaterhouseCoopers LLP
</TABLE>
22
