<PAGE> 1
Registration No. 2-94157/811-4146
As filed with the Securities and Exchange Commission on March 1, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM N-1A
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 42
and
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 43
-------------------------
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)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
X 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-seven 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
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
INTERNATIONAL INDEX TRUST
SMALL CAP 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 May 1, 2000.
<PAGE> 4
MANUFACTURERS INVESTMENT TRUST
TABLE OF CONTENTS
<TABLE>
<S> <C>
RISK/RETURN SUMMARY.............................................................................................. 4
Risks of Investing in Each Portfolio...................................................................... 4
Performance Information for Each Portfolio................................................................ 4
Pacific Rim Emerging Markets Trust.................................................................. 4
Internet Technologies Trust......................................................................... 5
Science & Technology Trust.......................................................................... 6
International Small Cap Trust....................................................................... 7
Aggressive Growth Trust............................................................................. 8
Emerging Small Company Trust........................................................................ 9
Small Company Blend Trust........................................................................... 10
Dynamic Growth Trust................................................................................ 11
Mid Cap Stock Trust................................................................................. 11
All Cap Growth Trust................................................................................ 12
Overseas Trust...................................................................................... 13
International Stock Trust........................................................................... 14
International Value Trust........................................................................... 15
Mid Cap Blend Trust................................................................................. 16
Small Company Value Trust........................................................................... 17
Global Equity Trust................................................................................. 18
Growth Trust........................................................................................ 19
Large Cap Growth Trust.............................................................................. 20
Quantitative Equity Trust .......................................................................... 21
Blue Chip Growth Trust ............................................................................. 22
Real Estate Securities Trust........................................................................ 23
Value Trust......................................................................................... 24
Tactical Allocation Trust........................................................................... 25
Equity Index Trust.................................................................................. 25
Growth & Income Trust............................................................................... 25
U.S. Large Cap Value Trust.......................................................................... 26
Equity-Income Trust ................................................................................ 27
Income & Value Trust................................................................................ 28
Balanced Trust...................................................................................... 29
High Yield Trust.................................................................................... 30
Strategic Bond Trust................................................................................ 31
Global Bond Trust.................................................................................. 33
Total Return Trust.................................................................................. 34
Investment Quality Bond Trust....................................................................... 34
Diversified Bond Trust.............................................................................. 35
U.S. Government Securities Trust.................................................................... 36
Money Market Trust.................................................................................. 37
The Index Trusts.................................................................................... 38
The Lifestyle Trusts................................................................................ 41
Risks of Investing in Certain Types of Securities......................................................... 46
INVESTMENT OBJECTIVES AND POLICIES............................................................................... 48
Pacific Rim Emerging Markets Trust........................................................................ 48
Internet Technologies Trust............................................................................... 49
Science & Technology Trust................................................................................ 50
International Small Cap Trust............................................................................. 50
Aggressive Growth Trust................................................................................... 51
Emerging Small Company Trust.............................................................................. 52
Small Company Blend Trust................................................................................. 53
Dynamic Growth Trust...................................................................................... 53
Mid Cap Stock Trust....................................................................................... 54
All Cap Growth Trust...................................................................................... 54
Overseas Trust............................................................................................ 55
International Stock Trust................................................................................. 56
International Value Trust................................................................................. 58
Mid Cap Blend Trust....................................................................................... 58
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Small Company Value Trust................................................................................. 59
Global Equity Trust....................................................................................... 60
Growth Trust.............................................................................................. 61
Large Cap Growth Trust.................................................................................... 61
Quantitative Equity Trust ................................................................................ 62
Blue Chip Growth Trust ................................................................................... 62
Real Estate Securities Trust.............................................................................. 63
Value Trust............................................................................................... 64
Tactical Allocation Trust................................................................................. 64
Equity Index Trust........................................................................................ 66
Growth & Income Trust..................................................................................... 66
U.S. Large Cap Value Trust................................................................................ 67
Equity-Income Trust ...................................................................................... 67
Income & Value Trust...................................................................................... 68
Balanced Trust............................................................................................ 69
High Yield Trust.......................................................................................... 70
Strategic Bond Trust...................................................................................... 71
Global Bond Trust......................................................................................... 73
Total Return Trust........................................................................................ 74
Investment Quality Bond Trust............................................................................. 75
Diversified Bond Trust.................................................................................... 77
U.S. Government Securities Trust.......................................................................... 77
Money Market Trust........................................................................................ 78
The Index Trusts.......................................................................................... 79
The Lifestyle Trusts...................................................................................... 82
ADDITIONAL INVESTMENT POLICIES AND TRANSACTIONS.................................................................. 84
Additional Investment Policies............................................................................ 84
Hedging and Other Strategic Transactions.................................................................. 86
Other Risks of Investing.................................................................................. 86
MANAGEMENT OF THE TRUST.......................................................................................... 89
Advisory Arrangements..................................................................................... 89
Subadvisory Arrangements.................................................................................. 90
Portfolio Turnover........................................................................................ 105
GENERAL INFORMATION.............................................................................................. 105
Taxes..................................................................................................... 105
Dividends................................................................................................. 106
Purchase and Redemption of Shares......................................................................... 107
Year 2000 Issues.......................................................................................... 107
FINANCIAL HIGHLIGHTS ............................................................................................ 108
</TABLE>
<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 thirty-nine 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 thirty-nine 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
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. A portfolio's past
performance does not necessarily indicate how the portfolio will perform in the
future.
* * * *
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
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<PAGE> 7
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 CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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.
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).
5
<PAGE> 8
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 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 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.
- - 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 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."
- - 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."
6
<PAGE> 9
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 CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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 Portfolio Date First 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.
7
<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 CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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 Portfolio Date First 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.
8
<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.
[BAR CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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 Portfolio Date First 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."
9
<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.
[BAR CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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 Portfolio Date First 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."
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<PAGE> 13
Performance
Performance is not provided for the Small Company Blend Trust since it
commenced operations in May, 1999.
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 MidCap 400
Index. Market capitalization is a commonly used measure of the size and value of
a company. The market capitalizations within the S&P MidCap 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 nondiversified. 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
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 of companies with market
capitalizations within the range represented by the Wilshire Mid Cap 750 Index.
11
<PAGE> 14
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,
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.
12
<PAGE> 15
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 CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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 Portfolio Date First 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.
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.
13
<PAGE> 16
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.
[BAR CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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 Portfolio Date First 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.
INTERNATIONAL STOCK TRUST
Investment Objective
The investment objective of the International Stock Trust is long-term
growth of capital.
Investment Policies
Rowe Price-Fleming International, Inc. ("Price-Fleming"), 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. Price-Fleming expects geographic diversification will be
wide, including both developed and emerging markets.
14
<PAGE> 17
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.
[BAR CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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 Portfolio Date First 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 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
15
<PAGE> 18
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 International Value Trust since it
commenced operations in May, 1999.
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.
[BAR CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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
27.76% (for the quarter ended 3/31/87) and the lowest return was -25.66% (for
the quarter ended 12/31/87).
16
<PAGE> 19
<TABLE>
<CAPTION>
One Year Five Years Ten Years Date First 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. 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 which 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.
[BAR CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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).
17
<PAGE> 20
<TABLE>
<CAPTION>
One Year Five Years Life of Portfolio Date First Available
<S> <C> <C> <C> <C>
Small Company Value Trust 8.00% N/A -0.77% 10/01/97
Russell 2000 Value Index(AB) -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.
[BAR CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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 Ten Years Date First 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>
18
<PAGE> 21
(A)Effective October 1, 1996, the portfolio changed its subadviser. Performance
reflects results prior to this change.
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.
[BAR CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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 Portfolio Date First 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.
19
<PAGE> 22
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 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.
[BAR CHART]
<TABLE>
<CAPTION>
ANNUAL RETURN %
<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 Ten Years Date First 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.
20
<PAGE> 23
(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.
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.
[BAR CHART]
<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 -23.71% (for
the quarter ended 12/31/87).
<TABLE>
<CAPTION>
One Year Five Years Ten Years Date First 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.
21
<PAGE> 24
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 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.
[BAR CHART]
<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 Portfolio Date First 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.
22
<PAGE> 25
(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.
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.
[BAR CHART]
<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 Ten Years Date First 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>
23
<PAGE> 26
(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.
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.
[BAR CHART]
<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 Portfolio Date First 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.
24
<PAGE> 27
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.
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 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, 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.
[BAR CHART]
<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).
<TABLE>
<CAPTION>
One Year Five Years Life of Portfolio Date First 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.
<PAGE> 28
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.
[BAR CHART]
<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).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Portfolio Date First 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.
26
<PAGE> 29
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.
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).
27
<PAGE> 30
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
One Year Five Years Life of Portfolio Date First 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.
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).
28
<PAGE> 31
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
One Year Five Years Ten Years Date First Available
<S> <C> <C> <C> <C>
Income & Value Trust 8.52% 13.98% 9.87% 8/03/89
60%/40% Composite Index(B)(C) 12.00% 20.09% 14.12%
Wilshire 5000 Index 23.56% 27.07% 17.59%
Lehman Brothers Aggregate Bond Index -0.83% 7.73% 7.69%
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) 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.
(C) For the prior fiscal year, the broad based index was the Customized
Benchmark. For the current fiscal year, the 60%/40% Composite Index is the broad
based index. The change to the 60%/40% Composite Index was made since this index
more accurately reflects the investment objective of Income & Value Trust.
(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.
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."
29
<PAGE> 32
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 Portfolio Date First 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
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.
30
<PAGE> 33
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.
[BAR CHART]
1997 12.7%
1998 2.8%
1999 8.0%
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 Portfolio Date First 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
31
<PAGE> 34
in which it invests based on its assessment of the maximum level of total return
that can be achieved from a portfolio which is invested in these securities
without incurring undue risks to principal value.
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.
[BAR CHART]
1994 -6.0%
1995 19.2%
1996 14.7%
1997 11.0%
1998 1.3%
1999 2.2%
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 Portfolio Date First 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.
32
<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.
[BAR CHART]
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%
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 Ten Years Date First 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.
33
<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 in 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."
34
<PAGE> 37
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."
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 CHART]
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%
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 Ten Years Date First 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."
Performance(A)
35
<PAGE> 38
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 CHART]
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%
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 Ten Years Date First 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.
36
<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.
[BAR CHART]
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%
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 Ten Years Date First 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.
37
<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.
[BAR CHART]
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%
During the time period shown in the bar chart, the highest quarterly return was
2.19% (for the quarter ended 6/30/89) and the lowest return was 0.64% (for the
quarter ended 06/30/93).
<TABLE>
<CAPTION>
One Year Five Years Ten Years Date First 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>
The 7 day yield of the Money Market Trust as of December 31, 1999 was 4.86%.
(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 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.
38
<PAGE> 41
<TABLE>
<CAPTION>
Portfolio Investment Objective Investment Strategy
- --------- -------------------- -------------------
<S> <C> <C>
International Index To seek to approximate the Attempts to track the performance of the
aggregate total return of a Morgan Stanley European Australian Far East
foreign equity market index. Free Index index ("MSCI EAFE Index"), an
unmanaged index of approximately 1,000
securities traded in non-U.S. markets.
Small Cap Index To seek to approximate the Attempts to track the performance of the
aggregate total return of a Russell 2000 Index, an unmanaged index
small cap U.S. domestic composed of the stocks of the 2,000 smallest
equity market index. of the 3,000 largest U.S. companies.
Mid Cap Index To seek to approximate the Attempts to track the performance of the S&P
aggregate total return of Mid Cap 400, an unmanaged index composed of the
a mid cap U.S. domestic securities of 400 medium sized U.S. companies.
equity market index.
Total Stock Market Index To seek to approximate the Attempts to track the performance of the
aggregate total return of a Wilshire 500 index, an unmanaged index
broad U.S. domestics equity composed of more than 7,000 stocks including
market index. 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 Attempts to track the performance of the S&P
aggregate total return of a 500 Index, an unmanaged index which is composed
broad U.S. domestic equity of 500 selected common stocks, primarily the
market index. stocks of large U.S. companies.
</TABLE>
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."
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."
39
<PAGE> 42
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.
40
<PAGE> 43
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.
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."
41
<PAGE> 44
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
[BAR CHART]
<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.
Lifestyle Growth 820
[BAR CHART]
<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.
42
<PAGE> 45
Lifestyle Balanced 640
[BAR CHART]
<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
[BAR CHART]
<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.
43
<PAGE> 46
Lifestyle Conservative 280
[BAR CHART]
<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>
Life of
One Year(K) Five Years(K) 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 Index(A) -2.15% N/A 5.54%
Lifestyle Conservative Composite Index(A)(I) 3.52% N/A 6.58%
Blended Benchmark(A)(J) 2.24% N/A 9.88%
</TABLE>
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<PAGE> 47
(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.
(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> 48
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.
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<PAGE> 49
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.
- - 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.
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<PAGE> 50
- - 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.
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, its opportunity to achieve its
investment objective will be limited.
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<PAGE> 51
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.
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 the 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.
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."
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<PAGE> 52
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.
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, its 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.
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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 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.
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, its 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."
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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.
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.
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.
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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
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.
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.
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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.
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.
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
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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 of companies with market
capitalizations that approximately match the range of capitalization of the
Wilshire Mid Cap 750 Index. The market capitalizations within the Wilshire Mid
Cap 750 Index will vary, but as of December 31, 1999, they ranged from
approximately $150 million to $19 billion.
Wellington Management's investment approach combines proprietary
fundamental analysis with a quantitative screening process. 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, attractive industry dynamics, strong competitive advantages, and
attractive relative value within the context of a security's primary trading
market.
Wellington Management's proprietary quantitative screening process
seeks to narrow the universe of eligible stocks to a selective group of
companies worthy of investment consideration. Wellington Management then
attempts to identify the "best of class" companies for purchase in the
portfolio. The security selection process focuses on the identification of
industry niches which offer high secular growth prospects and attractive market
dynamics. 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.
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.
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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:
- "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.
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.
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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
Rowe Price-Fleming International, Inc. ("Rowe Price-Fleming") manages
the International Stock Trust. Rowe Price-Fleming 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.
Rowe Price-Fleming blends a "bottom-up" approach, based on its
fundamental research, with an awareness of a country's economic status and Rowe
Price-Fleming's outlook. A company's prospects for achieving and sustaining
above-average, long-term earnings growth is generally Rowe Price-Fleming'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 Rowe Price-Fleming to invest in
companies based in (or governments of or within) the:
- Far East (for example, Japan, Hong Kong, Singapore and
Malaysia),
- Europe (for example, the United Kingdom, Germany, Hungary,
Poland, Netherlands, France, Spain and Switzerland),
- South Africa,
- Australia,
- Canada,
- Latin America, and
- such other areas and countries as Rowe Price-Fleming 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, Rowe Price-Fleming ordinarily
considers the following factors:
- prospects for relative economic growth between foreign
countries;
- expected levels of inflation;
- government policies influencing business conditions;
- the outlook for currency relationships; and
- the range of individual investment opportunities available to
international investors.
In analyzing companies for investment, Rowe Price-Fleming ordinarily
looks for one or more of the following characteristics:
- above-average earnings growth per share;
- high return on invested capital;
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- 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 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 Rowe
Price-Fleming.
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."
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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.
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."
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.
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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.
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 which 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
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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.
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.
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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.
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.
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.
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."
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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
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.
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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, its 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.
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.
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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. Tthe 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, its
opportunity 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.
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.
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.
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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 portion,
before the deduction of operating expenses, and that of the S&P 500 Index (a
correlation of 1.00 would mean that the
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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.
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.
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 an unlimited portion of its net assets
in S&P 500 Futures Contracts as long as the portfolio has net assets of $25
million or less. If the portfolio's net assets equal or exceed $25 million, it
may invest no more than 20% of its net assets 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.
- ---------------
(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.
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
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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.
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, its
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.
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:
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- 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 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, its 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
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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.
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.
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
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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.
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.
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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.
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.
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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 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).
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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 within the
- issuer's sensitivity to economic conditions and issuer's country
trends - issuer's external and overall amount of debt,
- operating history of the issuer and its ability to pay principal and
- experience and track record of the issuer's interest
management when due
- 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.
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.
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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.
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.
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
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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.
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.
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
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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.
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.
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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.
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.
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);
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- 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 - 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
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unable to match the performance of the index exactly.
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.
In addition, the International Index Trust may invest an unlimited
portion of its net assets in Futures Contracts as long as the portfolio has net
assets of $25 million or less. If the portfolio's net assets exceed $25 million,
it may invest no more than 20% of its net assets in Futures Contracts.
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.
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.
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.
In addition, the Small Cap Index Trust may invest an unlimited portion
of its net assets in Futures Contracts as long as the portfolio has net assets
of $25 million or less. If the portfolio's net assets exceed $25 million, it may
invest no more than 20% of its net assets in the Futures Contracts.
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
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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.
In addition, the Mid Cap Index Trust may invest an unlimited portion of
its net assets in Futures Contracts as long as the portfolio has net assets of
$25 million or less. If the portfolio's net assets exceed $25 million, it may
invest no more than 20% of its net assets in these Futures Contracts.
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.
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 500 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 500 Index) that MAC believes as a
group will behave in a manner similar to the index.
In addition, the Total Stock Market Index Trust may invest an unlimited
portion of its net assets in Futures Contracts as long as the portfolio has net
assets of $25 million or less. If the portfolio's net assets exceed $25 million,
it may invest no more than 20% of its net assets in Futures Contracts.
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 on
securities in the Wilshire 5000 Index. 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
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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.
In addition, the 500 Index Trust may invest an unlimited portion of its
net assets in Futures Contracts as long as the portfolio has net assets of $25
million or less. If the portfolio's net assets exceed $25 million, it may invest
no more than 20% of its net assets in Futures Contracts.
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 tradenames 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.
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.
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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.
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
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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 MA, 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, its 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."
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.
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
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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 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.
* * * *
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<PAGE> 89
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:
- 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.
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<PAGE> 90
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.
- - 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.
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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.
- - 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
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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.
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.
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<TABLE>
<CAPTION>
ADVISORY FEE
AS A PERCENTAGE OF
AVERAGE ANNUAL ADVISORY FEE AS A
PORTFOLIO 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)
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
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
International Index Trust.............. 0.550% N/A
Small Cap Index Trust.................. 0.525% 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.
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
Aggressive Growth Trust
AXA Rosenberg Investment Management LLC Small Company Value Trust
</TABLE>
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<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
<S> <C>
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
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*
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
Rowe Price-Fleming International, Inc. International Stock Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
State Street Global Advisors Growth Trust
Lifestyle Trusts*
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
Templeton Investment Counsel, Inc. International Value Trust
Wellington Management Company, LLP Growth & Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
</TABLE>
* State Street Global Advisors provides subadvisory consulting services to
Manufacturers Adviser Corporation regarding management of the Lifestyle Trusts.
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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)
Charles D. Scavone (since May, 1999)
Kenneth A. Zschappel (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 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 manage over $160 billion of
assets as of December 31, 1999.
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
Capitol 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 manager 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.
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<PAGE> 96
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. The owners
of AXA Rosenberg are AXA Investment Managers, Barr M. Rosenberg, Marlis S. Fritz
and Kenneth Reid. As of December 31, 1999, AXA Rosenberg manages approximately
$8.8 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.
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.
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<PAGE> 97
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)
Committee*
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)
Committee*
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)
Committee*
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 $123 billion of assets as of
December 31, 1999. CGTC is a bank as defined in the Investment Advisers Act of
1940 and is therefore not a registered investment adviser.
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.
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<PAGE> 98
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.
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 $863 billion as
of December 31, 1999. 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 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.
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<PAGE> 99
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 Bank 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 December 31, 1999, Founders had over
$7.9 billion of assets under management, including approximately $6.7 billion in
mutual fund accounts and $1.2 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.
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.
97
<PAGE> 100
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. Kansas
City Southern Industries, Inc., indirectly through its wholly-owned subsidiary,
Stilwell Financial, Inc., owns approximately 82% of the outstanding voting stock
of Janus. As of December 31, 1999, Janus had approximately $248.8 billion in
assets under management.
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 is a Chartered Financial Analyst.
MANUFACTURERS ADVISER CORPORATION
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISED PORTFOLIO MANAGER(S)*
<S> <C>
Pacific Rim Emerging Markets Trust Richard James Crook (since October, 1994)
Stephen Hill (since October, 1994)
Hugh Williams (since January, 1999)
Quantitative Equity Trust Mark Schmeer (since August, 1995)
Rhonda Chang (since August, 1995)
</TABLE>
98
<PAGE> 101
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISED PORTFOLIO MANAGER(S)*
<S> <C>
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:
International Index Trust Martin Ayow (since May, 2000)
Angelo Sirignano (since May, 2000)
Small Cap Index Trust Martin Ayow (since May, 2000)
Angelo Sirignano (since May, 2000)
Mid Cap Index Trust Martin Ayow (since May, 2000)
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 December 31,
1999, MAC together with Manulife Financial had approximately $77.7 billion of
assets under management.
PORTFOLIO MANAGERS
Martin Ayow. Mr. Ayow joined Manulife in 1994. Since joining Manulife, Mr. Ayow
has been managing and hedging fixed income and equity exposures for Manulife
using financial derivatives. Prior to joining Manulife, 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.
Richard James Crook. Mr. Crook joined MAC in 1994. He has been an investment
manager at Manulife Financial since 1975.
Stephen Hill. Mr. Hill joined MAC in 1995. He is also an investment manager at
Manulife Financial. Prior to 1995, Mr. Hill was a director of INVESCO Asset
Management, where he served from 1993 and 1994.
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.
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.
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<PAGE> 102
Angelo Sirignano. Mr. Sirignano joined Manulife in 1997. Since joining Manulife,
Mr. Sirignano has been managing and hedging fixed income and equity exposures
for Manulife using financial derivatives. Prior to joining Manulife, Angelo was
employed by Canada Life in a similar capacity.
Hugh Williams. Mr. Williams joined MAC in 1998. He is responsible for equity
portfolios in the Pacific Asia region, excluding Japan and Australia. Prior to
joining MAC, Mr. Williams managed Asian and Australian portfolios for Prudential
Portfolio Managers.
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 and Fixed
Income portfolios of MAS Funds and Morgan Stanley Dean Witter Universal 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, Morgan Stanley Fund, Inc. and Morgan Stanley Dean Witter Universal Funds,
Inc. Prior to joining MAS, Mr. Behler served as portfolio manager from 1992 to
1995 for Moore Capital Management.
Thomas L Bennett. Mr. Bennett joined MAS in 1984. He is also primarily
responsible for the management of the High Yield portfolios of MAS Funds and
Morgan Stanley Dean Witter Universal Funds, Inc.
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 and Morgan Stanley
Universal 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 and Core Equity
Portfolios of MAS Funds, Van Kampen Series Fund, Inc. and Morgan Stanley Dean
Witter Universal Funds, Inc.
Gordon Loery. Mr. Loery joined MAS as a Principal in 1996. Previously, he was
employed at Morgan Stanley Dean Witter and Co. Past positions include Alex
Brown, Inc., Cortez Capital Management, and Mabon Nugent.
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, Van Kemper Series Fund, Inc. and Morgan Stanley Dean Witter
Universal Funds, Inc.
100
<PAGE> 103
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., a publicly owned financial services holding company. As of December
31, 1999, Mitchell Hutchins had approximately $61 billion in assets under
management.
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 Asset
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 INC.
Morgan Stanley Asset Management Inc. ("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 December
31, 1999, MSAM and its institutional investment management affiliates had
approximately $184 billion of combined assets under management as investment
managers or as fiduciary advisers.
Morgan Stanley Dean Witter & Co. is a global financial services firm
with three major businesses: 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
Richard Boon. Mr. Boon joined MSAM's Global Equity team in September 1995 and
became a Principal in December 1998. In addition to portfolio management, his
responsibilities include security analysis on North American and Australian
equities. Prior to joining MSAM, he spent seven years in investment banking;
working for Deutsche Bank as a member of their Equity Capital Markets Group;
advising the UK Post Office on its proposed privatization; and with Ord Minnett
Securities in their Mergers & Acquisitions division. He is a graduate of
Cantebury and Victoria Universities, New Zealand.
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.
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<PAGE> 104
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 under management.
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 ("PIMCO"), founded in 1971, is a
subsidiary of PIMCO Advisors, L.P. The general partners of PIMCO Advisors are
PIMCO Partners, G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO Partners,
G.P. is a general partnership between PIMCO Holding LLC, a Delaware limited
liability company and an indirect wholly-owned subsidiary of Pacific Life
Insurance Company, and PIMCO Partners LLC, a California limited liability
company controlled by the current Managing Directors and two former Managing
Directors of PIMCO. PIMCO Partners, G.P. is the sole general partner of PAH.
PIMCO's address is 840 Newport Center Drive, Suite 300, Newport Beach,
California 92660. PIMCO had approximately $186 billion of assets under
management as of December 31, 1999.
PORTFOLIO MANAGERS
William H. Gross. Mr. Gross is the 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 Managing Director and Senior International
Portfolio Manager at PIMCO. Mr. Thomas joined PIMCO in 1995.
ROWE PRICE-FLEMING INTERNATIONAL, INC.
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
International Stock Trust Committee
</TABLE>
INFORMATION REGARDING ROWE PRICE-FLEMING INTERNATIONAL, INC.
Rowe Price-Fleming International, Inc. ("Rowe Price-Fleming") is
located at 100 East Pratt Street, Baltimore, Maryland 21202. Rowe Price-Fleming
has offices in Baltimore, London, Tokyo, Hong Kong, Paris, Singapore and Buenos
Aires. 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").
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<PAGE> 105
T. Rowe Price, Flemings, and Jardine Fleming Group Limited ("Jardine
Fleming") are owners of Rowe Price-Fleming. The common stock of Rowe
Price-Fleming is 50% owned by a wholly-owned subsidiary of T. Rowe Price, 25% by
a subsidiary of Flemings, and 25% by Jardine Fleming. (Half of Jardine Fleming
is owned by Flemings and half by Jardine Matheson Holdings Limited.) T. Rowe
Price has the right to elect a majority of the Board of Directors of Rowe
Price-Fleming, and Flemings has the right to elect the remaining directors, one
of whom will be nominated by Jardine Fleming. As of December 31, 1999, Rowe
Price-Fleming had approximately $42.5 billion of assets under management.
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 have 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 diversified financial services
company engaged in investment services, asset management, consumer finance and
insurance services. As of December 31, 1999, SaBAM and its worldwide investment
advisory affiliates manage approximately $28.7 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. Prior to joining SaBAM, Mr. Lavan spent
four years analyzing portfolios for Salomon Brothers Fixed-income Sales and
Product Support departments. 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. Prior to joining SaBAM in
April 1994, Mr. Scott worked at J.P. Morgan from 1990 to 1994 where he had
responsibility for global and non-dollar portfolios for clients including
departments of various governments, pension funds and insurance companies.
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. From 1984 to 1989, Mr. Wilby was
employed by Prudential Capital Management Group ("Prudential"), where he served
as Director of Prudential's credit research unit and as a corporate and
sovereign credit
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<PAGE> 106
analyst. Mr. Wilby also managed high yield bonds and leveraged equities for
Prudential mutual funds and institutional portfolios. 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 Richard B. Weed (since August, 1999)
Jennifer W. Bardsley (since May, 1999)
Peter Stonberg (since May, 1999)
David A. Hanna (since May, 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 December 31, 1999, SSgA had
approximately $672 billion in assets under management. SSgA is a division of
State Street Bank and Trust Company.
PORTFOLIO MANAGERS
Jennifer W. Bardsley. Ms. Bardsley 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. Bardsley
developed and manages the Special Small Cap Strategy. Ms. Bardsley 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.
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.
Peter Stonberg. Mr. Stonberg is a Principal and Senior Strategist at SSgA. In
this role, Mr. Stonberg develops and integrates firm-wide business and
investment strategy and represents the firm and its views on the capital markets
to clients. He joined State Street in 1981 with over 15 years of experience in
investment management. He is a Chartered Financial Ananlyst.
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
</TABLE>
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<PAGE> 107
<TABLE>
<CAPTION>
PORTFOLIOS SUBADVISED PORTFOLIO MANAGER(S)
<S> <C>
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
</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 December 31, 1999, T. Rowe Price and its
affiliates manage over $179.9 billion for over seven 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.
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 777
Mariners Island Blvd, San Mateo, California 94404, 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.
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<PAGE> 108
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 Frank V. Wisneski (since May, 1999)
</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 and
individuals since 1928. As of December 31, 1999, Wellington Management had
investment management authority with respect to approximately $235 billion of
client assets. The managing partners of Wellington Management are Laurie A.
Gabriel, Duncan M. McFarland and John R. Ryan.
PORTFOLIO MANAGERS
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.
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.
Frank V. Wisneski. Mr. Wisneski, Senior Vice President of Wellington Management,
joined Wellington Management in 1969 as a research analyst and has been
investing in small and mid-cap companies since 1975.
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
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<PAGE> 109
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.
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.
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<PAGE> 110
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.
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
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<PAGE> 111
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.
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<PAGE> 112
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS TRUST
-------------------------------------------
YEARS ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $6.83 $7.16 $10.90
Income from investment operations:
Net investment income 0.09 0.08 0.05
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 4.17 (0.41) (3.77)
------ ------ ------
Total from investment operations 4.26 (0.33) (3.72)
Less distributions:
Dividends from net investment income (0.21) -- --
Distributions from capital gains -- -- (0.02)
------ ------ ------
Total distributions (0.21) -- (0.02)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.88 $6.83 $7.16
====== ====== ======
TOTAL RETURN 62.87% (4.61%) (34.12%)
Net assets, end of period (000's) $94,753 $27,995 $23,850
Ratio of operating expenses to average net assets 1.11% 1.21% 1.42%
Ratio of net investment income to average net assets 0.90% 1.21% 0.65%
Portfolio turnover rate 42% 62% 63%
</TABLE>
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS TRUST
-------------------------------------------
YEARS ENDED DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.36 $9.41
Income from investment operations:
Net investment income 0.07 0.12
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.94 0.96
------ ------
Total from investment operations 1.01 1.08
Less distributions:
Dividends from net investment income (0.08) (0.09)
Distributions from capital gains (0.39) (0.04)
------ ------
Total distributions (0.47) (0.13)
------ ------
NET ASSET VALUE, END OF PERIOD $10.90 $10.36
====== ======
TOTAL RETURN 9.81% 11.47%
Net assets, end of period (000's) $23,241 $13,057
Ratio of operating expenses to average net assets 1.50% 1.50%
Ratio of net investment income to average net assets 0.78% 1.01%
Portfolio turnover rate 48% 55%
</TABLE>
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MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
SCIENCE &
TECHNOLOGY TRUST
----------------------------------------------------
YEARS ENDED
DECEMBER 31, 01/01/1997*
----------------------------- TO
1999 1998 12/31/1997
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.52 $13.62 $12.50
Income from investment operations:
Net investment loss (0.06) (0.09) (0.04)
Net realized and unrealized gain on investments and
foreign currency transactions 19.43 5.99 1.38
---------- -------- -------
Total from investment operations 19.37 5.90 1.34
Less distributions:
Distributions from capital gains (2.72) -- (0.04)
Distributions in excess of capital gains -- -- (0.18)
---------- -------- -------
Total distributions (2.72) -- (0.22)
---------- -------- -------
NET ASSET VALUE, END OF PERIOD $36.17 $19.52 $13.62
========== ======== =======
TOTAL RETURN 99.49% 43.32% 10.71%
Net assets, end of period (000's) $1,144,454 $179,285 $67,348
Ratio of operating expenses to average net assets 1.16% 1.21% 1.26%
Ratio of net investment loss to average net assets (0.40%) (0.73%) (0.54%)
Portfolio turnover rate 113% 105% 121%
</TABLE>
* Commencement of operations
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MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL SMALL CAP TRUST
------------------------------------------------
YEARS ENDED DECEMBER 31, 03/04/1996*
---------------------------------- TO
1999 1998 1997 12/31/1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.28 $13.70 $13.60 $12.50
Income from investment operations:
Net investment income (loss) (0.07) 0.07 0.08 0.06
Net realized and unrealized gain on investments
and foreign currency transactions 13.00 1.56 0.03 1.09
-------- -------- -------- -------
Total from investment operations 12.93 1.63 0.11 1.15
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.01) (0.05)
-------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $28.16 $15.28 $13.70 $13.60
======== ======== ======== =======
TOTAL RETURN 84.92% 11.86% 0.79% 9.20% +
Net assets, end of period (000's) $239,961 $147,898 $128,576 $97,218
Ratio of operating expenses to average net assets 1.37% 1.25% 1.31% 1.29%(A)
Ratio of net investment income (loss) to average net assets (0.41%) 0.44% 0.63% 0.93%(A)
Portfolio turnover rate 309% 45% 74% 50%(A)
</TABLE>
* Commencement of operations
+ Non-annualized
(A) Annualized
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MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH TRUST
(FORMERLY, PILGRIM BAXTER GROWTH TRUST)
--------------------------------------------------
YEARS ENDED DECEMBER 31, 01/01/1997 *
--------------------------- TO
1999 1998 12/31/97
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.04 $12.50 $12.50
Income from investment operations:
Net investment loss (0.06) (0.07) (0.03)
Net realized and unrealized gain on investments 4.36 0.61 0.03
-------- -------- -------
Total from investment operations 4.30 0.54 --
-------- -------- -------
NET ASSET VALUE, END OF PERIOD $17.34 $13.04 $12.50
======== ======== =======
TOTAL RETURN 32.98% 4.32% 0.00%
Net assets, end of period (000's) $135,503 $143,010 $93,335
Ratio of operating expenses to average net assets 1.15% 1.14% 1.18%
Ratio of net investment loss to average net assets (0.59%) (0.64%) (0.46%)
Portfolio turnover rate 161% 189% 63%
</TABLE>
* Commencement of operations
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<PAGE> 116
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
EMERGING SMALL
COMPANY TRUST
-------------------------------------------------------
YEARS ENDED DECEMBER 31 01/01/1997*
----------------------------- TO
1999 1998 12/31/97
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $23.82 $24.13 $20.60
Income from investment operations:
Net investment loss (0.09) (0.12) (0.02)
Net realized and unrealized gain on investments 17.35 0.17 3.55
-------- --------- --------
Total from investment operations 17.26 0.05 3.53
Less distributions:
Distributions from capital gains (0.34) (0.36) --
-------- --------- --------
NET ASSET VALUE, END OF PERIOD $40.74 $23.82 $24.13
======== ======== ========
TOTAL RETURN 73.53% 0.07% 17.14%
Net assets, end of period (000's) $453,152 $300,637 $275,774
Ratio of operating expenses to average net assets 1.12% 1.10% 1.11%
Ratio of net investment loss to average net assets (0.35%) (0.54%) (0.13%)
Portfolio turnover rate 136% 77% 120%
</TABLE>
* Commencement of operations
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MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
SMALL COMPANY
BLEND TRUST
-------------
05/01/1999*
TO
12/31/1999
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.50
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gain on investments 3.58
------
Total from investment operations 3.57
------
Less distributions:
Distributions from capital gains (0.31)
------
NET ASSET VALUE, END OF PERIOD $15.76
======
TOTAL RETURN 28.56%+
Net assets, end of period (000's) $53,514
Ratio of operating expenses to average net assets 1.30% (A)
Ratio of net investment loss to average net assets (0.12%)(A)
Portfolio turnover rate 28% (A)
</TABLE>
* Commencement of operations
+ Non-annualized
(A) Annualized
115
<PAGE> 118
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MID CAP
STOCK TRUST
-----------
05/01/1999*
TO
12/31/1999
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.50
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gain on investments
and foreign currency transactions 0.11
-------
Total from investment operations 0.10
-------
NET ASSET VALUE, END OF PERIOD $12.60
=======
TOTAL RETURN 0.80% +
Net assets, end of period (000's) $99,504
Ratio of operating expenses to average net assets 1.025% (A)
Ratio of net investment loss to average net assets (0.15%)(A)
Portfolio turnover rate 36% (A)
</TABLE>
* Commencement of operations
+ Non-annualized
(A) Annualized
116
<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)
---------------------------------------------------------------
YEARS ENDED DECEMBER 31, 03/04/1996*
------------------------------------------ TO
1999 1998 1997 12/31/1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.77 $15.41 $13.37 $12.50
Income from investment operations:
Net investment loss (0.08) (0.04) (0.04) --
Net realized and unrealized gain on
investments and foreign currency transactions 7.87 4.40 2.08 0.87
------- ------- ------- ---------
Total from investment operations 7.79 4.36 2.04 0.87
------- ------- ------- ---------
Less distributions:
Distributions from capital gains (2.67) -- -- --
------- ------- ------- ---------
NET ASSET VALUE, END OF PERIOD $24.89 $19.77 $15.41 $13.37
======= ======= ======= =========
TOTAL RETURN 44.69% 28.29% 15.26% 6.96%+
Net assets, end of period (000's) $662,674 $395,109 $268,377 $176,062
Ratio of operating expenses to average net assets 1.03% 1.04% 1.05% 1.10% (A)
Ratio of net investment loss to average net assets (0.46%) (0.27%) (0.33%) (0.02%)(A)
Portfolio turnover rate 193% 150% 151% 67% (A)
</TABLE>
* Commencement of operations
+ Non annualized
(A) Annualized
117
<PAGE> 120
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
OVERSEAS TRUST
(FORMERLY, INTERNATIONAL GROWTH AND INCOME TRUST)
--------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 01/09/1995*
---------------------------------------------------- TO
1999 1998 1997 1996 12/31/1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.33 $11.01 $11.77 $10.47 $10.00
Income from investment operations:
Net investment income 0.08 0.06 0.23 0.17 0.11
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 4.51 0.88 (0.26) 1.15 0.59
-------- -------- -------- -------- -------
Total from investment operations 4.59 0.94 (0.03) 1.32 0.70
Less distributions:
Dividends from net investment income - (0.26) (0.22) (0.02) (0.12)
Distributions from capital gains - (0.36) (0.51) - (0.11)
-------- -------- -------- -------- -------
Total distributions - (0.62) (0.73) (0.02) (0.23)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $15.92 $11.33 $11.01 $11.77 $10.47
======== ======== ======== ======== =======
Total return 40.51% 8.04% (0.08%) 12.61% 6.98% +
Net assets, end of period (000's) $404,223 $218,551 $203,776 $189,010 $88,638
Ratio of operating expenses to average net assets 1.21% 1.16% 1.12% 1.11% 1.47%(A)
Ratio of net investment income to average net assets 0.73% 0.61% 2.08% 1.82% 0.71%(A)
Portfolio turnover rate 147% 150% 166% 148% 112%(A)
</TABLE>
* Commencement of operations
+ Non annualized
(A) Annualized
118
<PAGE> 121
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL STOCK
TRUST
------------------------------------------------
YEARS ENDED DECEMBER 31, 01/01/1997*
----------------------------- TO
1999 1998 12/31/97
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.98 $11.47 $11.47
Income from investment operations:
Net investment income 0.08 0.09 0.04
Net realized and unrealized gain on investments
and foreign currency transactions 3.76 1.62 0.12
-------- -------- --------
Total from investment operations 3.84 1.71 0.16
Less distributions:
Dividends from net investment income (0.07) (0.09) (0.03)
Distributions from capital gains (1.32) (0.11) (0.13)
-------- -------- --------
Total Distributions (1.39) (0.20) (0.16)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $15.43 $12.98 $11.47
======== ======== ========
TOTAL RETURN 29.71% 14.91% 1.38%
Net assets, end of period (000's) $231,729 $234,103 $145,253
Ratio of operating expenses to average net assets 1.25% 1.25% 1.38%
Ratio of net investment income to average net assets 0.58% 0.82% 0.56%
Portfolio turnover rate 39% 27% 43%
</TABLE>
* Commencement of operations
119
<PAGE> 122
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
INTERNATIONAL
VALUE TRUST
-------------
05/01/1999*
TO
12/31/1999
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.50
Income from investment operations:
Net investment income 0.08
Net realized and unrealized gain on investments
and foreign currency transactions 0.40
--------
Total from investment operations 0.48
--------
NET ASSET VALUE, END OF PERIOD $12.98
========
TOTAL RETURN 3.84% +
Net assets, end of period (000's) $100,970
Ratio of operating expenses to average net assets 1.23% (A)
Ratio of net investment income to average net assets 1.27% (A)
Portfolio turnover rate 4% (A)
</TABLE>
* Commencement of operations
+ Non-annualized
(A) Annualized
120
<PAGE> 123
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MID CAP BLEND TRUST
(FORMERLY, EQUITY TRUST)
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.48 $21.50 $22.62 $20.79
Income from investment operations:
Net investment income 0.07 0.08 0.08 0.13
Net realized and unrealized gain on investments and
foreign currency transactions 4.75 2.13 3.31 3.77
---------- ---------- ---------- ----------
Total from investment operations 4.82 2.21 3.39 3.90
Less distributions:
Dividends from net investment income (0.09) (0.07) (0.14) (0.09)
Distributions from capital gains (2.31) (4.16) (4.37) (1.98)
---------- ---------- ---------- ----------
Total distributions (2.40) (4.23) (4.51) (2.07)
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $21.90 $19.48 $21.50 $22.62
========== ========== ========== ==========
Total return 27.75% 9.41% 19.25% 20.14%
Net assets, end of period (000's) $1,673,228 $1,556,169 $1,521,382 $1,345,461
Ratio of operating expenses to average net assets 0.88% 0.80% 0.80% 0.80%
Ratio of net investment income to average net assets 0.34% 0.42% 0.35% 0.71%
Portfolio turnover rate 129% 93% 224% 223%
</TABLE>
<TABLE>
<CAPTION>
1995
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.66
Income from investment operations:
Net investment income 0.10
Net realized and unrealized gain on investments and
foreign currency transactions 6.14
--------
Total from investment operations 6.24
Less distributions:
Dividends from net investment income (0.11)
Distributions from capital gains -
--------
Total distributions (0.11)
--------
NET ASSET VALUE, END OF PERIOD $20.79
========
Total return 42.79%
Net assets, end of period (000's) $988,800
Ratio of operating expenses to average net assets 0.80%
Ratio of net investment income to average net assets 0.63%
Portfolio turnover rate 88%
</TABLE>
121
<PAGE> 124
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
SMALL COMPANY
VALUE TRUST
YEARS ENDED DECEMBER 31, 10/01/1997 *
TO
1999 1998 12/31/1997
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $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 0.89 (0.57) (0.57)
------ ------ ------
Total from investment operations 0.91 (0.56) (0.56)
------ ------ ------
Less distributions:
Dividends from net investment income (0.01) (0.01) -
------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.27 $11.37 $11.94
====== ====== ======
Total return 8.00% (4.72%) (4.48%) +
Net assets, end of period (000's) $89,167 $162,335 $67,091
Ratio of operating expenses to average net assets 1.22% 1.23% 1.19% (A)
Ratio of net investment income to average net assets 0.15% 0.16% 0.54% (A)
Portfolio turnover rate 142% 131% 81% (A)
</TABLE>
* Commencement of operations
+ Non-annualized
(A) Annualized
122
<PAGE> 125
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
GLOBAL EQUITY TRUST
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.38 $19.38 $17.84 $16.10
Income from investment operations:
Net investment income 0.23 0.17 0.19 0.12
Net realized and unrealized gain on investments
and foreign currency transactions 0.38 2.27 3.16 1.89
------ ------ ------ ------
Total from investment operations 0.61 2.44 3.35 2.01
Less distributions:
Dividends from net investment income (0.13) (0.36) (0.27) (0.27)
Distributions from capital gains (2.07) (1.08) (1.54) -
------ ------ ------ ------
Total distributions (2.20) (1.44) (1.81) (0.27)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $18.79 $20.38 $19.38 $17.84
====== ====== ====== ======
Total return 3.66% 12.24% 20.80% 12.62%
Net assets, end of period (000's) $837,728 $928,564 $868,413 $726,842
Ratio of operating expenses to average net assets 1.06% 1.01% 1.01% 1.01%
Ratio of net investment income to average net assets 1.14% 0.84% 1.02% 0.78%
Portfolio turnover rate 43% (A) 32% 33% 169%
</TABLE>
<TABLE>
<CAPTION>
1995
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.74
Income from investment operations:
Net investment income 0.29
Net realized and unrealized gain on investments
and foreign currency transactions 0.84
------
Total from investment operations 1.13
Less distributions:
Dividends from net investment income (0.08)
Distributions from capital gains (0.69)
------
Total distributions (0.77)
------
NET ASSET VALUE, END OF PERIOD $16.10
======
Total return 7.68%
Net assets, end of period (000's) $648,183
Ratio of operating expenses to average net assets 1.05%
Ratio of net investment income to average net assets 0.61%
Portfolio turnover rate 63%
</TABLE>
(A) The portfolio turnover rate does not include the assets acquired in the
merger.
123
<PAGE> 126
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
GROWTH TRUST
YEARS ENDED DECEMBER 31, 07/15/1996 *
TO
1999 1998 1997 12/31/1996
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.50 $17.21 $13.73 $12.50
Income from investment operations:
Net investment income (loss) (0.04) 0.06 0.08 0.09
Net realized and unrealized gain on
investments and foreign currency transactions 7.46 4.00 3.40 1.23
------ ------ ------ ------
Total from investment operations 7.42 4.06 3.48 1.32
Less distributions:
Dividends from net investment income (0.05) (0.07) - (0.09)
Distribution from capital gains (0.99) (0.70) - -
------ ------ ------ ------
Total distributions (1.04) (0.77) - -
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $26.88 $20.50 $17.21 $13.73
====== ====== ====== ======
Total return 37.20% 23.95% 25.35% 10.53% +
Net assets, end of period (000's) $642,948 $299,994 $167,388 $56,807
Ratio of operating expenses to average net assets 0.90% 0.90% 0.95% 1.01% (A)
Ratio of net investment income to average net assets (0.18%) 0.42% 0.74% 2.57% (A)
Portfolio turnover rate 156% 136% 179% 215% (A)
</TABLE>
* Commencement of operations
+ Non-Annualized
(A) Annualized
124
<PAGE> 127
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
Large Cap Growth Trust
(formerly, Aggressive Asset Allocation Trust)
-------------------------------------------------------------------
Years Ended December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.26 $14.36 $13.45 $12.85 $11.17
Income from investment operations:
Net investment income 0.06 0.24 0.29 0.36 0.35
Net realized and unrealized gain on
investments and for foreign currency
transactions 3.52 2.43 2.01 1.21 2.07
------ ------ ------ ------ ------
Total from investment operations 3.58 2.67 2.30 1.57 2.42
Less distributions:
Dividends from net investment income (0.23) (0.29) (0.38) (0.33) (0.33)
Distributions from capital gains (1.38) (1.48) (1.01) (0.64) (0.41)
------ ------ ------ ------ ------
Total distributions (1.61) (1.77) (1.39) (0.97) (0.74)
------ ------ ------ ------ ------
Net asset value, end of period $17.23 $15.26 $14.36 $13.45 $12.85
====== ====== ====== ====== ======
Total return 25.28% 19.12% 19.09% 13.00% 22.77%
Net assets, end of period (000's) $402,585 $262,882 $243,533 $226,699 $211,757
Ratio of operating expenses to average net assets 0.94% 0.88% 0.90% 0.90% 0.91%
Ratio of net investment income to average net assets 0.45% 1.58% 1.99% 2.73% 2.76%
Portfolio turnover rate 164% 64% 91% 75% 111%
</TABLE>
125
<PAGE> 128
'
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (For A Share Outstanding Throughout The Period)
<TABLE>
<CAPTION>
Quantitative Equity Trust
-------------------------------------------------------------------
Years Ended December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $25.22 $22.50 $17.33 $17.27 $13.36
Income from investment operations:
Net investment income 0.10 0.20 0.26 0.26 0.24
Net realized and unrealized gain on
investments and foreign currency
transactions 5.26 5.42 4.91 2.83 3.67
-------- -------- -------- ------- -------
Total from investment operations 5.36 5.62 5.17 3.09 3.91
Less distributions:
Dividends from net investment income (0.18) (0.25) - (0.50) -
Distributions from capital gains (2.24) (2.65) - (2.51) -
Distributions in excess of capital gains - - - (0.02) -
-------- -------- -------- ------- -------
Total distributions (2.42) (2.90) - (3.03) -
-------- -------- -------- ------- -------
Net asset value, end of period $28.16 $25.22 $22.50 $17.33 $17.27
======== ======== ======== ======= =======
Total return (A) 22.30% 26.35% 29.83% 17.92% 29.23%
Net assets, end of period (000's) $431,909 $254,475 $167,530 $91,900 $60,996
Ratio of operating expenses to average net assets (B) 0.76% 0.76% 0.50% 0.50% 0.50%
Ratio of net investment income to average net assets 0.57% 1.06% 1.50% 1.81% 1.76%
Portfolio turnover rate 159% 225% 114% 105% 109%
</TABLE>
(A) The total return for the year ended December 31, 1997 would have been
lower had operating expenses not been reduced.
(B) The ratio of operating expenses, before reimbursement from the investment
adviser, was 0.77% for the year ended December 31, 1997.
126
<PAGE> 129
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
BLUE CHIP GROWTH TRUST
--------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.92 $ 15.00 $ 14.31 $ 11.40 $ 9.05
Income from investment operations:
Net investment income 0.01 0.05 0.09 0.03 0.03
Net realized and unrealized gain on
investments and foreign currency transactions 3.58 4.19 3.13 2.92 2.36
---------- ---------- -------- -------- --------
Total from investment operations 3.59 4.24 3.22 2.95 2.39
Less distributions:
Dividends from net investment income (0.05) (0.08) (0.03) (0.04) (0.04)
Distributions from capital gains (0.82) (0.24) (2.50) -- --
---------- ---------- -------- -------- --------
Total distributions (0.87) (0.32) (2.53) (0.04) (0.04)
---------- ---------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 21.64 $ 18.92 $ 15.00 $ 14.31 $ 11.40
========== ========== ======== ======== ========
TOTAL RETURN (A) 19.43% 28.49% 26.94% 25.90% 26.53%
Net assets, end of period (000's) $1,734,233 $1,141,162 $708,807 $422,571 $277,674
Ratio of operating expenses to average net assets (B) 0.94% 0.97% 0.975% 0.975% 0.975%
Ratio of net investment income to average net assets 0.06% 0.37% 0.74% 0.26% 0.42%
Portfolio turnover rate 42% 42% 37% 159% 57%
</TABLE>
(A) The total return for the years ended December 31,1996 and 1995 would
have been lower had operating expenses not been reduced.
(B) The ratio of operating expenses, before reimbursement from the
investment adviser and subadviser, was 1.02% and 1.03% for the years
ended December 31, 1996 and 1995 respectively.
127
<PAGE> 130
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES TRUST
-------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1999* 1998 1997 1996 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.76 $ 20.07 $ 16.95 $ 15.10 $ 13.34
Income from investment operations:
Net investment income 0.78 0.78 0.80 0.74 0.67
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (1.94) (3.72) 2.32 4.31 1.35
-------- -------- -------- ------- -------
Total from investment operations (1.16) (2.94) 3.12 5.05 2.02
Less distributions:
Dividends from net investment income (0.71) (0.53) -- (1.39) (0.26)
Distributions from capital gains -- (1.84) -- (1.81) --
-------- -------- -------- ------- -------
Total distributions (0.71) (2.37) -- (3.20) (0.26)
-------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 12.89 $ 14.76 $ 20.07 $ 16.95 $ 15.10
======== ======== ======== ======= =======
TOTAL RETURN (A) (8.00%) (16.44%) 18.41% 34.69% 15.14%
Net assets, end of period (000's) $196,756 $161,832 $161,759 $76,220 $52,440
Ratio of operating expenses to average net
assets (B) 0.77% 0.76% 0.50% 0.50% 0.50%
Ratio of net investment income to average net
assets 5.88% 5.57% 5.42% 5.22% 5.06%
Portfolio turnover rate 201% 122% 148% 231% 136%
</TABLE>
* Net investment income per share was calculated using the average shares
method for fiscal year 1999.
(A) The total return for the year ended December 31, 1997 would have been
lower had operating expenses not been reduced.
(B) The ratio of operating expenses, before reimbursement from the
investment adviser, was 0.77% for the year ended December 31, 1997.
128
<PAGE> 131
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE TRUST
----------------------------------------
YEARS ENDED DECEMBER 31, 01/01/1997 *
-------------------------- TO
1999 1998 12/31/1997
-------- -------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.06 $ 14.81 $ 12.50
Income from investment operations:
Net investment income 0.20 0.18 0.10
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions (0.59) (0.45) 2.67
-------- -------- --------
Total from investment operations (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 $13.23 $ 14.06 $ 14.81
======== ======== ========
Total return (2.79%) (1.72%) 22.14%
Net assets, end of period (000's) $146,279 $255,554 $144,672
Ratio of operating expenses to average net assets 0.87% 0.85% 0.96%
Ratio of net investment income to average net assets 1.12% 1.50% 1.50%
Portfolio turnover rate 54% 45% 43%
</TABLE>
* Commencement of operations
129
<PAGE> 132
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY INDEX TRUST
--------------------------------------------------
02/14/1996*
YEARS ENDED DECEMBER 31, TO
--------------------------------------------------
1999 1998 1997 12/31/1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.43 $ 12.48 $ 10.69 $ 10.00
Income from investment operations:
Net investment income 0.17 0.18 0.32 0.19
Net realized and unrealized gain on investments 3.00 3.36 3.26 1.29
---------- ---------- ---------- ----------
Total from investment operations 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 (0.30) (0.41) (1.47) (0.60)
---------- ---------- ---------- ----------
Total distributions (0.47) (0.59) (1.79) (0.79)
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 18.13 $ 15.43 $ 12.48 $ 10.69
========== ========== ========== ==========
TOTAL RETURN (B) 20.58% 28.56% 33.53% 14.86% +
Net assets, end of period (000's) $ 114,775 $ 63,292 $ 27,075 $ 7,818
Ratio of operating expenses to average net assets (C) 0.40% 0.40% 0.40% 0.40% (A)
Ratio of net investment income to average net assets 1.17% 1.70% 3.64% 4.74% (A)
Portfolio turnover rate 10% 3% 7% 27% (A)
</TABLE>
- -----------------------
* Commencement of operations
(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, were 0.41%, 0.55% and 0.57% for the years ended December 31,
1999, 1998 and 1997, respectively.
143
<PAGE> 133
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & INCOME TRUST
-----------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 28.43 $ 23.89 $ 19.38 $ 16.37 $ 13.04
Income from investment operations:
Net investment income 0.17 0.19 0.22 0.22 0.27
Net realized and unrealized gain on
investments and foreign currency transactions 5.12 5.98 5.73 3.41 3.45
---------- ---------- ---------- ---------- --------
Total from investment operations 5.29 6.17 5.95 3.63 3.72
Less distributions:
Dividends from net investment income (0.19) (0.22) (0.24) (0.26) (0.26)
Distributions from capital gains (0.86) (1.41) (1.20) (0.36) (0.13)
---------- ---------- ---------- ---------- --------
Total distributions (1.05) (1.63) (1.44) (0.62) (0.39)
---------- ---------- ---------- ---------- --------
NET ASSET VALUE, END OF PERIOD $ 32.67 $ 28.43 $ 23.89 $ 19.38 $ 16.37
========== ========== ========== ========== ========
Total return 18.87% 26.52% 32.83% 22.84% 29.20%
Net assets, end of period (000's) $3,187,220 $2,290,118 $1,605,387 $1,033,738 $669,387
Ratio of operating expenses to average net assets 0.80% 0.79% 0.79% 0.80% 0.80%
Ratio of net investment income to average net assets 0.63% 0.85% 1.14% 1.56% 2.23%
Portfolio turnover rate 19% 16% 34% 49% 39%
</TABLE>
130
<PAGE> 134
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. LARGE CAP
VALUE TRUST
-----------------
05/01/1999*
TO
12/31/1999
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.50
Income from investment operations:
Net investment income 0.04
Net realized and unrealized gain on
investments and foreign
currency transactions 0.30
------------
Total from investment operations 0.34
NET ASSET VALUE, END OF PERIOD $ 12.84
============
TOTAL RETURN 2.72%+
Net assets, end of period (000's) $ 210,725
Ratio of operating expenses to average net assets 0.945%(A)
Ratio of net investment income to average net assets 0.64%(A)
Portfolio turnover rate 30%(A)
</TABLE>
- --------------------------------------------------------------------------------
* Commencement of operations
+ Non-annualized
(A) Annualized
131
<PAGE> 135
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY-INCOME TRUST
-------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.78 $ 17.24 $ 15.41 $ 13.81 $ 11.33
Income from investment operations:
Net investment income 0.35 0.34 0.34 0.21 0.17
Net realized and unrealized gain on
investments and foreign
currency transactions 0.25 1.26 3.68 2.39 2.49
------------- ------------- ------------- ------------- -------------
Total from investment operations 0.60 1.60 4.02 2.60 2.66
Less distributions:
Dividends from net investment income (0.37) (0.33) (0.21) (0.16) (0.08)
Distributions from capital gains (0.96) (0.73) (1.98) (0.84) (0.10)
------------- ------------- ------------- ------------- -------------
Total distributions (1.33) (1.06) (2.19) (1.00) (0.18)
============= ============= ============= ============= =============
NET ASSET VALUE, END OF PERIOD $ 17.05 $ 17.78 $ 17.24 $ 15.41 $ 13.81
============= ============= ============= ============= =============
Total return 3.40% 9.21% 29.71% 19.85% 23.69%
Net assets, end of period (000's) $ 1,011,260 $ 1,088,342 $ 941,705 $ 599,486 $ 396,827
Ratio of operating expenses to average net assets 0.91% 0.85% 0.85% 0.85% 0.85%
Ratio of net investment income to average net assets 1.83% 2.13% 2.47% 1.78% 1.63%
Portfolio turnover rate 30% 21% 25% 158% 52%
</TABLE>
132
<PAGE> 136
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME & VALUE TRUST
(FORMERLY, MODERATE ASSET ALLOCATION TRUST)
-------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.36 $ 12.95 $ 12.49 $ 12.39 $ 10.79
Income from investment operations:
Net investment income 0.32 0.40 0.48 0.54 0.50
Net realized and unrealized gain on
investments and foreign currency
transactions 0.77 1.51 1.29 0.60 1.65
----------- ----------- ----------- ----------- -----------
Total from investment operations 1.09 1.91 1.77 1.14 2.15
Less distributions:
Dividends from net investment income (0.40) (0.46) (0.57) (0.52) (0.45)
Distributions from capital gains (1.14) (1.04) (0.74) (0.52) (0.10)
----------- ----------- ----------- ----------- -----------
Total distributions (1.54) (1.50) (1.31) (1.04) (0.55)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.91 $ 13.36 $ 12.95 $ 12.49 $ 12.39
=========== =========== =========== =========== ===========
TOTAL RETURN 8.52% 15.27% 15.87% 9.96% 20.68%
Net assets, end of period (000's) $ 639,824 $ 618,011 $ 609,142 $ 624,821 $ 650,136
Ratio of operating expenses to
average net assets 0.86% 0.84% 0.85% 0.84% 0.84%
Ratio of net investment income to
average net assets 2.39% 2.89% 3.37% 4.17% 4.09%
Portfolio turnover rate 165% 85% 78% 78% 129%
</TABLE>
133
<PAGE> 137
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCED TRUST
-------------------------------------------------
YEARS ENDED DECEMBER 31, 01/01/1997 *
TO
------------------------------
1999+ 1998 12/31/1997
----------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.40 $ 19.33 $ 16.41
Income from investment operations:
Net investment income 0.55 0.41 0.51
Net realized and unrealized gain
(loss) on investments
and foreign currency transactions (0.85) 2.23 2.41
----------- ----------- -----------
Total from investment operations (0.30) 2.64 2.92
Less distributions:
Dividends from net investment income (0.37) (0.48) --
Distributions from capital gains (0.91) (2.09) --
----------- ----------- -----------
Total distributions (1.28) (2.57) --
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 17.82 $ 19.40 $ 19.33
=========== =========== ===========
TOTAL RETURN (1.65%) 14.25% 17.79%
Net assets, end of period (000's) $ 258,158 $ 254,454 $ 177,045
Ratio of operating expenses to average net assets 0.87% 0.87% 0.88%
Ratio of net investment income to average net assets 2.98% 2.71% 2.97%
Portfolio turnover rate 215% 199% 219%
</TABLE>
+ Net investment income per share was calculated using the average shares
method for fiscal year 1999.
* Commencement of operations
134
<PAGE> 138
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD TRUST
------------------------------
YEARS ENDED DECEMBER 31, 01/01/1997 *
TO
------------------------------
1999+ 1998 12/31/1997
----------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.92 $ 13.56 $ 12.50
Income from investment operations:
Net investment income 1.14 0.91 0.46
Net realized and unrealized gain (loss)
on investments
and foreign currency transactions (0.12) (0.53) 1.13
----------- ----------- -----------
Total from investment operations 1.02 0.38 1.59
Less distributions:
Dividends from net investment income (1.11) (0.89) (0.46)
Distributions from capital gains -- (0.13) (0.07)
----------- ----------- -----------
Total distributions (1.11) (1.02) (0.53)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.83 $ 12.92 $ 13.56
=========== =========== ===========
TOTAL RETURN 8.00% 2.78% 12.68%
Net assets, end of period (000's) $ 241,054 $ 192,354 $ 92,748
Ratio of operating expenses to average net assets 0.84% 0.84% 0.89%
Ratio of net investment income to average net assets 8.59% 8.34% 7.40%
Portfolio turnover rate 62% 94% 75%
</TABLE>
+ Net investment income per share was calculated using the average shares
method for fiscal year 1999.
* Commencement of operations
135
<PAGE> 139
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC BOND TRUST
--------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.72 $ 12.38 $ 11.94
Income from investment operations:
Net investment income 1.00 0.76 0.67
Net realized and unrealized gain
(loss) on investment
and foreign currency transactions (0.75) (0.59) 0.57
----------- ----------- -----------
Total from investment operations 0.25 0.17 1.24
Less distributions:
Dividends from net investment income (0.83) (0.71) (0.71)
Distributions from capital gains -- (0.12) (0.09)
----------- ----------- -----------
Total distributions (0.83) (0.83) (0.80)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.14 $ 11.72 $ 12.38
=========== =========== ===========
TOTAL RETURN 2.22% 1.31% 10.98%
Net assets, end of period (000's) $ 368,380 $ 443,414 $ 365,590
Ratio of operating expenses to average net assets 0.87% 0.85% 0.87%
Ratio of net investment income to average net assets 8.15% 7.59% 7.54%
Portfolio turnover rate 107% 209% 131%
</TABLE>
<TABLE>
<CAPTION>
STRATEGIC BOND TRUST
------------------------------
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.26 $ 9.91
Income from investment operations:
Net investment income 0.62 0.78
Net realized and unrealized gain
(loss) on investment
and foreign currency transactions 0.92 1.04
----------- -----------
Total from investment operations 1.54 1.82
Less distributions:
Dividends from net investment income (0.86) (0.47)
Distributions from capital gains -- --
----------- -----------
Total distributions (0.86) (0.47)
----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.94 $ 11.26
=========== ===========
TOTAL RETURN 14.70% 19.22%
Net assets, end of period (000's) $ 221,277 $ 122,704
Ratio of operating expenses to average net assets 0.86% 0.92%
Ratio of net investment income to average net assets 8.20% 8.76%
Portfolio turnover rate 165% 181%
</TABLE>
136
<PAGE> 140
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL BOND TRUST
(FORMERLY, GLOBAL GOVERNMENT BOND TRUST)
----------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1999 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.73 $ 14.07 $ 14.97 $ 14.56
Income from investment operations:
Net investment income 0.67 0.81 0.93 0.93
Net realized and unrealized gain
(loss) on investments and foreign (1.55) 0.20 (0.57) 0.79
currency transactions
----------- ----------- ----------- -----------
Total from investment operations (0.88) 1.01 0.36 1.72
Less distributions:
Dividends from net investment income (1.25) (0.95) (1.23) (1.31)
Distributions from capital gains -- (0.40) (0.03) --
----------- ----------- ----------- -----------
Total distributions (1.25) (1.35) (1.26) (1.31)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.60 $ 13.73 $ 14.07 $ 14.97
=========== =========== =========== ===========
TOTAL RETURN (6.67%) 7.61% 2.95% 13.01%
Net assets, end of period (000's) $ 145,992 $ 196,990 $ 216,117 $ 249,793
Ratio of operating expenses to
average net assets 0.98% 0.94% 0.93% 0.90%
Ratio of net investment income
to average net assets 4.38% 5.46% 5.87% 6.38%
Portfolio turnover rate 471% 140% 160% 167%
</TABLE>
<TABLE>
<CAPTION>
GLOBAL BOND TRUST
(FORMERLY, GLOBAL GOVERNMENT BOND TRUST)
-----------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.47
Income from investment operations:
Net investment income 1.16
Net realized and unrealized gain
(loss) on investments and foreign 1.62
currency transactions
-----------
Total from investment operations 2.78
Less distributions:
Dividends from net investment income (0.69)
Distributions from capital gains --
-----------
Total distributions (0.69)
-----------
NET ASSET VALUE, END OF PERIOD $ 14.56
===========
TOTAL RETURN 23.18%
Net assets, end of period (000's) $ 235,243
Ratio of operating expenses to
average net assets 0.93%
Ratio of net investment income
to average net assets 6.83%
Portfolio turnover rate 171%
</TABLE>
137
<PAGE> 141
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN
TRUST
-------------
05/01/1999*
TO
12/31/1999
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.50
Income from investment operations:
Net investment income 0.35
Net realized and unrealized (loss) on
investments and foreign
currency transactions (0.48)
-------
Total from investment operations (0.13)
-------
NET ASSET VALUE, END OF PERIOD $12.37
=======
TOTAL RETURN (1.04%)+
Net assets, end of period (000's) $240,016
Ratio of operating expenses to average net assets 0.835% (A)
Ratio of net investment income to average net assets 5.72% (A)
Portfolio turnover rate 95% (A)
</TABLE>
* Commencement of operations
+ Non-annualized
(A) Annualized
138
<PAGE> 142
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT QUALITY BOND TRUST
--------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.46 $ 12.13 $ 11.89 $ 12.32
Income from investment operations:
Net investment income 0.81 0.62 0.77 0.77
Net realized and unrealized gain (loss)
on investments and foreign currency (1.02) 0.40 0.30 (0.50)
transactions
----------- ----------- ----------- -----------
Total from investment operations (0.21) 1.02 1.07 0.27
Less distributions:
Dividends from net investment income (0.65) (0.69) (0.83) (0.70)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.60 $ 12.46 $ 12.13 $ 11.89
=========== =========== =========== ===========
TOTAL RETURN (1.79%) 8.73% 9.75% 2.58%
Net assets, end of period (000's) $ 288,594 $ 312,111 $ 188,545 $ 152,961
Ratio of operating expenses to average net assets 0.77% 0.72% 0.74% 0.73%
Ratio of net investment income to average net assets 6.79% 6.89% 7.15% 6.95%
Portfolio turnover rate 36%(A) 41% 47% 68%
</TABLE>
INVESTMENT QUALITY BOND TRUST
-----------------------------
YEARS ENDED DECEMBER 31,
------------------------
1995
-----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.01
Income from investment operations:
Net investment income 0.77
Net realized and unrealized gain (loss)
on investments and foreign currency 1.28
transactions
-----------
Total from investment operations 2.05
Less distributions:
Dividends from net investment income (0.74)
-----------
NET ASSET VALUE, END OF PERIOD $ 12.32
===========
TOTAL RETURN 19.49%
Net assets, end of period (000's) $ 143,103
Ratio of operating expenses to average net assets 0.74%
Ratio of net investment income to average net assets 6.91%
Portfolio turnover rate 137%
(A) The portfolio turnover rate does not include the assets acquired in the
merger.
139
<PAGE> 143
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVERSIFIED BOND TRUST
(FORMERLY, CONSERVATIVE ASSET ALLOCATION TRUST)
----------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.83 $ 11.78 $ 11.64 $ 11.59
Income from investment operations:
Net investment income 0.56 0.51 0.54 0.57
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.46) 0.69 0.67 0.20
----------- ----------- ----------- -----------
Total from investment operations 0.10 1.20 1.21 0.77
Less distributions:
Dividends from net investment income (0.49) (0.55) (0.59) (0.56)
Distributions from capital gains (0.62) (0.60) (0.48) (0.16)
----------- ----------- ----------- -----------
Total distributions (1.11) (1.15) (1.07) (0.72)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.82 $ 11.83 $ 11.78 $ 11.64
=========== =========== =========== ===========
TOTAL RETURN 0.72% 10.68% 11.44% 7.03%
Net assets, end of period (000's) $ 218,868 $ 196,800 $ 204,348 $ 208,466
Ratio of operating expenses to average net assets 0.84% 0.89% 0.89% 0.87%
Ratio of net investment income to average net assets 5.18% 4.03% 4.39% 4.59%
Portfolio turnover rate 173% 125% 86% 73%
</TABLE>
<TABLE>
<CAPTION>
DIVERSIFIED BOND TRUST
(FORMERLY, CONSERVATIVE ASSET ALLOCATION TRUST)
----------------------------------- -----------
1995
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.34
Income from investment operations:
Net investment income 0.54
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.26
-----------
Total from investment operations 1.80
Less distributions:
Dividends from net investment income (0.55)
Distributions from capital gains --
-----------
Total distributions (0.55)
-----------
NET ASSET VALUE, END OF PERIOD $ 11.59
===========
TOTAL RETURN 18.07%
Net assets, end of period (000's) $ 224,390
Ratio of operating expenses to average net assets 0.87%
Ratio of net investment income to average net assets 4.68%
Portfolio turnover rate 110%
</TABLE>
140
<PAGE> 144
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES TRUST
----------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1999 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.82 $ 13.50 $ 13.32 $ 13.65
Income from investment operations:
Net investment income 0.74 0.79 0.75 0.83
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (0.77) 0.18 0.31 (0.41)
----------- ----------- ----------- -----------
Total from investment operations (0.03) 0.97 1.06 0.42
Less distributions:
Dividends from net investment income (0.55) (0.65) (0.88) (0.75)
----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.24 $ 13.82 $ 13.50 $ 13.32
=========== =========== =========== ===========
TOTAL RETURN (0.23%) 7.49% 8.47% 3.38%
Net assets, end of period (000's) $ 363,269 $ 363,615 $ 251,277 $ 204,053
Ratio of operating expenses to average net assets 0.72% 0.72% 0.72% 0.71%
Ratio of net investment income to average net assets 6.03% 5.92% 6.27% 6.36%
Portfolio turnover rate 40% 287% 110% 178%
</TABLE>
-----------
1995
-----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.64
Income from investment operations:
Net investment income 0.89
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.99
-----------
Total from investment operations 1.88
Less distributions:
Dividends from net investment income (0.87)
-----------
NET ASSET VALUE, END OF PERIOD $ 13.65
===========
TOTAL RETURN 15.57%
Net assets, end of period (000's) $ 216,788
Ratio of operating expenses to average net assets 0.71%
Ratio of net investment income to average net assets 6.46%
Portfolio turnover rate 212%
141
<PAGE> 145
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET TRUST
-------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from investment operations:
Net investment income 0.45 0.50 0.50 0.49
Less distributions:
Dividends from net investment income (0.45) (0.50) (0.50) (0.49)
------------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 10.00 $ 10.00 $ 10.00 $ 10.00
============= ============= ============= =============
TOTAL RETURN 4.60% 5.03% 5.15% 5.05%
Net assets, end of period (000's) $ 1,084,859 $ 609,837 $ 439,714 $ 363,566
Ratio of operating expenses to average net assets 0.55% 0.55% 0.54% 0.55%
Ratio of net investment income to average net assets 4.54% 4.94% 5.03% 4.97%
</TABLE>
-------------
1995
-------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income 0.55
Less distributions:
Dividends from net investment income (0.55)
-------------
NET ASSET VALUE, END OF PERIOD $ 10.00
=============
TOTAL RETURN 5.62%
Net assets, end of period (000's) $ 258,117
Ratio of operating expenses to average net assets 0.54%
Ratio of net investment income to average net assets 5.48%
142
<PAGE> 146
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIFESTYLE
AGGRESSIVE 1000 TRUST
--------------------------------------------------
01/07/1997*
YEARS ENDED DECEMBER 31, TO
------------------------------
1999 1998 12/31/1997
---------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.39 $ 13.47 $ 12.50
Income from investment operations:
Net investment income 0.08 0.07 0.05
Net realized and unrealized gain on investments 1.77 0.62 1.26
---------- ---------- ----------
Total from investment operations 1.85 0.69 1.31
Less distributions:
Dividends from net investment income (0.08) (0.07) (0.05)
Distributions from capital gains (0.62) (0.70) (0.29)
---------- ---------- ----------
Total distributions (0.70) (0.77) (0.34)
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 14.54 $ 13.39 $ 13.47
========== ========== ==========
TOTAL RETURN (B) 14.61% 4.86% 10.89% +
Net assets, end of period (000's) $ 93,073 $ 80,525 $ 49,105
Ratio of operating expenses to average net assets (C) 0.00% 0.00% 0.00% (A)
Ratio of net investment income to average net assets 0.64% 0.48% 1.29% (A)
Portfolio turnover rate 136% 59% 67% (A)
</TABLE>
- -----------------------
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for 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 0.03%, 0.02% and 0.03% for the periods ended December 31,
1999, 1998 and 1997, respectively.
144
<PAGE> 147
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIFESTYLE
GROWTH 820 TRUST
-----------------------------------------------------
01/07/1997*
YEARS ENDED DECEMBER 31, TO
------------------------------
1999 1998 12/31/1997
----------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.78 $ 13.77 $ 12.50
Income from investment operations:
Net investment income 0.23 0.24 0.30
Net realized and unrealized gain on investments 1.94 0.63 1.38
----------- ----------- -----------
Total from investment operations 2.17 0.87 1.68
Less distributions:
Dividends from net investment income (0.23) (0.24) (0.30)
Distributions from capital gains (0.54) (0.62) (0.11)
----------- ----------- -----------
Total distributions (0.77) (0.86) (0.41)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 15.18 $ 13.78 $ 13.77
=========== =========== ===========
TOTAL RETURN (B) 16.56% 6.20% 13.84% +
Net assets, end of period (000's) $ 414,257 $ 380,309 $ 217,158
Ratio of operating expenses to average net assets (C) 0.00% 0.00% 0.00% (A)
Ratio of net investment income to average net assets 1.73% 1.74% 2.44% (A)
Portfolio turnover rate 127% 49% 51% (A)
</TABLE>
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for 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%, 0.02% and 0.03% for the periods ended December 31,
1999, 1998 and 1997 respectively.
145
<PAGE> 148
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIFESTYLE
BALANCED 640 TRUST
-----------------------------------------------------
01/07/1997*
YEARS ENDED DECEMBER 31, TO
------------------------------
1999 1998 12/31/1997
----------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.49 $ 13.56 $ 12.50
Income from investment operations:
Net investment income 0.39 0.31 0.50
Net realized and unrealized gain on investments 1.20 0.47 1.19
----------- ----------- -----------
Total from investment operations 1.59 0.78 1.69
Less distributions:
Dividends from net investment income (0.39) (0.31) (0.50)
Distributions from capital gains (0.45) (0.54) (0.13)
----------- ----------- -----------
Total distributions (0.84) (0.85) (0.63)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 14.24 $ 13.49 $ 13.56
=========== =========== ===========
TOTAL RETURN (B) 12.42% 5.72% 14.11% +
Net assets, end of period (000's) $ 416,706 $ 377,531 186,653
Ratio of operating expenses to average net assets (C) 0.00% 0.00% 0.00% (A)
Ratio of net investment income to average net assets 2.93% 2.21% 3.24% (A)
Portfolio turnover rate 126% 52% 44% (A)
</TABLE>
- -----------------------
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for 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 0.03%, 0.02% and 0.03% for the periods ended December 31,
1999, 1998 and 1997, respectively.
146
<PAGE> 149
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIFESTYLE
MODERATE 460 TRUST
-----------------------------------------------------
01/07/1997*
YEARS ENDED DECEMBER 31, TO
--------------------------------
1999 1998 12/31/1997
----------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.91 $ 13.35 $ 12.50
Income from investment operations:
Net investment income 0.41 0.45 0.65
Net realized and unrealized gain on investments 0.65 0.84 0.98
----------- ----------- -----------
Total from investment operations 1.06 1.29 1.63
Less distributions:
Dividends from net investment income (0.41) (0.45) (0.65)
Distributions from capital gains (0.43) (0.28) (0.13)
----------- ----------- -----------
Total distributions (0.84) (0.73) (0.78)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 14.13 $ 13.91 $ 13.35
=========== =========== ===========
TOTAL RETURN (B) 7.89% 9.76% 13.7% +
Net assets, end of period (000's) $ 167,500 $ 138,128 $ 52,746
Ratio of operating expenses to average net assets (C) 0.00% 0.00% 0.00% (A)
Ratio of net investment income to average net assets 2.92% 3.03% 3.91% (A)
Portfolio turnover rate 109% 45% 39% (A)
</TABLE>
- -----------------------
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for 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%, 0.05% and 0.03% for the periods ended December 31,
1999, 1998 and 1997, respectively.
147
<PAGE> 150
MANUFACTURERS INVESTMENT TRUST
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIFESTYLE
CONSERVATIVE 280 TRUST
-----------------------------------------------------
01/07/1997*
YEARS ENDED DECEMBER 31, TO
--------------------------------
1999 1998 12/31/1997
----------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.53 $ 13.01 $ 12.50
Income from investment operations:
Net investment income 0.60 0.50 0.76
Net realized and unrealized gain on investments (0.05) 0.79 0.67
----------- ----------- -----------
Total from investment operations 0.55 1.29 1.43
Less distributions:
Dividends from net investment income (0.60) (0.50) (0.76)
Distributions from capital gains (0.33) (0.27) (0.16)
----------- ----------- -----------
Total distributions (0.93) (0.77) (0.92)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 13.15 $ 13.53 $ 13.01
=========== =========== ===========
TOTAL RETURN (B) 4.21% 10.20% 12.15% +
Net assets, end of period (000's) $ 106,435 $ 78,404 $ 19,750
Ratio of operating expenses to average net assets (C) 0.00% 0.00% 0.00% (A)
Ratio of net investment income to average net assets 4.40% 2.98% 3.95% (A)
Portfolio turnover rate 93% 32% 38% (A)
</TABLE>
- -----------------------
* Commencement of operations
+ Non-annualized
(A) Annualized
(B) The total return for 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 0.03%, 0.03% and 0.03% for the periods ended December 31,
1999, 1998 and 1997, respectively.
148
<PAGE> 151
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].
The Trust's Investment Company and 1933 Act File Numbers are 811-4146 and
2-94157
149
<PAGE> 152
PART B
Statement of Additional Information
<PAGE> 153
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 May 1, 2000, which may
be obtained from Manufacturers Investment Trust, 73 Tremont Street, Boston,
Massachusetts, 02108. The Annual Report for Manufacturers Investment Trust is
incorporated by reference into the Statement of Additional Information. The
Annual Report is available upon request and without charge by calling (800)
344-1029.
The date of this Statement of Additional Information is May 1, 2000.
<PAGE> 154
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT POLICIES .................................................................................. 4
Money Market Instruments ...................................................................... 4
U.S. Government and Government Agency Obligations ....................................... 4
Canadian and Provincial Government and Crown Agency Obligations ......................... 4
Certificates of Deposit and Bankers' Acceptances ........................................ 5
Commercial Paper ........................................................................ 5
Corporate Obligations ................................................................... 6
Repurchase Agreements ................................................................... 6
Foreign Repurchase Agreements ........................................................... 6
Other Instruments ............................................................................. 7
Warrants ................................................................................. 7
Reverse Repurchase Agreements ........................................................... 7
Mortgage Securities ..................................................................... 7
Asset-Backed Securities ................................................................. 9
Zero Coupon Securities and Pay-in-Kind Bonds ............................................ 10
Loans and Other Direct Debt Instruments ................................................. 11
High Yield (High Risk) Domestic Corporate Debt Securities ............................... 11
Brady Bonds ............................................................................. 11
Sovereign Debt Obligations .............................................................. 12
Indexed Securities ...................................................................... 12
Hybrid Instruments ...................................................................... 13
ADRs, EDRs and GDRs ..................................................................... 14
Additional Investment Policies ................................................................ 14
Lending Securities ...................................................................... 14
When-Issued Securities ("Forward Commitments") .......................................... 15
Mortgage Dollar Rolls ................................................................... 15
Illiquid Securities ..................................................................... 15
Short Sales "Against the Box"............................................................ 15
RISK FACTORS ......................................................................................... 16
High Yield (High Risk) Securities ............................................................. 16
Foreign Securities ............................................................................ 18
HEDGING AND OTHER STRATEGIC TRANSACTIONS ............................................................. 18
General Characteristics of Options ............................................................ 18
General Characteristics of Futures Contracts and Options on Futures Contracts ................. 20
Stock Index Futures ........................................................................... 21
Options on Securities Indices and Other Financial Indices ..................................... 21
Currency Transactions ......................................................................... 21
Combined Transactions ......................................................................... 22
Swaps, Caps, Floors and Collars ............................................................... 22
Eurodollar Instruments ........................................................................ 23
Risk Factors .................................................................................. 23
Risks of Hedging and Other Strategic Transactions Outside the United States ................... 24
Use of Segregated and Other Special Accounts .................................................. 25
Other Limitations ............................................................................. 25
INVESTMENT RESTRICTIONS .............................................................................. 26
Fundamental ................................................................................... 26
Nonfundamental ................................................................................ 27
Additional Investment Restrictions ............................................................ 27
PORTFOLIO TURNOVER ................................................................................... 27
MANAGEMENT OF THE TRUST .............................................................................. 29
Duties and Compensation of Trustees ........................................................... 30
INVESTMENT MANAGEMENT ARRANGEMENTS ................................................................... 31
The Advisory Agreement ........................................................................ 34
The Subadvisory Agreements .................................................................... 36
Information Applicable to Both the Advisory Agreement and the Subadvisory Agreements .......... 37
PORTFOLIO BROKERAGE .................................................................................. 38
PURCHASE AND REDEMPTION OF SHARES .................................................................... 46
DETERMINATION OF NET ASSET VALUE ..................................................................... 46
</TABLE>
2
<PAGE> 155
<TABLE>
<S> <C>
PERFORMANCE DATA ..................................................................................... 47
THE INSURANCE COMPANIES .............................................................................. 49
HISTORY OF THE TRUST ................................................................................. 50
ORGANIZATION OF THE TRUST ............................................................................ 51
ADDITIONAL INFORMATION CONCERNING TAXES .............................................................. 52
REPORTS TO SHAREHOLDERS .............................................................................. 54
INDEPENDENT ACCOUNTANTS .............................................................................. 54
CUSTODIAN ............................................................................................ 54
CODE OF ETHICS ....................................................................................... 54
APPENDIX I - Debt Security Ratings ................................................................... 55
APPENDIX II Standard & Poor's Corporation Disclaimers ................................................ 57
</TABLE>
3
<PAGE> 156
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.
4
<PAGE> 157
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.
5
<PAGE> 158
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, or relating to emerging markets, may
involve issuers or counterparties with lower credit ratings than typical U.S.
repurchase agreements.
6
<PAGE> 159
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,
- National Median Cost of Funds, or
- one-month, three-month, six-month or one-year London Interbank
Offered Rate ("LIBOR") and other market rates.
7
<PAGE> 160
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.
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.
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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
underlying assets, mortgage securities may contain elements of credit support. A
discussion of credit support is described below under "Asset-Backed Securities."
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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 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.
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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 AND PAY-IN-KIND BONDS
Zero coupon securities and pay-in-kind bonds involve special risk
considerations. Zero coupon securities are debt securities that pay no cash
income but are sold at substantial discounts from their value at maturity. When
a zero coupon security is held to maturity, its entire return, which consists of
the amortization of discount, comes from the difference between its purchase
price and its maturity value. This difference is known at the time of purchase,
so that investors holding zero coupon securities until maturity know at the time
of their investment what the return on their investment will be. Certain zero
coupon securities also are sold at substantial discounts from their maturity
value and provide for the commencement of regular interest payments at a
deferred date. The portfolios also may purchase pay-in-kind bonds. Pay-in-kind
bonds are bonds that pay all or a portion of their interest in the form of debt
or equity securities.
Zero coupon securities and pay-in-kind bonds 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 usually appreciates 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 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.
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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 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
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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, 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
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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.
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,
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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 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
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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 "AGAINST THE BOX"
Certain of the portfolios may make short sales "against the box." Short
sales of securities a portfolio owns or has the right to acquire at no added
cost through conversion or exchange of other securities it owns are known as
short sales "against the box." To make delivery to the purchaser in a short
sale, the executing broker borrows the securities being sold short on behalf of
a portfolio, and the portfolio is obligated to replace the securities borrowed
at a date in the future. When a portfolio sells short, it establishes a margin
account with the broker effecting the short sale and deposits collateral with
the broker. In addition, the portfolio maintains, in a segregated account with
its custodian, the securities that could be used to cover the short sale. A
portfolio incurs transaction costs, including interest expense, in connection
with opening, maintaining and closing short sales "against the box."
A portfolio might make a short sale "against the box" to hedge against
market risks when its subadviser believes that the price of a security may
decline, thereby causing a decline in the value of a security owned by the
portfolio or a security convertible into or exchangeable for a security owned by
the portfolio. In such case, any loss in the portfolio's long position after the
short sale should be reduced by a corresponding gain in the short position.
Conversely, any gain in the long position after the short sale should be reduced
by a corresponding loss in the short position. The extent to which gains or
losses in the long position are reduced will depend upon the amount of the
securities sold short relative to the amount of the securities a portfolio owns,
either directly or indirectly, and in the case where the portfolio owns
convertible securities, changes in the investment values or conversion premiums
of such securities.
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
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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.
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
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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,
- 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.
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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 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.
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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.
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.
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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 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
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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).
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.
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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.
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.
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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.
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
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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:
- 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.
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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:
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).
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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 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 33-1/3% of the value
of the portfolio's total assets (including amounts borrowed) less
liabilities (other than borrowings) and (ii) in connection with reverse
repurchase agreements, mortgage dollar rolls and other similar
transactions.
(4) Underwrite securities of other issuers except insofar as the Trust may
be considered an underwriter under the 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
such futures
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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.
(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.
*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
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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.
*33 1/3% 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.
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:
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<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
Mid 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%
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 in subadvisor 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.
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.
30
<PAGE> 183
MANAGEMENT OF THE TRUST
The Trustees and officers of the Trust, together with information as to
their principal occupations during the past five years, are listed below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND AGE POSITION WITH PRINCIPAL OCCUPATION
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
Pittsford, NY 14534 Rochester.
Age: 70
- -----------------------------------------------------------------------------------------------------------
Charles L. Bardelis Trustee President and Executive Officer, Island Commuter
297 Dillingham Avenue Corp. (Marine Transport).
Falmouth, MA 02540
Age: 58
- -----------------------------------------------------------------------------------------------------------
John D. DesPrez III* Trustee Executive Vice President, U.S. Operations,
73 Tremont Street Manulife Financial, January 1999 to date; Senior
Boston, MA 02108 Vice 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: 72 Services, J.A.M.S./Endispute, Inc., June 1994 to
August 1999.
- -----------------------------------------------------------------------------------------------------------
John D. Richardson* Chairman of Senior Executive Vice President, U.S. Operations,
200 Bloor Street East Trustees Manulife Financial, January 1999 to date;
Toronto, Ontario, Canada Executive Vice President and General Manager,
M4W 1E5 U.S. Operations, Manulife Financial, January 1995
Age: 62 to 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: 65
- -----------------------------------------------------------------------------------------------------------
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: 43 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
Age: 44 Manufacturers Life Insurance Company of North
America, January 1986 to date.
</TABLE>
31
<PAGE> 184
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
James D. Gallagher Secretary Vice President, Legal Services, Manulife
73 Tremont Street Financial, January 1996 to date; President, The
Boston, MA 02108 Manufacturers Life Insurance Company of New York,
Age: 45 August 1999 to 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 $40,000, 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>
- --------------------------------------------------------------------------------------------------------------------
NAMES OF PERSON, POSITION AGGREGATE COMPENSATION FROM TRUST TOTAL COMPENSATION FROM TRUST
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
- --------------------------------------------------------------------------------------------------------------------
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.
32
<PAGE> 185
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
- - 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.
33
<PAGE> 186
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 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.
34
<PAGE> 187
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:
<TABLE>
<S> <C>
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
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
</TABLE>
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:
Mid Cap Growth Trust (formerly, the Small/Mid Cap Trust),
Aggressive Growth Trust (formerly, the Pilgrim Baxter Growth Trust)
35
<PAGE> 188
- - 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.
Change of Control of Pacific Investment Management Company
On December 17, 1999, the Trustees appointed Pacific Investment
Management Company ("PIMCO") pursuant to a new subadvisory agreement ("PIMCO
Subadvisory Agreement") to manage the Global Bond and Total Return Trusts
effective upon the change of control of PIMCO with Allianz AG becoming the
ultimate parent of PIMCO. This transaction occurred on March __, 2000. The PIMCO
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, 1999. PIMCO had previously managed the Global
Bond and Total Return Trusts pursuant to a Subadvisory Agreement dated February
11, 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.
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.
36
<PAGE> 189
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.
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,
- 0.75% 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.
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 including the advisory fee but excluding: (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, equal 0.075%. If the total expenses of a Lifestyle Trust (absent
reimbursement) are equal to or less then 0.075%, then no expenses will be
reimbursed by the Adviser.
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.
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.
37
<PAGE> 190
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
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
Mid 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
38
<PAGE> 191
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.
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.
39
<PAGE> 192
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................... 104,938(2) N/A N/A
Mid Cap Growth Trust........................ 2,139,225 1,556,064 1,078,894
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:
40
<PAGE> 193
- - 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 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.
41
<PAGE> 194
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.
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 contracts
for which the broker-dealer or an affiliate thereof is responsible may be
considered as a factor in the selection of such brokers or dealers. A higher
cost broker-dealer will not be selected, however, solely on the basis of sales
volume, but will be selected in accordance with the criteria set forth above.
42
<PAGE> 195
"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 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
Mid 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.
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<PAGE> 196
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. Mid 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 Mid 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.
</TABLE>
44
<PAGE> 197
<TABLE>
<CAPTION>
Broker Portfolio Explanation
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
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>
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>
45
<PAGE> 198
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>
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>
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>
Mid Cap Growth Trust........................ $ 471,395 39.33% 2.15%
Year ended December 31, 1998:
Mid Cap Growth Trust........................ $1,029,644 99.58% 0.05%
Year ended December 31, 1997:
Mid 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>
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>
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<PAGE> 199
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>
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>
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.
47
<PAGE> 200
- - 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 dividend for purposes of the Net Investment Factor under
the contracts issued by Manulife North America, Manulife New York, Manufacturers
America and Manufacturers USA.
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<PAGE> 201
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 OR DATE FIRST
ENDED ENDED 10 YEARS, WHICHEVER AVAILABLE
12/31/99 12/31/99 IS SHORTER THROUGH
12/31/99
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pacific Rim Emerging Markets Trust(1) 62.87% 4.59% 3.30% 10/04/94
Science and Technology Trust 99.49% N/A 46.88% 01/01/97
International Small Cap Trust 84.92% N/A 23.98% 03/04/96
Aggressive Growth Trust 32.98% N/A 11.54% 01/01/97
Emerging Small Company Trust 73.53% N/A 26.71% 01/01/97
Small Company Blend Trust NA N/A 28.56% 05/01/99
Mid Cap Growth Trust 44.69% N/A 24.15% 03/04/96
Mid Cap Stock Trust NA N/A 0.80% 05/01/99
Overseas Trust 40.51% N/A 12.87% 01/09/95
International Stock Trust 29.71% N/A 14.76% 01/01/97
International Value Trust NA N/A 3.84% 05/01/99
Mid-Cap Blend Trust 27.75% 23.38% 14.02%(2) 06/18/85
Small Company Value Trust 8.00% N/A -0.77% 10/01/97
Global Equity Trust 3.66% 11.25% 8.74%(2) 03/18/88
Growth Trust 37.20% N/A 28.08% 07/15/96
Large Cap Growth Trust 25.28% 19.78% 12.79%(2) 08/03/89
Quantitative Equity Trust 22.30% 25.05% 15.97%(2) 04/30/87
Blue Chip Equity Trust 19.43% 25.42% 15.84% 12/11/92
Real Estate Securities Trust(1) -8.00% 7.14% 10.64%(2) 04/30/87
Value Trust -2.79% N/A 5.28% 01/01/97
Equity Index Trust(1) 20.58% N/A 25.01% 02/14/96
Growth & Income Trust 18.87% 25.96% 18.47% 04/23/91
</TABLE>
49
<PAGE> 202
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
TRUST PORTFOLIO ONE YEAR FIVE YEARS SINCE INCEPTION OR DATE FIRST
ENDED ENDED 10 YEARS, WHICHEVER AVAILABLE
12/31/99 12/31/99 IS SHORTER THROUGH
12/31/99
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Large Cap Value Trust NA N/A 2.72% 05/01/99
Equity-Income Trust 3.40% 16.77% 14.11% 02/19/93
Income & Value Trust 8.52% 13.98% 9.87%(2) 08/03/89
Balanced Trust -1.65% N/A 9.79% 01/01/97
High Yield Trust 8.00% N/A 7.75% 01/01/97
Strategic Bond Trust 2.22% 9.46% 7.16% 02/19/93
Global Bond Trust -6.67% 7.55% 8.06%(2) 03/18/88
Total Return Trust NA N/A -1.04% 05/01/99
Investment Quality Bond Trust -1.79% 7.51% 6.19%(2) 06/18/85
Diversified Bond Trust 0.72% 9.44% 7.50%(2) 08/03/89
U.S. Government Securities Trust -0.23% 6.81% 6.87%(2) 03/18/88
Money Market Trust(1) 4.60% 5.09% 4.88%(2) 06/18/85
Lifestyle Aggressive 1000 Trust 14.61% N/A 10.11% 01/07/97
Lifestyle Growth 820 Trust 16.56% N/A 12.20% 01/07/97
Lifestyle Balanced 640 Trust 12.42% N/A 10.76% 01/07/97
Lifestyle Moderate 460 Trust 7.89% N/A 10.50% 01/07/97
Lifestyle Conservative 280 Trust 4.21% N/A 8.86% 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
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;
- - 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.
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<PAGE> 203
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
redomesticiated 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.
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.
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<PAGE> 204
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
Mid Cap Growth All 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:
52
<PAGE> 205
- - 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 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-
53
<PAGE> 206
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 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
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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 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 are
incorporated herein by reference from its 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 160 Federal Street,
Boston, MA 02110.
CUSTODIAN
State Street Bank and Trust Company, ("State Street") 225 Franklin
Street, Boston, Massachusetts 02110, currently acts as custodian and bookkeeping
agent of all the Trust assets. State Street has selected various banks and trust
companies in foreign countries to maintain custody of certain foreign
securities. State Street is authorized to use the facilities of the Depository
Trust Company, the Participants Trust Company and the book-entry system of the
Federal Reserve Banks.
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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- Bonds rated BB, B, CCC and CC are regarded, on balance, as
CCC-CC 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 and the 500 Index Trust 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
Equity Index Trust, 500 Index Trust or any member of the public regarding the
advisability of investing in securities generally or in the Equity Index Trust
or 500 Index Trust particularly or the ability of the S&P 500 Index to track
general stock market performance. S&P's only relationship to the Trust is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard to the
Trust, the Equity Index Trust or 500 Index Trust. S&P has no obligation to take
the needs of the Trust or the shareholders of the Equity Index Trust or 500
Index Trust into consideration in determining, composing or calculating the S&P
500 Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of shares of the Equity Index Trust or
500 Index Trust or the timing of the issuance or sale of the shares of the
Equity Index Trust or 500 Index Trust or in the determination or calculation of
the equation by which shares of the Equity Index Trust or 500 Index Trust are
to be converted into cash. S&P has no obligation or liability in connection
with the administration, marketing or trading of the Equity Index Trust or the
500 Index Trust.
S&P does not guarantee the accuracy and/or the completeness of the S&P
500 Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the Trust, shareholders of the Equity
Index Trust, shareholders of the 500 Index Trust or any other person or entity
from the use of the S&P 500 Index or any data included therein. S&P makes no
express or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
S&P 500 Index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special, punitive,
indirect, or consequential damages (including lost profits), even if notified
of the possibility of such damages.
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PART C
OTHER INFORMATION
<PAGE> 213
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,
Balanced Trust, Worldwide Growth Trust, Emerging Growth Trust,
Pilgrim Baxter
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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 -- filed herewith.
(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 - Filed herein.
(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.
(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.
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(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 - Filed herein.
(d)(11)(b) Form of Subadvisory Consulting Agreement between Manufacturers
Adviser Corporation and State Street Global Advisors regarding
the Lifestyle Trusts - Filed herein.
(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.
(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.
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<PAGE> 216
(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.
(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.
(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
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(p) 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 - Filed herein.
(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 (2) 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 - Filed
herein.
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"),
(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.
5
<PAGE> 218
MANULIFE FINANCIAL CORPORATION
Corporate Organization as at December 31, 1999
Manulife Financial Corporation (Canada)
The Manufacturers Life Insurance Company (Canada)
1. Manulife Data Services Inc. - Barbados (100%)
2. MF Leasing (Canada) Inc. - Ontario (100%)
2.1 1332953 Ontario Inc. - Ontario (100%)
3. Enterprise Capital Management Inc. - Ontario (20%)
4. Cantay Holdings Inc. - Canada (100%)
5. 994744 Ontario Inc. - Ontario (100%)
6. 3426505 Canada Inc. - Canada (100%)
7. Family Realty First Corp. - Ontario (100%)
8. Manulife Bank of Canada - Canada (100%)
9. Manulife Securities International Ltd. - Canada (100%)
10. NAL Resources Limited - Alberta (100%)
11. Manulife International Capital Corporation Limited - Ontario (100%)
11.1. Golf Town Canada Inc. - Canada (100%)
11.2. Regional Power Inc. - Ontario (100%)
11.2.1. Addalam Power Corporation - Philippines
11.2.2. La Regionale Power Angliers Inc. - Canada (100%)
11.2.3. La Regionale Power Port-Cartier Inc. - Canada (100%)
11.3. VFC Inc. - Canada (100%)
11.4. 1198184 Ontario Limited - Ontario (100%)
12. 1293319 Ontario Inc. - Ontario (100%)
13. FNA Financial Inc. - Canada (100%)
13.1. Elliott & Page Limited - Ontario (100%)
13.2. Seamark Asset Management Ltd. - Canada (67.86%)
13.3. NAL Resources Management Limited - Canada (100%)
13.3.1. Caravan Oil & Gas Ltd. - Alberta (12.2%)
13.3.2. Carrack Energy Inc. - Alberta (16%)
13.4. First North American Insurance Company - Canada (100%)
14. MLI Resources Inc. - Alberta (100%)
15. Stylus Exploration Inc. - Alberta (100%)
16. Manucab Ltd. - Canada (100%)
16.1. Plazcab Service Limited - Newfoundland (100%)
17. The Manufacturers Investment Corporation - Michigan (100%)
17.1. Manulife Reinsurance Corporation (U.S.A.) - Michigan (100%)
17.1.1. Manulife Reinsurance Limited - Bermuda (100%)
17.1.1.1. MRL Holding, LLC - Delaware (99%)
17.1.2. MRL Holding, LLC - Delaware (1%)
17.1.2.1. Manulife-Wood Logan Holding Co. Inc. - Delaware (22.4%)
17.1.3. The Manufacturers Life Insurance Company (U.S.A.) - Michigan
(100%)
17.1.3.1. Manulife-Wood Logan Holding Co. Inc. - Delaware (77.6%)
17.1.3.1.1. Manulife Wood Logan, Inc. - Connecticut (100%)
17.1.3.1.2. The Manufacturers Life Insurance Company of
North America - Delaware (100%)
17.1.3.1.2.1. Manufacturers Securities Services, LLC -
Delaware (90%)
17.1.3.1.2.2. The Manufacturers Life Insurance Company
of New York - New York (100%)
17.1.3.1.2.2.1 Manufacturers Securities Services,
LLC - Delaware (10%)
17.1.3.2. Flex Leasing 1, LLC - Delaware (50%)
17.1.3.3. Ennal, Inc. - Ohio (100%)
17.1.3.4. ESLS Investment Limited, LLC - Ohio (100%)
17.1.3.5. Thornhill Leasing Investments, LLC - Delaware (90%)
17.1.3.6. The Manufacturers Life Insurance Company of America -
Michigan (100%)
17.1.3.6.1. Manulife Holding Corporation - Delaware (100%)
17.1.3.6.1.1. ManEquity, Inc. - Colorado (100%)
17.1.3.6.1.2. Manufacturers Adviser Corporation -
Colorado (100%)
6
<PAGE> 219
17.1.3.6.1.3. Manulife Capital Corporation - Delaware
(100%)
17.1.3.6.1.3.1. MF Private Capital, Inc. -
Delaware (80.4%)
17.1.3.6.1.3.1.1. MF Private Capital
Securities, Inc. - Delaware (100%)
17.1.3.6.1.3.1.2. MFPC Ventures, Inc. -
Delaware (100%)
17.1.3.6.1.3.1.3. MFPC Insurance Advisors,
Inc. - Delaware (100%)
17.1.3.6.1.4. Manulife Property Management of
Washington, D.C. Inc. - Washington, D.C. (100%)
17.1.3.4.1.5. ManuLife Service Corporation - Colorado
(100%)
17.1.3.4.1.6. Manulife Leasing Co., LLC. - Delaware
(80%)
18. Manulife International Investment Management Limited - U.K. (100%)
18.1. Manulife International Fund Management Limited - U.K. (100%)
19. WT(SW) Properties Ltd. - U.K. (100%)
20. Manulife Europe Ruckversicherungs-Aktiengesellschaft - Germany (100%)
21. Manulife International Holdings Limited - Bermuda (100%)
21.1. Manulife Provident Funds Trust Company Limited - Hongkong (100%)
21.2. Manulife (International) Limited - Bermuda (100%)
21.2.1. Zhong Hong Life Insurance Co. Ltd. - China (51%)
21.3. Manulife Funds Direct (Barbados) Limited - Barbados (100%)
21.3.1. Manulife Funds Direct (Hong Kong) Limited - Hongkong (100%)
21.3.2. Pt. Manulife Aset Manajemen Indonesia - Indonesia (55%)
22. ManuLife (International) Reinsurance Limited - Bermuda (100%)
22.1. Manufacturers Life Reinsurance Limited - Barbados (100%)
22.2. Manufacturers P&C Limited - Barbados (100%)
22.3. Manulife Management Services Ltd. - Barbados (100%)
23. Chinfon-Manulife Insurance Company Limited - Bermuda (60%)
24. Manulife Century Investments (Bermuda) Limited - Bermuda (13%)
25. Manulife Century Investments (Alberta) Inc. - Alberta (100%)
25.1 Manulife Century Investments (Bermuda) Limited - Bermuda (87%)
25.1.1 Daihyaku System Service Co. Ltd. - Japan (90%)
25.2 Manulife Century Investments (Luxembourg) S.A. - Luxembourg (100%)
25.2.1 Manulife Century Investments (Netherlands) B.V. - Netherlands
(100%)
25.2.1.1 Daihyaku Manulife Holdings (Bermuda) Limited - Bermuda
(100%)
25.2.1.1.1 Manulife Century Life Insurance Company - Japan
(8.8%)
25.2.1.2 Manulife Century Life Insurance Company - Japan (74.6%)
25.2.1.2.1 Daihyaku System Service Co. Ltd. - Japan (10%)
25.2.1.2.2 Manulife Century Business Company - Japan (100%)
25.2.1.2.3 Kyoritsu Confirm Co., Ltd. - Japan (9.1%)
25.2.1.2.4 Daihyaku Premium Collection Co., Ltd. - Japan
(10%)
25.2.1.3 Kyoritsu Confirm Co., Ltd. - Japan (90.9%)
25.2.1.4 Daihyaku Premium Collection Co., Ltd. - Japan (57%)
26. P.T. Asuransi Jiwa Dharmala ManuLife - Indonesia (51%)
26.1. P.T. Buanadays Sarana Informatika - Indonesia (100%)
26.2. P.T. Asuransi Jiwa Arta Mandiri Prime - Indonesia (100%)
27. OUB Manulife Pte. Ltd. - Singapore (50%)
28. The Manufacturers Life Insurance Company (Phils.) Inc. - Philippines (100%)
7
<PAGE> 220
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 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.
FIDELITY MANAGEMENT TRUST COMPANY OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
Title Name
----- ----
<S> <C>
Chairman of the Board, President and Chief Executive Officer: John F. McNamara*
Vice Chairman: Edward E. Madden*
Legal, Administration and Compliance
Executive Vice President: John P. O'Reilly, Jr.*
Vice President: Vincent P. Walsh
Client Services
Senior Vice President: Thomas Leavitt III
Garrett Williams
Vice President: Paul M. Cahill, Jr.
James Carroll
Mary Cross
Patrick DeMayo
Kenneth Fazio
Erica Fotta
Human Resources
Senior Vice President: Eileen M. Pyne
Vice President: Ann McKenzie
Operations/Finance/Channels
Senior Vice President, Chief Financial Officer and Treasurer: John E. Murphy*
Vice President, Finance: Daniel Persechini
Marybeth Richardson
Vice President, Operations: David Censorio
Ian Johnson
Doug Knox
Sally Miller
Louis Russo
Rhonda Snow
</TABLE>
8
<PAGE> 221
<TABLE>
<CAPTION>
Title Name
----- ----
<S> <C>
Vice President, Channels: John Burke
Cheryl Gladstone
Steven M. Quackenbush
Regina C. Sullivan
Vice President, Reporting: Michael Hall
Product Development, Marketing and Marketing Support
Senior Vice President: Michael Forrester
Bill Fink
John F. Haley
Michael Strong
Vice President: Kim Adelman
Jeffrey Gandel
Alan Kirby
Lane Mann
Robert Swanson
Derek Young
Sales Management
Senior Vice President: Bradford J. Allinson
Arthur J. Greenwood
Thomas Leavitt III
Walter Lindsay
William Lynch
R. Reuel Stanley
David Yearwood
Vice President: Robert Allen
Matthew Appelstein
Stephen Bard
Christopher Blair
Robert Fitzpatrick
James T. Mattera
Lawrence Reale
Mark D. Toomey
Mary Elizabeth Wines
Systems
Senior Vice President: Margaret Smith
Vice President: Tricia Cristoforo
Kevin Long
Investments, Equity
Senior Vice President: Karen Firestone
Ren Y. Cheng
Jennifer Farrelly
Timothy Heffernan
Cesar Hernandez
Robert Lawrence*
Robert L. Macdonald
John McDowell
Neal Miller
Stephen Petersen
Kennedy Richardson
Scott Stewart
Beth Terrana
George Vanderheiden
</TABLE>
9
<PAGE> 222
<TABLE>
<CAPTION>
Title Name
----- ----
<S> <C>
Vice President: John Avery
Katherine Collins
Joseph Day
Stephen DuFour
Richard Fentin
Richard Mace
Steve Snider
Tom Sprague
Myra Wonisch
Investment, Fixed Income
Senior Vice President: Dwight Churchill
Boyce Greer
Vice President: Robert K. Duby
Andrew J. Dudley
George Fischer
Robin Lee Foley
Robert Galusza
Kevin Grant
Norm Lind
Charles Morrison
David L. Murphy
Ford E. O'Neil
Thomas J. Silvia
Mark Sommer
Christine Thompson
Investments, High Yield
Senior Vice President: Margaret Eagle
Bart Grenier
Vice President: John Carlson
Barry Coffman
Tom Hense
Mark Notkin
Thomas T. Soviero
Investments, Real Estate
Senior Vice President: Barry Greenfield
Lee Sandwen
Vice President: Michael Elizondo
Thomas P. Lavin
Mark P. Snyderman
Personal Trust
Senior Vice President: James Cornell
Vice President: Deborah C. Segal
Trust Officer Kathleen Brooks
Maryanne Duca
Amy Z. Resnic
Jeffrey Richman
Trading Desk
Vice President: Jacques Perold
* Denotes Director
</TABLE>
10
<PAGE> 223
CAPITAL GUARDIAN TRUST COMPANY OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AFFILIATIONS WITHIN LAST TWO YEARS
---- ----------------------------------
<S> <C>
Timothy D. Amour Director, Capital Guardian Trust Company, Capital
Research and Management Company and Capital
Management Services, Inc.; Chairman and Chief
Executive Officer, Capital Research Company.
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 Senior Vice President, Treasurer and Director,
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.
</TABLE>
11
<PAGE> 224
<TABLE>
<CAPTION>
NAME AFFILIATIONS WITHIN LAST TWO YEARS
---- ----------------------------------
<S> <C>
John B. Emerson Senior Vice President, Capital Guardian Trust
Company; Director, Capital Guardian Trust Company, a
Nevada Corporation.
Michael Ericksen 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.
William H. Hurt Senior Vice President and Director, 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 Senior Vice President and Director, 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.
James R. Mulally Senior Vice President and Director, Capital Guardian
Trust Company; Senior Vice President, Capital
International Limited; Vice President, Capital
Research Company; Formerly, Director, Capital
Guardian Research Company.
</TABLE>
12
<PAGE> 225
<TABLE>
<CAPTION>
NAME AFFILIATIONS WITHIN LAST TWO YEARS
---- ----------------------------------
<S> <C>
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.
Robert Ronus President and Director, 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.
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 Senior Vice President and Director, Capital Guardian
Trust Company; Director, Capital International
Research, Inc.; Formerly, Director, Capital Guardian
Research Company
Lionel A. Sauvage Senior Vice President, Capital Guardian Trust
Company; Vice President, Capital International
Research, Inc.; Formerly, Director, Capital Guardian
Research Company.
John H. Seiter Executive Vice President and Director, Capital
Guardian Trust Company; Senior Vice President,
Capital Group International, Inc.; and Vice
President, The Capital Group Companies, Inc.
</TABLE>
13
<PAGE> 226
<TABLE>
<CAPTION>
NAME AFFILIATIONS WITHIN LAST TWO YEARS
---- ----------------------------------
<S> <C>
Karen Skinner-Twoney Vice President, Capital Guardian Trust Company;
Director, Vice President and Treasurer, Capital
Guardian Trust Company, a Nevada Corporation.
Eugene P. Stein Executive Vice President and Director, 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>
STATE STREET GLOBAL ADVISORS OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AFFILIATIONS WITHIN LAST TWO YEARS
---- ----------------------------------
<S> <C>
Nicholas A. Lopardo Chairman and Chief Executive Officer, State Street
Global Advisors; Vice Chairman, State Street Bank
and Trust Company.
Timothy B. Harbert President, State Street Global Advisors; Executive
Vice President, State Street Corporation.
Alan J. Brown Chief Investment Officer, State Street Global
Advisors; Chairman, State Street Global Advisors
(UK).
John T. Grady, Jr. Director - Sales, Client Service and Consultant
Relations, State Street Global Advisors.
Nancy L. Mitchell Director - Systems, State Street Global Advisors.
J. Stephen Reydel Director - Investment Operations; Chairman,
Fiduciary Review Committee, State Street Global
Advisors.
John R. Serhant Director - Office of the Fiduciary Advisor and
International Offices; Chairman, Investment
Committee, State Street Global Advisors.
Roger L. Petrin Director - Global Trading, State Street Global
Advisors.
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
Not applicable.
14
<PAGE> 227
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.
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.
15
<PAGE> 228
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 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.
16
<PAGE> 229
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant, Manufacturers Investment Trust
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston, and
Commonwealth of Massachusetts, on the 29th day of February, 2000.
MANUFACTURERS INVESTMENT TRUST
---------------------------------------
(Registrant)
By: /s/MATTHEW R. SCHIFFMAN
----------------------------------
Matthew R. Schiffman, President
Attest:
/s/JAMES D. GALLAGHER
- --------------------------------
James D. Gallagher, Secretary
<PAGE> 230
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 29th day of February, 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> 231
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
(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.
(d)(1)(a) Form of Amendment to Amended and Restated Advisory Agreement
between Manufacturers Investment Trust and Manufacturers
Securities Services, LLC
(d)(11)(a) Form of Amendment to Subadvisory Agreement between NASL
Financial Services, Inc. and Manufacturers Adviser Corporation
regarding the Lifestyle Trusts
(d)(11)(b) Form of Subadvisory Consulting Agreement between Manufacturers
Adviser Corporation and State Street Global Advisors regarding
the Lifestyle Trusts
(i)(9) Opinion and Consent of Betsy Anne Seel, Esq.
(j) Consent of PricewaterhouseCoopers LLP
(p) 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
(q)(4) Power of Attorney - John D. DesPrez, III, Trustee
</TABLE>
<PAGE> 1
Exhibit (a)(17)
MANUFACTURERS INVESTMENT TRUST
Establishment and Designation
of Additional Series of Shares of Beneficial Interest
($0.01 par value per share)
The undersigned, being a majority of the Trustees of Manufacturers
Investment Trust (the "Trust"), acting pursuant to Section 4.1(a) of the
Agreement and Declaration of Trust of the Trust dated September 29, 1988 (the
"Declaration of Trust") hereby establish and designate the following new Series
of Shares (as defined in the Declaration of Trust), such Series of Shares to
have the following special and relative rights:
1. The new Series of Shares shall be designated:
1. "Dynamic Growth"
2. "Internet Technologies"
3. "Tactical Allocation"
4. "Mid Cap Index"
5. "Small Cap Index"
6. "Total Stock Market Index"
7. "International Index"
8. "500 Index"
2. The new Series of Shares shall have the relative rights and preferences
described in Section 4.2 of the Declaration of Trust, provided that the
Trustees, in their absolute discretion, may amend any previously
established relative rights and preferences as they may deem necessary or
desirable to enable the Trust to comply with the Investment Company Act of
1940 or other applicable law.
<PAGE> 2
In witness whereof, the undersigned have executed this instrument in
duplicate original counterparts and have caused a duplicate original to be
lodged among the records of the Trust this day of .
- --------------------------- -----------------------------
Don B. Allen John D. Richardson
- --------------------------- -----------------------------
Charles L. Bardelis F. David Rolwing
- --------------------------- -----------------------------
Samuel Hoar John D. DesPrez, III
The Agreement and Declaration of the Trust, dated September 29, 1988, a copy of
which together with all amendments thereto is on file in the office of the
Secretary of The Commonwealth of Massachusetts, provides that this instrument
was executed by the Trustees of the Trust as Trustees and not individually and
that the obligations of this instrument are not binding upon any of them or the
shareholders of the Trust individually, but are binding only upon the assets
belonging to the Trust, or the particular Series of Shares in question, as the
case may be.
<PAGE> 1
Exhibit (d)(1)(a)
MANUFACTURERS INVESTMENT TRUST
AMENDMENT TO AMENDED AND RESTATED ADVISORY AGREEMENT
AMENDMENT made this ___ day of _____________, 2000, to the Amended and
Restated Advisory Agreement dated January 1, 1996, as amended and restated May
1, 1999 between Manufacturers Investment Trust, a Massachusetts business trust
(the "Trust") and Manufacturers Securities Services, LLC, a Delaware limited
liability company ("MSS" or the "Adviser"). In consideration of the mutual
covenants contained herein, the parties agree as follows:
1. CHANGE IN APPENDIX A
Appendix A to this Agreement is revised to reflect the increase in the
advisory fee for the Lifestyle Aggressive 1000 Portfolio, the Lifestyle Growth
820 Portfolio, the Lifestyle Balanced 640 Portfolio, the Lifestyle Moderate 460
Portfolio and the Lifestyle Conservative 280 Portfolio (collectively, the
"Lifestyle Trusts") as set forth in Appendix A to this Amendment.
2. EFFECTIVE DATE
This Amendment shall become effective with respect to a Lifestyle Trust
on the later to occur of: (i) approval by shareholders of such Lifestyle Trust,
(ii) disclosure of the terms of the Amendment in the prospectus of the Trust and
(iii) execution of the Amendment.
MANUFACTURERS INVESTMENT TRUST
By: ___________________________
Matthew R. Schiffman, President
MANUFACTURERS SECURITIES SERVICES, LLC
By: The Manufacturers Life Insurance Company of North America, its managing
member
By: ___________________________
James R. Boyle, President
By: ___________________________
James D. Gallagher, Vice President,
Secretary and General Counsel
<PAGE> 2
APPENDIX A
1. Global Equity Trust: .90% of the current net assets of the Portfolio.
2. Blue Chip Growth Trust: .875% of the current net assets of the
Portfolio.
3. Mid Cap Blend Trust: .85% of the current net assets of the Portfolio.
(formerly, the Equity Trust)
4. Equity-Income Trust: .875% of the current net assets of the Portfolio.
5. Growth & Income Trust: .75% of the current net assets of the Portfolio.
6. Strategic Bond Trust: .775% of the current net assets of the Portfolio.
7. Global Bond Trust: .80% of the current net assets of the Portfolio.
(formerly, the Global Government Bond Trust)
8. Investment Quality Bond Trust: .65% of the current net assets of the
Portfolio.
9. U.S. Government Securities Trust: .65% of the current net assets of the
Portfolio.
10. Money Market Trust: .50% of the current net assets of the Portfolio.
11. Large Cap Growth Trust: .875% of the current net assets of the
Portfolio. (formerly, the Aggressive Asset Allocation Trust)
12. Income & Value Trust: .80% of the current net assets of the Portfolio.
(formerly, the Moderate Asset Allocation Trust)
13. Diversified Bond Trust: .75% of the current net assets of the
Portfolio. (formerly, the Conservative Asset Allocation Trust)
14. Overseas Trust: .95% of the current net assets of the Portfolio.
(formerly, the International Growth and Income Trust)
15. Mid Cap Growth Trust: .95% of the current net assets of the Portfolio.
(formerly, the Small/Mid Cap Trust)
16. International Small Cap Trust: 1.10% of the current net assets of the
Portfolio.
17. Growth Trust: .85% of the current net assets of the Portfolio.
18. Value Trust: .80% of the current net assets of the Portfolio.
19. High Yield Trust: .775% of the current net assets of the Portfolio.
20. International Stock Trust: 1.05% of the current net assets of the
Portfolio.
21. Science & Technology Trust: 1.10% of the current net assets of the
Portfolio.
<PAGE> 3
22. Balanced Trust: .80% of the current net assets of the Portfolio.
23. Emerging Small Company Trust: 1.05% of the current net assets of the
Portfolio.
24. Aggressive Growth Trust: 1.00% of the current net assets of the
Portfolio. (formerly, the Pilgrim Baxter Growth Trust)
25. Pacific Rim Emerging Markets Trust: .85% of the current net assets of
the Portfolio.
26. Real Estate Securities Trust: .70% of the current net assets of the
Portfolio.
27. Equity Index Trust: .25% of the current net assets of the Portfolio.
28. Quantitative Equity Trust: .70% of the current net assets of the
Portfolio.
29. Small Company Value Trust: 1.05% of the current assets of the
Portfolio.
30. Small Company Blend Trust: 1.05% of the current net assets of the
Portfolio.
31. U.S. Large Cap Value Trust: .875% of the current net assets of the
Portfolio.
32. Total Return Trust: .775% of the current net assets of the Portfolio.
33. International Value Trust: 1.00% of the current net assets of the
Portfolio.
34. Mid Cap Stock Trust: .925% of the current net assets of the Portfolio.
35. Lifestyle Conservative 280 Trust: .075% of the first $100 million of
current net assets of the Portfolio and .05% of the excess over $100
million.
36. Lifestyle Moderate 460 Trust: .075% of the first $100 million of
current net assets of the Portfolio and .05% of the excess over $100
million.
37. Lifestyle Balanced 640 Trust: .075% of the first $100 million of
current net assets of the Portfolio and .05% of the excess over $100
million.
38. Lifestyle Growth 820 Trust: .075% of the first $100 million of
current net assets of the Portfolio and .05% of the excess over $100
million.
39. Lifestyle Aggressive 1000 Trust: .075% of the first $100 million of
current net assets of the Portfolio and .05% of the excess over $100
million.
The Percentage Fee for each Portfolio shall be paid daily to the
Adviser. The daily fee will be computed by multiplying the fraction of one over
the number of calendar days in the year by the applicable annual rate described
in the preceding paragraph, and multiplying this product by the net assets of
the Portfolio as determined in accordance with the Trust's prospectus and
statement of additional information as of the close of business on the previous
business day on which the Trust was open for business.
<PAGE> 1
Exhibit (d)(11)(a)
AMENDMENT TO SUBADVISORY AGREEMENT
MANUFACTURERS ADVISER CORPORATION
AMENDMENT made as of this _____ day of _______________, 2000 to the
Subadvisory Agreement dated October 1, 1996 as amended December 31, 1996 (the
"Agreement"), between Manufacturer's Securities Services, LLC, a Delaware
limited partnership (formerly, NASL Financial Services, Inc.) (the "Adviser"),
and Manufacturers Adviser Corporation, a Colorado corporation (the
"Subadviser"). In consideration of the mutual covenants contained herein, the
parties agree as follows:
1. CHANGE IN APPENDIX A
Section 3 of the Agreement, "Compensation of Subadviser," is hereby
amended to increase the fee the Adviser pays to the Subadviser with respect to
the Lifestyle Aggressive 1000 Portfolio, the Lifestyle Growth 820 Portfolio, the
Lifestyle Growth 640 Portfolio, the Lifestyle Moderate 460 Portfolio and the
Lifestyle Conservative 280 Portfolio as specified in Appendix A to this
Amendment:
2. EFFECTIVE DATE
This Amendment shall become effective with respect to each Portfolio on
the later to occur of: (i) approval by shareholders of such Lifestyle portfolio,
(ii) disclosure of the terms of the Amendment in the prospectus of the
Manufacturers Investment Trust, and (iii) execution of the Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
MANUFACTURERS SECURITIES SERVICES, LLC
By: The Manufacturers Life Insurance Company of North America, its managing
member
By: ___________________________
James R. Boyle, President
By: ___________________________
James D. Gallagher, Vice President,
Secretary and General Counsel
MANUFACTURERS ADVISER CORPORATION
By: ___________________________
Cindy Forbes, Vice President
By: ___________________________
James D. Gallagher, Secretary
<PAGE> 2
APPENDIX A
The Subadviser shall serve as investment subadviser for the following
portfolio of the Trust. The Adviser will pay the Subadviser, as full
compensation for all services provided under this Agreement, the fee computed
separately for each such Portfolio at an annual rate as follows (the "Subadviser
Percentage Fee"):
1. Pacific Rim Emerging Markets Portfolio: .400% of the first
$50,000,000, .350% between $50,000,000 and $200,000,000, .275% between
$200,000,000 and $500,000,000 and .225% on the excess over $500,000,000
of the average daily value of the net assets of the Portfolio.
2. Quantitative Equity Portfolio: .275% of the first $50,000,000, .225%
between $50,000,000 and $200,000,000, .175% between $200,000,000 and
$500,000,000 and .150% on the excess over $500,000,000 of the average
daily value of the net assets of the Portfolio.
3. Real Estate Securities Portfolio: .275% of the first $50,000,000,
.225% between $50,000,000 and $200,000,000, .175% between $200,000,000
and $500,000,000 and .150% on the excess over $500,000,000 of the
average daily value of the net assets of the Portfolio.
4. Equity Index Portfolio: .100% of the first $50,000,000, .100%
between $50,000,000 and $200,000,000, .100% between $200,000,000 and
$500,000,000 and .100% on the excess over $500,000,000 of the average
daily value of the net assets of the Portfolio.
5. Money Market Portfolio: .075% of the first $50,000,000, .075%
between $50,000,000 and $200,000,000, .075% between $200,000,000 and
$500,000,000 and .020% on the excess over $500,000,000 of the current
value of the net assets of the Portfolio;
6. Lifestyle Conservative 280 Trust: .075% of the first $100 million of
the average daily value of the net assets of the Portfolio and .05% of
the excess over $100 million.
7. Lifestyle Moderate 460 Trust: .075% of the first $100 million of the
average daily value of the net assets of the Portfolio and .05% of the
excess over $100 million.
8. Lifestyle Balanced 640 Trust: .075% of the first $100 million of the
average daily value of the net assets of the Portfolio and .05% of the
excess over $100 million.
9. Lifestyle Growth 820 Trust: .075% of the first $100 million of the
average daily value of the net assets of the Portfolio and .05% of the
excess over $100 million.
10. Lifestyle Aggressive 1000 Trust: .075% of the first $100 million of
the average daily value of the net assets of the Portfolio and .05% of
the excess over $100 million.
The Subadviser Percentage Fee for each Portfolio shall be accrued for
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Subadviser. The daily fee accruals will be computed by multiplying the
fraction of one over the number of calendar days in the year by the applicable
annual rate described in the preceding paragraph, and multiplying this product
by the net assets of the Portfolio as determined in accordance with the Trust's
prospectus and statement of additional information as of the close of business
on the previous business day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
<PAGE> 1
Exhibit (d)(11)(b)
MANUFACTURERS INVESTMENT TRUST
SUBADVISORY CONSULTING AGREEMENT
AGREEMENT made this ______ day of ___________________ 2000, between
Manufacturers Adviser Corporation, a Colorado Corporation (the "Subadviser"),
and State Street Global Advisors, a division of State Street Bank and Trust
Company, a Massachusetts trust company ("SSgA"). In consideration of the mutual
covenants contained herein, the parties agree as follows:
1. APPOINTMENT OF SSGA
SSgA undertakes to provide the services described in Section 2 below in
connection with the Subadviser's management of the Lifestyle Aggressive 1000
Trust, the Lifestyle Growth 820 Trust, the Lifestyle Balanced 640 Trust, the
Lifestyle Moderate 460 Trust, and the Lifestyle Conservative 280 Trust
(collectively, the "Lifestyle Trusts"), subject to the supervision of the
Trustees of Manufacturers Investment Trust (the "Trust") and the adviser to the
Trust, Manufacturers Securities Services, LLC (the "Adviser"). SSgA will be an
independent contractor and will have no authority to act for or represent the
Trust or Subadviser in any way except as expressly authorized in this Agreement
or another writing by the Trust and Subadviser.
SSgA represents that it is a "bank" as such term is defined in the
Investment Advisers Act and, therefore, is not required to be registered under
the Investment Advisers Act.
2. SERVICES TO BE RENDERED BY SSGA
a. SSgA will provide the Subadviser the following information and services
as may be requested by the Subadviser from time to time:
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
"nonLifestyle Trust portfolios") on an ongoing basis
and identify changes in returns of these portfolios;
- compare performance of the nonLifestyle Trust
portfolios to the performance of comparable
portfolios;
- calculate the probability that the subadvisers to the
nonLifestyle 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.
b. SSgA, at its expense, will furnish all necessary (i) investment and
management facilities, including salaries of personnel required for it
to execute its duties faithfully under this Agreement, and (ii)
administrative facilities, including bookkeeping, clerical personnel
and equipment necessary to execute its obligations under this
Agreement.
3. COMPENSATION OF SSGA
The Subadviser will pay SSgA with respect to each Lifestyle Trust the
compensation specified in Appendix A to this Agreement.
39
<PAGE> 2
4. LIABILITY OF SSGA
Neither SSgA nor any of its directors, officers or employees shall be
liable to the Adviser, the Subadviser or the Trust for any error of judgment or
mistake of law or for any loss suffered by the Adviser, the Subadviser or the
Trust in connection with the matters to which this Agreement relates except for
losses resulting from willful misfeasance, bad faith or gross negligence in the
performance of, or from the reckless disregard of, the duties of SSgA or any of
its directors.
5. CONFLICTS OF INTEREST
It is understood that trustees, officers, agents and shareholders of
the Trust are or may be interested in SSgA as trustees, officers, partners or
otherwise; that employees, agents and partners of SSgA are or may be interested
in the Trust as trustees, officers, shareholders or otherwise; that SSgA may be
interested in the Trust; and that the existence of any such dual interest shall
not affect the validity hereof or of any transactions hereunder except as
otherwise provided in the Agreement and Declaration of Trust of the Trust and
the partnership agreement of SSgA, respectively, or by specific provision of
applicable law.
6. REGULATION
SSgA shall submit to all regulatory and administrative bodies having
jurisdiction over the services provided pursuant to this Agreement any
information, reports or other material which any such body by reason of this
Agreement may request or require pursuant to applicable laws and regulations.
7. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective with respect to each Lifestyle
Trust on the later of:
(i) its execution,
(ii) the date of the meeting of the Board of Trustees of the Trust, at which
meeting this Agreement is approved as described below,
(iii) the date of the meeting of the shareholders of the Lifestyle Trust at
which meeting this Agreement is approved by the vote of a majority of
the outstanding voting securities (as defined in the Investment Company
Act of 1940 ("Investment Company Act")) of the shareholders of the
Lifestyle Trust,
(iv) disclosure of the terms of this Agreement with respect to the Lifestyle
Trust in the prospectus of Manufacturers Investment Trust, and
(v) May 1, 2000.
The Agreement will continue in effect for a period more than two years
from the date of its execution with respect to each Lifestyle Trust only so long
as such continuance is specifically approved at least annually either (i) by the
Trustees of the Trust or (ii) by a majority of the outstanding voting securities
of the Lifestyle Trusts, provided that in either event such continuance shall
also be approved by the vote of a majority of the Trustees of the Trust who are
not interested persons (as defined in the Investment Company Act) of any party
to this Agreement cast in person at a meeting called for the purpose of voting
on such approval.
Any required shareholder approval of the Agreement, or of any
continuance of the Agreement, shall be effective with respect to any Lifestyle
Trust if a majority of the outstanding voting securities of the series (as
defined in Rule 18f-2(h) under the Investment Company Act) of shares of that
Lifestyle Trust votes to approve the Agreement or its continuance,
notwithstanding that the Agreement or its continuance may not have been approved
by a majority of the outstanding voting securities of (a) any other Lifestyle
Trust affected by the Agreement or (b) all the Lifestyle Trusts.
If any required shareholder approval of this Agreement or any
continuance of the Agreement is not obtained, SSgA will continue to provide the
services described herein with respect to the affected Lifestyle Trust pending
the required approval of the Agreement or its continuance or of a new contract
with SSgA or a different adviser or other
2
<PAGE> 3
definitive action; provided, that the compensation received by SSgA in respect
of such Lifestyle Trust during such period is in compliance with Rule 15a-4
under the Investment Company Act.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees of the Trust, by the vote of a majority of the
outstanding voting securities of the Trust, or with respect to any Lifestyle
Trust by the vote of a majority of the outstanding voting securities of such
portfolio, on sixty days' written notice to the Subadviser and SSgA, or by the
Subadviser or SSgA on sixty days' written notice to the Trust and the other
party. This Agreement will automatically terminate, without the payment of any
penalty, in the event of its assignment (as defined in the Investment Company
Act), in the event the Subadvisory Agreement between the Subadviser and the
Adviser terminates for any reason with respect to the Lifestyle Trusts or in the
event the Advisory Agreement between the Adviser and the Trust terminates for
any reason with respect to the Lifestyle Trusts.
8. PROVISION OF CERTAIN INFORMATION BY SSGA
SSgA will promptly notify the Adviser and the Subadviser in writing of
the occurrence of any of the following events:
a. SSgA fails to be a "bank" as such term is defined under the Investment
Advisers Act;
b. SSgA is served or otherwise receives notice of any action, suit,
proceeding, inquiry or investigation, at law or in equity, before or by
any court, public board or body, involving the affairs of the Trust;
and
c. any change in control of SSgA within the meaning of the Investment
Company Act.
9. SERVICES TO OTHER CLIENTS
The Subadviser understands, and has advised the Trust's Board of
Trustees, that SSgA now acts, or may in the future act, as an investment adviser
to fiduciary and other managed accounts and as investment adviser or subadviser
to other investment companies. Further, the Subadviser understands, and has
advised the Trust's Board of Trustees that SSgA and its affiliates may give
advice and take action for its accounts, including investment companies, which
differs from advice given on the timing or nature of action taken for the
Lifestyle Trusts. SSgA is not obligated to initiate transactions for a Lifestyle
Trust in any security which SSgA, its partners, affiliates or employees may
purchase or sell for their own accounts or other clients.
10. AMENDMENTS TO THE AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by the vote of a majority of the Trustees of the Trust and
by the vote of a majority of the Trustees of the Trust who are not interested
persons of any party to this Agreement cast in person at a meeting called for
the purpose of voting on such approval. Any required shareholder approval shall
be effective with respect to any Lifestyle Trust if a majority of the
outstanding voting securities of that Lifestyle Trust vote to approve the
amendment, notwithstanding that the amendment may not have been approved by a
majority of the outstanding voting securities of (a) any other Lifestyle Trust
affected by the amendment or (b) all the Lifestyle Trusts of the Trust.
11. ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement of the
parties.
12. HEADINGS
The headings in the sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
3
<PAGE> 4
13. NOTICES
All notices required to be given pursuant to this Agreement shall be
delivered or mailed to the last known business address of the Trust, SSgA or the
Subadviser, as applicable, or by registered mail or a private mail or delivery
service providing the sender with notice of receipt. Notice shall be deemed
given on the date delivered or mailed in accordance with this paragraph.
14. SEVERABILITY
Should any portion of this Agreement for any reason be held to be void
in law or in equity, the Agreement shall be construed, insofar as is possible,
as if such portion had never been contained herein.
15. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of The Commonwealth of Massachusetts, or any of the
applicable provisions of the Investment Company Act. To the extent that the laws
of The Commonwealth of Massachusetts, or any of the provisions in this
Agreement, conflict with applicable provisions of the Investment Company Act,
the latter shall control.
16. LIMITATION OF LIABILITY
The Agreement and Declaration of Trust dated September 28, 1988, a copy
of which, together with all amendments thereto (the "Declaration"), is on file
in the office of the Secretary of The Commonwealth of Massachusetts, provides
that the name "Manufacturers Investment Trust" refers to the Trustees under the
Declaration collectively as Trustees, but not as individuals or personally; and
no Trustee, shareholder, officer, employee or agent of the Trust shall be held
to any personal liability, nor shall resort be had to their private property,
for the satisfaction of any obligation or claim, in connection with the affairs
of the Trust or any portfolio thereof, but only the assets belonging to the
Trust, or to the particular portfolio with respect to which such obligation or
claim arose, shall be liable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers as of the date first
mentioned above.
MANUFACTURERS ADVISER CORPORATION
by: _____________________________________
by: _____________________________________
STATE STREET GLOBAL ADVISORS, A DIVISION OF STATE STREET
BANK AND TRUST COMPANY
by: _____________________________________
4
<PAGE> 5
APPENDIX A
The Subadviser will pay SSgA, as full compensation for all services
provided under this Agreement a subadvisory consulting fee for each Lifestyle
Trust at an annual rate as follows:
<TABLE>
<CAPTION>
FIRST EXCESS OVER
PORTFOLIOS $100 MILLION $100 MILLION
<S> <C> <C>
Lifestyle Aggressive 1000 Trust........... .075% .050%
Lifestyle Growth 820 Trust................ .075% .050%
Lifestyle Balanced 640 Trust.............. .075% .050%
Lifestyle Moderate 460 Trust.............. .075% .050%
Lifestyle Conservative 280 Trust.......... .075% .050%
</TABLE>
The subadvisory consulting fee for each Lifestyle Trust is accrued for
each calendar day and the sum of the daily fee accruals will be paid monthly to
SSgA. The daily fee accruals will be computed by multiplying the fraction of one
over the number of calendar days in the year by the applicable annual rate
described in the preceding paragraph, and multiplying this product by the net
assets of the applicable Lifestyle Trust as determined in accordance with the
Trust's prospectus and statement of additional information as of the close of
business on the previous business day on which the Trust was open for business.
If this Agreement becomes effective or terminates before the end of any
month, the fee (if any) for the period from the effective date to the end of
such month or from the beginning of such month to the date of termination, as
the case may be, will be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
5
<PAGE> 1
Exhibit (i)(9)
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
73 TREMONT STREET
BOSTON, MASSACHUSETTS 02108
February 28, 2000
To Whom it may concern:
This opinion is written in reference to the shares of beneficial interest, $.01
par value (the "Shares") of the following series of Manufacturers Investment
Trust, a Massachusetts business trust (the "Trust"), to be offered and sold
pursuant to a Registration Statement on Form N-1A (registration no. 2-94157)
(the "Registration Statement") filed by the Trust pursuant to the Securities
Act of 1933:
DYNAMIC GROWTH
INTERNET TECHNOLOGIES
TACTICAL ALLOCATION
MID CAP INDEX
SMALL CAP INDEX
TOTAL STOCK MARKET INDEX
INTERNATIONAL INDEX
500 INDEX
I have examined such records and documents and reviewed such questions of law
as I deemed necessary for purposes of this opinion.
1. The Trust has been duly recorded under the laws of the Commonwealth of
Massachusetts and is a validly existing Massachusetts business trust.
2. The Shares have been duly authorized and, when sold, issued and paid
for in the manner contemplated by the Registration Statement, will be legally
issued, fully paid and non-assessable.
I consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement.
Very truly yours,
/s/ Betsy Anne Seel
Betsy Anne Seel, Esq.
<PAGE> 1
Exhibit (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into this Post-Effective
Amendment No. 42 to the Registration Statement on Form N-1A of our report dated
February 18, 2000, relating to the financial statements and financial highlights
which appears in the December 31, 1999 Annual Report to Shareholders of the
Manufacturers Investment Trust, which is also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" and "Independent Accountants" in such
Registration Statement.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
March 1, 2000
<PAGE> 1
Exhibit (p)
Amended and Restated December 17, 1999
MANUFACTURERS INVESTMENT TRUST
CODE OF ETHICS
1. Definitions
1.1 Trust. As used in this Code, "Trust" shall mean Manufacturers
Investment Trust, a Massachusetts business trust registered as an open-end
diversified investment company under the Investment Company Act of 1940 (the
"1940 Act").
1.2 Access Person. As used in this Code, the term "access person" shall
mean any trustee, officer or advisory person of the Trust.
1.3 Advisory Person. As used in this Code, the term "advisory person"
shall mean: (i) any employee of: (x) the Trust, (y) any investment adviser or
subadviser of the Trust, or (z) any company in a control relationship to the
Trust or to any investment adviser or subadviser of the Trust, who, in
connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of a covered security by
the Trust, or whose functions relate to the making of any recommendations with
respect to such purchases or sales including any "Investment Person" or
"Portfolio Manager" as defined below; and
(ii) any natural person in a control relationship to the Trust or any
investment adviser or subadviser of the Trust who obtains information concerning
recommendations made to the Trust with regard to the purchase or sale of a
security.
1.4 Active Consideration. A security will be deemed under "active
consideration" when a recommendation to purchase or sell a security has been
made and communicated to the person or persons ultimately making the decision to
buy or sell the security. A security will also be deemed under "active
consideration" whenever an advisory person focuses on a specific security and
seriously considers recommending the security to the Trust.
A security will be deemed under "active consideration" until the Trust
implements or rejects the recommendation or until the proper advisory person
decides not to recommend the purchase or sale of the security to the Trust.
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A security will not be deemed under "active consideration" if the
security is being reviewed only as part of a general industrial survey or other
broad monitoring of the securities market.
1.5 Beneficial Ownership. "Beneficial ownership" shall be interpreted
in the same manner as it would be under Rule 16a-1(a)(2) under the Securities
Exchange Act of 1934 ("1934 Act") in determining whether a person is subject to
the provisions of Section 16 of the Securities Exchange Act of 1934 and the
rules and regulations thereunder, except that the determination of direct or
indirect beneficial ownership shall apply to all securities which an access
person has or acquires.
1.6 Control. "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the Investment Company Act.
1.7 Covered Security. "Covered Security" shall mean a security as
defined in Section 2(a)(36) of the Investment Company Act, except that it shall
not include securities issued by the Government of the United States, high
quality, short term debt securities(1), including repurchase agreements,
bankers' acceptances, bank certificates of deposit, commercial paper and shares
of registered open-end investment companies (i.e., mutual funds).
1.8 Covered Security Held or to be Acquired by the Trust. "Covered
security held or to be acquired by the Trust" shall mean (i) any covered
security which, within the most recent 15 days is or has been held by the Trust
or is being or has been considered by the Trust or its investment adviser or any
of its subadvisers for purchase by the Trust and (ii) any option to purchase or
sell, and any security convertible into or exchangeable for, such a covered
security.
1.9 Disinterested Trustee. As used in this Code, the term
"disinterested trustee" shall mean a trustee of the Trust who is not an
"interested person" of the Trust within the meaning of Section 2(a)(19) of the
Investment Company Act.
1.10 Initial Public Offering. Initial public offering means an offering
of securities registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of sections 13 or 15(d) of the 1934 Act.
- --------
(1) A high quality, short term debt security means any instrument that has a
maturity at issuance of less than 366 days and that is rated in one of the two
highest rating categories by a Nationally Recognized Statistical Rating
Organization.
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1.11 Investment Person. As used in this Code, the term "Investment
Person" shall mean (i) any employee of: (x) the Trust, (y) the investment
adviser or subadviser of the Trust or (z) any company in a control relationship
to the Trust or an investment adviser or subadviser of the Trust, who in
connection with his or her regular functions or duties makes or participates in
making recommendations regarding the purchase or sale of securities by any
series of the Trust or (ii) any natural person who controls (y) the Trust (or
any series thereof) or (z) any investment adviser or subadviser of the Trust,
who obtains information concerning recommendations made to any series of the
Trust regarding the purchase or sale of securities by the series. Any Portfolio
Manager of the Trust shall be considered an Investment Person.
1.12 Portfolio Manager. As used in this Code, the term "Portfolio
Manager" shall mean the person or persons with the direct responsibility and
authority to make investment decisions affecting any series of the Trust.
1.13 Private Placement. A private placement means an offering that is
exempt from registration under the Securities Act of 1933 pursuant to section
4(2) or section 4(6) or pursuant to rule 504, rule 505 or rule 506 under the
Securities Act of 1933.
1.14 Purchase or Sale of a Covered Security. "Purchase or sale of a
covered security" includes, inter alia, the writing of an option to purchase or
sell a covered security.
1.15 Supervisory Person. The General Counsel of the investment adviser
of the Trust or his or her designee.
1.16 Additional Definitions. All other terms used in this Code shall be
defined by reference to the 1940 Act or the 1934 Act.
2. Purpose of the Code.
2.1 This Code establishes rules of conduct for access persons
of the Trust and is designed to govern the personal securities activities of
access persons. In general, in connection with personal securities transactions,
access persons should (1) always place the interests of the Trust's shareholders
first; (2) ensure that all personal securities transactions are conducted
consistent with this Code and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of an access person's position of
trust and responsibility; and (3) not take inappropriate advantage of their
positions.
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<PAGE> 4
2.2 Code is designed to prevent certain practices by access
persons in connection with the purchase or sale, directly or indirectly, by such
access persons of securities held or to be acquired by the Trust. These include:
(a) employing any device, scheme or artifice to defraud the Trust;
(b) making any untrue statement of a material fact to the Trust or
omitting to state a material fact necessary in order to make
the statements made to the Trust, in light of the
circumstances under which they are made, not misleading;
(c) engaging in any act, practice, or course of business that
operates or would operate as a fraud or deceit upon the Trust;
or
(d) engaging in any manipulative practice with respect to the
Trust.
3. Prohibited Purchase and Sales.
3.1 No access person shall purchase or sell, directly or indirectly,
any covered security in which he or she has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which to his or her
actual knowledge at the time of such purchase or sale is currently under active
consideration for purchase or sale by the Trust; provided that for purposes of
this section a covered security shall be deemed to be under active consideration
until five business days shall have elapsed from the date the Trust ceased
activity in the purchase or sale of such covered security.
3.2 No Portfolio Manager shall purchase or sell, directly or
indirectly, any covered security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership within seven
calendar days before and after the particular series of the Trust that he or she
manages trades in that covered security.
3.3 No Investment Person shall acquire any securities in an initial
public offering for his or her personal account.
3.4 No Investment Person shall acquire, directly or indirectly,
beneficial ownership of any securities in a private placement without the prior
approval of the Supervisory Person. This approval shall take into account
whether the investment opportunity should be reserved for the Trust, whether the
opportunity is being offered to an individual by virtue of his or her position
with the Trust and any other relevant factors. If an Investment Person has
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purchased a covered security in a private placement, then (a) such Investment
Person must disclose his or her ownership of the covered security if he or she
has a material role in the Trust's subsequent consideration to purchase the
covered security and (b) the Trust's decision to purchase the covered security
will be reviewed by at least two other Investment Persons with no personal
interest in the issuer.
3.5 No Investment Person shall profit from the purchase and sale, or
sale and purchase, of the same (or equivalent) covered securities of which such
Investment Person has beneficial ownership within 60 calendar days.
3.6 These prohibitions shall apply to the purchase or sale by any
access person of any convertible covered security, option or warrant of any
issuer whose underlying securities are under active consideration by the Trust.
3.7 Any profits realized on transactions prohibited by this Section 3
shall be paid to the affected series of the Trust or to a charitable
organization designated by the Board of Trustees of the Trust.
3.8 These prohibitions shall not apply to purchases and sales specified
in Section 4 of this Code.
4. Exempt Transactions.
The prohibitions in Section 3 of this Code shall not apply to the
following transactions by access persons;
(a) purchases or sales effected in any account over which an access
person has no direct or indirect influence or control;
(b) purchases or sales of securities which are not eligible for
purchase or sale by the Trust;
(c) purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales of such rights so acquired;
(d) purchases or sales which are non-volitional on the part of either
the access person or the Trust;
(e) purchases which are part of an automatic dividend reinvestment
plan;
(f) purchases or sales approved by a majority vote of those trustees
having no interest in the transaction (or by another designated person or body
not involved in the transaction) upon a showing of good cause. Good cause will
be deemed to exist where unexpected hardship occasions the need for additional
funds. A change in investment objectives will not be deemed "good cause" and
(g) purchase or sales approved by a majority vote of those trustees
having no interest in the transactions (or by another designated person or body
not involved in the transaction) where the purchases and sales
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<PAGE> 6
have only a remote potential of harming the Trust because (1) such transactions
are in a highly institutionalized market and would have little effect on such
market; or (2) such transactions clearly are not related economically to the
securities to be purchased, sold or held by the Trust.
5. Prohibited Business Conduct.
5.1 No access person shall, either directly or indirectly;
(a) engage in any business transaction or arrangement for personal
profit based on confidential information gained by way of employment
with the Trust or its investment adviser or subadviser;
(b) communicate non-public information about security transactions of
the Trust whether current or prospective, to anyone unless necessary as
part of the regular course of the Trust's business. Non-public
information regarding particular securities, including reports and
recommendations of any investment adviser or subadviser to the Trust,
must not be given to anyone who is not an officer or director of the
Trust or the investment adviser without prior approval of the
Supervisory Person.
(c) accept a gift, favor, or service of more than de minimis value from
any person or company which, to the actual knowledge of such access
person, does business or might do business with the Trust, the
investment adviser or subadviser, or The Manufacturers Life Insurance
Company of North America or its affiliates;
(d) buy or sell any security or any other property from or to the
Trust.
5.2 No Investment Person shall serve on the board of directors of any
publicly traded company without prior authorization from the
Supervisory Person based upon a determination that such board service
would be consistent with the interests of the Trust and its
shareholders. Any Investment Person so authorized to serve as a
director will be isolated from other persons making investment
decisions for the Trust through a "Chinese Wall" or other procedures.
6. Reporting.
Initial and Annual Reporting
6.1 Every access person shall provide to the Board of Trustees of the
Trust within 10 days after becoming an access person and annually
thereafter a report listing all covered securities in which he or she
has any direct or indirect beneficial ownership; provided, however,
that an access person shall not be required to make a report with
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<PAGE> 7
respect to securities held in an account over which he or she has no direct or
indirect influence or control. The information in the annual report must be
current as of a date no more than 30 days before the report is filed.
6.2 The report required by Section 6.1 shall include the title, number
of shares and principal amount of each covered security in which the access
person had any direct or indirect beneficial ownership; the name of any broker,
dealer or bank with whom the access person maintained an account in which any
securities were held for the direct or indirect benefit of the access person;
and the date that the report is submitted by the access person.
Quarterly Reporting
6.3 Within 10 days after the end of a calendar quarter, an access
person shall report to the Board of Trustees of the Trust any transaction during
the quarter in a covered security in which he or she had, or by reason of such
transaction acquired, any direct or indirect beneficial ownership; provided,
however, that an access person shall not be required to make a report with
respect to transactions effected for any account over which he or she has no
direct or indirect influence or control.
6.4 Any quarterly transaction reports required by section 6.3 shall
state:
(a) the title and number of shares, the interest rate and maturity date
(if applicable) and the principal amount of the covered security involved;
(b) (if applicable) the date and nature of the transaction (i.e.,
purchase, sale or any other type of acquisition or disposition) or the date the
account was established;
(c) the price at which the transaction was effected; and
(d) the name of the broker, dealer or bank with or through whom the
transaction was effected or with whom the access person established or
maintained the account; and
(e) the date that the report is submitted by the access person.
6.5 Within 10 days after the end of a calendar quarter, an access
person shall report to the Board of Trustees with respect to any account
established by the access person in which securities were held during the
quarter for the direct or indirect benefit of the access person; provided,
however, that an access person shall not be required to make a report with
respect to any securities held in any account over which he or she has no direct
or indirect influence or control. Any such quarterly account report shall
include the name of the broker, dealer or bank
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<PAGE> 8
with whom the access person established the account; the date the account was
established; and the date that the report is submitted by the access person.
6.6 A disinterested trustee of the Trust need not make an initial or
annual holdings report or the quarterly account report required by Section 6.5.
A disinterested trustee need only make a quarterly transaction report in a
covered security if the trustee, at the time of that transaction, knew or, in
the ordinary course of fulfilling his or her official duties as a trustee of the
Trust, should have known that, during the 15-day period immediately preceding or
after the date of the transaction by the trustee, the covered security is or was
under active consideration for purchase or sale by the Trust or its investment
adviser or subadviser or is or was purchased or sold by the Trust.
6.7 An access person need not make a quarterly transaction report or a
quarterly account report if the report would duplicate information contained in
broker trade confirmations or account statements received by the Trust with
respect to the access person in the time required, if all of the required
information is contained in the broker trade confirmations or account statements
or in the records of the Trust.
Disclaimer of Beneficial Ownership
6.9 Any report required by this Section 6 may also contain a statement
declaring that the reporting or recording of any transaction shall not be
construed as an admission by the access person making the report that he or she
has any direct or indirect beneficial ownership in the covered security to which
the report relates.
Annual Access Person Certification
6.10 Each access person shall certify annually that he or she has read
and understood the Code and recognizes that he or she is subject to the Code.
Further, each access person is required to certify annually that he or she has
complied with all the requirements of the Code and that he or she disclosed or
reported all personal securities transactions required to be disclosed or
reported pursuant to the requirements of the Code.
Annual Reports to the Board of Trustees
6.11 At least annually, the Trust and each investment adviser and
subadviser of the Trust shall report to the Board of Trustees regarding:
(a) All existing procedures concerning personal trading
activities and any procedural changes made during the past year;
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<PAGE> 9
(b) any recommended changes to the Code or procedures; and
(c) any issues arising under the Code since the last report to
the Board of Trustees, including, but not limited to, information about any
materials violations of the Code and any sanctions imposed in response to the
material violations.
The Trust and each investment adviser and subadviser of the Trust shall
also certify at least annually that it has adopted procedures
reasonably necessary to prevent access persons from violating the Code.
Reports of Violations and Sanctions
7.1 Every access person aware of any violation of this Code shall
report the violation to the Supervisory Person in an expedient fashion.
7.2 Upon learning of a violation of this Code, the Board of Trustees of
the Trust may impose any sanctions as it deems appropriate under the
circumstance, including, but not limited to, letters of reprimand,
suspension or termination of employment, disgorgement of profits and
notification to regulatory authorities in the case of Code violations
which also constitute fraudulent conduct.
8. Applicability of Code to Subadvisers.
Any person who is an access person because of his or her relationship
with a subadviser of the Trust is not subject to this Code provided
that the subadviser has adopted its own Code of Ethics that complies
with the requirements of Rule 17j-1 under the 1940 Act and:
(i) such Code of Ethics substantially complies with the recommendations
contained in the Investment Company Institute's Report of the Advisory
Group on Personal Investing dated May 9, 1994, or
(ii) based on information provided by the subadviser, counsel to the Trust
accepts the Subadviser's determination that its Code of Ethics is
adequate based on the type of subadvisory services provided to the
Trust by the subadviser.
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Amended and Restated December 17, 1999
Manufacturers Securities Services, LLC
CODE OF ETHICS
1. Definitions
1.1 Trust. As used in this Code, "Trust" shall mean Manufacturers
Investment Trust, a Massachusetts business Trust registered as an open-end
diversified investment company under the Investment Company Act of 1940 (the
"1940 Act").
1.2 Access Person. As used in this Code, the term "access person" shall
mean any director, officer, general partner or advisory person of Manufacturers
Securities Services, LLC ("MSS").
1.3 Advisory Person. As used in this Code, the term "advisory person"
shall mean: (i) any employee of MSS or any company in a control relationship to
MSS who, in connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase or sale of a
covered security by or for the Trust, or whose functions relate to the making of
any recommendations with respect to such purchases or sales including any
"Investment Person" or "Portfolio Manager" as defined below; and
(ii) any natural person in a control relationship to MSS who obtains
information concerning recommendations made to the Trust with regard to the
purchase or sale of a covered security.
1.4 Active Consideration. A covered security will be deemed under
"active consideration" when a recommendation to purchase or sell a covered
security has been made and communicated to the person or persons ultimately
making the decision to buy or sell the covered security. A covered security will
also be deemed under "active consideration" whenever an advisory person focuses
on a specific covered security and seriously considers recommending the covered
security to the Trust.
<PAGE> 11
A covered security will be deemed under "active consideration" until
the Trust implements or rejects the recommendation or until the proper advisory
person decides not to recommend the purchase or sale of the covered security to
the Trust.
A covered security will not be deemed under "active consideration" if
the covered security is being reviewed only as part of a general industrial
survey or other broad monitoring of the securities market.
1.5 Beneficial Ownership. "Beneficial ownership" shall be interpreted
in the same manner as it would be under Rule 16a-1(a)(2) under the Securities
Exchange Act of 1934 ("1934 Act") in determining whether a person is subject to
the provisions of Section 16 of the Securities Exchange Act of 1934 and the
rules and regulations thereunder, except that the determination of direct or
indirect beneficial ownership shall apply to all securities which an access
person has or acquires.
1.6 Control. "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the Investment Company Act.
1.7 Covered Security. "Covered Security" shall mean a security as
defined in Section 2(a)(36) of the Investment Company Act, except that it shall
not include securities issued by the Government of the United States, high
quality, short term debt securities(1), including repurchase agreements,
bankers' acceptances, bank certificates of deposit, commercial paper and shares
of registered open-end investment companies (i.e., mutual funds).
1.8 Covered Security Held or to be Acquired by the Trust. "Covered
security held or to be acquired by the Trust" shall mean (I) any covered
security which, within the most recent 15 days is or has been held by the Trust
or is being or has been considered by the Trust or its investment adviser or any
of it subadvisers for purchase by the Trust and (ii) any option to purchase or
sell, and any security convertible into or exchangeable for, such a covered
security.
1.9 Initial Public Offering. Initial public offering means an offering
of securities registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of sections 13 or 15(d) of the 1934 Act.
- --------
1 High quality, short term debt securities means any instrument that has a
maturity at issuance of less than 366 days and that is rated in one of the two
highest rating categories by a Nationally Recognized Statistical Rating
Organization.
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1.10 Investment Person. As used in this Code, the term "Investment
Person" shall mean (i) any employee of MSS (or of any company in a control
relationship to MSS), including a Portfolio Manager, who in connection with his
or her regular functions or duties makes or participates in making
recommendations regarding the purchase or sale of securities by any series of
the Trust or (ii) any natural person who controls MSS who obtains information
concerning recommendations made to any series of the Trust regarding purchase or
sale of securities by the series.
1.11 Portfolio Manager. As used in this Code, the term "Portfolio
Manager" shall mean the person or persons with the direct responsibility and
authority to make investment decisions affecting any series of the Trust.
1.12 Private Placement. A private placement means an offering that is
exempt from registration under the Securities Act of 1933 pursuant to section
4(2) or section 4(6) or pursuant to rule 504, rule 505 or rule 506 under the
Securities Act of 1933.
1.13 Purchase or Sale of a Covered Security. "Purchase or sale of a
covered security" includes, inter alia, the writing of an option to purchase or
sell a covered security.
1.14 Supervisory Person. The General Counsel of MSS or his or her
designee.
1.15 Additional Definitions. All other terms used in this Code shall be
defined by reference to the 1940 Act or the 1934 Act.
2. Purpose of the Code.
2.1 This Code establishes rules of conduct for access persons of MSS
and is designed to govern the personal securities activities of access persons.
In general, in connection with personal securities transactions, access persons
should (1) always place the interests of the Trust's shareholders first; (2)
ensure that all personal securities transactions are conducted consistent with
this Code and in such a manner as to avoid any actual or potential conflict of
interest or any abuse of an access person's position of trust and
responsibility; and (3) not take inappropriate advantage of their positions.
2.2 The Code is designed to prevent certain practices by access persons
in connection with the purchase or sale, directly or indirectly, by such access
persons of securities held or to be acquired by the Trust. These include:
(a) employing any device, scheme or artifice to defraud the Trust;
3
<PAGE> 13
(b) making any untrue statement of a material fact to the Trust or
omitting to state a material fact necessary in order to make
the statements made to the Trust, in light of the
circumstances under which they are made, not misleading;
(c) engaging in any act, practice, or course of business that
operates or would operate as a fraud or deceit upon the Trust;
(d) engaging in any manipulative practice with respect to the
Trust; or
(e) misusing material, non-public information obtained by such
access person in his or her capacity as access person of MSS.
3. Prohibited Purchase and Sales.
3.1 No access person shall purchase or sell, directly or indirectly,
any covered security in which he or she has, or by reason of such transaction
acquires, any direct or indirect beneficial ownership and which to his or her
actual knowledge at the time of such purchase or sale is currently under active
consideration for purchase or sale by the Trust; provided that for purposes of
this section a covered security shall be deemed to be under active consideration
until five business days shall have elapsed from the date the Trust ceased
activity in the purchase or sale of such covered security.
3.2 No Portfolio Manager shall purchase or sell, directly or
indirectly, any covered security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership within seven
calendar days before and after the particular series of the Trust that he or she
manages trades in that covered security.
3.3 No Investment Person shall acquire any securities in an initial
public offering for his or her personal account.
3.4 No Investment Person shall acquire, directly or indirectly,
beneficial ownership of any securities in a private placement without the prior
approval of the Supervisory Person. This approval shall take into account
whether the investment opportunity should be reserved for the Trust, whether the
opportunity is being offered to an individual by virtue of his or her position
with the Trust and any other relevant factors. If an Investment Person has
purchased a covered security in a private placement, then (a) such Investment
Person must disclose his or her ownership of the covered security if he or she
has a material role in a Trust's subsequent consideration to purchase the
covered security
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and (b) a Trust's decision to purchase the covered security will be reviewed by
at least two other Investment Persons with no personal interest in the issuer.
3.5 No Investment Person shall profit from the purchase and sale, or
sale and purchase, of the same (or equivalent) covered securities of which such
Investment Person has beneficial ownership within 60 calendar days.
3.6 These prohibitions shall apply to the purchase or sale by any
access person of any convertible covered security, option or warrant of any
issuer whose underlying securities are under active consideration by the Trust.
3.7 Any profits realized on transactions prohibited by this Section 3
shall be paid to the affected series of the Trust or to a charitable
organization designated by the Board of Directors.
3.8 These prohibitions shall not apply to purchases and sales specified
in Section 4 of this Code.
4. Exempt Transactions.
The prohibitions in Section 3 of this Code shall not apply to the
following transactions by access persons;
(a) purchases or sales effected in any account over which an access
person has no direct or indirect influence or control;
(b) purchases or sales of securities which are not eligible for
purchase or sale by the Trust;
(c) purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its securities, to the extent such rights
were acquired from such issuer, and sales of such rights so acquired;
(d) purchases or sales which are non-volitional on the part of either
the access person or the Trust;
(e) purchases which are part of an automatic dividend reinvestment
plan;
(f) purchases or sales approved by a majority vote of those directors
of MSS having no interest in the transaction (or by another designated person or
body not involved in the transaction) upon a showing of good cause. Good cause
will be deemed to exist where unexpected hardship occasions the need for
additional funds. A change in investment objectives will not be deemed "good
cause" and
(g) purchases or sales approved by a majority vote of those directors
of MSS having no interest in the transactions (or by another designated person
or body not involved in the transaction) where the purchases and sales have only
a remote potential of harming the Trust because (1) such transactions are in a
highly institutionalized market
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and would have little effect on such market; or (2) such transactions clearly
are not related economically to the securities to be purchased, sold or held by
the Trust.
5. Prohibited Business Conduct.
5.1 No access person shall, either directly or indirectly;
(a) engage in any business transaction or arrangement for personal
profit based on confidential information gained by way of employment with MSS;
(b) communicate non-public information about security transactions of
the Trust whether current or prospective, to anyone unless necessary as part of
the regular course of the Trust's business. Non-public information regarding
particular securities, including reports and recommendations of MSS or any
subadviser to the Trust, must not be given to anyone who is not an officer or
director of the Trust or MSS without prior approval of the Supervisory Person.
(c) accept a gift, favor, or service of more than de minimis value from
any person or company which, to the actual knowledge of such access person, does
business or might do business with the Trust, MSS, any subadviser of the Trust,
or The Manufacturers Life Insurance Company of North America or its affiliates;
(d) buy or sell any security or any other property from or to the
Trust, provided that this item shall not be construed to prohibit a person from
being a policy owner of a variable annuity or life insurance policy which is
funded by the Trust.
5.2 No Investment Person shall serve on the board of directors of any
publicly traded company without prior authorization from the Supervisory Person
based upon a determination that such board service would be consistent with the
interests of the Trust and its shareholders. Any Investment Person so authorized
to serve as a director will be isolated from other persons making investment
decisions for the Trust through a "Chinese Wall" or other procedures.
6. Reporting.
Initial and Annual Reporting
6.1 Every access persons shall provide to the board of directors of MSS
within 10 days after becoming an access person and annually thereafter a report
listing all covered securities in which he or she has any direct or
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indirect beneficial ownership in the covered security; provided, however, that
an access person shall not be required to make a report with respect to
securities held in an account over which he or she has no direct or indirect
influence or control. The information in the annual report must be current as of
a date no more than 30 days before the report is filed.
6.2 The report required by Section 6.1 shall include the title, number
of shares and principal amount of each covered security in which the access
person had any direct or indirect beneficial ownership when the person became an
access person; the name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held for the direct or
indirect benefit of the access person as of the date the person became an access
person; and the date that the report is submitted by the access person.
Quarterly Reporting
6.3 Within 10 days after the end of a calendar quarter, an access
person shall report to the board of directors of MSS any transaction during the
quarter in a covered security in which he or she had, or by reason of such
transaction acquired, any direct or indirect beneficial ownership; provided,
however, that an access person shall not be required to make a report with
respect to transactions effected for any account over which he or she has no
direct or indirect influence or control.
6.4 Any quarterly transaction reports required by section 6.3 shall
state:
(a) the title and number of shares, the interest rate and maturity date
(if applicable) and the principal amount of the covered security involved;
(b) (if applicable) the date and nature of the transaction (i.e.,
purchase, sale or any other type of acquisition or disposition) or the date the
account was established;
(c) the price at which the transaction was effected;
(d) the name of the broker, dealer or bank with or through whom the
transaction was effected or with whom the access person established or
maintained the account.
(e) The date that the report is submitted by the access person.
6.5 Within 10 days after the end of a calendar quarter, an access person shall
report to the board of directors of MSS with respect to any account established
by the access person in which securities were held during the
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quarter for the direct or indirect benefit of the access person; provided,
however, that an access person shall not be required to make a report with
respect to any securities held in any account over which he or she has no direct
or indirect influence or control. Any such quarterly account report shall
include the name of the broker, dealer or bank with whom the access person
established the account; the date the account was established; and the date that
the report is submitted by the access person.
6.6 An access person need not make a quarterly transaction report or
the quarterly account report if the report would duplicate information contained
in broker trade confirmations or account statements received by MSS with respect
to the access person in the time required, if all of the required information is
contained in the broker trade confirmations or account statements or in the
records of MSS.
Disclaimer of Beneficial Ownership
6.7 Any report required by this Section 6 may also contain a statement
declaring that the reporting or recording of any transaction shall not be
construed as an admission by the access person making the report that he or she
has any direct or indirect beneficial ownership in the covered security to which
the report relates.
Annual Access Person Certification
6.8 Each access person shall certify annually that he or she has read
and understood the Code and recognizes that he or she is subject to the Code.
Further, each access person is required to certify annually that he or she has
complied with all the requirements of the Code and that he or she disclosed or
reported all personal securities transactions required to be disclosed or
reported pursuant to the requirements of the Code.
Annual Reports to the Board of Trustees of the Trust
6.9 At least annually, MSS shall report to the Board of Trustees
regarding:
(a) All existing procedures concerning personal trading
activities and any procedural changes made during the past year;
(b) any recommended changes to the Code or procedures; and
(c) any issues arising under the Code since the last report to
the Board of Trustees, including, but not limited to, information about any
material violations of the Code and any sanctions imposed in response to the
material violations.
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MSS shall also certify to the Board of Trustees at least annually that
it has adopted procedures reasonably necessary to prevent access persons from
violating the Code.
7. Reports of Violations and Sanctions
7.1 Every access person aware of any violation of this Code shall
report the violation to the Supervisory Person in an expedient fashion.
7.2 Upon learning of a violation of this Code, MSS may impose any
sanctions as it deems appropriate under the circumstance, including, but not
limited to, letters of reprimand, suspension or termination of employment,
disgorgement of profits and notification to regulatory authorities in the case
of Code violations which also constitute fraudulent conduct. All material
violations of this Code and any sanctions imposed with respect thereto shall be
reported periodically to the Board of Trustees of the Trust with respect to
whose securities the violation occurred.
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<PAGE> 19
A I M MANAGEMENT GROUP INC.
CODE OF ETHICS
(ADOPTED MAY 1, 1981)
(AS LAST AMENDED AUGUST 17, 1999)
WHEREAS, the members of the AIM Management Group are A I M Management
Group Inc. ("AIM Management") and A I M Advisors, Inc. ("AIM Advisors") and its
wholly owned and indirect subsidiaries (individually and collectively referred
to as "AIM"); and
WHEREAS, certain members of AIM provide investment advisory services to
AIM's investment companies and other clients; and
WHEREAS, certain members of AIM provide distribution services as principal
underwriters for AIM's investment company clients; and
WHEREAS, certain members of AIM provide shareholder services as the
transfer agent, dividend disbursing agent and shareholder processing agent for
AIM's investment company clients; and
WHEREAS, the investment advisory business involves decisions and
information which may have at least a temporary impact on the market price of
securities, thus creating a potential for conflicts of interest between the
persons engaged in such business and their clients; and
WHEREAS, the members of AIM have a fiduciary relationship with respect to
each portfolio under management and the interests of the client accounts and of
the shareholders of AIM's investment company clients must take precedence over
the personal interests of the employees of AIM, thus requiring a rigid adherence
to the highest standards of conduct by such employees; and
WHEREAS, every practical step must be taken to ensure that no intentional
or inadvertent action is taken by an employee of AIM which is, or appears to be,
adverse to the interests of AIM or any of its client accounts, including the
defining of standards of behavior for such employees, while at the same time
avoiding unnecessary interference with the privacy or personal freedom of such
employees; and
WHEREAS, the members of AIM originally adopted a Code of Ethics ("the
Code") on May 1, 1981, and adopted amendments thereto in January 1989, October
1989, April 1991, December 6, 1994 and December 5, 1995, December 10, 1996, and
now deem it advisable to update and revise said Code in light of new investment
company products developed by AIM and changing circumstances in the securities
markets in which AIM conducts business; and
NOW, THEREFORE, the Boards of Directors of AIM Management and AIM Advisors
hereby adopt the following revised Code pursuant to the provisions of Rule 17j-1
under the Investment Company Act of 1940 ("1940 Act"), with the intention that
certain provisions of the Code shall become applicable to the officers,
directors and employees of AIM.
I. APPLICABILITY
A. The provisions of AIM's Code shall apply to certain officers,
directors and employees (as hereinafter designated) of AIM. Unless
otherwise indicated, the term "employee" as used herein means: (i)
all officers, directors and employees of AIM Advisors and its wholly
owned and indirect subsidiaries and (ii) officers, directors and
employees of AIM Management who
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have an active part in the management, portfolio selection,
underwriting or shareholder functions with respect to AIM's
investment company clients or provide one or more similar services
for AIM's non-investment company clients. The term "employee" does
not include directors of AIM Management who do not maintain an
office at the home office of AIM Management and who do not regularly
obtain information concerning the investment recommendations or
decisions made by AIM on behalf of client accounts ("independent
directors").
B. The Code shall also apply to any person or entity appointed as a
sub-advisor for an AIM investment company client account unless such
person or entity has adopted a code of ethics in compliance with
Section 17(j) of the 1940 Act; or, in the event that such person or
entity is domiciled outside of the United States, has adopted
employee standards of conduct that provide equivalent protections to
AIM's client accounts. In performing sub-advisory services, such
person or entity will be subject to the direction and supervision of
AIM, and subject to the policies and control of the Boards of
Directors/Trustees of the respective AIM investment company
client(s).
II. INTERPRETATION AND ENFORCEMENT
A. The Chief Executive Officer of AIM Management shall appoint a Code
of Ethics Committee ("Committee"). The Committee shall have the
responsibility for interpreting the provisions of the Code, for
adopting and implementing Procedures for the enforcement of the
provisions of the Code, and for determining whether a violation of
the provisions of the Code, or of any such related Procedures has
occurred. The Committee will appoint an officer to monitor personal
investment activity by "Covered Persons" (as defined in the
Procedures adopted hereunder), both before and after any trade
occurs and to prepare periodic and annual reports, conduct education
seminars and obtain employee certifications as deemed appropriate.
In the event of a finding that a violation has occurred requiring
significant remedial action, the Committee shall take such action as
it deems appropriate on the imposition of sanctions or initiation of
disgorgement proceedings. The Committee shall also make
recommendations and submit reports to the Boards of
Directors/Trustees of AIM's investment company clients.
B. If a sub-advisor has adopted a code of ethics in accordance with
Section 17(j) of the 1940 Act, then pursuant to a sub-advisory
agreement with AIM, it shall be the duty of such sub-advisor to
furnish AIM with a copy of the following:
- code of ethics and related procedures of the sub-advisor, and
a statement as to its employees' compliance therewith;
- any statement or policy on insider trading adopted pursuant to
Section 204A under the 1940 Act; and the procedures designed
to prevent the misuse of material non-public information by
any person associated with such sub-advisor; and
- such other information as may reasonably be necessary for AIM
to report to the Boards of Directors/Trustees of its
investment company client account(s) as to such sub-advisor's
adherence to the Boards' policies and controls referenced in
Section I.B. above.
III. PROCEDURES ADOPTED UNDER THE CODE
From time to time, AIM's Committee shall adopt Procedures to carry out the
intent of the Code. Among other things, the Procedures require certain new
employees to complete an Asset Disclosure Form, a Brokerage Accounts
Listing Form and such other forms as deemed appropriate by the Committee.
Such Procedures are hereby incorporated into the Code and are made a part
of the Code. Therefore, a violation of the Procedures shall be deemed a
violation of the Code itself.
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IV. COMPLIANCE WITH GOVERNING LAWS, REGULATIONS AND PROCEDURES
A. Each employee shall have and maintain knowledge of and shall comply
strictly with all applicable federal and state laws and all rules and
regulations of any governmental agency or self-regulatory
organization governing his/her actions as an employee.
B. Each employee shall comply with all laws and regulations, and AIM's
prohibition against insider trading. Trading on or communicating
material non-public information, or "inside information", of any
sort, whether obtained in the course of research activities, through
a client relationship or otherwise, is strictly prohibited.
C. Each employee shall comply with the procedures and guidelines
established by AIM to ensure compliance with applicable federal and
state laws and regulations of governmental agencies and
self-regulatory organizations. No employee shall knowingly
participate in, assist, or condone any act in violation of any
statute or regulation governing AIM or any act that would violate any
provision of this Code, or of the Procedures adopted hereunder.
D. Each employee shall have and maintain knowledge of and shall comply
with the provisions of this Code and any Procedures adopted
hereunder.
E. Each employee having supervisory responsibility shall exercise
reasonable supervision over employees subject to his/her control,
with a view to preventing any violation by such persons of applicable
statutes or regulations, AIM's corporate procedures, or the
provisions of the Code, or the Procedures adopted hereunder.
F. Any employee obtaining evidence that an act in violation of
applicable statutes, regulations or provisions of the Code or of any
Procedures adopted hereunder has occurred shall immediately report
such evidence to the Chief Compliance Officer of AIM. Such action by
the employee will remain confidential, unless the employee waives
confidentiality or federal or state authorities compel disclosure.
Failure to report such evidence may result in disciplinary
proceedings and may include sanctions as set forth in Section VI
hereof.
V. ETHICAL STANDARDS
A. Employees shall conduct themselves in a manner consistent with the
highest ethical and fiduciary standards. They shall avoid any action,
whether for personal profit or otherwise, that results in an actual
or potential conflict of interest with AIM or its client accounts, or
which may be otherwise detrimental to the interests of the members of
AIM or its client accounts.(1)
B. Employees shall act in a manner consistent with their fiduciary
obligation to clients of AIM, and shall not deprive any client
account of an investment opportunity in order to personally benefit
from that opportunity.
- -------------
(1) Conflicts of interest generally result from a situation in which an
individual has a personal interest in a matter that is or may be competitive
with his or her responsibilities to other persons or entities (such as AIM or
its client accounts) or where an individual has or may have competing
obligations or responsibilities to two or more persons or entities. In the case
of the relationship between a client account on the one hand, and AIM, its
officers, directors and employees, on the other hand, such conflict may result
from the purchase or sale of securities for a client account and for the
personal account of the individual involved or the account of any "affiliate" of
such individual, as such term is defined in the 1940 Act. Such conflict may also
arise from the purchase or sale for a client account of securities in which an
officer, director or employee of AIM has an economic interest. Moreover, such
conflict may arise in connection with vendor relationships in which such
employee has any direct or indirect financial interest, family interests or
other personal interest. To the extent of conflicts of interest between AIM and
a vendor, such conflicts must be resolved in a manner that is not
disadvantageous to AIM. In any such case, potential or actual conflicts must be
disclosed to AIM and the first preference and priority must be to avoid such
conflicts of interest wherever possible and, where they unavoidably occur, to
resolve them in a manner that is not disadvantageous to a client.
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<PAGE> 22
C. Without the knowledge and approval of the Chief Executive Officer of
AIM Management, employees shall not engage in a business activity or
practice for compensation in competition with the members of AIM.
Each employee, who is deemed to be a "Covered Person" as defined in
the Procedures adopted hereunder, shall obtain the written approval
of AIM Management's Chief Executive Officer to participate on a board
of directors/trustees of any of the following organizations:
- publicly traded company, partnership or trust;
- hospital or philanthropic institution;*
- local or state municipal authority;* and/or
- charitable organization.*
* These restrictions relate to organizations that have or intend to
raise proceeds in a public securities offering.
In the relatively small number of instances in which board approval
is authorized, investment personnel serving as directors shall be
isolated from those making investment decisions through AIM's
"Chinese Wall" Procedures.
D. Each employee, in making an investment recommendation or taking any
investment action, shall exercise diligence and thoroughness, and
shall have a reasonable and adequate basis for any such
recommendation or action.
E. Each employee shall not attempt to improperly influence for such
person's personal benefit any investment strategy to be followed or
investment action to be taken by the members of AIM for its client
accounts.
F. Each employee shall not improperly use for such person's personal
benefit any knowledge, whether obtained through such person's
relationship with AIM or otherwise, of any investment recommendation
made or to be made, or of any investment action taken or to be taken
by AIM for its client accounts.
G. Employees shall not disclose any non-public information relating to a
client account's portfolio or transactions or to the investment
recommendations of AIM, nor shall any employee disclose any
non-public information relating to the business or operations of the
members of AIM, unless properly authorized to do so.
H. Employees shall not accept, directly or indirectly, from a
broker/dealer or other vendor who transacts business with AIM or its
client accounts, any gifts, gratuities or other things of more than
de minimis value or significance that their acceptance might
reasonably be expected to interfere with or influence the exercise of
independent and objective judgment in carrying out such person's
duties or otherwise gives the appearance of a possible impropriety.
For this purpose, gifts, gratuities and other things of value shall
not include unsolicited entertainment so long as such unsolicited
entertainment is not so frequent or extensive as to raise any
question of impropriety.
I. Employees who are registered representatives and/or principals of
AIM shall not acquire securities for an account for which he/she has
a direct or indirect beneficial interest in an initial public
offering ("IPO") or on behalf of any person, entity or organization
that is not an AIM client. All other employees shall not acquire
securities for an account for which he/she has a direct or indirect
beneficial interest offered in an IPO or on behalf of any person,
entity or organization that is not an AIM client account except in
those circumstances where different amounts of such offerings are
specified for different investor types (e.g., private investors and
institutional investors) and such transaction has been pre-cleared
by the Compliance Office.
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J. All personal securities transactions by employees must be conducted
consistent with this Code and the Procedures adopted hereunder, and
in such a manner as to avoid any actual or potential conflicts of
interest or any abuse of such employee's position of trust and
responsibility. Unless an exemption is available, employees who are
deemed to be "Covered Persons" as defined in the Procedures adopted
hereunder, shall pre-clear all personal securities transactions in
securities in accordance with the Procedures adopted hereunder.
K. Each employee, who is deemed to be a "Covered Person" as defined in
the Procedures adopted hereunder, (or registered representative
and/or principal of AIM), shall refrain from engaging in personal
securities transactions in connection with a security that is not
registered under Section 12 of the Securities Act of 1933 (i.e., a
private placement security) unless such transaction has been
pre-approved by the Chief Compliance Officer or the Director of
Investments (or their designees).
L. Employees, who are deemed to be "Covered Persons" as defined in the
Procedures adopted hereunder, may not engage in a transaction in
connection with the purchase or sale of a security within seven
calendar days before and after an AIM investment company client
trades in that same (or equivalent) security unless the de minimis
exemption is available.
M. Each employee, who is deemed to be a "Covered Person" as defined in
the Procedures adopted hereunder, may not purchase and voluntarily
sell, or sell and voluntarily purchase the same (or equivalent)
securities of the same issuer within 60 calendar days unless such
employee complies with the disgorgement procedures adopted by the
Code of Ethics Committee. Subject to certain limited exceptions set
forth in the related Procedures, any transaction under this provision
may result in disgorgement proceedings for any profits received in
connection with such transaction by such employee.
VI. SANCTIONS
Employees violating the provisions of AIM's Code or any Procedures adopted
hereunder may be subject to sanctions, which may include, among other
things, restrictions on such person's personal securities transactions; a
letter of admonition, education or formal censure; fines, suspension,
re-assignment, demotion or termination of employment; or other significant
remedial action. Employees may also be subject to disgorgement proceedings
for transactions in securities that are inconsistent with Sections V.L.
and V.M. above.
VII. ADDITIONAL DISCLOSURE
This Code and the related Procedures cannot, and do not, cover every
situation in which choices and decisions must be made, because other
company policies, practices and procedures (as well as good common sense)
and good business judgment also apply. Every person subject to this Code
should read and understand these documents thoroughly. They present
important rules of conduct and operating controls for all employees.
Employees are also expected to present questions to the attention of their
supervisors and to the Chief Compliance Officer (or designee) and to
report suspected violations as specified in these documents.
For the Boards of Directors:
The AIM Management Group
by:
-----------------------------
Charles T. Bauer
AUGUST 17, 1999
-----------------------------
Date
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THE AIM MANAGEMENT GROUP
RULES AND PROCEDURES ADOPTED UNDER THE CODE OF ETHICS
(AS REVISED AUGUST 17, 1999)
EFFECTIVE SEPTEMBER 1, 1999
I. INTRODUCTION
These rules and procedures (collectively, "Procedures") have been adopted
by the Code of Ethics Committee of the AIM (which consists of A I M
Management Group Inc., A I M Advisors, Inc. and their wholly owned and
indirect subsidiaries) to carry out the intent of the Code of Ethics
("Code") of AIM, and are incorporated by reference into and made a part of
AIM's Code. The Code has been approved by the Boards of Directors of A I M
Management Group Inc. ("AIM Management"), A I M Advisors, Inc. ("AIM
Advisors") and by each of the Boards of Directors/Trustees of the AIM
Funds.
A. CODE OF ETHICS COMMITTEE
1. The following officers of AIM are members of the Code of Ethics
Committee:
- Members of the Office of the Chief Executive
- Director of Investments
- Director of Legal and Compliance
- Chief Compliance Officer
- Chief Equity Officer
2. The Committee has the following responsibilities:
- to establish the requirements of the Code and these Procedures;
- to interpret the provisions of the Code and these Procedures;
- to determine whether violations of the Code or these Procedures
have occurred;
- to determine the nature of any sanctions that may be imposed
against employees for violations of the Code or these Procedures;
and
- to report to the Board of Directors of AIM and Boards of
Directors/Trustees of AIM's investment company client accounts.
3. The Committee meets no less frequently than annually to review the
provisions of the Code and these Procedures. The Chief Compliance
Officer calls other meetings of the Committee when he believes that
a possible violation of the Code or these Procedures has occurred or
that the Committee should meet for other purposes, such as to
consider changes to the Code or these Procedures. A majority of the
members of the Committee will constitute a quorum, provided that
either the Chief Executive Officer or other senior officer who is a
member of the Chief Executive's Office must be present in order to
have a quorum. A majority of the members present at a meeting
constitutes the vote required for any action taken by the Committee.
Special meetings of the Committee may be called by any member of the
Committee to discuss matters that are deemed to warrant immediate
attention.
II. APPLICABILITY
These Procedures apply to certain officers, directors and employees of
AIM. Any questions regarding the Code or these Procedures should be
referred to the Chief Compliance Officer (or designee) or the General
Counsel of AIM.
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<PAGE> 25
III. PROHIBITIONS
The Code of Ethics Committee has determined that the following courses of
conduct are prohibited for all employees:
A. INSIDER TRADING
AIM forbids any employee from trading, either personally or on behalf
of others (including client accounts managed by AIM), on material
non-public information or communicating material non-public
information to others in violation of the law. This conduct is
frequently referred to as "insider trading". This policy applies to
every person subject to the Code and extends to activities within and
outside their duties at AIM. See Section IV.B. for more information on
"insider trading".
B. DISCLOSURE OF CONFIDENTIAL INFORMATION
Except in the ordinary course of assigned duties, employees may not
disclose to any non-employee or any party unrelated to AIM,
information concerning particular securities that are held or being
considered for purchase or sale by client accounts, any information
concerning client accounts or any other information deemed
confidential by AIM.
C. TRADING IN SECURITIES ON AIM'S RESTRICTED LIST
Employees are prohibited from engaging in any personal securities
transactions in a security on AIM's Restricted List. See Section
IV.C.7.A(1) for more information on this prohibition.
D. SOLICITATION OR ACCEPTANCE OF GIFTS AND GRATUITIES
Except as noted below, an employee may not solicit or accept from a
broker/dealer or other vendor that transacts business with AIM or its
client accounts, any gifts or gratuities or other things of value. For
this purpose, gifts and gratuities and other things of value do not
include unsolicited entertainment (including meals or tickets to
cultural or sporting events) so long as such unsolicited entertainment
is not so frequent or extensive as to raise any question of
impropriety. An employee may not accept unsolicited gifts or other
things of value of more than de minimis value from any person or
entity that does business with or on behalf of an AIM investment
company client account. In any such case, the value may not exceed
$100 per giver per year.
E. INDEPENDENT PRACTICE FOR COMPENSATION
Employees may not undertake a business activity or practice for
compensation that is in competition with AIM unless they have received
the written consent of the Chief Executive Officer of AIM Management.
For this purpose, "business activity or practice" includes any service
that AIM currently makes available for compensation. In addition,
Covered Persons (as defined in Section IV.C. herein) are prohibited
form serving on the board(s) of directors/trustees of certain
organizations without prior written approval from AIM's Chief
Executive Officer (see Section V.C. of the Code). In the relatively
small number of instances in which board service is authorized,
employees serving as directors normally should be isolated from those
making investment decisions through "Chinese Wall" or other procedures.
Employees must also avoid any action, whether for personal profit or
otherwise, that results in an actual or potential conflict of interest
with AIM or its client accounts, or that may be otherwise detrimental
to the interest of the members of AIM or its client accounts. Such
conflict may also arise from the purchase and sale for a client
account of securities in which an officer, director or employee of AIM
has an economic interest. Moreover, such conflict may arise in
connection with vendor relationships in which such employee has any
direct or indirect financial interest, family interests or other
personal interest. Such conflicts must be resolved in favor of the AIM
client, or if a vendor, in favor of AIM.
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F. DEPRIVING CLIENT ACCOUNTS OF INVESTMENT OPPORTUNITIES
The failure of an employee to recommend an investment opportunity to, or
to purchase an investment opportunity for, a client account in order to
obtain a personal benefit is considered a course of conduct that
deprives a client account of an investment opportunity. Therefore, such
conduct is considered to be a violation of Section V.B. of the Code. An
example of this type of prohibited conduct is to effect a personal
transaction in a security and to intentionally fail to recommend, or to
fail to effect, a suitable client account transaction in such security
in order to avoid the appearance of a conflict of interest.
G. "SCALPING" or "FRONT-RUNNING"
Employees may not acquire or dispose of financial interest in a security
if such acquisition or disposition is based upon the employee's
knowledge of actions already taken, being taken or being considered by
AIM on behalf of any of its client accounts. Such prohibited conduct is
considered to violate one or more of Sections V.A., V.B. and V.F. of
the Code. Examples of this type of prohibited conduct include:
- to gain a personal financial interest, an employee uses knowledge of a
future purchase of a security by a client account and buys the
security or acquires financial interest in the security before the
client account buys the security; or
- to gain a personal financial interest, an employee uses knowledge of a
future sale of a security by a client account and sells the security
for any account with respect to which the employee has a financial
interest before the client account sells the security (e.g., the
employee sells short a security based on knowledge of a future sale of
the security by a client account).
IV. AMVESCAP GROUP POLICIES GOVERNING EMPLOYEE SECURITIES TRANSACTIONS
A. CORE PRINCIPLES (ALL EMPLOYEES)
1. Employees have a duty to serve the best interests of clients and not
to engage in conduct that is in conflict with such interests.
2. Employees are prohibited from mis-using "inside information".
3. Employees are permitted to acquire shares of AMVESCAP PLC ("AMVESCAP")
through authorized share purchase schemes (including the AMVESCAP
International Sharesave Plan) and otherwise in a manner consistent
with applicable law.
4. Employees are encouraged to invest in mutual funds, unit trusts and
other collective investment vehicles sponsored by subsidiaries of
AMVESCAP.
5. Subject to certain exceptions set forth in these Group Policies,
employees are permitted to invest in other securities if they observe
applicable laws and regulations and both the letter and spirit of
these Group Policies.
6. Less strict standards than those set forth in these Group Policies are
generally discouraged and exceptions will be permitted only on a
"case-by-case" basis and only where such exceptions are permitted by
applicable law and are not inconsistent with these Core Principles.
B. PROHIBITION AGAINST INSIDER TRADING (ALL EMPLOYEES)
1. TERMS AND DEFINITIONS - As used in this Section IV.B., certain key
terms have the following meanings:
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A. "INSIDER" - The concept of the "Insider" is broad, and includes at a
minimum all directors, officers and employees of a company. Directors,
officers and employees of AMVESCAP and its subsidiary companies are
deemed to be Insiders of AMVESCAP. In addition, any person may be a
temporary Insider if he/she enters into a special, confidential
relationship with a company in the conduct of its affairs and, as a
result, has access to non-public information developed for the
company's purposes. Thus, any person associated with AMVESCAP or any of
its subsidiaries may become a temporary Insider of a company that is
advised by a subsidiary or for which a subsidiary performs other
services. Temporary Insiders of a company may also include, for
example, its attorneys, accountants, consultants and other agents, or
employees of its bank lenders and major customers.
B. "INSIDER TRADING" - While the law concerning "Insider Trading" is not
static, it generally includes: (1) trading by an Insider while in
possession of Material or Market/Price Sensitive Non-Public
Information; (2) trading by non-insiders while in possession of
Material or Market/Price Sensitive Non-Public Information either
improperly obtained by the non-insider of disclosed to the non-insider
by an Insider in violation of the Insider's duty to keep it
confidential; and (3) communicating Material or Market/Price Sensitive
Non-Public Information to others.
C. "MATERIAL INFORMATION" (U.S. terminology) and "MARKET OR PRICE
SENSITIVE INFORMATION" (U.K. terminology) - These term generally
include (1) any information that a reasonable investor would likely
consider to be important to making an investment decision; and (2) any
information that is reasonably certain to have a substantial effect on
the price of a company's securities. Examples of Material or
Market/Price Sensitive Information include (but are not limited to)
changes in dividends or dividend policy, earning estimates or changes
in previously released earnings estimates, developments concerning
significant merger or acquisition proposals, developments in major
litigation, and significant changes in management.
D. "NON-PUBLIC INFORMATION" - Information is "non-public" until it has
been effectively communicated to the market and the market has had time
to "absorb" the information. For example, information found in a report
filed with the Securities and Exchange Commission, or appearing in Dow
Jones, Reuters Economic Services, The Wall Street Journal or other
publications of general circulation would be considered public.
2. GENERAL PROHIBITION - All Directors, officers and employees (including
contract employees and part-time personnel) of AMVESCAP, its subsidiaries
and affiliated companies worldwide, are prohibited from engaging in
Insider Trading. This prohibition applies to both personal and client
accounts.
3. REPORTING OBLIGATION - Any Director, officer or employee (including any
contract or part-time employee) who possesses or believes that he/she may
possess Material or Market/Price Sensitive Non-Public Information about
any issuer of securities must report the matter immediately to the Chief
Compliance Officer (or designee), who will review the matter and provide
further instructions as to the appropriate handling of the information.
C. POLICIES AND PROCEDURES GOVERNING PERSONAL SECURITIES TRANSACTIONS
1. COVERED PERSONS - The policies and procedures set forth in this Section
IV.C. apply to Directors, officers and employees of AMVESCAP, its
subsidiaries and affiliated companies ("AMVESCAP Companies"), who are
deemed to be "Covered Persons" as defined herein. The term "Covered
Persons" includes all such Directors, officers and employees except those
who have been determined to be "Exempt Persons" by the Code of Ethics
Committee.
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2. EXEMPT PERSONS -- An "Exempt Person" must meet each of the following
criteria:
A. Work in a position that is unrelated to any AMVESCAP Company's
investment management, investment policy or investment strategy
activities and who has no day-to-day access to information on current
investment strategy, portfolio holdings and portfolio transactions;
B. Demonstrate lack of day-to-day access to such information by factors
such as physical separation (e.g. employment in a facility physically
separated from the locations where investment-related activities occur)
and lack of access to computer systems that could provide access to
current portfolio information; and
C. Annually sign a statement to the effect that such person has no actual
access to such information, and that if he/she comes into contact with
such information he/she will promptly notify the Chief Compliance
Officer (or designee) who will determine, based on a review of the
employee's circumstances, whether he/she may continue to be designated
as an "Exempt Person" (see Exhibit D).
3. GENERAL POLICY
A. Covered Persons may not engage in personal securities transactions that
create an actual or potential conflict of interest with client trading
activity. Thus, Covered Persons have a fiduciary responsibility to
ensure that all client trading activity in a security is completed
before engaging in personal securities transactions in the same
security.
B. For purposes of this Section IV.C. the term "personal securities
transaction" includes any transaction by a Covered Person for a
"Covered Account". A Covered Account is defined as any account:
(1) in which a Covered Person has a direct or indirect financial
interest; or
(2) over which such Covered Person has direct or indirect control over
the purchase or sale of securities.
Such Covered Accounts may include, but are not limited to, accounts of
a spouse, minor child, relative, friend, or personal business
associate. (See Exhibit C for examples of Covered Accounts.)
4. PRE-CLEARANCE REQUIREMENTS
A. GENERAL REQUIREMENTS --
(1) A Covered Person may not engage in a personal securities
transaction unless it has been pre-cleared by the Code of Ethics
Officer following a determination that the transaction does not
give rise to an actual or potential conflict of interest with
client activity in the same security. This determination will not
be made, and pre-clearance will not be given, if there has been a
client account transaction in the same security within seven (7)
calendar days of the proposed personal securities transaction (the
"7-Day Rule").
(2) Subject to oversight by the Code of Ethics Committee, the Chief
Compliance Officer (or designee) has responsibility for setting the
policy for determining which client accounts will be matched
against each Covered Person's personal securities transactions.
(3) The pre-clearance requirements and procedures set forth in this
Section IV.C.4. apply to personal securities transactions in any
security that is not the subject of
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an exception set forth in Section IV.C.6. below and specifically apply
to transactions in shares of AMVESCAP and to transactions in shares of
closed-end investment companies and closed-end investment trusts managed
by an AMVESCAP company.
(4) In the case of personal securities transactions involving the purchase or
sale of an option on an equity security, the Code of Ethics Officer (or
designee) will determine whether to authorize the transaction by matching
the pre-clearance request against client account activity in both the
option and the underlying security. This determination will not be made,
and pre-clearance will not be given, if there has been a client account
transaction in either the option or the underlying security within 14
calendar days of the proposed personal securities transaction. Employees
should remember that pre-clearance is required for both the opening and
closing transaction.
(5) Employees should be aware of the additional risks that can result from
engaging in certain transactions. For example, if an opening options
transaction is approved, the closing options transaction can be
disapproved or delayed in certain cases due to actual or apparent
conflicts of interest or competing obligations that arise after the time
the employee's opening transaction was approved. Also, holders of
non-investment grade corporate bonds could find it difficult to liquidate
such bonds if a security is thinly traded or when the issuer is faced
with bankruptcy proceedings.
(6) It is the responsibility of the Code of Ethics Officer (or designee),
following authorization of a personal securities transaction, to monitor
client account activity in the same security for the following seven (7)
calendar days to determine whether the appearance of a conflict is
present, either in conjunction with a particular transaction or as the
result of a pattern of trading activity. In such situations, the Code of
Ethics Officer may recommend that additional action be taken (such as
disgorgement of profits).
B. PRE-CLEARANCE PROCEDURES -
(1) All Covered Persons must obtain written approval from the Code of Ethics
Officer (or designee) prior to executing a personal securities
transaction in a Covered Amount.
(2) Covered Persons seeking pre-clearance of personal securities transactions
must complete Part I of the Pre-Clearance Form (see Exhibit E) and submit
the form to the Code of Ethics Officer (or designee). Employees who are
not located at the home office of AIM Management should fax the completed
form to the Code of Ethics Officer (or designee).
(3) Upon completion of the review process, the Code of Ethics Officer (or
designee) will time-stamp the completed pre-clearance form and indicate
whether the trade is authorized or denied. The Covered Person will then
be notified as to the status of his/her request.
(4) All authorized personal securities transactions must be executed within
one trading day following the date of approval. If the trade is not
executed within this one-day time period, a new pre-clearance request
must be submitted to the Code of Ethics Officer (or designee).
C. DE MINIMIS EXEMPTION - A pre-clearance request relating to a proposed
personal securities transaction involving 2,000 or fewer shares (or 20 or fewer
contracts, in the
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case of options) of an issuer that has at least US $1 billion (or
non-U.S. currency equivalent) in market capitalization will not
be subject to the 7-Day Rule or other provisions of Section
IV.C.4., provided
(1) that any pre-clearance approval given for such transaction
is valid for ten (10) calendar days only; and
(2) no Covered Persons may request this De Minimis Exemption
more than once every 30 calendar days for any particular
security.
5. REPORTING REQUIREMENTS
A. INITIAL REPORTS -- Within 30 days of employment, each Covered Person
must provide a complete list of all of his/her Covered Accounts (See
Exhibit F) and a list of all securities holdings in such Covered
Accounts (see Exhibit H) to the Code of Ethics Officer (or designee).
Within 30 days of employment, or immediately following NASD
registration, whichever comes first, registered
representatives/principals of AIM must also provide a complete list of
all Covered Accounts (see Exhibit F) to the Code of Ethics Officer (or
designee).
B. REPORTS OF TRADE CONFIRMATIONS -- Within (ten) 10 calendar days of
settlement of each personal securities transaction, the Covered Person
(or registered representative/principal of AIM) engaging in the
transaction must file or cause to be filed with the Code of Ethics
Officer (or designee) a duplicate copy of the broker/dealer
confirmation for such transaction. In those cases where broker/dealer
confirmations are not available, employees are required to furnish a
completed Transaction Report (see Exhibit G) to the Code of Ethics
Officer within ten (10) calendar days of settlement.
C. ANNUAL UPDATE AND CERTIFICATION -- By March 31 of each year, each
Covered Person must file with the Code of Ethics Officer (or designee)
an annual account statement that lists, as of December 31 of each
year, all Covered Accounts of such Covered Person (see Exhibit F) AND
all securities holdings of such Covered Accounts (see Exhibit H).
Further, ALL EMPLOYEES must execute and provide the Code of Ethics
Officer (or designee) with an annual certificate of compliance with
the Code and related Procedures and any other personal trading
policies then in effect that apply to such employees, as discussed in
Section V.A. below (see Exhibit L).
6. EXCEPTIONS TO PRE-CLEARANCE AND REPORTING REQUIREMENTS
A. Personal securities transactions in the following securities are not
subject to either the pre-clearance requirements or the reporting
requirements set forth in this Section IV.C.:
(1) Open-end mutual funds and open-end unit investment trusts
(whether or not managed or distributed by an AMVESCAP Company);
(2) Variable annuities, variable life products and other similar
unit-based insurance products issued by insurance companies and
insurance company separate accounts.
(3) U.S. (Federal) Government securities, and
(4) Money market instruments (as defined by the Chief Compliance
Officer).
B. INDEPENDENT DIRECTORS -- Personal securities transactions of
Independent Directors of AMVESCAP are not subject to either the
pre-clearance or reporting requirements set forth in this Section
IV.C. except with respect to personal securities transactions in the
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shares of AMVESCAP or shares of any closed-end investment company or
investment trust served by such Independent Director in a Director or
Trustee capacity. For purposes of this exception the term "Independent
Director" includes (a) any Director of AMVESCAP (i) who is neither an
officer nor employee of AMVESCAP or of any AMVESCAP Company, or (ii) who is
not otherwise "connected with" AMVESCAP or any AMVESCAP Company within the
meaning of the London Stock Exchange Yellow Book.
C. Personal securities transactions in the following are not subject to the
pre-clearance requirements set forth in this Section IV.C. but are subject
to the reporting requirements;
(1) Securities acquired through automatic dividend reinvestment plans;
(2) Securities acquired through the receipt or exercise of rights or
warrants issued by a company on a pro rata basis to all holders of a
class of security;
(3) A City Index (e.g., IG Index)(UK only);
(4) Futures contracts;
(5) Commodities contracts; and
(6) Futures or Options on a stock market index, a foreign currency or
commodity.
D. DELEGATED DISCRETIONARY ACCOUNTS - Pre-clearance is not required for
transactions in a Covered Account in which a Covered Person is not
exercising power over investment discretion, provided that:
(1) The Covered Account is the subject of a written contract providing for
the delegation by the Covered Person of substantially all investment
discretion to another party;
(2) The Covered Person has provided the Code of Ethics Officer (or
designee) with a copy of such written agreement;
(3) The Covered Person certifies in writing that he/she has not discussed,
and will not discuss, potential investment decisions with the party to
whom investment discretion has been delegated (see Exhibit I); and
(4) The Covered Person complies with all reporting requirements outlined
in Section IV.C.5. above, and also provides or makes provision for the
delivery to the Code of Ethics Officer (or designee) of
monthly/quarterly statements of discretionary account holdings.
The foregoing exception from the pre-clearance requirement DOES NOT apply
to transactions by a delegated discretionary account in shares of AMVESCAP.
All employees are required to notify parties to whom they have delegated
investment discretion that such discretion may not be exercised to purchase
shares of AMVESCAP and that any sales of AMVESCAP shares by a Covered
Account that is the subject of delegated investment discretion are subject
to the pre-clearance and reporting requirements set forth in this Section
IV.C. and the policies and provisions set forth in Section IV.D. below.
NOTE: Certain trading restrictions in Section IV.C.7. below are also
applicable to trades in delegated discretionary accounts. Specifically,
trading in securities on AIM's Restricted List, engaging in short sales and
purchasing securities in an initial public offering are prohibited in
delegated discretionary accounts. All EMPLOYEES
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should notify parties to whom they have delegated investment
discretion regarding all of AIM's trading policies and restrictions in
order to avoid violations of the Code and these Procedures.
7. RESTRICTIONS ON CERTAIN ACTIVITIES
A. In order to avoid even the appearance of conduct that might be deemed
contrary to a client's best interests, Covered Persons (other than
Independent Directors of AMVESCAP) are subject to the following
additional restrictions and prohibitions relating to certain
investment activities and related conduct:
(1) PROHIBITION AGAINST TRADING IN SECURITIES ON "RESTRICTED LISTS" -
It is recognized that there may be occasions when AMVESCAP, an
AMVESCAP Company, or a Covered Person who is a key executive of
AMVESCAP or an AMVESCAP Company, may have a special relationship
with an issuer of securities. In such occasions the Board of
Directors of AMVESCAP or the Code of Ethics Committee may decide
to place the securities of such issuer on a "restricted list", to
be maintained by the Chief Compliance Officer. ALL EMPLOYEES are
prohibited from engaging in any personal securities transactions
in a security on a "restricted list".
(2) PROHIBITION AGAINST SHORT-TERM TRADING ACTIVITIES - Covered
Persons are prohibited from engaging in an "opposite transaction"
in the same security within 60 days of its purchase or sale.
Generally, only those securities requiring pre-clearance are
subject to this short-term trading prohibition. However, while
options and futures transactions are generally not subject to
this short-term prohibition, such transactions may not be used to
circumvent the prohibition. This short-term trading prohibition
may be waived by the Code of Ethics Officer (or designee) in
those instances where an employee wishes to limit his/her losses
on a security with rapidly depreciating market value. Such
circumstances must be disclosed at the time pre-clearance is
requested.
(3) PROHIBITION AGAINST SHORT SALES - Covered Persons are prohibited
from engaging in short sales of securities.
(4) PROHIBITION AGAINST PURCHASES IN INITIAL PUBLIC OFFERINGS -
Registered representatives/principals of AIM's subsidiaries that
are registered with the NASD are prohibited from purchasing
securities in initial public offerings. All other AIM employees
are prohibited from purchasing securities in initial public
offerings except in those circumstances where different amounts
of such offerings are specified for different investor types
(e.g., private investors and institutional investors) AND the
purchase has been pre-cleared by the Code of Ethics Officer (or
designee) on the basis that it is not likely to create any actual
or potential conflict of interest.
(5) RESTRICTIONS ON THE PURCHASE OF RESTRICTED SECURITIES ISSUED BY
PUBLIC COMPANIES - Generally, Covered Persons are discouraged
from investing in restricted securities of public companies. A
Covered Person may purchase such securities, however, if such
purchase has been pre-cleared by the Code of Ethics Officer (or
designee) following a determination that the proposed transaction
does not present any actual or potential conflict of interest.
(6) RESTRICTIONS ON PRIVATE PLACEMENTS (INCLUDING HEDGE FUNDS) - A
Covered Person (or registered representative/principal of AIM)
may not purchase or sell any security (e.g., stock, bond or
limited partnership interest) obtained through a
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private placement (including the purchase or sale of an interest
in a so-called "hedge fund") unless such transaction has been
pre-cleared (see Exhibit J) by the Code of Ethics Officer (or
designee) following a determination that the proposed transaction
does not present any actual or potential conflict of interest. In
addition, if a Covered Person owning securities of a privately
held company knows that the company is proposing to engage in a
public offering involving securities of that company or of a
related or subsidiary company (e.g., a spin-off or
divestiture)(whether or not such securities are of the same class
as the securities held by such Covered Person), he/she must
disclose this information to the Code of Ethics Officer (or
designee), who will determine whether further action should be
taken. Further, investment personnel who have been authorized to
acquire securities in a private placement must disclose such
investment when he/she plays a part in any Fund's subsequent
consideration of an investment in the issuer. In such
circumstances, the Fund's decision to purchase securities of the
issuer is subject to an independent review by investment
personnel with no personal interest in the issuer.
(7) PARTICIPATION IN INVESTMENT CLUBS -- A Covered Person is
prohibited from participating in an investment club unless such
participation has been pre-cleared (see Exhibit K) by the Code of
Ethics Officer (or designee) following a determination that the
following conditions have been satisfied:
(a) the Covered Person's participation does not create any
actual or potential conflict of interest;
(b) the Covered Person does not control investment
decision-making for the investment club; and
(c) the Covered Person has made satisfactory arrangements to
ensure that duplicate trade confirmations of investment club
activity and quarterly statements of investment club
holdings are provided to the Code of Ethics Officer (or
designee) by brokers acting on behalf of the investment
club.
Should the Covered Person contribute to, but not necessarily
control, investment decision-making for the investment club, all
transactions by the investment club would be subject to
pre-clearance.
D. GROUP POLICIES GOVERNING TRANSACTIONS IN SHARES OF AMVESCAP PLC (ALL
EMPLOYEES)
1. Personal securities transactions in shares of AMVESCAP PLC by Directors,
officers and employees of AMVESCAP and the AMVESCAP Companies are
governed by AMVESCAP's Share Dealing Code (see Exhibit B), adopted in
accordance with requirements of the London Stock Exchange. The Share
Dealing Code is incorporated by reference and made a part of these Group
Policies so that a violation of the Share Dealing Code is also deemed a
violation of these Group Policies. Among other provisions, the Share
Dealing Code generally prohibits all trading in AMVESCAP shares during
certain defined "closed periods" which are typically two calendar months
before annual results and earnings announcements and one calendar month
before quarterly results and earnings announcements.
2. The Prohibitions against insider trading set forth above in Section
IV.B. of these Group Policies and the pre-clearance and reporting
provisions set forth above in Section IV.C. of these Group Policies
apply to personal securities transactions in shares of AMVESCAP, with
the exception that the purchase of shares through regular payroll
deduction in
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connection with operation of the AMVESCAP International Sharesave Plan
is exempt from the pre-clearance provisions of Section IV.C.
3. The foregoing provisions apply to all Directors, officers and
employees of AMVESCAP, including both Covered Persons and Exempt
Persons as defined in Section IV.C., and apply to all personal
securities transactions by or for the benefit of such persons,
including transactions in discretionary accounts maintained for such
persons.
E. ADMINISTRATION OF GROUP POLICIES (ALL EMPLOYEES)
1. With the exception of Section IV.D. above, administration of these
Group Policies is the responsibility of the Chief Compliance Officer,
subject to general oversight by the Code of Ethics Committee.
2. Responsibility for the administration of these Group Policies as they
relate to transactions in AMVESCAP shares (Section IV.D. above) rests
jointly with the AMVESCAP Company Secretary, responsible for
interpretations of the Code; its Group Compliance Officer, responsible
for determinations made in the event of possible violations of the
Code or of these Group Policies; and its various legal/compliance
departments, responsible for pre-clearance and reporting of
transactions. In any event, responsibility for these Group Policies as
they pertain to trading in AMVESCAP shares is subject to general
oversight by the AMVESCAP Board of Directors.
3. Administrative responsibility for these Group Policies includes:
A. the authority to adopt such forms and procedures as may be
appropriate to implement these Group Policies;
B. the authority to recommend and to implement policies that are
more restrictive than those set forth in these Group Policies;
C. the authority, on a case-by-case basis, and to a limited extent,
to approve exceptions from any of the prohibitions, restrictions
or procedures set forth in Section IV.C. of these Group Policies;
and
D. the authority to review violations of the Group Policies and to
recommend to the Code of Ethics Committee (or to the AMVESCAP
Board of Directors in the case of violation of the Group Policies
set forth in Section IV.D.), such penalties and sanctions as may
be appropriate under the circumstances.
4. EXCEPTIONS -- Where exceptions are approved under Section IV.E.3.C.
above, a determination will be made, in the case of each such
exception, that it is consistent with the Core Principles set forth in
Section IV.A. of these Group Policies and that it does not create an
actual or potential conflict of interest. The approval of the
exception and the circumstances surrounding such approval will be
noted in writing and reported to the Code of Ethics Committee at the
next available opportunity.
5. PENALTIES AND SANCTIONS
A. Persons who are found to have violated the prohibitions against
Insider Trading set forth in Section IV.B. of these Group
Policies may be subject to severe penalties and sanctions
including, but not limited to, disgorgement of profits and
suspension or termination of employment. These penalties and
sanctions will be in addition to any penalties that may be
imposed by law, including (a) civil injunctions; (b) revocation
of licenses and registrations; (c) substantial fines; and/or (d)
imprisonment.
B. Persons who are found to have knowingly violated any of the other
provisions of these Group Policies, including the pre-clearance
and reporting requirements, the
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restrictions against certain defined activities and the rules
governing trading in shares of AMVESCAP, will be subject to a range of
possible sanctions including, among other actions: (a) required
special education or training; (b) letters of admonition or censure;
(c) restrictions on further personal securities transactions; (d)
disgorgement of profits; and (e) reassignment, demotion, suspension or
termination of employment.
V. ADMINISTRATIVE PROCEDURES
A. DISTRIBUTION OF CODE OF ETHICS AND PROCEDURES ADOPTED UNDER THE CODE
Upon commencement of duty with AIM, each new employee will receive a copy
of the Code and these Procedures. Immediately thereafter, each such
employee must file an Initial Acknowledgment Statement (see Exhibit L)
with the Code of Ethics Officer (or designee), indicating that he/she has
read and understands the Code.
Each AIM employee must also attend a mandatory orientation session with
respect to AIM's Code and related Procedures within 30 days of employment
unless a supervisor requests in writing that a 30-day extension of time be
granted in order to complete current business. Attendance at this
orientation session is mandatory. It is the responsibility of each
supervisor to ensure that the employees subject to his/her supervision
attend this orientation session.
On an annual basis, each employee must certify in writing that he/she has
reviewed and understands the provisions of AIM's Code and the related
Procedures, and he/she recognizes that he/she is subject to the Code and
related Procedures, and that he/she has complied, and will continue to
comply, with the requirements thereof, and that he/she has disclosed or
reported all personal securities transactions required to be disclosed or
reported pursuant to the Code and the related Procedures, unless otherwise
previously disclosed to the Code of Ethics Officer (or designee).
B. RECORD KEEPING RESPONSIBILITIES
The Code of Ethics Officer (or designee) is responsible for maintaining
custody of the following records for a period of five years:
-- all forms supplied to the Code of Ethics Officer (or designee) by
employees;
-- all duplicate confirmations, Transaction Reports, and brokerage
statements supplied to the Code of Ethics Officer (or designee)
pursuant to the requirements of Section IV.C.5.B. of these Procedures;
-- all lists of employees and Covered Persons used for administering the
Code and these Procedures;
-- all Pre-Clearance Forms relating to the personal securities
transactions of employees;
-- a copy of each Code of AIM and each set of Procedures adopted
thereunder;
-- a written record of each violation of the Code or these Procedures, and
a written record of any action taken as a result of each such
violation; and
-- all Acknowledgment Statements referred to in Section IV.C.5. and V.A.
of these Procedures.
C. ANNUAL SEMINARS
Annually, the Chief Compliance Officer will sponsor a continuing education
program for all AIM employees. Completion of the program is mandatory for
all AIM employees. It is the responsibility of each supervisor to ensure
that employees subject to such person's supervision complete the program.
Failure to complete such program may require significant remedial action,
resulting in a letter of admonition, withholding of bonus payments or
other sanctions as
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deemed necessary or appropriate by the Code of Ethics Committee. Such
document will be placed in the Violations file. Such file is required to
be maintained under the rules of the Investment Advisers Act of 1940.
D. SPECIAL REPORTS FOR DIRECTORS
The Chief Compliance Officer will prepare a timely report for the Board of
Directors/Trustees of AIM's investment company clients explaining
significant remedial action taken by the Code of Ethics Committee in
response to violations of the Code of these Procedures.
E. ANNUAL REPORTS
In December of each year, the Code of Ethics Committee will report to the
Boards of Directors/Trustees of AIM's investment company clients with
regard to evolving industry practices or developments in applicable laws
or regulations during the past year, recommended changes to the Code
and/or these Procedures, any violative conduct of a substantial nature
requiring significant remedial action occurring during the last year, and
other information as requested by the directors/trustees.
VI. PENALTIES FOR VIOLATIONS OF THE CODE
Any AIM employee who violates or is about to violate the provisions of
AIM's Code or these Procedures may be subject to sanctions, which may
include, among other things, restrictions on such person's personal
securities transactions; a letter of admonition, education or formal
censure; fines; suspension, re-assignment, demotion or termination of
employment; or other significant remedial action.
Employees may also be subject to disgorgement proceedings for transactions
in securities that are inconsistent with Sections V.L. and V.M. of the
Code. Any profits realized on such trades may be required to be disgorged
to charitable organizations or other non-profit entities as determined by
the Code of Ethics Committee.
Employees who violate any of AIM's insider trading policies will be
subject to severe penalties. These penalties and sanctions will be in
addition to any penalties that may be imposed by law, including (a) civil
injunctions; (b) revocation of licenses and registration; (c) substantial
monetary fines; and/or (d) imprisonment.
VII. AMENDMENTS TO THESE PROCEDURES
These Procedures may be amended by a majority vote of the Code of Ethics
Committee.
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CODE OF CONDUCT
All of us within the Capital organization are responsible for maintaining the
very highest ethical standards when conducting business. In keeping with these
standards, we must never allow our own interests to be placed ahead of our
shareholders' and clients' interests.
Over the years we have earned a reputation for the highest integrity. Regardless
of lesser standards that may be followed through business or community custom,
we must observe exemplary standards of honesty and integrity.
REPORTING VIOLATIONS
If you know of any violation of our Code of Conduct, you have a
responsibility to report it. Deviations from controls or procedures that
safeguard the company, including the assets of shareholders and clients,
should also be reported.
You can report confidentially to:
- Your manager or department head
- CGC Audit Committee:
Wally Stern -- CHAIRMAN
Donnalisa Barnum
David Beevers
Jim Brown
Larry P. Clemmensen
Roberta Conroy
Bill Hurt -- (emeritus)
Sonny Kamm
Mike Kerr
Victor Kohn
John McLaughlin
Don O'Neil
Tom Rowland
John Smet
Antonio Vegezzi
Shaw Wagener
Kelly Webb
- Mike Downer or any other lawyer in the CGC Legal Group
- Don Wolfe of Deloitte & Touche LLP (CGC's auditors).
CGC GIFTS POLICY -- CONFLICTS OF INTEREST
A conflict of interest occurs when the private interests of associates
interfere or could potentially interfere with their responsibilities at
work. Associates must not place themselves or the company in a position of
actual or potential conflict. Associates may not accept gifts
<PAGE> 38
worth more than $100, excessive business entertainment, loans, or anything
else involving personal gain from those who conduct business with the
company. In addition, a business entertainment event exceeding $200 in value
should not be accepted unless the associate receives permission from the
Gifts Policy Committee.
REPORTING -- Although the limitations on accepting gifts applies to all
associates as described above, some associates will be asked to fill out
quarterly reports. If you receive a reporting form, you must report any gift
exceeding $50 (although it is recommended that you report all gifts received)
and business entertainment in which an event exceeds $75.
GIFTS POLICY COMMITTEE
The Gifts Policy Committee oversees administration of and compliance with the
Policy.
INSIDER TRADING
Antifraud provisions of the federal securities laws generally prohibit persons
while in possession of material nonpublic information from trading on or
communicating the information to others. Sanctions for violations can include
civil injunctions, permanent bars from the securities industry, civil
penalties up to three times the profits made or losses avoided, criminal fines
and jail sentences.
While investment research analysts are most likely to come in contact with
material nonpublic information, the rules (and sanctions) in this area apply
to all CGC associates and extend to activities both within and outside each
associate's duties.
PERSONAL INVESTING POLICY
As an associate of the Capital Group companies, you may have access to
confidential information. This places you in a position of special trust.
You are associated with a group of companies that is responsible for the
management of many billions of dollars belonging to mutual fund shareholders
and other clients. The law, ethics and our own policy place a heavy burden on
all of us to ensure that the highest standards of honesty and integrity are
maintained at all times.
There are several rules that must be followed to avoid possible conflicts of
interest in personal securities transactions.
ALL ASSOCIATES
Information regarding proposed or partially completed plans by CGC companies
to buy or sell specific securities must not be divulged to outsiders.
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Favors or preferential treatment from stockbrokers may not be accepted.
Associates may not subscribe to any initial public offering or any other
securities offering that is subject to allocation (so-called "hot issues").
Generally, this prohibition applies to spouses of associates and any family
member residing in the same household. However, an associate may request that
the Personal Investing Policy Committee consider granting an exception. PLEASE
NOTE THAT ANY INVESTMENTS IN PRIVATE PLACEMENTS THAT ARE NOT PROHIBITED AS
DESCRIBED ABOVE MUST BE PRE-CLEARED.
COVERED PERSONS
Associates who have access to investment information in connection with their
regular duties are generally considered "covered persons." If you receive a
quarterly personal securities transactions report form, you are a covered
person. A DETAILED DESCRIPTION OF THE PERSONAL INVESTING POLICY CAN BE FOUND
AT THE CGC WEB HOME page. You should take the time to review this policy as
ongoing interpretations of the policy will be explained therein.
Covered persons must conduct their personal securities transactions in such a
way that they do not conflict with the interests of the funds and client
accounts. This policy also includes securities transactions of family members
living in the covered person's household and any trust or custodianship for
which the associate is trustee or custodian. A conflict may occur if you, a
family member in the same household, a trust or custodianship for which you
are trustee or custodian have a transaction in a security when the funds or
client accounts are considering or concluding a transaction in the same
security.
Additional rules apply to "investment personnel" including portfolio
counselors/managers, research analysts, traders, and investment administration
personnel (see below).
PRE-CLEARANCE OF SECURITIES TRANSACTIONS
Before buying or selling securities, covered persons should find out if the
purchase or sale of a particular security would involve a conflict of
interest. This involves checking with the CGC Legal Group based in LAO by
calling (phone number). (You will generally receive a response within one
business day.) Unless a shorter period is specified, clearance is good for two
trading days (including the day you check). If you have not executed your
transaction within this period, you must again pre-clear your transaction.
Covered persons must PROMPTLY submit quarterly reports of certain
transactions. Transactions of securities (including fixed-income securities)
or options (see below) must be pre-cleared as described above and reported
except for: gifts or bequests of securities (although receipt of securities as
a gift must be reported and pre-clearance and reporting are required if these
securities are later sold); open-end investment companies (mutual funds);
shares of CGC stock; money market instruments with maturities of one year or
less; direct obligations of the U.S. Government, bankers' acceptances, CDs or
other commercial paper; commodities; and options or futures on broad-based
indices. Covered persons must also report transactions made by family
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members in their household and by those for which they are a trustee or
custodian. Reporting forms will be supplied at the appropriate times AND MUST
BE SUBMITTED BY THE DATE INDICATED ON THE FORM.
In addition, the following transactions must be reported but need not have
been pre-cleared: transactions in debt instruments rated "A" or above by at
least one national rating service; sales pursuant to tender offers; and
dividend reinvestment plan purchases (provided the purchase pursuant to such
plan is made with dividend proceeds only).
PERSONAL INVESTING SHOULD BE VIEWED AS A PRIVILEGE, NOT A RIGHT. AS SUCH,
LIMITATIONS MAY BE PLACED ON THE NUMBER OF PRE-CLEARANCES AND/OR TRANSACTIONS
AS DEEMED APPROPRIATE BY THE PERSONAL INVESTING COMMITTEE.
BROKERAGE ACCOUNTS
Covered persons should inform their stockbrokers that they are employed by an
investment adviser, trust company or affiliate of either. The broker is
subject to certain rules designed to prevent favoritism toward such accounts.
Associates may not accept negotiated commission rates which they believe may
be more favorable than the broker grants to accounts with similar
characteristics. In addition, covered persons must direct their brokers to
send duplicate confirmations and copies of all periodic statements on a timely
basis to The Legal Group of The Capital Group Companies, Inc.,(special post
office box address). ALL DOCUMENTS RECEIVED IN THIS POST OFFICE BOX ARE KEPT
STRICTLY CONFIDENTIAL.
[If extraneous information is included on an associate's statements (e.g.,
checking account information or other information that is not subject to the
policy), the associate might want to establish a separate account solely for
transactions subject to the policy.]
ANNUAL DISCLOSURE OF PERSONAL SECURITIES HOLDINGS
Covered persons will be required to disclose all personal securities holdings
upon commencement of employment (or upon becoming a covered person) and
thereafter on an annual basis. Reporting forms will be supplied for this
purpose.
ANNUAL RE-CERTIFICATION
All access persons will be required to certify annually that they have read
and understood the Personal Investing Policy and recognize that they are
subject thereto.
ADDITIONAL RULES FOR INVESTMENT PERSONNEL
DISCLOSURE OF OWNERSHIP OF RECOMMENDED SECURITIES -- Ownership of securities
that are held professionally as well as personally will be reviewed on a
periodic basis by the Legal Group and may also be reviewed by the applicable
Management Committee and/or Investment Committee or Subcommittee. In addition,
to the extent that disclosure has not already been made by the Legal Group to
the applicable Management Committee and/or Investment Committee or
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Subcommittee, any associate who is in a position to recommend the purchase or
sale of securities by the fund or client accounts that s/he personally owns
should first disclose such ownership either in writing (in a company write-up)
or orally (when discussing the company at investment meetings) prior to making
a recommendation.(1)
BLACKOUT PERIOD -- Portfolio counselors/managers and research analysts may not
buy or sell a security within at least seven calendar days before and after a
fund or client account that his or her company manages transacts in that
security. Profits resulting from transactions occurring within this time
period are subject to special review and may be subject to disgorgement.
BAN ON SHORT-TERM TRADING PROFITS -- Investment personnel are prohibited from
profiting from the purchase and sale or sale and purchase of the same (or
equivalent) securities within 60 days. THIS RESTRICTION APPLIES TO THE
PURCHASE OF AN OPTION AND THE EXERCISE OF THE OPTION WITHIN 60 DAYS.
SERVICE AS A DIRECTOR -- Investment personnel must obtain prior authorization
of the investment committee of the appropriate management company before
serving on the board of directors of publicly traded companies. This can be
arranged by calling the LAO Legal Group.
PERSONAL INVESTING POLICY COMMITTEE
Any questions or hardships that result from these policies or requests for
exceptions should be referred to CGC's Personal Investing Policy Committee by
calling the LAO Legal Group.
- --------
(1) Note that this disclosure requirement is consistent with both AIMR standards
as well as the ICI Advisory Group Guidelines.
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Fidelity Internal Information
FIDELITY INVESTMENTS'
CODE OF ETHICS FOR PERSONAL INVESTING
AND
THE STATEMENT OF POLICIES AND
PROCEDURES ON INSIDER TRADING
JANUARY 1, 2000
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Fidelity Internal Information
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CODE OF ETHICS
<S> <C>
I. PURPOSE AND SCOPE OF THIS CODE............................................................................. 6
A. PERSONAL SECURITIES TRANSACTIONS........................................................................ 6
B. GUIDING PRINCIPLES...................................................................................... 6
II. PERSONS (AND ACCOUNTS) TO WHOM THIS CODE APPLIES........................................................... 7
A. ACCESS PERSONS.......................................................................................... 7
B. NON-ACCESS TRUSTEES..................................................................................... 8
C. PORTFOLIO MANAGERS...................................................................................... 8
D. FIDELITY EMPLOYEES...................................................................................... 8
E. OTHER PERSONS........................................................................................... 8
F. COVERED ACCOUNTS (BENEFICIAL OWNERSHIP)................................................................. 8
III. PROVISIONS APPLICABLE TO FIDELITY EMPLOYEES AND THEIR ACCOUNTS.......................................... 9
A. PROCEDURAL REQUIREMENTS................................................................................. 9
B. PROHIBITED ACTIVITIES................................................................................... 11
C. RESTRICTED ACTIVITIES................................................................................... 12
IV. ADDITIONAL REQUIREMENTS APPLICABLE TO ACCESS PERSONS.................................................... 13
A. DISCLOSURE OF PERSONAL SECURITIES HOLDINGS.............................................................. 13
B. PRE-CLEARANCE........................................................................................... 13
C. GOOD-TILL-CANCELED ORDERS............................................................................... 14
D. PURCHASE OF CLOSED-END FUNDS............................................................................ 14
V. ADDITIONAL REQUIREMENTS APPLICABLE TO INVESTMENT PROFESSIONALS AND SENIOR EXECUTIVES....................... 14
A. PRIVATE PLACEMENTS...................................................................................... 14
B. SURRENDER OF SHORT-TERM TRADING PROFITS................................................................. 15
C. PURCHASE OF SECURITIES OF CERTAIN BROKER-DEALERS........................................................ 15
D. RESEARCH NOTES.......................................................................................... 15
E. AFFIRMATIVE DUTY TO RECOMMEND SUITABLE SECURITIES....................................................... 16
F. AFFIRMATIVE DUTY TO DISCLOSE............................................................................ 16
G. SERVICE AS A DIRECTOR OR TRUSTEE........................................................................ 16
VI. PROHIBITION ON CERTAIN TRADES BY PORTFOLIO MANAGERS..................................................... 16
VII. NON-ACCESS TRUSTEES..................................................................................... 17
VIII. WAIVERS AND EXCEPTIONS.................................................................................. 17
A. REQUESTS TO WAIVER A PROVISION OF THE CODE OF ETHICS.................................................... 17
B. EXCEPTIONS.............................................................................................. 17
IX. ENFORCEMENT............................................................................................. 17
A. REVIEW.................................................................................................. 17
B. BOARD REPORTING......................................................................................... 18
C. VIOLATIONS.............................................................................................. 18
D. SANCTIONS............................................................................................... 18
E. APPEALS PROCEDURES...................................................................................... 18
INSIDER TRADING POLICY STATEMENT................................................................................. 23
PERSONAL CONDUCT RULES (only applicable to employees affiliated with a broker-dealer) ........................... 30
EXHIBITS......................................................................................................... 37
</TABLE>
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Fidelity Internal Information
CODE OF ETHICS FOR PERSONAL INVESTING
This document constitutes the Code of Ethics adopted by the Fidelity Funds (the
"Funds"), the subsidiaries of FMR Corp. that serve as investment advisors or
principal underwriters and their affiliated companies (collectively, the
"Fidelity Companies") pursuant to the provisions of Rule 17j-1 under the
Investment Company Act of 1940 and of Rules 204-2(a)(12) and 204-2(a)(13) under
the Investment Advisers Act of 1940 (collectively, the "Rules").
I. PURPOSE AND SCOPE OF THIS CODE
A. PERSONAL SECURITIES TRANSACTIONS
This Code focuses on personal transactions in securities by persons
associated with the various Fidelity Companies. Accordingly, the
Code does not attempt to address all areas of potential liability
under applicable laws. For example, provisions of the Investment
Company Act of 1940 prohibit various transactions between a fund and
affiliated persons, including the knowing sale or purchase of
property to or from a fund on a principal basis and joint
transactions between a fund and an affiliated person. This Code does
not address these other areas of potential violation. Accordingly,
persons covered by this Code are advised to seek advice from the
Ethics Officer, or his or her designee (collectively, the "Ethics
Office"), before engaging in any transaction other than the normal
purchase or sale of fund shares or the regular performance of their
business duties if the transaction directly or indirectly involves
themselves and one or more of the Funds.
B. GUIDING PRINCIPLES
The Code is based on the principle that the officers, directors,
partners and employees of the Fidelity Companies owe a fiduciary
duty to, among others, the shareholders of the Funds to place the
interests of the Fund shareholders above their own and to conduct
their personal securities transactions in a manner which does not
interfere with Fund transactions, create an actual or potential
conflict of interest with a Fund or otherwise take unfair advantage
of their relationship to the Funds. Persons covered by this Code
must adhere to this general principle as well as comply with the
Code's specific provisions. It bears emphasis that technical
compliance with the Code's procedures will not automatically
insulate from scrutiny trades which show a pattern of abuse of the
individual's fiduciary duties to the Fidelity Funds in general or a
specific Fund in particular. For officers and employees of Fidelity
Management & Research Company ("FMR") and its affiliates, the
fiduciary responsibility applies to all of the investment companies
advised by FMR or any of its affiliates as well as any account
holding the assets of third parties for which FMR or any of its
affiliates acts in an investment advisory capacity (both types of
portfolios hereinafter referred to as the "Fidelity Funds" or
"Funds").
Recognizing that certain requirements are imposed on investment
companies and their advisers by virtue of the Investment Company Act
of 1940 and the Investment Advisers Act of 1940, considerable
thought has been given to devising a code of ethics designed to
provide legal protection to accounts for which a fiduciary
relationship exists and at the same time maintain an atmosphere
within which conscientious professionals may develop and maintain
investment skills. It is the combined judgment of the Fidelity
Companies and the Boards of the Funds that as a matter of policy a
code of ethics should not inhibit
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Fidelity Internal Information
responsible personal investment by professional investment
personnel, within boundaries reasonably necessary to insure that
appropriate safeguards exist to protect the Funds. This policy is
based on the belief that personal investment experience can over
time lead to better performance of the individual's professional
investment responsibilities. The logical extension of this line of
reasoning is that such personal investment experience may, and
conceivably should, involve securities which are suitable for the
Funds in question. This policy quite obviously increases the
possibility of overlapping transactions. The provisions of this
Code, therefore, are designed to foster personal investments while
minimizing conflicts under these circumstances and establishing
safeguards against overreaching.
II. PERSONS (AND ACCOUNTS) TO WHOM THIS CODE APPLIES
Unless otherwise specified, each provision of this Code applies to
all members of the Board of the Funds, and all officers, directors,
partners and employees of every Fidelity Company. In addition, the
provisions apply to any individual designated and so notified in
writing by the Ethics Office. Where the applicability of a
particular provision is more limited, the provision will so state.
For example, particular provisions may state they are limited to:
A. ACCESS PERSONS
This category includes Investment Professionals, Senior Executives and
certain other employees specified in paragraph II. A. 2. below.
1. INVESTMENT PROFESSIONALS are (i) portfolio managers, research
analysts and traders employed by FMR; (ii) employees seconded
to FMR from Fidelity International Limited ("FIL") performing
similar functions; (iii) all employees of the Capital Markets
Division of Fidelity Investment Institutional Brokerage Group
("FIIBG"); (iv) officers (vice-president and above) and
members of the Boards of Directors of FMR; and (v) such other
employees as the Ethics Office may designate and so notify in
writing.
2. SENIOR EXECUTIVES are (i) officers (vice-president and above)
and members of the Boards of Directors of FMR Corp.; (ii)
attorneys within Administrative and Government Affairs'
("AGA") Legal Department; (iii) employees of the Fund
Treasurer's Department, the FMR Investment & Advisor
Compliance Department and the Compliance Systems Technology
Group; and (iv) such other employees as the Ethics Office may
designate and so notify in writing.
3. OTHER ACCESS PERSONS are all other employees who, in
connection with their regular duties, make, participate in, or
obtain timely information regarding the purchase or sale of a
security by a Fund or of any investment recommendation to a
Fund. This includes (i) employees of FMR, Fidelity Management
Trust Company ("FMTC"), and Fidelity Pricing and Cash
Management Services ("FPCMS"); (ii) other employees seconded
from FIL to the foregoing companies; (iii) all employees with
access to the BOS E (AS400 trading machine), BOS H (AS400
development machine), INVIEW, BONDVIEW or OVERVIEW systems or
any other system containing timely information about the
Funds' activities or investment recommendations made to the
Funds; (iv) all employees within AGA's Operations Audit and
Analysis Department, and (v) such
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Fidelity Internal Information
other employees as the Ethics Office may designate and so
notify in writing.
Although the Ethics Office seeks to notify Access Persons of
their status as such, you are required to comply with all
provisions applicable to Access Persons if you are within the
above definitions even if the Ethics Office does not notify
you of your status. Please contact the Ethics Office if you
believe you are an Access Person or if you are unsure of your
status under the Code.
B. NON-ACCESS TRUSTEES
1. Trustees of the Fidelity Group of Funds will generally be
deemed Access Persons; however, Trustees who fulfill both of
the following conditions will be deemed "Non-Access Trustees"
and treated as a separate category:
a) The Trustee is not an "interested person" (as defined
in Section 2(a)(19) of the Investment Company Act of
1940) of any Fidelity Fund; and
b) The Trustee elects not to receive the Daily
Directors' Report and further elects not to have
access to the INVIEW, BONDVIEW, or OVERVIEW systems;
provided that this condition shall only be considered
fulfilled as of the fifteenth day after the Trustee
has notified the Ethics Office of such election.
C. PORTFOLIO MANAGERS.
This category includes employees whose assigned duties are to
manage any Fund, or portion thereof, and who have the power and
authority to make investment decisions on behalf of such Fund or
portion thereof.
D. FIDELITY EMPLOYEES.
This category includes all employees of the Fidelity Companies,
including employees seconded to any Fidelity Company by FIL.
E. OTHER PERSONS.
These are persons as specified in a particular provision of the Code
or as designated by the Ethics Office.
F. COVERED ACCOUNTS (BENEFICIAL OWNERSHIP).
It bears emphasis that the provisions of the Code apply to
transactions in reportable securities for any account "beneficially
owned" by any person covered by the Code. The term "beneficial
ownership" is more encompassing than one might expect. For example,
an individual may be deemed to have beneficial ownership of
securities held in the name of a spouse, minor children, or
relatives sharing his or her home, or under other circumstances
indicating a sharing of financial interest. See the Appendix to this
Code for a more comprehensive explanation of beneficial ownership.
Please contact the Ethics Office if you are unsure as to whether you
have beneficial ownership of particular securities or accounts.
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Fidelity Internal Information
III. PROVISIONS APPLICABLE TO FIDELITY EMPLOYEES AND THEIR ACCOUNTS
A. PROCEDURAL REQUIREMENTS
1. REPORTS ON REPORTABLE SECURITIES. Fidelity has established
certain procedures to monitor individual transactions in
reportable securities (as defined below) for compliance with
this Code, and to avoid situations which have the potential for
conflicts of interest with the Funds. You and all persons
subject to this Code are required to comply with the procedures
described below. Failure to follow these procedures or the
filing of a false, misleading or materially incomplete report
will itself constitute a violation of this Code.
Reports required under Section III.A.5. are necessary only for
transactions in reportable securities. If an investment is made
in an entity substantially all of whose assets are shares of
another entity or entities, the security purchased should be
reported and the underlying security or securities identified.
Furthermore, if an investment is made in a private placement,
this transaction must be reported. (See Exhibit B.)
"REPORTABLE SECURITIES" are ALL securities except:
a) U.S. Treasury Notes, Bills and Bonds;
b) money market instruments such as certificates of deposit,
banker's acceptances and commercial paper;
c) shares of registered open-end investment companies;
d) securities issued by FMR Corp.;
e) any obligations of agencies and instrumentalities of the
U.S. government if the remaining maturity is one year or
less; and
f) commodities and options and futures on commodities
provided that the purchase of these instruments may not be
utilized to indirectly acquire interests or securities
which could not be acquired directly or which could not be
acquired without reporting or pre-clearance. See Section
III.B.4.
2. ACKNOWLEDGMENT. Each new Fidelity employee will be given a copy
of this Code of Ethics upon commencement of employment. Within
7 days thereafter, you must file an acknowledgment (Exhibit A.)
stating that you have read and understand the provisions of the
Code of Ethics, and provide a written list to the Ethics Office
of all brokerage accounts in which you are a beneficial owner
of any securities in the account (Exhibit E.). Additionally,
your acknowledgment accords Fidelity the authority to access at
any time records for any beneficially owned brokerage account
for the period of time you were employed by Fidelity.
3. ANNUAL UPDATE. Each year, on or before January 31, you must
file an annual update stating that you have reviewed the
provisions of the Code of Ethics, understand the provisions of
the Code and that the Code applies to you, and believe that
your personal transactions in reportable securities for the
previous calendar year, and those of your family members which
are deemed to be beneficially owned by you, have been reported
as required under the Code and were consistent with its
provisions (Exhibit A.).
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Fidelity Internal Information
4. USE OF BROKERS.
a) All Fidelity employees must conduct all personal and
beneficially owned transactions in reportable securities
through a brokerage account at Fidelity Brokerage
Services, Inc. (FBSI), or with an approved broker outside
the U.S. (See Exhibit G.). By opening an account with FBSI
you agree to allow FBSI to forward to the Ethics Office
reports of your account transactions and to allow the
Ethics Office access to all account information. Upon
opening such an account you are required to notify FBSI of
your status as an employee.
b) Hardship Exception: Under circumstances evidencing special
hardship and then only with the express written approval
of the Ethics Office, you may be granted a waiver to
establish accounts for trading reportable securities with
brokers other than FBSI or those approved for the region.
(See Section VIII.). If you maintain an account with an
external broker pursuant to permission from the Ethics
Office, you must ensure duplicate reporting as specified
in "Transaction Reporting." (See Section III. A. 5.).
5. TRANSACTION REPORTING. Each employee must report personal
transactions in reportable securities to the Ethics Office.
Failure to file a report will be treated as the equivalent of a
report indicating that there were no transactions in reportable
securities. This reporting obligation may be met as follows:
a) FBSI Accounts: The Ethics Office will assume
responsibility for obtaining trade information from FBSI
for accounts in your name and all other related FBSI
accounts that have been disclosed to the Ethics Office by
you.
b) Non-FBSI (External) Accounts: If any transactions in
reportable securities are not being conducted through a
FBSI account (including those conducted through an
approved broker outside the U.S. or another external
broker pursuant to permission from the Ethics Office), you
are responsible for ensuring that the institution where
the account is maintained agrees to, and promptly
provides, regular copies of confirmations and statements
directly to the Ethics Office. These confirmations and
statements must include the trade date, security
description, number of shares or principal amount of each
security, the nature of the transaction (e.g., purchase or
sale), the total price and the name of the institution
that effected the transactions. If transactions cannot or
are not reported by the external institution in this
fashion, permission to open the account will not be
granted or will be revoked by the Ethics Office.
c) Failure to Report by External Brokers. As noted above,
employees are responsible for ensuring their transactions
in reportable securities not conducted through a FBSI
account are reported to the Ethics Office. If you have
executed transactions through an external broker and the
broker does not report the transactions as specified in
paragraph b) above, you must promptly forward the
necessary information to the Ethics Office. If
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account statements with the necessary information are not
available, you must complete the Report of Securities
Transactions (Exhibit B) with the information and forward
it to the Ethics Office.
B. PROHIBITED ACTIVITIES
1. ACTIVITIES FOR PERSONAL BENEFIT. Inducing or causing a Fund to
take action, or to fail to take action, for personal benefit
rather than for the benefit of the Fund is prohibited. For
example, you would violate this Code by causing a Fund to
purchase a security you owned for the purpose of supporting or
increasing the price of that security. Causing a Fund to
refrain from selling a security in an attempt to protect a
personal investment, such as an option on that security, also
would violate this Code.
2. PROFITING FROM KNOWLEDGE OF FUND TRANSACTIONS. Using your
knowledge of Fund transactions to profit by the market effect
of such transactions is prohibited.
3. VIOLATIONS OF THE ANTIFRAUD LAWS AND REGULATIONS. Violations of
the antifraud provisions of the federal securities laws and the
rules and regulations promulgated thereunder, including the
antifraud provision of Rule 17j-1 under the Investment Company
Act of 1940, are prohibited. In that Rule, the Securities and
Exchange Commission specifically makes it unlawful for any
person affiliated with a Fund, investment adviser or principal
underwriter of a Fund in connection with the purchase or sale,
directly or indirectly, by such person of a "security held or
to be acquired" by such Fund:
"(1) To employ any device, scheme or artifice to defraud the
Fund;
(2) To make any untrue statement of a material fact to the
Fund or omit to state a material fact necessary in order
to make the statements made to the Fund, in light of the
circumstances under which they are made, not misleading;
(3) To engage in any act, practice or course of business that
operates or would operate as a fraud or deceit upon the
Fund; or
(4) To engage in any manipulative practice with respect to the
Fund."
Rule 17j-1 defines "security held or to be acquired" very
broadly to include any security (other securities that are
not reportable securities) that, "within the most recent
15 days, (i) is or has been held by such company, or (ii)
is being or has been considered by such company or its
investment adviser for purchase by such company, and (iii)
any option to purchase or sell, and any security
convertible into or exchangeable for" a reportable
security. Thus the antifraud provisions of Rule 17j-1 may
apply to transactions in securities even if not recently
traded by a Fund. Under Rule 17j-1, a sufficient nexus
exists if a fraud is effected in connection with a
security held for a long period in a portfolio or merely
considered for inclusion in a portfolio. In addition, the
receipt of compensation in the form of an opportunity to
purchase a security that is intended to induce a Fund to
purchase other securities must be reported under this
Rule, whether or not the compensation is in the form of an
opportunity to purchase a security "held or to be
acquired" by a Fund. Moreover, the
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general antifraud provisions of the Securities Exchange
Act of 1934 and other federal securities statutes make
unlawful fraud in connection with the purchase or sale of
securities, even if such securities do not fall within the
scope of Rule 17j-1.
4. USE OF DERIVATIVES. Derivatives, including futures and options,
and other arrangements may not be used to evade the
restrictions of this Code. Accordingly, you may not use
derivatives or other arrangements with similar effects to take
positions in securities that the Code would prohibit if the
positions were taken directly. For purposes of this section,
"futures" are futures on securities or securities indexes;
"options" are options (puts or calls) on securities or
securities indexes, or options on futures on securities or
securities indexes. Options and futures on commodities are not
"reportable securities" except as specified in Section III. A.
1. f).
5. GIFTS AND HOSPITALITIES. The Fidelity Companies generally
prohibit employees from receiving gifts, gratuities, and other
from any person or entity that does business with the Funds or
with any Fidelity Company or from any entity which is a
potential portfolio investment for the Funds. Fidelity's Gifts
and Gratuities Policy, which is separate from this Code, sets
forth the specific policies, restrictions and procedures to be
observed by employees with respect to business-related gifts
and related matters.
6. RESTRICTED SECURITIES. From time to time, the Ethics Office may
place a security on a restricted list. Certain employees, as
designated on a case-by-case basis by the Ethics Office, may
not effect transactions in securities on the restricted list.
7. INVESTMENTS IN HEDGE FUNDS AND INVESTMENT CLUBS. You may not
invest in hedge funds or investment clubs because such funds or
clubs cannot normally be expected to comply with the provisions
of this Code.
C. RESTRICTED ACTIVITIES
The following are restricted by this Code of Ethics:
1. SHORT SALE ACTIVITIES. Purchasing puts to open, selling calls
to open or selling a security short where there is no
corresponding long position in the underlying security is
prohibited; short sales against the box are permitted. This
prohibition includes purchasing puts and selling calls on all
market indexes with the exception of the following indexes:
S&P 100, S&P Mid Cap 400, S&P 500, Morgan Stanley Consumer
Index, FTSE 100 and Nikkei 225. Short sales of the Fidelity
Select Portfolios are also prohibited.
2. PUBLIC OFFERINGS FOR WHICH NO PUBLIC MARKET PREVIOUSLY
EXISTED. The purchase of an initial public offering of
securities for which no public market in the same or similar
securities of that issuer has previously existed is prohibited
except as noted below. This prohibition includes "secondary"
public offerings (where the securities are offered publicly by
a substantial shareholder and not from the company's treasury)
and so-called "free stock offers" through the Internet, and
applies both to equity and debt securities.
EXCEPTIONS. Exceptions from this prohibition may be granted in
special circumstances with the written permission of the
Ethics Office (e.g.,
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receipt of securities or their subsequent sale by an insurance
policyholder or depositor of a company converting from mutual
to stock form).
3. EXCESSIVE TRADING. While active personal trading does not in
and of itself raise issues under Rule 17j-1, the Fidelity
Companies and Boards of the Funds believe that a very high
volume of personal trading can be time consuming and can
increase the possibility of actual or apparent conflicts with
portfolio transactions. Accordingly, an unusually high level
of personal trading activity is strongly discouraged and may
be monitored by the Ethics Office to the extent appropriate
for the category of person, and a pattern of excessive trading
may lead to the taking of appropriate action under the Code.
4. DISCRETIONARY AUTHORIZATION. You may not exercise investment
discretion over accounts in which you have no beneficial
interest. If you wish to do so, you must contact the Ethics
Office for approval.
IV. ADDITIONAL REQUIREMENTS APPLICABLE TO ACCESS PERSONS
Because of their access to information about Fund investments and/or
investment recommendations, Access Persons are necessarily subject to
somewhat greater restrictions and closer scrutiny than are other
persons subject to the Code. Accordingly, in addition to complying with
the provisions detailed in Section III of this Code, Access Persons are
required to comply with the provisions of this section.
A. DISCLOSURE OF PERSONAL SECURITIES HOLDINGS.
Access Persons must disclose in writing all personal securities
holdings owned directly or otherwise beneficially owned.
(See Exhibit F.)
1. INITIAL REPORT. Each new Access Person must file a holdings
disclosure within 7 days of the commencement of employment or of
being designation an Access Person.
2. ANNUAL REPORT. Each Access Person must file a holdings report
containing current information as of a date no more than 30 days
before the report is submitted.
B. ALL PERSONAL TRADES IN REPORTABLE SECURITIES MUST BE CLEARED IN
ADVANCE BY THE APPROPRIATE PRE-CLEARANCE DESK.
One of the most important objectives of this Code is to prevent
Access Persons from making personal trades on the basis of
information about portfolio transactions made by the Funds. Trading
on such information for personal benefit not only constitutes a
violation of this Code, but also may influence the market in the
security traded and thus prevent transactions for the Funds from
being conducted at the most favorable price. To further reduce the
possibility that Fund transactions will be affected by such trades,
Access Persons must comply with the following procedures before
effecting a personal transaction in any securities which are
"reportable securities":
1. PRE-CLEARANCE PROCEDURES.
a) On any day that you plan to trade a reportable security,
you must first contact the appropriate pre-clearance desk
for approval. (See Exhibit H.) (Please note that
pre-clearance communications may be recorded for the
protection of Fidelity and its employees.) By seeking
pre-clearance, you will be deemed to be advising the
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Ethics Office that you (i) do not possess any material,
nonpublic information relating to the security; (ii) are
not using knowledge of any proposed trade or investment
program relating to the Funds for personal benefit; (iii)
believe the proposed trade is available to any market
participant on the same terms; and (iv) will provide any
other relevant information requested by the Ethics
Office. The pre-clearance desk will consider approval of
the trade for execution only upon the day the request is
made. Generally, a pre-clearance request will not be
approved if the pre-clearance desk determines that the
trade will have a material influence on the market for
that security or will take advantage of, or hinder,
trading by the Funds. Additionally, the pre-clearance
desk will evaluate a pre-clearance request for a
transaction to determine if you are in compliance with
the other provisions of the Code relevant to such
transaction. Securities and transaction types that do not
require pre-clearance include the following: currency
warrants; rights subscriptions; gifting of securities;
automatic dividend reinvestments; and options on the
following indexes: S&P 100, S&P Mid Cap 400, S&P 500,
Morgan Stanley Consumer Index, FTSE 100 and Nikkei 225.
b) Transactions in accounts beneficially owned by an
employee where investment discretion has been provided to
a third party in a written document and for which the
employee provides no input regarding investment decision
making will not be subject to pre-clearance. Transactions
in reportable securities in such accounts, however, still
must be reported under this Code.
c) In addition to any other sanctions provided for under the
Code (see Section IX. D.), failure to pre-clear a
transaction as required above may result in a requirement
to surrender any profits realized in connection with the
transaction.
C. GOOD-TILL-CANCELED ORDERS.
Access Persons may not place good-till-canceled orders.
Good-till-canceled orders may inadvertently cause an employee to
violate the pre-clearance provisions of this Code.
D. PURCHASE OF CLOSED-END FUNDS.
The purchase of closed-end funds for which a Fidelity Company
performs the pricing and bookkeeping services is prohibited without
prior approval by the Ethics Office.
V. ADDITIONAL REQUIREMENTS APPLICABLE TO INVESTMENT PROFESSIONALS AND
SENIOR EXECUTIVES
In addition to complying with the provisions detailed in Sections III
and IV of this Code, Investment Professionals and Senior Executives are
required to comply with the provisions of this section.
A. PRIVATE PLACEMENTS.
Private placements are in many cases not suitable investments for
the Funds. However, in various circumstances, they may be suitable
investments. In order
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to avoid even the appearance of a conflict of interest between their
personal investment activities and their fiduciary responsibility to
the Funds' shareholders, Investment Professionals and Senior
Executives must follow the procedures outlined below to participate
in a private placement.
1. PRIOR APPROVAL TO PARTICIPATE.
You must receive written approval from your Division or Department
Head and the Ethics Office, utilizing Exhibit C, prior to any
purchase of a privately placed security. If you are a Division or
Department Head, then approval shall be received from the President
of FMR. (See Exhibit C.)
2. TRANSACTION REPORTING.
If approved, you must report the purchase to the Ethics Office
within 10 days of the end of the month in which the purchase
occurred, using the Report of Securities Transactions form (Exhibit
B.).
3. IN THE EVENT OF SUBSEQUENT INVESTMENT BY A FUND OR FUNDS.
After approval is granted, if you have any material role in
subsequent consideration by any Fund of an investment in the same or
an affiliated issuer, you must disclose your interest in the private
placement investment to the person(s) making the investment
decision. Notwithstanding such a disclosure, any decision by any
Fund to purchase the securities of the issuer, or an affiliated
issuer, must be subject to an independent review by your Division or
Department Head.
B. SURRENDER OF SHORT-TERM TRADING PROFITS.
Short-term trading can be both time consuming and can increase the
possibility of actual or apparent conflicts with Fund transactions. To
reduce instances of short-term trading, the Fidelity Companies and the
Boards of the Funds have determined that Investment Professionals and
Senior Executives will be required to surrender short-term trading
profits. )
Short-term trading profits are profits generated from the purchase and
sale of the same (or equivalent) security within 60 calendar days.
Transactions will be matched with any opposite transaction within the most
recent 60 calendar days. Options on the following indexes are not subject
to this provision: S&P 100, S&P Mid Cap 400, S&P 500, Morgan Stanley
Consumer Index, FTSE 100 and Nikkei 225. Exhibit D contains further
information and examples concerning application of this policy.
C. PURCHASE OF SECURITIES OF CERTAIN BROKER-DEALERS.
Investment Professionals and Senior Executives, unless specifically
excluded by the Ethics Office, may not purchase securities of certain
broker-dealers or parent companies as identified from time to time by the
Ethics Office based upon the level and nature of services provided to the
Funds.
D. RESEARCH NOTES.
Investment Professionals and Senior Executives specifically designated by
the Ethics Office must wait two business days after the day on which a
research note is issued prior to trading for their beneficially owned
accounts in the securities of the issuer(s) that is the subject of the
note.
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E. AFFIRMATIVE DUTY TO RECOMMEND SUITABLE SECURITIES.
A portfolio manager or a research analyst may not fail to timely recommend
a suitable security to, or purchase or sell a suitable security for, a
Fund in order to avoid an actual or apparent conflict with a personal
transaction in that security. Before trading any security, a portfolio
manager or research analyst has an affirmative duty to provide to Fidelity
any material, public information that comes from the company about such
security in his or her possession. As a result, portfolio managers or
research analysts should (a) confirm that a Research Note regarding such
information on such security is on file prior to trading in the security,
or (b) if not, should either contact the Director of Research or publish
such information in their possession and wait two business days prior to
trading in the security.
F. AFFIRMATIVE DUTY TO DISCLOSE.
Investment Professionals and Senior Executives who own a security, or who
have decided to effect a personal transaction in a security, have an
affirmative duty to disclose this information in the course of any
communication about that security when the purpose or reasonable
consequence of such communication is to influence a portfolio to buy, hold
or sell that security. The disclosure of ownership should be part of the
initial communication but need not be repeated in the case of continuing
communications directed to a specific person.
G. SERVICE AS A DIRECTOR OR TRUSTEE.
Service on a board of directors or Trustees poses several forms of
potential conflicts for employees. These include potentially conflicting
fiduciary duties to the company and a Fund, receipt of possibly material,
nonpublic information and conflicting demands on the time of the employee.
Accordingly, service by any Investment Professional or Senior Executive on
a board of directors of a non-Fidelity publicly-traded or privately-held
company likely to issue shares is prohibited absent prior authorization.
Approval will be based upon a determination that the board service would
be in the best interests of the Funds and their shareholders. Requests for
approval of board service should be submitted in writing to the Ethics
Office.
VI. PROHIBITION ON CERTAIN TRADES BY PORTFOLIO MANAGERS
Portfolio managers are the people most familiar with the investment
decisions they are making for the Funds they manage. Even the appearance
of a portfolio manager trading the same securities for his or her personal
account on or about the same time as he or she is trading for the Fund is
not in the best interest of the Funds. Accordingly, as a portfolio
manager, you may not buy or sell a security your Fund has traded within 7
calendar days on either side of the Fund's trade date (i.e., date of
execution, not the settlement date). For example, assuming the day your
Fund trades a security is day 0, day 8 is the first day you may trade that
security for your own account. This prohibition is in addition to the
restrictions that apply generally to all persons subject to this Code and
those applicable to Access Persons. If application of this rule would work
to the disadvantage of a Fund (e.g., you sold a security on day 0 and on
day 3, after new events had occurred, determined that the Fund should buy
the same security) you must apply to the Ethics Officer for an exception
(see Section VIII. below).
In addition to any other sanction provided for under the Code of Ethics
(see Section IX. D.), any profit realized from a transaction within the
prescribed period may be required to
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be surrender to FMR. Transactions in accounts beneficially owned by you
where investment discretion has been provided to a third party in a
written document and for which you provide no input regarding investment
decision making will not be subject to this 7 day provision.
VII. NON-ACCESS TRUSTEES
Pursuant to Rule 17j-1, a Non-Access Trustee need not file reports of his
or her transactions in reportable securities unless at the time of the
transaction the Board member knew, or in the ordinary course of fulfilling
his or her duties as a Fidelity Fund Board member should have known: (a)
that one or more of the Funds had purchased or sold or was actively
considering the purchase or sale of that security within the 15-day period
preceding the Board member's transaction, or (b) that one or more Funds
would be purchasing, selling or actively considering the purchase or sale
of that security within the 15 days following the Board member's
transaction. The knowledge in question is the Board member's knowledge at
the time of the Board member's transaction, not knowledge subsequently
acquired. Although a Non-Access Trustee is not required to report
transactions unless the above conditions are met, the Boards of Trustees
of the Funds have adopted a policy that requires a Non-Access Trustee to
report personal securities transactions on at least a quarterly basis.
VIII. WAIVERS AND EXCEPTIONS
A. REQUESTS TO WAIVER A PROVISION OF THE CODE OF ETHICS.
An employee may request in writing to the Ethics Office a waiver of any
Code of Ethics provision. If appropriate, the Ethics Office will
consult with the Ethics Oversight Committee (a committee which consists
of representatives from senior management) in considering such request.
The Ethics Office will inform you in writing whether or not the waiver
has been granted. If you are granted a waiver to any Code of Ethics
provision, you will be expected to comply with all other provisions of
the Code. You may contact the Ethics Office for specific requirements.
B. EXCEPTIONS.
Special approval to make any trade prohibited by this Code may be
sought from the Ethics Office. Special approvals will be considered on
a case-by-case basis. The decision to grant special approval will be
based on whether the trade is consistent with the general principles of
this Code and whether the trade is consistent with the interest of the
relevant Fund(s). The Ethics Office will maintain a written record of
exceptions, if any, that are permitted.
IX. ENFORCEMENT
The Rules adopted by the SEC require that a code of ethics must not only
be adopted but must also be enforced with reasonable diligence. Records of
any violation of the Code and of the actions taken as a result of such
violations will be kept.
A. REVIEW.
The Ethics Office will review on a regular basis the reports filed
pursuant to this Code. In this regard, the Ethics Office will give
special attention to evidence, if any, of potential violations of
the antifraud provisions of the federal securities laws or the
procedural requirements or ethical standards set forth in this Code
and the
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Fidelity Internal Information
Statement of Policies and Procedures with Respect to the Flow and
Use of Material Nonpublic (Inside) Information ("Insider Trading
Policy Statement" to follow).
The policies and procedures described in this Code do not create any
obligations to any person or entity other than the Fidelity
Companies and the Funds. This Code is not a promise or contract, and
it may be modified at any time. The Fidelity Companies and the Funds
retain the discretion to decide whether this Code applies to a
specific situation, and how it should be interpreted.
B. BOARD REPORTING.
The Ethics Office will provide to the Boards of Trustees of the
Funds no less frequently than annually a summary of significant
sanctions imposed for material violations of this Code or the
Insider Trading Policy Statement.
C. VIOLATIONS.
When potential violations of the Code of Ethics or the Insider
Trading Policy Statement come to the attention of the Ethics Office,
the Ethics Office may investigate the matter. This investigation may
include a meeting with the employee. Upon completion of the
investigation, if necessary, the matter will be reviewed with senior
management or other appropriate parties, and a determination will be
made as to whether any sanction should be imposed as detailed below.
The employee will be informed of any sanction determined to be
appropriate.
D. SANCTIONS.
Since violations of the Code or the Insider Trading Policy Statement
will not necessarily constitute violations of federal securities
laws, the sanctions for violations of the Code or the Insider
Trading Policy Statement will vary. Sanctions may be issued by (i)
the appropriate Board(s) of Trustees of the Fund(s) or Fidelity
Company, (ii) senior management, (iii) the Ethics Office, or (iv)
other appropriate entity. Sanctions may include, but are not limited
to, (i) warning, (ii) fine or other monetary penalty, (iii) personal
trading ban, (iv) dismissal, and (v) referral to civil or criminal
authorities. Additionally, other legal remedies may be pursued.
E. APPEALS PROCEDURES.
If you feel that you are aggrieved by any action rendered with
respect to a violation of the Code of Ethics or a waiver request,
you may appeal the determination by providing the Ethics Office with
a written explanation within 30 days of being informed of such
determination. The Ethics Office will arrange for a review by senior
management or other appropriate party and will advise you whether
the action will be imposed, modified or withdrawn. During the review
process, you will have an opportunity to submit a written statement.
In addition, you may elect to be represented by counsel of your own
choosing.
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APPENDIX -- BENEFICIAL OWNERSHIP
As used in the Code of Ethics, beneficial ownership will be interpreted using
Section 16 of the Securities Exchange Act of 1934 ("1934 Act") as a general
guideline, except that the determination of such ownership will apply to all
securities, including debt and equity securities. For purposes of Section 16, a
beneficial owner means:
Any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise, has or
shares a direct or indirect pecuniary interest in the
securities.
In general, "pecuniary interest" means the opportunity, directly or indirectly,
to profit or share in any profit derived from a transaction in the subject
securities.
Using the above-described definition as a broad outline, the ultimate
determination of beneficial ownership will be made in light of the facts of the
particular case. Key factors to be considered are the ability of the person to
benefit from the proceeds of the security, and the degree of the person's
ability to exercise control over the security.
1. SECURITIES HELD BY FAMILY MEMBERS. As a general rule, a person is regarded
as having an indirect pecuniary interest in, and therefore is the
beneficial owner of, securities held by any child, stepchild, grandchild,
parent, step-parent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law (collectively, "immediate family") sharing the same
household. Adoptive relationships are included for purposes of determining
whether securities are held by a member of a person's immediate family.
2. SECURITIES HELD BY A CORPORATION OR SIMILAR ENTITY. A person shall not be
regarded as having a direct or indirect pecuniary interest in, and
therefore shall not be the beneficial owner of, portfolio securities held
by a corporation or similar entity in which the person owns securities
provided that (i) the person is not a controlling shareholder of the
entity or (ii) the person does not have or share investment control over
the entity's portfolio securities. "Portfolio securities" means all
securities owned by an entity other than securities issued by the entity.
Business trusts are treated as corporations for these purposes. In
addition, the 1934 Act makes no distinction between public and private
corporations for purposes of determining beneficial ownership.
3. SECURITIES HELD IN TRUST. In general, a person's interest in a trust will
amount to an indirect pecuniary interest in the securities held by that
trust. However, the following persons shall generally not be deemed
beneficial owners of the securities held by a trust:
a) Beneficiaries, unless (i) the beneficiary has or shares investment
control with the trustees with respect to transactions in the
trust's securities, (ii) the beneficiary has investment control
without consultation with the trustee, or (iii) if the trustee does
not exercise exclusive investment control, the beneficiary will be
the beneficial owner to the extent of his or her pro rata interest
in the trust.
b) Trustees, unless the trustee has a pecuniary interest in any holding
or transaction in the securities held by the trust. A trustee will
be deemed to have a pecuniary interest in the trust's holdings if at
least one beneficiary of the trust is a member of the trustee's
immediate family.
c) Settlors, unless a settlor reserves the right to revoke the trust
without the consent of another person; provided, however, that if
the settlor does not exercise or
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share investment control over the issuer's securities held by the
trust the settlor will not be deemed to be the beneficial owner of
those securities.
Indirect pecuniary interest for purposes of Section 16 also includes a general
partner's proportionate interest in the portfolio securities held by a general
or limited partnership.
Finally, beneficial ownership is not deemed to be conferred by virtue of an
interest in:
a) portfolio securities held by any holding company registered under
the Public Utility Holding Company Act of 1935;
b) portfolio securities held by any investment company registered under
the Investment Company Act of 1940; or
c) securities comprising part of a broad-based publicly-traded market
basket or index of stocks approved for trading by the appropriate
federal governmental authority.
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EXAMPLES OF BENEFICIAL OWNERSHIP
1. Securities Held by Family Members
(a) Example 1-A:
X and Y are married. Although Y has an independent source of income
from a family inheritance and segregates her funds from those of her
husband, Y contributes to the maintenance of the family home. X and Y
have engaged in joint estate planning and have the same financial
adviser. Since X and Y's resources are clearly significantly directed
towards their common property, they will be deemed to be beneficial
owners of each other's securities.
(b) Example 1-B:
X and Y are separated and have filed for divorce. Neither party
contributes to the support of the other. X has no control over the
financial affairs of his wife and his wife has no control over his
financial affairs. Neither X nor Y is a beneficial owner of the other's
securities.
(c) Example 1-C:
X's adult son Z lives in X's home. Z is self-supporting and contributes
to household expenses. X is a beneficial owner of Z's securities.
(d) Example 1-D:
X's mother A lives alone and is financially independent. X has power of
attorney over his mother's estate, pays all her bills and manages her
investment affairs. X borrows freely from A without being required to
pay back funds with interest, if at all. X takes out personal loans
from A's bank in A's name, the interest from such loans being paid from
A's account. X is a significant heir of A's estate.
X is a beneficial owner of A's securities.
2. Securities Held by a Company
(a) Example 2-A:
O is a holding company with 5 shareholders. X owns 30% of the shares in
the company. X will be presumed to have beneficial ownership of the
securities owned by O.
3. Securities Held in Trust
(a) Example 3-A:
X is trustee of a trust created for his two minor children. When both
of X's children reach 21, each will receive an equal share of the
corpus of the trust. X is a beneficial owner of the securities in the
trust.
(b) Example 3-B:
X is trustee of an irrevocable trust for his daughter. X is a director
of the issuer of the equity securities held by the trust. The daughter
is entitled to the income of the trust until she is 25 years old, and
is then entitled to the corpus. If the daughter dies before reaching
25, X is entitled to the corpus. X should report the holdings and
transactions of the trust as his own.
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FIDELITY INVESTMENTS'
INSIDER TRADING POLICY STATEMENT
FORMALLY KNOWN AS
THE STATEMENT OF POLICIES AND
PROCEDURES ON INSIDER TRADING
JANUARY 1, 2000
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STATEMENT OF POLICIES AND PROCEDURES
WITH RESPECT TO THE FLOW AND USE OF MATERIAL
NONPUBLIC (INSIDE) INFORMATION
INTRODUCTION
The Fidelity Companies' reputation for integrity and high ethical standards in
the conduct of their affairs is of paramount importance to all of us. To
preserve this reputation, it is essential that all transactions in securities be
effected in conformity with applicable securities laws. In particular, it has
been the Fidelity Companies' long-standing policy that no employee should
knowingly trade in securities on the basis of material, nonpublic information.
This is sometimes referred to as "insider trading".
For many years, the Fidelity Companies have operated under a written Code of
Ethics. The Code prohibits trading by employees and their family members which
is in conflict with trading by the Funds. It establishes a broad range of
restrictions and trading procedures for employees who have access to information
relating to fund or account investment activity. This Statement of Policies and
Procedures (the "Statement") is issued in response to legislative and regulatory
initiatives and activities, and constitutes a written supplement to the
principles of the Code of Ethics.
In November, 1988, the Insider Trading and Securities Fraud Enforcement Act of
1988 ("the Act") was enacted into law. The Act is designed to add to the
enforcement of securities laws, particularly in the area of insider trading, by
imposing severe penalties on persons who violate the laws by trading on
material, nonpublic information. The Act also imposes on broker-dealers and
investment advisers the explicit obligation to establish, maintain and enforce
written policies and procedures reasonably designed to prevent the misuse of
inside information. In addition, in recent years insider trading has become a
top enforcement priority of the SEC and the United States Attorneys. As a result
of insider trading violations, both the firm and the employee(s) involved could
be subject to disciplinary action or fines by the SEC, damage actions brought by
private parties and criminal prosecutions.
PURPOSE OF STATEMENT
The purpose of this statement is to explain: (1) the general legal prohibitions
regarding insider trading; (2) the meaning of the key concepts underlying the
prohibition; (3) the sanctions for insider trading and expanded liability for
controlling persons; (4) your obligations in the event you learn of material,
nonpublic information; and (5) Fidelity's educational program regarding insider
trading.
APPLICABILITY
This Statement applies to all officers, directors and employees of all Fidelity
Companies, and any that may be formed in the future. In addition, this statement
applies to employees seconded to Fidelity Management & Research Company (FMR) or
Fidelity Management Trust Company (FMTC) from Fidelity International Limited
(FIL).
I. THE BASIC INSIDER TRADING PROHIBITION
The Act does not define insider trading. However, in general, the
"insider trading" doctrine under federal securities laws prohibits any
person (including investment advisers) from knowingly or recklessly
breaching a duty owed by that person:
- trading while in possession of material, nonpublic information;
- communicating ("tipping") such information to others;
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- recommending the purchase or sale of securities on the basis of
such information; or
- providing substantial assistance to someone who is engaged in any
of the above activities.
In addition, an SEC rule prohibits an individual from trading while in
possession of material, nonpublic information relating to a tender
offer, whether or not trading involves a breach of duty, except for a
firm acting in compliance with Chinese Wall procedures. See Section IV.
B. below.
NO FIDUCIARY DUTY TO USE INSIDE INFORMATION. Although various Fidelity
Companies, including FMR and FMTC, have a fiduciary relationship with
their clients, they have no legal obligation to trade or recommend
trading on the basis of information their employees know to be "inside"
information. In fact, such conduct could violate the federal securities
laws.
NO BROKERAGE ALLOCATION FOR INSIDE INFORMATION. Although the Fidelity
Companies have adopted policies which permit consideration of the
receipt of research and brokerage services in selecting brokers to
execute client portfolio transactions, it is the policy of the firm not
to allocate brokerage in consideration of receipt of "inside"
information.
II. BASIC CONCEPTS
As noted the Act did not specifically define insider trading. However,
federal law prohibits knowingly or recklessly purchasing or selling
directly or indirectly a security while in possession of material,
nonpublic information or communicating ("tipping") such information in
connection with a purchase or sale. Under current case law, the
Securities and Exchange Commission ("SEC") must establish that the
person misusing the information has breached either a fiduciary duty to
the shareholders or some other duty not to misappropriate insider
information.
Thus, the key aspects of insider trading are: (A) materiality, (B)
nonpublic information, (C) knowing or reckless action and (D) breach of
fiduciary duty or misappropriation. Each aspect is briefly discussed
below.
A. MATERIALITY. Insider trading restrictions arise only when
information that is used for trading, recommending or tipping
is "material." Information is considered "material" if there
is a substantial likelihood that a reasonable investor would
consider it important in making his or her investment
decisions, or if it could reasonably be expected to affect the
price of a company's securities. It need not be so important
that it would have changed the investor's decision to buy or
sell. On the other hand, not every tidbit of information about
a security is material. The courts have held that information
that merely tests "the meaning of public information" or that
fills in the mosaic of various pieces of research analysis is
not material.
B. NONPUBLIC INFORMATION. Information is considered public if it
has been disseminated in a manner making it available to
investors generally (e.g., national business and financial
news wire services, such as Dow Jones and Reuters; national
news services, such as Associated Press, New York Times or
Wall Street Journal; broad tapes; SEC reports; brokerage firm
reports). Just as an investor is permitted to trade on the
basis of nonpublic information that is not material, he or she
may also trade on the basis of information that is public.
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However, information given by a company director to an
acquaintance of an impending takeover prior to that
information being made public would be considered both
"material" and "nonpublic." Trading by either the director or
the acquaintance prior to the information being made public
would violate the federal securities laws.
C. KNOWING. Under the federal securities laws, a violation of the
insider trading limitations requires that the individual act
with "scienter" -- with knowledge that his or her conduct may
violate these limitations or in a reckless manner.
Recklessness involves acting in a manner which ignores
circumstances which a reasonable person would conclude would
result in a violation of insider trading limitations.
D. FIDUCIARY DUTY. The general tenor of recent court decisions is
that insider trading does not violate the federal securities
laws if the trading, recommending or tipping of the insider
information does not result in a breach of duty. Over the last
decade, the SEC has brought cases against accountants, lawyers
and stockbrokers because of their participation in a breach of
an insider's fiduciary duty to the corporation and its
shareholders. The SEC has also brought cases against
noncorporate employees who misappropriated information about a
corporation and thereby allegedly violated their duties to
their employers. Consequently, the situations in which a
person can trade on the basis of material, nonpublic
information without raising a question whether a duty has been
breached are so rare, complex and uncertain that the only
prudent course is not to trade, tip or recommend based on
inside information. In addition, trading by an individual
while in possession of material, nonpublic information
relating to a tender offer is illegal irrespective of whether
such conduct breaches a fiduciary duty of such individual. Set
forth below are several situations where courts have held that
such trading involves a breach of fiduciary duty or is
otherwise illegal.
CORPORATE INSIDER. In the context of interviews or other
contact with corporate management, the Supreme Court held that
an investment analyst who obtained material, nonpublic
information about a corporation from a corporate insider does
not violate insider trading restrictions in the use of such
information unless the insider disclosed the information for
"personal gain." However, personal gain may be defined broadly
to include not only a pecuniary benefit, but also a
reputational benefit or a gift. Moreover, selective disclosure
of material, nonpublic information to an analyst might be
viewed as a gift.
TIPPING INFORMATION. The Act includes a technical amendment
clarifying that tippers can be sued as primary violators of
insider trading prohibitions, and not merely as aidors and
abettors of a tippee's violation. In enacting this amendment,
Congress intended to make clear that tippers cannot avoid
liability by misleading their tippees about whether the
information conveyed was nonpublic or whether its disclosure
breached a duty. However, Congress recognized the crucial role
of securities analysts in the smooth functioning of the
markets, and emphasized that the new direct liability of
tippers was not intended to inhibit "honest communications
between corporate officials and securities analysts."
CORPORATE OUTSIDER. Additionally, liability could be
established when trading occurs based on material, nonpublic
information that was stolen or misappropriated from any other
person, whether a corporate insider or not. An example of an
area where trading on information may give rise to liability,
even though from outside the company whose securities are
traded, is material,
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Fidelity Internal Information
nonpublic information secured from an attorney or investment
banker employed by the company.
TENDER OFFERS. The SEC has adopted a rule specifically
prohibiting trading while in possession of material
information about a prospective tender offer before it is
publicly announced. This rule also prohibits trading while in
possession of material information during a tender offer which
a person knows or has reason to know is not yet public. Under
the rule, there is no need for the SEC to prove a breach of
duty. Furthermore, in the SEC's view, there is no need to
prove that the nonpublic, material information was actively
used in connection with trading before or during a tender
offer. However, this rule has an exception that allows trading
by one part of a securities firm where another part of that
firm has material, nonpublic information about a tender offer
if certain strict (Chinese Wall) procedures are followed. See
Section IV. B. below.
III. SANCTIONS AND LIABILITIES
A. SANCTIONS. Insider trading violations may result in severe
sanctions being imposed on the individual(s) involved and on
Fidelity Companies. These could involve SEC administrative
sanctions, such as being barred from employment in the
securities industry, SEC suits for disgorgement and civil
penalties of, in the aggregate, up to three times profits
gained or losses avoided by the trading, private damage suits
brought by persons who traded in the market at about the same
time as the person who traded on inside information, and
criminal prosecution which could result in substantial fines
and jail sentences. Even in the absence of legal action,
violation of insider trading prohibitions or failure to comply
with this Statement and the Code may result in termination of
your employment and referral to the appropriate authorities.
B. CONTROLLING PERSONS. The Act increases the liability of
"controlling persons" -- defined to include both an employer
and any person with the power to influence or control the
activities of another. For purposes of the Act, any individual
or firm that is a director or officer exercising policy making
responsibility is presumed to be a controlling person. Thus, a
controlling person may be liable for another's actions as well
as his or her own.
A controlling person of an insider trader or tipper may be
liable if such person failed to take appropriate steps once
such person knew of, or recklessly disregarded the fact that
the controlled person was likely to engage in, a violation of
the insider trading limitations. The Act does not define the
terms, but "reckless" is discussed in the legislative history
as a "heedless indifference as to whether circumstances
suggesting employee violations actually exist."
A controlling person of an insider trader or tipper may also
be liable if such person failed to adopt and implement
measures reasonably designed to prevent insider trading. This
Statement and the Code are designed for this purpose, among
others.
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Fidelity Internal Information
IV. PROCEDURES TO BE FOLLOWED WHEN RECEIVING INSIDE INFORMATION
A. GENERAL. Whenever an employee receives what he or she believes
may be material, nonpublic information, he or she
- should not trade on his or her own behalf or on
behalf of a Fund, private proprietary accounts or
other accounts in the securities to which the
information relates, tip the information to others or
recommend purchase or sale of securities while that
information remains nonpublic.
- should promptly contact the Legal Department and
refrain from disclosing the information to anyone
else, including persons within the Fidelity
organization, unless specifically advised to do so by
the Legal Department.
B. CHINESE WALLS. Employees of the Fidelity Companies may from
time to time receive inside information in the normal course
of their job related responsibilities. For example, employees
of FMR and FMTC in the high yield bond area may be provided
with material, nonpublic information on a confidential basis
in connection with their potential purchase of high yield
bonds to be issued in an acquisition or corporate
restructuring. Of course, such employees will be precluded
from trading or recommending action with respect to the
securities of the target or bidding company. However, it is
possible to limit these constraints to such employees by
constructing a "Chinese Wall" between them and other Fidelity
investment personnel.
The following policies and procedures are designed to prevent
the flow of material, nonpublic information about a public
company from employees with knowledge of such information
("Confidential Employees") to others involved in the Fidelity
Companies' investment and investment management activities. In
most instances, following these policies and procedures will
permit these other investment personnel to continue trading
and recommending the company's securities.
1. ACKNOWLEDGMENT LETTERS. Before receiving material,
nonpublic information about a company in connection
with a prospective tender offer or other event, every
Confidential Employee will be required to submit to
the General Counsel of FMR Corp. or FMR a letter
acknowledging their responsibilities and the
limitations on their activities regarding the subject
company(ies).
2. ORAL AND WRITTEN COMMUNICATIONS. Confidential
Employees receiving material, nonpublic information
about a company or Confidential Employees receiving
nonpublic information about a company in connection
with an analytical assignment should not discuss or
exchange any such information with any Fidelity
employees unless they are also Confidential
Employees. For example, this would specifically
preclude a high yield bond analyst who is a
Confidential Employee from discussing any such
information with, or signaling that a company was
under review to, any other Fidelity employee
(including another member of the high yield bond
group) who was not a Confidential Employee.
3. ATTENDANCE AT MEETINGS. Attendance at any meetings at
which such material, nonpublic information is to be
discussed, and dissemination of the notes from such
meetings, shall be limited to Confidential Employees.
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Fidelity Internal Information
4. ACCESS TO FILES. Access to files containing any
material, nonpublic information provided to
Confidential Employees shall be prohibited to any
investment management personnel and any other
employee except another Confidential Employee.
C. COMPLIANCE
1. TRADE REPORTING. All Fidelity employees are required
to report all personal and beneficially owned
securities transactions to the Ethics Office. The
Ethics Office regularly reviews these personal
transactions relative to the securities trades of the
Funds, and may undertake a special review if deemed
necessary or appropriate, if the Ethics Office has
reason to believe that any Fidelity employee has
engaged, is engaged or is about to engage in insider
trading. The Ethics Office will consult with FMR
Corp. Compliance where appropriate.
2. TRADING. As required by the Code of Ethics, all
securities transactions by employees and accounts of
which they are beneficial owner (as defined within
the Code of Ethics) must be effected through Fidelity
Brokerage Services, Inc. unless special permission is
granted in writing by the Ethics Office to utilize
another broker-dealer. If another broker-dealer is
used, duplicate confirmations and account statements
must be provided to the Ethics Office. In addition,
trades effected by Access Persons, Investment
Professionals and Senior Executives must be effected
in accordance with the procedures for clearance of
personal securities transactions as outlined in the
Code of Ethics.
3. REPORTING TO THE LEGAL DEPARTMENT. Whenever an
employee receives what he or she believes to be
material, nonpublic information about a security or
becomes aware that such information has been utilized
by another employee in the purchase or sale of a
security, he or she shall immediately notify the
General Counsel of FMR Corp. or FMR. "Immediately"
means as soon as humanly practical. Employees are
expected to bring this information immediately to the
attention of the General Counsel of FMR Corp. or FMR
and refrain from disclosing the information to anyone
else, including persons within the Fidelity
organization, unless specifically advised to do so by
such General Counsel.
4. CONTACTS. All Fidelity employees must consult with
the Legal Department before communicating (orally or
in writing) with the SEC or any other regulatory
agency about insider trading or related matters.
Similarly, all Fidelity employees must consult with
the Public Relations Department before communicating
(orally or in writing) with any representative of the
newspapers or other mass media on insider trading or
related matters.
V. EMPLOYEE EDUCATION
To ensure that every employee of FMR and FMTC understands the firm's
policies and procedures with respect to insider trading, the following
will occur:
A. INITIAL REVIEW FOR NEW EMPLOYEES. All new employees will be
given a copy of this Statement along with the Code of Ethics
at the time of their employment and will be required to read
and sign each. A representative of Fidelity will review the
Statement with each new research analyst, portfolio manager
and trader at the time of his or her employment.
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Fidelity Internal Information
B. ANNUAL REVIEW WITH INVESTMENT PROFESSIONALS. A representative
of the Ethics Office will review this Statement and the Code
of Ethics at least annually with all research analysts,
portfolio managers, traders and other investment personnel.
C. ANNUAL CERTIFICATION. Fidelity employees may be required by
Fidelity management to certify compliance with this statement
in writing on at least an annual basis.
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Fidelity Internal Information
FIDELITY INVESTMENTS'
PERSONAL CONDUCT RULES
JANUARY 1, 2000
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Fidelity Internal Information
PERSONAL CONDUCT RULES
FOR BROKER-DEALER EMPLOYEES AND REGISTERED PERSONS ONLY
CORPORATE COMPLIANCE OVERSEES COMPLIANCE FOR FIDELITY'S BROKER-DEALERS, TRANSFER
AGENTS AND RETAIL INVESTMENT ADVISORS, AND ISSUES THE PERSONAL CONDUCT RULES.
Fidelity is committed to delivering products and services to its customers in
accordance with the highest standards of integrity. In furtherance of that goal,
Corporate Compliance has implemented the Personal Conduct Rules. The contents of
the Personal Conduct Rules are driven by regulatory rules (of the Securities and
Exchange Commission, New York Stock Exchange, and National Association of
Securities Dealers, Inc.) pertaining to the personal conduct of broker-dealer
employees, and by Fidelity policies designed to create a work environment that
avoids violations of rules, and the appearance of violations of rules, conflicts
of interest and impropriety. For broker-dealer employees and registered persons
only (hereinafter referred to as "employees"), acknowledgment of this
distribution will constitute acknowledgment of receipt and review of these
Personal Conduct Rules. Violation by an employee of any of these rules may
result in disciplinary action up to and including termination of employment with
Fidelity.
THE ETHICS OFFICE OVERSEES COMPLIANCE FOR THE FUND COMPANIES AND ISSUES THE CODE
OF ETHICS FOR PERSONAL INVESTING AND THE INSIDER TRADING POLICY STATEMENT.
Although Corporate Compliance will monitor for compliance with the Personal
Conduct Rules, as with any initiative relating to personal conduct, successful
compliance depends on self-implementation by conscientious employees dedicated
to maintaining the highest standards of personal responsibility and professional
conduct. Employees with questions regarding the Personal Conduct Rules should
contact their manager or Corporate Compliance Advisor.
EXTERNAL BROKERAGE ACCOUNT STATEMENTS MUST BE FORWARDED TO:
CORPORATE COMPLIANCE DEPT.
ATTN: SURVEILLANCE, 82 DEVONSHIRE STREET, G12A, BOSTON, MA 02109-3614
1. EMPLOYEE AND FAMILY BROKERAGE ACCOUNTS MUST BE DISCLOSED
In accordance with the Fidelity Code of Ethics, the brokerage accounts
of employees and "immediate family" (as defined in the appendix to the
Code of Ethics) members must be disclosed to the Fidelity Ethics Office
and generally must be maintained by FBSI. Employee and immediate family
member brokerage accounts will be reviewed by Corporate Compliance and
the employee's manager or a person designated by the employee's
company. Employee and immediate family member commodities accounts must
also be disclosed and reviewed, but cannot be maintained at FBSI (FBSI
does not carry commodities accounts). Employees are responsible for
furnishing Corporate Compliance with their external account statements
immediately after they begin employment with Fidelity.
Employees are prohibited from:
- - Sharing in the profits or losses of any brokerage account not disclosed
to the Fidelity Ethics Office and in which the employee is
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Fidelity Internal Information
not an accountholder (such as the account of a customer, relative or
friend), or mutual fund or commodities account in which the employee is
not an accountholder.
- Using fictitious or nominee accounts.
THE EMPLOYEE TRADING GATE NUMBER IS:
800-343-2428
2. TRADING ACTIVITY MUST BE CONDUCTED THROUGH FIDELITY AUTOMATED BROKERAGE
SERVICES OR THE EMPLOYEE TRADING GATE
Employees must use Fidelity's automated services, or, if necessary, the
Employee Trading Gate, for all FBSI brokerage transactions. Employees
must use the Employee Trading Gate for all trade-related adjustments to
their brokerage or mutual fund accounts.
Employees are prohibited from:
- Having commissions adjusted on personal or immediate family
member trades without authorization from the employee's
manager and Corporate Compliance
- Entering trades or adjustments, or performing maintenance
(such as address changes and dividend instructions), on their
accounts or the accounts of their immediate family members
- Transferring or journaling securities and/or funds between
their accounts and other accounts
- Violating any of the provisions of the customer agreement that
they sign to open their accounts
General inquiries and maintenance requests do not have to go through
Fidelity's automated services or the Employee Trading Gate.
ADDITIONAL TRADING RESTRICTIONS SUCH AS INSIDER TRADING, EXCESSIVE TRADING,
SHORT SALES AND PURCHASING PUTS AND SELLING CALLS ARE LISTED IN THE CODE OF
ETHICS.
3. EMPLOYEES MUST NOT MAKE TRADES THAT VIOLATE REGULATIONS OR FIDELITY
POLICY
Employees are prohibited from the following trading activities:
- Trading ahead of (frontrunning), immediately after
(tailgating), or in tandem with, orders of customers or other
Fidelity employees
- Purchasing an initial public offering (IPO) for themselves or
an immediate family member
- Placing orders for opening positions of 51 or more option
contracts on one side of the market for one security without
the prior approval of the employee's manager
- Placing orders for opening positions in the employee's
brokerage account for $75,000 or more without the prior
approval of the employee's manager
- Contacting other broker-dealers to prearrange trades for their
accounts
- Entering into cross transactions between the employee's
account and any other account without obtaining prior approval
from the employee's manager and Corporate Compliance; for
example, if a
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Fidelity Internal Information
customer is selling a bond, the employee may not buy it for
his/her own account, without the appropriate approvals
- Entering into any purchase or sale of any security, option or
commodity which would be in violation of federal and/or state
securities laws or the rules and regulations of the various
exchanges, markets or other regulatory agencies
Additional trading prohibitions are listed in the Code of Ethics and
Fidelity Insider Trading Policy, which are attached to this
distribution.
THE CODE OF ETHICS LISTS ADDITIONAL TRADING RESTRICTIONS FOR INVESTMENT
PROFESSIONALS, SENIOR FIDELITY OFFICIALS AND ACCESS PERSONS.
4. EMPLOYEES MUST PAY IN FULL FOR SECURITIES AND MAY NOT USE LOANS TO MAKE
THEIR PURCHASE
- Employees must pay for all their securities purchases, and
deliver securities for securities sales, on a timely basis -
employees will not be granted payment extensions in their
accounts
- Employees may not buy and then sell the same security without
paying for the purchase in full by the settlement date of the
purchase (otherwise known as "freeriding")
- Employees may not purchase a security, and instead of paying
for it in full, sell another security (other than a money
market account) after the trade date of the purchase and apply
the proceeds to the purchase, unless both trades settle on the
same day
- Employees are prohibited from obtaining loans or credit (other
than through a margin account) from banks or other lenders for
the purpose of buying securities
APPROVAL IS NOT NECESSARY FROM CORPORATE COMPLIANCE OR THE EMPLOYEE'S MANAGER
FOR AN EMPLOYEE TO ACT AS CUSTODIAN FOR UTMA/UGMA ACCOUNTS FOR A RELATED CHILD.
5. OBTAINING DISCRETIONARY AUTHORITY OVER A CUSTOMER ACCOUNT IS PROHIBITED
Fidelity policy states that, generally, no employee may exercise
discretionary authorization over a brokerage or mutual fund account in
which he or she has no beneficial interest. Under limited
circumstances, employees may, however, be granted trading authorization
over brokerage accounts - but not mutual fund accounts - of an
incapacitated immediate family member or relative. Employees seeking
trading authorization over a brokerage account must complete and submit
the Request for Approval of Trading Authorization form (Exhibit I) and
receive prior written approval from their manager and Corporate
Compliance. Additional documentation may be required. If permission to
exercise trading authorization is granted, all trades entered pursuant
to such authorization must be conducted in accordance with all
provisions of the Personal Conduct Rules and the Code of Ethics. In
addition, such trades must be conducted through the Employee Trading
Gate - not through Fidelity's Automated Services - and will be reviewed
by the employee's manager.
Acting as custodian for UTMA/UGMA accounts for a related child, or as
trustee for a personal, immediate family, or parent's trust account
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Fidelity Internal Information
does not require approval.
WRITTEN APPROVAL IS REQUIRED PRIOR TO ENGAGING IN A PRIVATE SECURITIES
TRANSACTION
6. PRIOR WRITTEN APPROVAL IS REQUIRED FOR PRIVATE SECURITIES TRANSACTIONS
Employees must request in writing and receive written approval from
their manager and Corporate Compliance before they offer, buy, sell,
create, transfer, exchange or in any way participate (e.g., as an
agent) in a private securities transaction. A "private securities
transaction" is a securities transaction made outside the regular
course or scope of employment and/or not made through a Fidelity or
authorized external account. Examples are transactions in:
- Securities of privately held companies (except in FMR shares
or other FMR instruments)
- Private placements
- Non-publicly traded limited partnerships
- Securities between two parties without the use of a
broker-dealer intermediary
- Certain securities not registered with the SEC
Employees requesting approval must complete and submit the Request for
Approval of Private Securities Transaction form (Exhibit J). Approval
will generally be denied to employees requesting to act as a securities
solicitor or broker for a person or entity not affiliated with
Fidelity.
Transactions between an employee and an immediate family member do not
require approval unless the employee receives compensation.
MANAGERS AND CORPORATE COMPLIANCE WILL DETERMINE WHETHER EMPLOYMENT OUTSIDE OF
FIDELITY PRESENTS A POSSIBLE CONFLICT OF INTEREST OR APPEARANCE OF IMPROPRIETY.
7. CERTAIN OUTSIDE ACTIVITIES MAY PRESENT CONFLICTS OF INTEREST
Engaging in certain activities which are outside the scope or regular
course of employment at Fidelity may require pre-approval or be
prohibited. For example, the following activities require prior
approval:
- Employment outside of Fidelity
- Running for political office
- Raising money for a business venture
- Certain speaking engagements and writing activities
- Acting as a trustee for compensation
Other activities are prohibited, such as lending or loaning money to a
customer, and giving any gift or remuneration to anyone for referring
securities business. Employees should consult with their manager prior
to engaging in any activity or affiliation that could present a
conflict of interest or which could interfere with an employee's
ability to effectively perform his/her job. Fidelity's "Outside
Activities and Affiliations" policy and "Publications, Speeches and
Endorsements" policy specify activities that require prior approval.
Employees may obtain an approval request form from the HR Web at
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Fidelity Internal Information
http://mgs.fmr.com/hr/polproc.
FIDELITY'S "OUTSIDE ACTIVITIES AND AFFILIATIONS", "PUBLICATIONS, SPEECHES AND
ENDORSEMENTS", AND "GIFTS AND GRATUITIES" POLICIES ARE AVAILABLE ON THE HR WEB.
8. CERTAIN GIFTS RECEIVED OR GIVEN BY EMPLOYEES MUST BE REPORTED
Certain gifts given to or received by employees from prospective or
current customers, suppliers or vendors, must be reported to Corporate
Compliance. In addition, there are restrictions as to the type and
value of gifts that employees may give and receive. For example,
Fidelity generally prohibits employees from giving or receiving gifts
with a value of more than $100 per calendar year, although certain
Fidelity business units have a lower threshold. Fidelity's "Gifts and
Gratuities" policy specifies what is considered a reportable gift, as
well as the type and value of gifts that may be received. Employees
should contact their managers to determine their companies' thresholds.
EMPLOYEES MUST NOTIFY CORPORATE COMPLIANCE IF THEY ARE THE SUBJECT OF CERTAIN
LITIGATION, AN ARREST, A BANKRUPTCY, AN UNSATISFIED JUDGMENT OR A DENIED
BONDING.
9. EMPLOYEES MUST REPORT CERTAIN EVENTS TO CORPORATE COMPLIANCE
The NASD and NYSE require that firms report certain events involving
the member firm or its registered persons and employees. In addition,
registered persons are required to keep their Forms U-4 current. An
employee must contact Corporate Compliance if the employee, or an
organization with whom the employee is affiliated, is:
- The subject of litigation, arbitration, investigation or a
proceeding involving investment-related activity or conduct
alleged to be dishonest, unfair or unethical
- Arrested, arraigned, convicted, indicted, or pleads guilty or
no contest, in connection with any criminal offense (other
than a minor traffic violation)
- The subject of a bankruptcy
- The subject of an unsatisfied judgment
- Denied bonding, or has bonding paid out or revoked
- Engaged in employment outside Fidelity
Corporate Compliance, in consultation with the employee, will make a
determination whether the event should be reported to the NASD or NYSE.
FIDELITY'S ELECTRONIC COMMUNICATIONS USAGE POLICY CONTAINS POLICIES REGARDING
THE USE OF ELECTRONIC MAIL, THE INTERNET AND THE FIDELITY INTRANET.
10. EMPLOYEES SHOULD BE FAMILIAR WITH OTHER RULES AND RESOURCES PERTAINING
TO PERSONAL CONDUCT
Other resources which specify Fidelity policy concerning activities
and/or events within the purview of "personal conduct" include the
Fidelity broker-dealer Compliance Manuals. For example, the Compliance
Manuals may address Fidelity policy pertaining to:
- The circulation of rumors
- Personal investment advice and recommendations
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Fidelity Internal Information
- Personal correspondence
- Contact with regulators and/or the media
- Political contributions
Another critical resource is Fidelity's Electronic Communications Usage
Policy, which is available on the HR Web..
QUESTIONS REGARDING THE PERSONAL CONDUCT RULES MAY BE DIRECTED TO THE CORPORATE
COMPLIANCE DEPARTMENT AT:
617-563-3149
In addition, other employee personal conduct responsibilities are
addressed in Fidelity's Professional Conduct Policies (which can be
accessed on the HR Web), Code of Ethics and Employee Handbook.
These Personal Conduct Rules are not intended to be all-inclusive.
Whenever an employee thinks that an activity which occurs outside the
scope or regular course of employment may create an environment or
appearance of impropriety or conflict of interest, the employee should
discuss the activity with his/her manager and/or Corporate Compliance.
Working together for excellence, Fidelity employees and their
supervisors and compliance advisors will continue to be the cornerstone
of Fidelity's reputation for integrity.
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EXHIBITS
JANUARY 1, 2000
<PAGE> 76
Exhibit B
REPORT OF SECURITIES TRANSACTIONS
To:
The Ethics Office
82 Devonshire Street, N8A
Boston, MA 02109
----------------------------- -----------------------------
Date Signature
------------------------------ -----------------------------
Your Social Security Number Please Print Your Name
For the Month of ____________, 19____
The following is a record of every transaction which I had, or by reason of
which I acquired, any direct or indirect beneficial ownership during the month
of _________, 2000 (excluding (1) transactions effected in any account over
which I had no direct or indirect influence or control; (2) transactions in
mutual fund shares, money market securities, or direct obligations of the United
States, or instrumentalities thereof; and (3) transactions previously reported
automatically by Fidelity Brokerage Services, Inc., or via duplicate
confirmations and statements from an approved external brokerage account):
<TABLE>
<CAPTION>
TRADE BUY # OF SECURITY NAME PRICE PER BROKERAGE BROKER/
DATE OR UNITS UNIT ACCOUNT # PRIVATE
SELL PLACEMENT
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
PLEASE FILL IN ALL NECESSARY INFORMATION IN EVERY COLUMN
Note 1: For the transactions which have been marked by me with an asterisk (*),
this report shall not be construed as an admission by me that I have acquired
any direct or indirect beneficial ownership in the securities involved in the
reported transactions. Such transactions are reported solely to meet the
standards imposed by the Investment Company Act Release No. 4516.
Return to the Ethics Office, N8A
<PAGE> 77
Exhibit C
PRIVATE PLACEMENT APPROVAL REQUEST
INVESTMENT PROFESSIONALS AND SENIOR EXECUTIVES ONLY
DATE SUBMITTED:
----------------------
- -------------------------------------- -----------------------
Employee Name (please print) Social Security Number
Employee Group (check one):
/ / High Yield / / Equity / / Fixed Income / / Money Market / / Trading
/ / FCM / / FMTC / / CORP / /Other:
----------------
1. Company Name
-----------------------------------------------------------
2. Business Operations Summary
-------------------------------------------
3. Who contacted you regarding this investment?
----------------------------
4. Which firm employs this individual?
--------------------------------------
5. Does the above individual or firm have a relationship with the Fidelity
Funds? If yes, please explain.
------------------------------------------
6. What is the individual's relationship to the company?
---------------------
7. What is your relationship to the contact person?
---------------------------
8. What is the total amount of the private placement?
-------------------------
9. What is the value of your proposed investment?
-------------------------
10. Does this company have publicly traded securities?
-------------------------
11. Is this investment suitable for the funds? Yes / / No / /
If no, please explain.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------- / / Approved / / Disapproved
Employee Signature
---------------------------------
Division Head Signature and Date
-------------------------------
Ethics Office Signature and Date
Return to the Ethics Office, N8A
<PAGE> 78
Exhibit D
SHORT-TERM PROFIT RECOVERY
INVESTMENT PROFESSIONALS AND SENIOR EXECUTIVES ONLY
Section VI. C. of the Code of Ethics provides for the surrender of any
profit realized by an Investment Professional or Senior Executive on
transactions in the same or equivalent security within 60 days. This applies to
the purchase and sale (or sale and purchase) of a security within a 60-day
period in any beneficially owned account.
The following are various questions and answers to help you understand
this provision. If you have any further questions regarding this provision, you
should contact the Ethics Office, at 8-563-5566, internally, or (617)563-5566,
externally.
Q. How is the 60-day period measured?
A. A purchase or sale is ordinarily deemed to occur on trade date. If a
purchase is considered to be made on day 0, day 61 is the first day a sale
of those securities may be made without regard to the profit recovery rule.
Q. How are profits measured when there is a series of purchases and sales
within a 60 calendar day period?
A. A series of purchases and sales will be measured on a first-in, first-out
basis until all purchase and sale transactions within a 60-day period are
matched. The sum of the profits realized on these paired purchases and
sales will be subject to surrender. No reduction will be made for losses.
Q. Is a short sale of a security considered a sale?
A. Yes, a short sale is considered a sale for all purposes (reporting,
pre-clearance and the 60-day profit recovery rule). It is important to keep
in mind that when profits are computed under the 60-day rule, the order of
the transactions is not relevant in calculating profit; for example, a sale
(or short sale) can be matched against a subsequent purchase. Please note
that naked short sales are prohibited under the Code of Ethics.
DERIVATIVE TRANSACTIONS
For the purposes of reporting, pre-clearance and the 60-day profit
recovery rule, a transaction in any put or call option (except an option on an
exempt security or index) or any future on a security (except a future on an
exempt security or index), will be treated as a derivative transaction. For the
purposes of this Code, derivative transactions will be divided into two
categories: "call equivalent positions" and "put equivalent positions." A "call
equivalent position" is treated as a purchase of the underlying security.
Conversely, a "put equivalent position" is treated as a sale of the underlying
security. Please note that writing or acquiring naked options are prohibited
under the Code of Ethics.
Q. Does this mean that if I purchase a security and later hedge it with a put,
the two transactions will be matched if they occur within 60 days of each
other?
A. Yes, the purchase of the put on the security would be considered a sale and
matched with the prior purchase.
Q. If a call option is exercised, does that constitute a purchase?
A. No. Generally, it is the acquisition of the call that constitutes the
purchase transaction for the purpose of the 60-day profit recovery rule.
Exercise of the call will not result in a recoverable profit; the purchase
will be treated as having occurred as of the date the call option was
acquired. For example, the sale of any shares received due to exercise of
an
The Ethics Office, N8A
<PAGE> 79
Exhibit D
option will be analyzed for profit recovery purposes if there are purchase
transactions in such securities within the most recent 60 calendar day
period, including the purchase of the call option for such shares.
Q. If a put option is exercised, does that constitute a sale?
A. No. Generally, it is the acquisition of the put that constitutes the sale
transaction. Exercising the put will not result in a recoverable profit;
the sale will be treated as having occurred on the date that the put option
was acquired.
Q. Am I effectively foreclosed from acquiring an option with a term of 60 days
or less?
A. Not necessarily. For example, exercising a call option and receiving the
underlying securities will not constitute a sale. Of course, a sale of the
securities received or of the option itself will constitute a sale which
would be matched against any purchase within 60 days.
The Ethics Office, N8A
<PAGE> 80
Exhibit E
PERSONAL BROKERAGE ACCOUNT DISCLOSURE
ALL NEW EMPLOYEES MUST COMPLETE WITHIN 7 DAYS OF HIRE
- ------------------------------------- --------------------------------
Social Security Number) Name (Please Print
-------------------------------------
Your Manager's Name
- - SEND THE COMPLETED FORM TO THE ETHICS OFFICE, N8A WITHIN 7 DAYS OF YOUR
DATE OF HIRE.
- - DISCLOSE IN THE SPACE PROVIDED BELOW ALL PERSONAL BROKERAGE ACCOUNTS AND
BROKERAGE ACCOUNTS IN WHICH YOU HAVE BENEFICIAL OWNERSHIP. (1) INCLUDE ANY
BROKERAGE ACCOUNTS CURRENTLY MAINTAINED WITH FIDELITY BROKERAGE SERVICES,
INC. (FBSI) AS WELL AS ANY EXTERNALLY HELD BROKERAGE ACCOUNTS.
- - COMPLETION OF THIS FORM WILL NOT INITIATE A TRANSFER OF ACCOUNT. PLEASE SEE
BELOW FOR INSTRUCTIONS.
I hereby acknowledge that Fidelity requires that I maintain my personal
brokerage accounts and any brokerage accounts beneficially owned by me at
Fidelity Brokerage Services, Inc. ("FBSI").
I maintain the following personal and beneficially owned brokerage account(s) at
this time (including FBSI accounts):
(Attach additional sheets if necessary.)
ACCOUNT # NAME(S) ON ACCOUNT NAME OF BROKERAGE FIRM
ATTACH A COPY OF THE MONTHLY STATEMENT FOR ANY EXTERNAL BROKERAGE ACCOUNT.
IF YOUR ACCOUNTS ARE MAINTAINED BY FBSI, YOU DO NOT NEED TO ATTACH MONTHLY
STATEMENTS.
- --------------------------------------------------------------------------------
______ PLACE AN "X" HERE IF YOU DO NOT MAINTAIN ANY BROKERAGE ACCOUNTS.
- --------------------------------------------------------------------------------
I understand the requirement to transfer accounts to FBSI or to request a
waiver2 in order to continue to maintain an account with a firm other than FBSI.
I certify that I will comply with this policy.
- ------------------------------------ -----------------------
Signature Date
To request an EMPLOYEE TRANSFER KIT to transfer brokerage accounts to FBSI, call
the Employee Trading Gate at 1-800-343-2428.
- --------
(1) Beneficial ownership may exist when you have a direct or indirect ability to
(1) benefit economically or (2) exercise investment control. See the Appendix to
the Code of Ethics for more specific details.
(2) For information about requesting a waiver, contact the Ethics Office at
8-563-5566, or via email, "Code of Ethics" mailbox.
Return to the Ethics Office, N8A
<PAGE> 81
Exhibit F
PERSONAL HOLDINGS DISCLOSURE
REQUIRED FROM ALL ACCESS PERSONS, INVESTMENT PROFESSIONALS AND SENIOR EXECUTIVES
Social Security Number: _______________ Employee Name: _______________
Badge Number: ______________________ Manager's Name: ______________
Internal Phone: ______________________ Mailzone: ____________________
I certify to the best of my knowledge that the information on this disclosure
includes all information required to be reported pursuant to Section V of the
Code of Ethics. Furthermore, I certify that I have provided copies of the most
recent statements for all personal and beneficially owned brokerage accounts.
Employee Signature: _____________________ Date: ______________________
FORMS WILL NOT BE ACCEPTED WITHOUT ALL REQUIRED INFORMATION.
Submission of this form is required of all Access Persons under Rule 17j-1 of
the Investment Company Act of 1940. Failure to return this required disclosure
within 7 days after your hire date or the date on which you became an "Access
Person" will be considered a violation of this Code of Ethics and could result
in sanctions as outlined in Section IX of the Code of Ethics.
- --------------------------------------------------------------------------------
Section A. Private Placement Disclosure (Check one.)
- --------------------------------------------------------------------------------
1. / / I have no private placement investment at this time.
2. / / I am listing below all private placements I am currently involved in:
<TABLE>
<CAPTION>
Date of Investment $ Amount Company Name Is Company Publicly
Traded?
<S> <C> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
Section B. Reportable Securities (Check one.)
- --------------------------------------------------------------------------------
1. / / I do not have any personal or beneficially owned holdings in reportable
securities. (You may skip Section C. Make sure this form is signed and
dated above, then return it to the Ethics Office, N8A.)
2. / / I have personal or beneficially owned reportable securities to disclose.
(You must complete Section C.)
- --------------------------------------------------------------------------------
Section C. Disclosure of Reportable Securities
- --------------------------------------------------------------------------------
1. / / I have attached the most recent statement for each account in which I
hold reportable securities.
These include, but are not limited to, securities accounts with:
- Fidelity Brokerage Services, Inc - Other Broker-Dealers
- Dividend Re-Investment Programs - Bank Accounts
- Employee Stock Purchase Plans
If you have had any reportable securities transactions since the statement
date, you must also include a copy of each trade confirmation. Statements
need to be current (within 30 days of the date this report is completed).
If you do not have a current statement, you will need to list the
individual holdings in the table below.
(OVER)
Return to the Ethics Office, N8A
<PAGE> 82
Exhibit F
2. / / For the accounts in which I hold reportable securities and have not
attached a statement or for securities that are not held in an
account (i.e., stock certificates) I am listing my current holdings
below.
PERSONAL HOLDINGS DISCLOSURE
TO BE COMPLETED BY ALL ACCESS PERSONS, INVESTMENT PROFESSIONALS AND SENIOR
EXECUTIVES
<TABLE>
<CAPTION>
SECURITY NAME TICKER # OF SHARES $ VALUE
<S> <C> <C> <C> <C>
</TABLE>
Attach additional sheets if necessary.
Return to the Ethics Office, N8A
<PAGE> 83
Exhibit G
APPROVED BROKER FOR THE REGION
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Employees of any U.S.-based Fidelity Company Fidelity Brokerage Services, Inc. (FBSI)
- --------------------------------------------------------------------------------
Employees of any Canada-based Fidelity Company TD Waterhouse (discount)
TD Evergreen (full service)
- --------------------------------------------------------------------------------
FIL Employees UK and Europe - NatWest Stockbrokers, Ltd.,
Redmayne Bentley Stockbrokers, Banque de
Luxembourg, Fidelity Brokerage Services, Inc.
Japan - Nomura Securities, Fidelity Brokerage Services, Inc.
Southeast Asia/Pacific - WI Carr, Fidelity Brokerage Services, Inc.
Bermuda - First Bermuda Limited, Fidelity Brokerage Services, Inc.
- --------------------------------------------------------------------------------
FISC Ireland Employees FEXCo
- --------------------------------------------------------------------------------
</TABLE>
The Ethics Office, N8A
<PAGE> 84
Exhibit H
PRE-CLEARANCE GUIDELINES
ACCESS PERSONS, INVESTMENT PROFESSIONALS AND SENIOR EXECUTIVES ONLY
1. Receive the appropriate approval*
A. All employees of any U.S. or Canada-based Fidelity Company regardless
of location and FIL employees located in the U.S. need to pre-clear
using Online Pre-Clearance:
http://w3iis.fmrco.com/preclear
Hours: 10:15am - 4pm, EST
Alternatively, call the pre-clearance desk:
Equity/Fixed Income: 617-563-6109
High Yield : 617-563-7882
B. FIL employees based in FIL regional offices should contact the
Pre-Clearance Desk in the nearest FIL office:
Hours: 10:00am - 4pm, local time
UK and Europe: 44-1737-837041, 8-723-7041 internal
Tokyo: (813) 5470-4871
Hong Kong: (852) 2848-1752
2. Keep a record of your pre-clearance confirmation number.
3. If the transaction is approved, contact the approved broker to place
your order.
4. Keep in mind that pre-clearance is good for the day of execution only.
- --------------------------
* Pre-clearance is not required for non-reportable securities, currency
warrants, rights subscriptions, gifting of securities, automatic dividend
reinvestments and options on the following market indexes: S&P 100, S&P Mid
Cap 400, S&P 500, Morgan Stanley Consumer, FTSE 100, and Nikkei 225.
The Ethics Office, N8A
<PAGE> 85
Exhibit I
REQUEST FOR APPROVAL OF TRADING AUTHORIZATION
CORPORATE COMPLIANCE
This requirement refers to a Fidelity employee's family member granting trading
power to the employee. Authorization is not permitted prior to specific approval
by Corporate Compliance. You will be notified by Compliance if your request is
approved. Please note that Compliance will not consider the request until all
forms are received and are in proper order. Call Corporate Compliance if you
require assistance completing the form or have any questions.
EMPLOYEE INSTRUCTIONS
1. Complete this form and give it to your manager for review and signature.
2. If your manager approves the request, she/he will forward the request to
Corporate Compliance for further review.
3. A copy of the request form will be returned to you and your manager,
whether approved or denied.
4. If the request is denied, an explanation will be provided.
MANAGER INSTRUCTIONS
1. Review the form for completeness. If any information is missing, return to
the employee to obtain the necessary information.
2. Determined if the activity is limited to immediate family members or
relatives, e.g., spouse, children or other relative who is legally
incompetent or mentally incapacitated.
3. Ensure that the authorization is limited to trading in the cash account in
which margin and options transactions will not be effected.
4. If you sign the request, you understand that a supervisor will:
- Approve and document the approval for each discretionary order on the
day it is entered.
- Ensure the order meets the customer's investment objective as noted on
the account, and
- Ensure that the employee does not effect transactions which are
excessive in size or frequency in view of the financial resources and
character of the customer.
5. If you feel that proper supervision will not be performed, do not approve
the request. Return it to the employee explaining why the request is being
denied.
6. If the form is complete and you determine that the request is valid, sign
and return it to Corporate Compliance for approval.
Corporate Compliance, G12A
<PAGE> 86
Exhibit I
REQUEST FOR APPROVAL OF TRADING AUTHORIZATION
Please Print
EMPLOYEE NAME: ____________________________ INTERNAL PHONE #: _______
SOCIAL SECURITY #: __________________________ EXTERNAL PHONE #: _______
FIDELITY COMPANY: __________________________ MAIL ZONE: _______________
ACCOUNT NUMBER FOR WHICH AUTHORIZATION IS REQUESTED:
_______________________________________________________________________________
NAME OF INDIVIDUAL(S) ON THE ACCOUNT:__________________________________________
RELATIONSHIP:
_______________________________________________________________________________
REASON OR BASIS FOR REQUEST, E.G., LEGALLY INCOMPETENT OR MENTAL HANDICAP, ETC.
PLEASE ATTACH SUPPORTING DOCUMENTATION OR PROOF. PROOF MAY BE REQUESTED. ATTACH
ANY ADDITIONAL INFORMATION.
_______________________________________________________________________________
________________________________________________________________________________
IF THIS REQUEST IS APPROVED, I UNDERSTAND I MUST DO THE FOLLOWING:
- PLACE ALL TRADES THROUGH THE EMPLOYEE TRADING GATE.
- INFORM THE TRADING GATE THAT THE ORDER IS BEING ENTERED PURSUANT TO
LIMITED TRADING AUTHORIZATION
- EFFECT TRANSACTIONS IN THE CASH ACCOUNT ONLY AND NOT PLACE OPTION
ORDERS OR TRADE ON MARGIN.
- ENTER TRANSACTIONS WHICH ARE SUITABLE AND NOT EXCESSIVE IN SIZE,
FREQUENCY OR NATURE RELATIVE TO THE CUSTOMER'S OBJECTIVES AND MEANS.
EMPLOYEE SIGNATURE:_____________________________ DATE ________________________
MANAGER APPROVAL
BY APPROVING THIS REQUEST, I UNDERSTAND THAT A SUPERVISOR WILL:
- APPROVE AND DOCUMENT THE APPROVAL FOR EACH DISCRETIONARY ORDER ON THE
DAY IT IS ENTERED.
- ENSURE THE ORDER MEETS THE CUSTOMER'S INVESTMENT OBJECTIVE.
- ENSURE THAT THE EMPLOYEE DOES NOT ENTER INTO TRANSACTIONS THAT ARE
EXCESSIVE IN SIZE OR FREQUENCY IN VIEW OF THE FINANCIAL RESOURCES AND
CHARACTER OF THE CUSTOMER.
MANAGER NAME:
___________________ _____________________ _____________ __________
PLEASE PRINT SIGNATURE MAIL ZONE DATE
MANAGER PHONE:
_________________________________ ________________________
INTERNAL EXTERNAL
_____________________________________________________ ___________________
COMPLIANCE APPROVAL DATE
Return to Corporate Compliance, G12A
<PAGE> 87
Exhibit J
REQUEST FOR APPROVAL OF PRIVATE SECURITIES TRANSACTION
CORPORATE COMPLIANCE
This requirement refers to transactions outside the regular course, or scope, of
employment with Fidelity Investments, including but not limited to new offerings
of securities not registered with the SEC, limited partnerships, private
placements and transactions in privately held securities, with or without
compensation. It does not apply to transactions involving immediate family
members, nor does it apply to personal transactions in investment company and
variable annuity securities, FMR shares and subordinated debentures, or to
transactions in brokerage accounts that you have previously disclosed to
Corporate Compliance.
EMPLOYEE INSTRUCTIONS
1. Complete this form and give it to your manager for review and
signature.
2. If your manager approves the request, she/he will forward the request
to Corporate Compliance for further review.
3. A copy of the requested form will be returned to you and your manager,
whether approved or denied.
4. If the request is denied, an explanation will be provided.
MANAGER INSTRUCTIONS
1. Review the form for completeness. If any information is missing,
return to the employee to obtain the necessary information.
2. As the employee's manager you are in the best position to know how
this proposed transaction could affect the employee's obligation to
Fidelity and its customers. If you believe this transaction could
adversely affect that relationship, do not sign the form. Return it to
the employee.
3. If the form is complete, sign and date the request and send it to
Corporate Compliance for approval.
Corporate Compliance, G12A
<PAGE> 88
Exhibit J
REQUEST FOR APPROVAL OF PRIVATE SECURITIES TRANSACTION
Please Print
EMPLOYEE NAME: ___________________________ INTERNAL PHONE #:___________
SOCIAL SECURITY #:__________________________ EXTERNAL PHONE #: __________
FIDELITY COMPANY:__________________________ MAIL ZONE: _________________
Please describe in detail (please list buyer/seller) the nature of the proposed
private securities transaction and your involvement in the events: (attach any
supporting documents describing the transaction)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________-
WILL YOU BE COMPENSATED? YES______ NO______
IF YES, PROVIDE DETAILS (INCLUDE SPECIFIC AMOUNT):
_______________________________________________________________________________
ANY POSSIBLE CONFLICT OF INTEREST WITH FIDELITY AND ITS RELATED BUSINESSES?
YES______ NO______
IF YES, PLEASE DESCRIBE:
_______________________________________________________________________________
_______________________________________________________________________________
COULD THIS PRIVATE SECURITIES TRANSACTION INVOLVE ANY CUSTOMERS OR VENDORS OF
FIDELITY INVESTMENTS? YES______ NO_____
IF YES, PLEASE DESCRIBE:
_______________________________________________________________________________
_______________________________________________________________________________
EMPLOYEE SIGNATURE:_______________________________ __________________________
DATE
MANAGER APPROVAL:
______________________ _______________________ _____________ ________
PLEASE PRINT NAME SIGNATURE MAILZONE DATE:
FOR COMPLIANCE USE ONLY
_______________________________________________ _________________________
COMPLIANCE APPROVAL DATE
Return to Corporate Compliance, G12A
<PAGE> 89
CODE OF ETHICS
FOR
DREYFUS FOUNDERS FUNDS, INC. AND
FOUNDERS ASSET MANAGEMENT LLC
(AS AMENDED DECEMBER 11, 1999,
TO BE EFFECTIVE JANUARY 1, 2000)
<PAGE> 90
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION............................................................................................ 1
ENTITIES SUBJECT TO THIS CODE OF ETHICS.............................................................. 1
STATEMENT OF GENERAL PRINCIPLES...................................................................... 1
SECTION 1: DEFINITIONS................................................................................. 2
ACCESS PERSON........................................................................................ 2
AFFILIATE............................................................................................ 3
AFFILIATED PRINCIPAL UNDERWRITER..................................................................... 3
APPROVAL OFFICER..................................................................................... 3
BENEFICIAL OWNERSHIP................................................................................. 3
CLIENT............................................................................................... 4
CONTROL.............................................................................................. 4
DE MINIMIS TRANSACTION............................................................................... 4
FOUNDERS EMPLOYEE.................................................................................... 4
INDEPENDENT DIRECTOR................................................................................. 4
FUND AFFILIATED OFFICER.............................................................................. 4
LEGAL DEPARTMENT..................................................................................... 4
PREMIER CODE OF ETHICS............................................................................... 5
PURCHASE OR SALE OF A SECURITY....................................................................... 4
RESTRICTED SECURITIES................................................................................ 5
SECURITY............................................................................................. 5
A SECURITY IS BEING CONSIDERED FOR PURCHASE OR SALE.................................................. 5
A SECURITY IS BEING PURCHASED OR SOLD................................................................ 5
SECTION 2: GENERAL POLICY.............................................................................. 5
SECTION 3: PROHIBITED PURCHASES AND SALES.............................................................. 6
GENERAL PROHIBITION.................................................................................. 6
INITIAL PUBLIC OFFERING.............................................................................. 6
SECTION 4: PRE-TRANSACTION APPROVAL.................................................................... 6
SECTION 5: SHORT-TERM TRADING PROFITS.................................................................. 8
SECTION 6: POTENTIAL CONFLICTS OF INTEREST............................................................. 8
GIFTS................................................................................................ 8
TRIPS................................................................................................ 8
PREFERENTIAL TREATMENT............................................................................... 9
INVESTMENT ADVICE TO OTHERS.......................................................................... 9
OUTSIDE AFFILIATIONS................................................................................. 9
SECTION 7: INVESTMENT CLUBS............................................................................ 9
SECTION 8: SERVICE AS A DIRECTOR OF PUBLICLY TRADED COMPANIES.......................................... 10
SECTION 9: BROKER ACCOUNTS AND BROKER CONFIRMATIONS.................................................... 10
SECTION 10: REPORTING REQUIREMENTS..................................................................... 11
A. INITIAL REPORT BY NEW ACCESS PERSON....................................................... 11
</TABLE>
- -------------------------------------------------------------------------------
Code of Ethics i
<PAGE> 91
<TABLE>
<S> <C>
B. PERIODIC REPORTS BY ACCESS PERSONS AND FOUNDERS EMPLOYEES................................. 11
C. ANNUAL REPORTS BY ACCESS PERSONS.......................................................... 12
D. MONITORING OF PERIODIC AND ANNUAL REPORTS BY LEGAL DEPARTMENT............................. 13
E. WRITTEN CERTIFICATION..................................................................... 13
F. LEGAL DEPARTMENT REPORT................................................................... 13
SECTION 11: EXEMPTIONS................................................................................. 14
A. EXEMPT TRANSACTIONS....................................................................... 14
B. INDEPENDENT DIRECTOR AND FUND AFFILIATED OFFICER EXEMPTIONS............................... 15
SECTION 12: DISSEMINATION, CORPORATE RECORD RETENTION, DISCLOSURE, AND CONFIDENTIALITY................. 15
SECTION 13: PERSONAL RECORD RETENTION.................................................................. 16
SECTION 14: MATERIAL INSIDE (NON-PUBLIC) INFORMATION................................................... 17
SECTION 15: VIOLATIONS................................................................................. 17
SECTION 16: REVIEW 19
APPENDIX 1: LIST OF ACCESS PERSONS AND APPROVAL OFFICERS............................................... 20
APPENDIX 2: PORTION OF RULE 16A-1 OF SECURITIES EXCHANGE ACT OF 1934 AND PORTIONS OF SECTION 2.(A) OF
THE INVESTMENT COMPANY ACT OF 1940.................................................. 21
APPENDIX 3: POLICY STATEMENT ON INSIDER TRADING........................................................ 26
ADDENDUM................................................................................................ 31
</TABLE>
EXHIBIT A: Request for Approval of Security Transaction in Personal
Account
EXHIBIT B: Notification of Intention to Engage in De Minimis
Transaction
EXHIBIT C: Approval Form for Trips Where a Portion of the Cost is Paid
by a Third Party
EXHIBIT D: Approval Form for Outside Employment or Business Activity
EXHIBIT E: Notification of Possible Security Transaction by Investment
Club or Similar Entity
EXHIBIT F: Initial Report Form
EXHIBIT G: Report of Occurrence of Securities Transactions and
Initiation of Brokerage Accounts Within Last Calendar
Quarter
EXHIBIT H: Report of Securities Ownership/Report of Establishment of
Brokerage Accounts
EXHIBIT I: Compliance Certification
- -------------------------------------------------------------------------------
ii Code of Ethics
<PAGE> 92
INTRODUCTION
Entities Subject to This Code of Ethics.
Dreyfus Founders Funds, Inc. (which, collectively with each of its
series portfolios, is hereinafter referred to as the "Fund") is an open-end,
diversified, externally managed investment company registered under the
Investment Company Act of 1940 (the "Act").
Founders Asset Management LLC ("Founders") serves as the external
investment manager of the Fund pursuant to an investment advisory agreement with
each series portfolio ("Portfolio" or collectively, "Portfolios") of the Fund.
Founders is an investment adviser registered under the Investment Advisers Act
of 1940 (the "Advisers Act").
Premier Mutual Fund Services, Inc. currently serves as the principal
underwriter of the Fund ("Premier"). For the purposes of this Code of Ethics,
Premier is an affiliated principal underwriter since officers of Premier also
serve as officers of the Fund. Premier, which has adopted its own code of
ethics, is subject only to certain reporting and certification provisions of
this Code of Ethics.
Statement of General Principles.
The directors ("directors"), officers, employees, and other access
persons of the Fund ("Access Persons," as defined in Section 1 of this Code of
Ethics) and the directors, officers, and employees of Founders ("Founders
Employees," as hereinafter more specifically defined) are cognizant of and
committed to the performance of their fiduciary duties under general corporate
law and as more specifically articulated in the Act and the Advisers Act,
including, without limitation, proscriptions against overreaching, self-dealing,
insider trading, and conflicts of interests. Moreover, with respect to certain
legal matters and ethical questions arising in the course of their deliberations
and actions, directors, other Access Persons, and Founders Employees regularly
seek the advice of counsel.
This Code of Ethics is directed to the particular objective of
compliance with the provisions of Rule 17j-1 under the Act as such provisions
are applicable to Access Persons, of compliance with various provisions of the
Advisers Act as such provisions are applicable to Founders Employees, and to the
prevention of engagement in any personal securities transactions by Access
Persons and Founders Employees which might conflict with or adversely affect the
interests and welfare of the Fund and its shareholders and, with respect to
Founders Employees, of other clients of Founders ("Clients," as defined in
Section 1 of this Code of Ethics).
- -------------------------------------------------------------------------------
Code of Ethics 1
<PAGE> 93
The general principles and procedures which guide the activities of all
Access Persons and Founders Employees are augmented by this Code of Ethics,
which is based upon the fundamental recognition that Access Persons have a
fiduciary relationship with the Fund and its shareholders and Founders Employees
may have such a relationship with other Clients, which requires the maintenance
by all such individuals of the highest standards of integrity and conduct.
Access Persons must at all times recognize, respect, and act in the
best interests of the shareholders of the Fund, and Founders Employees must so
act with respect to the Fund and other Clients. In furtherance of their
fiduciary responsibilities, Access Persons and Founders Employees must ensure
that they do not take any inappropriate advantage of their positions as
directors, officers, employees, or agents of the Fund and of Founders. Access
Persons and Founders Employees must avoid any situations which might compromise
their exercise of fully independent judgment in the interests of or on behalf of
the Fund and its shareholders and other Clients, as applicable.
Professional and legal responsibilities to the Fund and its
shareholders and to other Clients dictate that not only conflicts of interests,
but the appearance of conflicts of interests, be avoided. Although compliance by
Access Persons and Founders Employees with the provisions of this Code of Ethics
is mandatory, codes of ethics cannot define all conflict and potential conflict
situations. Therefore, in addition to assuring that one's conduct comports with
this Code of Ethics, Access Persons and Founders Employees must avoid engaging
in any conduct that may create a conflict of interest or the potential for a
conflict of interest. Access Persons and Founders Employees must adhere not only
to the letter but also to the spirit of the Code of Ethics and the principles
articulated herein.
All activities of an Access Person and a Founders Employee must be
governed by the high fiduciary standard of scrupulous avoidance of serving one's
own personal interests ahead of the interests of the Fund and other Clients, as
applicable. In one's business activities, one must act in all respects in the
best interests of the Fund and its shareholders and of other Clients.
SECTION 1: DEFINITIONS
For the purpose of this Code of Ethics, the following general
definitions shall apply:
- -------------------------------------------------------------------------------
2 Code of Ethics
<PAGE> 94
1. Access Person shall mean:
a. Any director or officer of the Fund or of Founders; and
b. Any employee of the Fund or of Founders who, in connection with
his or her regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security by the Fund or a
Client, or whose functions relate to the making of any recommendations
with respect to such purchases or sales; and
c. Any natural person in a control relationship to the Fund or to
Founders who obtains information concerning recommendations made to the
Fund or a Client with regard to the purchase or sale of a security.
Access Person shall not include an employee of the Fund or of Founders who
receives no information about current recommendations or trading or an employee
who obtains information in a single instance, infrequently or inadvertently.
2. Affiliate. One is an "Affiliate" of another person or company if he or
she:
(i) is a partner, director, officer, or employee of such
other person or company; or
(ii) directly or indirectly owns, controls or holds with
power to vote 5% or more of the outstanding voting
securities of such company; or
(iii) directly or indirectly controls such company.
3. Affiliated principal underwriter is a principal underwriter which is
affiliated with the Fund or its investment adviser, or is a principal
underwriter, any officer, director, or general partner of which is an officer,
director, or general partner of the Fund or an investment adviser of the Fund.
At present, Premier serves as the principal underwriter of the Fund. Premier is
an affiliated principal underwriter, since officers of the principal underwriter
also serve as officers of the Fund.
4. Approval Officer means the person(s) designated by the president of
Founders to provide certain written approvals required by this Code of Ethics.
The Approval Officer(s) is identified on Appendix 1.
5. Beneficial ownership shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions of
- -------------------------------------------------------------------------------
Code of Ethics 3
<PAGE> 95
Section 16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder, except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an Access Person has or acquires.
A copy of the relevant portions of Rule 16a-1, which defines beneficial
ownership in accordance with Section 16, is included on Appendix 2.
6. Client means an investment advisory client of Founders other than the
Fund.
7. Control shall have the meaning set forth in Section 2(a)(9) of the Act.
A copy of Section 2(a)(9) of the Act is included on Appendix 2.
8. De minimis transaction means a securities transaction for which
pre-transaction approval is not required, as more fully described and defined in
Section 4.2 of this Code of Ethics.
9. Founders Employee means an officer, director, and/or employee of
Founders.
10. Independent Director means a director of the Fund who is not an
"interested person" of the Fund within the meaning of Section 2(a)(19) of the
Act and who, in connection with his or her normal and regular responsibilities,
does not make or participate in decisions with respect to the purchase or sale
of a security by the Fund or make any recommendations with respect to such
purchases or sales. An independent director is further defined as one who does
not normally obtain information regarding the purchase or sale of a security by
the Fund within fifteen days before or after the purchase or sale. A copy of
Section 2(a)(19) of the Act is included on Appendix 2.
11. Fund Affiliated Officer means an officer of the Fund who is not a
director, officer, or employee of Founders or any affiliate thereof (other than
the officer's being affiliated with Founders as an officer of the Fund) and who,
in connection with his or her normal and regular responsibilities, does not make
or participate in decisions with respect to the purchase or sale of a security
by the Fund or make any recommendations with respect to such purchases or sales.
A Fund Affiliated Officer is further defined as one who does not normally obtain
information regarding the purchase or sale of a security by the Fund within
fifteen days before or after the purchase or sale. A Fund Affiliated Officer may
be an "interested person" of the Fund within the meaning of Section 2(a)(19) of
the Act.
12. Legal Department means the Legal Department of Founders of which the
general counsel of Founders has supervision. The general counsel shall designate
in writing the individual responsible for reviewing Reports pursuant to the
provisions of Section 10.D. and shall maintain this written designation.
- -------------------------------------------------------------------------------
4 Code of Ethics
<PAGE> 96
13. Premier Code of Ethics means the code of ethics promulgated in
accordance with Rule 17j-1 of the Act or equivalent document of Premier.
14. Purchase or sale of a security shall include the writing of an option
to purchase or sell the security.
15. Restricted securities shall include securities which are not readily
marketable and securities which cannot be resold or distributed to the public or
to qualified institutional buyers pursuant to Rule 144A under the Securities Act
of 1933, as amended (the "1933 Act"), without an effective registration
statement under the 1933 Act. A security which is not readily marketable is one
which, for whatever reason, cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the security is
reasonably valued.
16. Security shall have the meaning set forth in Section 2(a)(36) of the
Act, and shall also include related securities, such as rights and convertible
instruments, and financial instruments such as options, futures, commodities,
and derivative instruments which are related to, but are not the same as,
securities that may be held or acquired by the Fund or a Client, and which may
not be defined as securities in Section 2(a)(36) of the Act. The term security
shall include restricted securities as defined herein. Security shall not
include: government securities as defined in Section 2(a)(16) of the Act; high
quality short-term debt instruments including, but not limited to, bankers'
acceptances, bank certificates of deposit, commercial paper, and repurchase
agreements; and shares of registered open-end investment companies. Copies of
Sections 2(a)(36) and 2(a)(16) of the Act are included on Appendix 2.
17. A security is being considered for purchase or sale when a
recommendation to purchase or sell a security has been made and communicated or,
with respect to the person making the recommendation, when such person seriously
considers making such a recommendation.
18. A security is being purchased or sold when, within the most recent
seven-day period, a transaction in such security has been effected for the Fund
or a Client, or when a transaction in such security is pending or in progress
for the Fund or a Client.
SECTION 2: GENERAL POLICY
Directors and other Access Persons are specifically reminded that it is
unlawful for any of them, in connection with the purchase or sale, directly or
indirectly, of a security held or to be acquired by the Fund:
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1. To employ any device, scheme or artifice to defraud the Fund;
2. To make any untrue statement of a material fact to the Fund or omit to
state to the Fund a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading;
3. To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon the Fund; or
4. To engage in any manipulative practice with respect to the Fund.
For purposes of this Section 2, a security held or to be acquired by the
Fund means any security as defined herein which, within the most recent 15-day
period, is or has been held by the Fund or is being or has been considered by
the Fund or by Founders for purchase by the Fund.
These proscriptions apply to Founders Employees not only with respect to
the Fund but also with respect to Clients.
The provisions of this Code of Ethics have been instituted, in part, in an
effort to ensure that directors, other Access Persons, and Founders Employees do
not, inadvertently or otherwise, violate the proscriptions outlined above.
SECTION 3: PROHIBITED PURCHASES AND SALES
General Prohibition.
Except as provided in Section 11 of this Code of Ethics, no Access Person
or Founders Employee shall purchase or sell, directly or indirectly, any
security in which he or she has, or by reason of such transaction acquires, any
direct or indirect beneficial ownership and which to his or her actual knowledge
at the time of such purchase or sale:
1. Is being considered for purchase or sale by the Fund or, as to Founders
Employees, a Client; or
2. Is being purchased or sold by the Fund or, as to Founders Employees, a
Client.
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Initial Public Offering.
Except as provided in Section 11 of this Code of Ethics, no Access Person
and no Founders Employee shall purchase, directly or indirectly, any securities
which are offered in an initial public offering.
SECTION 4: PRE-TRANSACTION APPROVAL
1. Every Access Person and Founders Employee shall obtain written approval
of an Approval Officer prior to effecting any transactions in securities for his
or her direct or indirect personal gain or in which he or she may have any
beneficial interest. Such prior written approval shall also be required of any
such transactions effected by, for, or on behalf of any member of the Access
Person's and Founders Employee's household. Written approval shall be obtained
by use of the form attached hereto as Exhibit A. Such approval shall be
effective for three trading days. The legal department of Founders (the "Legal
Department") shall retain the original copies of all completed approval forms.
2. The pre-transaction approval requirements of this Section 4 shall not
apply to "de minimis" transactions, defined as any purchase or sale of a
security by an Access Person or Founders Employee who is not also buying or
selling the same security for the Fund or a Client, and which:
a. Is issued by a company with a market capitalization of at least
$1 billion and has an average daily trading volume of at least 100,000
shares; and
b. Involves no more than 100 shares or units, regardless of the
dollar amount of the transaction, or any number of shares or units having
a value of no more than $5,000.
If, during any two consecutive calendar quarters, aggregate purchase or
sale transactions by the Access Person or Founders Employee in shares or units
of the same issuer exceed 300 shares or units or a cumulative value of $15,000,
whichever is the last to occur, subsequent transactions in the issuer's
securities shall no longer be regarded as "de minimis" transactions. Within
three business days of the transaction which causes a limit of 300 shares or
units or $15,000 to be exceeded, the Access Person or Founders Employee shall
notify the Legal Department of the occurrence of the transaction. Transactions
in the applicable issuer's securities during the next 12 months will be subject
to the pre-clearance provisions of this Section 4.
Any Access Person or Founders Employee who desires to engage in a de
minimis transaction (subject to the limits set forth in the preceding paragraph)
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Code of Ethics 7
<PAGE> 99
shall complete the form attached hereto as Exhibit B prior to each such
transaction, and return that form to the Legal Department.
3. Any Access Person or Founders Employee who has obtained written
approval to purchase a restricted security and who has purchased and continues
to maintain the security in reliance upon such approval must disclose the
investment to his or her Approval Officer in any instance in which the Access
Person or Founders Employee is involved in consideration by the Fund or a Client
of an investment in the issuer of the restricted security. In any such
circumstance, the decision of a Fund or a Client to purchase an investment in
the issuer of the restricted security must be reviewed independently by one or
more investment personnel of Founders, selected by the Approval Officer, who
have no personal interest in the issuer, who must execute written approval of
the investment in the issuer prior to the investment's being made.
SECTION 5: SHORT-TERM TRADING PROFITS
Every Access Person or Founders Employee who obtains a profit from a
purchase and sale, or a sale and purchase, of the same or equivalent securities
in which the individual has a beneficial ownership interest within sixty (60)
calendar days shall disgorge such profit, with the profit to be allocated in
whole or in part among Portfolios of the Fund as determined equitably by the
Fund's board of directors (any portion of the profit not so allocated shall be
allocated among Clients as determined by Founders' board of directors);
provided, however, that such disgorgement of short-term trading profits shall
not apply to "de minimis" transactions as defined in Section 4 of this Code of
Ethics or to securities transactions of Access Persons or of Founders Employees
under circumstances, determined in the sole discretion of the board of directors
of the Fund, in which disgorgement of profits would be inequitable.
SECTION 6: POTENTIAL CONFLICTS OF INTEREST
Gifts.
No Access Person or Founders Employee shall give, seek or accept any gift,
favor, or other item of value in excess of $100 to or from any person or entity
having a direct or indirect business and/or professional relationship with the
Fund or Founders or any affiliated entities of the Fund or Founders. No Access
Person or Founders Employee shall participate individually or on behalf of
Founders, a Client or the Fund, directly or indirectly, in any transaction
involving the payment or receipt of any bribe or kickback, or the payment or
receipt of any other amount with an understanding that part or all of such
amount will be
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8 Code of Ethics
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refunded or delivered to a third party in violation of any law applicable to the
transaction.
Trips.
Any trip to be taken by an Access Person or a Founders Employee must be
approved in advance, by use of the form attached hereto as Exhibit C, if any
portion of trip related expenses is to be paid by a broker, by a company whose
securities are publicly traded, or by any other person or entity with which
Founders may have a current or anticipated business relationship.
Preferential Treatment.
No Access Person or Founders Employee shall give, seek or accept any
preferential treatment in dealings with any broker, dealer, portfolio company,
financial institution, supplier or any other organization with which Founders
transacts business or anticipates transacting business.
Investment Advice to Others.
Access Persons and Founders Employees are strictly prohibited from acting
jointly or individually in an investment advisory capacity for an account other
than a Fund or Client.
Outside Affiliations.
Access Persons and Founders Employees are prohibited from receiving direct
or indirect compensation of more than minimal value as a result of services
provided to any outside entity or from otherwise engaging in any outside
for-profit business activities without first receiving the written approval of
the Approval Officer on the form attached hereto as Exhibit D. The Legal
Department shall retain copies of all such approvals.
SECTION 7: INVESTMENT CLUBS
Notwithstanding any other provisions of this Code of Ethics to the
contrary, family members, such as husband, wife, and other dependent relatives
of an Access Person or a Founders Employee may participate in investment clubs
or similar investment groups if, and only if, all of the following conditions
are present and are adhered to:
a. The Access Person or Founders Employee does not provide
investment advice to the family member or to other club participants with
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Code of Ethics 9
<PAGE> 101
respect to any security which is being considered for purchase or sale by
the Fund or a Client or is being purchased or sold by the Fund or a
Client.
b. The family member immediately notifies the Access Person or
Founders Employee when he or she is aware that the investment club has
purchased or sold or is considering the purchase or sale of a security.
c. Upon being notified by the family member in accordance with item
(b), the Access Person or Founders Employee completes and signs Exhibit E
and submits Exhibit E to the Approval Officer for acknowledgment. The
Legal Department shall retain copies of all such forms.
SECTION 8: SERVICE AS A DIRECTOR OF PUBLICLY TRADED COMPANIES
No Access Person or Founders Employee shall be permitted to serve on the
board of directors of a publicly traded company unless prior written
authorization has first been obtained from the president of Founders. Approval
of such service by the president shall be based upon a determination that the
service is consistent with the interests of the Fund and its shareholders and
the Clients. In instances in which authorization to serve is granted, the Access
Person or Founders Employee serving as a director shall refrain from any direct
or indirect involvement in the consideration for purchase or sale and in the
purchase or sale by the Fund or a Client (i) of any securities of the company on
the board of directors of which the Access Person or the Founders Employee
serves as a director, or (ii) of any securities of an affiliate of such company.
SECTION 9: BROKER ACCOUNTS AND BROKER CONFIRMATIONS
1. Each Access Person and Founders Employee is required to provide the
Legal Department with the name, address, and telephone number of any brokerage
firm with which the Access Person or Founders Employee establishes or maintains
a brokerage account or in which such Access Person or Founders Employee or any
member of such Access Person's or Founders Employee's household has any direct
or indirect beneficial ownership, and the account number and registered owner
designation of any such account. Such information as to existing brokerage
accounts shall be provided upon filing of the initial written certification
required of an Access Person and Founders Employee by use of the form attached
hereto as Exhibit F. Such information with respect to the establishment of a new
brokerage account not previously reported to the Legal Department shall be
provided by the Access Person or Founders
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10 Code of Ethics
<PAGE> 102
Employee to the Legal Department within ten days of establishment of the
account.
2. All Access Persons and Founders Employees are required to direct any
broker effecting a transaction in any security in which such Access Person or
Founders Employee or any member of such Access Person's or Founders Employee's
household has any direct or indirect beneficial ownership to provide the Legal
Department with duplicate copies of the applicable trade confirmations and
periodic account statements.
SECTION 10: REPORTING REQUIREMENTS
A. Initial Report by New Access Person.
Within ten (10) days of the date upon which an individual becomes an
Access Person, the new Access Person shall provide the Legal Department with an
initial report containing a list of all securities in which such Access Person
or any member of such Access Person's household has any direct or indirect
beneficial ownership. The list shall include the title and number of shares or
interests of each security owned, each security's ticker symbol, if any, the
date(s) of purchase of the security, and the price(s) paid for the security. The
initial report shall also include all other information required by Rule 17j-1
of the Act. The initial report shall be made by use of a form similar to that
attached hereto as Exhibit F.
B. Periodic Reports by Access Persons and Founders Employees.
1. Except as is otherwise provided in Section 10.B.2., every Access Person
and Founders Employee shall report to the Legal Department the information
described in paragraph 3 of this Section 10B with respect to transactions in any
security in which such Access Person or Founders Employee or any member of such
Access Person's or Founders Employee's household has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership in the
security. Such report shall be made by use of a form similar to that attached
hereto as Exhibit G not later than ten days after the end of the calendar
quarter in which the transaction occurred.
2. An Independent Director shall be exempt from the reporting requirements
imposed by Section 10.B.1. and need only report a transaction in a security if
such Director, at the time of that transaction knew or, in the ordinary course
of fulfilling his official duties as a director of the Fund should have known,
that during the 15-day period immediately preceding or after the date of the
transaction by the Director, such security was purchased or sold by the Fund or
was being considered by the Fund or Founders for purchase or sale by the
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Code of Ethics 11
<PAGE> 103
Fund. Any such transaction should be reported to the Fund's counsel not later
than ten (10) days after the end of the calendar quarter in which the
transaction occurred.
3. At the end of each calendar quarter, the Legal Department will provide
each Access Person and Founders Employee who effected securities transactions
during the quarter with a form similar to that attached as Exhibit G containing
(i) the name of any broker, dealer, or other institution with which an account
was established by the individual during the quarter and the date the account
was established, and (ii) a list of all securities transactions for which the
individual has submitted reports on Exhibits A and B during the quarter and/or
for which broker trade confirmations of the individual's securities transactions
have been received by the Legal Department during the quarter. The Access Person
or Founders Employee is responsible for verifying the accuracy and completeness
of the information on the report provided by the Legal Department and for adding
(i) the identity of any broker, dealer, or other institution with which an
account was established by the individual during the proceeding quarter which is
not included on the report, and (ii) any transaction which was effected during
the preceding quarter which is not included on the report. All reports shall
contain the following information:
a. The title of each security involved in the transaction, each
security's ticker symbol, if any, the amount of each security purchased or
sold, the date of the transaction, and the price at which the transaction
was executed;
b. The nature of the transaction (i.e., purchase, sale, or any other
type of acquisition or disposition);
c. If the transaction was effected through a brokerage firm, a
broker's confirmation of such transaction (unless the Legal Department
already has received a copy of the confirmation);
d. If no brokerage firm was involved in the transaction, an
explanation of the circumstances surrounding the transaction and the
manner in which the transaction was executed; and
e. The name of the broker, dealer, or other institution with which
an account was established and the date the account was established.
4. Such reports and, if applicable, accompanying confirmations shall be
retained by the Fund's counsel or the Legal Department for a period of at least
six years.
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12 Code of Ethics
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5. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or she has
any direct or indirect beneficial ownership in the security to which the report
relates.
C. Annual Reports by Access Persons.
On or before February 1 of each calendar year, each Access Person shall
provide to the Legal Department a report ("Report") which shall include a list
of all securities in which, as of the preceding December 31, the Access Person
had any direct or indirect beneficial ownership interest. The list shall contain
the title and number of shares or interests of each security owned, the date(s)
of purchase of the security, and the price(s) paid for the security. The Report
shall also include all additional information required by Rule 17j-1 of the Act.
The Report shall be provided by use of a form similar to that attached hereto as
Exhibit H.
D. Monitoring of Periodic and Annual Reports by Legal Department.
1. Upon receipt by the Legal Department of each periodic report provided
pursuant to Sections 10.A. and 10.B., the Legal Department will review the
report to determine whether the Access Person or Founders Employee may have
engaged in possible violations of this Code of Ethics, paying particular
attention to trading patterns and activities of the Access Person or Founders
Employee which may identify potential infractions of this Code of Ethics.
2. Upon receipt by the Legal Department of each annual report provided
pursuant to Section 10.C., the Legal Department shall prepare a list of all
securities shown on the reports and shall compare the list with records of
securities purchased or sold by the Fund and by Clients during the prior twelve
months. The Legal Department shall determine, based upon such comparison and
upon any further review of any Access Person's securities transactions deemed
necessary, whether any violations of this Code of Ethics may have occurred.
E. Written Certification.
On a basis no less frequently than annually, each Independent Director of
the Fund shall report to the Fund's counsel, and each other Access Person or
Founders Employee shall be required to provide to the Legal Department, a
written certification that the Access Person or Founders Employee has read and
understands this Code of Ethics and recognizes that he or she is subject to
certain terms and provisions thereof. Each Access Person and Founders Employee
shall further be required annually to certify in writing that he or she has
complied with the requirements of this Code of Ethics and has disclosed or
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Code of Ethics 13
<PAGE> 105
reported all personal securities transactions required to be disclosed or
reported pursuant to the requirements of this Code of Ethics. Attached hereto as
Exhibit I is the form to be used by Access Persons, other than Independent
Directors, and by Founders Employees to comply with this certification.
F. Legal Department Report.
On a basis no less frequently than annually, the Legal Department shall
prepare and, as to Premier, arrange to receive from an appropriate
representative of Premier, a written report ("Report") to the board of directors
of the Fund or to a standing committee of the board designated by the
Independent Directors to receive such Reports, which shall provide the following
information:
a. A summary of existing procedures concerning investments in
securities by all Access Persons and Founders Employees who are required
to report their securities transactions to the Legal Department and any
changes in such procedures which were implemented in the past six (6)
months;
b. Any issues arising under this Code of Ethics, the Premier Code of
Ethics, or under the code of ethics of any investment adviser or
affiliated principal underwriter of the Fund, including, but not limited
to, material or recurring violations of this Code of Ethics, the Premier
Code of Ethics, or any other code of ethics of any investment adviser or
affiliated principal underwriter of the Fund committed by any access
person or Founders Employee during the period from the most recent prior
Report;
c. Any recommended changes in existing restrictions or procedures to
this Code of Ethics or to the Premier Code of Ethics based upon (i) the
experience of the Fund, Founders, or Premier under their respective Codes
of Ethics, (ii) the experience of any other investment adviser or
affiliated principal underwriter of the Fund which may have a separate
code of ethics, (iii) evolving industry practices, or (iv) developments in
applicable laws or regulations; and
d. A certification that the Fund, Founders, and Premier, and any
other investment adviser or affiliated principal underwriter of the Fund,
have adopted such procedures as are reasonably necessary to prevent any
access person or Founders' Employee from violating any codes of ethics
applicable to the entity.
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14 Code of Ethics
<PAGE> 106
SECTION 11: EXEMPTIONS
A. Exempt Transactions.
The prohibitions of Section 3 of this Code of Ethics and the
pre-transaction, short-term trading, and reporting requirements of Sections 4,
5, and 10B of this Code of Ethics shall not apply to:
1. Purchases or sales of securities effected in any account over which an
Access Person or Founders Employee has no direct or indirect influence or
control;
2. Purchases or sales which are non-volitional on the part of an Access
Person or a Founders Employee, including transactions in accounts in which
complete investment discretion has been delegated to a person or entity not an
Access Person or a Founders Employee or a member of such Access Person's or
Founders Employee's household;
3. Purchases which are part of an automatic dividend reinvestment plan;
4. Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired;
5. Purchases or sales of securities other than restricted securities which
receive the prior approval of the president of Founders or such other senior
officer as any such president may designate to grant such approval in his
absence, because they are only remotely potentially harmful to the Fund or a
Client since they would be very unlikely to affect a highly institutional
market, or because they clearly are not related economically to the securities
to be purchased, sold, or held by the Fund or a Client.
B. Independent Director and Fund Affiliated Officer Exemptions.
Notwithstanding any language in this Code of Ethics to the contrary, the
initial public offering prohibition of Section 3, the provisions of Section 4.1,
the provisions of Section 5, the provisions of Section 6, the provisions of
Section 7, the provisions of Section 8, and the provisions of Section 9 of this
Code of Ethics shall not apply to Independent Directors or to Fund Affiliated
Officers. The provisions of Section 10.A. and the provisions of Section 10.C. of
this Code of Ethics shall not apply to Independent Directors.
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Code of Ethics 15
<PAGE> 107
SECTION 12: DISSEMINATION, CORPORATE RECORD RETENTION, DISCLOSURE, AND
CONFIDENTIALITY
1. Founders shall provide a copy of this Code of Ethics to all Access
Persons and to all Founders Employees and shall inform such individuals of their
duties and responsibilities imposed by this Code of Ethics, including their
reporting responsibilities. Founders shall obtain a written certification from
each Founders Employee stating that he/she has read, understands, and will
comply with this Code of Ethics by use of the form attached hereto as Exhibit F.
2. The Fund and Founders shall maintain for a six-year period in an easily
accessible place the following records:
a. A copy of this Code of Ethics;
b. A record of any violation of this Code of Ethics and of any
action taken as a result of such violation;
c. A copy of each report made by an Access Person or Founders
Employee pursuant to this Code of Ethics;
d. A list of all persons who are, or within the past six years have
been, required to make reports pursuant to this Code of Ethics. Founders
shall arrange for a list of all current Access Persons to be attached to
this Code of Ethics as Appendix 1 and to be amended when necessary to add
or delete Access Persons; and
e. A list of Approval Officers. Founders shall arrange for a list of
all current Approval Officers to be included on Appendix 1 and to be
amended when necessary to add or delete Approval Officers.
3. The prospectuses and/or the statements of additional information of the
Fund shall provide disclosure with respect to the general policies and
procedures applicable to Access Persons by this Code of Ethics, including
specific disclosure with regard to the extent to which Access Persons are
permitted to engage in personal securities transactions. Such disclosure shall
further include a brief description of the procedures initiated by the Fund to
address conflicts of interests occurring as a result of violations of this Code
of Ethics, and shall include the manner in which a Fund investor may obtain a
copy of the Code of Ethics, including the availability of the Code of Ethics
from the public files of the Securities and Exchange Commission. Legal counsel
for Founders and for the Fund are to review the disclosure for adequacy and are
further directed to attach a copy of the Code of Ethics, the Premier Code of
Ethics, and any other codes of ethics of the Fund's investment advisers and
affiliated principal underwriters as exhibits to the Fund's registration
statement.
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16 Code of Ethics
<PAGE> 108
4. The Legal Department, Approval Officers, and other individuals who may
receive (i) reports of securities transactions and/or securities holdings of
Access Persons and (ii) other information with respect to Access Persons' and
other Founders Employees' compliance with or violation of any provisions of this
Code of Ethics shall receive and maintain the information in confidence. Such
information shall only be disclosed to those persons or entities who have either
a need or a legal obligation to receive such information or have the legal
authority to be provided with the information. Persons and entities to whom such
information may appropriately be disclosed include, but are not necessarily
limited to, the directors of the Fund, the president of Founders, compliance,
accounting, and legal personnel of the Fund and of Founders, Approval Officers,
state and federal regulatory agencies, and appropriate representatives of the
National Association of Securities Dealers, Inc.
SECTION 13: PERSONAL RECORD RETENTION
Each Access Person and Founders Employee is encouraged to retain in his or
her personal files for a period of at least six years broker's confirmations,
monthly statements, or other appropriate information covering all personal
securities transactions, and all transactions in securities effected by, for, or
on behalf of any member of the Access Person's and Founders Employee's
household, showing the amount of each security purchased or sold, the date of
the transaction, the price at which it was executed, and the name and address of
the executing broker or dealer, if any.
SECTION 14: MATERIAL INSIDE (NON-PUBLIC) INFORMATION
It is unlawful under the Securities Exchange Act of 1934 and SEC Rule
10b-5 thereunder for any person to trade or recommend trading in securities on
the basis of material, inside (non-public) information. Founders has adopted a
Policy Statement On Insider Trading, a copy of which is included as Appendix 3
and is incorporated herein by this reference. By acknowledging that they have
read, understand and will comply with this Code of Ethics, Access Persons and
Founders Employees are also acknowledging that they have read, understand and
will comply with the attached Policy Statement on Insider Trading.
SECTION 15: VIOLATIONS
1. Any Access Person or Founders Employee who becomes aware of a violation
or apparent violation of this Code of Ethics by an officer, director, or
employee of the Fund shall advise the president of Founders or the Fund's legal
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Code of Ethics 17
<PAGE> 109
counsel of the matter. The person to whom the violation or apparent violation is
made known shall thereupon report the matter to the Fund's board of directors.
The board shall determine whether a violation has occurred and, if so, will
impose or, where applicable, recommend such sanctions, if any, as it deems
appropriate, including verbal or written warnings, a letter of censure,
suspension, termination of employment, or other sanctions. Prior to the final
determination by the board of directors, Founders shall provide such
investigation of a reported violation and shall make such recommendations to the
board with respect thereto as Founders and/or the board shall deem advisable.
2. Any Access Person or Founders Employee who becomes aware of a violation
or apparent violation of this Code of Ethics by an officer, director, employee,
or other access person of Founders who is not also an officer, director, or
employee of the Fund shall advise the president, the Legal Department or
Founders' legal counsel of the matter. The person to whom the violation or
apparent violation is made known shall thereupon report the matter to Founders'
president or, if the violation or apparent violation involves Founders'
president, Founders' chairman of the board of directors. Founders' president or
chairman of the board, as appropriate, in consultation with the Legal Department
(if not involved with the violation or apparent violation), shall determine
whether a violation has occurred and, if so, will impose such sanctions, if any,
as he or she may deem appropriate, including verbal or written warnings, a
letter of censure, suspension, termination of employment, or other sanctions.
3. In addition to any other sanctions which may be imposed upon an Access
Person or a Founders Employee who has violated this Code of Ethics, and
particularly in circumstances in which the violation involves the sale or
purchase of a security, the Access Person or Founders Employee having engaged in
the violation may be required either to unwind the purchase or sale transaction
or, if that is impractical, disgorge all profits from the transaction. Any such
profits are to be allocated in whole or in part among Portfolios of the Fund and
Clients as determined equitably by the Fund's board of directors, if the
sanction is imposed by the Fund's board, and by Founders' president or chairman
of its board of directors, as appropriate, if the sanction is imposed by
Founders.
4. The Legal Department shall notify the Fund's board of directors, or a
standing committee of the board designated by the Independent Directors, of
violations of this Code of Ethics committed by an officer, director, employee,
or other access person of Founders who is not also an officer or director of the
Fund and of the sanctions, if any, which have been imposed by Founders upon the
person having committed the violation. Such a report will be provided at the
next regularly scheduled meeting of the Fund's board of directors following the
determination of the occurrence of the violation.
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18 Code of Ethics
<PAGE> 110
The Fund's board of directors will review the report and other
presentations concerning the violation and the sanctions imposed with respect
thereto, and may either:
a. Take no further action; or
b. Recommend reconsideration of the determination that a violation
has occurred, the sanctions imposed with respect thereto, and/or of the
allocation of any disgorgement, accompanied by specific suggestions for
change in the actions taken by the chairman of the board or the president
of Founders as the board of directors may deem appropriate.
5. Upon receipt of a recommendation for reconsideration from the Fund's
board of directors in accordance with item 4.b. above, the chairman of the board
or the president of Founders, as applicable, will consider the directors'
recommendations and will take such final action as he or she deems appropriate
under the circumstances. A report of the action taken will be provided at the
next regularly scheduled meeting of the Fund's board of directors.
SECTION 16: REVIEW
1. The board of directors of the Fund, including a majority of the Fund's
independent directors, shall approve this Code of Ethics, the Premier Code of
Ethics, and the code of ethics of any other investment adviser and affiliated
principal underwriter of the Fund, and any material changes to such codes of
ethics.
2. Approval of codes of ethics and any material changes thereto shall be
based upon a determination that the codes contain provisions reasonably
necessary to prevent access persons from engaging in conduct prohibited by Rule
17j-1 under the Act.
3. Prior to approving a code of ethics, the directors of the Fund must
receive a certification from the Fund and each Fund's investment adviser and
affiliated principal underwriter that each entity has adopted procedures
reasonably necessary to prevent access persons of the respective entity from
violating the entity's code of ethics.
4. Approval by the Fund's directors of the code of ethics of a Fund's
investment adviser or affiliated principal underwriter must occur prior to the
initial
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Code of Ethics 19
<PAGE> 111
retention of services of the investment adviser or affiliated principal
underwriter. (1) Approval of material changes to a code of ethics must occur no
later than six months after adoption of the material change.
5. The general counsel of Founders is directed to advise the Fund's board
of directors at their next regularly scheduled meeting of any material
amendments to the code of ethics of any investment adviser or affiliated
principal underwriter of the Fund.
APPROVED AND AMENDED to be effective as of January 1, 2000, by vote of a
majority of the directors of the Fund, including a majority of the Independent
Directors, and by vote of the board of managers of Founders.
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(1) Since the Fund has heretofore retained the services of its investment
adviser and affiliated principal underwriter, this requirement will be satisfied
by the approval by the Fund's directors of the codes of ethics of Founders and
Premier by September 1, 2000.
- -------------------------------------------------------------------------------
20 Code of Ethics
<PAGE> 112
APPENDIX 1
TO
CODE OF ETHICS
List of Access Persons and Approval Officers
[Please contact Founders' Legal Department to obtain the current list of
Access Persons and Approval Officers. This list can also be found on the
Legal Department section of FNet, Founders' intranet site.]
- -------------------------------------------------------------------------------
Code of Ethics 21
<PAGE> 113
APPENDIX 2
TO
CODE OF ETHICS
Reg. Section 240.16a-1.
(a) The term "beneficial owner" shall have the following applications:
(2) . . . the term "beneficial owner" shall mean any person who, directly
or indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares a direct or indirect pecuniary interest in the equity
securities, subject to the following:
(i) The term "pecuniary interest" in any class of equity
securities shall mean the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the subject
securities.
(ii) The term "indirect pecuniary interest" in any class of
equity securities shall include, but not be limited to:
(A) securities held by members of a person's
immediate family sharing the same household; provided, however, that
the presumption of such beneficial ownership may be rebutted; see also
Section 240.16a-1(a)(4); [Amended in Release No. 34-29131 (Paragraph
26,086A), effective May 1, 1991, 56 F.R. 19925.]
(B) a general partner's proportionate interest in the
portfolio securities held by a general or limited partnership. The
general partner's proportionate interest, as evidenced by the
partnership agreement in effect at the time of the transaction and the
partnership's most recent financial statements, shall be the greater
of:
(1) the general partner's share of the partnership's
profits, including profits attributed to any limited
partnership interests held by the general partner and any
other interests in profits that arise from the purchase and
sale of the partnership's portfolio securities; or
(2) the general partner's share of the partnership
capital account, including the share attributable to any
limited partnership interest held by the general partner.
(C) a performance-related fee, other than an
asset-based fee, received by any broker, dealer, bank, insurance
company, investment
- -------------------------------------------------------------------------------
22 Code of Ethics
<PAGE> 114
company, investment adviser, investment manager, trustee or person or
entity performing a similar function; provided, however, that no pecuniary
interest shall be present where:
(1) the performance-related fee, regardless of when
payable, is calculated based upon net capital gains and/or net
capital appreciation generated from the portfolio or from the
fiduciary's overall performance over a period of one year or
more; and
(2) equity securities of the issuer do not account
for more than ten percent of the market value of the
portfolio. A right to a nonperformance-related fee alone shall
not represent a pecuniary interest in the securities;
(D) A person's right to dividends that is separated
or separable from the underlying securities. Otherwise, a right to
dividends alone shall not represent a pecuniary interest in the
securities;
(E) A person's interest in securities held by a
trust, as specified in Section 240.16a-8(b); and
(F) A person's right to acquire equity securities
through the exercise or conversion of any derivative security, whether
or not presently exercisable.
(iii) A shareholder shall not be deemed to have a pecuniary
interest in the portfolio securities held by a corporation or similar
entity in which the person owns securities if the shareholder is not a
controlling shareholder of the entity and does not have or share
investment control over the entity's portfolio.
(e) The term "immediate family" shall mean any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
and shall include adoptive relationships.
- -------------------------------------------------------------------------------
Code of Ethics 23
<PAGE> 115
GENERAL DEFINITIONS
Sec. 2.(a) When used in this title, unless the context other requires --
[Control]
(9) "Control" means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely the result of
an official position with such company.
[Government Security]
(16) "Government security" means any security issued or guaranteed as to
principal or interest by the United States, or by a person controlled or
supervised by and acting as an instrumentality of the Government of the United
States pursuant to authority granted by the Congress of the United States; or
any certificate of deposit for any of the foregoing.
[Interested Person]
(19) "Interested person" of another person means --
(A) when used with respect to an investment company --
(i) any affiliated person of such company,
(ii) any member of the immediate family of any natural person who is
an affiliated person of such company,
(iii) any interested person of any investment adviser of or
principal underwriter for such company,
(iv) any person or partner or employee of any person who at any time
since the beginning of the last two completed fiscal years of such company
has acted as legal counsel for such company,
(v) any broker or dealer registered under the Securities Exchange
Act of 1934 or any affiliated person of such a broker or dealer, and
(vi) any natural person whom the Commission by order shall have
determined to be an interested person by reason of having had, at any time
since the beginning of the last two completed fiscal years of such
company, a material business or professional relationship with such
company or with the principal executive officer of such company or with
- -------------------------------------------------------------------------------
24 Code of Ethics
<PAGE> 116
any other investment company having the same investment adviser or
principal underwriter or with the principal executive officer of such
other investment company:
Provided, That no person shall be deemed to be an interested person of an
investment company solely by reason of (aa) his being a member of its board of
directors or advisory board or an owner of its securities, or (bb) his
membership in the immediate family of any person specified in clause (aa) of
this proviso; and
(B) when used with respect to an investment adviser of or principal
underwriter for any investment company --
(i) any affiliated person of such investment adviser or principal
underwriter,
(ii) any member of the immediate family of any natural person who is
an affiliated person of such investment adviser or principal underwriter,
(iii) any person who knowingly has any direct or indirect beneficial
interest in, or who is designated as trustee, executor, or guardian of any
legal interest in, any security issued either by such investment adviser
or principal underwriter or by a controlling person of such investment
adviser or principal underwriter,
(iv) any person or partner or employee of any person who at any time
since the beginning of the last two completed fiscal years of such
investment company has acted as legal counsel for such investment adviser
or principal underwriter,
(v) any broker or dealer registered under the Securities Exchange
Act of 1934 or any affiliated person of such a broker or dealer, and
(vi) any natural person whom the Commission by order shall have
determined to be an interested person by reason of having had at any time
since the beginning of the last two completed fiscal years of such
investment company a material business or professional relationship with
such investment adviser or principal underwriter or with the principal
executive officer or any controlling person of such investment adviser or
principal underwriter.
For the purposes of this paragraph (19), "member of the immediate family" means
any parent, spouse of a parent, child, spouse of a child, spouse, brother or
sister, and includes step and adoptive relationships. The Commission may
- -------------------------------------------------------------------------------
Code of Ethics 25
<PAGE> 117
modify or revoke any order issued under clause (vi) of subparagraph (A) or (B)
of this paragraph whenever it finds that such order is no longer consistent with
the facts. No order issued pursuant to clause (vi) of subparagraph (A) or (B) of
this paragraph shall become effective until at least sixty days after the entry
thereof, and no such order shall affect the status of any person for the
purposes of this title or for any purpose for any period prior to the effective
date of such order.
[Security]
(36) "Security" means any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put, call,
straddle, option, or privilege on any security (including a certificate of
deposit) or on any group or index of securities (including any interest therein
or based on the value thereof), or any put, call, straddle, option, or privilege
entered into on a national securities exchange relating to foreign currency, or,
in general, any interest or instrument commonly known as a "security," or any
certificate of interest or participation in, temporary or interim certificate
for, receipt for, guarantee of, or warrant or right to subscribe to or purchase,
any of the foregoing.
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26 Code of Ethics
<PAGE> 118
APPENDIX 3
TO
CODE OF ETHICS
FOUNDERS ASSET MANAGEMENT LLC
POLICY STATEMENT ON INSIDER TRADING
INTRODUCTION
Founders Asset Management LLC ("Founders") forbids any officer, director
or employee from trading, either personally or on behalf of others (such as
mutual funds or private accounts managed by Founders), on material nonpublic
information or communicating material nonpublic information to others in
violation of the law. This conduct is frequently referred to as "insider
trading." Any questions regarding this policy should be referred to Founders'
General Counsel (the "Reviewing Officer").
A. WHAT IS "INSIDER TRADING"?
"Insider trading" refers generally to buying or selling a security, in
breach of a fiduciary duty or other relationship of trust and confidence, while
in possession of material, nonpublic information about the security. Insider
trading violations may also include "tipping" such information, securities
trading by the person "tipped" and securities trading by those who
misappropriate such information. Examples of insider trading cases that have
been brought by the SEC are cases against: corporate officers, directors, and
employees who traded the corporation's securities after learning of significant,
confidential corporate developments; friends, business associates, family
members, and other "tippees" of such officers, directors, and employees, who
traded the securities after receiving such information; employees of law,
banking, brokerage and printing firms who were given such information in order
to provide services to the corporation whose securities they traded; government
employees who learned of such information because of their employment by the
government; and other persons who misappropriated, and took advantage of,
confidential information from their employers.
Because insider trading undermines investor confidence in the fairness and
integrity of the securities markets, it is imperative that all employees and
officers understand and comply with this legal requirement. The penalties for
insider trading are severe and the SEC considers insider trading violations as
one of its enforcement priorities.
- -------------------------------------------------------------------------------
Code of Ethics 27
<PAGE> 119
B. WHAT IS "MATERIAL INFORMATION"?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities. Information that officers, directors and
employees should consider material includes, but is not limited to: dividend
changes, earnings estimates, changes in previously released earnings estimates,
significant expansion or curtailment of operations, significant merger or
acquisition proposals or agreements, significant new products or discoveries,
major litigation, liquidation problems, and extraordinary management
development. Individuals should exercise caution when questioning the
materiality of the information provided and should contact the Reviewing Officer
for clarification of its materiality.
C. WHAT IS NONPUBLIC INFORMATION?
Nonpublic information, often referred to as "insider information," is
information that has not been communicated to the marketplace. One must be able
to point to some fact to show that the information is generally public. For
example, information found in a report filed with the SEC, or appearing in Dow
Jones, Reuters Economic Service, The Wall Street Journal, or other publications
of general circulation would be considered public.
D. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material nonpublic information
are severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
- civil injunction
- treble (i.e., triple) damages
- disgorgement of profits
- jail sentence
- fines for the person who committed the violation of up to
three times the profit gained or loss avoided, whether or not
the person actually benefited, and
- fines for the employer or other controlling person of up to
the greater of $1,000,000 or three times the amount of the
profit gained or loss avoided.
Any violation of this policy statement can be expected to result in
serious sanctions by Founders, including termination of employment.
- -------------------------------------------------------------------------------
28 Code of Ethics
<PAGE> 120
E. RELEVANT TOPICS
Contact with Public Companies
For Founders, contact with public companies represents an important part
of its research efforts. Investment decisions may be made by Founders on the
basis of conclusions formed through such contact and analysis of publicly
available information. Difficult legal issues arise, however, when directors,
officers or employees of Founders become aware of material nonpublic
information. This could happen, for example, if a company's chief financial
officer prematurely discloses quarterly results to an analyst or an investor
relations representative makes a selective disclosure of adverse news to a
handful of investors. In order to protect Founders and yourself, you must
contact the Reviewing Officer if you believe you have received material,
nonpublic information.
Tender Offers
Tender offers represent a particular concern in the law of insider
trading. Tender offer activity often produces extraordinary gyrations in the
price of the target company's securities. Trading during this time period is
also more likely to attract regulatory attention (and produces a
disproportionate percentage of insider trading cases). Officers, directors, and
employees of Founders should exercise extreme caution any time they become aware
of nonpublic information relating to a tender offer.
F. PROCEDURES TO PREVENT INSIDER TRADING
The following procedures have been established to aid the officers,
directors, and employees of Founders to avoid insider trading, and to aid
Founders in preventing, detecting, and imposing sanctions against insider
trading. Every officer, director, and employee of Founders must follow these
procedures or risk serious sanctions including dismissal, substantial personal
liability, and criminal penalties. If you have any questions about these
procedures you should consult the Reviewing Officer.
Identifying Inside Information
Before trading for yourself or others, including mutual funds and
privately managed accounts managed by Founders, in the securities of a company
about which you have potential inside information, ask yourself the following
questions:
i. Is the information material? Is this information that an investor would
consider important in making his or her investment decision? Is
- -------------------------------------------------------------------------------
Code of Ethics 29
<PAGE> 121
this information that would substantially affect the market price of the
security if generally disclosed?
ii. Is the information nonpublic? To whom has this information been
provided? Has the information been effectively communicated to the
marketplace by being published in Reuters, The Wall Street Journal, or
other publications of general circulation?
If, after consideration of the above, you believe that the information may
be material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you must take the following steps:
i. Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by Founders.
ii. Report the matter immediately to the Reviewing Officer. If the
Reviewing Officer is not available and an immediate determination is
necessary, such judgment may be made by the President of Founders or its
outside legal counsel.
iii. Do not communicate the information inside or outside Founders, other
than to the designated Reviewing Officer, the President of Founders, or
Founders' outside legal counsel.
iv. After the Reviewing Officer has reviewed the issue, you will be
instructed to continue the prohibitions against trading or communicating
the information received, or you will be allowed to trade and communicate
the information.
G. RESTRICTING ACCESS TO MATERIAL NONPUBLIC INFORMATION
Information in your possession that you identify as material and nonpublic
may not be communicated to anyone, including persons within Founders, with the
exception of Founders' Reviewing Officer, the President of Founders, or
Founders' outside legal counsel. In addition, care should be taken so that such
information is handled in a manner which Founders employees and others cannot
access. For example, physical documents containing such information should be
placed in a locked file cabinet and computer files should be password protected
and restricted from access.
H. PERSONAL SECURITIES TRANSACTIONS
All Founders employees are required to obtain pre-clearance for securities
transactions in which they have a beneficial interest. Please refer to the Code
of
- -------------------------------------------------------------------------------
30 Code of Ethics
<PAGE> 122
Ethics or contact Founders' Legal Department for details regarding how to
obtain prior approval. By requesting approval to engage in a personal securities
transaction, an individual is also certifying that they are not acting on inside
information.
- -------------------------------------------------------------------------------
Code of Ethics 31
<PAGE> 123
[FOUNDERS LOGO]
MEMORANDUM
TO: All Employees
FROM: Ken Christoffersen
DATE: June 2, 1998
RE: Addendum to the Code of Ethics
At its May 28 meeting, the Board of Managers of Founders Asset Management LLC
adopted the attached "Restrictions on Transactions in Mellon Securities" as an
addendum to the Founders Code of Ethics. Please read this addendum and keep it
with your copy of the Code of Ethics.
The addendum contains a number of provisions relating to trading in the
securities of Mellon Bank Corporation that are required because Mellon is a
public company. These restrictions apply to all employees of Mellon and its
subsidiaries (referred to as "associates" in the document), other than outside
consultants or temporary employees. These restrictions apply to all Founders
employees effective immediately.
If you have any questions concerning the attached addendum, please feel free to
contact Allen French or me.
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32 Code of Ethics
<PAGE> 124
ADDENDUM TO THE CODE OF ETHICS
MAY 28, 1998
RESTRICTIONS ON TRANSACTIONS IN MELLON SECURITIES
Associates who engage in transactions involving Mellon securities should be
aware of their unique responsibilities with respect to such transactions arising
from the employment relationship and should be sensitive to even the appearance
of impropriety.
The following restrictions apply to all transactions in Mellon's publicly traded
securities occurring in the associate's own account and in all other accounts
over which the associate could be expected to exercise influence or control (see
provisions under "Beneficial Ownership" below for a more complete discussion of
the accounts to which these restrictions apply). These restrictions are to be
followed in addition to any restrictions that apply to particular officers or
directors (such as restrictions under Section 16 of the Securities Exchange Act
of 1934).
- - Short Sales -- Short sales of Mellon securities by associates are
prohibited.
- - Sales Within 60 Days of Purchase -- Sales of Mellon securities within 60
days of acquisition are prohibited. For purposes of the 60-day holding
period, securities will be deemed to be equivalent if one is convertible
into the other, if one entails a right to purchase or sell the other, or
if the value of one is expressly dependent on the value of the other
(e.g., derivative securities).
In cases of extreme hardship, associates (other than senior management) may
obtain permission to dispose of Mellon securities acquired within 60 days of the
proposed transaction, provided the transaction is precleared with the Manager of
Corporate Compliance and any profits earned are disgorged in accordance with
procedures established by senior management. The Manager of Corporate Compliance
reserves the right to suspend the 60-day holding period restriction in the event
of severe market disruption.
- - Margin Transactions -- Purchases on margin of Mellon's publicly traded
securities by associates is prohibited. Margining Mellon securities in
connection with a cashless exercise of an employee stock option through
the Human Resources Department is exempt from this restriction. Further,
Mellon securities may be used to collateralize loans or the acquisition of
securities other than those issued by Mellon.
- - Option Transactions -- Option transactions involving Mellon's publicly
traded securities are prohibited. Transactions under Mellon's Long-Term
Incentive Plan or other associate option plans are exempt from this
restriction.
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Code of Ethics 33
<PAGE> 125
- - Major Mellon Events -- Associates who have knowledge of major Mellon
events that have not yet been announced are prohibited from buying and
selling Mellon's publicly traded securities before such public
announcements, even if the associate believes the event does not
constitute material nonpublic information.
- - Mellon Blackout Period -- Associates are prohibited from buying or selling
Mellon's publicly traded securities during a blackout period, which begins
the 16th day of the last month of each calendar quarter and ends three
business days after Mellon publicly announces the financial results for
that quarter. In cases of extreme hardship, associates (other than senior
management) may request permission from the Manager of Corporate
Compliance to dispose of Mellon securities during the blackout period.
BENEFICIAL OWNERSHIP -- The provisions discussed above apply to transactions in
the associate's own name and to all other accounts over which the associate
could be expected to exercise influence or control, including:
- - accounts of a spouse, minor children or relatives to whom substantial
support is contributed;
- - accounts of any other member of the associate's household (e.g., a
relative living in the same home);
- - trust accounts for which the associate acts as trustee or otherwise
exercises any type of guidance or influence;
- - Corporate accounts controlled, directly or indirectly, by the associate;
- - arrangements similar to trust accounts that are established for bona fide
financial purposes and benefit the associate; and
- - any other account for which the associate is the beneficial owner.
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34 Code of Ethics
<PAGE> 126
EXHIBIT A
REQUEST FOR APPROVAL OF SECURITY TRANSACTION
IN PERSONAL ACCOUNT
NAME: _________________________________________________________________
DATE: _____________________________
BUY: ______________________ SELL: __________________
AMOUNT OR SHARES: __________________________ PRICE: _________________
NAME OF SECURITY: __________________________________________________________
BROKER: ___________________________
*Address: __________________________
*Telephone: ________________________
*Account No.: ______________________ *Registered Owner: _________________
THIS IS A NEW ISSUE: _______ YES ________ NO
THIS IS A SECONDARY: _______ YES ________ NO
I have not acted on inside information.
I have verified that the security described above is not being considered for
purchase or sale by a Client or Fund and is not being purchased or sold by a
Client or Fund. I have further verified that the security has not been purchased
or sold by a Client or Fund at any time during the seven days prior to the date
set forth above.
EMPLOYEE SIGNATURE: _______________________________________________
CONFIRMATION THAT SECURITY HAS NOT BEEN PURCHASED OR SOLD WITHIN PRIOR SEVEN
DAYS:
___________________________________
___________________________________ Date: _____________________
Trading Department
APPROVED BY: _________________________________** Date: _____________________
Approval Officer
* Complete if not previously provided.
** The Approval Officer Line must be signed by Tom Arrington, Rob Ammann, Scott
Chapman, or Doug Loeffler. Transactions must be approved by an Approval Officer
other than the employee effecting the transaction. No other Founders personnel
are authorized to approve this transaction.
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Code of Ethics 35
<PAGE> 127
EXHIBIT B
NOTIFICATION OF INTENTION TO ENGAGE IN
DE MINIMIS TRANSACTION
NAME: ____________________________________________________________________
DATE: ____________________________________________________________________
BUY: _________________________ SELL: ____________________
AMOUNT OR SHARES: ___________________________________ (cannot exceed the greater
of 100 shares or $5,000 per transaction)
NAME OF SECURITY: _________________________________________
BROKER: ______________________________________________
*Address: ____________________________________________
*Telephone: __________________________________________
*Account No.: ____________________________ *Registered Owner: ________________
I have not acted on inside information.
I am not involved in buying or selling this security for any Founders mutual
fund or private account client.
I have attached information confirming that this security is issued by a company
with a market capitalization of at least $1 billion and has an average daily
trading volume of at least 100,000 shares.
EMPLOYEE SIGNATURE: _________________________________________________________
ACKNOWLEDGED:
_______________________________________ Date: _________________________
Legal Department
*Complete if not previously provided.
<PAGE> 128
EXHIBIT C
APPROVAL FORM FOR TRIPS
WHERE A PORTION OF THE COST IS PAID BY A THIRD PARTY
Name of Founders Employee: _________________________________________________
Name of Person or Entity paying for any portion of the trip: _______________
____________________________________________________________________________
Type of Entity:
/ / broker
/ / publicly traded company
/ / person or entity with which Founders may have a current or
anticipated business relationship
/ / other
Purpose for trip: _________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
The foregoing trip is hereby:
/ / Approved / / Disapproved
FOUNDERS ASSET MANAGEMENT LLC
By: ___________________________________* By: _______________________*
Dated: ________________________________ Dated:_____________________
* Must be signed by Department Manager and Founders Chief Executive Officer.
<PAGE> 129
EXHIBIT D
APPROVAL FORM FOR OUTSIDE EMPLOYMENT OR
BUSINESS ACTIVITY
Name of Founders Employee: __________________________________________________
Name of Outside Employer: __________________________________________________
(If self-employed, please so indicate.)
Type of Business: ___________________________________________________________
Brief Job Description: ______________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Typical Weekly Work Schedule: ____________________________________________
___________________________________________________________________________
The foregoing employment/business activity is hereby:
/ / Approved / / Disapproved
FOUNDERS ASSET MANAGEMENT LLC
By: __________________________________*
Dated: ______________________________
CC: Department Manager of Employee
Human Resources
* Must be signed by Founders Chief Executive Officer or Ken Christoffersen
following consultation with Department Manager.
<PAGE> 130
EXHIBIT E
NOTIFICATION OF POSSIBLE SECURITY TRANSACTION
BY
INVESTMENT CLUB OR SIMILAR ENTITY
Name of Investment Club: _______________________________________________
Name of Employee: ______________________________________________________
Name of Family Member: _________________________________________________
Name of Security: ______________________________________________________
/ / Buy
/ / Sell
Employee Signature: _____________________________________________________
Date: ___________________________________________________________________
This form must be acknowledged by Tom Arrington, Rob Ammann, Scott Chapman, or
Doug Loeffler, and returned to the Legal Department.
ACKNOWLEDGED:
________________________________
Approval Officer
<PAGE> 131
EXHIBIT F
FOUNDERS ASSET MANAGEMENT LLC
CODE OF ETHICS
INITIAL REPORT
By my signature below, I certify that I have received and read a copy of the
Code of Ethics for Founders Asset Management LLC (the "Code"), including,
without limitation, the Policy Statement on Insider Trading, and that I
understand the provisions and requirements of the Code as they apply to me. In
addition, I certify that the information provided herein with respect to
brokerage accounts and securities holdings is accurate and complete. I agree to
comply with all of the terms and provisions of the Code which are applicable to
me, and to disclose or report all personal securities transactions and other
information required to be disclosed or reported pursuant to the requirements of
the Code.
BROKERAGE ACCOUNTS. [Applicable to all employees.] The information provided
below is for all brokerage accounts in which I or any member of my household has
any direct or indirect beneficial ownership. I agree to notify the Legal
Department within ten days of the establishment of a new brokerage account not
previously reported to the Legal Department.
/ / I have no brokerage accounts to report at this time.
/ / The following brokerage accounts are maintained by me or a member of my
household (use additional copies of this form if necessary):
Name of brokerage firm: ____________________________________________________
Address: _________________________________ Telephone: ______________________
Registered Owner Designation: _______________________ Account No.: _________
SECURITIES. [Applicable to Access Persons only.] The information provided below
is for all securities in which I or any member of my household has any direct or
indirect beneficial ownership.
/ / I have no securities to report at this time.
/ / The following securities are ones in which I or a member of my
household have direct or indirect beneficial ownership (use additional
copies of this form if necessary):
<TABLE>
<CAPTION>
Number Date Transaction Price Principal Amount
Name of Security Ticker Symbol of Shares Purchased (Equity Security) (Debt Security)
- ---------------- ------------- --------- --------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
</TABLE>
Employee Signature ______________________________ Date: _____________________
<PAGE> 132
EXHIBIT G
REPORT OF OCCURRENCE OF SECURITIES TRANSACTIONS
AND INITIATION OF BROKERAGE ACCOUNTS WITHIN LAST CALENDAR QUARTER
<TABLE>
<CAPTION>
INTEREST
RATE/ TRANSACTION PRINCIPAL
DATE MATURITY PRICE AMOUNT
AMOUNT OR TICKER DATE (IF (EQUITY (DEBT
SHARES SECURITY NAME SYMBOL BOUGHT SOLD APPLICABLE) SECURITY) SECURITY) NAME OF DEALER OR BANK
- -------------- ---------------- -------- ------- ------ ------------- ------------ ----------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
The above is a record of one or more purchase or sale transactions in securities
in which I have acquired or disposed of a direct or indirect beneficial
ownership in the last calendar quarter, as more fully defined in the Fund's and
Founders' Codes of Ethics.
BROKERAGE ACCOUNTS. In the past quarter, I established the brokerage account(s)
described below, which have not previously been reported to the Legal
Department.
/ / I have no brokerage accounts to report at this time.
/ / The following brokerage accounts have been established in the last
calendar quarter and are maintained by me or a member of my household
(use additional copies of this form if necessary):
Name of brokerage firm:
------------------------------------------------------
Address: Telephone:
------------------------------- --------------------------
Registered Owner Designation: Account No.:
-------------------- -------------
Date of Establishment of Account:
---------------------------
DATE: SIGNATURE:
--------------------------------- ---------------------------
Print Name:
---------------------------
<PAGE> 133
Note 1. If the transaction is other than a sale or purchase, please explain the
transaction on a separate page.
Note 2. If no broker or bank was involved in the transaction, describe on
a separate page the circumstances surrounding the transaction and
the manner in which the transaction was executed.
Note 3. If a broker was involved in the transaction, a copy of the
broker's confirmation of the transaction is attached or has
previously been received by Founders' Legal Department.
Note 4. This report shall not be construed as an admission by me that I
have acquired any direct or indirect beneficial ownership in the
securities involved in the transactions reported, which have been
marked by me with an asterisk(*). Such transactions are reported
solely to meet the standards imposed by Rule 17j-1 under the
Investment Company Act of 1940.
<PAGE> 134
EXHIBIT H
REPORT OF SECURITIES OWNERSHIP
REPORT OF ESTABLISHMENT OF BROKERAGE ACCOUNTS
FOR CALENDAR YEAR ENDING DECEMBER 31, 199
<TABLE>
<CAPTION>
PRINCIPAL CHECK TYPE OF ACCOUNT
AMOUNT OR SHARES DATE TRANSACTION PRICE AMOUNT (DEBT
SHARES SECURITY NAME BOUGHT (EQUITY SECURITY) SECURITY)
FIDUCIARY OR OTHER
HOUSEHOLD BENEFICIAL
PERSONAL MEMBER OWNERSHIP
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
The above is a listing of every security in which I have any direct or indirect
beneficial ownership as of the end of the above-described calendar year, as more
fully defined in the Fund's and Founders' Codes of Ethics.
BROKERAGE ACCOUNTS. I currently have the brokerage account(s) described below.
/ / I have no new brokerage accounts to report at this time.
/ / The following brokerage accounts have been established and are
maintained by me or a member of my household (use additional copies of
this form if necessary):
Name of brokerage firm:
----------------------------------------------------
Address: Telephone:
-------------------------------- ------------------------
Registered Owner Designation: Account No.:
--------------------- --------------
Date of Establishment of Account:
----------------------
<PAGE> 135
DATE: SIGNATURE:
-------------------------- -----------------------------
Print Name:
-----------------------------
Note 1. This report shall not be construed as an admission by me that I
have acquired any direct or indirect beneficial ownership in the
securities listed above which have been marked by me with an
asterisk(*). Such transactions are reported solely to meet the
standards imposed by Rule 17j-1 under the Investment Company Act of
1940.
<PAGE> 136
EXHIBIT I
FOUNDERS ASSET MANAGEMENT LLC
CODE OF ETHICS COMPLIANCE CERTIFICATION
By my signature below, I certify that I have received and read a copy of the
Code of Ethics for Founders Asset Management LLC (the "Code"), including,
without limitation, the Policy Statement on Insider Trading, that I understand
the requirements of the Code, and that I recognize that I am subject to the
provisions of the Code. I also certify that as of the date below, I have
complied with the requirements of the Code and have disclosed or reported all
personal securities transactions and other information required to be disclosed
or reported pursuant to the requirements of the Code.
Employee Signature Date
------------------------------ ------------------
Print Name
-------------------------------
<PAGE> 137
THE FRANKLIN TEMPLETON GROUP
CODE OF ETHICS
AND
POLICY STATEMENT ON INSIDER TRADING
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS ....................................................................... 1
PART 1 - STATEMENT OF PRINCIPLES .................................................................................. 1
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE ............................................................. 2
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS ........................................................... 3
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS ....................................... 10
PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS ............................................................ 13
PART 6 - PRE-CLEARANCE REQUIREMENTS ............................................................................... 17
PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE ..................................................................... 22
PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY ..................................... 23
APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS ................................................... 24
I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER ....................................................... 25
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS ................................................................ 31
III. SECURITIES EXEMPT FROM THE PROHIBITED, REPORTING, AND PRE-CLEARANCE PROVISIONS ............................... 32
IV. LEGAL REQUIREMENT ............................................................................................ 33
APPENDIX B: FORMS AND SCHEDULES ................................................................................... 34
ACKNOWLEDGMENT FORM ............................................................................................... 35
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE & FAX NUMBERS ........................... 36
SCHEDULE B: SECURITIES TRANSACTION REPORT ......................................................................... 37
SCHEDULE C: INITIAL, ANNUAL & UPDATED DISCLOSURE OF ACCESS PERSONS SECURITIES HOLDINGS ............................ 39
SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT OPENING ............................................................ 40
SCHEDULE E: NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST ................................................ 41
SCHEDULE F: INITIAL, ANNUAL & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS ........................................... 42
SCHEDULE G: INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY ........................................... 43
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS ................. 45
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER SUBSIDIARIES OF FRANKLIN RESOURCES, INC. - FEBRUARY 2000 47
THE FRANKLIN TEMPLETON GROUP POLICY STATEMENT ON INSIDER TRADING .................................................. 1
A. LEGAL REQUIREMENT .............................................................................................. 1
B. WHO IS AN INSIDER? ............................................................................................. 2
C. WHAT IS MATERIAL INFORMATION? .................................................................................. 2
D. WHAT IS NON-PUBLIC INFORMATION? ................................................................................ 2
E. BASIS FOR LIABILITY ............................................................................................ 3
F. PENALTIES FOR INSIDER TRADING .................................................................................. 3
G. INSIDER TRADING PROCEDURES ..................................................................................... 4
</TABLE>
i
<PAGE> 138
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS
Franklin Resources, Inc. and all of its subsidiaries, and the funds in
the Franklin Templeton Group of Funds (the "Funds") (collectively, the "Franklin
Templeton Group") will follow this Code of Ethics (the "Code") and Policy
Statement on Insider Trading (the "Insider Trading Policy"). Additionally, the
subsidiaries listed in Appendix C of this Code, together with Franklin
Resources, Inc., the Funds, the Fund's investment advisers and principal
underwriter, have adopted the Code and Insider Trading Policy.
PART 1 - STATEMENT OF PRINCIPLES
The Franklin Templeton Group's policy is that the interests of
shareholders and clients are paramount and come before the interests of any
director, officer or employee of the Franklin Templeton Group.(1)
Personal investing activities of ALL directors, officers and employees
of the Franklin Templeton Group should be conducted in a manner to avoid actual
or potential conflicts of interest with the Franklin Templeton Group, Fund
shareholders, and other clients of any Franklin Templeton adviser.
Directors, officers and employees of the Franklin Templeton Group shall
use their positions with the Franklin Templeton Group, and any investment
opportunities they learn of because of their positions with the Franklin
Templeton Group, in a manner consistent with their fiduciary duties for the
benefit of Fund shareholders, and clients.
- ----------
(1) "Director" includes trustee.
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<PAGE> 139
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE
It is important that you read and understand this document, because its
overall purpose is to help all of us comply with the law and to preserve and
protect the outstanding reputation of the Franklin Templeton Group. This
document was adopted to comply with Securities and Exchange Commission rules
under the Investment Company Act of 1940 ("1940 Act"), the Investment Advisers
Act of 1940 ("Advisers Act"), the Insider Trading and Securities Fraud
Enforcement Act of 1988 ("ITSFEA"), industry practice and the recommendations
contained in the ICI's Report of the Advisory Group on Personal Investing. Any
violation of the Code or Insider Trading Policy, including engaging in a
prohibited transaction or failing to file required reports, may result in
disciplinary action, and, when appropriate, termination of employment and/or
referral to appropriate governmental agencies.
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<PAGE> 140
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS
3.1 WHO IS COVERED BY THE CODE AND HOW DOES IT WORK?
The principles contained in the Code must be observed by ALL directors,
officers and employees(2) of the Franklin Templeton Group. However, there are
different categories of restrictions on personal investing activities. The
category in which you have been placed generally depends on your job function,
although unique circumstances may result in you being placed in a different
category.
The Code covers the following categories of employees who are described below:
(1) ACCESS PERSONS: Access Persons are those employees who have
"access to information" concerning recommendations made to a
Fund or client with regard to the purchase or sale of a
security. Examples of "access to information" would include
having access to trading systems, portfolio accounting
systems, research data bases or settlement information. Access
Persons would typically include employees, including
Management Trainees, in the following departments:
- fund accounting;
- investment operations;
- information services & technology;
- product management;
- legal and legal compliance
- and anyone else designated by the Director of
Compliance
In addition, you are an Access Person if you are any of the
following:
- an officer or and directors of funds;
- an officer or director of an investment advisor or
broker-dealer subsidiary in the Franklin Templeton
Group;
- a person that controls those entities; and
- any Franklin Resources' Proprietary Account
("Proprietary Account")(3)
(2) PORTFOLIO PERSONS: Portfolio Persons are a subset of Access
Persons and are those employees of the Franklin Templeton
Group, who, in connection with his or her regular functions or
duties, makes or participates in the decision to purchase or
sell a security by a Fund in the Franklin Templeton Group, or
any other client or if his or her functions relate to the
making of any recommendations about those purchases or sales.
Portfolio Persons include:
- ----------
(2) The term "employee or employees" includes management trainees, as well
as regular employees of the Franklin Templeton Group.
(3) See Appendix A. II., for definition of "Proprietary Accounts."
3
<PAGE> 141
- portfolio managers;
- research analysts;
- traders;
- employees serving in equivalent capacities (such as
Management Trainees);
- employees supervising the activities of Portfolio
Persons; and
- anyone else designated by the Director of Compliance
(3) NON-ACCESS PERSONS: If you are an employee in the Franklin
Templeton Group AND you do not fit into any of the above
categories, you are a Non-Access Person. Because you do not
normally receive confidential information about Fund
portfolios, you are subject only to the prohibited transaction
provisions described in 3.4 of this Code and the Franklin
Resources, Inc.'s Standards of Business Conduct contained in
the Employee Handbook.
Please contact the Legal Compliance Department if you are unsure as to
what category you fall in or whether you should be considered to be an Access
Person or Portfolio Person.
The Code works by prohibiting some transactions and requiring
pre-clearance and reporting of most others. NON-ACCESS PERSONS do not have to
pre-clear their security transactions, and, in most cases, do not have to report
their transactions. "INDEPENDENT DIRECTORS" need not report any securities
transaction unless you knew, or should have known that, during the 15-day period
before or after the transaction, the security was purchased or sold or
considered for purchase or sale by a Fund or Franklin Resources for a Fund. (See
Section 5.2.B below.) HOWEVER, PERSONAL INVESTING ACTIVITIES OF ALL EMPLOYEES
AND INDEPENDENT DIRECTORS ARE TO BE CONDUCTED IN COMPLIANCE WITH THE PROHIBITED
TRANSACTIONS PROVISIONS CONTAINED IN 3.4 BELOW. If you have any questions
regarding your personal securities activity, contact the Legal Compliance
Department.
3.2 WHAT ACCOUNTS AND TRANSACTIONS ARE COVERED?
The Code covers all of your personal securities accounts and
transactions, as well as transactions by any of Franklin Resource's Proprietary
Accounts. It also covers all securities and accounts in which you have
"beneficial ownership."(4) A transaction by or for the account of your spouse,
or any other
- ----------
(4) Generally, a person has "beneficial ownership" in a security if he or
she, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in the security. There is a presumption of
a pecuniary interest in a security held or acquired by a member of a
person's immediate family sharing the same household.
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<PAGE> 142
family member living in your home is considered to be the same as a transaction
by you. Also, a transaction for any account in which you have any economic
interest (other than the account of an unrelated client for which advisory fees
are received) and have or share investment control is generally considered the
same as a transaction by you. For example, if you invest in a corporation that
invests in securities and you have or share control over its investments, that
corporation's securities transactions are considered yours.
However, you are not deemed to have a pecuniary interest in any
securities held by a partnership, corporation, trust or similar entity unless
you control, or share control of such entity, or have, or share control over its
investments. For example, securities transactions of a trust or foundation in
which you do not have an economic interest (i.e., you are not the trustor or
beneficiary) but of which you are a trustee are not considered yours unless you
have voting or investment control of its assets. Accordingly, each time the
words "you" or "your" are used in this document, they apply not only to your
personal transactions and accounts, but also to all transactions and accounts in
which you have any direct or indirect beneficial interest. If it is not clear
whether a particular account or transaction is covered, ask a Preclearance
Officer for guidance.
- --------------------------------------------------------------------------------
interest in the security. There is a presumption of a pecuniary interest in a
security held or acquired by a member of a person's immediate family sharing
the same household.
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<PAGE> 143
3.3 WHAT SECURITIES ARE EXEMPT FROM THE CODE OF ETHICS?
You do not need to pre-clear or report transactions of the following
securities:
(1) securities that are direct obligations of the U. S. Government
(i.e., issued or guaranteed by the U.S. Government, such as
Treasury bills, notes and bonds, including U.S. Savings Bonds
and derivatives thereof);
(2) high quality short-term instruments, including but not limited
to bankers' acceptances, bank certificates of deposit,
commercial paper and repurchase agreements;
(3) shares of registered open-end investment companies ("mutual
funds"); and
(4) commodity futures, currencies, currency forwards and
derivatives thereof.
Such transactions are also exempt from: (i) the prohibited transaction
provisions contained in Part 3.4 such as front-running; (ii) the additional
compliance requirements applicable to portfolio persons contained in Part 4; and
(iii) the applicable reporting requirements contained in Part 5.
3.4 PROHIBITED TRANSACTIONS FOR ALL ACCESS PERSONS
A. "INTENT" IS IMPORTANT
Certain transactions described below have been determined by the courts
and the SEC to be prohibited by law. The Code reiterates that these types of
transactions are a violation of the Statement of Principals and are prohibited.
Preclearance, which is a cornerstone of our compliance efforts, cannot detect
transactions which are dependent upon intent, or which by their nature, occur
before any order has been placed for a fund or client. A Preclearance Officer,
who is there to assist you with compliance with the Code, cannot guarantee any
transaction or transactions comply with the Code or the law. The fact that your
transaction receives preclearance, shows evidence of good faith, but depending
upon all the facts, may not provide a full and complete defense to any
accusation of violation of the Code or of the law. For example, if you executed
a transaction for which you received approval, or if the transaction
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<PAGE> 144
was exempt from preclearance (e.g., a transaction for 100 shares or less), would
not preclude a subsequent finding that front-running or scalping occurred
because such activity are dependent upon your intent. Intent cannot be detected
during preclearance, but only after a review of all the facts.
In the final analysis, compliance remains the responsibility of each
individual effecting personal securities transactions.
B. FRONT-RUNNING: TRADING AHEAD OF A FUND OR CLIENT
You cannot front-run any trade of a Fund or client. The term
"front-run" means knowingly trading before a contemplated transaction by a Fund
or client of any Franklin Templeton adviser, whether or not your trade and the
Fund's or client's trade take place in the same market. Thus, you may not:
(1) purchase a security if you intend, or know of Franklin
Templeton Group's intention, to purchase that security or a
related security on behalf of a Fund or client, or
(2) sell a security if you intend, or know of Franklin Templeton
Group's intention, to sell that security or a related security
on behalf of a Fund or client.
C. SCALPING.
You cannot purchase a security (or its economic equivalent) with the
intention of recommending that the security be purchased for a Fund, or client,
or sell short a security (or its economic equivalent) with the intention of
recommending that the security be sold for a Fund or client. Scalping is
prohibited whether or not you realize a profit from such transaction.
D. TRADING PARALLEL TO A FUND OR CLIENT
You cannot buy a security if you know that the same or a related
security is being bought contemporaneously by a Fund or client, or sell a
security if you know that the same or a related security is being sold
contemporaneously by a Fund or client.
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<PAGE> 145
E. TRADING AGAINST A FUND OR CLIENT
You cannot:
(1) buy a security if you know that a Fund or client is selling
the same or a related security, or has sold the security,
until seven (7) calendar days after the Fund's or client's
order has either been executed or withdrawn, or
(2) sell a security if you know that a Fund or client is buying
the same or a related security, or has bought the security
until seven (7) calendar days after the Fund's or client's
order has either been executed or withdrawn.
Refer to Section I.A., "Pre-Clearance Standards," of Appendix A of the
Code for more details regarding the preclearance of personal securities
transactions.
F. USING PROPRIETARY INFORMATION FOR PERSONAL TRANSACTIONS
You cannot buy or sell a security based on Proprietary Information (5)
without disclosing the information and receiving written authorization. If you
wish to purchase or sell a security about which you obtained such information,
you must report all of the information you obtained regarding the security to
the Appropriate Analyst(s)(6), or to the Director of Compliance for
dissemination to the Appropriate Analyst(s).
- ----------
(5) Proprietary Information: Information that is obtained or developed
during the ordinary course of employment with the Franklin Templeton
Group, whether by you or someone else, and is not available to persons
outside the Franklin Templeton Group. Examples of such Proprietary
Information include, among other things, internal research reports,
research materials supplied to the Franklin Templeton Group by vendors
and broker-dealers not generally available to the public, minutes of
departmental/research meetings and conference calls, and communications
with company officers (including confidentiality agreements). Examples
of non-Proprietary Information include mass media publications (e.g.,
The Wall Street Journal, Forbes, and Fortune), certain specialized
publications available to the public (e.g., Morningstar, Value Line,
Standard and Poors), and research reports available to the general
public.
(6) The Director of Compliance is designated on Schedule A. The
"Appropriate Analyst" means any securities analyst or portfolio
manager, other than you, making recommendations or investing funds on
behalf of any associated client, who may be reasonably expected to
recommend or consider the purchase or sale of the security in question.
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<PAGE> 146
You will be permitted to purchase or sell such security if the
Appropriate Analyst(s) confirms to the Preclearance Desk that there is no
intention to engage in a transaction regarding the security within seven (7)
calendar days on behalf of an Associated Client(7) and you subsequently preclear
such security in accordance with Part 6 below.
G. CERTAIN TRANSACTIONS IN SECURITIES OF FRANKLIN RESOURCES,
INC., AND AFFILIATED CLOSED-END FUNDS, AND REAL ESTATE
INVESTMENT TRUSTS
If you are an employee of Franklin Resources, Inc. or any of its
affiliates, including the Franklin Templeton Group, you cannot effect a short
sale of the securities, including "short sales against the box" of Franklin
Resources, Inc., or any of the Franklin or Templeton closed-end funds, Franklin
real estate investment trusts or any other security issued by Franklin
Resources, Inc. or its affiliates. This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to
sales of any option to buy (i.e., a call option) or purchases of any option to
sell (i.e., a put option) and "swap" transactions or other derivatives. Officers
and directors of the Franklin Templeton Group who may be covered by Section 16
of the Securities Exchange Act of 1934, are reminded that their obligations
under that section are in addition to their obligations under this Code.
- ----------
(7) Associated Client: A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
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PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS(8)
4.1 REQUIREMENT TO DISCLOSE INTEREST AND METHOD OF DISCLOSURE
As a Portfolio Person, you must promptly disclose your direct or
indirect beneficial interest in a security whenever you learn that the security
is under consideration for purchase or sale by an Associated Client in the
Franklin Templeton Group and you;
(1) Have or share investment control of the Associated Client;
(2) Make any recommendation or participate in the determination of
which recommendation shall be made on behalf of the Associated Client;
or
(3) Have functions or duties that relate to the determination of
which recommendation shall be made to the Associated Client.
In such instances, you must initially disclose that beneficial interest
orally to the primary portfolio manager (or other Appropriate Analyst) of the
Associated Client(s) considering the security, the Director of Research and
Trading or the Director of Compliance. Following that oral disclosure, you must
send a written acknowledgment of that interest on Schedule E (or on a form
containing substantially similar information) to the primary portfolio manager
(or other Appropriate Analyst), with a copy to the Legal Compliance Department.
4.2 SHORT SALES OF SECURITIES
You cannot sell short any security held by your Associated Clients,
including "short sales against the box". Additionally, Portfolio Persons
associated with the Templeton Group of Funds and clients cannot sell short any
security on the Templeton "Bargain List". This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to,
sales of uncovered call
- ----------
(8) You are a "Portfolio Person" if you are an employee of the Franklin
Templeton Group, and, in connection with your regular functions or
duties, make or participate in the decision to purchase or sell a
security by a Fund in the Franklin Templeton Group, or any other client
or if your functions relate to the making of any recommendations about
those purchases or sales. Portfolio Persons include portfolio managers,
research analysts, traders, persons serving in equivalent capacities
(such as Management Trainees), persons supervising the activities of
Portfolio Persons, and anyone else so designated by the Compliance
Officer.
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options, purchases of put options while not owning the underlying security and
short sales of bonds that are convertible into equity positions.
4.3 SHORT SWING TRADING
Portfolio Persons cannot profit from the purchase and sale or sale and
purchase within sixty calendar days of any security, including derivatives.
Portfolio Persons are responsible for transactions that may occur in margin and
option accounts and all such transactions must comply with this restriction.(9)
This restriction does NOT apply to:
(1) trading within a shorter period if you do not realize a profit
and if you do not violate any other provisions of this Code;
and
(2) profiting on the purchase and sale or sale and purchase within
sixty calendar days of the following securities:
- securities that are direct obligations of
the U.S. Government, such as Treasury bills,
notes and bonds, and U.S. Savings Bonds and
derivatives thereof;
- high quality short-term instruments ("money
market instruments") including but not
limited to (i) bankers' acceptances, (ii)
U.S. bank certificates of deposit; (iii)
commercial paper; and (iv) repurchase
agreements;
- shares of registered open-end investment
companies; and
- commodity futures, currencies, currency
forwards and derivatives thereof.
Calculation of profits during the 60 calendar day holding period
generally will be based on "last-in, first-out" ("LIFO"). Portfolio Persons may
elect to calculate their 60 calendar day profits on either a LIFO or FIFO
("first-in, first-out") basis when there has not been any activity in such
security by their Associated Clients during the previous 60 calendar days.
- ----------
(9) This restriction applies equally to transactions occurring in margin
and option accounts which may not be due to direct actions by the
Portfolio Person. For example, a stock held less than 60 days that is
sold to meet a margin call or the underlying stock of a covered call
option held less than 60 days that is called away, would be a violation
of this restriction if these transactions resulted in a profit for the
Portfolio Person.
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4.4 SERVICE AS A DIRECTOR
As a Portfolio Person, you cannot serve as a director, trustee, or in a
similar capacity for any company (excluding not-for-profit companies, charitable
groups, and eleemosynary organizations) unless you receive approval from the
Chief Executive Officer of the principal investment adviser to the Fund(s) of
which you are a Portfolio Person and he/she determines that your service is
consistent with the interests of the Fund(s) and its shareholders.
4.5 SECURITIES SOLD IN A PUBLIC OFFERING
Portfolio Persons cannot buy securities in any initial public offering,
or a secondary offering by an issuer, including initial public offerings of
securities made by closed-end funds and real estate investment trusts
advised by the Franklin Templeton Group. Purchases of open-end mutual funds
are excluded from this prohibition.
4.6 INTERESTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS
Portfolio Persons cannot acquire limited partnership interests or other
securities in private placements unless they:
(1) complete the Private Placement Checklist (Schedule H);
(2) provide supporting documentation (e.g., a copy of the offering
memorandum); and
(3) obtain approval of the appropriate Chief Investment Officer;
and
(4) submit all documents to the Legal Compliance Department
Approval will only be granted after the Director of Compliance consults with an
executive officer of Franklin Resources, Inc.
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PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS
5.1 REPORTING OF BENEFICIAL OWNERSHIP AND SECURITIES TRANSACTIONS
Compliance with the following personal securities transaction reporting
procedures is essential to enable us to meet our responsibilities to Funds and
other clients and to comply with regulatory requirements. You are expected to
comply with both the letter and spirit of these requirements, including
completing and filing all reports required under the Code in a timely manner.
5.2 INITIAL HOLDINGS AND BROKERAGE ACCOUNT REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS)
Every employee (new or transfer) of the Franklin Templeton Group who
becomes an Access Person, must file:
(1) An Acknowledgement Form;
(2) Schedule C: Initial, Annual & Updated Disclosure of
Securities Holdings; and
(3) Schedule F: Initial, Annual & Updated Disclosure of
Securities Accounts
The Acknowledgement Form, Schedule C and Schedule F must be completed
and returned to the Legal Compliance Department within 10 calendar days
of the date the employee becomes an access person.
5.3 QUARTERLY TRANSACTION REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS)
You must report all securities transactions by; (i) providing the Legal
Compliance Department with copies of all broker's confirmations and statements
within 10 calendar days after the end of the calendar quarter (which may be sent
under separate cover by the broker) showing all transactions and holdings in
securities and (ii) certifying by January 30th of each year that you have
disclosed all such brokerage accounts on Schedule F to the Legal Compliance
Department. The brokerage statements and confirmations must include all
transactions in securities in which you have, or by reason of the
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transaction acquire any direct or indirect beneficial ownership, including
transactions in a discretionary account and transactions for any account in
which you have any economic interest and have or share investment control. Also,
if you acquire securities by any other method which is not being reported to the
Legal Compliance Department by a duplicate confirmation statement at or near the
time of the acquisition, you must report that acquisition to the Legal
Compliance Department on Schedule B within 10 calendar days after you are
notified of the acquisition. Such acquisitions include, among other things,
securities acquired by gift, inheritance, vesting,(10) stock splits, merger or
reorganization of the issuer of the security.
You must file these documents with the Legal Compliance Department not
later than 10 calendar days after the end of each quarter, but you need not show
or report transactions for any account over which you had no direct or indirect
influence or control.(11) Failure to timely report transactions is a violation
of Rule 17j-1 as well as the Code, and may be reported to the Fund's Board of
Directors and may also result, among other things, in denial of future personal
security transaction requests.
B. INDEPENDENT DIRECTORS
If you are a director of the Franklin Templeton Group but you are not
an "interested person" of the Fund, you are not required to file transaction
reports unless you knew or should have known that, during the 15-day period
before or after a transaction, the security was purchased or sold, or considered
for purchase or sale, by a Fund or by Franklin Resources on behalf of a Fund.
- ----------
(10) You are not required to separately report the vesting of shares or
options of Franklin Resources, Inc., received pursuant to a deferred
compensation plan as such information is already maintained.
(11) See Sections 3.2 and 4.6 of the Code. Also, confirmations and
statements of transactions in open-end mutual funds, including mutual
funds sponsored by the Franklin Templeton Group are not required. See
Section 3.3 above for a list of other securities that need not be
reported. If you have any beneficial ownership in a discretionary
account, transactions in that account are treated as yours and must be
reported by the manager of that account (see Section 6.1.C below).
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5.4 ANNUAL REPORTS - ALL ACCESS PERSONS
A. SECURITIES ACCOUNTS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
As an access person, you must file a report of all personal securities
accounts on Schedule F, with the Legal Compliance Department, annually by
January 30th. You must report the name and description of each securities
account in which you have a direct or indirect beneficial interest, including
securities accounts of a spouse and minor children. You must also report any
account in which you have any economic interest and have or share investment
control (e.g., trusts, foundations, etc.) other than an account for a Fund in,
or a client of, the Franklin Templeton Group.
B. SECURITIES HOLDINGS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
You must file a report of personal securities holdings on Schedule C,
with the Legal Compliance Department, by January 30th of each year. This report
should include all of your securities holdings, including any security acquired
by a transaction, gift, inheritance, vesting, merger or reorganization of the
issuer of the security, in which you have any direct or indirect beneficial
ownership, including securities holdings in a discretionary account and for any
account in which you have any economic interest and have or share investment
control. Your securities holding information must be current as of a date no
more than 30 days before the report is submitted. You may attach copies of
year-end brokerage statements to the Schedule C in lieu of listing each security
position on the schedule.
C. CERTIFICATION OF COMPLIANCE WITH THE CODE OF ETHICS (INCLUDING
INDEPENDENT DIRECTORS)
All access persons, including independent directors, will be asked to
certify that they will comply with the Franklin Templeton Group's Code of Ethics
and Policy Statement on Insider Trading by filing the Acknowledgment Form with
the Legal Compliance Department within 10 business days of receipt of the Code.
Thereafter, you will be asked to certify that you have complied with the Code
during the preceding year by filing a similar Acknowledgment Form by January 30
of each year.
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5.5 BROKERAGE ACCOUNTS AND CONFIRMATIONS OF SECURITIES TRANSACTIONS (EXCEPT
INDEPENDENT DIRECTORS)
If you are an access person , in the Franklin Templeton Group, before
or at a time contemporaneous with opening a brokerage account with a registered
broker-dealer, or a bank, or placing an initial order for the purchase or sale
of securities with that broker-dealer or bank, you must:
(1) notify the Legal Compliance Department, in writing, by
completing Schedule D or by providing substantially similar
information; and
(2) notify the institution with which the account is opened, in
writing, of your association with the Franklin Templeton
Group.
The Compliance Department will request the institution in writing to
send to it duplicate copies of confirmations and statements for all transactions
effected in the account simultaneously with their mailing to you.
If you have an existing account on the effective date of this Code or
upon becoming an access person, you must comply within 10 days with conditions
(1) and (2) above.
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PART 6 - PRE-CLEARANCE REQUIREMENTS
6.1 PRIOR APPROVAL OF SECURITIES TRANSACTIONS
A. LENGTH OF APPROVAL
Unless you are covered by Paragraph D below, you cannot buy or sell any
security, without first contacting a Preclearance Officer by fax, phone, or
e-mail and obtaining his or her approval. A clearance is good until the close of
the business day following the day clearance is granted but may be extended in
special circumstances, shortened or rescinded, as explained in Appendix A.
B. SECURITIES NOT REQUIRING PRECLEARANCE
The securities enumerated below do not require preclearance under the
Code. However, all other provisions of the Code apply, including, but not
limited to: (i) the prohibited transaction provisions contained in Part 3.4 such
as front-running; (ii) the additional compliance requirements applicable to
portfolio persons contained in Part 4, (iii) the applicable reporting
requirements contained in Part 5; and (iv) insider trading prohibitions.
You need NOT pre-clear transactions in the following securities:
(1) MUTUAL FUNDS. Transactions in shares of any registered
open-end mutual fund;
(2) FRANKLIN RESOURCES, INC., AND ITS AFFILIATES. Purchases and
sales of securities of Franklin Resources, Inc., closed-end
funds of the Franklin Templeton Group, or real estate
investment trusts advised by Franklin Properties Inc., as
these securities cannot be purchased on behalf of our advisory
clients.(12)
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(12) Officers, directors and certain other key management personnel who
perform significant policy-making functions of Franklin Resources,
Inc., the closed-end funds, and/or real estate investment trusts may
have ownership reporting requirements in addition to these reporting
requirements. Contact the Legal Compliance Department for additional
information. See also the "Insider Trading Policy" attached.
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(3) SMALL QUANTITIES. Transactions that do not result in purchases
or sales of more than 100 shares of any one security,
regardless of where it is traded, in any 30 day period.
HOWEVER, YOU MAY NOT EXECUTE ANY TRANSACTION, REGARDLESS OF
QUANTITY, IF YOU LEARN THAT THE FUNDS ARE ACTIVE IN THE
SECURITY. IT WILL BE PRESUMED THAT YOU HAVE KNOWLEDGE OF FUND
ACTIVITY IN THE SECURITY IF, AMONG OTHER THINGS, YOU ARE
DENIED APPROVAL TO GO FORWARD WITH A TRANSACTION REQUEST.
Transactions made pursuant to dividend reinvestment plans
("DRIPs") do not require preclearance regardless of quantity
or Fund activity.
(4) GOVERNMENT OBLIGATIONS. Transactions in securities issued or
guaranteed by the governments of the United States, Canada,
the United Kingdom, France, Germany, Switzerland, Italy and
Japan, or their agencies or instrumentalities, or derivatives
thereof;
(5) PAYROLL DEDUCTION PLANS. Securities purchased by an employee's
spouse pursuant to a payroll deduction program, provided the
Compliance Department has been previously notified in writing
by the access person that the spouse will be participating in
the payroll deduction program.
(6) EMPLOYER STOCK OPTION PROGRAMS. Transactions involving the
exercise and/or purchase by an access person or an access
person's spouse of securities pursuant to a program sponsored
by a corporation employing the access person or spouse.
(7) PRO RATA DISTRIBUTIONS. Purchases effected by the exercise of
rights issued pro rata to all holders of a class of securities
or the sale of rights so received.
(8) TENDER OFFERS. Transactions in securities pursuant to a bona
fide tender offer made for any and all such securities to all
similarly situated shareholders in conjunction with mergers,
acquisitions, reorganizations and/or similar corporate
actions. However, tenders pursuant to offers for less than all
outstanding securities of a class of securities of an issuer
must be precleared.
(9) NOT ELIGIBLE FOR FUNDS AND CLIENTS. Transactions in any
securities that are prohibited investments for all Funds and
clients advised by the entity employing the access person.
(10) NO INVESTMENT CONTROL. Transactions effected for an account or
entity over which you do not have or share investment control
(i.e., an account where someone else exercises complete
investment control).
(11) NO BENEFICIAL OWNERSHIP. Transactions in which you do not
acquire or dispose of direct or indirect beneficial ownership
(i.e., an account where in you have no financial interest).
Although an access person's securities transaction may be exempt from
pre-clearing, such transactions must comply with the prohibited transaction
provisions of Section 3.4 above. Additionally, you may not trade any securities
as to which you have "inside information" (see attached The Franklin Templeton
Group Policy Statement on Insider Trading). If you have any questions, contact a
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Preclearance Officer before engaging in the transaction. If you have any doubt
whether you have or might acquire direct or indirect beneficial ownership or
have or share investment control over an account or entity in a particular
transaction, or whether a transaction involves a security covered by the Code,
you should consult with a Preclearance Officer before engaging in the
transaction.
C. DISCRETIONARY ACCOUNTS
You need not pre-clear transactions in any discretionary account for
which a registered broker-dealer, a registered investment adviser, or other
investment manager acting in a similar fiduciary capacity, which is not
affiliated with the Franklin Templeton Group, exercises sole investment
discretion, if the following conditions are met:(13)
(1) The terms of each account relationship ("Agreement") must be
in writing and filed with a Preclearance Officer prior to any
transactions.
(2) Any amendment to each Agreement must be filed with a
Preclearance Officer prior to its effective date.
(3) The Portfolio Person certifies to the Compliance Department at
the time such account relationship commences, and annually
thereafter, as contained in Schedule G of the Code that such
Portfolio Person does not have direct or indirect influence or
control over the account, other than the right to terminate
the account.
(4) Additionally, any discretionary account that you open or
maintain with a registered broker-dealer, a registered
investment adviser, or other investment manager acting in a
similar fiduciary capacity must provide duplicate copies of
confirmations and statements for all transactions effected in
the account simultaneously with their delivery to you., If
your discretionary account acquires securities which are not
reported to a Preclearance Officer by a duplicate
confirmation, such transaction must be reported to a
Preclearance Officer on Schedule B within 10 days after you
are notified of the acquisition.14
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(13) Please note that these conditions apply to any discretionary account in
existence prior to the effective date of this Code or prior to your
becoming an access person. Also, the conditions apply to transactions
in any discretionary account, including pre-existing accounts, in which
you have any direct or indirect beneficial ownership, even if it is not
in your name.
(14) Any pre-existing agreement must be promptly amended to comply with this
condition. The required reports may be made in the form of an account
statement if they are filed by the applicable deadline.
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However, if you make any request that the discretionary account manager
enter into or refrain from a specific transaction or class of transactions, you
must first consult with a Preclearance Officer and obtain approval prior to
making such request.
D. DIRECTORS WHO ARE NOT ADVISORY PERSONS OR ADVISORY
REPRESENTATIVES
You need not pre-clear any securities if:
(1) You are a director of a Fund in the Franklin Templeton Group
and a director of the fund's advisor;
(2) You are not an "advisory person"(15) of a Fund in the Franklin
Templeton Group; and
(3) You are not an employee of any Fund,
or
(1) You are a director of a Fund in the Franklin Templeton Group;
(2) You are not an "advisory representative"(16) of Franklin
Resources or any subsidiary; and
(3) You are not an employee of any Fund,
unless you know or should know that, during the 15-day period before the
transaction, the security was purchased or sold, or considered for purchase or
sale, by a Fund or by Franklin Resources on behalf of a Fund or other client.
- ----------
(15) An "advisory person" of a registered investment company or an
investment adviser is any employee, who in connection with his or her
regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security by an advisory
client , or whose functions relate to the making of any recommendations
with respect to such purchases or sales. Advisory person also includes
any natural person in a control relationship to such company or
investment adviser who obtains information concerning recommendations
made to such company with regard to the purchase or sale of a security.
(16) Generally, an "advisory representative" is any person who makes any
recommendation, who participates in the determination of which
recommendation shall be made, or whose functions or duties relate to
the determination of which recommendation shall be made, or who, in
connection with his duties, obtains any information concerning which
securities are being recommended prior to the effective dissemination
of such recommendations or of the information concerning such
recommendations. See Section II of Appendix A for the legal definition
of "Advisory Representative."
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Directors qualifying under this paragraph are required to comply with
all applicable provisions of the Code including reporting their initial holdings
and brokerage accounts in accordance with 5.2, personal securities transactions
and accounts in accordance with 5.3 and 5.5, and annual reports in accordance
with 5.4 of the Code.
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PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE
The Code is designed to assure compliance with applicable law and to
maintain shareholder confidence in the Franklin Templeton Group.
In adopting this Code, it is the intention of the Boards of
Directors/Trustees, to attempt to achieve 100% compliance with all requirements
of the Code - but it is recognized that this may not be possible. Incidental
failures to comply with the Code are not necessarily a violation of the law or
the Franklin Templeton Group's Statement of Principles. Such isolated or
inadvertent violations of the Code not resulting in a violation of law or the
Statement of Principles will be referred to the Director of Compliance and/or
management personnel, and disciplinary action commensurate with the violation,
if warranted, will be imposed.
However, if you violate any of the enumerated prohibited transactions
contained in Parts 3 and 4 of the Code, you will be expected to give up any
profits realized from these transactions to Franklin Resources for the benefit
of the affected Funds or other clients. If Franklin Resources cannot determine
which Fund(s) or client(s) were affected, the proceeds will be donated to a
charity chosen by Franklin Resources. Failure to disgorge profits when requested
may result in additional disciplinary action, including termination of
employment.
Further, a pattern of violations that individually do not violate the
law or Statement of Principles, but which taken together demonstrate a lack of
respect for the Code of Ethics, may result in disciplinary action including
termination of employment. A violation of the Code resulting in a violation of
the law will be severely sanctioned, with disciplinary action including, but not
limited to, referral of the matter to the board of directors of the affected
Fund, termination of employment or referral of the matter to the appropriate
regulatory agency for civil and/or criminal investigation.
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PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY
The Code of Ethics is primarily concerned with transactions in
securities held or to be acquired by any of the Funds or Franklin Resources'
clients, regardless of whether those transactions are based on inside
information or actually harm a Fund or a client.
The Insider Trading Policy (attached to this document) deals with the
problem of insider trading in securities that could result in harm to a Fund, a
client, or members of the public, and applies to all directors, officers and
employees of any entity in the Franklin Templeton Group. Although the
requirements of the Code and the Insider Trading Policy are similar, you must
comply with both.
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APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS
This appendix sets forth the additional responsibilities and
obligations of Compliance Officers, and the Legal/Administration and
Legal/Compliance Departments, under the Franklin Templeton Group Code of Ethics
and Policy Statement on Insider Trading.
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I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER
A. PRE-CLEARANCE STANDARDS
1. GENERAL PRINCIPLES
The Director of Compliance, or a Preclearance Officer, shall only
permit an access person to go forward with a proposed security(17) transaction
if he or she determines that, considering all of the facts and circumstances,
the transaction does not violate the provisions of Rule 17j-1, or of this Code
and there is no likelihood of harm to a client.
2. ASSOCIATED CLIENTS
Unless there are special circumstances that make it appropriate to
disapprove a personal securities transaction request, a Preclearance Officer
shall consider only those securities transactions of the "Associated Clients" of
the access person, including open and executed orders and recommendations, in
determining whether to approve such a request. "Associated Clients" are those
Funds or clients whose trading information would be available to the access
person during the course of his or her regular functions or duties. Currently,
there are three groups of Associated Clients: (i) the Franklin Mutual Series
Funds and clients advised by Franklin Mutual Advisers, LLC ("Mutual Clients");
(ii) the Franklin Group of Funds and the clients advised by the various Franklin
investment advisers ("Franklin Clients"); and (iii) the Templeton Group of Funds
and the clients advised by the various Templeton investment advisers ("Templeton
Clients"). Thus, persons who have access to the trading information of Mutual
Clients generally will be precleared solely against the securities transactions
of the Mutual Clients, including open and executed orders and recommendations.
Similarly, persons who have access to the trading information of Franklin
Clients or Templeton Clients generally will be precleared solely against the
securities transactions of Franklin Clients or Templeton Clients, as
appropriate.
- ----------
(17) Security includes any option to purchase or sell, and any security that
is exchangeable for or convertible into, any security that is held or
to be acquired by a fund.
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Certain officers of Franklin Resources, as well as legal, compliance,
fund accounting, investment operations and other personnel who generally have
access to trading information of the funds and clients of the Franklin Templeton
Group during the course of their regular functions and duties, will have their
personal securities transactions precleared against executed transactions, open
orders and recommendations of the entire Franklin Templeton Group.
3. SPECIFIC STANDARDS
(a) Securities Transactions by Funds or clients
No clearance shall be given for any transaction in any security on any
day during which an Associated Client of the access person has executed a buy or
sell order in that security, until seven (7) calendar days after the order has
been executed. Notwithstanding a transaction in the previous seven days,
clearance may be granted to sell if the security has been disposed of by all
Associated Clients.
(b) Securities under Consideration
Open Orders
No clearance shall be given for any transaction in any security on any
day which an Associated Client of the access person has a pending buy or sell
order for such security, until seven (7) calendar days after the order has been
executed.
Recommendations
No clearance shall be given for any transaction in any security on any
day on which a recommendation for such security was made by a Portfolio Person,
until seven (7) calendar days after the recommendation was made and no orders
have subsequently been executed or are pending.
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(c) Private Placements
In considering requests by Portfolio Personnel for approval of limited
partnerships and other private placement securities transactions, the Director
of Compliance shall consult with an executive officer of Franklin Resources,
Inc. In deciding whether to approve the transaction, the Director of Compliance
and the executive officer shall take into account, among other factors, whether
the investment opportunity should be reserved for a Fund or other client, and
whether the investment opportunity is being offered to the Portfolio Person by
virtue of his or her position with the Franklin Templeton Group. If the
Portfolio Person receives clearance for the transaction, an investment in the
same issuer may only be made for a Fund or client if an executive officer of
Franklin Resources, Inc., who has been informed of the Portfolio Person's
pre-existing investment and who has no interest in the issuer, approves the
transaction.
(d) Duration of Clearance
If a Preclearance Officer approves a proposed securities transaction,
the order for the transaction must be placed and effected by the close of the
next business day following the day approval was granted. The Director of
Compliance may, in his or her discretion, extend the clearance period up to
seven calendar days, beginning on the date of the approval, for a securities
transaction of any access person who demonstrates that special circumstances
make the extended clearance period necessary and appropriate.(18) The Director
of Compliance may, in his or her discretion, after consultation with a member of
senior management for Franklin Resources, Inc., renew the approval for a
particular transaction for up to an additional seven calendar days upon a
similar showing of special circumstances by the access
- ----------
(18) Special circumstances include but are not limited to, for example,
differences in time zones, delays due to travel, and the unusual size
of proposed trades or limit orders. Limit orders must expire within the
applicable clearance period.
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person. The Director of Compliance may shorten or rescind any approval or
renewal of approval under this paragraph if he or she determines it is
appropriate to do so.
B. WAIVERS BY THE DIRECTOR OF COMPLIANCE
The Director of Compliance may, in his or her discretion, after
consultation with an executive officer of Franklin Resources, Inc., waive
compliance by any access person with the provisions of the Code, if he or she
finds that such a waiver:
(1) is necessary to alleviate undue hardship or in view of
unforeseen circumstances or is otherwise appropriate under all
the relevant facts and circumstances;
(2) will not be inconsistent with the purposes and objectives of
the Code;
(3) will not adversely affect the interests of advisory clients of
the Franklin Templeton Group, the interests of the Franklin
Templeton Group or its affiliates; and
(4) will not result in a transaction or conduct that would violate
provisions of applicable laws or regulations.
Any waiver shall be in writing, shall contain a statement of the basis
for it, and a copy shall be promptly sent by the Director of Compliance to the
General Counsel of Franklin Resources, Inc.
C. CONTINUING RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
A Preclearance Officer shall make a record of all requests for
pre-clearance regarding the purchase or sale of a security, including the date
of the request, the name of the access person, the details of the proposed
transaction, and whether the request was approved or denied. A Preclearance
Officer shall keep a record of any waivers given, including the reasons for each
exception and a description of any potentially conflicting Fund or client
transactions.
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A Preclearance Officer shall also collect the signed initial
acknowledgments of receipt and the annual acknowledgments from each access
person of receipt of a copy of the Code and Insider Trading Policy, as well as
reports, as applicable, on Schedules B, C, D, E and F of the Code. In addition,
a Preclearance Officer shall request copies of all confirmations, and other
information with respect to an account opened and maintained with the
broker-dealer by any access person of the Franklin Templeton Group. A
Preclearance Officer shall preserve those acknowledgments and reports, the
records of consultations and waivers, and the confirmations, and other
information for the period required by applicable regulation.
A Preclearance Officer shall review brokerage transaction
confirmations, account statements, Schedules B, C, D, E, F and Private Placement
Checklists of Access Persons for compliance with the Code. The reviews shall
include, but are not limited to;
(1) Comparison of brokerage confirmations, Schedule Bs, and/or
brokerage statements to preclearance request worksheets or, if
a private placement, the Private Placement Checklist;
(2) Comparison of brokerage statements and/or Schedule Fs to
current securities holding information;
(3) Comparison of Schedule C to current securities account
information;
(4) Conducting periodic "back-testing" of access person
transactions, Schedule Es and/or Schedule Gs in comparison to
fund and client transactions;
A Preclearance Officer shall evidence review by initialing and dating
the appropriate document. Any apparent violations of the Code detected by a
Preclearance Officer during his or her review shall be promptly brought to the
attention of the Director of Compliance.
D. PERIODIC RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
The Legal Compliance Department shall consult with the General Counsel
and the Human Resources Department, as the case may be, to assure that:
(1) Adequate reviews and audits are conducted to monitor
compliance with the reporting, pre-clearance, prohibited
transaction and other requirements of the Code.
(2) Adequate reviews and audits are conducted to monitor
compliance with the reporting, pre-clearance, prohibited
transaction and other requirements of the Code.
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(3) All access persons and new employees of the Franklin Templeton
Group are adequately informed and receive appropriate
education and training as to their duties and obligations
under the Code.
(4) There are adequate educational, informational and monitoring
efforts to ensure that reasonable steps are taken to prevent
and detect unlawful insider trading by access persons and to
control access to inside information.
(5) Written compliance reports are submitted to the Board of
Directors of Franklin Resources, Inc., and the Board of each
relevant Fund at least annually. Such reports will describe
any issues arising under the Code or procedures since the last
report, including, but not limited to, information about
material violations of the Code or procedures and sanctions
imposed in response to the material violations.
(6) The Legal Compliance Department will certify at least annually
to the Fund's board of directors that the Franklin Templeton
Group has adopted procedures reasonably necessary to prevent
Access Persons from violating the Code, and
(7) Appropriate records are kept for the periods required by law.
E. APPROVAL BY FUND'S BOARD OF DIRECTORS
(1) Basis for Approval
The Board of Directors/Trustees must base its approval of the
Code on a determination that the Code contains provisions reasonably
necessary to prevent access persons from engaging in any conduct
prohibited by rule 17j-1.
(2) New Funds
At the time a new fund is organized, the Legal Compliance Department
will provide the Fund's board of directors, a certification that the investment
adviser and principal underwriter have adopted procedures reasonably necessary
to prevent Access Persons from violating the Code. Such certification will state
that the Code contains provisions reasonably necessary to prevent Access Persons
from violating the Code.
(3) Material Changes to the Code of Ethics
The Legal Compliance Department will provide the Fund's board of
directors a written description of all material changes to the Code no later
than six months after adoption of the material change by the Franklin Templeton
Group.
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II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS
For purposes of the Code of Ethics and Insider Trading Policy, the
terms below have the following meanings:
1934 ACT - The Securities Exchange Act of 1934, as amended.
1940 ACT - The Investment Company Act of 1940, as amended.
ACCESS PERSON - Each director, trustee, general partner or officer, and any
other person that directly or indirectly controls (within the meaning
of Section 2(a)(9) of the 1940 Act) the Franklin Templeton Group or a
person, including an Advisory Representative, who has access to
information concerning recommendations made to a Fund or client with
regard to the purchase or sale of a security.
ADVISORY REPRESENTATIVE - Any officer or director of Franklin Resources; any
employee who makes any recommendation, who participates in the
determination of which recommendation shall be made, or whose functions
or duties relate to the determination of which recommendation shall be
made; any employee who, in connection with his or her duties, obtains
any information concerning which securities are being recommended prior
to the effective dissemination of such recommendations or of the
information concerning such recommendations; and any of the following
persons who obtain information concerning securities recommendations
being made by Franklin Resources prior to the effective dissemination
of such recommendations or of the information concerning such
recommendations: (i) any person in a control relationship to Franklin
Resources, (ii) any affiliated person of such controlling person, and
(iii) any affiliated person of such affiliated person.
AFFILIATED PERSON - same meaning as Section 2(a)(3) of the Investment Company
Act of 1940. An "affiliated person" of an investment company includes
directors, officers, employees, and the investment adviser. In
addition, it includes any person owning 5% of the company's voting
securities, any person in which the investment company owns 5% or more
of the voting securities, and any person directly or indirectly
controlling, controlled by, or under common control with the company.
APPROPRIATE ANALYST - With respect to any access person, any securities analyst
or portfolio manager making investment recommendations or investing
funds on behalf of an Associated Client and who may be reasonably
expected to recommend or consider the purchase or sale of a security.
ASSOCIATED CLIENT - A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
BENEFICIAL OWNERSHIP - Has the same meaning as in Rule 16a-1(a)(2) under the
1934 Act. Generally, a person has a beneficial ownership in a security
if he or she, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise, has or shares a
direct or indirect pecuniary interest in the security. There is a
presumption of a pecuniary interest in a security held or acquired by a
member of a person's immediate family sharing the same household.
FUNDS - Investment companies in the Franklin Templeton Group of Funds.
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HELD OR TO BE ACQUIRED - A security is "held or to be acquired" if within the
most recent 15 days it (i) is or has been held by a Fund, or (ii) is
being or has been considered by a Fund or its investment adviser for
purchase by the Fund.
PORTFOLIO PERSON - Any employee of the Franklin Templeton Group, who, in
connection with his or her regular functions or duties, makes or
participates in the decision to purchase or sell a security by a Fund
in the Franklin Templeton Group, or any other client or if his or her
functions relate to the making of any recommendations about those
purchases or sales. Portfolio Persons include portfolio managers,
research analysts, traders, persons serving in equivalent capacities
(such as Management Trainees), persons supervising the activities of
Portfolio Persons, and anyone else designated by the Director of
Compliance
PROPRIETARY ACCOUNTS - Any corporate account or other account including, but not
limited to, a limited partnership, a corporate hedge fund, a limited
liability company or any other pooled investment vehicle in which
Franklin Resources or its affiliates, owns 5 percent or more of the
outstanding capital or is entitled to 25% or more of the profits or
losses in the account (excluding any asset based investment management
fees based on average periodic net assets in accounts).
SECURITY - Any stock, note, bond, evidence of indebtedness, participation or
interest in any profit-sharing plan or limited or general partnership,
investment contract, certificate of deposit for a security, fractional
undivided interest in oil or gas or other mineral rights, any put,
call, straddle, option, or privilege on any security (including a
certificate of deposit), guarantee of, or warrant or right to subscribe
for or purchase any of the foregoing, and in general any interest or
instrument commonly known as a security, except commodity futures,
currency and currency forwards. For the purpose of this Code,
"security" does not include:
(1) Direct obligations of the Government of the United States;
(2) Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements; and
(3) Shares issued by open-end funds.
See Section III of Appendix A for a summary of different requirements for
different types of securities.
III. SECURITIES EXEMPT FROM THE PROHIBITED , REPORTING, AND PRE-CLEARANCE
PROVISIONS
A. PROHIBITED TRANSACTIONS
Securities that are EXEMPT from the prohibited transaction provisions
of Section 3.4 include:
(1) securities that are direct obligations of the U.S. Government,
such as Treasury bills, notes and bonds, and U.S. Savings
Bonds and derivatives thereof;
(2) high quality short-term instruments ("money market
instruments") including but not limited to (i) bankers'
acceptances, (ii) U.S. bank certificates of deposit; (iii)
commercial paper; and (iv) repurchase agreements;
(3) shares of registered open-end investment companies;
32
<PAGE> 170
(4) commodity futures, currencies, currency forwards and
derivatives thereof;
(5) securities that are prohibited investments for all Funds and
clients advised by the entity employing the access person; and
(6) transactions in securities issued or guaranteed by the
governments or their agencies or instrumentalities of Canada,
the United Kingdom, France, Germany, Switzerland, Italy and
Japan and derivatives thereof.
B. REPORTING AND PRECLEARANCE
Securities that are EXEMPT from both the reporting requirements of
Section 5 and preclearance requirements of Section 6 of the Code
include:
(1) securities that are direct obligations of the U.S. Government,
such as Treasury bills, notes and bonds, and U.S. Savings
Bonds and derivatives thereof;
(2) high quality short-term instruments ("money market
instruments") including but not limited to (i) bankers'
acceptances, (ii) U.S. bank certificates of deposit; (iii)
commercial paper; and (iv) repurchase agreements;
(3) shares of registered open-end investment companies; and
(4) commodity futures, currencies, currency forwards and
derivatives thereof.
IV. LEGAL REQUIREMENT
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act") makes
it unlawful for any affiliated person of the Franklin Templeton Group in
connection with the purchase or sale of a security, including any option to
purchase or sell, and any security convertible into or exchangeable for, any
security that is "held or to be acquired" by a Fund in the Franklin Templeton
Group:
A. To employ any device, scheme or artifice to defraud a Fund;
B. To make to a Fund any untrue statement of a material fact or omit to
state to a Fund a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
C. To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon a Fund; or
D. To engage in any manipulative practice with respect to a Fund.
A security is "held or to be acquired" if within the most recent 15
days it (i) is or has been held by a Fund, or (ii) is being or has been
considered by a Fund or its investment adviser for purchase by the Fund.
33
<PAGE> 171
APPENDIX B: FORMS AND SCHEDULES
34
<PAGE> 172
ACKNOWLEDGMENT FORM
CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING
To: DIRECTOR OF COMPLIANCE, LEGAL COMPLIANCE DEPARTMENT
I hereby acknowledge receipt of a copy of the Franklin Templeton Group's CODE OF
ETHICS AND POLICY STATEMENT ON INSIDER TRADING, AMENDED AND RESTATED, FEBRUARY
2000, which I have read and understand. I will comply fully with all provisions
of the Code and the Insider Trading Policy to the extent they apply to me during
the period of my employment. Additionally, I authorize any broker-dealer, bank
or investment adviser with whom I have securities accounts and accounts in which
I have beneficial ownership, to provide brokerage confirmations and statements
as required for compliance with the Code. I further understand and acknowledge
that any violation of the Code or Insider Trading Policy, including engaging in
a prohibited transaction or failure to file reports as required (see Schedules
B, C, D, E, F and G), may subject me to disciplinary action, including
termination of employment.
- --------------------------------------------------------------------------------
SIGNATURE:
- --------------------------------------------------------------------------------
PRINT NAME:
- --------------------------------------------------------------------------------
TITLE:
- --------------------------------------------------------------------------------
DEPARTMENT:
- --------------------------------------------------------------------------------
LOCATION:
- --------------------------------------------------------------------------------
DATE ACKNOWLEDGMENT WAS SIGNED:
- --------------------------------------------------------------------------------
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS - FLOOR 2
35
<PAGE> 173
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE & FAX
NUMBERS(19)
LEGAL OFFICER
MURRAY SIMPSON
EXECUTIVE VICE PRESIDENT & GENERAL COUNSEL
FRANKLIN RESOURCES, INC.
901 MARINERS ISLAND BLVD.
7TH FLOOR
SAN MATEO, CA 94404
(650) 525 -7331
COMPLIANCE OFFICERS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Director of Compliance PRECLEARANCE OFFICERS
<S> <C>
James M. Davis Stephanie Harwood
Franklin Resources, Inc. Wally Enrico
2000 Alameda de las Pulgas, Suite 200F Legal Compliance Department
San Mateo, CA 94403 2000 Alameda de las Pulgas, Suite 200E
(650) 312-2832 San Mateo, CA 94403
(650) 312-3693 (telephone)
(650) 312-5646 (facsimile)
Preclear, Legal (internal e-mail address)
[email protected] (external e-mail address)
- -------------------------------------------------------------------------------------
</TABLE>
- ----------
(19) As of February 2000
36
<PAGE> 174
SCHEDULE B: SECURITIES TRANSACTION REPORT
This report of personal securities transactions NOT reported by duplicate
confirmations and brokerage statements pursuant to Section 5.3 of the Code is
required pursuant to Rule 204-2(a) of the Investment Advisers Act of 1940 or
Rule 17j-1(c) of the Investment Company Act of 1940. The report must be
completed and submitted to the Compliance Department no later than 10 calendar
days after the end of the calendar quarter. Refer to Section 5.3 of the Code of
Ethics for further instructions.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
TRADE BUY, SELL SECURITY DESCRIPTION, INCLUDING TYPE OF QUANTITY OR PRICE BROKER - DEALER DATE PRECLEARANCE
DATE OR OTHER INTEREST RATE AND MATURITY SECURITY PRINCIPAL OR BANK OBTAINED FROM
(IF APPROPRIATE) (STOCK, BOND, AMOUNT COMPLIANCE DEPT.
OPTION, ETC)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The report or recording of any transaction above shall not be construed as an
admission that I have any direct or indirect ownership in the securities.
<TABLE>
<S> <C> <C> <C>
- -------------------- -------------------- --------------- ---------------
(PRINT NAME) (SIGNATURE) (DATE) (QUARTER ENDING)
</TABLE>
RETURN TO: LEGAL COMPLIANCE DEPARTMENT,
2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
37
<PAGE> 175
SCHEDULE C: INITIAL, ANNUAL & UPDATED DISCLOSURE OF ACCESS PERSONS SECURITIES
HOLDINGS
This report shall set forth the security name or description and security class
of each security holding in which you have a direct or indirect beneficial
interest, including holdings by a spouse, minor children, trusts, foundations,
and any account for which trading authority has been delegated to you, other
than authority to trade for a Fund in or a client of the Franklin Templeton
Group.. In lieu of listing each security position below, you may instead attach
copies of brokerage statements, sign below and return Schedule C and brokerage
statements to the Legal Compliance Department within 10 days if an initial
report or by January 30th of each year if an annual report. Refer to Sections
5.2.A and 5.4.A of the Code for additional filing instructions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
SECURITY DESCRIPTION, TYPE OF
INCLUDING INTEREST RATE SECURITY QUANTITY OR
AND MATURITY (IF (STOCK, BOND, PRINCIPAL NAME OF BROKER -
APPROPRIATE) OPTION, ETC.) AMOUNT DEALER OR BANK ACCOUNT NUMBER
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
[ ] I DID NOT HAVE ANY PERSONAL SECURITIES HOLDINGS FOR YEAR ENDED ____________
[ ] I HAVE ATTACHED STATEMENTS CONTAINING ALL MY PERSONAL SECURITIES HOLDINGS
FOR THE YEAR ENDED ______
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL
INTEREST, INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS,
FOUNDATIONS, AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED
AN UNAFFILIATED PARTY.
<TABLE>
<S> <C> <C> <C>
- -------------------- -------------------- --------------- ---------------
PRINT NAME SIGNATURE DATE YEAR ENDED
</TABLE>
* Securities that are EXEMPT from being reported on Schedule C include: (i)
securities that are direct obligations of the U.S. Government, such as
Treasury bills, notes and bonds, and U.S. Savings Bonds and derivatives
thereof; (ii) high quality short-term instruments ("money market
instruments") including but not limited to bankers' acceptances, U.S. bank
certificates of deposit; commercial paper; and repurchase agreements; (iii)
shares of registered open-end investment companies; and (iv) commodity
futures, currencies, currency forwards and derivatives thereof.
38
<PAGE> 176
SCHEDULE D: NOTIFICATION OF SECURITIES ACCOUNT OPENING
DATE: _____________________________
TO: Preclearance Desk
Legal Compliance Department
2000 Alameda de las Pulgas, Suite 200E
San Mateo, CA 94403
(650) 312-3693
FAX: (650) 312-5646
FROM: NAME: _______________________________________
DEPARTMENT: _________________________________
LOCATION: ___________________________________
EXTENSION: __________________________________
ARE YOU A REG. REPRESENTATIVE? YES [ ] NO [ ]
ARE YOU AN ACCESS PERSON? YES [ ] NO [ ]
This is to advise you that I will be opening or have opened a securities account
with the following firm:
PLEASE FILL OUT COMPLETELY TO EXPEDITE PROCESSING
NAME ON ACCOUNT: _______________________________________________________________
(If other than employee, please state relationship i.e.,
spouse, son, daughter, trust, etc.)
ACCT # OR SSN #: _______________________________________________________________
NAME OF FIRM: _______________________________________________________________
ATTN: _______________________________________________________________
ADDRESS OF FIRM: _______________________________________________________________
CITY/STATE/ZIP: _______________________________________________________________
* All Franklin registered representatives and Access Persons, PRIOR TO OPENING A
BROKERAGE ACCOUNT OR PLACING AN INITIAL ORDER, are required to notify the Legal
Compliance Department and the executing broker-dealer in writing. This includes
accounts in which the registered representative or access person has or will
have a financial interest (e.g., a spouse's account) or discretionary authority
(e.g., a trust account for a minor child).
Upon receipt of the NOTIFICATION OF SECURITIES ACCOUNT OPENING form, the Legal
Compliance Department will contact the broker-dealer identified above and
request that it receive duplicate confirmations and statements of your brokerage
account.
39
<PAGE> 177
SCHEDULE E: NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST
If you have any beneficial ownership in a security and you recommend to the
Appropriate Analyst that the security be considered for purchase or sale by an
Associated Client, or if you carry out a purchase or sale of that security for
an Associated Client, you must disclose your beneficial ownership to the Legal
Compliance Department and the Appropriate Analyst in writing on Schedule E (or
an equivalent form containing similar information) before the purchase or sale,
or before or simultaneously with the recommendation.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
PRIMARY
METHOD OF PORTFOLIO
OWNERSHIP ACQUISITION DATE AND METHOD LEARNED MANAGER OR NAME OF
TYPE (DIRECT YEAR (PURCH/GIFT/ THAT SECURITY UNDER APPROPRIATE PERSON DATE OF VERBAL
SECURITY DESCRIPTION OR INDIRECT) ACQUIRED OTHER) CONSIDERATION BY FUNDS ANALYST NOTIFIED NOTIFICATION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- --------------------------- --------------------------- --------------------
(PRINT NAME) (SIGNATURE) (DATE)
</TABLE>
RETURN TO: LEGAL COMPLIANCE DEPARTMENT,
2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
40
<PAGE> 178
SCHEDULE F: INITIAL, ANNUAL & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS
This report shall set forth the name and description of each securities
account in which you have a direct or indirect beneficial interest, including
securities accounts of a spouse, minor children, trusts, foundations, and any
account for which trading authority has been delegated to you, other than
authority to trade for a Fund in, or a client of, the Franklin Templeton Group.
In lieu of listing each securities account below, you may instead attach copies
of the brokerage statements, sign below and return Schedule F and brokerage
statements to the Compliance Department.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
NAME(S) ON ACCOUNT NAME OF BROKERAGE ADDRESS OF BROKERAGE FIRM, NAME OF ACCOUNT
(REGISTRATION SHOWN FIRM, BANK OR BANK OR INVEST. ADVISER ACCOUNT EXECUTIVE/
ON STATEMENT) INVESTMENT ADVISER (STREET, CITY, STATE AND ZIP CODE) NUMBER REPRESENTATIVE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST, INCLUDING
SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS, AND
ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED TO ME.
<TABLE>
<S> <C> <C> <C>
- -------------------- -------------------- --------------- ---------------
PRINT NAME SIGNATURE DATE YEAR ENDED
</TABLE>
RETURN TO: LEGAL COMPLIANCE DEPARTMENT,
2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
41
<PAGE> 179
SCHEDULE G: INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY
This report shall set forth the account name or description in which you have a
direct or indirect beneficial interest, including holdings by a spouse, minor
children, trusts, foundations, and as to which trading authority has been
delegated by you to an unaffiliated registered broker-dealer, registered
investment adviser, or other investment manager acting in a similar fiduciary
capacity, who exercises sole investment discretion.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
TYPE OF OWNERSHIP
NAME/DESCRIPTION OF BROKERAGE FIRM, DIRECT OWNERSHIP (DO) ACCOUNT NUMBER
NAME(S) AS SHOWN ON ACCOUNT OR INVESTMENT BANK, INVESTMENT ADVISER OR INVESTMENT INDIRECT OWNERSHIP (IO) (IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS
AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL
INTEREST, INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS,
FOUNDATIONS, AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN
DELEGATED AN UNAFFILIATED PARTY. FURTHER, I CERTIFY THAT I DO NOT HAVE ANY
DIRECT OR INDIRECT INFLUENCE OR CONTROL OVER THE ACCOUNTS LISTED ABOVE.
<TABLE>
<S> <C> <C> <C>
- -------------------- -------------------- --------------- ---------------
PRINT NAME SIGNATURE DATE YEAR ENDED
</TABLE>
RETURN TO: LEGAL COMPLIANCE DEPARTMENT,
2000 ALAMEDA DE LAS PULGAS, SUITE 200E,
SAN MATEO, CA 94403
42
<PAGE> 180
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES ISSUED IN
PRIVATE PLACEMENTS
GENERAL INSTRUCTIONS: In considering requests by Access Persons for approval of
limited partnerships and other private placement securities transactions, the
Director of Compliance shall consult with an executive officer of Franklin
Resources, Inc. In deciding whether to approve the transaction, the Director of
Compliance and the executive officer shall take into account, among other
factors, whether the investment opportunity should be reserved for a Fund or
other client, and whether the investment opportunity is being offered to the
access person by virtue of his or her position with the Franklin Templeton
Group. IF THE ACCESS PERSON RECEIVES CLEARANCE FOR THE TRANSACTION, AN
INVESTMENT IN THE SAME ISSUER MAY ONLY BE MADE FOR A FUND OR CLIENT IF AN
EXECUTIVE OFFICER OF FRANKLIN RESOURCES, INC., WHO HAS BEEN INFORMED OF THE
ACCESS PERSON'S PRE-EXISTING INVESTMENT AND WHO HAS NO INTEREST IN THE ISSUER,
APPROVES THE TRANSACTION.
IN ORDER TO PROCESS YOUR REQUEST, PLEASE PROVIDE THE FOLLOWING INFORMATION:
1) Name/Description of proposed investment: ____________________________________
2) Proposed Investment Amount: ____________________________________
3) Please attach pages of the offering memorandum (or other documents)
summarizing the investment opportunity, including:
a) Name of the partnership/hedge fund/issuer;
b) Name of the general partner, location & telephone number;
c) Summary of the offering; including the total amount the offering/issuer;
d) Percentage your investment will represent of the total offering;
e) Plan of distribution; and
f) Investment objective and strategy,
PLEASE RESPOND TO THE FOLLOWING QUESTIONS:
4) Was this investment opportunity presented to you in your capacity as a
portfolio manager, trader or research analyst? If no, please explain the
relationship, if any, you have to the issuer or principals of the issuer.
5) Is this investment opportunity suitable for any fund/client that you advise?
If yes, why isn't the investment being made on behalf of the fund/client? If
no, why isn't the investment opportunity suitable for the fund/clients?
6) Do any of the fund/clients that you advise presently hold securities of the
issuer of this proposed investment (e.g., common stock, preferred stock,
corporate debt, loan participations, partnership interests, etc)? If yes,
please provide the names of the funds/clients and security description.
43
<PAGE> 181
7) Do you presently have or will you have any managerial role with the
company/issuer as a result of your investment? If yes, please explain in
detail your responsibilities, including any compensation you will receive.
8) Will you have any investment control or input to the investment decision
making process?
9) If applicable, will you receive reports of portfolio holdings? If yes, when
and how frequently will these be provided?
Reminder: Personal securities transactions that do not generate brokerage
confirmations must be reported to the Legal Compliance Department on Schedule B
within 10 calendar days after you are notified.
<TABLE>
<S> <C> <C>
________________________________________ ________________________
Name of Access Person
________________________________________ ________________________
Access Person Signature Date
Approved by: ________________________________________ ________________________
Chief Investment Officer Signature Date
</TABLE>
LEGAL COMPLIANCE USE ONLY
DATE RECEIVED: _________________________________________________________________
DATE ENTERED IN LOTUS NOTES: ___________________________________________________
DATE FORWARDED FRI EXECUTIVE OFFICER:
__________________________________________
PRECLEARED: (ATTACH E-MAIL) DATE:
[YES] [NO] ___________________
DATE ENTERED IN APII:
_____________________________
44
<PAGE> 182
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER
SUBSIDIARIES OF FRANKLIN RESOURCES, INC. - FEBRUARY 2000
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Franklin Advisers, Inc. IA Templeton Management Limited (Canada) IA
- ------------------------------------------------------------------------------------------------------------
Franklin Advisory Services, LLC. IA Templeton Franklin Investment Services, Inc. IA/BD
- ------------------------------------------------------------------------------------------------------------
Franklin Investment Advisory Services, Inc. IA Templeton Investment Counsel, Inc. IA
- ------------------------------------------------------------------------------------------------------------
Franklin Management, Inc. IA Templeton Asset Management, Ltd. IA/FIA
- ------------------------------------------------------------------------------------------------------------
Franklin Mutual Advisers, LLC IA Templeton Investment Management Co. Ltd. FIA
(Japan)
- ------------------------------------------------------------------------------------------------------------
Franklin Properties, Inc. REA Closed Joint-Stock Company Templeton FIA
(Russia)
- ------------------------------------------------------------------------------------------------------------
Franklin Templeton Distributors, Inc. IA/BD Templeton Unit Trust Management Ltd. (UK) FBD
- ------------------------------------------------------------------------------------------------------------
Franklin Asset Management (Proprietary)
Ltd. IA Orion Fund Management Ltd. FIA
- ------------------------------------------------------------------------------------------------------------
Templeton (Switzerland), Inc. FBD Templeton Global Advisors Ltd. (Bahamas) IA
- ------------------------------------------------------------------------------------------------------------
Templeton Franklin Investment Services
(Asia) Ltd. FBD Templeton Asset Management (India) Pvt. Ltd. FIA/FBD
- ------------------------------------------------------------------------------------------------------------
`Templeton Investment Management Limited
(UK) IA/FIA Templeton Italia SIM S.p.A. (Italy) FBD
- ------------------------------------------------------------------------------------------------------------
Templeton Global Strategic Services S.A. FBD Templeton Global Strategic Services FBD
(Luxembourg) (Deutschland) GmbH (Germany)
- ------------------------------------------------------------------------------------------------------------
Templeton Investment Management
(Australia) Ltd. FIA Templeton Funds Annuity Company INS
- ------------------------------------------------------------------------------------------------------------
Franklin Templeton Investment Services,
Inc. TA
- ------------------------------------------------------------------------------------------------------------
Franklin Templeton Services, Inc. BM
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Codes:
IA: US registered investment adviser
BD: US registered broker-dealer
FIA: Foreign equivalent investment adviser
FBD: Foreign equivalent broker-dealer
TA: US registered transfer agent
BM: Business manager to the funds
REA: Real estate adviser
INS: Insurance company
45
<PAGE> 183
THE FRANKLIN TEMPLETON GROUP POLICY STATEMENT ON INSIDER TRADING
A. LEGAL REQUIREMENT
Pursuant to the Insider Trading and Securities Fraud Enforcement Act of
1988, it is the policy of the Franklin Templeton Group to forbid any officer,
director, employee, consultant acting in a similar capacity, or other person
associated with the Franklin Templeton Group from trading, either personally or
on behalf of clients, including all client assets managed by the entities in the
Franklin Templeton Group, on material non-public information or communicating
material non-public information to others in violation of the law. This conduct
is frequently referred to as "insider trading." The Franklin Templeton Group's
Policy Statement on Insider Trading applies to every officer, director, employee
or other person associated with the Franklin Templeton Group and extends to
activities within and outside their duties with the Franklin Templeton Group.
Every officer, director and employee must read and retain this policy statement.
Any questions regarding the Franklin Templeton Group's Policy Statement on
Insider Trading or the Compliance Procedures should be referred to the Legal
Department.
The term "insider trading" is not defined in the federal securities
laws, but generally is used to refer to the use of material non-public
information to trade in securities (whether or not one is an "insider") or to
communications of material non-public information to others.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(1) trading by an insider, while in possession of material
non-public information; or
(2) trading by a non-insider, while in possession of material
non-public information, where the information either was
disclosed to the non-insider in violation of an insider's duty
to keep it confidential or was misappropriated; or
(3) communicating material non-public information to others.
The elements of insider trading and the penalties for such unlawful
conduct are discussed below. If, after reviewing this policy statement, you have
any questions, you should consult the Legal Department.
1
<PAGE> 184
POLICY STATEMENT ON INSIDER TRADING
B. WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and
employees of a company. In addition, a person can be a "temporary insider" if he
or she enters into a special confidential relationship in the conduct of a
company's affairs and as a result is given access to information solely for the
company's purposes. A temporary insider can include, among others, a company's
outside attorneys, accountants, consultants, bank lending officers, and the
employees of such organizations. In addition, an investment adviser may become a
temporary insider of a company it advises or for which it performs other
services. According to the U.S. Supreme Court, the company must expect the
outsider to keep the disclosed non-public information confidential and the
relationship must at least imply such a duty before the outsider will be
considered an insider.
C. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of the company's securities. Information that officers, directors and
employees should consider material includes, but is not limited to: dividend
changes, earnings estimates, changes in previously released earnings estimates,
significant merger or acquisition proposals or agreements, major litigation,
liquidation problems, and extraordinary management developments.
Material information does not have to relate to a company's business.
For example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court
considered as material certain information about the contents of a forthcoming
newspaper column that was expected to affect the market price of a security. In
that case, a Wall Street Journal reporter was found criminally liable for
disclosing to others the dates that reports on various companies would appear in
the Wall Street Journal and whether those reports would be favorable or not.
D. WHAT IS NON-PUBLIC INFORMATION?
Information is non-public until it has been effectively communicated to
the marketplace. One must be able to point to some fact to show that the
information is generally public. For example, information found in a report
filed with the Securities and Exchange Commission ("SEC"), or appearing in Dow
Jones, Reuters Economic Services, The Wall Street Journal or other publications
of general circulation would be considered public.
2
<PAGE> 185
POLICY STATEMENT ON INSIDER TRADING
E. BASIS FOR LIABILITY
1. FIDUCIARY DUTY THEORY
In 1980, the Supreme Court found that there is no general duty to
disclose before trading on material non-public information, but that such a duty
arises only where there is a fiduciary relationship. That is, there must be a
relationship between the parties to the transaction such that one party has a
right to expect that the other party will not disclose any material non-public
information or refrain from trading. Chiarella v. U.S., 445 U.S. 22 (1980).
In Dirks v. SEC, 463 U.S. 646 (1983), the Supreme Court stated
alternate theories under which non-insiders can acquire the fiduciary duties of
insiders. They can enter into a confidential relationship with the company
through which they gain information (e.g., attorneys, accountants), or they can
acquire a fiduciary duty to the company's shareholders as "tippees" if they are
aware or should have been aware that they have been given confidential
information by an insider who has violated his fiduciary duty to the company's
shareholders.
However, in the "tippee" situation, a breach of duty occurs only if the
insider personally benefits, directly or indirectly, from the disclosure. The
benefit does not have to be pecuniary but can be a gift, a reputational benefit
that will translate into future earnings, or even evidence of a relationship
that suggests a quid pro quo.
2. MISAPPROPRIATION THEORY
Another basis for insider trading liability is the "misappropriation"
theory, under which liability is established when trading occurs on material
non-public information that was stolen or misappropriated from any other person.
In U.S. v. Carpenter, supra, the Court found, in 1987, a columnist defrauded The
Wall Street Journal when he stole information from the Wall Street Journal and
used it for trading in the securities markets. It should be noted that the
misappropriation theory can be used to reach a variety of individuals not
previously thought to be encompassed under the fiduciary duty theory.
F. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material non-public
information are severe, both for individuals involved in such unlawful conduct
and their employers. A person can be subject to some or all of the penalties
below even if he or she does not personally benefit from the violation.
Penalties include:
- civil injunctions;
- treble damages;
- disgorgement of profits;
- jail sentences;
3
<PAGE> 186
POLICY STATEMENT ON INSIDER TRADING
- fines for the person who committed the violation of up to
three times the profit gained or loss avoided, whether or not
the person actually benefited; and
- fines for the employer or other controlling person of up to
the greater of $1,000,000 or three times the amount of the
profit gained or loss avoided.
In addition, any violation of this policy statement can result in
serious sanctions by the Franklin Templeton Group, including dismissal of any
person involved.
G. INSIDER TRADING PROCEDURES
Each access person, Compliance Officer, the Risk Management Department,
and the Legal Department, as the case may be, shall comply with the following
procedures.
1. IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including investment companies
or private accounts managed by the Franklin Templeton Group, in the securities
of a company about which you may have potential inside information, ask yourself
the following questions:
- Is the information material?
- Is this information that an investor would consider important
in making his or her investment decisions?
- Is this information that would substantially affect the market
price of the securities if generally disclosed?
- Is the information non-public?
- To whom has this information been provided?
- Has the information been effectively communicated to the
marketplace (e.g., published in Reuters, The Wall Street
Journal or other publications of general circulation)?
If, after consideration of these questions, you believe that the information may
be material and non-public, or if you have questions as to whether the
information is material and non-public, you should take the following steps:
(i) Report the matter immediately to the designated Compliance
Officer, or if he or she is not available, to the Legal
Department.
(ii) Do not purchase or sell the securities on behalf of yourself
or others, including investment companies or private accounts
managed by the Franklin Templeton Group.
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POLICY STATEMENT ON INSIDER TRADING
(iii) Do not communicate the information inside or outside the
Franklin Templeton Group, other than to the Compliance Officer
or the Legal Department.
(iv) The Compliance Officer shall immediately contact the Legal
Department for advice concerning any possible material,
non-public information.
(v) After the Legal Department has reviewed the issue and
consulted with the Compliance Officer, you will be instructed
either to continue the prohibitions against trading and
communication noted in (ii) and (iii), or you will be allowed
to trade and communicate the information.
(vi) In the event the information in your possession is determined
by the Legal Department or the Compliance Officer to be
material and non-public, it may not be communicated to anyone,
including persons within the Franklin Templeton Group, except
as provided in (i) above. In addition, care should be taken so
that the information is secure. For example, files containing
the information should be sealed and access to computer files
containing material non-public information should be
restricted to the extent practicable.
2. RESTRICTING ACCESS TO OTHER SENSITIVE INFORMATION
All Franklin Templeton Group personnel also are reminded of the need to
be careful to protect from disclosure other types of sensitive information that
they may obtain or have access to as a result of their employment or association
with the Franklin Templeton Group.
(i) GENERAL ACCESS CONTROL PROCEDURES
The Franklin Templeton Group has established a process by
which access to company files that may contain sensitive or non-public
information such as the Bargain List and the Source of Funds List is carefully
limited. Since most of the Franklin Templeton Group files which contain
sensitive information are stored in computers, personal identification numbers,
passwords and/or code access numbers are distributed to Franklin Templeton Group
computer access persons only. This activity is monitored on an ongoing basis. In
addition, access to certain areas likely to contain sensitive information is
normally restricted by access codes.
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Adopted February 25, 2000
MANUFACTURERS ADVISER CORPORATION
AMENDED AND RESTATED
CODE OF ETHICS
1. DEFINITIONS
1.1 ADVISER. As used in this Code, the term "Adviser" shall mean
Manufacturers Adviser Corporation.
1.2 ADVISORY CLIENT. As used in this Code, "Advisory Client" shall
mean:
(a) any company registered under the Investment Company Act of 1940 (or
any series of such company) for which the Adviser is the investment
adviser including, but not limited to, certain series of
Manufacturers Investment Trust and
(b) any other person for which the Adviser acts as the investment
adviser.
1.3 ADVISORY PERSON. As used in this Code, the term "Advisory Person"
shall mean:
(a) any employee of the Adviser, or of any company which is an
affiliate of the Adviser, who, in connection with his or her
regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security for an
Advisory Client, or whose functions relate to the making of any
recommendations with respect to such purchases or sales and shall
include any "Investment Person" or "Portfolio Manager" as defined
below; and
(b) any natural person in a control relationship to the Adviser who
obtains information concerning recommendations made to an Advisory
Client with regard to the purchase or sale of a Covered Security.
A person does not become an Advisory Person due to the following:
(i) assisting in the preparation of public reports, or receiving public
reports (but excluding reports regarding current recommendations or
trading) or
(ii) obtaining knowledge of current recommendations on trading activity
on an infrequent or inadvertent basis.
1.4 NON-ADVISORY DIRECTOR OR OFFICER. As used in this Code, the term
"Non-Advisory Director or Officer" shall mean a director or officer of
the Adviser who is not an Advisory Person.
1.5 ACCESS PERSON. As used in this Code, the term "Access Person" shall
mean any director, officer, general partner or Advisory Person of the
Adviser.
1.6 ACTIVE CONSIDERATION. A Security will be deemed under "Active
Consideration" when a recommendation to purchase or sell the Security
has been made and communicated to the person or persons ultimately
making the decision to buy or sell the Security. A Security will also
be
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deemed under "Active Consideration" whenever an Advisory Person focuses
on the Security and seriously considers recommending the Security to an
Advisory Client.
A Security will be deemed under "Active Consideration" until the
Adviser on behalf of the Advisory Client implements or rejects the
recommendation or until the proper Advisory Person decides not to
recommend the purchase or sale of the Security for an Advisory Client.
A Security will not be deemed under "Active Consideration" if the
Security is being reviewed only as part of a general industrial survey
or other broad monitoring of the securities market.
1.7 BENEFICIAL OWNERSHIP. "Beneficial Ownership" shall be interpreted
in the same manner as it would be under Rule 16a-1(a)(2) under the
Securities Exchange Act of 1934 (the "1934 Act") in determining whether
a person has beneficial ownership of a security for purposes of Section
16 of the 1934 Act and the rules and regulations thereunder.
1.8 INVESTMENT PERSON. As used in this Code, the term "Investment
Person" shall mean:
(i) any employee of the Adviser (or of any company in a control
relationship to Adviser), including a Portfolio Manager, who in
connection with his or her regular functions or duties makes or
participates in making recommendations regarding the purchase or
sale of securities by any Advisory Client or
(ii) any natural person who controls the Adviser who obtains
information concerning recommendations made to any Advisory Client
regarding purchase or sales of securities by the Advisory Client.
1.9 PORTFOLIO MANAGER. As used in this Code, the term "Portfolio
Manager" shall mean the person or persons with the direct
responsibility and authority to make investment decisions affecting an
Advisory Client.
1.10 PRIVATE PLACEMENT. A private placement means an offering that is
exempt from registration under the Securities Act of 1933 pursuant to
section 4(2) or section 4(6) or pursuant to rule 504, rule 505 or rule
506 under the Securities Act of 1933.
1.11 COVERED SECURITY. "Covered Security" shall mean a security as
defined in Section 2(a)(36) of the Investment Company Act, except that
it shall not include direct obligations of the Government of the United
States, high quality, short-term debt instruments(1) (including but not
limited to bankers' acceptances, bank certificates of deposit,
commercial paper and repurchase agreements) and shares of U.S.
registered open-end investment companies.
1.12 INITIAL PUBLIC OFFERING. Initial public offering means an offering
of securities registered under the Securities Act of 1933, the issuer
of which, immediately before the registration, was not subject to the
reporting requirements of sections 13 or 15(d) of the 1934 Act.
- --------
(1) A high quality, short term debt security means any instrument that has a
maturity at issuance of less than 366 days and that is rated in one of the two
highest rating categories by a Nationally Recognized Statistical Rating
Organization.
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1.13 PURCHASE OR SALE OF A COVERED SECURITY. "Purchase or Sale of a
Covered Security" includes, inter alia, the writing of an option to
purchase or sell a Covered Security.
1.14 SUPERVISORY PERSON. The General Counsel of the Adviser or his or
her designee.
1.15 TRUST. As used in this Code, "Trust" shall mean Manufacturers
Investment Trust, a Massachusetts Business Trust registered as an
open-end diversified investment company under the Investment Company
Act of 1940 (the "1940 Act").
1.16 ADDITIONAL DEFINITIONS. All other terms used in this Code shall be
defined by reference to the 1940 Act or the Securities Exchange Act of
1934.
2. PURPOSE OF THE CODE.
2.1 This Code establishes rules of conduct for Access Persons of the
Adviser and is designed to govern the personal securities activities of
Access Persons. In general, in connection with personal securities
transactions, Access Persons should:
(1) always place the interests of the Advisory Clients
first;
(2) ensure that all personal securities transactions are
conducted consistent with this Code and in such a
manner as to avoid any actual or potential conflict
of interest or any abuse of an Access Person's
position of trust and responsibility; and
(3) not take inappropriate advantage of their positions.
2.2 The Code is designed to prevent certain practices by Access Persons
in connection with the purchase or sale, directly or indirectly, by
such Access Persons of securities held or to be acquired by an Advisory
Client. These include:
(a) employing any device, scheme or artifice to defraud an
Advisory Client;
(b) making any untrue statement of a material fact or omitting to
state a material fact that renders statements made to an
Advisory Client, in light of the circumstances under which
they are made, not misleading;
(c) engaging in any act, practice, or course of business that
operates or would operate as a fraud or deceit upon an
Advisory Client; or
(d) engaging in any manipulative practice with respect to an
Advisory Client.
3. PROHIBITED PURCHASE AND SALES.
3.1 No Access Person shall purchase or sell, directly or indirectly,
any Covered Security in which he or she has, or by reason of such
transaction acquires, any direct or indirect Beneficial Ownership and
which to his or her actual knowledge at the time of such purchase or
sale;
(a) is currently under Active Consideration for purchase or sale
by the Adviser on behalf of an Advisory Client; or
(b) is being purchased or sold by the Adviser on behalf of an
Advisory Client; provided, however, that such Covered Security
may be purchased or sold by an Access Person if five calendar
days have elapsed from the date the Adviser on behalf of an
Advisory
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Client ceased activity in the purchase or sale of such Covered
Security except as noted in Section 3.2 below.
3.2 No Portfolio Manager shall purchase or sell, directly or
indirectly, any Covered Security in which he or she has, or by reason
of such transaction acquires, any direct or indirect Beneficial
Ownership within seven calendar days before and after the particular
Advisory Client that he or she manages trades in that Covered Security.
3.3 No Investment Person shall acquire any Covered Securities in an
initial public offering for his or her personal account.
3.4 No Investment Person shall acquire, directly or indirectly,
Beneficial Ownership of any Covered Security in a private placement
without the prior approval of the Supervisory Person. This approval
shall take into account whether the investment opportunity should be
reserved for an Advisory Client, whether the opportunity is being
offered to an individual by virtue of his or her position with the
Adviser or an Advisory Client and any other relevant factors. If an
Investment Person has purchased a Covered Security in a private
placement, then:
(a) such Investment Person must disclose to an Advisory Client his
or her ownership of the Covered Security if he or she has a
material role in the Adviser's subsequent consideration to
purchase the Covered Security on behalf of the Advisory Client
and
(b) the Adviser's decision to purchase the Covered Security on
behalf of an Advisory Client must be reviewed by at least two
other Investment Persons with no personal interest in the
issuer.
3.5 No Investment Person shall profit from the purchase and sale, or
sale and purchase, of the same (or equivalent) Covered Securities of
which such Investment Person has Beneficial Ownership within 60
calendar days. Shares of mutual funds registered pursuant to the laws
of Canada or any province thereof and direct obligations of the
Canadian Government or any province thereof are exempt from this
requirement.
3.6 These prohibitions shall apply to the purchase or sale by any
Access Person of any convertible Covered Security, option or warrant of
any issuer whose underlying securities are under Active Consideration
by the Adviser on behalf of an Advisory Client.
3.7 Any profits realized on transactions prohibited by this Section 3
shall be paid to a charitable organization designated by the Adviser.
3.8 These prohibitions shall not apply to purchases and sales specified
in Section 4 of this Code.
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4. EXEMPT TRANSACTIONS.
The prohibitions in Section 3 of this Code shall not apply to the
following transactions by Access Persons;
(a) purchases or sales effected in any account over which an
Access Person has no direct or indirect influence or control;
(b) purchases or sales of Securities which are not eligible for
purchase or sale by any Advisory Client;
(c) purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the extent such rights were acquired from such issuer;
(d) purchases or sales which are non-volitional on the part of
either the Access Person or the Advisory Client;
(e) purchases which are part of an automatic dividend reinvestment
plan.
5. PROHIBITED BUSINESS CONDUCT.
No Access Person shall, either directly or indirectly;
(a) engage in any business transaction or arrangement for personal
profit based on confidential information gained by way of
employment with the Adviser;
(b) communicate non-public information about Security transactions
of an Advisory Client whether current or prospective, to
anyone unless necessary as part of the regular course of the
Advisory Client's business. Non-public information regarding
particular Securities, including reports and recommendations
of the Adviser, must not be given to anyone who is not an
Investment Person without prior approval of the Supervisory
Person. However, this prohibition shall not prevent an Access
Person from communicating with an officer or
director/trustee/partner of an Advisor Client regarding
current or prospective Security transactions for the Advisory
Client; or
(c) buy or sell any Security or any other property from or to an
Advisory Client.
NO INVESTMENT PERSON SHALL:
(a) serve on the board of directors of any publicly traded company
without prior authorization from the Supervisory Person based
upon a determination that such board service would be
consistent with the interests of all the Advisory Clients. Any
Investment Person so authorized to serve as a director will be
isolated from other Advisory Persons making investment
decisions regarding such company through a "Chinese Wall" or
other procedures;
(b) or accept a gift, favor, or service of more than de minimis
value from any person or company which, to the actual
knowledge of such Investment Person, does business or might do
business with an Advisory Client, the Adviser, or any of the
Adviser's affiliates (Any gifts of over $50 shall be reported
to the Investment Person's supervisor);
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6. PRECLEARANCE
An Access Person may directly or indirectly, acquire or dispose of a
Beneficial Ownership of a Covered Security only if:
(a) such purchase or sale has been approved by the Supervisory
Person,
(b) the approved transaction is completed within five business
days approval is received (except for Access Persons in the
Adviser's United Kingdom office, where such preclearance shall
be valid only for a period of 24 hours) and
(c) the Supervisory Person has not rescinded such approval prior
to execution of the transaction.
Non-Advisory Directors and Officers are not subject to these
preclearance procedures. Covered Securities acquired or disposed of
pursuant to transactions described in Section 4 of this Code are not
subject to these preclearance procedures.
The following types of securities and transactions are not required to
be precleared:
(a) Purchases and sales of securities of companies having a
capitalization of at least $500 million.
(b) Shares of mutual funds registered pursuant to the laws of
Canada or any province thereof.
(c) Direct obligations of the Canadian Government or any province
thereof.
7. REPORTING.
INITIAL AND ANNUAL REPORTING
7.1 Every Access Persons shall provide to the board of directors of the
Adviser within 10 days after becoming an Access Person and annually
thereafter a report listing all Covered Securities in which he or she
has any direct or indirect beneficial ownership in the Covered
Security; provided, however, that an Access Person shall not be
required to make a report with respect to securities held in an account
over which he or she has no direct or indirect influence or control.
The information in the annual report must be current as of a date no
more than 30 days before the report is filed.
7.2 The report required by Section 7.1 shall include the title, number
of shares and principal amount of each Covered Security in which the
Access Person had any direct or indirect beneficial ownership when the
person became an Access Person; the name of any broker, dealer or bank
with whom the Access Person maintained an account in which any
securities were held for the direct or indirect benefit of the Access
Person as of the date the person became an Access Person; and the date
that the report is submitted by the Access Person.
QUARTERLY REPORTING
7.3 Within 10 days after the end of a calendar quarter, an Access
Person shall report to the board of directors of the Adviser any
transaction during the quarter in a Covered Security in which he or she
had, or by reason of such transaction acquired, any direct or indirect
beneficial ownership; provided, however, that an Access Person shall
not be required to make a report with respect to transactions effected
for any account over which he or she has no direct or indirect
influence or
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control.
7.4 Any quarterly transaction reports required by section 7.3 shall
state:
(a) the title and number of shares, the interest rate and maturity
date (if applicable) and the principal amount of the Covered
Security involved;
(b) (if applicable) the date and nature of the transaction (i.e.,
purchase, sale or any other type of acquisition or
disposition) or the date the account was established;
(c) the price at which the transaction was effected;
(d) the name of the broker, dealer or bank with or through whom
the transaction was effected or with whom the Access Person
established or maintained the account.
(e) The date that the report is submitted by the Access Person.
7.5 Within 10 days after the end of a calendar quarter, an Access
Person shall report to the board of directors of the Adviser with
respect to any account established by the Access Person in which
securities were held during the quarter for the direct or indirect
benefit of the Access Person; provided, however, that an Access Person
shall not be required to make a report with respect to any securities
held in any account over which he or she has no direct or indirect
influence or control. Any such quarterly account report shall include
the name of the broker, dealer or bank with whom the Access Person
established the account; the date the account was established; and the
date that the report is submitted by the Access Person.
7.6 An Access Person need not make a quarterly transaction report or
the quarterly account report if the report would duplicate information
contained in broker trade confirmations or account statements received
by the Adviser with respect to the Access Person in the time required,
if all of the required information is contained in the broker trade
confirmations or account statements or in the records of the Adviser.
DISCLAIMER OF BENEFICIAL OWNERSHIP
7.7 Any report required by this Section 7 may also contain a statement
declaring that the reporting or recording of any transaction shall not
be construed as an admission by the Access Person making the report
that he or she has any direct or indirect beneficial ownership in the
Covered Security to which the report relates.
ANNUAL ACCESS PERSON CERTFICATION
7.8 Each Access Person shall certify annually that he or she has read
and understood the Code and recognizes that he or she is subject to the
Code. Further, each Access Person is required to certify annually that
he or she has complied with all the requirements of the Code and that
he or she disclosed or reported all personal securities transactions
required to be disclosed or reported pursuant to the requirements of
the Code.
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ANNUAL REPORTS TO THE BOARD OF TRUSTEES/DIRECTORS OF ANY ADVISORY CLIENT
REGISTERED UNDER THE 1940 ACT
7.9 At least annually, the Adviser shall report to the Board of
Trustees/Directors of any advisory client registered under the 1940 Act
(a "1940 Act Advisory Client") regarding:
(a) All existing procedures concerning personal trading activities
and any procedural changes made during the past year;
(b) any recommended changes to the Code or procedures; and
(c) any issues arising under the Code since the last report to the
Board of Trustees/Directors of any 1940 Act Advisory Client,
including, but not limited to, information about any material
violations of the Code and any sanctions imposed in response
to the material violations.
The Adviser shall also certify to the Board of Trustees/Directors of
any 1940 Act Advisory Client at least annually that it has adopted
procedures reasonably necessary to prevent Access Persons from
violating the Code.
8. SANCTIONS.
Upon learning of a violation of this Code, the Adviser may impose any
sanctions as it deems appropriate under the circumstance, including,
but not limited to, letters of reprimand, suspension or termination of
employment, disgorgement of profits and notification to regulatory
authorities in the case of Code violations which also constitute
fraudulent conduct.
All material violations of this Code and any sanctions imposed with
respect thereto shall be reported periodically to the Board of
Directors of the Adviser.
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MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "CLOSED-END FUNDS")
AND
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
(THE "OPEN-END FUNDS", AND TOGETHER WITH THE CLOSED-END FUNDS, THE "FUNDS")
AND
MORGAN STANELY DEAN WITTER INVESTMENT MANAGEMENT INC.
("MSDW INVESTMENT MANAGEMENT")
AND
MILLER ANDERSON & SHERRARD, LLP
("MAS", AND TOGETHER WITH MSDW INVESTMENT MANAGEMENT,
THE "INVESTMENT MANAGERS")
AND
MORGAN STANLEY & CO. INCORPORATED
("MS&CO.")
CODE OF ETHICS
1. Purposes
This Code of Ethics has been adopted by the Funds, the Investment
Managers and MS&Co., the principal underwriter of the Open-End Funds, in
accordance with Rule 17j-1 under the Investment Company Act of 1940, as amended
(the "Act"). Rule 17j-1 under the Act generally proscribes fraudulent or
manipulative practices with respect to purchases or sales of securities held or
to be acquired by investment companies, if effected by affiliated persons (as
defined under the Act) of such companies. Specifically, Rule 17j-1 provides that
it is unlawful for any affiliated person of or principal underwriter for a
registered investment company, or any affiliated person of an investment adviser
of or principal underwriter for a registered investment company, in connection
with the purchase or sale, directly or indirectly, by such person of a security
held or to be acquired by such registered investment company:
(a) To employ any device, scheme or artifice to defraud such
registered investment company;
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(b) To make to such registered investment company any untrue
statement of a material fact or omit to state to such
registered investment company a material fact necessary in
order to make the statements made, in light of the
circumstances under which they are made, not misleading;
(c) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such
registered investment company; or
(d) To engage in any manipulative practice with respect to such
registered investment company.
While Rule 17j-1 is designed to protect only the interests of the Funds
and their stockholders, the Investment Managers apply the policies and
procedures described in this Code of Ethics to all employees of the Investment
Managers to protect the interests of their non-Fund clients as well
(hereinafter, where appropriate, non-Fund clients of the Investment Managers are
referred to as "Advisory Clients" and any reference to an Advisory Client(s)
relates only to the activities of employees of the Investment Managers).
The purpose of this Code of Ethics is to (i) ensure that Access Persons
conduct their personal securities transactions in a manner which does not (a)
create an actual or potential conflict of interest with the Funds' or an
Advisory Client's portfolio transactions, (b) place their personal interests
before the interest of the Funds and their stockholders or an Advisory Client or
(c) take unfair advantage of their relationship to the Funds or an Advisory
Client and (ii) provide policies and procedures consistent with the Act and Rule
17j-1 designed to give effect to the general prohibitions set forth in Rule
17j-l.
Among other things, the procedures set forth in this Code of Ethics
require that all (i) Access Persons review this Code of Ethics at least
annually, (ii) Access Persons, unless excepted by Sections 8. (d) and (e) of
this Code of Ethics, report transactions in Covered Securities, (iii) Access
Persons refrain from engaging in certain transactions, and (iv) employees of the
Investment Managers pre-clear with the Compliance Department or the trading desk
at MAS any transactions in Covered Securities.
2. Definitions
(a) "Access Person" means any director, officer or Advisory Person
of the Funds or of the Investment Managers, and any director
or officer of MS&Co., who, in the ordinary course of business,
makes, participates in or obtains information regarding the
purchase or sale of Covered Securities by the Funds.
(b) "Advisory Person" means any employee of the Funds, or of the
Investment Managers (or of any company in a control
relationship to the Funds or the Investment Managers), who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase
or sale of Covered Securities by the Funds or an Advisory
Client, or whose functions relate to the making of any
recommendations with respect to such purchases or sales.
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(c) "Beneficial ownership" shall be interpreted in the same manner
as it would be in determining whether a person is subject to
the provisions of Section 16 of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder,
except that the determination of direct or indirect beneficial
ownership shall apply to all securities which an Access Person
has or acquires.
(d) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the Act.
(e) "Compliance Department" means the MSDW Investment Management
or MAS Compliance Department.
(f) "Covered Security" means a security as defined in Section
2(a)(36) of the Act, except that it does not include: (i)
shares of registered open-end investment companies, (ii)
direct obligations of the Government of the United States, and
(iii) bankers' acceptances, bank certificates of deposit,
commercial paper, and high quality short-term debt
instruments, including repurchase agreements.
(g) "Disinterested Director" means a director of a Fund who is not
an "interested person" of such Fund within the meaning of
Section 2(a)(19) of the Act.
(h) "Purchase or sale (or sell)" with respect to a Covered
Security means any acquisition or disposition of a direct or
indirect beneficial interest in a Covered Security, including,
inter alia, the writing or buying of an option to purchase or
sell a Covered Security.
(i) "Security held or to be acquired" means (i) any Covered
Security which, within the most recent 15 days, is or has been
held by a Fund or an Advisory Client, or is being or has been
considered by a Fund or an Advisory Client or the Investment
Managers for purchase by a Fund or an Advisory Client; and
(ii) any option to purchase or sell, and any security
convertible into or exchangeable for, a Covered Security
described in this paragraph.
3. Prohibited Transactions
(a) No Access Person or employee of the Investment Managers shall
purchase or sell any Covered Security which to his or her
actual knowledge at the time of such purchase or sale:
(i) is being considered for purchase or sale by a Fund or
an Advisory Client; or
(ii) is being purchased or sold by a Fund or an Advisory
Client.
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(b) No employee of the Investment Managers shall purchase or sell
a Covered Security while there is a pending "buy" or "sell"
order in the same or a related security for a Fund or an
Advisory Client until that order is executed or withdrawn.
(c) No Advisory Person shall purchase or sell a Covered Security
within seven calendar days before or after any portfolio(s) of
the Funds over which such Advisory Person exercises investment
discretion or an Advisory Client over which the Advisory
Person exercises investment discretion purchases or sells the
same or a related Covered Security. Any profits realized or
unrealized by the Advisory Person on a prohibited purchase or
sale within the proscribed period shall be disgorged to a
charity.
(d) No employee of the Investment Managers shall profit from the
purchase and sale or sale and purchase of the same (or
equivalent) Covered Security within 60 calendar days. Any
profits realized on such purchase or sale shall be disgorged
to a charity.
(e) No Access Person or employee of the Investment Managers shall
purchase any securities in an initial public offering.
(f) No employee of the Investment Managers shall purchase
privately-placed securities unless such purchase is
pre-approved by the Compliance Department. Any such person who
has previously purchased privately-placed securities must
disclose such purchases to the Compliance Department before
such person participates in a Fund's or an Advisory Client's
subsequent consideration of an investment in the securities of
the same or a related issuer. Upon such disclosure, the
Compliance Department shall appoint another person with no
personal interest in the issuer, to conduct an independent
review of such Fund's or such Advisory Client's decision to
purchase securities of the same or a related issuer.
(g) No Access Person or employee of the Investment Managers shall
recommend the purchase or sale of any Covered Securities to a
Fund or to an Advisory Client without having disclosed to the
Compliance Department his or her interest, if any, in such
Covered Securities or the issuer thereof, including without
limitation (i) his or her direct or indirect beneficial
ownership of any securities of such issuer, (ii) any
contemplated purchase or sale by such person of such
securities, (iii) any position with such issuer or its
affiliates, and (iv) any present or proposed business
relationship between such issuer or its affiliates, on the one
hand, and such person or any party in which such person has a
significant interest, on the other; provided, however, that in
the event the interest of such person in such securities or
the issuer thereof is not material to his or her personal net
worth and any contemplated purchase or sale by such person in
such securities cannot reasonably be expected to have a
material adverse effect on any such purchase or sale by a Fund
or an Advisory Client or on the market for the securities
generally, such person shall not be required to disclose his
or her interest in the securities or the issuer thereof in
connection with any such recommendation.
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(h) No Access Person or employee of the Investment Managers shall
reveal to any other person (except in the normal course of his
or her duties on behalf of a Fund or an Advisory Client) any
information regarding the purchase or sale of any Covered
Security by a Fund or an Advisory Client or consideration of
the purchase or sale by a Fund or an Advisory Client of any
such Covered Security.
4. Pre-Clearance of Covered Securities Transactions and Permitted
Brokerage Accounts
No employee of MSDW Investment Management shall purchase or sell
Covered Securities without prior written authorization from its Compliance
Department. No employee of MAS shall purchase or sell Covered Securities without
prior written authorization from the appropriate trading desk. Pre-clearance of
a purchase or sale shall be valid and in effect only for the business day in
which such pre-clearance is given; provided, however, that the approval of an
unexecuted purchase or sale is deemed to be revoked when the employee becomes
aware of facts or circumstances that would have resulted in the denial of
approval of the approved purchase or sale were such facts or circumstances made
known to the Compliance Department or MAS trading desk, as appropriate, at the
time the proposed purchase or sale was originally presented for approval. The
Investment Managers require all of their employees to maintain their personal
brokerage accounts at MS&Co. or a broker/dealer affiliated with MS&Co.
(hereinafter, a "Morgan Stanley Account"). Outside personal brokerage accounts
are permitted only under very limited circumstances and only with express
written approval by the Compliance Department. The Compliance Department has
implemented procedures reasonably designed to monitor purchases and sales
effected pursuant to the aforementioned pre-clearance procedures.
5. Exempted Transactions
(a) The prohibitions of Section 3 and Section 4 of this Code of
Ethics shall not apply to:
(i) Purchases or sales effected in any account over which
an Access Person or an employee of the Investment
Managers has no direct or indirect influence or
control;
(ii) Purchases or sales which are non-volitional;
(iii) Purchases which are part of an automatic dividend
reinvestment plan; or
(iv) Purchases effected upon the exercise of rights issued
by an issuer pro rata to all holders of a class of
its securities and sales of such rights so acquired,
but only to the extent such rights were acquired from
such issuer.
(b) Notwithstanding the prohibitions of Sections 3. (a), (b) and
(c) of this Code of Ethics, the Compliance Department or MAS
trading desk, as appropriate, may approve a purchase or sale
of a Covered Security by employees of the Investment Managers
which would appear to be in contravention of the prohibitions
in Sections 3. (a), (b) and (c) if it is determined that (i)
the facts
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and circumstances applicable at the time of such purchase or
sale do not conflict with the interests of a Fund or an
Advisory Client, or (ii) such purchase or sale is only
remotely potentially harmful to a Fund or an Advisory Client
because it would be very unlikely to affect a highly
institutional market, or because it is clearly not related
economically to the securities to be purchased, sold or held
by such Fund or Advisory Client, and (iii) the spirit and
intent of this Code of Ethics is met.
6. Restrictions on Receiving Gifts
No employee of the Investment Managers shall receive any gift or other
consideration in merchandise, service or otherwise of more than de minimis value
from any person, firm, corporation, association or other entity that does
business with or on behalf of the Funds or an Advisory Client.
7. Service as a Director
No employee of the Investment Managers shall serve on the board of
directors of a publicly-traded company without prior written authorization from
the Compliance Department. Approval will be based upon a determination that the
board service would not conflict with the interests of the Funds and their
stockholders or an Advisory Client.
8. Reporting
(a) Unless excepted by Section 8. (d) and (e) of this Code of
Ethics, each Access Person must disclose all personal holdings
in Covered Securities to the Compliance Department for its
review no later than 10 days after becoming an Access Person
and annually thereafter. The initial and annual holdings
reports must contain the following information:
(i) The title, number of shares and principal amount of
each Covered Security in which the Access Person has
any direct or indirect beneficial ownership;
(ii) The name of any broker, dealer or bank with or
through whom the Access Person maintained an account
in which any securities were held for the direct or
indirect benefit of the Access Person; and
(iii) The date the report was submitted to the Compliance
Department by the Access Person.
(b) Unless excepted by Section 8. (d) and (e) of this Code of
Ethics, each Access Person and each employee of the Investment
Managers must report to the Compliance Department for its
review within 10 days of the end of a calendar quarter the
information described below with respect to transactions in
Covered Securities in which such person has, or by reason of
such transactions acquires any direct or indirect beneficial
interest:
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(i) The date of the transaction, the title, the interest
rate and maturity date (if applicable), the number of
shares and the principal amount of each Covered
Security involved;
(ii) The nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition);
(iii) The price of the Covered Security at which the
purchase or sale was effected;
(iv) The name of the broker, dealer or bank with or
through which the purchase or sale was effected; and
(v) The date the report was submitted to the Compliance
Department by such person.
(c) Unless excepted by Section 8. (d) and (e) of this Code of
Ethics, each Access Person and each employee of the Investment
Managers must report to the Compliance Department for its
review within 10 days of the end of a calendar quarter the
information described below with respect to any account
established by such person in which any securities were held
during the quarter for the direct or indirect benefit of such
person:
(i) The name of the broker, dealer or bank with whom the
account was established;
(ii) The date the account was established; and
(iii) The date the report was submitted to the Compliance
Department by such person.
(d) An Access Person will not be required to make any reports
described in Sections 8. (a), (b) and (c) above for any
account over which the Access Person has no direct or indirect
influence or control. An Access Person or an employee of the
Investment Managers will not be required to make the annual
holdings report under Section 8. (a) and the quarterly
transactions report under Section 8. (b) with respect to
purchases or sales effected for, and Covered Securities held
in: (i) a Morgan Stanley Account, (ii) an account in which the
Covered Securities were purchased pursuant to a dividend
reinvestment plan (up to an amount equal to the cash value of
a regularly declared dividend, but not in excess of this
amount), or (iii) an account for which the Compliance
Department receives duplicate trade confirmations and
quarterly statements.
(e) A Disinterested Director of a Fund, who would be required to
make a report solely by reason of being a Fund director, is
not required to make initial and annual holdings reports.
Additionally, such Disinterested Director need only make a
quarterly transactions report for a purchase or sale of
Covered Securities if he or she, at the time of that
transaction, knew or, in the ordinary course of fulfilling his
or her official duties as a Disinterested Director of a Fund,
should have known
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that, during the 15-day period immediately preceding or
following the date of the Covered Securities transaction by
him or her, such Covered Security is or was purchased or sold
by a Fund or was being considered for purchase or sale by a
Fund.
(f) The reports described in Sections 8. (a), (b) and (c) above
may contain a statement that the reports shall not be
construed as an admission by the person making such reports
that he or she has any direct or indirect beneficial ownership
in the Covered Securities to which the reports relate.
9. Annual Certifications
All Access Persons and employees of the Investment Managers must
certify annually that they have read, understood and complied with the
requirements of this Code of Ethics and recognize that they are subject to this
Code of Ethics by signing the certification attached hereto as Exhibit A.
10. Board Review
The management of the Funds and representatives or officers of the
Investment Managers and, with respect to the Open-End Funds, MS&Co., shall each
provide each Fund's Board of Directors, at least annually, with the following:
(a) a summary of existing procedures concerning personal investing
and any changes in the procedures made during the past year;
(b) a description of any issues arising under this Code of Ethics
or procedures since the last such report, including, but not
limited to, information about material violations of this Code
of Ethics or procedures and sanctions imposed in response to
material violations;
(c) any recommended changes in the existing restrictions or
procedures based upon a Fund's or the Investment Managers'
experience under this Code of Ethics, evolving industry
practices or developments in applicable laws and regulations;
and
(d) a certification (attached hereto as Exhibits B, C, D, and E,
as appropriate) that each has adopted procedures reasonably
necessary to prevent its Access Persons from violating this
Code of Ethics.
11. Sanctions
Upon discovering a violation of this Code of Ethics, the Board of
Directors of such Fund or of the Investment Managers, as the case may be, may
impose such sanctions as it deems appropriate.
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12. Recordkeeping Requirements
The management of the Funds and representatives or officers of the
Investment Managers and, with respect to the Open-End Funds, MS&Co., each shall
maintain, as appropriate, the following records for a period of five years, the
first two years in an easily accessible place, and shall make these records
available to the Securities and Exchange Commission or any representative of
such during an examination of the Funds or of the Investment Managers:
(a) a copy of this Code of Ethics or any other Code of Ethics
which was in effect at any time within the previous five
years;
(b) a record of any violation of this Code of Ethics during the
previous five years, and of any action taken as a result of
the violation;
(c) a copy of each report required by Section 8. of this Code of
Ethics, including any information provided in lieu of each
such report;
(d) a record of all persons, currently or within the past five
years, who are or were subject to this Code of Ethics and who
are or were required to make reports under Section 8. of this
Code of Ethics;
(e) a record of all persons, currently or within the past five
years, who are or were responsible for reviewing the reports
required under Section 8. of this Code of Ethics; and
(f) a record of any decision, and the reasons supporting the
decision, to approve the acquisition of securities described
in Sections 3. (e) and (f) of this Code of Ethics.
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EXHIBIT A
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "CLOSED-END FUNDS")
AND
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
(THE "OPEN-END FUNDS", AND TOGETHER WITH THE CLOSED-END FUNDS, THE "FUNDS")
AND
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
("MSDW INVESTMENT MANAGEMENT")
AND
MORGAN STANLEY & CO., INCORPORATED
("MS&CO.")
CODE OF ETHICS
ANNUAL CERTIFICATION
I hereby certify that I have read and understand the Code of Ethics
(the "Code") which has been adopted by the Funds, MSDW Investment Management and
MS&Co. and recognize that it applies to me and agree to comply in all respects
with the policies and procedures described therein. Furthermore, I hereby
certify that I have complied with the requirements of the Code in effect, as
amended, for the year ended December 31, ____, and that all of my reportable
transactions in Covered Securities were executed and reflected accurately in a
Morgan Stanley Account (as defined in the Code) or that I have attached a report
that satisfies the annual holdings disclosure requirement as described in
Section 8. (a) of the Code.
Date: _____________, ____ Name:______________________________
Signature:_________________________
<PAGE> 206
EXHIBIT B
MORGAN STANLEY DEAN WITTER AFRICA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER ASIA-PACIFIC FUND, INC.
MORGAN STANLEY DEAN WITTER EASTERN EUROPE FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS FUND, INC.
MORGAN STANLEY DEAN WITTER EMERGING MARKETS DEBT FUND, INC.
MORGAN STANLEY DEAN WITTER GLOBAL OPPORTUNITY BOND FUND, INC.
MORGAN STANLEY DEAN WITTER HIGH YIELD FUND, INC.
MORGAN STANLEY DEAN WITTER INDIA INVESTMENT FUND, INC.
MORGAN STANLEY DEAN WITTER INSTITUTIONAL FUND, INC.
MORGAN STANLEY DEAN WITTER STRATEGIC ADVISER FUND, INC.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
THE LATIN AMERICAN DISCOVERY FUND, INC.
THE MALAYSIA FUND, INC.
THE PAKISTAN INVESTMENT FUND, INC.
THE THAI FUND, INC.
THE TURKISH INVESTMENT FUND, INC.
(THE "FUNDS")
ANNUAL CERTIFICATION UNDER RULE 17j-1
OF THE INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as
amended (the "1940 Act") and pursuant to the Code of Ethics for the Funds,
Morgan Stanley Dean Witter Investment Management, Inc. and Morgan Stanley & Co.,
Incorporated (the "Code of Ethics"), each of the Funds hereby certifies to such
Fund's Board of Directors that such Fund has adopted procedures reasonably
necessary to prevent Access Persons (as defined in the Code of Ethics) from
violating the Code of Ethics.
Date:_________________ By:__________________________________
Name: Mary E. Mullin
Title: Secretary
<PAGE> 207
EXHIBIT C
MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT, INC.
("MSDW INVESTMENT MANAGEMENT")
ANNUAL CERTIFICATION UNDER RULE 17j-1
OF THE INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as
amended (the "1940 Act") and pursuant to the Code of Ethics for MSDW Investment
Management, the Funds (as defined in the Code of Ethics) and Morgan Stanley &
Co., Incorporated (the "Code of Ethics"), MSDW Investment Management hereby
certifies to the Board of Directors of the Funds that MSDW Investment Management
has adopted procedures reasonably necessary to prevent Access Persons (as
defined in the Code of Ethics) from violating the Code of Ethics.
Date:_________________ By:__________________________________
Name: Harold J. Schaaff, Jr.
Title: General Counsel
<PAGE> 208
EXHIBIT D
MILLER, ANDERSON & SHERRERD, LLP ("MAS")
ANNUAL CERTIFICATION UNDER RULE 17j-1
OF THE INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as
amended (the "1940 Act") and pursuant to the Code of Ethics for MAS, the Funds
(as defined in the Code of Ethics) and Morgan Stanley & Co., Incorporated (the
"Code of Ethics"), MAS hereby certifies to the Board of Directors of the Funds
that MAS has adopted procedures reasonably necessary to prevent Access Persons
(as defined in the Code of Ethics) from violating the Code of Ethics.
Date:_________________ By:__________________________________
Name: Paul A. Frick
Title: Compliance Officer
<PAGE> 209
EXHIBIT E
MORGAN STANLEY & CO., INCORPORATED
("MS&CO.")
ANNUAL CERTIFICATION UNDER RULE 17j-1
OF THE INVESTMENT COMPANY ACT OF 1940
Pursuant to Rule 17j-1 under the Investment Company Act of 1940, as
amended (the "1940 Act") and pursuant to the Code of Ethics for MS&Co., the
Open-End Funds (as defined in the Code of Ethics) and Morgan Stanley Dean Witter
Investment Management Inc. (the "Code of Ethics"), MS&Co. hereby certifies to
the Board of Directors of the Open-End Funds that MS&Co. has adopted procedures
reasonably necessary to prevent Access Persons (as defined in the Code of
Ethics) from violating the Code of Ethics.
Date:_________________ By:__________________________________
Name: Harold J. Schaaff, Jr.
Title: Managing Director
<PAGE> 210
DRAFT: 2-1-00
PIMCO CODE OF ETHICS
Effective as of March __, 2000
INTRODUCTION
GENERAL PRINCIPLES
This Code of Ethics is based on the principle that you, as a director,
officer or other Advisory Employee of Pacific Investment Management Company
("PIMCO"), owe a fiduciary duty to, among others, the shareholders of the Funds
and other clients (together with the Funds, the "Advisory Clients") for which
PIMCO serves as an advisor or subadvisor. Accordingly, you must avoid
activities, interests and relationships that might interfere or appear to
interfere with making decisions in the best interests of our Advisory Clients.
At all times, you must observe the following GENERAL RULES:
1. YOU MUST PLACE THE INTERESTS OF OUR ADVISORY CLIENTS FIRST. In
other words, as a fiduciary you must scrupulously avoid
serving your own personal interests ahead of the interests of
our Advisory Clients. You must adhere to this general
fiduciary principle as well as comply with the Code's specific
provisions. Technical compliance with the Code's procedures
will not automatically insulate from scrutiny any trades that
indicate an abuse of your fiduciary duties or that create an
appearance of such abuse.
Your fiduciary obligation applies not only to your personal trading
activities but also to actions taken on behalf of Advisory
Clients. In particular, you may not cause an Advisory Client
to take action, or not to take action, for your personal
benefit rather than the benefit of the Advisory Client. For
example, you would violate this Code if you caused an Advisory
Client to purchase a Security or Futures Contract you owned
for the purpose of increasing the value of that Security or
Futures Contract. If you are a portfolio manager or an
employee who provides information or advice to a portfolio
manager or helps execute a portfolio manager's decisions, you
would also violate this Code if you made a personal investment
in a Security or Futures Contract that might be an appropriate
investment for an Advisory Client without first considering
the Security or Futures Contract as an investment for the
Advisory Client.
2. YOU MUST CONDUCT ALL OF YOUR PERSONAL INVESTMENT TRANSACTIONS
IN FULL COMPLIANCE WITH THIS CODE, THE PIMCO ADVISORS L.P.
INSIDER TRADING POLICY AND PROCEDURES (THE "INSIDER TRADING
POLICY"), AND THE PIMCO ADVISORS L.P. POLICY REGARDING SPECIAL
TRADING PROCEDURES FOR SECURITIES OF PIMCO
<PAGE> 211
ADVISORS L.P. (THE "SPECIAL TRADING PROCEDURES")(1) AND IN
SUCH A MANNER AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF
INTEREST OR ANY ABUSE OF YOUR POSITION OF TRUST AND
RESPONSIBILITY. PIMCO encourages you and your family to
develop personal investment programs. However, those
investment programs must remain within boundaries reasonably
necessary to ensure that appropriate safeguards exist to
protect the interests of our Advisory Clients and to avoid
even the APPEARANCE of unfairness or impropriety. Accordingly,
YOU MUST COMPLY WITH THE POLICIES AND PROCEDURES SET FORTH IN
THIS CODE UNDER THE HEADING PERSONAL INVESTMENT TRANSACTIONS.
In addition, you must comply with the policies and procedures
set forth in the INSIDER TRADING POLICY AND SPECIAL TRADING
PROCEDURES, which are attached to this Code as Appendix II and
III, respectively. Doubtful situations should be resolved in
favor of our Advisory Clients and against your personal
trading.
3. YOU MUST NOT TAKE INAPPROPRIATE ADVANTAGE OF YOUR POSITION.
The receipt of investment opportunities, perquisites, gifts or
gratuities from persons seeking business with PIMCO directly
or on behalf of an Advisory Client could call into question
the independence of your business judgment. Accordingly, you
must comply with the policies and procedures set forth in this
Code under the heading GIFTS AND SERVICE AS A DIRECTOR.
Doubtful situations should be resolved against your personal
interest.
THE GENERAL SCOPE OF THE CODE'S
APPLICATIONS TO PERSONAL INVESTMENT ACTIVITIES
The Code reflects the fact that PIMCO specializes in the management of
fixed income portfolios. The vast majority of assets PIMCO purchases and sells
on behalf of its Advisory Clients consist of corporate debt Securities, U.S. and
foreign government obligations, asset-backed Securities, money market
instruments, foreign currencies, and futures contracts and options with respect
to those instruments. For its StocksPLUS Funds, PIMCO also purchases futures and
options on the S & P 500 index and, on rare occasions, may purchase or sell
baskets of the stocks represented in the S & P 500. For its Convertible Bond
Fund and other Advisory Clients, PIMCO purchases convertible securities that may
be converted or exchanged into underlying shares of common stock. Other PIMCO
Funds may also invest in convertible securities. The Convertible Bond Fund and
other Advisory Clients may also invest a portion of their assets in common
stocks.
Rule 17j-1 under the Investment Company Act of 1940 requires REPORTING
of all personal transactions in Securities (other than certain Exempt
Securities) by certain persons, whether or not they are Securities that might be
purchased or sold by PIMCO on behalf of its Advisory Clients. The Code
implements that reporting requirement.
- --------
(1) PIMCO expects Allianz of America ("AZOA") to acquire a majority interest
in PIMCO Advisors L.P. ("PALP") in March 2000. When that acquisition is
consummated, the Special Trading Procedures for PALP securities will no longer
apply since PALP securities will not be publicly owned or traded.
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However, since the purpose of the Code is to avoid conflicts of
interest arising from personal trading activities in Securities and other
instruments that are held or might be acquired on behalf of our Advisory
Clients, this Code only places RESTRICTIONS on personal trading activities in
such investments. As a result, this Code does not place restrictions (beyond
reporting) on personal trading in most individual equity Securities. Except for
the small number of Portfolio Employees who are responsible for PIMCO's
Municipal Bond Fund, this Code also does not place restrictions (beyond
reporting) on personal trading in Tax-Exempt Municipal Bonds. Although equities
and Tax-Exempt Municipal Bonds are Securities, they are not purchased or sold by
PIMCO on behalf of the vast majority of PIMCO's Advisory Clients and PIMCO has
established special procedures to avoid conflicts of interest that might
otherwise arise from personal trading in those Securities. On the other hand,
this Code does require reporting and restrict trading in certain Futures
Contracts which, although they are not Securities, are instruments in which
PIMCO frequently trades for many of its Advisory Clients.
This Code applies to PIMCO's officers and directors as well as to all
of its Advisory Employees. The Code recognizes that portfolio managers and the
investment personnel who provide them with advice and who execute their
decisions occupy more sensitive positions than other Advisory Employees and that
it is appropriate to subject their personal investment activities to greater
restrictions.
THE ORGANIZATION OF THE CODE
The remainder of this Code is divided into three sections. The first
section concerns PERSONAL INVESTMENT TRANSACTIONS. The second section describes
the restrictions on GIFTS AND SERVICE AS A DIRECTOR. The third section
summarizes the methods for ensuring COMPLIANCE under the Code. In addition, the
following APPENDICES are also a part of this Code:
I. Definitions of Capitalized Terms.
II. The PIMCO Advisors L.P. Insider Trading Policy and Procedures.
III. The PIMCO Advisors L.P. Policy Regarding Special Trading Procedures for
Securities of PIMCO Advisors L.P. IV. Form for Acknowledgment of
Receipt of this Code.
V. Form for Annual Certification of Compliance with this Code.
VI. Form for Initial Report of Accounts.
VII. Form for Quarterly Report of Investment Transactions.
VIII. Form for Annual Holdings Report.
IX. Preclearance Request Form
X. List of PIMCO Compliance Officers.
QUESTIONS
Questions regarding this Code should be addressed to a Compliance
Officer listed on Appendix X. Those Compliance Officers compose the PIMCO
Compliance Committee.
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PERSONAL INVESTMENT TRANSACTIONS
IN GENERAL
Subject to the limited exceptions described below, you are required to
report all Investment Transactions in SECURITIES AND FUTURES CONTRACTS made by
you, a member of your Immediate Family or a trust in which you have an interest,
or on behalf of any account in which you have an interest or which you direct.
In addition, you must PRECLEAR certain Investment Transactions in SECURITIES AND
FUTURES CONTRACTS THAT PIMCO HOLDS OR MAY ACQUIRE ON BEHALF OF AN ADVISORY
CLIENT, INCLUDING CERTAIN INVESTMENT TRANSACTIONS IN RELATED SECURITIES.
The details of these reporting and preclearance requirements are
described below. This Code uses a number of capitalized terms, e.g. Advisory
Employee, Beneficial Ownership, Designated Equity Security, Exempt Security,
Fixed Income Security, Fund, Futures Contract, Immediate Family, Initial Public
Offering, Investment Transaction, Municipal Bond Portfolio Employee, Personal
Account, Portfolio Employee, Private Placement, Qualified Foreign Government,
Related Account, Related Security, and Security. The definitions of these
capitalized terms are set forth in Appendix I. TO UNDERSTAND YOUR
RESPONSIBILITIES UNDER THE CODE, IT IS IMPORTANT THAT YOU REVIEW AND UNDERSTAND
THE DEFINITIONS IN APPENDIX I.
REPORTING OBLIGATIONS
Notification Of Reporting Obligations
As an Advisory Employee, you are required to report accounts and
Investment Transactions in accordance with the requirements of this Code.
Use Of Broker-Dealers And Futures Commission Merchants
Unless you are an independent director, YOU MUST USE A REGISTERED
BROKER-DEALER OR REGISTERED FUTURES COMMISSION MERCHANT to engage in any
purchase or sale of a publicly-traded Security or Publicly-Traded Futures
Contract. This requirement also applies to any purchase or sale of a
publicly-traded Security or of a Publicly-Traded Futures Contract in which you
have, or by reason of the Investment Transaction will acquire, a Beneficial
Ownership interest. Thus, as a general matter, any Investment Transaction in
publicly-traded Securities or Publicly-Traded Futures Contracts by members of
your Immediate Family will need to be made through a registered broker-dealer or
futures commission merchant.
Initial Report
Within 10 days after commencing employment or within 10 days of any
event that causes you to become subject to this Code (e.g. promotion to a
position that makes you an Advisory Employee), you shall supply to a Compliance
Officer copies of the most recent statements for each and every Personal Account
and Related Account that holds or is likely to hold a Security or a Futures
Contract in which you have a Beneficial Ownership interest, as well as copies of
confirmations for any and all Investment Transactions subsequent to the
effective date of those
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statements. These documents shall be supplied to the Compliance Officer by
attaching them to the form appended hereto as Appendix VI.
On that same form you shall supply the name of any broker, dealer, bank
or futures commission merchant and the number for any Personal Account and
Related Account that holds or is likely to hold a Security or a Futures Contract
in which you have a Beneficial Ownership interest for which you cannot supply
the most recent account statement. You shall also certify, where indicated on
the form, that the contents of the form and the documents attached thereto
disclose all such Personal Accounts and Related Accounts.
In addition, you shall also supply, where indicated on the form, the
following information for each Security or Futures Contract in which you have a
Beneficial Ownership interest, to the extent that this information is not
available from the statements attached to the form:
1. A description of the Security or Futures Contract, including
its name or title;
2. The quantity (e.g. in terms of numbers of shares, units or
contracts) and principal amount (in dollars) of the Security
or Futures Contract; and
3. The name of any broker, dealer, bank or futures commission
merchant with which you maintained an account in which the
Security or Futures Contract was held.
New Accounts
Immediately upon the opening of a NEW Personal Account or a Related
Account that holds or is likely to hold a Security or a Futures Contract, you
shall supply a Compliance Officer with the name of the broker, dealer, bank or
futures commission merchant for that account, the identifying number for that
Personal Account or Related Account, and the date the account was established.
Timely Reporting Of Investment Transactions
You must cause each broker, dealer, bank or futures commission merchant
that maintains a Personal Account or a Related Account that holds a Security or
a Futures Contract in which you have a Beneficial Ownership interest to provide
to a Compliance Officer, on a timely basis, duplicate copies of trade
confirmations of all Investment Transactions in that account and of periodic
statements for that account ("duplicate broker reports").
In addition, you must report to a Compliance Officer, on a timely
basis, any Investment Transaction in a Security or a Futures Contract in which
you have or acquired a Beneficial Ownership interest that was established
without the use of a broker, dealer, bank or futures commission merchant.
Quarterly Certifications And Reporting
At the end of the first, second and third calendar quarters, a
Compliance Officer will provide you with a list of all accounts that you have
previously identified to PIMCO as a Personal Account or a Related Account that
holds or is likely to hold a Security or Futures
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Contract. Within 10 days after the end of that calendar quarter, you shall make
any necessary additions, corrections or deletions to that list and return it to
a Compliance Officer with a certification that: (a) the list, as modified (if
necessary), represents a complete list of the Personal Accounts and Related
Accounts that hold Securities or Futures Contracts in which you have or had a
Beneficial Ownership interest and for which PIMCO should have received or will
receive timely duplicate broker reports for the calendar quarter just ended, and
(b) the broker, dealer, bank or futures commission merchant for each account on
the list has been instructed to send a Compliance Officer timely duplicate
broker reports for that account.
You shall provide, on a copy of the form attached hereto as Appendix
VII, the following information for each Investment Transaction during the
calendar quarter just ended, to the extent that the duplicate broker reports for
that calendar quarter did not supply this information to PIMCO:
1. The date of the Investment Transaction, the title, the
interest rate and maturity date (if applicable), the number of
shares or contracts, and the principal amount of each Security
or Futures Contract involved;
2. The nature of the Investment Transaction (i.e. purchase, sale
or any other type of acquisition or disposition);
3. The price of the Security or Futures Contract at which the
transaction was effected; and
4. The name of the broker, dealer, bank, or futures commission
merchant with or through which the transaction was effected.
You shall provide similar information for the fourth calendar quarter on a copy
of the form attached hereto as Appendix VIII, which form shall also be used for
the Annual Holdings Report described below.
Annual Holdings Reports
Beginning with calendar year 2000, a Compliance Officer will provide to
you, promptly after the end of the calendar year, a list of all accounts that
you have previously identified to PIMCO as a Personal Account or a Related
Account that held or was likely to hold a Security or Futures Contract during
that calendar year. Within 10 days after the end of that calendar year, you
shall make any necessary additions, corrections or deletions to that list and
return it to a Compliance Officer with a certification that: (a) the list, as
modified (if necessary), represents a complete list of the Personal Accounts and
Related Accounts that held Securities or Futures Contracts in which you had a
Beneficial Ownership interest as of the end of that calendar year and for which
PIMCO should have received or will receive an account statement of holdings as
of the end of that calendar year, and (b) the broker, dealer, bank or futures
commission merchant for each account on the list has been instructed to send a
Compliance Officer such an account statement.
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You shall provide, on a copy of the form attached hereto as Appendix
VIII, the following information for each Security or Futures Contract in which
you had a Beneficial Ownership interest, as of the end of the previous calendar
year, to the extent that the previously referenced account statements have not
supplied or will not supply this information to PIMCO:
1. The title, quantity (e.g. in terms of numbers of shares, units
or contracts) and principal amount of each Security or Futures
Contract in which you had any Beneficial Ownership interest;
and
2. The name of any broker, dealer, bank or futures commission
merchant with which you maintain an account in which any such
Securities or Futures Contracts have been held or are held for
your benefit.
In addition, you shall also provide, on that same form, Investment Transaction
information for the fourth quarter of the calendar year just ended. This
information shall be of the type and in the form required for the quarterly
reports described above.
Related Accounts
The reporting and certification obligations described above also apply
to any Related Account (as defined in Appendix I) and to any Investment
Transaction in a Related Account.
It is important for you to recognize that the definitions of "Related
Account" and "Beneficial Ownership" in Appendix I may require you to provide, or
to arrange for the broker, dealer, bank or futures commission merchant to
furnish, copies of reports for any account used by or for a member of your
Immediate Family or a trust in which you or a member of your Immediate Family
has any vested interest, as well as for any other accounts in which you may have
the opportunity, directly or indirectly, to profit or share in the profit
derived from any Investment Transaction in that account.
Exemptions From Reporting
You need not report Investment Transactions in any account over which
neither you nor an Immediate Family Member has or had any direct or indirect
influence or control.
You also need not report Investment Transactions in Exempt Securities
(as defined in Appendix I) nor need you furnish, or require a broker, dealer,
bank or futures commission merchant to furnish, copies of confirmations or
periodic statements for accounts that hold only Exempt Securities. This includes
accounts that only hold U.S. Government Securities, money market interests, or
shares in open-end mutual funds. This exemption from reporting shall end
immediately, however, at such time as there is an Investment Transaction in that
account in a Futures Contract or in a Security that is not an Exempt Security.
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PROHIBITED INVESTMENT TRANSACTIONS
Initial Public Offerings
If you are a Portfolio Employee (as defined in Appendix I), you may not
acquire Beneficial Ownership of any Security in an Initial Public Offering.
Private Placements
If you are a Portfolio Employee, you may not acquire a Beneficial
Ownership interest in any Security through a Private Placement (or subsequently
sell it), unless you have received the prior written approval of the Chief
Executive Officer of PIMCO or of a Compliance Officer listed on Appendix X.
Approval will not be given unless a determination is made that the investment
opportunity should not be reserved for one or more Advisory Clients, and that
the opportunity to invest has not been offered to you by virtue of your position
with PIMCO.
If, after receiving the necessary approval, you have acquired a
Beneficial Ownership interest in Securities through a Private Placement, you
must DISCLOSE that investment when you play a part in any consideration of any
investment by an Advisory Client in the issuer of the Securities, and any
decision to make such an investment must be INDEPENDENTLY REVIEWED by a
portfolio manager who does not have a Beneficial Ownership interest in any
Securities of the issuer.
PIMCO Advisors L.P.
You may not engage in any Investment Transaction in interests in PIMCO
Advisors L.P. ("PALP"), except in compliance with the Special Trading Procedures
applicable to such transactions.(2)
PRECLEARANCE
All Investment Transactions in Securities and Futures Contracts in a
Personal Account or Related Account, or in which you otherwise have or will
acquire a Beneficial Ownership interest, must be precleared by a Compliance
Officer unless an Investment Transaction, Security or Futures Contract falls
into one of the following categories that are identified as "exempt from
preclearance."
Preclearance Procedure
Preclearance shall be requested by completing and submitting a copy of
the preclearance request form attached hereto as Appendix IX to a Compliance
Officer. No Investment Transaction subject to preclearance may be effected prior
to receipt of written authorization of the transaction by a Compliance Officer.
The authorization and the date of authorization will be reflected on the
preclearance request form. Unless otherwise specified, that authorization shall
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(2) As indicated in note 1, above, those procedures will expire and no longer be
effective after AZOA completes its acquisition of a majority interest in PALP.
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be effective, unless revoked, until the earlier of: (a) the close of business on
the day the authorization is given, or (b) until you discover that the
information on the preclearance request form is no longer accurate.
The Compliance Officer from whom authorization is sought may undertake
such investigation as he or she considers necessary to determine that the
Investment Transaction for which preclearance has been sought complies with the
terms of this Code and is consistent with the general principles described at
the beginning of the Code.
Before deciding whether to authorize an Investment Transaction in a
particular Security or Futures Contract, the Compliance Officer shall determine
and consider, based upon the information reported or known to that Compliance
Officer, whether within the most recent 15 days: (a) the Security, the Futures
Contract or any Related Security is or has been held by an Advisory Client, or
(b) is being or has been considered for purchase by an Advisory Client. The
Compliance Officer shall also determine whether there is a pending BUY or SELL
order in the same Security or Futures Contract, or in a Related Security, on
behalf of an Advisory Client. If such an order exists, authorization of the
personal Investment Transaction shall not be given until the Advisory Client's
order is executed or withdrawn. This prohibition may be waived by a Compliance
Officer if he or she is convinced that: (a) your personal Investment Transaction
is necessary, (b) your personal Investment Transaction will not adversely affect
the pending order of the Advisory Client, and (c) provision can be made for the
Advisory Client trade to take precedence (in terms of price) over your personal
Investment Transaction.
Exemptions From Preclearance
Preclearance shall NOT be required for the following Investment
Transactions, Securities and Futures Contracts. They are exempt only from the
Code's preclearance requirement, and, unless otherwise indicated, remain subject
to the Code's other requirements, including its reporting requirements.
Investment Transactions Exempt From Preclearance
Preclearance shall NOT be required for any of the following Investment
Transactions:
1. Any transaction in a Security or Futures Contract in an
account that is managed or held by a broker, dealer, bank,
futures commission merchant, investment adviser, commodity
trading advisor or trustee and over which you do not exercise
investment discretion, have notice of transactions prior to
execution, or otherwise have any direct or indirect influence
or control. There is a presumption that you can influence or
control accounts held by members of your Immediate Family
sharing the same household. This presumption may be rebutted
only by convincing evidence.
2. Purchases of Securities under dividend reinvestment plans.
3. Purchases of Securities by exercise of rights issued to the
holders of a class of Securities pro rata, to the extent they
are issued with respect to Securities in which you have a
Beneficial Ownership interest.
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4. Acquisitions or dispositions of Securities as the result of a
stock dividend, stock split, reverse stock split, merger,
consolidation, spin-off or other similar corporate
distribution or reorganization applicable to all holders of a
class of Securities in which you have a Beneficial Ownership
interest.
Securities Exempt From Preclearance
Regardless Of Transaction Size
Preclearance shall NOT be required for an Investment Transaction in the
following Securities or Related Securities, regardless of the size of that
transaction:
1. All "Exempt Securities" defined in Appendix I, i.e. U.S.
Government Securities, shares in open-end mutual funds, and
high quality short-term debt instruments.
2. All closed-end mutual funds (other than PIMCO Commercial
Mortgage Securities Trust, Inc.), and rights distributed to
shareholders in closed-end mutual funds.
3. All options on any index of equity Securities.
4. All Fixed Income Securities issued by agencies or
instrumentalities of, or unconditionally guaranteed by, the
Government of the United States.
5. All options on foreign currencies or baskets of foreign
currencies (whether or not traded on an exchange or board of
trade).
6. EXCEPT FOR DESIGNATED EQUITY SECURITIES (as defined in
Appendix I and discussed below), all equity Securities or
options, warrants or other rights to equity Securities.
7. EXCEPT FOR MUNICIPAL BOND PORTFOLIO EMPLOYEES (as defined in
Appendix I), all Tax-Exempt Municipal Bonds.
Securities Exempt from Preclearance
Depending On Transaction Size
Preclearance shall NOT be required for an Investment Transaction in the
following Securities or Related Securities if they do not exceed the specified
transaction size thresholds:
1. Purchases or sales of up to $1,000,000 (in market value or
face amount whichever is greater) per calendar month per
issuer of Fixed Income Securities issued by a Qualified
Foreign Government.
2. Purchases or sales of up to $100,000 (in market value or face
amount, whichever is greater) per calendar month per issuer of
corporate debt Securities, mortgage-backed and other
asset-backed Securities, structured notes and loan
participations, and foreign government debt Securities issued
by non-qualified foreign governments.
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Preclearance of Designated Equity Securities
If a Compliance Officer receives notification from a Portfolio Employee
that an equity Security or an option, warrant or other right to an equity
Security is being considered for purchase or sale by PIMCO on behalf of one of
its Advisory Clients, the Compliance Officer will send you an e-mail message or
similar transmission notifying you that this equity Security or option, warrant
or other right to an equity Security is now a "Designated Equity Security." A
current list of Designated Equity Securities (if any) will also be available on
the PIMCO intranet site. You must preclear any Investment Transaction in a
Designated Equity Security or a Related Security during the period when that
designation is in effect.
Futures Contracts Exempt From Preclearance
Regardless Of Transaction Size
Preclearance shall NOT be required for an Investment Transaction in the
following Futures Contracts, regardless of the size of that transaction (as
indicated in Appendix I, for these purposes a "Futures Contract" includes a
futures option):
1. Currency Futures Contracts.
2. U.S. Treasury Futures Contracts.
3. Eurodollar Futures Contracts.
4. Futures Contracts an any index of equity Securities.
5. Futures Contracts on physical commodities or indices thereof
(e.g. contracts for future delivery of grain, livestock, fiber
or metals whether for physical delivery or cash).
6. Privately-Traded Contracts.
Futures Contracts Exempt From Preclearance
Depending On Transaction Size
Preclearance shall NOT be required for an Investment Transaction in the
following Futures Contracts if the total number of contracts purchased or sold
during a calendar month does not exceed the specified limitations:
1. Purchases or sales of up to 50 PUBLICLY-TRADED FUTURES
CONTRACTS to acquire Fixed Income Securities issued by a
particular Qualified Foreign Government.
2. Purchases or sales of up to 10 OF EACH OTHER INDIVIDUAL
PUBLICLY-TRADED FUTURES CONTRACT if the open market interest
for such Futures Contract as reported in The Wall Street
Journal on the date of your Investment Transaction (for the
previous trading day) is at least 1,000 contracts. Examples of
Futures Contracts for which this exemption would be available
include a Futures Contract
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on a foreign government debt Security issued by a
non-qualified foreign government as well as a 30-day federal
funds Futures Contract.
For purposes of these limitations, a Futures Contract is defined by its
expiration month. For example, you need not obtain preclearance to purchase 50
December Futures Contracts on German Government Bonds and 50 March Futures
Contracts on German Government Bonds. Similarly, you may roll over 10 September
Fed Funds Futures Contracts by selling those 10 contracts and purchasing 10
October Fed Funds Futures Contracts since the contracts being sold and those
being purchased have different expiration months. On the other hand, you could
not purchase 10 January Fed Funds Future Contracts if the open interest for
those contracts was less than 1,000 contracts, even if the total open interest
for all Fed Funds Futures Contracts was greater than 1,000 contracts.
Additional Exemptions From Preclearance
The Compliance Committee may exempt other classes of Investment
Transactions, Securities or Futures Contracts from the Code's preclearance
requirement upon a determination that they do not involve a realistic
possibility of violating the general principles described at the beginning of
the Code.
Preclearance Required
Given the exemptions described above, preclearance shall be required
for Investment Transactions in:
1. Designated Equity Securities.
2. Tax-Exempt Municipal Bonds by Municipal Bond Portfolio
Employees.
3. More than $100,000 per calendar month per issuer of corporate
debt Securities, mortgage-backed and other asset-backed
Securities, taxable municipal debt Securities, structured
notes and loan participations, and foreign government debt
Securities issued by non-qualified foreign governments.
4. More than $1,000,000 per calendar month in debt Securities of
a Qualified Foreign Government.
5. Related Securities that are exchangeable for or convertible
into one of the Securities requiring preclearance under (1),
(2), (3) or (4) above.
6. More than 50 Publicly-Traded Futures Contracts per calendar
month to acquire Fixed Income Securities issued by a
particular Qualified Foreign Government.
7. More than 10 of any other individual Publicly-Traded Futures
Contract or any Publicly-Traded Futures Contract for which the
open market interest as reported in The Wall Street Journal on
the date of your Investment Transaction (for the previous
trading day) is less than 1,000 contracts, unless the Futures
Contract is exempt from preclearance regardless of transaction
size.
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Any other Security or Publicly-Traded Futures Contract that is
not within the "exempt" categories listed above.
8. PIMCO Commercial Mortgage Securities Trust, Inc.
SHORT-TERM TRADING PROFITS
You may not profit from the purchase and sale, or the sale and
purchase, within 60 calendar days, of FIXED INCOME SECURITIES OR RELATED
SECURITIES. Portfolio Employees may not profit from the purchase and sale, or
the sale and purchase, within 60 calendar days, of DESIGNATED EQUITY SECURITIES
and Municipal Bond Portfolio Employees may not profit from the purchase and
sale, or the sale and purchase, within 60 calendar days, of TAX-EXEMPT MUNICIPAL
BONDS. Any such short-term trade must be unwound, or if that is not practical,
the profits must be contributed to a charitable organization.
This ban does NOT apply to Investment Transactions in U.S. Government
Securities, most equity Securities, mutual fund shares, index options or Futures
Contracts. This ban also does not apply to a purchase or sale in connection with
one of the four categories of Investment Transactions Exempt From Preclearance
described on pages 9-10, above.
You are considered to profit from a short-term trade if Securities in
which you have a Beneficial Ownership interest are sold for more than their
purchase price, even though the Securities purchased and the Securities sold are
held of record or beneficially by different persons or entities.
BLACKOUT PERIODS
You MAY NOT purchase or sell a Security, a Related Security or a
Futures Contract at a time when you intend or know of another's intention to
purchase or sell that Security or Futures Contract on behalf of any Advisory
Client.
As noted previously in the description of the Preclearance Process, a
Compliance Officer may not preclear an Investment Transaction in a Security or a
Futures Contract at a time when there is a pending BUY OR SELL order in the same
Security or Futures Contract, or a Related Security, until that order is
executed or withdrawn.
These prohibitions do not apply to Investment Transactions in any
Futures Contracts that are exempt from preclearance regardless of transaction
size.
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GIFTS AND SERVICE AS A DIRECTOR
GIFTS
You MAY NOT accept any investment opportunity, gift, gratuity or other
thing of more than nominal value from any person or entity that does business,
or desires to do business, with PIMCO directly or on behalf of an Advisory
Client (a "Giver"). You MAY, however, accept gifts from a single Giver so long
as their aggregate annual value does not exceed $500, and you MAY attend
business meals, sporting events and other entertainment events at the expense of
a Giver (without regard to their aggregate annual value), so long as the expense
is reasonable and both you and the Giver are present.
SERVICE AS A DIRECTOR
If you are an Advisory Employee, you may not serve on the board of
directors or other governing board of a publicly traded entity, other than of a
Fund for which PIMCO is an advisor or subadvisor, unless you have received the
prior written approval of the Chief Executive Officer and the Chief Legal
Officer of PIMCO. Approval will not be given unless a determination is made that
your service on the board would be consistent with the interests of our Advisory
Clients. If you are permitted to serve on the board of a publicly traded entity,
you will be ISOLATED from those Advisory Employees who make investment decisions
with respect to the Securities of that entity, through a "Chinese Wall" or other
procedures.
COMPLIANCE
CERTIFICATIONS
Upon Receipt Of This Code
Upon commencement of your employment or the effective date of this
Code, whichever occurs later, you shall be required to acknowledge receipt of
your copy of this Code by completing and returning a copy of the form attached
hereto as Appendix IV. By that acknowledgment, you will also agree:
1. To read the Code, to make a reasonable effort to understand
its provisions, and to ask questions about those provisions
you find confusing or difficult to understand.
2. To comply with the Code, including its general principles, its
reporting requirements, its preclearance requirements, and its
provisions regarding gifts and service as a director.
3. To advise the members of your Immediate Family about the
existence of the Code, its applicability to their personal
trading activity, and your responsibility to assure that their
personal trading activity complies with the Code.
4. To cooperate fully with any investigation or inquiry by or on
behalf of a Compliance Officer to determine your compliance
with the provisions of the Code.
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In addition, your acknowledgment will recognize that any failure to comply with
the Code and to honor the commitments made by your acknowledgment may result in
disciplinary action, including dismissal.
Annual Certificate Of Compliance
You are required to certify on an annual basis, on a copy of the form
attached hereto as Appendix V, that you have complied with each provision of
your initial acknowledgment (see above). In particular, your annual
certification will require that you certify that you have read and that you
understand the Code, that you recognize you are subject to its provisions, that
you complied with the requirements of the Code during the year just ended and
that you have disclosed, reported, or caused to be reported all Investment
Transactions required to be disclosed or reported pursuant to the requirements
of the Code.
POST-TRADE MONITORING
The Compliance Officers will review the duplicate broker reports and
other information supplied to them concerning your personal Investment
Transactions so that they can detect and prevent potential violations of the
Code. The Compliance Officers will perform such investigation and make such
inquiries as they consider necessary to perform this function. You agree to
cooperate with any such investigation and to respond to any such inquiry. You
should expect that, as a matter of course, the Compliance Officers will make
inquiries regarding any personal Investment Transaction in a Security or Futures
Contract that occurs on the same day as a transaction in the same Security or
Futures Contract on behalf of an Advisory Client.
REMEDIAL ACTIONS
If you violate this Code, you are subject to remedial actions, which
may include, but are not limited to, disgorgement of profits, imposition of a
fine, censure, demotion, suspension or dismissal. As part of any sanction, you
may be required to reverse an Investment Transaction and to forfeit any profit
or to absorb any loss from the transaction.
The Compliance Committee shall have the ultimate authority to determine
whether you have violated the Code and, if so, the remedial actions it considers
appropriate. In making its determination, the Compliance Committee shall
consider, among other factors, the gravity of your violation, the frequency of
your violations, whether any violation caused harm or the potential of harm to
any Advisory Client, your efforts to cooperate with their investigation, and
your efforts to correct any conduct that led to a violation.
REPORTS TO DIRECTORS AND TRUSTEES
Reports Of Significant Remedial Actions
The General Counsel of PIMCO Advisors L.P. and the directors or
trustees of any affected Fund that is an Advisory Client will be informed on a
timely basis of each SIGNIFICANT REMEDIAL ACTION taken in response to a
violation of this Code. For this purpose, a significant remedial action will
include any action that has a significant financial effect on the violator.
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Reports of Material Changes To The Code
PIMCO will promptly advise the directors or trustees of any Fund that
is an Advisory Client if PIMCO makes any material change to this Code.
Annual Reports
PIMCO's management will furnish a written report annually to the
General Counsel of PIMCO Advisors L.P. and to the directors or trustees of each
Fund that is an Advisory Client. Each report, at a minimum, will:
1. Describe any significant issues arising under the Code, or
under procedures implemented by PIMCO to prevent violations of
the Code, since management's last report, including, but not
limited to, information about material violations of the Code
or those procedures and sanctions imposed in response to
material violations; and
2. Certify that PIMCO has adopted procedures reasonably necessary
to prevent Advisory Employees from violating the Code.
RECORDKEEPING
Beginning on the effective date of this Code, PIMCO will maintain, at
its principal place of business, the following records, which shall be available
to the Securities and Exchange Commission or any representative of the
Commission at any time and from time to time for reasonable periodic, special or
other examination:
1. PIMCO's Chief Compliance Officer shall maintain, in any easily
accessible place:
(a) a copy of PIMCO's current Code and of each
predecessor of that Code that was in effect at any
time within the previous five (5) years;
(b) a record of any violation of the Code, and of any
action taken as a result of the violation, for at
least five (5) years after the end of the fiscal year
in which the violation occurred;
(c) a copy of each report made by an Advisory Employee
pursuant to this Code, including any duplicate broker
report submitted on behalf of that Advisory Employee,
for at least two (2) years after the end of the
fiscal year in which that report was made or that
information was provided;
(d) a record of all persons, currently or within the past
five (5) years, who are or were required to make
reports pursuant to this Code or who are or were
responsible for reviewing such reports; and
(e) a copy of each report to the General Counsel of PIMCO
Advisors L.P. or to the directors or trustees of each
Fund that is an Advisory Client for at
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least two (2) years after the end of the fiscal year
in which that report was made.
2. PIMCO shall also maintain the following additional records:
(a) a copy of each report made by an Advisory Employee
pursuant to this Code, including any duplicate broker
report submitted on behalf of that Advisory Employee,
for at least five (5) years after the end of the
fiscal year in which that report was made or that
information was provided;
(b) a copy of each report to the General Counsel of PIMCO
Advisors L.P. or to the directors or trustees of each
Fund that is an Advisory Client for at least five (5)
years after the end of the fiscal year in which that
report was made; and
(c) a record of any decision, and the reasons supporting
the decision, to approve the acquisition by a
Portfolio Employee of a Beneficial Ownership interest
in any Security in an Initial Public Offering or in a
Private Placement for at least five (5) years after
the end of the fiscal year in which such approval was
granted.
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APPENDIX I
DEFINITIONS OF CAPITALIZED TERMS
The following definitions apply to the capitalized terms used in the
Code:
ADVISORY EMPLOYEE
The term "Advisory Employee" means: (1) a director, officer, general
partner or employee of PIMCO who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information regarding
the purchase or sale of a Security or Futures Contract by PIMCO on behalf of an
Advisory Client, or whose functions relate to the making of any recommendations
with respect to such purchases or sales, or (2) or a natural person in a control
relationship to PIMCO, or an employee of any company in a control relationship
to PIMCO, who: (a) makes, participates in, or obtains information regarding the
purchase or sale of a Security by a Fund that is an Advisory Client, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales, or (b) obtains information concerning recommendations to a
Fund with regard to the purchase or sale of a Security by the Fund.
BENEFICIAL OWNERSHIP
As a GENERAL MATTER, you are considered to have a "Beneficial
Ownership" interest in a Security or a Futures Contract if you have the
opportunity, directly or indirectly, to profit or share in any profit derived
from an Investment Transaction in that Security or Futures Contract. YOU ARE
PRESUMED TO HAVE A BENEFICIAL OWNERSHIP INTEREST IN ANY SECURITY OR FUTURES
CONTRACT HELD, INDIVIDUALLY OR JOINTLY, BY YOU OR A MEMBER OF YOUR IMMEDIATE
FAMILY (AS DEFINED BELOW). In addition, unless specifically excepted by a
Compliance Officer based on a showing that your interest in a Security or
Futures Contract is sufficiently attenuated to avoid the possibility of
conflict, you will be considered to have a Beneficial Ownership interest in a
Security or Futures Contract held by: (1) a JOINT ACCOUNT to which you are a
party, (2) a PARTNERSHIP in which you are a general partner, (3) a LIMITED
LIABILITY COMPANY in which you are a manager-member, or (4) a TRUST in which you
or a member of your Immediate Family has a vested interest.
As a TECHNICAL MATTER, the term "Beneficial Ownership" for purposes of
this Code shall be interpreted in the same manner as it would be under SEC Rule
16a-1(a)(2) (17 C.F.R. Section 240.16a-1(a)(2)) in determining whether a person
has a beneficial ownership interest in a Security for purposes of Section 16 of
the Securities Exchange Act of 1934 and the rules and regulations thereunder.
DESIGNATED EQUITY SECURITY
The term "Designated Equity Security" shall mean any equity Security,
option, warrant or other right to an equity Security designated as such by a
Compliance Officer, after receiving notification from a Portfolio Employee that
said Security is being considered for purchase or sale by PIMCO on behalf of one
of its Advisory Clients.
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EXEMPT SECURITY
The term "Exempt Security" shall mean any Security not included within
the definition of Covered Security in SEC Rule 17j-l(a)(4) (17 C.F.R. Section
17j-1(a)(4)), including:
1. Direct obligations of the Government of the United States;
2. Shares issued by open-end Funds; and
3. Bankers' acceptances, bank certificates of deposit, commercial
paper and high quality short-term debt instruments, including
repurchase agreements. For these purposes, a "high quality
short-term debt instrument" means any instrument having a
maturity at issuance of less than 366 days and that is rated
in one of the two highest rating categories by a Nationally
Recognized Statistical Rating Organization.
FIXED INCOME SECURITY
For purposes of this Code, the term "Fixed Income Security" shall mean
a fixed income Security issued by an agency or instrumentality of, or
unconditionally guaranteed by, the Government of the United States, a corporate
debt Security, a mortgage-backed or other asset-backed Security, a taxable fixed
income Security issued by a state or local government or a political subdivision
thereof, a structured note or loan participation, a foreign government debt
Security, or a debt Security of an international agency or a supranational
agency. For purposes of this Code, the term "Fixed Income Security" shall not be
interpreted to include a U.S. Government Security or any other Exempt Security
(as defined above) nor shall it be interpreted to include a Tax-Exempt Municipal
Bond (as defined below).
FUND
The term "Fund" means an investment company registered under the
Investment Company Act.
FUTURES CONTRACT
The term "Futures Contract" includes (a) a futures contract and an
option on a futures contract traded on a United States or foreign board of
trade, such as the Chicago Board of Trade, the Chicago Mercantile Exchange, the
London International Financial Futures Exchange or the New York Mercantile
Exchange (a "Publicly-Traded Futures Contract"), as well as (b) a forward
contract, a swap, a cap, a collar, a floor and an over-the-counter option (other
than an option on a foreign currency, an option on a basket of currencies, an
option on a Security or an option on an index of Securities) (a
"Privately-Traded Contract"). Consult with a Compliance Officer prior to
entering into a transaction in case of any doubt. For purposes of this
definition, a Publicly-Traded Futures Contract is defined by its expiration
month, i.e. a Publicly-Traded Futures Contract on a U.S. Treasury Bond that
expires in June is treated as a separate Publicly-Traded
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Futures Contract, when compared to a Publicly-Traded Futures Contract on a U.S.
Treasury Bond that expires in July.
IMMEDIATE FAMILY
The term "Immediate Family" means any of the following persons who
RESIDE IN YOUR HOUSEHOLD OR DEPEND ON YOU FOR BASIC LIVING SUPPORT: your spouse,
any child, stepchild, grandchild, parent, stepparent, grandparent, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including any adoptive relationships.
INITIAL PUBLIC OFFERING
The term "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933 (15 U.S.C. Section 77a), the issuer
of which, immediately before the registration, was not subject to thE reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. Section 78m or Section 78o(d)).
INVESTMENT TRANSACTION
For purposes of this Code, the term "Investment Transaction" means any
transaction in a Security or Futures Contract in which you have, or by reason of
the transaction will acquire, a Beneficial Ownership interest, and includes,
among other things, the writing of an option to purchase or sell a Security.
MUNICIPAL BOND PORTFOLIO EMPLOYEE
The term "Municipal Bond Portfolio Employee" shall mean any Portfolio
Employee (as defined below) who makes investment decisions for the PIMCO
Municipal Bond Fund or any other Advisory Client that purchases or sells
Tax-Exempt Municipal Bonds. Municipal Bond Portfolio Employees shall be subject
to "Chinese Wall' arrangements that will preclude them from sharing information
with other Advisory Employees concerning their investment decisions relating to
Tax-Exempt Municipal Bonds or their analyses or opinions regarding individual
Tax-Exempt Municipal Bonds.
PERSONAL ACCOUNT
The term "Personal Account" means the following accounts that hold or
are likely to hold a Security (as defined below) or a Futures Contract (as
defined above) in which you have a Beneficial Ownership interest: any account in
your individual name; any joint or tenant-in-common account in which you have an
interest or are a participant; any account for which you act as trustee,
executor, or custodian; any account over which you have investment discretion or
otherwise can exercise control (other than non-related clients' accounts over
which you have investment discretion), including the accounts of entities
controlled directly or indirectly by you; and any other account in which you
have a Beneficial Ownership interest (other than such accounts over which you
have no investment discretion and cannot otherwise exercise control).
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PORTFOLIO EMPLOYEE
The term "Portfolio Employee" means: (1) a portfolio manager or any
employee of PIMCO (or of any company in a control relationship with PIMCO) who,
in connection with his or her regular functions or duties, makes or participates
in making recommendations regarding the purchase or sale of securities by a
Fund, or (2) any natural person who controls PIMCO and who obtains information
concerning recommendations made to a Fund that is an Advisory Client regarding
the purchase or sale of Securities by the Fund. For these purposes, "control"
has the same meaning as in Section 2(a)(9) of the Investment Advisers Act (15
U.S.C. Section 80a-2(a)(9)).
PRIVATE PLACEMENT
The term "Private Placement" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) or
Section 4(6) (15 U.S.C. Section 77d(2) or Section 77d(6)) or pursuant to SEC
Rules 504, 505 or 506 (17 C.F.R. Sections 230.504, 230.505, or 230.506)
under the Securities Act of 1933.
QUALIFIED FOREIGN GOVERNMENT
The term "Qualified Foreign Government" means a national government of
a developed foreign country with outstanding Fixed Income Securities in excess
of fifty billion dollars. A list of Qualified Foreign Governments will be
prepared as of the last business day of each calendar quarter, will be available
from the Chief Compliance Officer, and will be effective for the following
calendar quarter.
RELATED ACCOUNT
The term "Related Account" means any account, other than a Personal
Account, that holds a Security or Futures Contract in which you have a
Beneficial Ownership interest.
RELATED SECURITY
The term "Related Security" shall mean any option to purchase or sell,
and any Security convertible into or exchangeable for, a Security that is or has
been held by PIMCO on behalf of one of its Advisory Clients or any Security that
is being or has been considered for purchase by PIMCO on behalf of one of its
Advisory Clients.
SECURITY
As a GENERAL MATTER, the term "Security" shall mean any stock, note,
bond, debenture or other evidence of indebtedness (including any loan
participation or assignment), limited partnership interest or investment
contract OTHER THAN AN EXEMPT SECURITY (as defined above). The term "Security"
includes an option on a Security, on an index of Securities, on a currency or on
a basket of currencies, including such an option traded on the Chicago Board of
Options Exchange or on the New York, American, Pacific or Philadelphia Stock
Exchanges, as well as
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such an option traded in the over-the-counter market. The term "Security" shall
not include a Futures Contract or a physical commodity (such as foreign exchange
or a precious metal).
As a TECHNICAL MATTER, the term "Security" shall have the meaning set
forth in Section 2(a)(36) of the Investment Company Act of 1940 (15 U.S.C.
Section 80a-2(a)(36)), which defines a Security to mean:
Any note, stock, treasury stock, bond debenture, evidence of
indebtedness, certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, preorganization certificate of
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security (including a certificate of deposit) or on any group or index of
securities (including any interest therein or based on the value thereof), or
any put, call, straddle, option, or privilege entered into on a national
securities exchange relating to foreign currency, or, in general, any interest
or instrument commonly known as a "security", or any certificate of interest or
instrument commonly known as a "security", or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, warrant or right to subscribe to or purchase, any of the foregoing, except
that the term "Security" shall not include any Security that is an Exempt
Security (as defined above), a Futures Contract or a physical commodity (such as
foreign exchange or precious metal).
TAX-EXEMPT MUNICIPAL BOND
The term "Tax-Exempt Municipal Bond" shall mean any Fixed Income
Security exempt from federal income tax that is issued by a state or local
government or a political subdivision thereof.
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APPENDIX II
INSIDER TRADING POLICY AND PROCEDURES
PIMCO ADVISORS L.P.
Effective as of May 1, 1996
SECTION I. POLICY STATEMENT ON INSIDER TRADING.
A. POLICY STATEMENT ON INSIDER TRADING.
PIMCO ADVISORS L.P. ("PALP"), ITS AFFILIATED SUBPARTNERSHIPS, PIMCO
PARTNERS, G.P. ("PIMCO GP") AND PIMCO FUNDS DISTRIBUTORS LLC ("PFD")
(collectively the "Company" or "PIMCO Advisors") FORBID ANY OF THEIR OFFICERS,
DIRECTORS OR EMPLOYEES FROM TRADING, EITHER PERSONALLY OR ON BEHALF OF OTHERS
(such as, mutual funds and private accounts managed by PALP or its affiliated
Subpartnerships), ON THE BASIS OF MATERIAL, NON-PUBLIC INFORMATION OR
COMMUNICATING MATERIAL, NON-PUBLIC INFORMATION TO OTHERS IN VIOLATION OF THE
LAW. THIS CONDUCT IS FREQUENTLY REFERRED TO AS "INSIDER TRADING."
The term "insider trading" is not defined in the federal securities
laws, but generally is used to refer to the use of material, non-public
information to trade in securities or to communications of material, non-public
information to others in breach of a fiduciary duty.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(1) trading by an insider, while in possession of material,
non-public information; or
(2) trading by a non-insider, while in possession of material,
non-public information, where the information was disclosed to
the non-insider in violation of an insider's duty to keep it
confidential; or
(3) communicating material, non-public information to others in
breach of a fiduciary duty.
This communication applies to every such officer, director and employee
and extends to activities within and outside their duties at PIMCO Advisors.
Every officer, director and employee must read and retain this policy statement.
Any questions regarding this policy statement and the related procedures set
forth herein should be referred to a Compliance Officer of PALP or the
applicable subpartnership.
The remainder of this memorandum discusses in detail the elements of
insider trading, the penalties for such unlawful conduct and the procedures
adopted by the Company to implement its policy against insider trading.
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1. TO WHOM DOES THIS POLICY APPLY?
This Policy applies to all employees, officers and directors (direct or
indirect) of the Company ("Covered Persons"), as well as to any transactions in
any securities participated by family members, trusts or corporations controlled
by such persons. In particular, this Policy applies to securities transactions
by:
- the Covered Person's spouse;
- the Covered Person's minor children;
- any other relative living in the Covered Person's household;
- a trust in which the Covered Person has a beneficial interest,
unless such person has no direct or indirect control over the
trust;
- a trust as to which the Covered Person is a trustee;
- a revocable trust as to which the Covered Person is a settlor;
- a corporation of which the Covered Person is an officer,
director or 10% or greater stockholder; or
- a partnership of which the Covered Person is a partner
(including most investment clubs), unless the Covered Person
has no direct or indirect control over the partnership.
2. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities.
Although there is no precise, generally accepted definition of
materiality, information is likely to be "material" if it relates to significant
changes affecting such matters as:
dividend or earnings expectations;
write-downs or write-offs of assets;
additions to reserves for bad debts or contingent liabilities;
expansion or curtailment of company or major division operations;
proposals or agreements involving a joint venture, merger,
acquisition, divestiture, or leveraged buy-out;
new products or services;
exploratory, discovery or research developments;
criminal indictments, civil litigation or government investigations;
disputes with major suppliers or customers or significant changes in
the relationships with such parties;
labor disputes including strikes or lockouts;
substantial changes in accounting methods;
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major litigation developments;
major personnel changes;
debt service or liquidity problems;
bankruptcy or insolvency;
extraordinary management developments;
public offerings or private sales of debt or equity securities;
calls, redemptions or purchases of a company's own stock;
issuer tender offers;
or recapitalizations.
Information provided by a company could be material because of its
expected effect on a particular class of the company's securities, all of the
company's securities, the securities of another company, or the securities of
several companies. Moreover, the resulting prohibition against the misuses of
"material" information reaches all types of securities (whether stock or other
equity interests, corporate debt, government or municipal obligations, or
commercial paper) as well as any option related to that security (such as a put,
call or index security).
Material information does not have to relate to a company's business.
For example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court
considered as material certain information about the contents of a forthcoming
newspaper column that was expected to affect the market price of a security. In
that case, a reporter for The Wall Street Journal was found criminally liable
for disclosing to others the dates that reports on various companies would
appear in the Journal and whether those reports would be favorable or not.
3. WHAT IS NON-PUBLIC INFORMATION?
In order for issues concerning insider trading to arise, information
must not only be "material," it must be "non-public." "Non-public" information
is information which has not been made available to investors generally.
Information received in circumstances indicating that it is not yet in general
circulation or where the recipient knows or should know that the information
could only have been provided by an "insider" is also deemed "non-public"
information.
At such time as material, non-public information has been effectively
distributed to the investing public, it is no longer subject to insider trading
restrictions. However, for "non-public" information to become public
information, it must be disseminated through recognized channels of distribution
designed to reach the securities marketplace.
To show that "material" information is public, you should be able to
point to some fact verifying that the information has become generally
available, for example, disclosure in a national business and financial wire
service (Dow Jones or Reuters), a national news service (AP or UPI), a national
newspaper (The Wall Street Journal or The New York Times), or a publicly
disseminated disclosure document (a proxy statement or prospectus). The
circulation of rumors or "talk on the street," even if accurate, widespread and
reported in the media, does not constitute the requisite public disclosure. The
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information must not only be publicly disclosed, there must also be adequate
time for the market as a whole to digest the information. Although timing may
vary depending upon the circumstances, a good rule of thumb is that information
is considered non-public until the third business day after public disclosure.
Material, non-public information is not made public by selective
dissemination. Material information improperly disclosed only to institutional
investors or to a fund analyst or a favored group of analysts retains its status
as "non-public" information which must not be disclosed or otherwise misused.
Similarly, partial disclosure does not constitute public dissemination. So long
as any material component of the "inside" information possessed by the Company
has yet to be publicly disclosed, the information is deemed "non-public" and may
not be misused.
Information Provided in Confidence. Occasionally, one or more
directors, officers, or employees of companies in PIMCO Advisors may become
temporary "insiders" because of a fiduciary or commercial relationship. For
example, personnel at PALP or a subpartnership may become insiders when an
external source, such as a company whose securities are held by one or more of
the accounts managed by PALP or a subpartnership, entrusts material, non-public
information to the Company portfolio managers or analysts with the expectation
that the information will remain confidential.
As an "insider," the Company has a fiduciary responsibility not to
breach the trust of the party that has communicated the "material, non-public"
information by misusing that information. This fiduciary duty arises because the
Company has entered or has been invited to enter into a commercial relationship
with the client or prospective client and has been given access to confidential
information solely for the corporate purposes of that client or prospective
client. This obligation remains whether or not the Company ultimately
participates in the transaction.
Information Disclosed in Breach of a Duty. Analysts and portfolio
managers at PIMCO Advisors must be especially wary of "material, non-public"
information disclosed in breach of a corporate insider's fiduciary duty. Even
where there is no expectation of confidentiality, a person may become an
"insider" upon receiving material, non-public information in circumstances where
a person knows, or should know, that a corporate insider is disclosing
information in breach of the fiduciary duty he or she owes the corporation and
its shareholders. Whether the disclosure is an improper "tip" that renders the
recipient a "tippee" depends on whether the corporate insider expects to benefit
personally, either directly or indirectly, from the disclosure. In the context
of an improper disclosure by a corporate insider, the requisite "personal
benefit" may not be limited to a present or future monetary gain. Rather, a
prohibited personal benefit could include a reputational benefit, an expectation
of a quid pro quo from the recipient or the recipient's employer by a gift of
the "inside" information.
A person may, depending on the circumstances, also become an "insider"
or "tippee" when he or she obtains apparently material, non-public information
by happenstance, including information derived from social situations, business
gatherings, overheard conversations, misplaced documents, and "tips" from
insiders or other third parties.
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4. IDENTIFYING MATERIAL INFORMATION?
Before trading for yourself or others, including investment companies
or private accounts managed by PALP or its affiliated Subpartnerships, in the
securities of a company about which you may have potential material, non-public
information, ask yourself the following questions:
i. Is this information that an investor could consider important in making
his or her investment decisions? Is this information that could
substantially affect the market price of the securities if generally
disclosed?
ii. To whom has this information been provided? Has the information been
effectively communicated to the marketplace by being published in
Reuters, The Wall Street Journal or other publications of general
circulation.
Given the potentially severe regulatory, civil and criminal sanctions
to which you and PIMCO Advisors and its personnel could be subject, any
director, officer and employee uncertain as to whether the information he or she
possesses is "material, non-public" information should immediately take the
following steps:
i. Report the matter immediately to a Compliance Officer or the Chief
Executive Officer of PALP;
ii. Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by PALP or
the applicable affiliated subpartnership; and
iii. Do not communicate the information inside or outside the Company, other
than to a Compliance Officer or the Chief Executive Officer of PALP.
After a Compliance Officer or the Chief Executive Officer has reviewed
the issue, you will be instructed to continue the prohibitions against trading
and communication or will be allowed to trade and communicate the information.
5. PENALTIES FOR INSIDER TRADING.
Penalties for trading on or communicating material, non-public
information are severe, both for individuals involved in such unlawful conduct
and their employers. A person can be subject to some or all of the penalties
below even if he or she does not personally benefit from the violation.
Penalties include:
civil injunctions
treble damages
disgorgement of profits
jail sentences
fines for the person who committed the violation of up to three times
the profit gained or loss avoided, whether or not the person actually
benefited, and
fines for the employer or other controlling person of up
to the greater of $1,000,000 or three times the amount of the profit
gained or loss avoided.
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In addition, any violation of this policy statement can be expected to
result in serious sanctions by PIMCO Advisors, including dismissal of the
persons involved.
SECTION II. PROCEDURES TO IMPLEMENT PIMCO ADVISORS' POLICY.
A. PROCEDURES TO IMPLEMENT THE POLICY AGAINST INSIDER TRADING.
The following procedures have been established to aid the officers,
directors and employees of PIMCO Advisors in avoiding insider trading, and to
aid the Company in preventing, detecting and imposing sanctions against insider
trading. Every officer, director and employee of PIMCO Advisors must follow
these procedures or risk serious sanctions, including dismissal, substantial
personal liability and criminal penalties.
TRADING RESTRICTIONS AND REPORTING REQUIREMENTS
1. No employee, officer or director of the Company who possesses material,
non-public information relating to the Company or any of its affiliates
or subsidiaries, may buy or sell any securities of the Company or
engage in any other action to take advantage of, or pass on to others,
such material, non-public information.
2. No employee, officer or director of the Company who obtains material,
non-public information which relates to any other company or entity in
circumstances in which such person is deemed to be an insider or is
otherwise subject to restrictions under the federal securities laws may
buy or sell securities of that company or otherwise take advantage of,
or pass on to others, such material, non-public information.
3. No employee, officer or director of the Company shall engage in a
securities transaction with respect to the securities of PIMCO
Advisors, except in accordance with the specific procedures published
from time to time by the company.
4. Each employee, officer or director of the Company shall submit reports
of every securities transaction involving securities of PIMCO Advisors
to a Compliance Officer in accordance with the terms of the Company's
Code of Ethics as they relate to any other securities transaction.
5. No Employee (as such term is defined in the applicable Code of Ethics)
shall engage in a securities transaction with respect to any securities
of any other company, except in accordance with the specific procedures
set forth in the Company's Code of Ethics.
6. Employees shall submit reports concerning each securities transaction
in accordance with the terms of the Code of Ethics and verify their
personal ownership of securities in accordance with the procedures set
forth in the Code of Ethics.
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7. Because even inadvertent disclosure of material, non-public information
to others can lead to significant legal difficulties, officers,
directors and employees of the Company should not discuss any
potentially material, non-public information concerning the Company or
other companies, including other officers, employees and directors,
except as specifically required in the performance of their duties.
B. CHINESE WALL PROCEDURES.
The Insider Trading and Securities Fraud Enforcement Act requires the
establishment and strict enforcement of procedures reasonably designed to
prevent the misuse of "inside" information.(1) Accordingly, you should not
discuss material, non-public information about the Company or other companies
with anyone, including other employees, except as required in the performance of
your regular duties. In addition, care should be taken so that such information
is secure. For example, files containing material, non-public information should
be sealed; access to computer files containing material, non-public information
should be restricted.
C. RESOLVING ISSUES CONCERNING INSIDER TRADING.
The federal securities laws, including the laws governing insider
trading, are complex. If you have any doubts or questions as to the materiality
or non-public nature of information in your possession or as to any of the
applicability or interpretation of any of the foregoing procedures or as to the
propriety of any action, you should contact a Compliance Officer. Until advised
to the contrary by a Compliance Officer, you should presume that the information
is material and non-public and you should NOT trade in the securities or
disclose this information to anyone.
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1. The antifraud provisions of United States securities laws reach insider
trading or tipping activity worldwide which defrauds domestic securities
markets. In addition, the Insider Trading and Securities Fraud Enforcement Act
specifically authorizes the SEC to conduct investigations at the request of
foreign governments, without regard to whether the conduct violates United
States law.
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APPENDIX III
PIMCO ADVISORS L.P.
POLICY REGARDING SPECIAL TRADING PROCEDURES
FOR SECURITIES OF PIMCO ADVISORS L.P.
Effective as of May 1, 1996
INTRODUCTION
PIMCO Advisors L.P. (as defined below) has adopted an Insider Trading
Policy and Procedures applicable to all personnel which prohibits insider
trading in any securities, and prohibits all employees from improperly using or
disclosing material, non-public information, a copy of which has been supplied
to you.
For the purposes of this memorandum, the term the "Company" shall
include PIMCO Advisors L.P. ("PALP"), PIMCO Partners, G.P. ("PIMCO GP"), PIMCO
Funds Distributors LLC ("PFD") and any entity in relation to which PALP acts as
a general partner or owns 50% or more of one the issued and outstanding stock.
PERSONS TO WHOM THIS SPECIAL TRADING POLICY APPLIES
This Policy applies to all employees of the Company and, in the case of
PALP, the inside members of the Operating Board and the Equity Board ("Covered
Persons"), as well as to any transactions in securities participated in by
family members, trusts or corporations controlled by a Covered Person. In
particular, this Policy applies to securities transactions by:
a. the Covered Person's spouse;
b. the Covered Person's minor children;
c. any other relatives living in the Covered Person's household;
d. a trust in which the Covered Person has a beneficial interest, unless
such Covered Person has no direct or indirect control over the trust;
e. a trust as to which the Covered Person is a trustee;
f. a revocable trust as to which the Covered Person is a settlor;
g. a corporation of which the Covered Person is an officer, director or
10% or greater stockholder; or
h. a partnership of which the Covered Person is a partner (including most
investment clubs), unless the Covered Person has no direct or indirect
control over the partnership.
The family members, trust and corporations listed above are hereinafter
referred to as "Related persons." SECURITIES TO WHICH THIS SPECIAL TRADING
POLICY APPLIES
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SECURITIES TO WHICH THIS SPECIAL TRADING POLICY APPLIES
Unless stated otherwise, the following Special Trading Procedures apply
to all transactions by Covered Persons and their Related Persons involving any
class or series of units of limited partner interest of PALP or other securities
of PALP, including options and other derivative securities (such as a put, call
or index security) in relation to such securities (the "PALP Securities").
SPECIAL TRADING PROCEDURES RELATING TO SECURITIES OF PIMCO ADVISORS L.P.
1. TRADING WINDOWS
There are times when the Company may be engaged in a material
non-public development or transaction. Even if you are not aware of this
development or transaction, if you trade PALP's Securities before such
development or transaction is disclosed to the public, you might expose yourself
and the Company to a charge of insider trading that could be costly and
difficult to refute. In addition, such a trade by you could result in adverse
publicity to you or the company.
Therefore, the following rule shall apply: each Covered Person and all
of such person's Related Persons may only purchase or sell PALP Securities
during four "trading windows" that occur each year. The four trading windows
consist of the months of February, May, August and November. TRADING ON THE
BASIS OF MATERIAL NON-PUBLIC INFORMATION OR COMMUNICATING MATERIAL NON-PUBLIC
INFORMATION TO OTHERS AT ANY TIME, INCLUDING IN A TRADING WINDOW, IS A VIOLATION
OF THE LAW AND A VIOLATION OF THIS POLICY.
In accordance with the procedure for waivers described below, in
special circumstances a waiver may be given to allow a trade to occur outside of
a trading window.
Employees of PALP should be aware that there are potential tax
consequences for such employees resulting from the ownership of PALP Securities.
Each such employee contemplating purchasing PALP Securities should discuss the
matter with such employee's tax advisor.
The exercise of options to purchase PALP Securities for cash are not
Covered to the procedures outlined above, but the securities so acquired may not
be sold except during a trading window and after all other requirements of this
policy have been satisfied.
2. POST-TRADE REPORTING
All Covered Persons shall submit to a Compliance Officer a report of
every securities transaction in PALP Securities in which they and any of their
Related Persons have participated as soon as practicable following the
transaction and in any event not later than the fifth day after the end of the
month in which the transaction occurred. The report shall include: (1) the date
of the transaction and the title and number of shares or principal amount of
each security involved; (2) the nature of the transaction
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(i.e., purchase, sale or any other type of acquisition or disposition); (3) the
price at which the transaction was effected; and (4) the name of the
broker/dealer with or through whom the transaction was effected. In addition, on
an annual basis, each Covered Person must confirm the amount of PALP Securities
which such person and his her Related Persons beneficially own.
Each Covered Person (and not the Company) is personally responsible for
insuring that his or her transactions comply fully with any and all applicable
securities laws, including, but not limited to, the restrictions imposed under
Section 16(b) of the Securities and Exchange Act of 1934 and Rule 144 under the
Securities Act of 1933.
3. RESOLVING ISSUES CONCERNING INSIDER TRADING
If you have any doubts or questions as to whether information is
material or non-public, or as to the applicability or interpretation of any of
the foregoing procedures, or as to the propriety of any action, you should
contact a Compliance Officer before trading or communicating the information to
anyone. Until these doubts or questions are satisfactorily resolved, you should
presume that the information is material and non-public and you should NOT trade
in the securities or communicate this information to anyone.
4. MODIFICATIONS AND WAIVERS
The Company reserves the right to amend or modify this policy statement
at any time. Waiver of any provision of this policy statement in a specific
instance may be authorized in writing by a Compliance Officer and either the
Chief Executive Officer of PALP or any member of the Operating Committee of
PALP, and any such waiver shall be reported to the Equity and Operating Boards
of PALP at the next regularly scheduled meeting of each.
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APPENDIX IV
ACKNOWLEDGMENT OF RECEIPT
OF THE
CODE OF ETHICS
AND THE
INSIDER TRADING POLICY AND PROCEDURES OF
PACIFIC INVESTMENT MANAGEMENT COMPANY
I hereby certify that I have received the attached Code of Ethics and
Insider Trading Policy and Procedures. I hereby agree to read the Code, to make
a reasonable effort to understand its provisions and to ask questions about
those provisions I find confusing or difficult to understand. I also agree to
comply with the Code, including its general principles, its reporting
requirements, its preclearance requirements, and its provisions regarding gifts
and service as a director. I also agree to advise members of my Immediate Family
about the existence of the Code of Ethics, its applicability to their personal
trading activity, and my responsibility to assure that their personal trading
activity complies with the Code of Ethics. Finally, I agree to cooperate fully
with any investigation or inquiry by or on behalf of a Compliance Officer to
determine my compliance with the provisions of the Code. I recognize that any
failure to comply in all aspects with the Code and to honor the commitments made
by this acknowledgment may result in disciplinary action, including dismissal.
Date: _________________________ ___________________________________
Signature
___________________________________
Print Name
<PAGE> 243
APPENDIX V
ANNUAL CERTIFICATION OF COMPLIANCE
WITH THE
CODE OF ETHICS OF
PACIFIC INVESTMENT MANAGEMENT COMPANY
I hereby certify that I have complied with the requirements of the Code
of Ethics and Insider Trading Policy and Procedures that have applied to me
during the year ended December 31, 200_. In addition, I hereby certify that I
have read the Code and understand its provisions. I also certify that I
recognize that I am subject to the provisions of the Code and that I have
disclosed, reported, or caused to be reported all transactions required to be
disclosed or reported pursuant to the requirements of the Code. I recognize that
any failure to comply in all aspects with the Code and that any false statement
in this certification may result in disciplinary action, including dismissal.
Date: _________________________ ___________________________________
Signature
___________________________________
Print Name
<PAGE> 244
APPENDIX VI
INITIAL REPORT OF ACCOUNTS
PURSUANT TO THE
CODE OF ETHICS OF
PACIFIC INVESTMENT MANAGEMENT COMPANY
In accordance with the Code of Ethics, I have attached to this form
copies of the most recent statements for each and every Personal Account and
Related Account that holds or is likely to hold a Security or Futures Contract
in which I have a Beneficial Ownership interest, as well as copies of
confirmations for any and all Investment Transactions subsequent to the
effective dates of those statements.(1)
In addition, I hereby supply the following information for each and
every Personal Account and Related Account in which I have a Beneficial
Ownership interest for which I cannot supply the most recent account statement:
<TABLE>
<S> <C>
(1) Name of employee: _____________________________________________________
(2) If different than #1, name of the person
in whose name the account is held: _____________________________________________________
(3) Relationship of (2) to (1): _____________________________________________________
(4) Firm(s) at which Account is maintained: _____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
(5) Account Number(s): _____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
(6) Phone number(s) of Broker or Representative: _____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
</TABLE>
- --------
(1) The Code of Ethics uses various capitalized terms that are defined in
Appendix I to the Code. The capitalized terms used in this Report have the same
definitions.
<PAGE> 245
(7) Account holdings:
<TABLE>
<CAPTION>
Name of Security Quantity Principal Amount Custodian
---------------- -------- ---------------- ---------
<S> <C> <C> <C>
1. ___________________ ______________ _______________ ___________________
2. ___________________ ______________ _______________ ___________________
3. ___________________ ______________ _______________ ___________________
4. ___________________ ______________ _______________ ___________________
5. ___________________ ______________ _______________ ___________________
</TABLE>
(Attach additional sheets if necessary)
I also supply the following information for each and every Security or
Futures Contract in which I have a Beneficial Ownership interest, to the extent
this information is not available elsewhere on this form or from the statements
and confirmations attached to this form. This includes Securities or Futures
Contracts held at home, in safe deposit boxes, or by an issuer.
<TABLE>
<CAPTION>
Person Who Description
Owns the Security of the Security
Or Futures Contract Or Futures Contract Quantity Principal Amount Custodian
------------------- ------------------- -------- ---------------- ---------
<S> <C> <C> <C>
1. ___________________ _________________ _________________ _________________ _________________
2. ___________________ _________________ _________________ _________________ _________________
3. ___________________ _________________ _________________ _________________ _________________
4. ___________________ _________________ _________________ _________________ _________________
5 ___________________ _________________ _________________ _________________ _________________
</TABLE>
(Attach additional sheets if necessary.)
I hereby certify that this form and the attachments (if any) identify
all of the Personal Accounts, Related Accounts, Securities and Futures Contracts
in which I have a Beneficial Ownership interest as of this date.
________________________________
Signature
________________________________
Print Name
Date:
Attachments
<PAGE> 246
APPENDIX VII
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO FUNDS DISTRIBUTORS LLC
QUARTERLY REPORT OF INVESTMENT TRANSACTIONS
FOR THE QUARTER ENDED _______, 2000
Please mark one of the following:
[ ] No reportable Investment Transactions have occurrED.
[ ] Except as indicated below, all reportable Investment Transactions
were made through Personal Accounts and Related Accounts identified on the
attached list, which, except as indicated, represents a complete list of the
Personal Accounts and Related Accounts that hold Securities or Futures Contracts
in which I have or had a Beneficial Ownership interest and for which PIMCO
should have received or will receive timely duplicate broker reports for the
calendar quarter just ended.(1) I hereby certify that the broker, dealer, bank
or futures commission merchant for each such account has been instructed to send
a Compliance Officer timely duplicate broker reports for that account.
The following information for Investment Transactions during the calendar
quarter just ended does not appear on the duplicate broker reports referenced
above.
<TABLE>
<CAPTION>
Transaction Title, Interest Rate and Maturity Number of Shares or Contracts Nature of Transaction Transaction Broker, Dealer,
Date Date of Security or Futures Contract And Principal Amount (i.e., Buy or Sell) Price Bank or FCM
<S> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
SPECIAL NOTE TO PIMCO FUNDS DISTRIBUTORS LLC REGISTERED REPS AND ACCESS PERSONS:
You will not have to fill out an extra form for each quarter for PIMCO Funds
Distributors LLC.
SIGNED: ____________________________________
PRINT NAME: ____________________________________
DATE: ____________________________________
_____________
(1) The Code of Ethics uses various capitalized terms that are defined
in Appendix I to the Code. The capitalized terms used in this Report have the
same definitions.
<PAGE> 247
1. Please see the CODE OF ETHICS for a full description of the Investment
Transactions that must be reported.
2. TRANSACTION DATE. In the case of a market transaction, state the trade
date (not the settlement date).
3. TITLE OF SECURITY OR FUTURES CONTRACT. State the name of the issuer and
the class of the Security (e.g., common stock, preferred stock or
designated issue of debt securities). For Fixed Income Securities,
please provide the Security's interest rate and maturity date. For a
Futures Contract, state the title of any Security subject to the
Futures Contract and the expiration date of the Futures Contract.
4. NUMBER OF SHARES OR CONTRACTS AND PRINCIPAL AMOUNT. State the number of
shares of Securities, the face amount of Fixed Income Securities or the
units of other securities. For options, state the amount of securities
subject to the option. Provide the principal amount of each Security or
Futures Contract. If your ownership interest was through a spouse,
relative or other natural person or through a partnership, trust, other
entity, state the entire quantity of Securities or Futures Contracts
involved in the transaction. You may indicate, if you wish, the extent
of your interest in the transaction.
5. NATURE OF TRANSACTION. Identify the nature of the transaction (e.g.,
purchase, sale or other type of acquisition or disposition).
6. TRANSACTION PRICE. State the purchase or sale price per share or other
unit, exclusive of brokerage commissions or other costs of execution.
In the case of an option, state the price at which it is currently
exercisable. No price need be reported for transactions not involving
cash.
7. BROKER, DEALER, BANK OR FCM EFFECTING TRANSACTION. State the name of
the broker, dealer, bank or FCM with or through which the transaction
was effected.
8. SIGNATURE. Sign and date the report in the spaces provided.
9. FILING OF REPORT. A report should be filed NOT LATER THAN 10 CALENDAR
DAYS after the end of each calendar quarter with:
PIMCO
ATTN: Compliance Officer
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
10. DUPLICATE BROKER REPORTS. Please remember that duplicates of all trade
confirmations, purchase and sale reports, and periodic statements must
be sent to the firm by your broker. You should use the address above.
<PAGE> 248
APPENDIX VIII
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO FUNDS DISTRIBUTORS LLC
ANNUAL HOLDINGS REPORT AND
FOURTH QUARTER REPORT OF INVESTMENT TRANSACTIONS
FOR THE YEAR AND QUARTER ENDED DECEMBER 31, 2000
I hereby certify that, except as indicated below, all Securities or
Futures Contracts in which I had a Beneficial Ownership interest at the end of
the 2000 calendar year were held in Personal Accounts or Related Accounts
identified on the attached list, for which PIMCO should have received or will
receive an account statement of holdings as of the end of that calendar year.(1)
I hereby certify that the broker, dealer, bank or futures commission merchant
for each such account has been instructed to send a Compliance Officer timely
duplicate broker reports, including a statement of holdings in that account as
of the end of the calendar year.
The following information describes other Securities or Futures Contracts in
which I had a Beneficial Ownership interest as of the end of the 2000 calendar
year:
<TABLE>
<CAPTION>
Title, Interest Rate and Maturity Number of Shares or Contracts Broker, Dealer,
Date of Security or Futures Contract And Principal Amount Bank or FCM
<S> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
___________________
(1) The Code of Ethics uses various capitalized terms that are defined
in Appendix I to the Code. The capitalized terms used in this Report have the
same definitions.
<PAGE> 249
Except as indicated below, all reportable Investment Transactions during
the quarter ended December 31, 2000, were made through Personal Accounts and
Related Accounts identified on the attached list, which, except as indicated,
represents a complete list of the Personal Accounts and Related Accounts that
hold Securities or Futures Contracts in which I have or had a Beneficial
Ownership interest and for which PIMCO should have received or will receive
timely duplicate broker reports for the calendar quarter just ended.
The following information for Investment Transactions during the calendar
quarter just ended does not appear on the duplicate broker reports referenced
above.
<TABLE>
<CAPTION>
Transaction Title, Interest Rate and Maturity Number of Shares or Contracts Nature of Transaction Transaction Broker, Dealer,
Date Date of Security or Futures Contract And Principal Amount (i.e., Buy or Sell) Price Bank or FCM
<S> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
</TABLE>
SPECIAL NOTE TO PIMCO FUNDS DISTRIBUTORS LLC REGISTERED REPS AND ACCESS PERSONS:
You will not have to fill out an extra form for each quarter for PIMCO Funds
Distributors LLC.
SIGNED: ____________________________________
PRINT NAME: ____________________________________
DATE: ____________________________________
<PAGE> 250
1. Please see the CODE OF ETHICS for a full description of the Investment
Transactions that must be reported.
2. TRANSACTION DATE. In the case of a market transaction, state the trade
date (not the settlement date).
3. TITLE OF SECURITY OR FUTURES CONTRACT. State the name of the issuer and
the class of the Security (e.g., common stock, preferred stock or
designated issue of debt securities). For Fixed Income Securities,
please provide the Security's interest rate and maturity date. For a
Futures Contract, state the title of any Security subject to the
Futures Contract and the expiration date of the Futures Contract.
4. NUMBER OF SHARES OR CONTRACTS AND PRINCIPAL AMOUNT. State the number of
shares of Securities, the face amount of Fixed Income Securities or the
units of other securities. For options, state the amount of securities
subject to the option. Provide the principal amount of each Security or
Futures Contract. If your ownership interest was through a spouse,
relative or other natural person or through a partnership, trust, other
entity, state the entire quantity of Securities or Futures Contracts
involved in the transaction. You may indicate, if you wish, the extent
of your interest in the transaction.
5. NATURE OF TRANSACTION. Identify the nature of the transaction (e.g.,
purchase, sale or other type of acquisition or disposition).
6. TRANSACTION PRICE. State the purchase or sale price per share or other
unit, exclusive of brokerage commissions or other costs of execution.
In the case of an option, state the price at which it is currently
exercisable. No price need be reported for transactions not involving
cash.
7. BROKER, DEALER, BANK OR FCM EFFECTING TRANSACTION. State the name of
the broker, dealer, bank or FCM with or through which the transaction
was effected.
8. SIGNATURE. Sign and date the report in the spaces provided.
9. FILING OF REPORT. A report should be filed NOT LATER THAN 10 CALENDAR
DAYS after the end of each calendar quarter with:
PIMCO
ATTN: Compliance Officer
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
10. DUPLICATE BROKER REPORTS. Please remember that duplicates of all trade
confirmations, purchase and sale reports, and periodic statements must
be sent to the firm by your broker. You should use the address above.
<PAGE> 251
Appendix IX
PRECLEARANCE REQUEST FORM
This form must be submitted to a Compliance Officer before executing
any Investment Transaction for which preclearance is required under the PIMCO
Code of Ethics. Before completing this form, you should review the PIMCO Code,
including the terms defined in that Code. The capitalized terms used in this
form are governed by those definitions. In addition, the Code provides
information regarding your preclearance obligations under the Code, and
information regarding the Transactions, Securities and Futures Contracts that
are exempt from the Code's preclearance requirement.(1)
No Investment Transaction subject to preclearance may be effected prior
to receipt of written authorization of that Investment Transaction by a
Compliance Officer. Unless otherwise specified, that authorization shall be
effective, unless revoked, until the earlier of (a) the close of business on the
date authorization is given, or (b) until you discover that information on this
preclearance request form is no longer accurate.
<TABLE>
<S> <C>
(1) Your Name: _____________________________________
(2) If the Investment Transaction will be in someone else's name or
in the name of a trust, the name of that person or trust: _____________________________________
The relationship of that person or trust to you: _____________________________________
(3) Name of the firm (e.g., broker, dealer, bank, futures
commission merchant) through which the Investment Transaction will
be executed: ____________________________________
The relevant account number at that firm: ____________________________________
(4) Issuer of the Security or identity of the Futures Contract for
which preclearance is requested: ____________________________________
The relevant CUSIP number or call symbol: ____________________________________
(5) The maximum number of shares, units or contracts for which
preclearance is requested, or the market value or face amount of
the Fixed Income Securities for which preclearance is requested: ____________________________________
(6) The type of Investment Transaction for which preclearance is
requested (check all that apply):
</TABLE>
____ Purchase ____ Sale ____ Market ____Order
____ Limit Order (Price Of Limit Order:_______)
PLEASE ANSWER THE FOLLOWING QUESTIONS TO THE BEST OF YOUR KNOWLEDGE AND BELIEF:
<TABLE>
<S> <C> <C>
(a) Do you possess material nonpublic information regarding the Security or
Futures Contract identified above or regarding the issuer of that Security? ____ Yes ____ No
(b) Is the Security or Futures Contract identified above held by any PIMCO
Advisory Client or is it a Related Security (as defined in the PIMCO Code)? ____ Yes ____ No
</TABLE>
_________________
(1) Preclearance is required for any Investment Transaction in Securities,
Related Securities or Futures Contracts in a Personal Account or a Related
Account in which you have or will acquire a Beneficial Ownership interest.
<PAGE> 252
<TABLE>
<S> <C> <C>
(c) Is there a pending buy or sell order on behalf of a PIMCO Advisory Client
for the Security or Futures Contract identified above or for a
Security for which the Security identified above is a Related Security? ____ Yes ____ No
(d) Do you intend or do you know of another's intention to purchase or sell the
Security or Futures Contract identified above, or a Security for which the
Security identified above is a Related Security, on behalf of a PIMCO
Advisory Client? ____ Yes ____ No
(e) Has the Security or Futures Contract identified above or a Related Security
been considered for purchase by a PIMCO Advisory Client within the most
recent 15 days? (Note: rejection of any opportunity to purchase the
Security or Futures Contract for an Advisory Client would require an
affirmative response to this question.) ____ Yes ____ No
(f) If you are a Portfolio Employee, is the Security being acquired in an
Initial Public Offering?(2) ____ Yes ____ No
(g) If you are a Portfolio Employee, are you acquiring or did you acquire
Beneficial Ownership of the Security in a Private Placement?(3) ____ Yes ____ No
(h) If you are seeking preclearance of a purchase or sale of Securities, have
you purchased or sold the same or similar Securities, or have you acquired
or disposed of a Beneficial Ownership interest in the same or similar
Securities, within the past 60 calendar days?(4) ____ Yes ____ No
</TABLE>
BY EXECUTING THIS FORM, YOU HEREBY CERTIFY THAT YOU HAVE REVIEWED THE PIMCO CODE
OF ETHICS AND BELIEVE THAT THE INVESTMENT TRANSACTION FOR WHICH YOU ARE
REQUESTING PRECLEARANCE COMPLIES WITH THE GENERAL PRINCIPLES AND THE SPECIFIC
REQUIREMENTS OF THE PIMCO CODE.
_________________________________________
Employee Signature
_________________________________________
Print or Type name
_________________________________________
Date Submitted
__________________
(2) Under the PIMCO Code, Portfolio Employees generally are not permitted to
acquire Securities in an Initial Public Offering.
(3) The PIMCO Code applies special rules to the acquisition of Securities
through a Private Placement and to the disposition of Securities acquired
through a Private Placement.
(4) Under the PIMCO Code, you may not profit from short-term trades in Fixed
Income Securities. A Portfolio Employee may not profit from short-term trades in
Designated Equities Securities and a Municipal Bond Portfolio Employee may not
profit from short-term trades in Tax-Exempt Municipal Bonds. This rule does not
apply to transactions in U.S. Government Securities, mutual fund shares, index
options or Futures Contracts.
<PAGE> 253
You are authorized to execute the Investment Transaction described above. Unless
indicated otherwise below, this authorization remains effective, unless revoked,
until: (a) the close of business today, or (b) until you discover that the
information on this request form is no longer accurate.
____________________________________________________
Compliance Officer
____________________________________________________
Date of Authorization
<PAGE> 254
APPENDIX X
COMPLIANCE OFFICERS
PACIFIC INVESTMENT MANAGEMENT COMPANY
March __, 2000
PIMCO's Compliance Officers, as of March __, 2000, are:
Denise C. Seliga
(Chief Compliance Officer)
Ernest L. Schmider
Richard M. Weil
Mohan V. Phansalkar
<PAGE> 255
SALOMON BROTHERS ASSET MANAGEMENT INC
CODE OF ETHICS
I. Introduction.
All Employees and Outside Directors (as defined below) of Salomon
Brothers Asset Management Inc ("SBAM"), in conducting their personal securities
transactions, owe a fiduciary duty to all SBAM's clients, including the
investment companies for which SBAM serves as investment adviser. The term
"Fund" is used herein to mean each registered investment company for which SBAM
serves as investment adviser or sub-investment adviser. The fundamental standard
to be followed in personal securities transactions is that Employees and Outside
Directors may not take inappropriate advantage of their positions. All personal
securities transactions by Employees and Outside Directors must be conducted in
such a manner as to avoid any actual or potential conflict of interest between
the Employee's or Outside Director's interest and the interests of each client,
or any abuse of an Employee's or Outside Director's position of trust and
responsibility. Potential conflicts arising from personal investment activities
could include buying or selling securities based on knowledge of a client's
trading position or plans (sometimes referred to as front-running), and
acceptance of personal favors that could influence trading judgments on behalf
of a client. In addition to the foregoing, this Code of Ethics is intended to
prevent Employees and Outside Directors from engaging in any act, practice or
course of business prohibited by Rule 17j-1 under the Investment Company Act of
1940 (the "Act"). Rule 17j-1 prohibits directors, officers and advisory
personnel of an investment adviser, in connection with the purchase or sale by
any such person of a security held or to be acquired by an investment company,
from engaging in manipulative practices or employing any scheme to defraud the
investment company, from making any untrue statements to the investment company
and from failing to disclose to the investment company material information.
While this Code of Ethics is designed to address identified conflicts
and potential conflicts, it cannot possibly be written broadly enough to cover
all potential situations. In this regard, Employees and Outside Directors are
expected to adhere not only to the letter, but also the spirit, of the policies
contained herein. For example, the restrictions contained herein on the purchase
or sale of a security would include the purchase or sale of an equivalent
security, such as the writing of an option to purchase or sell a security.
Absent the approval of SBAM's Compliance Officer and except for certain
limited exceptions for managed accounts where the Employee has no discretion,
self-directed IRA accounts and certain estate or trust accounts, all Employees
must maintain brokerage accounts at a brokerage firm listed on an approved list
maintained by the Compliance Officer. Such accounts are referred to herein as
"Employee Accounts." "Employee Accounts" include (i) any account in which the
Employee has an interest or the power to, directly or indirectly, make
investment decisions, (ii) any account of the Employee's spouse, (iii) any
account of a child or the spouse of a child if they live in the same household
or are financially dependent, (iv) any account of any other person related by
blood or marriage over whose account the Employee has control and (v) any
account of any other person to whose financial support the Employee contributes
materially or over whose account the Employee has control.
The restrictions herein applicable to Employees and Outside Directors
apply to all securities in which the Employee or Outside Director has any direct
or indirect "beneficial ownership."(1) With respect
- ----------
1. For this purpose, "beneficial owner" is any person who, directly or
indirectly, through any contract, arrangement, understanding,
relationship or otherwise has or shares a direct or indirect pecuniary
interest in the securities, as further described in Rule 16a-1(a)(2) of
the Securities Exchange Act of 1934, a copy of
<PAGE> 256
2
to Employees, such restrictions may encompass transactions in securities that
are not effected in "Employee Accounts" such as interests in limited
partnerships or transactions effected for the account of another individual or
entity if the Employee may share in the profit from the transaction.
Accordingly, all securities transactions in which an Employee has or would
acquire any direct or indirect beneficial ownership, whether effected through an
Employee Account or not, must be approved in advance as provided below in
paragraph III. of this Code of Ethics.
In furtherance of the above principles, this Code of Ethics contains
certain restrictions on personal securities transactions by Employees [and
Outside Directors], certain restrictions on other activities of Employees when
an actual or potential conflict of interest between an Employee and a client may
exist, and certain reporting requirements to enable SBAM to ensure compliance
with this Code of Ethics. Any questions regarding the application or scope of
the restrictions and reporting requirements contained herein should be directed
to SBAM's Compliance Officer.
All of the restrictions and reporting requirements contained herein
apply to each of SBAM's Employees. Certain [restrictions and] reporting
requirements contained herein apply to Outside Directors. Certain additional
restrictions apply only to "Portfolio Managers." For purposes of this Code of
Ethics, Employees also includes all directors and officers of SBAM, except
Outside Directors. "Outside Director" includes any director of SBAM who is
affiliated with SBAM only by virtue of serving as a director of SBAM and by
virtue of holding a position with an entity affiliated with Salomon Brothers Inc
("SBI"), as designated from time to time by the Compliance Officer. "Portfolio
Manager" includes only officers or employees of SBAM having direct
responsibility and authority to make investment decisions on behalf of a client.
The Compliance Officer will notify each Employee deemed to be a Portfolio
Manager for purposes of this Code of Ethics.
Employees are reminded that they are subject to the "Statement of
Policies and Procedures Regarding Securities and Commodities Transactions by
Employees" of SBI and SBAM's "Statement of Policies and Procedures Regarding
Confidentiality and Trading in Securities." Among other things, the Statements
describe SBI's and SBAM's policies regarding insider trading, Chinese Wall
procedures and SBI's Restricted List. SBI's and SBAM's policies are distributed
periodically by the Compliance Officer.
II. Prohibitions; Exemptions.
1. Prohibited Purchases and Sales.
Employees
A. No Employee [or Outside Director] may purchase or sell,
directly or indirectly, any security in which that Employee [or Outside
Director] has, or by reason of the transaction would acquire, any
direct or indirect beneficial ownership and which to the actual
knowledge of that Employee [or Outside Director] at the time of such
purchase or sale:
(i) is being actively considered for purchase or sale for
any client account; or
- --------------------------------------------------------------------------------
which is attached as Appendix 2 to this Code of Ethics. "Pecuniary
interest" generally is the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in securities.
<PAGE> 257
3
(ii) is in the process of being purchased or sold by any
client account.
B. No Employee may, directly or indirectly, acquire or dispose
of a beneficial interest in any security which is the subject of an
investment decision or recommendation for a client account for a period
of seven days after (i) orders implementing such decision or
recommendation are communicated to banks or brokers on behalf of all
discretionary accounts in question or (ii) an investment recommendation
is communicated to all of SBAM's non-discretionary advisory accounts to
which the recommendation was intended to be disseminated.
C. Employees may not purchase and sell, or sell and purchase,
the same security within a sixty (60) calendar day period.
D. Employees may not purchase, directly or indirectly, any
security in an initial public offering.
Portfolio Managers
In addition to the above prohibitions, the following purchases
and sales are also prohibited for all Portfolio Managers:
E. A Portfolio Manager cannot purchase or sell, directly or
indirectly, any security in which he or she has or acquires any direct
or indirect beneficial ownership within seven (7) calendar days before
a client account for which he or she acts as a Portfolio Manager trades
in that security.
2. Exemptions From Certain Prohibitions.
A. The prohibited purchase and sale transactions described in
paragraph II.1. above do not apply to the following personal securities
transactions:
(1) purchases or sales effected in any account over which
the Employee [or Outside Director] has no direct or
indirect influence or control;
(2) purchases or sales which are non-volitional on the
part of either the Employee[, the Outside Director]
or the relevant client account;
(3) purchases which are part of an automatic dividend
reinvestment plan (other than pursuant to a cash
purchase plan option);
(4) purchases effected upon the exercise of rights issued
by an issuer pro rata to all holders of a class of
its securities, to the extent the rights were
acquired from that issuer, and sales of the rights so
acquired;
(5) purchases or sales of (i) "long-term" debt securities
(securities with a remaining maturity of more than
397 days) issued by the U.S. government or
"short-term" debt securities (securities with a
remaining maturity of 397 days or less) issued or
guaranteed as to principal or interest by the U.S.
government or by a person controlled or supervised by
and acting as an instrumentality of the U.S.
government, (ii) bankers' acceptances and bank
certificates of deposit, (iii) commercial paper and
(iv) shares of registered open-end investment
companies (each of the foregoing being referred to
herein as "Exempt Securities"); and
<PAGE> 258
4
(6) any other purchase or sale which the Compliance
Officer (or the Chairman of SBAM with respect to
Compliance Officer personal securities transactions)
approves on the grounds that the chance of conflict
of interest is remote.
B. The prohibited purchase and sale transactions described in
paragraphs II.1.A. and II.1.B. above do not apply to the following
personal securities transactions:
(1) any purchase or sale, or series of related
transactions, involving 500 shares or less in the
aggregate, if the issuer has a market capitalization
(outstanding shares multiplied by the current price
per share) greater than $1 billion.
C. The prohibited purchase and sale transactions described in
paragraphs II.1.C. and II.1.E. may be permitted with (i) the prior
approval of the Compliance Officer and, with respect to paragraph
II.1.C. above, (ii) the prior approval of SBI's Compliance Department.
Such approval will be granted only on a case-by-case basis for
particular investments where significant news or other major events
occur after purchase or in order to avoid a personal hardship, provided
that no abuse is involved and the equities strongly support an
exemption. Employees will not be permitted to make a practice of such
early liquidations.
D. Any personal securities transaction approved pursuant to
paragraphs II.2.A.(6) and II.2.C. shall be reported to the Chairman of
the Audit Committee of each relevant Fund, as determined by the
Compliance Officer, within 15 days after the end of the month during
which such approval occurred.
3. Prohibited Recommendations.
All Employees are subject to the following restrictions on
making recommendations to each client account:
A. Subject to certain exceptions indicated below for Exempt
Securities (as defined in paragraph II.2.A.(5) above) no Employee may
recommend the purchase or sale of any security to or for any client
account without first having disclosed his or her interest, if any, in
such security or the issuer thereof, to the Compliance Officer,
including without limitation:
(1) any direct or indirect beneficial ownership of any
security (other than an Exempt Security) of such
issuer, including any security received in a private
securities transaction;
(2) any contemplated purchase or sale by such person of
such security (other than an Exempt Security);
(3) any position with such issuer or its affiliates; or
(4) any present or proposed business relationship between
such issuer or its affiliates and such person or any
party in which such person has a significant
interest.
B. In circumstances in which Employees are required to
disclose an interest in a security or an issuer acquired in a private
securities transaction to the Compliance Officer, as described above,
SBAM's decision to purchase or sell a security (or to recommend the
purchase
<PAGE> 259
5
or sale of a security) of the same issuer for any client account shall
be subject to an independent review by a Portfolio Manager or Portfolio
Managers with no personal interest in the issuer.
III. Pre-Clearance of Personal Securities Transactions.
1. All Employees must obtain approval from the Compliance Officer prior
to entering into personal securities transactions involving the purchase or sale
of any security, including any security to be acquired in a private transaction,
except for transactions included in paragraphs II.2.A(1), A(2), A(3) or A(4).
2. In addition, all transactions by Employees in equity securities must
be approved by the person or persons designated from time to time by the
Compliance Officer.
3. All personal securities transactions are subject to SBI's Restricted
List.
4. In connection with obtaining approval for any personal securities
transaction, Employees must describe to the Compliance Officer in detail any
factors which might be relevant to a conflict of interest analysis, including
the existence, to the Employee's knowledge, of any economic relationship between
the transaction and securities held or to be acquired by any SBAM client.
IV. Prohibitions on Gifts and Services.
1. Employees may not accept gifts or other things of more than $100 in
value from any person or entity that is known by such Employee to be doing
business with or on behalf of any client account or SBAM, without the approval
of the Compliance Officer and the Chairman of SBAM.
2. Employees shall not serve on the boards of directors of publicly
held companies (other than Funds), absent prior approval from the Board of
Directors of each relevant Fund, as determined by the Compliance Officer, and
approval of SBI's Compliance Department. Such approval should be based on a
determination that board service would be consistent with the best interests of
the shareholders of each such Fund.
V. Reporting.
1. Initial Reporting.
All Employees must report all personal securities holdings
upon commencement of employment with SBAM.
2. Quarterly Reporting.
A. Subject to the provisions of paragraph B. below, every
Employee and Outside Director shall either report to SBAM the
information described in paragraph C. below with respect to
transactions in any security in which the Employee or Outside Director
has, or by reason of the transaction acquires, any direct or indirect
beneficial ownership in the security or, in the alternative, make the
representation in paragraph D. below.
<PAGE> 260
6
B. Neither an Employee nor an Outside Director is required to
make a report with respect to any transaction effected for any account
over which the Employee or Outside Director does not have any direct or
indirect influence; provided, however, that if the Employee is relying
upon the provisions of this paragraph B. to avoid making such a report,
the Employee or Outside Director shall, not later than 10 days after
the end of each calendar quarter, identify any such account in writing
and certify in writing that he or she had no direct or indirect
influence over any such account.
C. Every quarterly report pursuant to this paragraph 2. shall
be submitted to the Compliance Officer not later than 10 days after the
end of the calendar quarter in which the transaction to which the
report relates was effected and shall contain the following
information:
(i) the date of the transaction, the title and the number
of shares and the principal amount of each security
involved;
(ii) the nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition);
(iii) the price at which the transaction was effected;
(iv) the name of the broker, dealer or bank with or
through whom the transaction was effected; and
(v) a description of any factors potentially relevant to
a conflict of interest analysis, including the
existence, to the Employee's or Outside Director's
knowledge, of any economic relationship between the
transaction and securities held or to be acquired by
any client account.
D. If no transactions were conducted by an Employee or Outside
Director during a calendar quarter that are subject to the reporting
requirements described above, such Employee or Outside Director shall,
not later than 10 days after the end of that calendar quarter, provide
a written representation to that effect to the Compliance Officer.
E. An Employee need not separately report to SBAM information
regarding transactions conducted through securities accounts, provided
that copies of the relevant confirmations and statements are furnished
to SBAM as required by paragraph V.4. below. In addition, an Employee
need not separately report to SBAM information regarding transactions
which have been pre-cleared in accordance with Section III. This option
may be revoked by the Compliance Officer for Employees who fail to make
timely filings required under this Code of Ethics or who fail to
provide required disclosures, confirmations or statements.
3. Annual Reporting and Certification.
A. All Employees must report all personal securities holdings
to the Compliance Officer within 30 days after the end of each calendar
year, together with a list of all accounts maintained at brokerage
firms which are subject to the provisions of this Code of Ethics (see
the Introduction above and footnote 1), including the names of the
firms and the account numbers.
B. All Employees and Outside Directors are required to certify
annually that they have read and understand this Code of Ethics and
recognize that they are subject to the provisions hereof and will
comply with the policy and procedures stated herein. Further, all
Employees and Outside Directors are required to certify annually that
they have complied with the requirements
<PAGE> 261
7
of this Code of Ethics and that they have reported all personal
securities transactions required to be disclosed or reported pursuant
to the requirements of such policies. A copy of the certification form
to be used in complying with this paragraph B. is attached to this Code
of Ethics as Appendix 1.
4. Brokerage Confirmations and Statements.
All Employees must direct their brokers to supply to the
Compliance Officer, on a timely basis, duplicate copies of
confirmations of any purchase or sale of a security and copies of all
periodic statements for all securities accounts. This provision does
not apply to brokerage accounts established at SBI.
5. Miscellaneous.
Any report under this Code of Ethics may contain a statement
that the report shall not be construed as an admission by the person
making the report that the person has any direct or indirect beneficial
ownership in the securities to which the report relates.
VI. Confidentiality.
No Employee shall reveal to any other person (except in the normal
course of his or her duties on behalf of SBAM) any information regarding
securities transactions by any client or consideration by any client or SBAM of
any such securities transaction.
All information obtained from any Employee and Outside Director
pursuant to this Code of Ethics shall be kept in strict confidence, except that
reports of securities transactions hereunder will be made available to the
Securities and Exchange Commission or any other regulatory or self-regulatory
organization to the extent required by law or regulation.
<PAGE> 262
8
VII. Sanctions.
Any trades made in violation of the provisions set forth under
paragraphs II.1.C. and E. must be unwound, or, if that is impractical, any
profits realized on trades made in violation of these prohibitions must be
disgorged to the appropriate client or clients (or, alternatively, to a
charitable organization) under the direction of the Compliance Officer, with the
approval of SBAM's Chairman and President.
Upon discovering a violation of this Code of Ethics, the Chairman
and/or President of SBAM may impose any sanctions it deems appropriate,
including a letter of censure or the suspension or termination of the employment
of the violator.
<PAGE> 263
EFFECTIVE MARCH 1, 2000
CODE OF ETHICS
T. ROWE PRICE ASSOCIATES, INC.
AND ITS AFFILIATES
<PAGE> 264
CODE OF ETHICS
OF
T. ROWE PRICE ASSOCIATES, INC.
AND ITS AFFILIATES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL POLICY STATEMENT............................................................................... 1-1
Purpose and Scope of Code of Ethics............................................................. 1-1
Who is Subject to the Code...................................................................... 1-1
Price Associates' Status as a Fiduciary......................................................... 1-2
What the Code Does Not Cover.................................................................... 1-2
Compliance with the Code........................................................................ 1-2
Questions Regarding the Code.................................................................... 1-2
STANDARDS OF CONDUCT OF PRICE ASSOCIATES AND ITS EMPLOYEES............................................. 2-1
Allocation of Client Brokerage.................................................................. 2-1
Antitrust .................................................................................... 2-1; 8-1
Compliance with Copyright Laws.................................................................. 2-1
Computer Security............................................................................... 2-1; 7-1
Conflicts of Interest........................................................................... 2-1
Relationships with Profitmaking Enterprises............................................... 2-1
Service with Nonprofitmaking Enterprises.................................................. 2-2
Relationships with Financial Service Firms................................................ 2-2
Investment Clubs.......................................................................... 2-2
Confidentiality................................................................................. 2-3
Internal Operating Procedures and Planning................................................ 2-3
Clients, Fund Shareholders, and TRP Brokerage Customers................................... 2-3
Investment Advice......................................................................... 2-3
Investment Research....................................................................... 2-4
Understanding as to Clients' Accounts and Company Records
at time of Employee Termination......................................................... 2-4
Corporate Responsibility........................................................................ 2-4; 5-1
Employment of Former Government Employees....................................................... 2-5
Employment Practices............................................................................ 2-5
</TABLE>
<PAGE> 265
<TABLE>
<S> <C>
Equal Opportunity......................................................................... 2-5
Harassment................................................................................ 2-5
Drug and Alcohol Abuse.................................................................... 2-5
Past and Current Litigation..................................................................... 2-6
Financial Reporting............................................................................. 2-6
Health and Safety in the Workplace.............................................................. 2-6
Illegal Payments................................................................................ 2-6
Marketing and Sales Activities.................................................................. 2-6
Policy Regarding Acceptance and Giving of Gifts and Gratuities.................................. 2-6
Receipt of Gifts.......................................................................... 2-7
Giving of Gifts........................................................................... 2-7
Additional Requirements for the Giving of Gifts in Connection
with the Broker/Dealer.................................................................. 2-7
Entertainment............................................................................. 2-8
Research Trips............................................................................ 2-9
Political Activities............................................................................ 2-9
Protection of Corporate Assets.................................................................. 2-10
Quality of Services............................................................................. 2-10
Record Retention................................................................................ 2-10
Referral Fees................................................................................... 2-10
Release of Information to the Press............................................................. 2-10
Responsibility to Report Violations............................................................. 2-10
Service as Trustee, Executor or Personal Representative......................................... 2-11
Speaking Engagements and Publications........................................................... 2-11
Trading in Securities with Inside Information................................................... 2-11; 3-1
STATEMENT OF POLICY ON MATERIAL, INSIDE (NON-PUBLIC) INFORMATION....................................... 3-1
STATEMENT OF POLICY ON SECURITIES TRANSACTIONS......................................................... 4-1
STATEMENT OF POLICY ON CORPORATE RESPONSIBILITY........................................................ 5-1
STATEMENT OF POLICY WITH RESPECT TO COMPLIANCE
WITH COPYRIGHT LAWS................................................................................. 6-1
STATEMENT OF POLICY WITH RESPECT TO COMPUTER SECURITY
AND RELATED ISSUES.................................................................................. 7-1
STATEMENT OF POLICY ON COMPLIANCE WITH
ANTITRUST LAWS ..................................................................................... 8-1
</TABLE>
<PAGE> 266
CODE OF ETHICS
OF
T. ROWE PRICE ASSOCIATES, INC.
AND ITS AFFILIATES
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Access Persons......................................................................................... 4-3
Activities, Political.................................................................................. 2-9
Alcohol Abuse.......................................................................................... 2-5
Allocation of Client Brokerage......................................................................... 2-1
Antitrust.............................................................................................. 2-1; 8-1
Approved Company Rating Changes........................................................................ 4-11
Assets, Protection of Corporate........................................................................ 2-10
Association of Investment Management and Research ("AIMR")............................................. 2-6
Brokerage Accounts..................................................................................... 4-11; 4-12
Chinese Wall........................................................................................... 3-6
Client Brokerage, Allocation of........................................................................ 2-1
Client Limit Orders.................................................................................... 4-16
Code of Ethics, Compliance with........................................................................ 1-2
Code of Ethics, Purpose and Scope of................................................................... 1-1
Code of Ethics, Questions Regarding.................................................................... 1-2
Code of Ethics, Who is Subject to...................................................................... 1-1
Co-Investment by Employees with Client Investment Partnerships......................................... 4-14
Computer Security...................................................................................... 2-1; 7-1
Conduct, Standards of, Price Associates and its Employees.............................................. 2-1
Confidentiality........................................................................................ 2-3
Confidentiality of Computer Systems Activities and Information......................................... 7-1
Conflicts of Interest.................................................................................. 2-1
Copyright Laws, Compliance with........................................................................ 2-1; 6-1
</TABLE>
<PAGE> 267
<TABLE>
<S> <C>
Corporate Assets, Protection of........................................................................ 2-10
Corporate Responsibility............................................................................... 2-4; 5-1
Drug Abuse............................................................................................. 2-5
Employee Co-Investment with Client Investment Partnerships............................................. 4-14
Employees, Standards of Conduct........................................................................ 2-1
Employment of Former Government Employees.............................................................. 2-5
Employment Practices................................................................................... 2-5
Entertainment.......................................................................................... 2-8
Equal Opportunity...................................................................................... 2-5
Exchange - Traded Index Options........................................................................ 4-16
Executor, Service as................................................................................... 2-11
Fees, Referral......................................................................................... 2-10
Fiduciary, Price Associates' Status as a .............................................................. 1-2
Financial Reporting.................................................................................... 2-6
Financial Service Firms, Relationships with............................................................ 2-2
Front Running.......................................................................................... 4-1
General Policy Statement............................................................................... 1-1
Gifts, Giving.......................................................................................... 2-7
Gifts, Receipt of...................................................................................... 2-7
Government Employees, Employment of Former............................................................. 2-5
Harassment............................................................................................. 2-5
Health and Safety in the Workplace..................................................................... 2-6
Illegal Payments....................................................................................... 2-6
Information, Release to the Press...................................................................... 2-10
Initial Public Offerings............................................................................... 4-9
Inside Information, Trading in Securities with......................................................... 2-11
Interest, Conflicts of................................................................................. 2-1
Internet, Access to.................................................................................... 7-2
Investment Clubs....................................................................................... 2-2; 4-14
Investment Personnel................................................................................... 4-3
Large Company Exemption for Securities Transactions.................................................... 4-15
Margin Accounts........................................................................................ 4-15
Marketing and Sales Activities......................................................................... 2-6
</TABLE>
<PAGE> 268
<TABLE>
<S> <C>
Non-Access Persons..................................................................................... 4-4
Nonprofitmaking Enterprises, Service with.............................................................. 2-2
Options and Futures.................................................................................... 4-16
Payments, Illegal...................................................................................... 2-6
Personal Securities Holdings, Disclosure of by Access Persons.......................................... 4-18
Personal Representative, Service as.................................................................... 2-11
Political Activities................................................................................... 2-9
Press, Release of Information to the................................................................... 2-10
Price Associates, Standards of Conduct................................................................. 2-1
Price Associates' Stock, Transactions in............................................................... 4-5
Prior Clearance of Securities Transactions (other than Price Associates' stock)........................ 4-8
Private Placement, Investment In....................................................................... 4-10
Private Placement Memoranda............................................................................ 3-7
Profitmaking Enterprises, Relationships with........................................................... 2-1
Protection of Corporate Assets......................................................................... 2-10
Publications........................................................................................... 2-11
Quality of Services.................................................................................... 2-10
Questions Regarding the Code........................................................................... 1-2
Rating Changes, Approved Company....................................................................... 4-11
Record Retention....................................................................................... 2-10
Referral Fees.......................................................................................... 2-10
Release of Information to the Press.................................................................... 2-10
Reporting, Financial................................................................................... 2-6
Reporting, Price Associates' Stock Transactions........................................................ 4-6
Reporting, Securities Transactions (other than Price Associates' stock)................................ 4-12
Research Trips......................................................................................... 2-9
Responsibility, Corporate.............................................................................. 2-4; 5-1
Restricted List........................................................................................ 3-7
Retention, Record...................................................................................... 2-10
Safety and Health in the Workplace..................................................................... 2-6
Securities Transactions, Reporting of (other than Price Associates' stock)............................. 4-12
Services, Quality of................................................................................... 2-10
Short Sales............................................................................................ 4-17
</TABLE>
<PAGE> 269
<TABLE>
<S> <C>
Sixty (60) Day Rule.................................................................................... 4-17
Software Programs, Application of Copyright Law........................................................ 7-5
Speaking Engagements................................................................................... 2-11
Standards of Conduct of Price Associates and its Employees............................................. 2-1
Statement, General Policy.............................................................................. 1-1
Temporary Workers, Application of Code to.............................................................. 1-1; 4-2
Termination of Employment.............................................................................. 2-4
Trading Activity....................................................................................... 4-15
Trips, Research........................................................................................ 2-9
Trustee, Service as.................................................................................... 2-11
Violations, Responsibility to Report................................................................... 2-10
Watch List............................................................................................. 3-6
</TABLE>
<PAGE> 270
CODE OF ETHICS
OF
T. ROWE PRICE ASSOCIATES, INC.
AND ITS AFFILIATES
GENERAL POLICY STATEMENT
PURPOSE AND SCOPE OF CODE OF ETHICS. In recognition of T. Rowe Price Associates,
Inc.'s ("PRICE ASSOCIATES") commitment to maintain the highest standards of
professional conduct and ethics, the firm's Board of Directors has adopted this
Code of Ethics ("CODE") composed of Standards of Conduct and the following
Statements of Policy ("STATEMENTS"):
1. Statement of Policy on Material, Inside (Non-Public) Information
2. Statement of Policy on Securities Transactions
3. Statement of Policy on Corporate Responsibility
4. Statement of Policy with Respect to Compliance with Copyright Laws
5. Statement of Policy with Respect to Computer Security and Related
Issues
6. Statement of Policy on Compliance with Antitrust Laws
The purpose of this Code is to help preserve our most valuable asset - the
reputation of Price Associates and its employees.
WHO IS SUBJECT TO THE CODE. Price Associates, its subsidiaries and their
officers, directors and employees are all subject to the Code, as are all Rowe
Price-Fleming International, Inc. ("RPFI") and T. Rowe Fleming Asset Management
Limited ("TRFAM") personnel (officers, directors, and employees) who are
stationed in Baltimore. In addition, the following persons are also subject to
the Code:
1. All temporary workers hired on the Price Associates payroll ("TRPA
TEMPORARIES");
2. All agency temporaries, whose assignments at Price Associates exceed
four weeks or whose cumulative assignments exceed eight weeks over a
twelve-month period;
3. All independent or agency-provided consultants whose assignments exceed
four weeks or whose cumulative assignments exceed eight weeks over a
twelve-month period AND whose work is closely related to the ongoing
work of Price Associates' employees (versus project work that stands
apart from ongoing work); and
4. Any contingent worker whose assignment is more than casual in nature or
who will be exposed to the kinds of information and situations that
would create conflicts on matters covered in the Code.
<PAGE> 271
PRICE ASSOCIATES' STATUS AS A FIDUCIARY. The primary responsibility of Price
Associates as an investment adviser is to render to its clients on a
professional basis unbiased and continuous advice regarding their investments.
As an investment adviser, Price Associates has a fiduciary relationship with all
of its clients, which means that it has an absolute duty of undivided loyalty,
fairness and good faith toward its clients and mutual fund shareholders and a
corresponding obligation to refrain from taking any action or seeking any
benefit for itself which would, or which would appear to, prejudice the rights
of any client or shareholder or conflict with his or her best interests.
WHAT THE CODE DOES NOT COVER. The Code was not written for the purpose of
covering all policies, rules and regulations to which employees may be subject.
As an example, T. Rowe Price Investment Services, Inc. ("INVESTMENT SERVICES")
is a member of the National Association of Securities Dealers, Inc. ("NASD")
and, as such, is required to maintain written supervisory procedures to enable
it to supervise the activities of its registered representatives and associated
persons to ensure compliance with applicable securities laws and regulations,
and with the applicable rules of the NASD and its regulatory subsidiary, NASD
Regulation, Inc. ("NASDR").
COMPLIANCE WITH THE CODE. Strict compliance with the provisions of this Code is
considered a basic condition of employment with the firm. An employee may be
required to surrender any profit realized from a transaction which is deemed to
be in violation of the Code. In addition, any breach of the Code may constitute
grounds for disciplinary action, including dismissal from employment. Employees
may appeal to the Management Committee any ruling or decision rendered with
respect to the Code.
QUESTIONS REGARDING THE CODE. Questions regarding the Code should be referred as
follows:
1. Standards of Conduct of Price Associates and its Employees: the
Chairperson of the Ethics Committee or the Director of Human Resources.
2. Statement of Policy on Material, Inside (Non-Public) Information: Legal
Department.
3. Statement of Policy on Securities Transactions: The Chairperson of the
Ethics Committee or his or her designee.
4. Statement of Policy on Corporate Responsibility: Corporate
Responsibility Committee.
5. Statement of Policy with Respect to Compliance with Copyright Laws:
Legal Department.
6. Statement of Policy with Respect to Computer Security and Related
Issues: Legal Department.
7. Statement of Policy on Compliance with Antitrust Laws: Legal
Department.
March, 2000
<PAGE> 272
STANDARDS OF CONDUCT OF PRICE ASSOCIATES AND ITS EMPLOYEES
ALLOCATION OF CLIENT BROKERAGE. The firm's policies with respect to the
allocation of client brokerage are set forth in Part II of Form ADV, Price
Associates' registration statement filed with the Securities and Exchange
Commission ("SEC"). It is imperative that all employees -- especially those who
are in a position to make recommendations regarding brokerage allocation, or who
are authorized to select brokers who will execute securities transactions on
behalf of our clients -- read and become fully knowledgeable concerning our
policies in this regard. Any questions regarding our firm's allocation of client
brokerage should be addressed to the Chairperson of the Brokerage Control
Committee.
ANTITRUST. The U.S. antitrust laws are designed to ensure fair competition and
preserve the free enterprise system. Some of the most common antitrust issues
with which an employee may be confronted are in the areas of pricing (adviser
fees) and trade association activity. To ensure its employees' understanding of
these laws, Price Associates has adopted a Statement of Policy on Compliance
with Antitrust Laws. All employees should read and understand this Statement.
(See page 8-1).
COMPLIANCE WITH COPYRIGHT LAWS. To protect Price Associates and its employees,
Price Associates has adopted a Statement of Policy with Respect to Compliance
with Copyright Laws. All employees should read and understand this Statement
(see page 6-1).
COMPUTER SECURITY. Computer systems and programs play a central role in Price
Associates' operations. To establish appropriate computer security to minimize
potential for loss or disruptions to our computer operations, Price Associates
has adopted a Statement of Policy with Respect to Computer Security and Related
Issues. All employees should read and understand this Statement (see page 7-1).
CONFLICTS OF INTEREST. A direct or indirect interest in a supplier, creditor,
debtor or competitor may conflict with the interests of Price Associates. All
employees must avoid placing themselves in a "compromising position" where their
interests may be in conflict with those of Price Associates or its clients.
RELATIONSHIPS WITH PROFITMAKING ENTERPRISES. A conflict may occur when
an employee of Price Associates is also employed by another firm,
directly or as a consultant or independent contractor; has a direct
financial interest in another firm; has an immediate family financial
interest in another firm; or is a director, officer or partner of
another firm.
Employees of our firm sometimes serve as directors, officers, partners,
or in other capacities with profitmaking enterprises not related to
Price Associates or its mutual funds. Employees are generally
prohibited from serving as officers or directors of corporations which
are approved or are likely to be approved for purchase in our firm's
client accounts.
An employee may not accept outside employment that would require him or
her to become registered (or dually registered) as a representative of
an unaffiliated
<PAGE> 273
broker/dealer, investment adviser, or an insurance broker or company.
An employee may also not become independently registered as an
investment adviser.
An employee who is contemplating obtaining another interest or
relationship that might conflict or appear to conflict with the
interests of Price Associates, such as accepting employment with or an
appointment as a director, officer or partner of an outside
profitmaking enterprise must receive the prior approval of the Ethics
Committee. Upon review by the Ethics Committee, the employee will be
advised in writing of the Committee's decision. Decisions by the Ethics
Committee regarding outside directorships in profitmaking enterprises
will be reviewed by the Management Committee before becoming final.
Outside business interests that will not conflict or appear to conflict
with the interests of the firm need not be reviewed by the Ethics
Committee, but must be approved by the Employee's supervisor.
Certain employees may serve as directors or as members of Creditors
Committees or in similar positions for non-public, for-profit entities
in connection with their professional activities at Price Associates.
An employee must obtain the permission of the Management Committee
before accepting such a position and must relinquish the position if
the entity becomes publicly held, unless otherwise determined by the
Management Committee.
SERVICE WITH NONPROFITMAKING ENTERPRISES. Price Associates encourages
its employees to become involved in community programs and civic
affairs. However, employees should not permit such activities to affect
the performance of their job responsibilities. Approval by the
Chairperson of the Ethics Committee must be obtained before an employee
accepts a position as a trustee or member of the Board of Directors of
any non-profit organization.
RELATIONSHIPS WITH FINANCIAL SERVICE FIRMS. In order to avoid any
actual or apparent conflicts of interest, employees are prohibited from
investing in or entering into any relationship, either directly or
indirectly, with corporations, partnerships, or other entities which
are engaged in business as a broker, a dealer, an underwriter, and/or
an investment adviser. As described above, this prohibition extends to
registration and/or licensure with an unaffiliated firm. This
prohibition, however, is not meant to prevent employees from purchasing
publicly traded securities of broker/dealers, investment advisers or
other companies engaged in the mutual fund industry. Of course, all
such purchases are subject to prior clearance and reporting procedures,
as applicable. This policy does not preclude an employee from engaging
an outside investment adviser to manage his or her assets.
If any member of an employee's immediate family is employed by, has a
partnership interest in, or has an equity interest of .5% or more in a
broker/dealer, investment adviser or other company engaged in the
mutual fund industry, the relationship must be reported to the Ethics
Committee.
INVESTMENT CLUBS. Access Persons (defined on p. 4-3 of the Code) must
receive the prior approval of the Chairperson of the Ethics Committee
before forming or participating in a stock or investment club.
Transactions in which Access Persons have beneficial ownership or
control (see p. 4-4) through investment clubs are subject to the
<PAGE> 274
firm's Statement of Policy on Securities Transactions. Non-Access
Persons (defined on p. 4-4) do not have to receive prior approval to
form or participate in a stock or investment club and need only obtain
prior clearance of transactions in Price Associates' stock. As
described on p. 4-16, an exemption from prior clearance for an Access
Person (except for transactions in Price Associates' stock) is
generally available if the Access Person has beneficial ownership
solely by virtue of his or her spouse's participation in the club and
has no investment control or input into decisions regarding the club's
securities transactions.
CONFIDENTIALITY. The exercise of confidentiality extends to four major areas of
our operations: internal operating procedures and planning; clients, fund
shareholders and TRP Brokerage customers; investment advice; and investment
research. The duty to exercise confidentiality applies not only when an employee
is with the firm, but also after he or she terminates employment with the firm.
INTERNAL OPERATING PROCEDURES AND PLANNING. During the years we have
been in business, a great deal of creative talent has been used to
develop specialized and unique methods of operations and portfolio
management. In many cases, we feel these methods give us an advantage
over our competitors, and we do not want these ideas disseminated
outside our firm. Accordingly, employees should be guarded in
discussing our business practices with outsiders. Any requests from
outsiders for specific information of this type should be cleared with
your supervisor before it is released.
Also, from time to time management holds meetings with employees in
which material, non-public information concerning the firm's future
plans is disclosed. Employees should never discuss confidential
information with, or provide copies of written material concerning the
firm's internal operating procedures or projections for the future to,
unauthorized persons outside the firm.
CLIENTS, FUND SHAREHOLDERS, AND TRP BROKERAGE CUSTOMERS. In many
instances, when clients subscribe to our services, we ask them to
disclose fully their financial status and needs. This is done only
after we have assured them that every member of our organization will
hold this information in strict confidence. It is essential that we
respect their trust. A simple rule for employees to follow is that the
names of our clients, fund shareholders, or TRP Brokerage customers or
any information pertaining to their investments must never be divulged
to anyone outside the firm, not even to members of their immediate
families, and must never be used as a basis for personal trades over
which the employee has beneficial interest or control.
INVESTMENT ADVICE. Because of the fine reputation our firm enjoys,
there is a great deal of public interest in what we are doing in the
market. There are two major considerations that dictate why we must not
provide investment "tips":
- From the point of view of our clients, it is not fair to give
other people information which clients must purchase.
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- From the point of view of the firm, it is not desirable to
create an outside demand for a stock when we are trying to buy
it for our clients, as this will only serve to push the price
up. The reverse is true if we are selling.
In light of these considerations, employees must never disclose to
outsiders our buy and sell recommendations, securities we are
considering for future investment, or the portfolio holdings of our
clients or mutual funds.
The practice of giving investment advice informally to members of your
immediate family should be restricted to very close relatives. Any
transactions resulting from such advice are subject to the prior
approval (Access Persons only) and reporting requirements (Access
Persons AND Non-Access Persons) of the Statement of Policy on
Securities Transactions. Under no circumstances should an employee
receive compensation directly or indirectly (other than from Price
Associates or an affiliate) for rendering advice to either clients or
non-clients.
INVESTMENT RESEARCH. Any report circulated by a research analyst is
confidential in its entirety and should not be reproduced or shown to
anyone outside of our organization, except our clients where
appropriate.
UNDERSTANDING AS TO CLIENTS' ACCOUNTS AND COMPANY RECORDS AT TIME OF
EMPLOYEE TERMINATION. The accounts of clients, mutual fund
shareholders, and TRP Brokerage customers are the sole property of
Price Associates. This applies to all clients for whom Price Associates
acts as investment adviser, regardless of how or through whom the
client relationship originated and regardless of who may be the
counselor for a particular client. At the time of termination of
employment with Price Associates, an employee must: (1) surrender to
Price Associates in good condition any and all materials, reports or
records (including all copies in his or her possession or subject to
his or her control) developed by him or her or any other person which
are considered confidential information of Price Associates (except
copies of any research material in the production of which the employee
participated to a material extent); and (2) refrain from communicating,
transmitting or making known to any person or firm any information
relating to any materials or matters whatsoever which are considered by
Price Associates to be confidential.
Employees must use care in disposing of any confidential records or
correspondence. Confidential material that is to be discarded should be torn up
or, if a quantity of material is involved, you should contact Document
Management for instructions regarding proper disposal.
CORPORATE RESPONSIBILITY. As a major institutional investor with a fiduciary
duty to its clients, including its mutual fund shareholders, Price Associates
has adopted a Statement of Policy on Corporate Responsibility (see page 5-1).
The purpose of this Statement is to establish formal standards and procedures to
guide Price Associates with respect to its responsibilities to deal with matters
of corporate and social responsibilities which may affect the companies in which
client assets are invested.
EMPLOYMENT OF FORMER GOVERNMENT EMPLOYEES. Federal laws and regulations govern
the employment of former employees of the U.S. Government and its agencies,
including the SEC.
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In addition, certain states have adopted similar statutory restrictions.
Finally, certain states and municipalities which are clients of Price Associates
have imposed contractual restrictions in this regard. Before any action is taken
to discuss employment by Price Associates of a former government employee,
guidance must be obtained from the Legal Department.
EMPLOYMENT PRACTICES
EQUAL OPPORTUNITY. Price Associates is committed to the principles of
Equal Employment. We believe our continued success depends on talented
people, without regard to race, color, religion, national origin,
gender, age, disability, sexual orientation, Vietnam era military
service or any other classification protected by federal, state or
local laws.
This commitment to Equal Opportunity covers all aspects of the
employment relationship including recruitment, application and initial
employment, promotion and transfer, selection for training
opportunities, wage and salary administration, and the application of
service, retirement, and employee benefit plan policies.
All members of T. Rowe Price staff are expected to comply with the
spirit and intent of our Equal Employment Opportunity Policy.
If you feel you have not been treated in accordance with this policy,
contact your immediate supervisor, your manager or a Human Resources
Representative. No retaliation will be taken against any employee who
reports an incident of alleged discrimination.
HARASSMENT. Price Associates intends to provide employees a workplace
free from any form of harassment. This includes sexual harassment
which, banned by and punishable under the Civil Rights Act of 1964, may
result from unwelcome advances, requests for favors or any verbal or
physical conduct of a sexual nature. Such actions or statements may or
may not be accompanied by explicit or implied promises of preferential
treatment or negative consequences in connection with one's employment.
Harassment might include uninvited sex-oriented conversations,
touching, comments, jokes, suggestions or innuendos. This type of
behavior can create a stressful, intimidating and offensive atmosphere;
it may adversely affect morale and work performance.
Any employee who feels offended by the action or comments of another,
or any employee who has observed such behavior, should report the
matter, in confidence, to his or her immediate supervisor. If that
presents a problem, report the matter to the Director of Human
Resources or another person in the Human Resources Department. All
complaints will be investigated immediately and confidentially. Any
employee who has behaved in a reprehensible manner will be subject to
disciplinary action in keeping with the gravity of the offense.
DRUG AND ALCOHOL ABUSE. Price Associates has adopted a Statement of
Policy, available from Human Resources, to maintain a drug-free
workplace and prevent alcohol abuse. This policy fosters a safe,
healthful and productive environment for its employees and
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customers and protects Price Associates' property, equipment,
operations and reputation in the community and the industry.
PAST AND CURRENT LITIGATION. As a condition of employment, each new employee is
required to answer a questionnaire regarding past and current civil and criminal
actions and certain regulatory matters. Price Associates uses the information
obtained through these questionnaires to answer questions asked on federal and
state registration forms and for insurance and bonding purposes. Each employee
is responsible for keeping answers on the questionnaire current. If an employee
becomes party to any proceeding that could lead to his or her conviction for any
felony or misdemeanor (other than traffic or other minor offenses) or becomes
the subject of a regulatory action by the SEC, a state, a foreign government or
any domestic or foreign self-regulatory organization relating to securities or
investment activities, he or she should notify the Legal Department promptly.
FINANCIAL REPORTING. Price Associates' records are maintained in a manner that
provides for an accurate record of all financial transactions in conformity with
generally accepted accounting principles. No false or deceptive entries may be
made and all entries must contain an appropriate description of the underlying
transaction. All reports, vouchers, bills, invoice, payroll and service records
and other essential data must be accurate, honest and timely and should provide
an accurate and complete representation of the facts.
HEALTH AND SAFETY IN THE WORKPLACE. Price Associates recognizes its
responsibility to provide employees a safe and healthful workplace and proper
facilities to help them do their jobs effectively.
ILLEGAL PAYMENTS. State, federal and foreign laws prohibit the payment of
bribes, kickbacks, inducements or other illegal gratuities or payments by or on
behalf of Price Associates. Price Associates, through its policies and
practices, is committed to comply fully with these laws. The Foreign Corrupt
Practices Act makes it a crime to corruptly give, promise or authorize payment,
in cash or in kind, for any service to a foreign official or political party in
connection with obtaining or retaining business. If an employee is solicited to
make or receive an illegal payment, he or she should contact the Legal
Department.
MARKETING AND SALES ACTIVITIES. All written and oral marketing materials and
presentations (including performance data) must be in compliance with applicable
SEC, NASD, and Association of Investment Management and Research ("AIMR")
requirements. All advertisements, sales literature and other written marketing
materials (whether they be for the Price Funds, non-Price funds, or various
advisory or brokerage services) must be reviewed and approved by the advertising
section of the Legal Department prior to use. All performance data distributed
outside the firm, including total return and yield information, must be obtained
from the Performance Group before distribution.
POLICY REGARDING ACCEPTANCE AND GIVING OF GIFTS AND GRATUITIES. The firm, as
well as its employees and members of their families, should not accept or give
gifts that might in any way create or appear to create a conflict of interest or
interfere with the impartial discharge of our responsibilities to clients or
place our firm in a difficult or embarrassing position. Such gifts would include
gratuities or other accommodations from or to business contacts, brokers,
securities salespersons, approved companies, suppliers, clients, or any other
individual or
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organization with whom our firm has a business relationship, but would not
include certain types of business entertainment as described later in this
section.
RECEIPT OF GIFTS. Personal contacts may lead to gifts which are offered
on a friendship basis and may be perfectly proper. It must be
remembered, however, that business relationships cannot always be
separated from personal relationships and that the integrity of a
business relationship is always susceptible to criticism in hindsight
where gifts are received.
Under no circumstances may employees accept gifts from any business or
business contact in the form of cash or cash equivalents. Gift
certificates may only be accepted if used; they may not be converted to
cash except for nominal amounts not consumed when the gift certificate
is used.
There may be an occasion where it might be awkward to refuse a token
non-cash expression of appreciation given in the spirit of friendship.
In such cases, the value of all gifts received from a business contact
should not exceed $100 in any twelve-month period. The value of a gift
directed to the members of a department as a group may be divided by
the number of the employees in that Department. Gifts received which
are unacceptable according to this policy must be returned to the
givers.
GIVING OF GIFTS. An employee may never give a gift to a business
contact in the form of cash or cash equivalents, including gift
certificates. Token gifts may be given to business contacts, but the
aggregate value of all such gifts given to the business contact may not
exceed $100 in any twelve-month period without the permission of the
Chairperson of the Ethics Committee. If an employee believes that it
would be appropriate to give a gift with a value exceeding $100 to a
business contact in a specific situation, he or she must submit a
written request to the Chairperson of the Ethics Committee. The request
should specify:
- the name of the giver;
- the name of the intended recipient and his or her
employer;
- the nature of the gift and its monetary value;
- the nature of the business relationship; and
- the reason the gift is being given.
NASD regulations prohibit exceptions to the $100 limit for gifts given
in connection with Investment Services' business. Baltimore/Legal
Compliance will retain a record of all such gifts.
ADDITIONAL REQUIREMENTS FOR THE GIVING OF GIFTS IN CONNECTION WITH THE
BROKER/DEALER. NASD Conduct Rule 3060 imposes stringent reporting
requirements for gifts given to any principal, employee, agent or
similarly situated person where the gift is in connection with
Investment Services' business with the person's employer. Examples of
gifts that fall under this rule would include any gift given to an
employee of a company to which our firm provides investment products
such as mutual funds (e.g.,
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many 401(k) plans) or to which we are marketing investment products.
Under this NASD rule, gifts may not exceed $100 (without exception) and
persons associated with Investment Services, including its registered
representatives, must report EACH such gift.
The NASD reporting requirement is normally met when an item is ordered
electronically from the Corporate Gift website. If a gift is obtained
from another source, it must be reported to Baltimore/Legal Compliance.
The report to Baltimore Legal/Compliance must include:
- the name of the giver;
- the name of the recipient and his or her employer;
- the nature of the gift and its monetary value;
- the nature of the business relationship; and
- the date the gift was given.
ENTERTAINMENT. Our firm's $100 limit on the acceptance and giving of
gifts not only applies to gifts of merchandise, but also covers the
enjoyment or use of property or facilities for weekends, vacations,
trips, dinners, and the like. However, this limitation does not apply
to dinners, sporting events and other activities which are a normal
part of a business relationship. To illustrate this principle, the
following examples are provided:
First Example: The head of institutional research at brokerage
firm "X" (whom you have known and done business with for a
number of years) invites you and your wife to join her and her
husband for dinner and afterwards a theatrical production.
Second Example: You are going to New York for a weekend with
your wife. You wish to see a recent Broadway hit, but are told
it is sold out. You call a broker friend who works at company
"X" to see if he can get tickets for you. The broker says yes
and offers you two tickets free of charge.
Third Example: You have been invited by a vendor to a
multi-day excursion to a resort where the primary focus is
entertainment as opposed to business. The vendor has offered
to pay your travel and lodging for this trip.
In the first example, it would be proper for you to accept the
invitation.
With respect to the second example, it would not be proper to solicit a
person doing business with the firm for free tickets to any event. You
could, however, accept the tickets if you pay for them at their fair
value or, if greater, at the cost to the broker.
With respect to the third example, trips of substantial value, such as
multi-day excursions to resorts, hunting locations or sports events,
where the primary focus is entertainment as
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opposed to business activities, would not be considered a normal part
of a business relationship. Generally, such invitations may not be
accepted unless our firm or the employee pays for the cost of the
excursion and the employee has obtained approval from his or her
Division Head.
The same principles apply if an employee wishes to entertain a business contact.
Inviting business contacts and, if appropriate, their guests, to an occasional
meal, sporting event, the theater, or comparable entertainment is acceptable as
long as it is neither so frequent nor so extensive as to raise any question of
propriety. If an employee wishes to pay for a business guest=s transportation
(e.g., airfare) and/or accommodations as part of business entertainment, he or
she must first receive the permission of the Chairperson of the Ethics
Committee.
RESEARCH TRIPS. Occasionally, brokers or portfolio companies invite employees of
our firm to attend or participate in research conferences, tours of portfolio
companies' facilities, or meetings with the management of such companies. These
invitations may involve traveling extensive distances to and from the sites of
the specified activities and may require overnight lodging. Employees may not
accept any such invitations until approval has been secured from their Division
heads. As a general rule, such invitations should only be accepted after a
determination has been made that the proposed activity constitutes a valuable
research opportunity which will be of primary benefit to our clients. All travel
expenses to and from the sites of the activities, and the expenses of any
overnight lodging, meals or other accommodations provided in connection with
such activities, should be paid for by our firm except in situations where the
costs are considered to be insubstantial and are not readily ascertainable.
Employees may not accept reimbursement from brokers or portfolio companies for:
travel and hotel expenses; speaker fees or honoraria for addresses or papers
given before audiences; or consulting services or advice they may render.
Likewise, employees may neither request nor accept loans or personal services
from brokers or portfolio companies.
POLITICAL ACTIVITIES. Employees are encouraged to participate and vote in all
federal, state and local elections. All officers and directors of Price
Associates are required to disclose certain Maryland local and state political
contributions on a semi-annual basis (a Political Contribution Questionnaire is
sent to officers and directors each January and July).
No political contribution of corporate funds, direct or indirect, to any
political candidate or party, or to any other organization that might use the
contribution for a political candidate or party, or use of corporate property,
services or other assets may be made without the written approval of the Legal
Department. These prohibitions cover not only direct contributions but also
indirect assistance or support of candidates or political parties through
purchase of tickets to special dinners or other fund raising events, or the
furnishing of any other goods, services or equipment to political parties or
committees.
PROTECTION OF CORPORATE ASSETS. All employees are responsible for taking
measures to ensure that Price Associates' assets are properly protected. This
responsibility not only applies to our business facilities, equipment and
supplies, but also to intangible assets such as proprietary, research or
marketing information, corporate trademarks and servicemarks, and copyrights.
QUALITY OF SERVICES. It is a continuing policy of Price Associates to provide
investment products and services which: (1) meet applicable laws, regulations
and industry standards; (2) are offered
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to the public in a manner which ensures that each client/shareholder understands
the objectives of each investment product selected; and (3) are properly
advertised and sold in accordance with all applicable SEC, state and NASD rules
and regulations.
The quality of Price Associates' investment products and services and operations
affects our reputation, productivity, profitability and market position. Price
Associates' goal is to be a quality leader and to create conditions that allow
and encourage all employees to perform their duties in an efficient, effective
manner.
RECORD RETENTION. Under various federal and state laws and regulations, Price
Associates is required to produce, maintain and retain various records,
documents and other written (including electronic) communications. Each employee
is responsible for adhering to Price Associates' record maintenance and
retention policies.
REFERRAL FEES. Federal securities laws strictly prohibit the payment of any type
of referral fee unless certain conditions are met. This would include any
compensation to persons who refer clients or shareholders to us (e.g., brokers,
registered representatives or any other persons) either directly in cash, by fee
splitting, or indirectly by the providing of gifts or services (including the
allocation of brokerage). No arrangements should be entered into obligating
Price Associates or any employee to pay a referral fee unless approved by the
Legal Department.
RELEASE OF INFORMATION TO THE PRESS. All requests for information from the media
concerning T. Rowe Price Associates' corporate affairs, mutual funds, investment
services, investment philosophy and policies, and related subjects should be
referred to the Public Relations Department for reply. Investment professionals
who are contacted directly by the press concerning a particular fund's
investment strategy or market outlook may use their own discretion, but are
advised to check with the Public Relations Department if they do not know the
reporter or feel it may be inappropriate to comment on a particular matter.
RESPONSIBILITY TO REPORT VIOLATIONS. Every employee who becomes aware of a
violation of this Code is encouraged to report, on a confidential basis, the
violation to his or her supervisor. If the supervisor appears to be involved in
the wrongdoing, the report should be made to the next level of supervisory
authority or to the Director of the Human Resources Department. Upon
notification of the alleged violation, the supervisor is obligated to advise the
Legal Department.
It is Price Associates' policy that no adverse action will be taken against any
employee who reports a violation in good faith.
SERVICE AS TRUSTEE, EXECUTOR OR PERSONAL REPRESENTATIVE. Employees may serve as
trustees, co-trustees, executors or personal representatives for the estates of
or trusts created by close family members. Employees may also serve in such
capacities for estates or trusts created by nonfamily members. However, if an
Access Person expects to be actively involved in an investment capacity in
connection with an estate or trust created by a nonfamily member, he or she must
first be granted permission by the Ethics Committee. If an employee serves in
any of these capacities, securities transactions effected in such accounts will
be subject to the prior approval (Access Persons only) and reporting
requirements (Access Persons AND Non-Access Persons) of our Statement of Policy
on Securities Transactions.
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If any employees presently serve in any of these capacities for nonfamily
members, they should report these relationships in writing to the Ethics
Committee.
SPEAKING ENGAGEMENTS AND PUBLICATIONS. Employees are often asked to accept
speaking engagements on the subject of investments, finance, or their own
particular specialty with our organization. This is encouraged by the firm, as
it enhances our public relations, but you should obtain approval from the head
of your Division before you accept such requests. You may also accept an offer
to teach a course or seminar on investments or related topics (for example, at a
local college) in your individual capacity with the approval of the head of your
Division and provided the course is in compliance with the Guidelines found in
Investment Services -- Compliance Manual.
Before making any commitment to write or publish any article or book on a
subject related to investments or your work at Price Associates, approval should
be obtained from your Division head.
TRADING IN SECURITIES WITH INSIDE INFORMATION. The purchase or sale of
securities while in possession of material, inside information is prohibited by
state and federal laws. Information is considered inside and material if it has
not been publicly disclosed and is sufficiently important that it would affect
the decision of a reasonable person to buy, sell or hold stock in a company,
including Price Associates' stock. Under no circumstances may an employee
transmit such information to any other person, except to other employees who are
required to be kept informed on the subject. All employees should read and
understand the Statement of Policy on Material, Inside (Non-Public) Information
(see page 3-1).
March, 2000
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T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY
ON
MATERIAL, INSIDE (NON-PUBLIC) INFORMATION
INTRODUCTION. "Insider trading" is a top enforcement priority of the Securities
and Exchange Commission. In 1988, the Insider Trading and Securities Fraud
Enforcement Act (the "ACT") was signed into law. This Act has had a far reaching
impact on all public companies and especially those engaged in the securities
brokerage or investment advisory industries, including directors, executive
officers and other controlling persons of such companies. While the Act does not
provide a statutory definition of "insider trading," it contained major changes
to the previous law. Specifically, the Act:
WRITTEN PROCEDURES. Requires SEC-registered brokers, dealers and
investment advisers to establish, maintain and enforce written policies
and procedures reasonably designed to prevent the misuse of material,
non-public information by such persons.
CIVIL PENALTIES. Imposes severe civil penalties on brokerage firms,
investment advisers, their management and advisory personnel and other
"controlling persons" who fail to take adequate steps to prevent insider
trading and illegal tipping by employees and other "controlled persons."
Persons who directly or indirectly control violators, including entities
such as Price Associates and their officers and directors, face penalties
to be determined by the court in light of the facts and circumstances, but
not to exceed the greater of $1,000,000 or three times the amount of
profit gained or loss avoided as a result of the violation.
CRIMINAL PENALTIES. Provides as penalties for criminal securities law
violations:
- Maximum jail term -- from five to ten years;
- Maximum criminal fine for individuals -- from $100,000 to
$1,000,000;
- Maximum criminal fine for entities -- from $500,000 to
$2,500,000.
PRIVATE RIGHT OF ACTION. Establishes a statutory private right of action
on behalf of contemporaneous traders against insider traders and their
controlling persons.
BOUNTY PAYMENTS. Authorizes the SEC to award bounty payments to persons
who provide information leading to the successful prosecution of insider
trading violations. Bounty payments are at the discretion of the SEC, but
may not exceed 10% of the penalty imposed.
PURPOSE OF STATEMENT OF POLICY. The purpose of this Statement of Policy
("STATEMENT") is to comply with the Act's requirement to establish, maintain,
and enforce written procedures designed to prevent insider trading. This
Statement explains: (i) the general legal prohibitions and sanctions regarding
insider trading; (ii) the meaning of the key concepts underlying the
prohibitions; (iii) the obligations of each employee of Price Associates in the
event he or she comes into possession of material, non-public information; and
(iv) the firm's educational program regarding insider trading. Price Associates
has also adopted a Statement of Policy on Securities Transactions (see page
4-1), which requires both Access Persons (see p. 4-3) and Non-
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Access Persons (see p. 4-4) to obtain prior clearance with respect to their
transactions in Price Associates' stock and requires Access Persons to obtain
prior clearance with respect to all pertinent securities transactions. In
addition, both Access Persons and Non-Access Persons are required to report such
transactions on a timely basis to the firm.
THE BASIC INSIDER TRADING PROHIBITION. The "insider trading" doctrine under
federal securities laws generally prohibits any person (including investment
advisers) from:
- trading in a security while in possession of material, non-public
information regarding the issuer of the security;
- tipping such information to others;
- recommending the purchase or sale of securities while in possession
of such information;
- assisting someone who is engaged in any of the above activities.
Thus, "insider trading" is not limited to insiders of the company whose
securities are being traded. It can also apply to non-insiders, such as
investment analysts, portfolio managers and stockbrokers. In addition, it is not
limited to persons who trade. It also covers persons who tip material,
non-public information or recommend transactions in securities while in
possession of such information.
POLICY OF PRICE ASSOCIATES ON INSIDER TRADING. It is the policy of Price
Associates and its affiliates to forbid any of their officers, directors, or
employees, while in possession of material, non-public information, from trading
securities or recommending transactions, either personally or in its proprietary
accounts or on behalf of others (including mutual funds and private accounts),
or communicating material, non-public information to others in violation of
federal securities laws.
"NEED TO KNOW" POLICY. All information regarding planned, prospective or ongoing
securities transactions must be treated as confidential. Such information must
be confined, even within the firm, to only those individuals and departments who
must have such information in order for Price Associates to carry out its
engagement properly and effectively. Ordinarily, these prohibitions will
restrict information to only those persons who are involved in the matter.
TRANSACTIONS INVOLVING PRICE ASSOCIATES' STOCK. Officers, directors and
employees are reminded that they are "insiders" with respect to Price Associates
since Price Associates is a public company and its stock is traded in the
over-the-counter market. It is therefore important that employees not discuss
with family, friends or other persons any matter concerning Price Associates
which might involve material, non-public information, whether favorable or
unfavorable.
SANCTIONS. Penalties for trading on material, non-public information are severe,
both for the individuals involved in such unlawful conduct and their employers.
An employee of Price Associates who violates the insider trading laws can be
subject to some or all of the penalties described below, even if he or she does
not personally benefit from the violation:
- Injunctions;
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- Treble damages;
- Disgorgement of profits;
- Criminal fines;
- Jail sentences;
- Civil penalties for the person who committed the violation (which
would, under normal circumstances, be the employee and not the firm)
of up to three times the profit gained or loss avoided, whether or
not the individual actually benefitted; and
- Civil penalties for Price Associates (and other persons, such as
managers and supervisors, who are deemed to be controlling persons)
of up to the greater of $1,000,000 or three times the amount of the
profit gained or loss avoided.
In addition, any violation of this Statement can be expected to result in
serious sanctions being imposed by Price Associates, including dismissal of the
person(s) involved.
BASIC CONCEPTS OF INSIDER TRADING. The four critical concepts in insider trading
cases are: (1) fiduciary duty/misappropriation, (2) materiality, (3) non-public,
and (4) possession. Each concept is discussed below.
FIDUCIARY DUTY/MISAPPROPRIATION. In two decisions, Dirks v. SEC and Chiarella v.
United States, the United States Supreme Court held that insider trading and
tipping violate the federal securities law if the trading or tipping of the
information results in a breach of duty of trust or confidence.
A typical breach of duty arises when an insider, such as a corporate officer,
purchases securities of his or her corporation on the basis of material,
non-public information. Such conduct breaches a duty owed to the corporation's
shareholders. The duty breached, however, need not be to shareholders to support
liability for insider trading; it could also involve a breach of duty to a
client, an employer, employees, or even a personal acquaintance. For example,
courts have held that if the insider receives a personal benefit (either direct
or indirect) from the disclosure, such as a pecuniary gain or reputational
benefit, that would be enough to find a fiduciary breach.
The concept of who constitutes an "insider" is broad. It includes officers,
directors and employees of a company. In addition, a person can be a "temporary
insider" if he or she enters into a confidential relationship in the conduct of
a company's affairs and, as a result, is given access to information solely for
the company's purpose. A temporary insider can include, among others, a
company's attorneys, accountants, consultants, and bank lending officers, as
well as the employees of such organizations. In addition, any person may become
a temporary insider of a company if he or she advises the company or provides
other services, provided the company expects such person to keep any material,
non-public information disclosed confidential.
Court decisions have held that under a "misappropriation" theory, an outsider
(such as an investment analyst) may be liable if he or she breaches a duty to
anyone by: (1) obtaining information improperly, or (2) using information that
was obtained properly for an improper purpose. For example, if information is
given to an analyst on a confidential basis and the analyst uses that
information for trading purposes, liability could arise under the
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misappropriation theory. Similarly, an analyst who trades in breach of a duty
owed either to his or her employer or client may be liable under the
misappropriation theory. For example, the Supreme Court upheld the
misappropriation theory when a lawyer received material, non-public information
from a law partner who represented a client contemplating a tender offer, where
that lawyer used the information to trade in the securities of the target
company.
The situations in which a person can trade while in possession of material,
non-public information without breaching a duty are so complex and uncertain
that the only safe course is not to trade, tip or recommend securities while in
possession of material, non-public information.
MATERIALITY. Insider trading restrictions arise only when the information that
is used for trading, tipping or recommendations is "material." The information
need not be so important that it would have changed an investor's decision to
buy or sell; rather, it is enough that it is the type of information on which
reasonable investors rely in making purchase, sale, or hold decisions.
RESOLVING CLOSE CASES. The Supreme Court has held that, in close cases,
doubts about whether or not information is material should be resolved in
favor of a finding of materiality. You should also be aware that your
judgment regarding materiality may be reviewed by a court or the SEC with
the 20-20 vision of hindsight.
EFFECT ON MARKET PRICE. Any information that, upon disclosure, is likely
to have a significant impact on the market price of a security should be
considered material.
FUTURE EVENTS. The materiality of facts relating to the possible
occurrence of future events depends on the likelihood that the event will
occur and the significance of the event if it does occur.
ILLUSTRATIONS. The following list, though not exhaustive, illustrates the
types of matters that might be considered material: a joint venture,
merger or acquisition; the declaration or omission of dividends; the
acquisition or loss of a significant contract; a change in control or a
significant change in management; a call of securities for redemption; the
borrowing of a significant amount of funds; the purchase or sale of a
significant asset; a significant change in capital investment plans; a
significant labor dispute or disputes with subcontractors or suppliers; an
event requiring a company to file a current report on Form 8-K with the
SEC; establishment of a program to make purchases of the company's own
shares; a tender offer for another company's securities; an event of
technical default or default on interest and/or principal payments;
advance knowledge of an upcoming publication that is expected to affect
the market price of the stock.
These illustrations are equally applicable to Price Associates as a public
company and should serve as examples of the types of matters that
employees should not discuss with persons outside the firm. Remember, even
though you may have no intent to violate any federal securities law, an
offhand comment to a friend might be used unbeknownst to you by such
friend to effect purchases or sales of Price Associates' stock. If such
transactions were discovered and your friend were prosecuted, your status
as an informant or "tipper" would directly involve you in the case.
<PAGE> 287
NON-PUBLIC VS. PUBLIC INFORMATION. Any information which is not "public" is
deemed to be "non-public." Just as an investor is permitted to trade on the
basis of information that is not material, he or she may also trade on the basis
of information that is public. Information is considered public if it has been
disseminated in a manner making it available to investors generally. An example
of non-public information would include material information provided to a
select group of analysts but not made available to the investment community at
large. Set forth below are a number of ways in which non-public information may
be made public.
DISCLOSURE TO NEWS SERVICES AND NATIONAL PAPERS. The U.S. stock exchanges
require exchange-traded issuers to disseminate material, non-public
information about their companies to: (1) the national business and
financial newswire services (Dow Jones and Reuters); (2) the national
service (Associated Press); and (3) The New York Times and The Wall Street
Journal.
LOCAL DISCLOSURE. An announcement by an issuer in a local newspaper might
be sufficient for a company that is only locally traded, but might not be
sufficient for a company that has a national market.
INFORMATION IN SEC REPORTS. Information contained in reports filed with
the SEC will be deemed to be public.
INFORMATION IN BROKERAGE REPORTS. Information published in bulletins and
research reports disseminated by brokerage firms will, as a general
matter, be deemed to be public.
If Price Associates is in possession of material, non-public information with
respect to a security before such information is disseminated to the public
(i.e., such as being disclosed in one of the public media described above),
Price Associates and its employees must wait a sufficient period of time after
the information is first publicly released before trading or initiating
transactions to allow the information to be fully disseminated.
CONCEPT OF POSSESSION. It is important to note that the SEC takes the position
that the law regarding insider trading prohibits any person from trading in a
security in violation of a duty of trust and confidence WHILE in possession of
material, non-public information regarding the security. This is in contrast to
trading ON THE BASIS of the material, non-public information. To illustrate the
problems created by the use of the "possession" standard, as opposed to the
"caused" standard, the following three examples are provided:
FIRST, if the investment committee to a Price mutual fund were to obtain
material, non-public information about one of its portfolio companies from
a Price equity research analyst, that fund would be prohibited from
trading in the securities to which that information relates. The
prohibition would last until the information is no longer material or
non-public.
SECOND, if the investment committee to a Price mutual fund obtained
material, non-public information about a particular portfolio security but
continued to trade in that security, then the committee members, Price
Associates, and possibly management personnel might be liable for insider
trading violations.
<PAGE> 288
THIRD, even if the investment committee to the Fund does not come into
possession of the material, non-public information known to the equity
research analyst, if it trades in the security, it may have a difficult
burden of proving to the SEC or to a court that it was not in possession
of such information.
TENDER OFFERS. Tender offers are subject to particularly strict regulation under
the securities laws. Specifically, trading in securities which are the subject
of an actual or impending tender offer by a person who is in possession of
material, non-public information relating to the offer is illegal, regardless of
whether there was a breach of fiduciary duty. Under no circumstances should you
trade in securities while in possession of material, non-public information
regarding a potential tender offer.
PROCEDURES TO BE FOLLOWED WHEN RECEIVING MATERIAL, NON-PUBLIC INFORMATION.
Whenever an employee comes into possession of material, non-public information,
he or she should immediately contact the Legal Department and refrain from
disclosing the information to anyone else, including persons within Price
Associates, unless specifically advised to the contrary.
Specifically, employees may not:
- Trade in securities to which the material, non-public information
relates;
- Disclose the information to others;
- Recommend purchases or sales of the securities to which the
information relates.
If the Legal Department determines that the information is material and
non-public, it will decide whether to:
- Place the security on a Watch List ("WATCH LIST") and restrict the
flow of the information to others within Price Associates in order
to allow Price Associates' investment personnel to continue their
ordinary investment activities. This procedure is commonly referred
to as a CHINESE WALL; or
- Place the security on a Restricted List ("RESTRICTED LIST") in order
to prohibit trading in the security by both clients and employees.
The Watch List is highly confidential and should, under no circumstances, be
disseminated to anyone except authorized personnel in the Legal Department. The
Restricted List is also highly confidential and should, under no circumstances,
be disseminated to anyone outside Price Associates.
The employee whose possession of or access to inside information has caused the
inclusion of an issuer on the Watch List may never trade or recommend the trade
of the securities of that issuer without the specific prior approval of the
Legal Department.
<PAGE> 289
If an employee receives a private placement memorandum and the existence of the
private offering and/or the contents of the memorandum is material and
non-public, the employee should contact the Legal Department for a determination
of whether the issuer should be placed on the Watch or Restricted List.
SPECIFIC PROCEDURES RELATING TO THE SAFEGUARDING OF INSIDE INFORMATION.
To ensure the integrity of the Chinese Wall, and the confidentiality of
the Restricted List, it is important that ALL EMPLOYEES take the following steps
to safeguard the confidentiality of material, non-public information:
- Do not discuss confidential information in public places such as
elevators, hallways or social gatherings;
- To the extent practical, limit access to the areas of the firm where
confidential information could be observed or overheard to employees
with a business need for being in the area;
- Avoid using speaker phones in areas where unauthorized persons may
overhear conversations;
- Where appropriate, maintain the confidentiality of client identities
by using code names or numbers for confidential projects;
- Exercise care to avoid placing documents containing confidential
information in areas where they may be read by unauthorized persons
and store such documents in secure locations when they are not in
use; and
- Destroy copies of confidential documents no longer needed for a
project.
Price Associates has adopted specific written procedures, Procedures
Pertaining to the Administration of the Statement of Policy on Material, Inside
(Non-Public) Information ("PROCEDURES") to deal with those situations where
employees of the firm are in possession of material, non-public information with
respect to securities which may be in or are being considered for inclusion in
the portfolios of clients managed by other areas of the firm and when tender
offer financing information is received. These Procedures also describe the
procedures for managing relationship conflicts in the municipal area. These
Procedures have been designed to isolate and keep confidential material,
non-public information known to one investment group or employee from the
remainder of the firm. They are considered a part of this Statement and will be
distributed to all appropriate personnel.
EDUCATION PROGRAM. While the probability of research analysts and portfolio
managers being exposed to material, non-public information with respect to
companies considered for investment by clients is greater than that of other
employees, it is imperative that all employees have a full understanding of this
Statement, particularly since the insider trading restrictions also apply to
transactions in the stock of Price Associates.
<PAGE> 290
To ensure that all employees are properly informed of and understand Price
Associates' policy with respect to insider trading, the following program has
been adopted.
INITIAL REVIEW FOR NEW EMPLOYEES. All new employees will be given a copy
of the Code, which includes this Statement, at the time of their
employment and will be required to certify that they have read it. A
representative of the Legal Department will review the Statement with each
new portfolio manager, research analyst, and trader, as well as with any
person who joins the firm as a vice president of Price Associates,
promptly after his or her employment.
DISTRIBUTION OF STATEMENT. Any time this Statement is materially revised,
copies will be distributed to all employees.
ANNUAL REVIEW WITH RESEARCH ANALYSTS, COUNSELORS AND TRADERS. A
representative of the Legal Department will review this Statement at least
annually with portfolio managers, research analysts, and traders.
ANNUAL CONFIRMATION OF COMPLIANCE. All employees will be asked to confirm
their understanding of and adherence to this Statement on an annual basis.
QUESTIONS. If you have any questions with respect to the interpretation or
application of this Statement, you are encouraged to discuss them with your
immediate supervisor or the Legal Department.
March, 2000
<PAGE> 291
T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY
ON
SECURITIES TRANSACTIONS
BACKGROUND INFORMATION.
LEGAL REQUIREMENT. In accordance with the requirements of the Securities
Exchange Act of 1934, the Investment Company Act of 1940, the Investment
Advisers Act of 1940 and the Insider Trading and Securities Fraud
Enforcement Act of 1988, T. Rowe Price Associates, Inc. ("PRICE
ASSOCIATES") and the mutual funds ("TRPA FUNDS") which it manages have
adopted this Statement of Policy on Securities Transactions
("STATEMENT"). Both Rowe Price-Fleming International, Inc. ("RPFI") and
T. Rowe Fleming Asset Management Limited ("TRFAM") have also adopted
Statements of Policy on Securities Transactions. Funds sponsored and
managed by Price Associates or RPFI will be referred to as the "PRICE
FUNDS."
PRICE ASSOCIATES' FIDUCIARY POSITION. As an investment adviser, Price
Associates is in a fiduciary position which requires it to act with an
eye only to the benefit of its clients, avoiding those situations which
might place, or appear to place, the interests of Price Associates or
its officers, directors and employees in conflict with the interests of
clients.
PURPOSE OF STATEMENT. The Statement was developed to help guide Price
Associates' employees and independent directors and the independent
directors of the Price Funds in the conduct of their personal
investments and to:
- eliminate the possibility of a transaction occurring that the
Securities and Exchange Commission or other regulatory bodies
would view as illegal, such as FRONT RUNNING (see definition
below);
- avoid situations where it might appear that Price Associates or
the Price Funds or any of their officers, directors or employees
had personally benefited at the expense of a client or fund
shareholder or taken inappropriate advantage of their fiduciary
positions; and
- prevent, as well as detect, the misuse of material, non-public
information.
Employees and the independent directors of Price Associates and the
Price Funds are urged to consider the reasons for the adoption of this
Statement. Price Associates' and the Price Funds' reputations could be
adversely affected as the result of even a single transaction considered
questionable in light of the fiduciary duties of Price Associates and
the independent directors of the Price Funds.
FRONT RUNNING. Front Running is illegal. It is generally defined as the
purchase or sale of a security by an officer, director or employee of an
investment adviser or mutual fund in
<PAGE> 292
anticipation of and prior to the adviser effecting similar transactions
for its clients in order to take advantage of or avoid changes in market
prices effected by client transactions.
PERSONS SUBJECT TO STATEMENT. The provisions of this Statement apply as
described below to the following persons and entities. Each person and entity is
classified as either an Access Person or a Non-Access Person as described below.
The provisions of this Statement may also apply to an Access Person's or
Non-Access Person's spouse, minor children, and certain other relatives, as
further described on page 4-4 of this Statement. Access Persons are subject to
all provisions of this Statement. Non-Access Persons are subject to the general
principles of the Statement and its reporting requirements, but are exempt from
prior clearance requirements except for transactions in Price Associates' stock.
The persons and entities covered by this Statement are:
PRICE ASSOCIATES. Price Associates, each of its subsidiaries and their
retirement plans, and the Price Associates Employee Partnerships.
PERSONNEL. Each officer, inside director and employee of Price
Associates and its subsidiaries, including T. Rowe Price Investment
Services, Inc., the principal underwriter of the Price Funds.
CERTAIN TEMPORARY WORKERS. These workers include:
- All temporary workers hired on the Price Associates payroll
("TRPA TEMPORARIES");
- All agency temporaries whose assignments at Price Associates
exceed four weeks or whose cumulative assignments exceed eight
weeks over a twelve-month period;
- All independent or agency-provided consultants whose assignments
exceed four weeks or whose cumulative assignments exceed eight
weeks over a twelve-month period AND whose work is closely
related to the ongoing work of Price Associates' employees
(versus project work that stands apart from ongoing work); and
- Any contingent worker whose assignment is more than casual in
nature or who will be exposed to the kinds of information and
situations that would create conflicts on matters covered in the
Code.
RPFI PERSONNEL. As stated in the first paragraph, a Statement of Policy
on Securities Transactions has been adopted by RPFI. Under that
Statement, all RPFI personnel (officers, directors and employees)
stationed in Baltimore will be subject to this Statement.
TRFAM PERSONNEL. As stated in the first paragraph, a Statement of Policy
on Securities Transactions has been adopted by TRFAM. Under that
Statement, all TRFAM personnel (officers, directors, and employees)
stationed in Baltimore will be subject to this Statement.
<PAGE> 293
RETIRED EMPLOYEES. Retired employees of Price Associates who continue to
receive investment research information from Price Associates.
INDEPENDENT DIRECTORS OF PRICE ASSOCIATES AND THE PRICE FUNDS. The independent
directors of Price Associates include those directors of Price Associates who
are neither officers nor employees of Price Associates. The independent
directors of the Price Funds include those directors of the Price Funds who are
not deemed to be "interested persons" of Price Associates.
Although subject to the general principles of this Statement, including the
definition of "beneficial ownership," independent directors are subject only to
modified reporting requirements. The independent directors of the Price Funds
are exempt from prior clearance requirements. The independent directors of Price
Associates are exempt from the prior clearance requirements except for Price
Associates' stock.
ACCESS PERSONS. Certain persons and entities are classified as "ACCESS PERSONS"
under the Code. The term "ACCESS PERSON" means:
- Price Associates;
- any officer (vice president or above) or director (excluding
independent directors) of Price Associates or the Price Funds;
- any employee of Price Associates or the Price Funds who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains or has access to information
regarding the purchase or sale of securities by a Price Fund or
other advisory client, or whose functions relate to the making
of any recommendations with respect to the purchases or sales;
or
- any person in a control relationship to Price Associates or a
Price Fund who obtains or has access to information concerning
recommendations made to a Price Fund or other advisory client
with regard to the purchase or sale of securities by the Price
Fund or advisory client.
All Access Persons are notified of their status under the Code.
INVESTMENT PERSONNEL. An Access Person is further identified as
"INVESTMENT PERSONNEL" if, in connection with his or her regular
functions or duties, he or she "makes or participates in making
recommendations regarding the purchase or sale of securities" by a Price
Fund or other advisory client.
The term "Investment Personnel" includes, but is not limited to:
- those employees who are authorized to make investment decisions
or to recommend securities transactions on behalf of the firm's
clients (investment counselors and members of the mutual fund
advisory committees);
<PAGE> 294
- research and credit analysts; and
- traders who assist in the investment process.
All Investment Personnel are deemed Access Persons under the Code. All
Investment Personnel are notified of their status under the Code.
Investment Personnel are prohibited from investing in initial public
offerings.
NON-ACCESS PERSONS. Persons who do not fall within the definition of Access
Persons are deemed "NON-ACCESS PERSONS".
QUESTIONS ABOUT THE STATEMENT. You are urged to seek the advice of the
Chairperson of the Ethics Committee when you have questions as to the
application of this Statement to individual circumstances.
TRANSACTIONS SUBJECT TO STATEMENT. Except as provided below, the provisions of
this Statement apply to transactions that fall under either one of the following
two conditions:
FIRST, you are a "BENEFICIAL OWNER" of the security under the Rule 16a-1 of the
Securities Exchange Act of 1934 ("EXCHANGE ACT"), as defined below.
SECOND, if you CONTROL or direct securities trading for another person or
entity, those trades are subject to this Statement even if you are not a
beneficial owner of the securities. For example, if you have an exercisable
trading authorization of an unrelated person's or entity's brokerage account, or
are directing another person's or entity's trades, those transactions will be
subject to this Statement to the same extent your personal trades would be,
unless exempted as described below.
DEFINITION OF BENEFICIAL OWNER. A "beneficial owner" is any person who, directly
or indirectly, through any contract, arrangement, understanding, relationship,
or otherwise, has or shares in the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the security.
A person has beneficial ownership in:
- securities held by members of the person's immediate family
SHARING THE SAME HOUSEHOLD, although the presumption of
beneficial ownership may be rebutted;
- a person's interest in securities held by a trust, which may
include both trust beneficiaries or trustees with investment
control;
- a person's right to acquire securities through the exercise or
conversion of any derivative security, whether or not presently
exercisable;
- a general partner's proportionate interest in the portfolio
securities held by a general or limited partnership;
<PAGE> 295
- certain performance-related fees other than an asset-based fee,
received by any broker, dealer, bank, insurance company,
investment company, investment adviser, investment manager,
trustee or person or entity performing a similar function; and
- a person's right to dividends that is separated or separable
from the underlying securities. Otherwise, right to dividends
alone shall not represent beneficial ownership in the
securities.
A shareholder shall not be deemed to have beneficial ownership in the portfolio
securities held by a corporation or similar entity in which the person owns
securities if the shareholder is not a controlling shareholder of the entity and
does not have or share investment control over the entity's portfolio.
REQUESTS FOR EXEMPTIONS. If you have beneficial ownership of a security, any
transaction involving that security is presumed to be subject to the relevant
requirements of this Statement, UNLESS you have no control over the transaction.
Such a situation MAY arise, for example, if you have delegated investment
authority to an independent investment adviser, or your spouse has an
independent trading program in which you have no input. Similarly, if your
spouse has investment control over, but no beneficial ownership in, an unrelated
account, an exemption may be appropriate.
If you are involved in an investment account for a family situation, trust,
partnership, corporation, etc., which you feel should not be subject to the
Statement's relevant prior approval and/or reporting requirements, you should
submit a written request for clarification or exemption to Baltimore
Legal/Compliance (Attn. D. Jones). Any such request for clarification or
exemption should name the account, your interest in the account, the persons or
firms responsible for its management, and the basis upon which the exemption is
being claimed. Exemptions are NOT self-executing; any exemption must be granted
through Baltimore Legal/Compliance.
TRANSACTIONS IN STOCK OF PRICE ASSOCIATES. Because Price Associates is a public
company, ownership of its stock subjects its officers, inside and independent
directors, and employees to special legal requirements under the Federal
securities laws. Each officer, director and employee is responsible for his or
her own compliance with these requirements. In connection with these legal
requirements, Price Associates has adopted the following rules and procedures:
INDEPENDENT DIRECTORS OF PRICE FUNDS. The independent directors of the
Price Funds are prohibited from owning the stock of Price Associates.
QUARTERLY EARNINGS REPORT. Generally, all employees and independent
directors of Price Associates must refrain from initiating transactions
in Price Associates' stock in which they have a beneficial interest from
the sixth trading day following the end of the quarter (or such other
date as management shall from time to time determine) until the third
trading day following the public release of earnings. Employees and
independent directors will be notified in writing through the Office of
the Secretary of Price Associates ("SECRETARY") from time to time as to
the controlling dates.
<PAGE> 296
PRIOR CLEARANCE. Employees and independent directors of Price Associates
are required to obtain clearance prior to effecting any proposed
transaction (including gifts and transfers) involving shares of Price
Associates' stock owned beneficially or through the Employee Stock
Purchase Plan. Requests for prior clearance must be in writing on the
form entitled, "Notification of Proposed Transaction" (available from
Corporate Records Department) and be submitted to the Secretary who is
responsible for processing and maintaining the records of all such
requests. This would include sales of stock purchased through Price
Associates Employee Stock Purchase Plan ("ESPP"). Purchases effected
through the ESPP are automatically reported to the Secretary. Receiving
prior clearance does not relieve employees and independent directors of
Price Associates from conducting their personal securities transactions
in full compliance with the Code, including its prohibition on trading
while in possession of material, inside information. Transactions in
Price Associates' stock are subject to the 60-Day Rule except for
transactions effected through the ESPP and certain options exercises.
See p. 4-18.
ALL EMPLOYEES AND INDEPENDENT DIRECTORS OF PRICE ASSOCIATES MUST
OBTAIN PRIOR CLEARANCE OF ANY TRANSACTION INVOLVING PRICE
ASSOCIATES' STOCK FROM THE OFFICE OF THE SECRETARY OF PRICE
ASSOCIATES.
INITIAL DISCLOSURE OF HOLDINGS. Each new employee must report to the
Secretary any shares of Price Associates' stock of which he or she has
beneficial ownership no later than 10 days after his or her starting
date of employment.
DIVIDEND REINVESTMENT PLANS. Purchases of Price Associates' stock owned
outside of the ESPP and effected through a dividend reinvestment plan
need not receive prior clearance if the Secretary's office has been
previously notified by the employee that he or she will be participating
in that plan. Reporting of transactions effected through that plan need
only be made quarterly, except that employees who are subject to Section
16 of the Securities Exchange Act of 1934 reporting must report such
transactions monthly.
EFFECTIVENESS OF PRIOR CLEARANCE. Prior clearance of transactions in
Price Associates' stock is effective for five (5) business days from and
including the date the clearance is granted, unless (i) advised to the
contrary by the Secretary prior to the proposed transaction, or (ii) the
person receiving the approval comes into possession of material,
non-public information concerning the firm. If the proposed transaction
in Price Associates' stock is not executed within this time period, a
new clearance must be obtained.
REPORTING OF DISPOSITION OF PROPOSED TRANSACTION. Covered persons must
notify the Secretary of the disposition (whether the proposed
transaction was effected or not) of each transaction involving shares of
Price Associates' stock owned directly within two business days of its
execution, or within seven business days of the date of prior clearance,
if not executed.
<PAGE> 297
INSIDER REPORTING AND LIABILITY. Under current rules, certain officers,
directors and 10% stockholders of a publicly traded company ("INSIDERS")
are subject to the requirements of Section 16. Insiders include the
directors and certain managing directors of Price Associates.
SEC REPORTING. There are three reporting forms which insiders are
required to file with the SEC to report their purchase, sale and
transfer transactions in, and holdings of, Price Associates' stock.
Although the Secretary will provide assistance in complying with these
requirements as an accommodation to insiders, it remains the legal
responsibility of each insider to assure that the applicable reports are
filed in a timely manner.
- FORM 3. The initial ownership report by an insider is required
to be filed on Form 3. This report must be filed within ten days
after a person becomes an insider (i.e., is elected as a
director or appointed as managing director) to report all
current holdings of Price Associates' stock. Following the
election or appointment of an insider, the Secretary will
deliver to the insider a Form 3 for appropriate signatures and
will file such Form with the SEC.
- FORM 4. Any change in the insider's ownership of Price
Associates' stock must be reported on a Form 4 unless eligible
for deferred reporting on year-end Form 5. The Form 4 is due by
the 10th day following the end of the month in which the
ownership change occurred. Following receipt of the Notice of
Disposition of the proposed transaction, the Secretary will
deliver to the insider a Form 4, as applicable, for appropriate
signatures and will file such Form with the SEC.
- FORM 5. Any transaction or holding which is exempt from
reporting on Form 4, such as option exercises, small purchases
of stock, gifts, etc. may be reported on a deferred basis on
Form 5 within 45 days after the end of the calendar year in
which the transaction occurred. No Form 5 is necessary if all
transactions and holdings were previously reported on Form 4.
LIABILITY FOR SHORT-SWING PROFITS. Under Federal securities laws, profit
realized by certain officers, as well as directors and 10% stockholders
of a company (including Price Associates) as a result of a purchase and
sale (or sale and purchase) of stock of the company within a period of
less than six months must be returned to the firm upon request.
OFFICE OF THRIFT SUPERVISION ("OTS") REPORTING. Price Associates is the
holding company of T. Rowe Price Savings Bank, which is regulated by the
OTS. OTS regulations require that the Managing Directors of Price
Associates, as well as any vice president in charge of any Price
Associates' affiliate, file reports regarding their personal holdings of
the stock of Price Associates and of the stock of any non-affiliated
savings banks or savings and loan holding companies. Although the
Secretary will provide assistance in complying with these requirements
as an accommodation, it remains the responsibility of each person
required to file such reports to ensure that such reports are filed in a
timely manner.
<PAGE> 298
PRIOR CLEARANCE REQUIREMENTS (OTHER THAN PRICE ASSOCIATES' STOCK) FOR ACCESS
PERSONS.
ALL ACCESS PERSONS must obtain prior clearance before directly or indirectly
initiating, recommending, or in any way participating in, the purchase or sale
of a security in which the Access Person has, or by reason of such transaction
may acquire, any beneficial interest or which he or she controls, unless
exempted below. NON-ACCESS PERSONS are NOT required to obtain prior clearance
before engaging in any securities transactions, except for transaction in Price
Associates' stock.
ALL EMPLOYEES AND INDEPENDENT DIRECTORS OF PRICE ASSOCIATES MUST
OBTAIN PRIOR CLEARANCE OF ANY TRANSACTION INVOLVING PRICE
ASSOCIATES' STOCK FROM THE OFFICE OF THE SECRETARY OF PRICE
ASSOCIATES.
Where required, prior clearance must be obtained regardless of whether the
transaction is effected through TRP Brokerage or through an unaffiliated
broker/dealer. Receiving prior clearance does not relieve Access Persons from
conducting their personal securities transactions in full compliance with the
Code, including its prohibition on trading while in possession of material,
inside information, and with applicable law, including the prohibition on Front
Running (see page 4-1 for definition of Front Running). Please note that the
prior clearance procedures do NOT check compliance with the 60-Day Rule (p.
4-17).
TRANSACTIONS (OTHER THAN IN PRICE ASSOCIATES' STOCK) EXEMPT FROM PRIOR
CLEARANCE. The following transactions are exempt from the prior clearance
requirements:
MUTUAL FUNDS AND VARIABLE INSURANCE PRODUCTS. Purchases or / redemptions
of shares of any open-end investment companies, including the Price
Funds, and variable insurance products.
UNIT INVESTMENT TRUSTS. Purchases or sales of shares in unit investment
trusts.
U.S. GOVERNMENT OBLIGATIONS. Purchases or sales of direct obligations of
the U.S. Government.
PRO RATA DISTRIBUTIONS. Purchases effected by the exercise of rights
issued pro rata to all holders of a class of securities or the sale of
rights so received.
MANDATORY TENDERS. Purchases and sales of securities pursuant to a
mandatory tender offer.
SPOUSAL PAYROLL DEDUCTION PLANS. Purchases by an Access Person's spouse
pursuant to a payroll deduction plan, provided the Compliance Department
has been previously notified by the Access Person that the spouse will
be participating in the payroll deduction plan.
<PAGE> 299
EXERCISE OF STOCK OPTION OF CORPORATE EMPLOYER BY SPOUSE. Transactions
involving the exercise by an Access Person's spouse of a stock option
issued by the corporation employing the spouse.
DIVIDEND REINVESTMENT PLANS. Purchases effected through an established
Dividend Reinvestment Plan ("DRP"), provided the Compliance Department
is first notified by the Access Person that he or she will be
participating in the DRP. An Access Person's purchase of share(s) of the
issuer to initiate participation in the DRP or an Access Person's
purchase of shares in addition to those purchased with dividends (a
"CONNECTED PURCHASE") AND any sale of shares from the DRP MUST receive
prior clearance.
SYSTEMATIC INVESTMENT PLANS. Purchases effected through a systematic
investment plan involving the automatic investment of a set dollar
amount on predetermined dates, provided the Compliance Department has
been previously notified by the Access Person that he or she will be
participating in the plan. An Access Person's purchase of securities of
the issuer to initiate participation in the plan AND any sale of shares
from such a plan MUST receive prior clearance.
INHERITANCES. The acquisition of securities through inheritance.
GIFTS. The giving of or receipt of a security as a gift.
PROCEDURES FOR OBTAINING PRIOR CLEARANCE (OTHER THAN PRICE ASSOCIATES' STOCK)
FOR ACCESS PERSONS. ALL Access Persons should follow the procedures set forth
below before engaging in the transactions described.
PROCEDURES FOR OBTAINING PRIOR CLEARANCE FOR INITIAL PUBLIC OFFERINGS
("IPOS"):
NON-INVESTMENT PERSONNEL. Access Persons who are NOT Investment
Personnel ("NON-INVESTMENT PERSONNEL") may purchase securities that are
the subject of an IPO ONLY if prior written approval has been obtained
from the Chairperson of the Ethics Committee or his or her designee
("DESIGNEE"), which may include N. Morris, S. McCafferty or A. Brooks.
An IPO is an offering of securities registered under the Securities Act
of 1933 when the issuer of the securities, immediately before the
registration, was not subject to certain reporting requirements of the
Securities Exchange Act of 1934.
In considering such a request for approval, the Chairperson will
determine whether the proposed transaction presents a conflict of
interest with any of the firm's clients or otherwise violates the Code.
The Chairperson will also determine whether the following conditions
have been met:
1. The purchase is made through the Non-Investment Personnel's
regular broker;
2. The number of shares to be purchased is commensurate with the
normal size and activity of the Non-Investment Personnel's
account; and
<PAGE> 300
3. The transaction otherwise meets the requirements of the NASD's
rules on free riding and withholding.
Non-Investment Personnel will not be permitted to purchase shares in an
IPO if any of the firm's clients are prohibited from doing so.
Therefore, Non-Investment Personnel MUST check with the Equity Trading
Desk the day the offering is priced before purchasing in the IPO. This
prohibition will remain in effect until the firm's clients have had the
opportunity to purchase in the secondary market once the underwriting is
completed -- commonly referred to as the aftermarket.
INVESTMENT PERSONNEL. Investment Personnel may NOT purchase
securities in an IPO.
NON-ACCESS PERSONS. Although Non-Access Persons are not required
to receive prior clearance before purchasing shares in an IPO,
any Non-Access Person who is a registered representative of
Investment Services should be aware that NASD rules may restrict
his or her ability to buy shares in a "hot issue," which is a
new issue that trades at a premium in the secondary market
whenever that trading commences.
PROCEDURES FOR OBTAINING PRIOR CLEARANCE FOR PRIVATE PLACEMENTS. Access
Persons may not invest in a private placement of securities, including
the purchase of limited partnership interests, unless prior written
approval has been obtained from the Chairperson of the Ethics Committee
or a Designee. In considering such a request for approval, the
Chairperson will determine whether the investment opportunity (private
placement) should be reserved for the firm's clients, and whether the
opportunity is being offered to the Access Person by virtue of his or
her position with the firm. The Chairperson will also secure, if
appropriate, the approval of the proposed transaction from the
chairperson of the applicable investment steering committee.
CONTINUING OBLIGATION. An Access Person who has received
approval to invest in a private placement of securities and who,
at a later date, anticipates participating in the firm's
investment decision process regarding the purchase or sale of
securities of the issuer of that private placement on behalf of
any client, must immediately disclose his or her prior
investment in the private placement to the Chairperson of the
Ethics Committee and to the chairperson of the appropriate
investment steering committee.
PROCEDURES FOR OBTAINING PRIOR CLEARANCE FOR ALL OTHER SECURITIES
TRANSACTIONS. Requests for prior clearance by Access Persons for all
other securities transactions requiring prior clearance may be made
orally, in writing, or by electronic mail (e-mail address "Personal
Trades," which appears under "Trades" in the electronic mail address
book) to the Equity Trading Department of Price Associates, which will
be responsible for processing and maintaining the records of all such
requests. All requests must include the name of the security, the number
of shares or amount of bond involved, whether a foreign security is
involved, and the nature of the transaction, i.e., whether the
transaction is a purchase, sale or short sale. Responses to all requests
will be made by the Trading Department documenting the request and its
approval/disapproval.
<PAGE> 301
Requests will normally be processed on the same day; however, additional
time may be required for prior clearance of transactions in foreign
securities.
EFFECTIVENESS OF PRIOR CLEARANCE. Prior clearance of a securities
transaction is effective for three (3) business days FROM AND INCLUDING
the date the clearance is granted, regardless of the time of day when
clearance is granted. If the proposed securities transaction is not
executed within this time, a new clearance must be obtained
REASONS FOR DISALLOWING ANY PROPOSED TRANSACTION. A proposed securities
transaction will be disapproved by the Trading Department and/or the Chairperson
of the Ethics Committee if:
PENDING CLIENT ORDERS. Orders have been placed by Price
Associates or RPFI to purchase or sell the security.
PURCHASES AND SALES WITHIN SEVEN (7) CALENDAR DAYS. The security
has been purchased or sold by any client of Price Associates or,
in the case of a foreign security, for any client of either
Price Associates or RPFI, within seven calendar days immediately
prior to the date of the proposed transaction. For example, if a
client transaction occurs on Monday, an Access Person may not
purchase or sell that security until Tuesday of the following
week. If all clients have eliminated their holdings in a
particular security, the seven-day restriction is not applicable
to an Access Person's transactions in that security.
APPROVED COMPANY RATING CHANGES. A change in the rating of an
approved company as reported in the firm's Daily Research News
has occurred within seven (7) calendar days immediately prior to
the date of the proposed transaction. Accordingly, trading would
not be permitted until the eighth (8) calendar day.
SECURITIES SUBJECT TO INTERNAL TRADING RESTRICTIONS. The
security is limited or restricted by Price Associates or RPFI as
to purchase or sale for client accounts.
REQUESTS FOR WAIVERS OF PRIOR CLEARANCE DENIALS. If an Access Person's request
for prior clearance has been denied, he or she may apply to the Chairperson of
the Ethics Committee for a waiver. All such requests must be in writing and must
fully describe the basis upon which the waiver is being requested. Waivers are
NOT routinely granted.
BROKERAGE CONFIRMATIONS AND PERIODIC ACCOUNT STATEMENTS. ALL ACCESS PERSONS AND
NON-ACCESS PERSONS must request broker-dealers executing their transactions to
send to the attention of Compliance, Legal Department, T. Rowe Price Associates,
Inc., P.O. Box 17218, Baltimore, Maryland 21297-1218 a duplicate confirmation
with respect to each and every reportable transaction, including Price
Associates' stock, and a copy of all periodic statements for all securities
accounts in which the Access Person or Non-Access Person is considered to have
beneficial ownership and/or control (see Page 4-4 for a discussion of beneficial
ownership and control concepts).
<PAGE> 302
NOTIFICATION OF BROKER/DEALER ACCOUNTS. ALL ACCESS PERSONS AND NON-ACCESS
PERSONS must give written notice to Baltimore Legal/Compliance before opening or
trading in a securities account with any broker/dealer, including TRP Brokerage.
NEW EMPLOYEES. New employees must give written notice to Baltimore
Legal/Compliance of any existing securities accounts maintained with any
broker/dealer when joining the firm (no later than 10 days after the
starting date).
OFFICERS, DIRECTORS AND REGISTERED REPRESENTATIVES OF INVESTMENT
SERVICES. The NASD requires each associated person of T. Rowe Price
Investment Services, Inc. to:
- Obtain approval from Investment Services (request should be in
writing and be directed to Baltimore Legal/Compliance) before
opening or placing the initial trade in a securities account
with any broker/dealer; and
- Provide the broker/dealer with written notice of his or her
association with Investment Services.
TRANSACTION REPORTING REQUIREMENTS (OTHER THAN PRICE ASSOCIATES' STOCK
TRANSACTIONS). ALL Access Persons AND Non-Access Persons must report all
securities transactions unless the transaction is exempted from reporting below.
TRANSACTIONS EXEMPT FROM REPORTING. The following transactions are
exempt from the reporting requirements:
MUTUAL FUNDS AND VARIABLE INSURANCE PRODUCTS. The purchase or
redemption of shares of any open-end investment companies,
including the Price Funds, and variable insurance products,
except that any employee who serves as the president or
executive vice president of a Price Fund must report his or her
beneficial ownership or control of shares in that Fund to
Baltimore Legal/Compliance through electronic mail to Dottie
Jones.
STOCK SPLITS AND SIMILAR ACQUISITIONS. The acquisition of
additional shares of existing corporate holdings through the
reinvestment of income dividends and capital gains in mutual
funds, stock splits, stock dividends, exercise of rights,
exchange or conversion.
U.S. GOVERNMENT OBLIGATIONS. Purchases or redemptions of direct
obligations of the U.S. Government.
DIVIDEND REINVESTMENT PLANS. The purchase of securities with
dividends effected through an established DRP. If, however, a
Connected Purchase or a sale must receive prior clearance (see
p. 4-9), that transaction must also be reported.
TRANSACTIONS THAT MUST BE REPORTED. Other than the transactions
specified above as exempt, ALL Access Persons AND Non-Access Persons are
required to file a report of the following securities transactions:
<PAGE> 303
CLEARED TRANSACTIONS. Any transaction that is subject to the
prior clearance requirements, including purchases in initial
public offerings and private placement transactions. Although
Non-Access Persons are not required to receive prior clearance
for securities transactions (other than Price Associates'
stock), they MUST report any transaction that would have been
required to be prior cleared by an Access Person.
UNIT INVESTMENT TRUSTS. The purchase or sale of shares of a Unit
Investment Trust.
PRO RATA DISTRIBUTIONS. Purchase effected by the exercise of
rights issued pro rata to all holders of a class of securities
or the sale of rights so received.
INHERITANCES. Acquisition of securities through inheritance.
GIFTS. Acquisition or disposition of securities by gift.
MANDATORY TENDERS. Purchases and sales of securities pursuant to
a mandatory tender offer.
SPOUSAL PAYROLL DEDUCTION PLANS/SPOUSAL STOCK OPTION.
Transactions involving the purchase or exchange of securities by
the spouse of an Access Person or Non-Access Person pursuant to
a payroll deduction plan or the exercise by the spouse of an
Access Person or Non-Access Person of a stock option issued by
the spouse's employer. REPORTING OF SPOUSAL PAYROLL DEDUCTION
PLAN TRANSACTIONS NEED ONLY BE MADE QUARTERLY; REPORTING OF A
SPOUSAL STOCK OPTION EXERCISE MUST BE MADE WITHIN TEN DAYS OF
THE EXERCISE.
SYSTEMATIC INVESTMENT PLANS. Transactions involving the purchase
of securities by an Access Person or Non-Access Person pursuant
to a systematic investment plan. REPORTING OF SYSTEMATIC
INVESTMENT PLAN TRANSACTIONS NEED ONLY BE MADE QUARTERLY.
REPORT FORM. If the executing broker/dealer provides a confirmation or
similar statement directly to Baltimore Legal/Compliance, you do not
need to make a further report. All other transactions must be reported
on the form designated "T. Rowe Price Associates, Inc. Employee's Report
of Securities Transactions," a supply of which is available from
Baltimore Legal/Compliance.
WHEN REPORTS ARE DUE. You must report a securities transaction within
ten (10) days after the trade date or within (10) days after the date on
which you first gain knowledge of the transaction (for example, a
bequest) if this is later. Reporting of transactions involving either
systematic investment plans or the purchase of securities by a spouse
pursuant to a payroll deduction plan, however, may be reported
quarterly.
TRANSACTION REPORTING REQUIREMENTS FOR THE INDEPENDENT DIRECTORS OF PRICE
ASSOCIATES AND THE INDEPENDENT DIRECTORS OF THE PRICE FUNDS. The independent
directors of Price Associates and the independent
<PAGE> 304
directors of the Price Funds are subject to the same reporting requirements as
Access Persons and Non-Access Persons except that reports need only be filed
quarterly. Specifically: (1) a report for each securities transaction must be
filed with Baltimore/Legal Compliance no later than ten (10) days after the end
of the calendar quarter in which the transaction was effected; and (2) a report
must be filed for each quarter, regardless of whether there have been any
reportable transactions. Baltimore/Legal Compliance will send the independent
directors of Price Associates and the Price Funds a reminder letter and
reporting form approximately ten days prior to the end of each calendar quarter.
MISCELLANEOUS RULES REGARDING PERSONAL SECURITIES TRANSACTIONS. These rules vary
in their applicability depending upon whether you are an Access Person.
The following rules apply to ALL Access Persons AND Non-Access Persons and,
where indicated, to the independent directors of Price Associates and the Price
Funds.
DEALING WITH CLIENTS. Access Persons, Non-Access Persons and the
independent directors of Price Associates and the Price Funds may not,
directly or indirectly, sell to or purchase from a client any security.
This prohibition does not preclude the purchase or redemption of shares
of any mutual fund that is a client of Price Associates.
CLIENT INVESTMENT PARTNERSHIPS.
CO-INVESTING. Access Persons and Non-Access Persons, including
employee partnerships, and the independent directors of Price
Associates and the Price Funds are not permitted to co-invest in
client investment partnerships of Price Associates, RPFI, or
their affiliates, such as Strategic Partners, Threshold, and
International Partners.
DIRECT INVESTMENT. The independent directors of the Price Funds
are not permitted to invest as limited partners in client
investment partnerships of Price Associates, RPFI, or their
affiliates.
INVESTMENT CLUBS. These restrictions vary depending upon the person's
status, as follows:
NON-ACCESS PERSONS. A Non-Access Person may form or participate
in a stock or investment club without approval of the
Chairperson of the Ethics Committee. Only transactions in Price
Associates' stock are subject to prior clearance requirements.
Club transactions must be reported just as the Non-Access
Person's individual trades are reported.
ACCESS PERSONS. An Access Person may not form or participate in
a stock or investment club unless prior written approval has
been obtained from the Chairperson of the Ethics Committee. All
transactions by such a stock or investment club in which an
Access Person has beneficial ownership or control are subject to
the same prior clearance and reporting requirements applicable
to an individual Access Person's trades. However, if the Access
Person has beneficial ownership solely by virtue of his or her
spouse's participation in the club and has no investment control
or
<PAGE> 305
input into decisions regarding the club's securities
transactions, he or she may request the waiver of prior
clearance requirements of the club's transactions (except for
transactions in Price Associates' stock) from the Chairperson of
the Ethics Committee as part of the approval process.
MARGIN ACCOUNTS. While brokerage margin accounts are discouraged, you
may open and maintain margin accounts for the purchase of securities
provided such accounts are with brokerage firms with which you maintain
a regular brokerage account.
TRADING ACTIVITY. You are discouraged from engaging in a pattern of
securities transactions which either:
- Is so excessively frequent as to potentially impact your ability
to carry out your assigned responsibilities, or
- Involves securities positions that are disproportionate to your
net assets.
At the discretion of the Chairperson of the Ethics Committee, written
notification of excessive trading may be sent to your supervisor.
The following rules apply ONLY to ACCESS PERSONS:
LARGE COMPANY EXEMPTION. Although subject to prior clearance,
transactions involving securities in certain large companies, within the
parameters set by the Ethics Committee (the "EXEMPT LIST"), will be
approved under normal circumstances, as follows:
TRANSACTIONS INVOLVING EXEMPT LIST SECURITIES. This exemption
applies to transactions involving no more than $20,000 or the
nearest round lot (even if the amount of the transaction
MARGINALLY exceeds $20,000) per security per week in securities
of companies with market capitalizations of $5 billion or more,
unless the rating on the security as reported in the firm's
Daily Research News has been changed to a 1 or a 5 within the
seven (7) calendar days immediately prior to the date of the
proposed transaction. If such a rating change has occurred, the
exemption is not available.
TRANSACTIONS INVOLVING OPTIONS ON EXEMPT LIST SECURITIES. Access
Persons may not purchase uncovered put options or sell uncovered
call options unless otherwise permitted under the "Options and
Futures" discussion on p. 4-16. Otherwise, in the case of
options on an individual security on the Exempt List (if it has
not had a prohibited rating change), an Access Person may trade
the GREATER of 5 contracts or sufficient option contracts to
control $20,000 in the underlying security; thus an Access
Person may trade 5 contracts even if this permits the Access
Person to control more than $20,000 in the underlying security.
Similarly, the Access Person may trade more than 5 contracts as
long as the number of contracts does not permit him or her to
control more than $20,000 in the underlying security.
These parameters are subject to change by the Ethics Committee.
<PAGE> 306
EXCHANGE-TRADED INDEX OPTIONS. Although subject to prior clearance, an
Access Person's transactions involving exchange-traded index options,
within the parameters set by the Ethics Committee, will be approved
under normal circumstances. Generally, an Access Person may trade the
GREATER of 5 contracts or sufficient contracts to control $20,000 in the
underlying securities; thus an Access Person may trade 5 contracts even
if this permits the Access Person to control more than $20,000 in the
underlying securities. Similarly, the Access Person may trade more than
5 contracts as long as the number of contracts does not permit him or
her to control more than $20,000 in the underlying security.
These parameters are subject to change by the Ethics Committee.
CLIENT LIMIT ORDERS. The Equity Trading Desk may approve an Access
Person's proposed trade even if a limit order has been entered for a
client for the same security, if:
- The Access Person's trade will be entered as a market order; and
- The client's limit order is 10% or more away from the market at
the time of approval of the Access Person's trade.
OPTIONS AND FUTURES. Please consult the specific section on
Exchange-Traded Index Options (p. 4-16) for transactions in those
options.
BEFORE ENGAGING IN OPTIONS AND FUTURE TRANSACTIONS, ACCESS PERSONS
SHOULD UNDERSTAND THE IMPACT THAT THE 60-DAY RULE MAY HAVE UPON THEIR
ABILITY TO CLOSE OUT A POSITION WITH A PROFIT (SEE PAGE 4-17).
OPTIONS AND FUTURES ON SECURITIES AND INDICES NOT HELD BY PRICE
ASSOCIATES' OR RPFI'S CLIENTS. There are no specific
restrictions with respect to the purchase, sale or writing of
put or call options or any other option or futures activity,
such as multiple writings, spreads and straddles, on securities
of companies (and options or futures on such securities) which
are not held by any of Price Associates' or RPFI's clients.
OPTIONS ON SECURITIES OF COMPANIES HELD BY PRICE ASSOCIATES' OR
RPFI'S CLIENTS. With respect to options on securities of
companies which are held by any of Price Associates' or RPFI's
clients, it is the firm's policy that an Access Person should
not profit from a price decline of a security owned by a client
(other than an Index account). Therefore, an Access Person may:
(i) purchase call options and sell covered call options and (ii)
purchase covered put options and sell put options. An Access
Person may not purchase uncovered put options or sell uncovered
call options, even if the issuer of the underlying securities is
included on the Exempt List, unless purchased in connection with
other options on the same security as part of a straddle,
combination or spread strategy which is designed to result in a
profit to the Access Person if the underlying security rises in
or does not change in value.
<PAGE> 307
The purchase, sale and exercise of options are subject to the
same restrictions as those set forth with respect to securities,
i.e., the option should be treated as if it were the common
stock itself.
OTHER OPTIONS AND FUTURES HELD BY PRICE ASSOCIATES' OR RPFI'S
CLIENTS. Any other option or futures transaction with respect to
domestic or foreign securities held by any of Price Associates'
clients or with respect to foreign securities held by RPFI's
clients will be approved or disapproved on a case-by-case basis
after due consideration is given as to whether the proposed
transaction or series of transactions might appear to or
actually create a conflict with the interests of any of Price
Associates' or RPFI's clients. Such transactions include
transactions in futures and options on futures involving
financial instruments regulated solely by the CFTC.
SHORT SALES. Short sales by Access Persons are subject to prior
clearance. In addition, Access Persons may not sell any security short
which is owned by any client of Price Associates or RPFI, except that
short sales may be made "against the box" for tax purposes. A short sale
"against the box" is one in which the seller owns an amount of
securities equivalent to the number he or she sells short. All short
sales, including short sales against the box, are subject to the 60-Day
Rule described below.
THE 60-DAY RULE. Access Persons are prohibited from profiting from the
purchase and sale or sale and purchase of the same (or equivalent)
securities within 60 calendar days. An "equivalent" security means any
option, warrant, convertible security, stock appreciation right, or
similar right with an exercise or conversion privilege at a price
related to the subject security, or similar securities with a value
derived from the value of the subject security. Thus, for example, the
rule prohibits options transactions on or short sales of a security
within 60 days of its purchase. In addition, the rule applies regardless
of the Access Person's other holdings of the same security or whether
the Access Person has split his or her holdings into tax lots. For
example, if an Access Person buys 100 shares of XYZ stock on March 1,
1998 and another 100 shares of XYZ stock on March 1, 2000, he or she may
not sell ANY shares of XYZ stock at a profit for 60 days following March
1, 2000. The 60-Day Rule "clock" restarts EACH time the Access Person
trades in that security.
EXEMPTIONS FROM THE 60-DAY RULE. The 60-Day Rule does not apply
to:
- any transaction by a Non-Access Person except for
transactions in Price Associates' stock not exempted
below;
- any transaction exempt from prior clearance (see p.
4-8);
- the purchase and sale or sale and purchase of exchange
traded index options;
- any transaction in Price Associates' stock effected
through the ESPP; and
<PAGE> 308
- the exercise of "in the money" Price Associates' stock
options and the subsequent sale of the derivative
shares.
Prior clearance procedures do NOT check compliance with the
60-Day Rule when considering a trading request. Access Persons
are responsible for checking their compliance with this rule
before entering a trade.
Access Persons may request a waiver from the 60-Day Rule. Such
requests should be directed in writing to the Chairperson of the
Ethics Committee. These waivers are NOT routinely granted.
INVESTMENTS IN NON-LISTED SECURITIES FIRMS. Access Persons may not
purchase or sell the shares of a broker/dealer, underwriter or federally
registered investment adviser unless that entity is traded on an
exchange or listed as a NASDAQ stock or permission is given under the
Private Placement Procedures (see p. 4-10).
OWNERSHIP REPORTING REQUIREMENTS - ONE-HALF OF ONE PERCENT OWNERSHIP. If an
employee or an independent director of Price Associates or an independent
director of the Price Funds owns more than 1/2 of 1% of the total outstanding
shares of a public or private company, he or she must immediately report in
writing such fact to Baltimore Legal/Compliance, providing the name of the
company and the total number of such company's shares beneficially owned.
DISCLOSURE OF PERSONAL SECURITIES HOLDINGS BY ACCESS PERSONS. Upon commencement
of employment, appointment or promotion (no later than 10 days after the
starting date), each Access Person must disclose in writing all current
securities holdings in which he or she is considered to have beneficial
ownership and control ("Securities Holdings Report") (see page 4-4 for
definition of the term Beneficial Owner). The form to provide the Securities
Holding Report will be provided upon commencement of employment, appointment or
promotion and should be submitted to Baltimore Legal/Compliance.
All Investment Personnel and Managing Directors are also required to file a
Securities Holding Report on an annual basis, in conjunction with the annual
verification process. Effective January 2001, this requirement will be extended
to ALL Access Persons, pursuant to federal law.
CONFIDENTIALITY OF RECORDS. Price Associates makes every effort to protect the
privacy of all persons and entities in connection with their Securities Holdings
Reports and Reports of Securities Transactions.
SANCTIONS. Strict compliance with the provisions of this Statement is considered
a basic provision of association with Price Associates and the Price Funds. The
Ethics Committee and Baltimore Legal/Compliance are primarily responsible for
administering this Statement. In fulfilling this function, the Ethics Committee
will institute such procedures as it deems reasonably necessary to monitor each
person's and entity's compliance with this Statement and to otherwise prevent
and detect violations.
<PAGE> 309
VIOLATIONS BY ACCESS PERSONS, NON-ACCESS PERSONS AND DIRECTORS OF PRICE
ASSOCIATES. Upon discovering a material violation of this Statement by
any person or entity other than an independent director of a Price Fund,
the Ethics Committee will impose such sanctions as it deems appropriate
and as are approved by the Management Committee or the Board of
Directors including, inter alia, a letter of censure or suspension, a
fine, a suspension of trading privileges or termination of employment
and/or officership of the violator. In addition, the violator may be
required to surrender to Price Associates, or to the party or parties it
may designate, any profit realized from any transaction that is in
violation of this Statement. All material violations of this Statement
shall be reported to the Board of Directors of Price Associates and to
the Board of Directors of any Price Fund with respect to whose
securities such violations may have been involved.
VIOLATIONS BY INDEPENDENT DIRECTORS OF PRICE FUNDS. Upon discovering a
material violation of this Statement by an independent director of a
Price Fund, the Ethics Committee shall report such violation to the
Board on which the director serves. The Price Fund Boards will impose
such sanctions as they deem appropriate.
VIOLATIONS BY BALTIMORE EMPLOYEES OF RPFI OR TRFAM. Upon discovering a
material violation of this Statement by a Baltimore-based employee of
RPFI or TRFAM, the Ethics Committee shall report such violation to the
Board of Directors of RPFI or TRFAM, as appropriate. A material
violation by a Baltimore-based employee of RPFI shall also be reported
to the Board of Directors of any RPFI Fund with respect to whose
securities such violations may have been involved.
March, 2000
<PAGE> 310
T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY
ON
CORPORATE RESPONSIBILITY
PRICE ASSOCIATES' FIDUCIARY POSITION. As an investment adviser, T. Rowe Price
Associates, Inc. ("PRICE ASSOCIATES") is in a fiduciary relationship with each
of its clients. This fiduciary duty obligates Price Associates to act with an
eye only to the benefit of its clients. Accordingly, when managing its client
accounts (whether private counsel clients, mutual funds, limited partnerships,
or otherwise), Price Associates' primary responsibility is to optimize the
financial returns of its clients consistent with their objectives and investment
program.
DEFINITION OF CORPORATE RESPONSIBILITY ISSUES. Concern over the behavior of
corporations has been present since the Industrial Revolution. Each generation
has focused its attention on specific issues. Concern over the abuses of the use
of child labor in the 1800's was primarily addressed by legislative action which
mandated corporate America to adhere to new laws restricting and otherwise
governing the employment of children. In other instances, reform has been
achieved through shareholder action -- namely, the adoption of shareholder
proposals. The corporate responsibility issues most often addressed during the
past decade have involved:
- Ecological issues, including toxic hazards and pollution of the
air and water;
- Employment practices, such as the hiring of women and minority
groups;
- Product quality and safety;
- Advertising practices;
- Animal testing;
- Military and nuclear issues; and
- International politics and operations, including the world debt
crisis, infant formula, and child labor laws.
CORPORATE RESPONSIBILITY ISSUES IN THE INVESTMENT PROCESS. Price Associates
recognizes the legitimacy of public concern over the behavior of business with
respect to issues of corporate responsibility. Price Associates' policy is to
carefully review the merits of such issues that pertain to any issuer which is
held in a client portfolio or which is being considered for investment. Price
Associates believes that a corporate management's record of identifying and
resolving issues of corporate responsibility is a legitimate criteria for
evaluating the investment merits of the issuer. Enlightened corporate
responsibility can enhance a issuer's long term prospects for business success.
The absence of such a policy can have the converse effect.
<PAGE> 311
CORPORATE RESPONSIBILITY COMMITTEE. Since 1971, Price Associates has had a
Corporate Responsibility Committee, which is responsible for:
- Reviewing and establishing positions with respect to corporate
responsibility issues that are presented in the proxy statements
of portfolio companies; and
- Reviewing questions and inquiries received from clients and
mutual fund shareholders pertaining to issues of corporate
responsibility.
QUESTIONS REGARDING CORPORATE RESPONSIBILITY. Should an employee have any
questions regarding Price Associates' policy with respect to a corporate
responsibility issue or the manner in which Price Associates has voted or
intends to vote on a proxy matter, he or she should contact a member of the
Corporate Responsibility Committee or Price Associates' Proxy Administrator.
March, 2000
<PAGE> 312
T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY
WITH RESPECT TO COMPLIANCE WITH COPYRIGHT LAWS
PURPOSE OF STATEMENT OF POLICY. To protect the interests of Price Associates and
its employees, Price Associates has adopted this Statement of Policy with
Respect to Compliance with Copyright Laws ("STATEMENT" to: (1) inform its
employees regarding the legal principles governing copyrights, trademarks, and
service marks; and (2) ensure that Price Associates' various copyrights,
trademarks, and service marks are protected from infringement.
DEFINITION OF TRADEMARK, SERVICE MARK, AND COPYRIGHT
TRADEMARK. A trademark is normally a word, phrase, or symbol used to
identify and distinguish a product or a company. For example, KLEENEX is
a trademark for a particular brand of facial tissues.
SERVICE MARK. A service mark is normally a word, phrase, or symbol used
to identify and distinguish a service or the provider of a service. For
example, INVEST WITH CONFIDENCE is a registered service mark which
identifies and distinguishes the mutual fund management services offered
by Price Associates. The words "trademark" and "service mark" are often
used interchangeably, but as a general rule a trademark is for a
tangible product, whereas a service mark is for an intangible good or
service. Because most of Price Associates' business activities involve
providing services (e.g., investment management; transaction processing
and account maintenance; information, etc.), most of Price Associates'
registered marks are service marks.
COPYRIGHT. In order to protect the authors and owners of books,
articles, drawings, music, or computer programs and software, the U.S.
copyright law makes it a crime to reproduce, IN ANY MANNER, any
copyrighted material without the express written permission of the
author or publisher. Under current law, all original works are
copyrighted at the moment of creation; it is no longer necessary to
register a copyright. Copyright infringements may result in judgments of
actual damages (i.e., the cost of additional subscriptions), as well as
punitive damages, which can be as high as $100,000 per infringement.
REGISTERED TRADEMARKS AND SERVICE MARKS. Once Price Associates has registered a
trademark or service mark with the U.S. Patent and Trademark Office, it has the
exclusive right to use that mark. In order to preserve rights to a registered
trademark or service mark, Price Associates must (1) use the mark on a
continuous basis and in a manner consistent with the Certificate of
Registration; (2) place an encircled "R" (R) next to the mark in the first, or
most prominent, occurrence in all publicly distributed media; and (3) take
action against any party infringing upon the mark.
ESTABLISHING A TRADEMARK OR SERVICE MARK. The Legal Department has the
responsibility to register and maintain all trademarks and service marks and
protect them against any infringement. If Price Associates or a subsidiary
wishes to utilize a particular word, phrase, or symbol as a trademark or service
mark, the Legal Department must be notified as far in advance
<PAGE> 313
as possible so that a search may be conducted to determine if the proposed mark
has already been registered or used by another entity. Until clearance is
obtained from the Legal Department, no new mark should be used. This procedure
has been adopted to ensure that Price Associates does not unknowingly infringe
upon another company's mark. Once a proposed mark is cleared for use, it must be
accompanied by the abbreviations "TM" or "SM," as appropriate, until it has been
registered. All trademarks and service marks which have been registered with the
U.S. Patent and Trademark Office must be accompanied by an encircled "R" when
used in any public document. These symbols need only accompany the mark in the
first or most prominent place it is used in each publicly circulated document.
Subsequent use of the same trademark or service mark in such material does not
need to be marked. The Legal Department maintains a written summary of all Price
Associates' registered and pending trademarks and service marks. All registered
and pending trademarks and service marks are also listed in the T. Rowe Price
Style Guide. If you have any questions regarding the status of a trademark or
service mark, you should contact the Legal Department.
INFRINGEMENT OF PRICE ASSOCIATES' REGISTERED MARKS. If an employee notices that
another entity is using a mark similar to one which Price Associates has
registered, the Legal Department should be notified immediately so that
appropriate action can be taken to protect Price Associates' interests in the
mark.
REPRODUCTION OF ARTICLES AND SIMILAR MATERIALS FOR INTERNAL DISTRIBUTION, OR FOR
DISTRIBUTION TO SHAREHOLDERS, CLIENTS AND OTHERS OUTSIDE THE FIRM. In general,
the reproduction of copyrighted material is a federal offense. Exceptions under
the "FAIR USE" doctrine include reproduction for scholarly purposes, criticism,
or commentary, which ordinarily do not apply in a business environment.
OCCASIONAL copying of a relatively small portion of a newsletter or magazine to
keep in a file, circulate to colleagues with commentary, or send to a client
with commentary is generally permissible under the "fair use" doctrine. Written
permission from the author or publisher must be obtained by any employee wishing
to reproduce copyrighted material for INTERNAL OR EXTERNAL distribution,
including distribution via the Internet or the T. Rowe Price Associates'
intranet. It is the responsibility of each employee to obtain permission to
reproduce copyrighted material. Such permission must be in writing and forwarded
to the Legal Department. If the publisher will not grant permission to reproduce
copyrighted material, then the requestor must purchase from the publisher either
additional subscriptions to the periodical or the reprints of specific articles.
The original article or periodical may be circulated as an alternative to
purchasing additional subscriptions or reprints.
PERSONAL COMPUTER SOFTWARE PROGRAMS. Software products and on-line information
services purchased for use on Price Associates' personal computers are generally
copyrighted material and may not be reproduced without proper authorization from
the software vendor. See the T. Rowe Price Associates, Inc. Statement of Policy
With Respect to Computer Security and Related Issues for more information.
March, 2000
<PAGE> 314
T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY WITH RESPECT TO
COMPUTER SECURITY AND RELATED ISSUES
PURPOSE OF STATEMENT OF POLICY. The central and critical role of computer
systems in our firm's operations underscores the importance of ensuring the
integrity of these systems. The data stored on our firm's computers, as well as
the specialized software programs and systems developed for the firm's use, are
extremely valuable assets and very confidential.
This Statement of Policy ("STATEMENT") establishes a comprehensive computer
security program which has been designed to:
- prevent the unauthorized use of or access to our firm's computer
systems (collectively the "SYSTEMS"), including the firm's
electronic mail ("E-MAIL") and voice mail systems;
- prevent breaches in computer security;
- maintain the integrity of confidential information; and
- prevent the introduction of computer viruses into our Systems
that could imperil the firm's operations.
In addition, the Statement describes various issues that arise in connection
with the application of U.S. Copyright Law to computer software.
Any material violation of this Statement may lead to sanctions, which may
include dismissal of the employee or employees involved.
CONFIDENTIALITY OF SYSTEMS ACTIVITIES AND INFORMATION. Systems activities and
information stored on our firm's computers (including e-mail and voice mail) may
be subject to monitoring by firm personnel or others. All such information,
including messages on the firm's e-mail and voice mail systems, are records of
the firm and the sole property of the firm. The firm reserves the right to
monitor, access, and disclose for any purpose all information, including all
messages sent, received, or stored through the Systems. The use of the firm's
computer Systems is for the transaction of firm business and is for authorized
users only. All firm policies apply to the use of the Systems. See Employee
Handbook.
By using the firm's Systems, you agree to be bound by this Statement and consent
to the access to and disclosure of all information, including e-mail and voice
mail messages, by the firm. Employees do not have any expectation of privacy in
connection with the use of the Systems, or with the transmission, receipt, or
storage of information in the Systems.
Information entered into our firm's computers but later deleted from the Systems
may continue to be maintained permanently on our firm's back-up tapes. Employees
should take care so that they do not create documents or communications that
might later be embarrassing to them or to our
<PAGE> 315
firm. This policy applies to e-mail and voice mail, as well to any other
communication on a System.
SECURITY ADMINISTRATION. Enterprise Security in T. Rowe Price Investment
Technologies, Inc. ("TRPIT") is responsible for identifying security needs and
overseeing the maintenance of computer security, including Internet-related
security issues.
AUTHORIZED SYSTEMS USERS. In general, access to any type of System is restricted
to authorized users who need access in order to support their business
activities. Access for mainframe, LAN and external Systems must be requested on
a "Systems Access Request" form. A hard copy can be printed from the Enterprise
Security intranet site or obtained from Enterprise Security. Access requests and
changes must be approved by the appropriate supervisor or manager in the user's
department.
AUTHORIZED APPLICATION USERS. Access to specific computer applications (i.e.,
Finance, Retirement Plan Services systems, etc.) can also be requested. Many
application systems have an additional level of security, such as extra
passwords. If a user wants access to an application or data that is outside the
normal scope of his or her business activity, additional approval may be
required from the "Owner" of such application or data. The "Owner" is the
employee who is responsible for making judgments and decisions on behalf of the
firm with regard to the application or data, including the authority to decide
who may have access.
USER-IDS, PASSWORDS, AND OTHER SECURITY ISSUES. Once a request for access is
approved, a unique "User-ID" will be assigned the user. Each User-ID has a
password that must be kept confidential by the user. For most systems, passwords
must be changed on a regular schedule and Enterprise security has the authority
to determine the password policy. User-IDs and passwords may not be shared.
Users can be held accountable for work performed with their User-IDs. Personal
computers must not be left logged on and unattended unless screen savers with
passwords or software-based keyboard locks are utilized. Enterprise Security
recommends that GroupWise e-mail accounts be password protected.
EXTERNAL COMPUTER SYSTEMS. Our data processing environment includes access to
data stored not only on our firm's computers, but also on external systems, such
as DST. Although the security practices governing these outside systems are
established by the providers of these external systems, requests for access to
such systems should be directed to Enterprise Security. User-IDs and passwords
to these systems must be kept confidential by the user.
ACCESS TO THE INTERNET AND OTHER ON-LINE SERVICES. Access to the Internet
(including, but not limited to, e-mail, remote FTP, Telnet, World Wide Web,
Gopher, remote administration, secure shell, and using IP tunneling software to
remotely control Internet servers) presents special security considerations due
to the world-wide nature of the connection and the security weaknesses present
in Internet protocols and services. The firm can provide authorized employees
and other staff with access to Internet e-mail and other Internet services (such
as the World Wide Web) through a direct connection from the firm's network.
Access to the Internet or Internet services from our firm's computers, including
the firm's e-mail system, is permitted only for legitimate business purposes.
Such access must be requested through Enterprise Security, approved by the
employee's supervisor, and provided only through
<PAGE> 316
firm approved connections. All firm policies apply to the use of the Internet or
Internet services. See Employee Handbook.
USE OF INTERNET. In accordance with firm policies, employees are
prohibited from accessing inappropriate sites, including, but not
limited to, adult and gambling sites. Firm personnel monitor Internet
use for visits to inappropriate sites and for inappropriate use. Should
employees have questions regarding what constitutes an inappropriate
site or inappropriate use, they should discuss it first with their
manager who may refer the question to Human Resources. Inappropriate use
of the Internet, or accessing inappropriate sites, may lead to
sanctions, which may include dismissal of the employee or employees
involved.
DIAL-OUT ACCESS. Using a modem or an Internet connection on a firm
computer housed at any of the firm's offices to access an Internet
service provider using one's home or personal account is prohibited,
unless this account is being used by authorized personnel to service
Price Associates' connection to the Internet. When Internet access is
granted, the employee will be asked to reaffirm his or her understanding
of this Statement.
Unauthorized modems are not permitted. Dial-out access that circumvents
the Internet firewall or proxy server, except by authorized personnel in
the business of Price Associates, is prohibited.
ON-LINE SERVICES. Access to America OnLine ("AOL"), CompuServe, or other
commercial on-line service providers is not permitted from a firm
computer except for a legitimate business purpose approved by the
employee's supervisor and with software obtained through the Help Desk
at x4357 (select menu option 1).
PARTICIPATION ON BULLETIN BOARDS. Because communications by our firm or
any of its employees on on-line service bulletin boards are subject to
federal, state and NASD advertising regulations, unsupervised
participation can result in serious securities violations. Certain
designated employees have been authorized to use AOL to monitor and
respond to inquiries about our firm and its investment services and
products. Any employee other than those assigned to this special group
must first receive the authorization of a member of the Board of T. Rowe
Price Investment Services, Inc. and the Legal Department before
initiating or responding to a message on any computer bulletin board
relating to the firm, a Price Fund or any investment or brokerage option
or service. This policy applies whether or not the employee intends to
disclose his or her relationship to the firm, whether or not our firm
sponsors the bulletin board, and whether or not the firm is the
principal focus of the bulletin board.
E-MAIL USE. Access to the firm's e-mail system is permitted only for
legitimate business purposes. All firm policies apply to the use of
e-mail. Firm personnel may monitor e-mail usage for inappropriate use.
Should employees have questions regarding what constitutes inappropriate
use, they should discuss it first with their manager who may refer the
question to Human Resources. Inappropriate use of e-mail may lead to
sanctions, which may include dismissal of the employee or employees
involved.
<PAGE> 317
E-mail services, other than those provided or approved by Price
Associates, may not be used for business purposes. In addition,
accessing e-mail services not provided or approved by Price Associates
from firm equipment for any reason could allow the introduction of
viruses or malicious code into the network, or lead to the compromise
of confidential data.
Employees should understand that e-mail sent through the Internet is
not secure and could be intercepted by a third party.
DIAL-IN ACCESS. The ability to access our firm's computer Systems from a remote
location is also limited to authorized users. Phone numbers used to access our
firm's computer Systems are confidential. A security system that uses a one-time
password or other strong authentication method must be employed when accessing
our firm's network from a remote computer. Authorization for remote access can
be requested by completing a "Systems Access Request" form. Any employee who
requires remote access should contact the Help Desk at x4357 (select menu
option 1) for desktop setup.
VIRUS PROTECTION. A computer virus is a program designed to damage or impair
software or data on a computer system. Software from any outside source may
contain a computer virus or similar malicious code. Types of carriers and
transmission methods increase daily and currently include diskettes, CDs, file
downloads, executables, and e-mail attachments. A comprehensive malicious code
prevention and control program is in place throughout Price Associates. This
program provides policy and procedures for anti-virus controls on all systems.
More information about the anti-virus program can be found on the TRPIT
Intranet.
Introducing a virus or similar malicious code into the Price Associates Systems
by engaging in prohibited actions, such as downloading non-business related
software, or by failing to implement recommended precautions, such as updating
virus scanning software on remote machines, may lead to sanctions, which may
include dismissal of the employee or employees involved.
VIRUS SCANNING SOFTWARE. As part of the TRPIT's anti-virus program,
virus scanning software is installed on the majority of applicable
platforms. This software is designed to detect and eradicate malicious
code and viruses. All desktop computers have the corporate standard
anti-virus scanning software installed and running. This software is
installed and configured by the Distributed Processing Support Group and
runs constantly. Virus scanning software updates are automatically
distributed to the desktops as they become available. Desktop virus
scanning software can also be used by the employee to scan diskettes,
CDs, directories, and attachments "on demand". Contact the Help Desk at
x4357 (select menu option 3) for assistance.
E-MAIL. An e-mail anti-virus gateway scans the content of inbound and
outbound e-mail for viruses. Infected e-mail and attachments will be
cleaned when possible and quarantined when not cleanable. Updating of
the e-mail gateway anti-virus software and pattern files is done
automatically.
PORTABLE AND REMOTE COMPUTERS. Laptops and other computers that remotely
access the TRPIT network are also required to have the latest anti-virus
software and pattern
<PAGE> 318
files. IT IS THE RESPONSIBILITY OF EACH USER TO ENSURE THAT HIS OR HER
PORTABLE COMPUTER'S ANTI-VIRUS SOFTWARE IS REGULARLY UPDATED. The Help
Desk has instructions available. Contact the Help Desk at x4357 (select
menu option 3) to obtain further information.
DOWNLOADING OR COPYING. The user of a PC with a modem or with an
Internet connection has the ability to connect to other computers or
on-line services outside of the firm's network and there may be business
reasons to download or copy software from those sources. Downloading or
copying software, which includes documents, graphics, programs and other
computer-based materials, from any outside source is not permitted
unless it is for a legitimate business purpose because downloads and
copies could introduce viruses and malicious code into the Systems.
OTHER CONSIDERATIONS. Users must log off the System each night. Unless
the user logs off, virus software on each workstation cannot pick up the
most current virus scanning downloads or the most current software
updates for the user's System. Employees must call the Help Desk at
x4357 (select menu option 3) when viruses are detected so that it can
ensure that appropriate tracking and follow-up take place. Do not
forward any "virus warning" mail received to other staff until you have
contacted the Help Desk, since many of these warnings are hoaxes. When
notified that a user has received "virus warning" mail, the Help Desk
will contact Enterprise Security, whose personnel will check to
determine the validity of the virus warning.
APPLICATION OF U.S. COPYRIGHT LAW TO SOFTWARE PROGRAMS. Software products and
on-line information services purchased for use on Price Associates' personal
computers are generally copyrighted material and may not be reproduced without
proper authorization from the software vendor. This includes the software on CDs
or diskettes, any program manuals or documentation, and data or software
retrievable from on-line information systems. Unauthorized reproduction of such
material or information, or downloading or printing such material, is a federal
offense, and the software vendor can sue to protect the developer's rights. In
addition to criminal penalties such as fines and imprisonment, civil damages can
be awarded in excess of $50,000.
GUIDELINES FOR USING PERSONAL COMPUTER SOFTWARE
ACQUISITION AND INSTALLATION OF SOFTWARE. Only Distributed Processing
Support Group approved and installed software is authorized. Any
software program that is to be used by an employee of Price Associates
in connection with the business of the firm must be ordered through the
Help Desk at x4357 (select menu option 1) and installed by the
Distributed Processing Support Group of TRPIT.
LICENSING. Software residing on firm LAN servers will be either: (1)
maintained at an appropriate license level for the number of users, or
(2) made accessible only for those for whom it is licensed.
ORIGINAL CDS, DISKETTES AND COPIES. In most cases, software is installed
by the Distributed Processing Support Group and original software CDs
and diskettes are not provided to the user. In the event that original
CDs or diskettes are provided, they must
<PAGE> 319
be stored properly to reduce the possibility of damage or theft. CDs and
diskettes should be protected from extreme heat, cold, and contact with
anything that may act as a magnet or otherwise damage them. Employees
may not make additional copies of software or software manuals obtained
through the firm.
RECOMMENDATIONS, UPGRADES, AND ENHANCEMENTS. All recommendations
regarding computer hardware and software programs are to be forwarded to
the Help Desk at x4357 (select menu option 1), which will coordinate
upgrades and enhancements.
QUESTIONS REGARDING THIS STATEMENT. Any questions regarding this Statement
should be directed to Enterprise Security in TRPIT.
March, 2000
<PAGE> 320
T. ROWE PRICE ASSOCIATES, INC.
STATEMENT OF POLICY
ON
COMPLIANCE WITH ANTITRUST LAWS
PURPOSE
To protect the interests of the company and its employees, Price
Associates has adopted this Statement of Policy on Compliance with Antitrust
Laws ("STATEMENT") to:
(1) Inform employees about the legal principles governing
prohibited anticompetitive activity in the conduct of Price
Associates' business; and
(2) Establish guidelines for contacts with other members of the
investment management industry to avoid violations of the
antitrust laws.
THE BASIC ANTICOMPETITIVE ACTIVITY PROHIBITION
Section 1 of the Sherman Antitrust Act (the "ACT") prohibits
agreements, understandings, or joint actions between companies that constitute a
"restraint of trade," i.e., reduce or eliminate competition.
This prohibition is triggered only by an agreement or action among two
or more companies; unilateral action never violates the Act. To constitute an
illegal agreement, however, an understanding does not need to be formal or
written. Comments made in conversations, casual comments at meetings, or even as
little as "a knowing wink," as one case says, may be sufficient to establish an
illegal agreement under the Act.
The agreed upon action must be anticompetitive. Some actions are "per
se" anticompetitive, while others are judged according to a "rule of reason."
- Some activities have been found to be so inherently
anticompetitive that a court will not even permit the argument
that they have a procompetitive component. Examples of such per
se illegal activities are agreements between competitors to fix
prices or divide up markets in any way, such as exclusive
territories.
- Other joint agreements or activities will be examined by a court
using the rule of reason approach to see if the procompetitive
results of the arrangement outweigh the anticompetitive effects.
Permissible agreements among competitors may include a buyers'
cooperative, or a syndicate of buyers for an initial public
offering of securities. In rare instances, an association of
sellers (such as ASCAP) may be permissible.
<PAGE> 321
There is also an exception for joint activity designed to influence
government action. Such activity is protected by the First Amendment to the U.S.
Constitution. For example, members of an industry may agree to lobby Congress
jointly to enact legislation that may be manifestly anticompetitive.
PENALTIES FOR VIOLATING THE SHERMAN ACT
A charge that the Act has been violated can be brought as a civil or a
criminal action. Civil damages can include treble damages, plus attorneys fees.
Criminal penalties for individuals can include fines of up to $350,000 and three
years in jail, and $100 million or more for corporations.
SITUATIONS IN WHICH ANTITRUST ISSUES MAY ARISE
To avoid violating the Act, any agreement with other members of the
investment management industry regarding which securities to buy or sell and
under what circumstances we buy or sell them, or about the manner in which we
market our mutual funds and investment and retirement services, must be made
with the prohibitions of the Act in mind.
TRADE ASSOCIATION MEETINGS AND ACTIVITIES. A trade association is a
group of competitors who join together to share common interests and
seek common solutions to common problems. Such associations are at a
high risk for anticompetitive activity and are closely scrutinized by
regulators. Attorneys for trade associations, such as the Investment
Company Institute, are typically present at meetings of members to
assist in avoiding violations.
Permissible Activities:
- Discussion of how to make the industry more competitive.
- An exchange of information or ideas that have procompetitive or
competitively neutral effects, such as: methods of protecting
the health or safety of workers; methods of educating customers
and preventing abuses; and information regarding how to design
and operate training programs.
- Collective action to petition government entities.
Activities to be Avoided:
- Any discussion or direct exchange of current information about
prices, salaries, fees, or terms and conditions of sales. Even
if such information is publicly available, problems can arise if
the information available to the public is difficult to compile
or not as current as that being exchanged.
<PAGE> 322
EXCEPTION: A third party consultant can, with appropriate
safeguards, collect, aggregate and disseminate some of this
information, such as salary information.
- Discussion of future business plans, strategies, or arrangements
that might be considered to involve competitively sensitive
information.
- Discussion of specific customers, markets, or territories.
- Negative discussions of service providers that could give rise
to an inference of a joint refusal to deal with the provider (a
"BOYCOTT").
INVESTMENT-RELATED DISCUSSIONS
PERMISSIBLE ACTIVITIES: Buyers or sellers with a common economic
interest may join together to facilitate securities transactions
that might otherwise not occur, such as the formation of a
syndicate to buy in a private placement or initial public
offering of a issuer's stock, or negotiations among creditors of
an insolvent or bankrupt company.
Competing investment managers are permitted to serve on
creditors committees together and engage in other similar
activities in connection with bankruptcies and other judicial
proceedings.
ACTIVITIES TO BE AVOIDED: It is important to avoid anything that
suggests involvement with any other firm in any threats to
"boycott" or "blackball" new offerings, including making any
ambiguous statement that, taken out of context, might be
misunderstood to imply such joint action. Avoid careless or
unguarded comments that a hostile or suspicious listener might
interpret as suggesting prohibited coordinated behavior between
T. Rowe Price and any other potential buyer.
EXAMPLE: After an Illinois municipal bond default
where the state legislature retroactively abrogated
some of the bondholders' rights, several investment
management complexes organized to protest the state's
action. In doing so, there was arguably an implied
threat that members of the group would boycott future
Illinois municipal bond offerings. Such a boycott
would be a violation of the Act. The investment
management firms' action led to an 18-month
Department of Justice investigation. Although the
investigation did not lead to any legal action, it
was extremely expensive and time consuming for the
firms and individual managers involved.
<PAGE> 323
If you are present when anyone outside of T. Rowe Price suggests
that two or more investors with a grievance against an issuer
coordinate future purchasing decisions, you should immediately
reject any such suggestion. As soon as possible thereafter, you
should notify the Legal Department, which will take whatever
further steps are necessary.
BENCHMARKING. Benchmarking is the process of measuring and comparing an
organization's processes, products and services to those of industry
leaders for the purpose of adopting innovative practices for
improvement.
- Because benchmarking usually involves the direct
exchange of information with competitors, it is
particularly subject to the risk of violating the
antitrust laws.
- The list of issues that may and should not be discussed
in the context of a trade association also applies in
the benchmarking process.
- All proposed benchmarking agreements must be reviewed by
the T. Rowe Price Legal Department before T. Rowe Price
agrees to participate in such a survey.
March, 2000
<PAGE> 324
Wellington Management Company, llp
Wellington Trust Company, na
Wellington Management International
Wellington International Management Company Pte Ltd.
Code of Ethics
Summmary
Wellington Management Company, llp and its affiliates have a fiduciary duty to
investment company and investment counseling clients which requires each
employee to act solely for the benefit of clients. Also, each employee has a
duty to act in the best interest of the firm. In addition to the various laws
and regulations covering the firm's activities, it is clearly in the firm's
best interest as a professional investment advisory organization to avoid
potential conflicts of interest or even the appearance of such conflicts with
respect to the conduct of the firm's employees. Wellington Management's
personal trading and conduct must recognize that the firm's clients always come
first, that the firm must avoid any actual or potential abuse of our positions
of trust and responsibility, and that the firm must never take inappropriate
advantage of its positions. While it is not possible to anticipate all
instances of potential conflict, the standard is clear.
In light of the firm's professional and legal responsibilities, we believe it
is appropriate to restate and periodically distribute the firm's Code of Ethics
to all employees. It is Wellington Management's aim to be as flexible as
possible in its internal procedures, while simultaneously protecting the
organization and its clients from the damage that could arise from a situation
involving a real or apparent conflict of interest. While it is not possible to
specifically define and prescribe rules regarding all possible cases in which
conflicts might arise, this Code of Ethics is designed to set forth the policy
regarding employee conduct in those situations in which conflicts are most
likely to develop. If an employee has any doubt as to the propriety of any
activity, he or she should consult the President or Regulatory Affairs
Department.
The Code now reflects recommendations issued by an industry study group in
1994, which were strongly supported by the SEC. The term "Employee" includes
all employees and Partners.
Policy on Personal Securities Transactions
Essentially, this policy requires that all personal securities transactions
(including acquisitions or dispositions other than through a purchase or sale)
by all Employees must be cleared prior to execution. The only exceptions to
this policy of prior clearance is noted below.
Definition of "Personal Securities Transactions"
The following transactions by Employees are considered "personal" under
applicable SEC rules and therefore subject to this statement of policy:
<PAGE> 325
Code of Ethics
Page 2
1
Transactions for an Employee's own account, including IRA's.
2
Transactions for an account in which an Employee has indirect beneficial
ownership, unless the Employee has no direct or indirect influence or control
over the account. Accounts involving family (including husband, wife, minor
children or other dependent relatives), or accounts in which an Employee has a
beneficial interest (such as a trust of which the Employee is an income or
principal beneficiary) are included within the meaning of "indirect beneficial
interest".
If an Employee has a substantial measure of influence or control over an
account, but neither the Employee nor the Employee's family has any direct or
indirect beneficial interest (e.g., a trust for which the Employee is a trustee
but not a direct or indirect beneficiary), the rules relating to personal
securities transactions are not considered to be directly applicable.
Therefore, prior clearance and subsequent reporting of such transactions are
not required. In all transactions involving such an account an Employee should,
however, conform to the spirit of these rules and avoid any activity which
might appear to conflict with the investment company or counseling clients or
with respect to the Employee's position within Wellington Management. In this
regard, please note "Other Conflicts of Interest", found later in this code of
ethics, which does not apply to such situations.
Preclearance Required
EXCEPT AS SPECIFICALLY EXEMPTED IN THIS SECTION, ALL EMPLOYEES MUST CLEAR
PERSONAL SECURITIES TRANSACTIONS PRIOR TO EXECUTION. This includes bonds,
stocks (including closed end funds), convertibles, preferreds, options on
securities, warrants, rights, etc. for domestic and foreign securities, whether
publicly traded or privately placed. The only exemptions to this requirement
are automatic dividend reinvestment plan acquisitions, broad-based stock index
and U.S. government securities features and options on such futures, automatic
employee stock purchase plan acquisitions, transactions in open-end mutual
funds, U.S. Government securities, commercial paper, or non-volitional
transactions. Non-volitional transactions include gifts to an Employee over
with the Employee has no control of the timing or transactions which result
from corporate action applicable to all similar security holders (such as
splits, tender offers, mergers, stock dividends, etc.). Please note, however,
that most of these transactions must be reported even though they do not have
to be precleared. See the following section on reporting obligations.
Code of Ethics
<PAGE> 326
Code of Ethics
Page 4
- -------------------------------------------------------------------------------
IMPORTANT NOTE: The quarterly report must include the
required information for all "personal securities
transactions" as defined above, except transactions in
U.S. Government securities, futures and options on
futures on U.S. government securities and broad-based
stock indexes, and open-end mutual funds. Non-volitional
transactions and those resulting from corporate actions
must also be reported even though preclearance is not
required and the nature of the transaction must be
clearly specified in the report.
3
Filing of Personal All Employees must file a schedule on the form attached
Holding Report indicating their personal securities holdings as of
December 31 of each year by the following February 15.
"Securities" for purposes of this report are those which
must be reported as indicated in the prior paragraph.
Newly hired Employees are required to file a holding
report upon commencement of employment. Employees may
indicate securities held in a brokerage or mutual fund
account by attaching an account statement, but are not
required to do so, since these statements contain
additional information not required by the holding
report.
- -------------------------------------------------------------------------------
Restrictions on While all personal securities transactions must be
"Personal Securities cleared prior to execution, the following guidelines
Transactions" indicate which transactions will be prohibited,
discouraged, or subject to nearly automatic clearance.
The clearance of personal securities transactions may
also depend upon other circumstances, including the
timing of the proposed transaction relative to
transactions by our investment counseling or investment
company clients; the nature of the securities and the
parties involved in the transaction; and the percentage
of securities involved in the transaction relative to
ownership by clients. The word "clients" refers
collectively to investment company clients and counseling
clients. Employees are expected to be particularly
sensitive to meeting the spirit as well as the letter of
these restrictions.
Please note that these restrictions apply in the case of
debt securities to the specific issue and in the case of
common stock, not only to the common stock, but to any
equity-related security of the same issuer including
preferred stock, options, warrants, and convertible
bonds. Also, a gift or transfer from you an Employee to a
third party shall be subject to these restrictions,
unless the donee or transferee represents that he or she
has no present intention of selling the donated security.
<PAGE> 327
Page 3
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Clearance for transactions must be obtained by contacting
the Head of the Trading Department (or another member of
that Department authorized by the Head of Trading to act
in his or her absence) for approval. The Trading
Department will maintain a log of all requests for
approval as coded confidential records of the firm.
CLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS FOR
PUBLICLY TRADED SECURITIES WILL BE IN EFFECT FOR ONE
TRADING DAY ONLY. Private placements (including both
securities and partnership interests) are subject to
special clearance by the Director of Regulatory Affairs
or the General Counsel, and the clearance will remain in
effect for a reasonable period thereafter, not to exceed
90 days.
- --------------------- ---------------------------------------------------------
Filing of Reports The Code requires a comprehensive "real time" system of
maintaining records of personal securities transactions
by Employees. Under this system, the following reporting
requirements must be complied with.
1
Duplicate Brokerage All Employees must require their securities brokers to
Confirmations send duplicate confirmations of their securities
transactions to the Regulatory Affairs Department.
Brokerage firms are accustomed to providing this service.
Please contact Regulatory Affairs to obtain a form letter
to request this service. The form must be completed and
returned to the Regulatory Affairs Department. The
Regulatory Affairs Department will process it in order to
assure delivery of the confirms directly to them and to
preserve the confidentiality of this information. In most
cases, the transaction confirmation filing requirement
will be satisfied by electronic filings from securities
depositories. Each Employee must return to the Regulatory
Affairs Department a completed form for each brokerage
account that is used for personal securities transactions
of the Employee. Employees should not send the completed
forms to their brokers directly.
2
Filing of Quarterly SEC rules require that a quarterly record of all personal
Report of all securities transactions be available for inspection.
"Personal Securities To comply with these rules, every Employee must file a
Transactions" quarterly report (on the form attached) within 10
calendar days after the end of each calendar quarter.
Transactions during the quarter indicated on brokerage
confirmations or electronic filings can be incorporated
by reference. Holdings not acquired through a broker
submitting confirmations will have to be entered
manually. Quarterly reports must be filed by all
Employees even if there were no reportable transactions
during the quarter. (Write "none", sign the form and
return it to Regulatory Affairs).
<PAGE> 328
Code of Ethics
Page 5
1
No Employee may engage in personal transactions involving any securities which
are:
- - being bought or sold on behalf of clients until one trading day after such
buying or selling is completed or canceled. In addition, no Portfolio
Manager may engage in a personal transaction involving any security for 7
days prior to, and 7 days following, a transaction in the same security for
a client account managed by that Portfolio Manager without a special
exemption. See "Exemptive Procedures" below. Portfolio Managers include all
designated portfolio managers and others who have direct authority to make
investment decisions to buy or sell securities, such as analysts involved in
Research Equity portfolios. All Employees who are considered Portfolio
Managers will be so notified.
- - the subject of a new or changed action recommendation from a research
analyst until 10 business days following the issuance of such recommendation;
- - the subject of a reiterated but unchanged recommendation from a research
analyst until 2 business days following reissuance of the recommendation
- - actively contemplated for transactions on behalf of clients, even though no
buy or sell orders have been placed. This restriction applies from the
moment that an Employee has been informed in any fashion that any Portfolio
Manager intends to purchase or sell a specific security. This is a
particularly sensitive area and one in which each Employee must exercise
caution to avoid actions which, to his or her knowledge, are in conflict or
in competition with the interests of clients.
2
The Code of Ethics strongly discourages short term trading by Employees. In
addition, no Employee may take a "short term trading" profit in a security,
which means the sale of a security at a gain (or closing of a short position at
a gain) within 60 days of its purchase, without a special exemption. See
"Exemptive Procedures". The 60 day prohibition does not apply to transactions
resulting in a loss, nor to futures or options on futures on broad-based
securities indexes or U.S. government securities.
<PAGE> 329
Code of Ethics
Page 6
3
No Employee engaged in equity or bond trading may engage in personal
transactions involving any equity securities of any company whose primary
business is that of a broker/dealer.
4
Subject to preclearance, Employees may engage in short sales, options, and
margin transactions, but such transactions are strongly discouraged,
particularly due to the 60 day short term profit-taking prohibition. Any
Employee engaging in such transactions should also recognize the danger of
being "frozen" or subject to a forced close out because of the general
restrictions which apply to personal transactions as noted above. In specific
case of hardship an exception may be granted by the Director of Regulatory
Affairs upon approval of the Ethics Committee with respect to an otherwise
"frozen" transaction.
5
No Employee may engage in personal transactions involving the purchase of any
debt, equity or equity-related securities at any registered public offering
(including both new issues and secondary offerings). This restriction also
includes new issues of municipal securities and thrift conversions, although in
limited cases the purchase of municipal securities in an offering may be
approved by the Director of Regulatory Affairs upon determining that approval
would not violate any policy reflected in this Code. This restriction does not
apply to other unregistered securities, such as U.S. government issues or
commercial paper.
6
Employees may not purchase securities in private placements unless approval of
the Director of Regulatory Affairs or the General Counsel has been obtained.
This approval will be based upon a determination that the investment
opportunity need not be reserved for clients, that the Employee is not being
offered the investment opportunity due to his or her employment with Wellington
Management and other relevant factors on a case-by-case basis. If the Employee
has securities analysis responsibilities and is granted approval to purchase a
private placement, he or she must disclose the privately placed holding later
if asked to evaluate the issuer of the security. An independent review of the
Employee's analytical work will then be performed by another analyst.
<PAGE> 330
Code of Ethics
Page 7
___________________ _______________________________________________________
Gifts and Other Employees should not seek, accept or offer any gifts or
Sensitive Payments favors of more than minimal value or any preferential
treatment in dealings with any client, broker/dealer,
portfolio company, financial institution or any other
organization with whom the firm transacts business.
Occasional participation in lunches, dinners, cocktail
parties, sporting activities or similar gatherings
conducted for business purposes are not prohibited.
However, for both the Employee's protection and that of
the firm it is extremely important that even the
appearance of a possible conflict of interest be
avoided. Extreme caution is to be exercised in any
instance in which business related travel and lodgings
are paid for other than by Wellington Management, and
prior approval must be obtained from the Regulatory
Affairs Department.
Any question as to the propriety of such situations
should be discussed with the Regulatory Affairs
Department and any incident in which an Employee is
encouraged to violate these provisions should be
reported immediately. An explanation of all
extraordinary travel, lodging and related meals and
entertainment is to be reported in a brief memorandum
to the Director of Regulatory Affairs.
Employees must not participate individually or on
behalf of the firm, a subsidiary, or any client,
directly or indirectly, in any of the following
transactions:
1
Use of the firm's funds for political purposes.
2
Payment or receipt of bribes, kickbacks, or payment
or receipt of any other amount with an understanding
that part or all of such amount will be refunded or
delivered to a third party in violation of any law
applicable to the transaction.
3
Payments to government officials or employees (other
than disbursements in the ordinary course of business
for such legal purposes as payment of taxes).
4
Payment of compensation or fees in a manner the
purpose of which is to assist the recipient to evade
taxes, federal or state law, or other valid charges or
restrictions applicable to each payment.
<PAGE> 331
Code of Ethics
Page 8
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5
Use of the funds or assets of the firm or any subsidiary for any other unlawful or improper purpose.
- -------------------------- ---------------------------------------------------------------------------------------------------
Other Conflicts of Employees should also be aware that areas other than personal securities transactions or gifts and
Interest sensitive payments may involve conflicts of interest. The following should be regarded as examples of
situations involving real or potential conflicts rather than a complete list of situations to avoid.
"Inside Information" Specific reference is made to the firm's policy on the use of "inside information" which applies to
personal securities transactions as well as to client transactions.
Use of Information Information acquired in connection with employment by the organization may not be used in any way
which might be contrary to or in competition with the interests of clients. Employees are reminded
that certain clients have specifically required their relationship with us to be treated
confidentially.
Disclosure of Information regarding actual or contemplated investment decisions, research priorities or client
Information interests should not be disclosed to persons outside our organization and in no way can be used for
personal gain.
Outside Activities All outside relationships such as directorships or trusteeships of any kind or membership in
investment organizations (e.g., an investment club) must be cleared by the Director of Regulatory
Affairs prior to the acceptance of such a position. As a general matter, directorships in unaffiliated
public companies or companies which may reasonably be expected to become public companies will not be
authorized because of the potential for conflicts which may impede our freedom to act in the best
interests of clients. Service with charitable organizations generally will be authorized, subject to
considerations related to time required during working hours and use of proprietary information.
Exemptive Procedure The Ethics Committee can grant exemptions from the personal trading restrictions in this Code upon
determining that the transaction for which an exemption is requested would not result in a conflict of
interest or violate any other policy embodied in this Code. Factors to be considered may include: the
size and holding period of the Employee's position in the security, the market capitalization of the
issuer, the liquidity of the security, the reason for the Employee's requested transaction, the amount
and timing of client trading in the same or a related security, and other relevant factors.
</TABLE>
<PAGE> 332
Code of Ethics
Page 9
Any Employee wishing an exemption should submit a written
request to the Director of Regulatory Affairs setting
forth the pertinent facts and reasons why the employee
believes that the exemption should be granted. Employees
are cautioned that exemptions are intended to be
exceptions, and repetitive exemptive applications by an
Employee will not be well received.
Compliance with Adherence to the Code of Ethics is considered a basic
The Code of Ethics condition of employment with our organization. The
Ethics Committee monitors compliance with the Code and
reviews violations of the Code to determine what action
or sanctions are appropriate.
Violations of the provisions regarding personal trading
will presumptively be subject to being reversed in the
case of a violative purchase, and to disgorgement of any
profit realized from the position (net of transaction
costs and capital gains taxes payable with respect to the
transaction) by payment of the profit to any client
disadvantaged by the transaction, or to a charitable
organization, as determined by the Ethics Committee,
unless the Employee establishes to the satisfaction of
the Ethics Committee that under the particular
circumstances disgorgement would be an unreasonable
remedy for the violation.
Violations of the Code of Ethics may also adversely
affect an Employee's career with Wellington Management
with respect to such matters as compensation and
advancement.
Employees must recognize that a serious violation of the
Code of Ethics or related policies may result, at a
minimum, in immediate dismissal. Since many provisions of
the Code of Ethics also reflect provisions of the U.S.
securities laws, Employees should be aware that
violations could also lead to regulatory enforcement
action resulting in suspension or expulsion from the
securities business, fines and penalties, and
imprisonment.
Again, Wellington Management would like to emphasize the
importance of obtaining prior clearance of all personal
securities transactions, avoiding prohibited
transactions, filing all required reports promptly and
avoiding other situations which might involve even an
apparent conflict of interest. Questions regarding
interpretation of this policy or questions related to
specific situations should be directed to the Regulatory
Affairs Department or Ethics Committee.
Revised: October 22, 1997
<PAGE> 1
MANUFACTURERS INVESTMENT TRUST
POWER OF ATTORNEY
I, John D. DesPrez, III, do hereby constitute and appoint Matthew R.
Schiffman, James D. Gallagher and John G. Vrysen, or any one of them, my true
and lawful attorneys to execute registration statements to be filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "1933 Act") and/or the Investment Company Act of 1940, as amended (the
"1940 Act"), and to do any and all acts and things and to execute any and all
instruments for me and in my name in the capacities indicated below, which said
attorney, may deem necessary or advisable to enable Manufacturers Investment
Trust (the "Trust") to comply with the 1933 Act and the 1940 Act, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with such registration statement, including specifically, but without
limitation, power and authority to sign for me in the capacity indicated below,
any and all amendments (including post-effective amendments); and I do hereby
ratify and confirm all that the said attorneys, or any of them, shall do or
cause to be done by virtue of this power of attorney.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JOHN D. DESPREZ, III Trustee February 8, 2000
- ------------------------
John D. DesPrez III
</TABLE>
