Registration Nos. 33-16005
811-5252
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 23 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 24 [X]
(Check appropriate box or boxes.)
COVA SERIES TRUST
--------------------------------
(Exact name of registrant as specified in charter)
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
--------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (800) 831-5433
Lorry J. Stensrud
President and Chief Executive Officer
Cova Series Trust
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
(Name and Address of Agent For Service)
Copy to:
Raymond A. O'Hara III, Esq.
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
_X_ on May 1, 2000 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
Title of Securities Being Registered:
Investment Company Shares
<TABLE>
<CAPTION>
<S> <C> <C>
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
- -------- ----------------------------
PART A
Item 1. Front and Back Cover Pages............. Front and Back Cover Pages
Item 2. Risk/Return Summary: Investments,
Risks and Performance.................. Risk/Return Summary; Performance
Item 3. Risk/Return Summary: Fee Table......... Not Applicable
Item 4. Investment Objectives, Principal
Investment Strategies, and Related
Risks.................................. Description of the Portfolios
Item 5. Management's Discussion of Fund
Performance............................ Not Applicable
Item 6. Management, Organization, and
Capital Structure...................... Management of the Trust
Item 7. Shareholder Information................ Portfolio Shares
Item 8. Distribution Arrangements.............. Portfolio Shares
Item 9. Financial Highlight Information........ Financial Highlights
PART B
Item 10. Cover Page and Table of Contents....... Cover Page and Table of Contents
Item 11. Fund History........................... The Trust
Item 12. Description of the Fund and Its
Investments and Risks.................. Investment Strategies and Risks
Item 13. Management of the Fund................. Management of the Trust
Item 14. Control Persons and Principal
Holders of Securities.................. Substantial Shareholders
Item 15. Investment Advisory and Other
Services............................... Investment Advisory Agreement
Item 16. Brokerage Allocations and Other
Practices.............................. Portfolio Transactions
Item 17. Capital Stock and Other
Securities............................. The Trust
Item 18. Purchase, Redemption and
Pricing of Shares...................... Net Asset Value; Portfolio Shares (Part A)
Item 19. Taxation of the Fund................... Tax Status
Item 20. Underwriters........................... Not Applicable
Item 21. Calculation of Performance Data........ Performance Data
Item 22. Financial Statements................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
EXPLANATORY NOTE
- -------------------------------------------------------------------------------
This Registration Statement contains seventeen Portfolios of Cova Series Trust.
Several versions of the Prospectus will be created from this Registration
Statement. The distribution system for each version of the Prospectus is
different. All versions of the Prospectus will be filed with the Commission
pursuant to Rule 497 under the Securities Act of 1933.
The Registrant undertakes to update this Explanatory Note, as needed, each time
a Post-Effective Amendment is filed.
- -------------------------------------------------------------------------------
PART A
COVA SERIES TRUST
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
The Portfolios of Cova Series Trust ("Trust") are:
<TABLE>
<CAPTION>
<S> <C>
Quality Bond Portfolio Developing Growth Portfolio
Small Cap Stock Portfolio Lord Abbett Growth and Income Portfolio
Large Cap Stock Portfolio Balanced Portfolio
Select Equity Portfolio Equity Income Portfolio
International Equity Portfolio Growth & Income Equity Portfolio
Emerging Markets Equity Portfolio Riggs Stock Portfolio
Bond Debenture Portfolio Riggs Small Company Stock Portfolio
Mid-Cap Value Portfolio Riggs U.S. Government Securities Portfolio
Large Cap Research Portfolio
</TABLE>
The Securities and Exchange Commission has not approved or disapproved these
securities nor has it determined that this Prospectus is accurate or complete.
It is a criminal offense to state otherwise.
The date of this Prospectus is May 1, 2000.
TABLE OF CONTENTS
PAGE
SUMMARY
DESCRIPTION OF THE PORTFOLIOS
MANAGEMENT OF THE TRUST
PORTFOLIO SHARES
PERFORMANCE OF THE PORTFOLIOS
COMPARABLE PERFORMANCE
FINANCIAL HIGHLIGHTS
APPENDIX TO PROSPECTUS
SUMMARY
The Trust and the Portfolios
All of the Portfolios described in this document are series of Cova Series Trust
("Trust"), an open-end management investment company. Investment companies (or
"mutual funds") pool the money of a number of different investors and buy many
different securities. Pooling allows the investors to spread the risk of loss of
their investments over more securities than they could if they invested their
money alone.
Although the Portfolios are structured the same as mutual funds, they are not
offered or sold directly to the public. You may only invest in the Portfolios
through a variable annuity contract or variable life insurance policy
(collectively, the "Contract"), which you purchase from an insurance company.
The insurance company becomes the legal shareholder in the Portfolio. You
(the holder of the Contract) are not a shareholder in the Trust, but have a
beneficial interest in it. Although you do not have the same rights as if you
were a direct shareholder, you are given many similar rights, such as voting
rights, under rules of the Securities and Exchange Commission that apply to
registered investment companies.
Within limitations described in the Contract, owners may allocate the amounts
under the Contracts for ultimate investment in the various Portfolios of
the Trust. See the prospectus which accompanies this Prospectus for a
description of:
* the Contract,
* the Portfolios of the Trust that are available under that Contract, and
* the relationship between increases or decreases in the net asset value
of Trust shares (and any dividends and distributions on such shares) and
the benefits provided under that Contract.
Some of the Portfolio have names and investment objectives that are very
similar to certain publicly available mutual funds that are managed by the same
money managers. These Portfolios are not those publicly available mutual funds
and will not have the same performance. Different performance will result from
such factors as different implementation of investment policies, different cash
flows into and out of the Portfolios, different fees, and different sizes.
A Portfolio's performance may be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other investment techniques
may have a magnified performance impact on a Portfolio with a small asset
base. A Portfolio may not experience similar performance as its assets grow.
The Contracts may be sold by banks. An investment in a Portfolio of the Trust
through a Contract is not a deposit of a bank and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
The Sub-Advisers for the Portfolios are:
<TABLE>
<CAPTION>
SUB-ADVISER NAME OF PORTFOLIO
<S> <C>
J.P. Morgan Investment Management Inc. Quality Bond Portfolio
Small Cap Stock Portfolio
Large Cap Stock Portfolio
Select Equity Portfolio
International Equity Portfolio
Emerging Markets Equity Portfolio
Lord, Abbett & Co. Bond Debenture Portfolio
Mid-Cap Value Portfolio
Large Cap Research Portfolio
Developing Growth Portfolio
Lord Abbett Growth and Income Portfolio
FIRMCO, LLC (formerly Mississippi Valley Balanced Portfolio
Advisors Inc.) Equity Income Portfolio
Growth & Income Equity Portfolio
Riggs Bank N.A. Riggs Stock Portfolio
Riggs Small Company Stock Portfolio
Riggs U.S. Government Securities Portfolio
</TABLE>
RISK/RETURN SUMMARY
PRINCIPAL INVESTMENT STRATEGIES AND RISKS OF EACH PORTFOLIO
- -> Portfolios Managed by J.P. Morgan Investment Management Inc.
Quality Bond Portfolio
Investment Objective
* The Quality Bond Portfolio seeks to provide a high total return consistent
with moderate risk of capital and maintenance of liquidity.
Principal Investment Strategies
- -> The Portfolio will invest at least 65% of its assets in bonds under normal
circumstances.
- -> The Sub-Adviser actively manages the Portfolio in pursuit of its investment
objective investing in broad sectors of the fixed income market. These sectors
include:
* U.S. Government and agency securities
* corporate securities
* private placements
* asset backed securities
* mortgage related securities
- -> The Portfolio may invest up to 25% of its assets in foreign securities.
- -> The Portfolio will normally invest at least 65% of its total assets in
investment grade debt securities.
Principal Risks
The principal risks of investing in the Portfolio are:
* The risk that the Sub-Adviser will not be able to find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will not reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be less
than the purchase payments you (the owner of the Contract) originally
invested in the Portfolio.
* the risk that an issuer of a fixed income security owned by the
Portfolio may be unable to make interest or principal payments.
* the risk that fluctuations in interest rates may affect the value of
the Portfolio's interest-paying fixed income securities.
* the risk that the holder of a mortgage underlying a mortgage-backed
security owned by the Portfolio will prepay principal, particularly
during periods of declining interest rates.
* the additional risks of investing in securities of non-U.S. companies,
such as changes in value related to changes in currency exchange rates,
additional transaction costs and more difficulty in selling the securities.
Small Cap Stock Portfolio
Investment Objective
* The Small Cap Stock Portfolio seeks to provide a high total return from a
portfolio of equity securities of small companies.
Principal Investment Strategies
- -> The Portfolio invests primarily in the common stock of small U.S. companies
included in the Russell 2000 Index.
- -> At least 65% of the Portfolio's net assets will normally be invested in
common stocks and other securities with equity characteristics.
- -> The Sub-Adviser uses research, valuation and a stock selection process to
seek to enhance the Portfolio's total return relative to that of the U.S. small
company universe.
Principal Risks
The principal risks of investing in the Portfolio are:
* Investments in small to medium sized companies may produce higher
returns than investments in companies with larger capitalizations;
however, companies with smaller capitalizations generally have a higher
risk of failure than larger companies.
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* Growth-style investing: Different types of stocks tend to shift into
and out of favor with stock market investors depending on market and
economic conditions. Because the Portfolio focuses on growth-style
stocks, the Portfolio's performance may at times be better or worse
than the performance of stock funds that focus on other types of
stocks, or that have a broader investment style.
Large Cap Stock Portfolio
Investment Objective
* The Large Cap Stock Portfolio seeks to provide long-term growth of capital
and income.
Principal Investment Strategies
- -> The Portfolio will be an actively managed portfolio of medium- to large-cap
equity securities that seeks to outperform the total return of the Standard &
Poor's 500 Composite Stock Price Index ("S&P 500"), consistent with reasonable
investment risk.
- -> The Portfolio invests primarily in dividend-paying common stock but it may
also invest in other equity securities.
- -> As a guideline, the Sub-Adviser seeks to achieve gross income for the
Portfolio equal to at least 75% of the dividend income generated on the stocks
included in the S&P 500.
- -> The Portfolio will be highly diversified and will typically hold
approximately 300 stocks. The Sub-Adviser may emphasize securities that it
believes to be undervalued.
Principal Risks
The principal risks of investing in the Portfolio are:
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* Larger more established companies may be unable to respond quickly
to new competitive challenges such as changes in technology and
consumer tastes. Many larger companies also may not be able to attain
the high growth rate of successful smaller companies, especially
during extended periods of economic expansion.
* The portfolio manager's judgment that a particular security is
undervalued in relation to the company's fundamental economic values
may prove incorrect. Stocks of undervalued companies may never achieve
their potential value.
Select Equity Portfolio
Investment Objective
* The Select Equity Portfolio seeks to provide long-term growth of capital
and income.
Principal Investment Strategies
- -> The Portfolio will be an actively managed portfolio of selected equity
securities that seeks to outperform the total return of the S&P 500, consistent
with reasonable investment risk.
- -> The Portfolio invests primarily in dividend-paying common stock but it may
also invest in other equity securities.
- -> Under normal circumstances, the Portfolio will be fully invested in the
stocks of large- and medium-sized companies primarily included in the S&P 500.
- -> As a guideline, the Sub-Adviser seeks to achieve gross income for the
Portfolio equal to at least 75% of the dividend income generated on the stocks
included in the S&P 500.
- -> The Portfolio will be highly diversified and will typically hold between 60
and 90 stocks. The Sub-Adviser may emphasize securities that it believes to be
undervalued.
Principal Risks
The principal risks of investing in the Portfolio are:
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* Larger more established companies may be unable to respond quickly
to new competitive challenges such as changes in technology and
consumer tastes. Many larger companies also may not be able to attain
the high growth rate of successful smaller companies, especially
during extended periods of economic expansion.
* The portfolio manager's judgment that a particular security is
undervalued in relation to the company's fundamental economic values
may prove incorrect. Stocks of undervalued companies may never achieve
their potential value.
International Equity Portfolio
Investment Objective
* The International Equity Portfolio seeks to provide a high total return
from a portfolio of equity securities of foreign corporations.
Principal Investment Strategies
- -> The Sub-Adviser will actively manage the Portfolio which will be comprised
of non-U.S. securities that seeks to outperform the Morgan Stanley Capital
International Europe, Australia and Far East Index (the "EAFE Index").
- -> The Sub-Adviser intends to keep the Portfolio essentially fully invested
with at least 65% of the value of its total assets in equity securities of
foreign issuers.
- -> The Portfolio's primary equity investments are the common stocks of
established companies based in developed countries outside the United States.
Such investments will be made in at least three foreign countries.
- -> The Portfolio may invest in the securities of issuers located in developing
countries.
- -> The Sub-Adviser actively manages currency exposure in an attempt to protect
and possibly enhance the Portfolio's market value through the use of derivatives
such as forward foreign currency exchange contracts.
Principal Risks
The principal risks of investing in the Portfolio are:
* Securities of non-U.S. companies are subject to risks in addition to
the normal risks of investments, such as changes in value related to
changes in currency exchange rates, additional transaction costs and
more difficulty in selling the securities. The risks of investing in
foreign securities are usually higher in emerging markets such as
most countries in Southeast Asia, Eastern Europe, Latin America and
Africa.
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* There is a risk in using derivative transactions that the security may
not go up or down as the Sub-Adviser anticipates, resulting in a loss
to the Portfolio. Losses may also occur if there is not a perfect
correlation between the value of futures or forward contracts and the
related securities.
Emerging Markets Equity
Investment Objective
* The Emerging Markets Equity Portfolio seeks to achieve a high total return
from a portfolio of equity securities of companies in emerging markets.
Principal Investment Strategies
- -> The Sub-Adviser intends to keep the Portfolio essentially fully invested
with at least 65% of the value of its total assets in equity securities of
companies in emerging markets. The Portfolio will be actively managed.
- -> The Portfolio will focus its investments in those emerging markets
countries which the Sub- Adviser believes have strongly developing economies and
in which the markets are becoming more sophisticated.
- -> The Portfolio's primary equity investments will be the common stocks of
established companies in the emerging markets countries which the Sub-Adviser
has identified as attractive.
- -> The assets of the Portfolio ordinarily will be invested in the securities
of issuers in at least three different countries considered to be emerging
markets.
Principal Risks
The principal risks of investing in the Portfolio are:
* Securities of non-U.S. companies are subject to risks in addition to
the normal risks of investments, such as changes in value related to
changes in currency exchange rates, additional transaction costs and
more difficulty in selling the securities. The risks of investing in
foreign securities are usually higher in emerging markets such as
most countries in Southeast Asia, Eastern Europe, Latin America and
Africa.
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* There is a risk in using derivative transactions that the security may
not go up or down as the Sub-Adviser anticipates, resulting in a loss
to the Portfolio. Losses may also occur if there is not a perfect
correlation between the value of futures or forward contracts and the
related securities.
- -> Portfolios Managed by Lord, Abbett & Co.
Bond Debenture Portfolio
Investment Objective
* The Bond Debenture Portfolio seeks to provide high current income and the
opportunity for capital appreciation to produce a high total return. To
pursue its goal, the Portfolio normally invests in high yield and investment
grade debt securities, securities convertible into common stocks and preferred
stocks.
Principal Investment Strategies
- -> Under normal circumstances, the Portfolio invests at least 65% of its total
assets in fixed income securities of various types. At least 20% of the
Portfolio's assets must be invested in any combination of investment grade
securities, U.S. Government securities and cash equivalents.
- -> The Sub-Adviser will actively manage the Portfolio and seek unusual values,
particularly in lower-rated debt securities, some of which are convertible into
common stocks or have warrants to purchase common stocks.
- -> Capital appreciation and current income are important considerations in
the selection of portfolio securities.
- -> The Portfolio may invest substantially in lower-rated bonds (junk
bonds) for their higher yields which entail greater risks.
- -> The Portfolio normally invests in long-term debt securities when Portfolio
management believes that interest rates in the long run will decline and prices
of such securities generally will be high. When Portfolio management believes
that long-term interest rates will rise, it will endeavor to shift the Portfolio
into short-term debt.
Principal Risks
The principal risks of investing in the Portfolio are:
* Lower quality, higher-yielding, bonds (junk bonds) may have a greater
potential return than higher quality bonds but also have a higher risk
of default.
* the risk that an issuer of a fixed income security owned by the
Portfolio may be unable to make interest or principal payments.
* the risk that fluctuations in interest rates may affect the value of
the Portfolio's interest-paying fixed income securities.
* the risk that the holder of a mortgage underlying a mortgage-backed
security owned by the Portfolio will prepay principal, particularly
during periods of declining interest rates.
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic, political
or market conditions or an issuer's financial circumstances. The value of
your investment in a Portfolio at any given time may be less than the
purchase payments you (the owner of the Contract) originally invested in
the Portfolio.
Mid-Cap Value Portfolio
Investment Objective
* The Mid-Cap Value Portfolio seeks capital appreciation through investments,
primarily in equity securities, which are believed to be undervalued in the
marketplace.
Principal Investment Strategies
- -> The Portfolio invests primarily in common stocks, including securities
convertible into common stocks, of companies with good prospects for improvement
in earnings trends or asset values that are not yet fully recognized in the
investment community.
- -> The Portfolio normally invests at least 65% of its total assets in mid-cap
companies (companies whose outstanding equity securities have an aggregate
market value of between $500 million and $10 billion.)
- -> The Portfolio normally will be diversified among many issues representing
many different industries.
- -> The holdings in the portfolio typically will be selected for their
potential for significant market appreciation from growing recognition of
substantial improvement in the company's financial results or increasing
anticipation of such improvement.
Principal Risks
The principal risks of investing in the Portfolio are:
* Investments in small to medium sized companies may produce higher
returns than investments in companies with larger capitalizations;
however, companies with smaller capitalizations may have a higher risk
of failure than larger companies.
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* The portfolio manager's judgment that a particular security is
undervalued in relation to the company's fundamental economic values
may prove incorrect. Stocks of undervalued companies may never achieve
their potential value.
Large Cap Research Portfolio
Investment Objective
* The Large Cap Research Portfolio seeks growth of capital and growth of
income consistent with reasonable risk.
Principal Investment Strategies
- -> To pursue its goal, the Portfolio purchases primarily stocks of large,
seasoned, U.S. and multinational companies which the portfolio manager or
Subadviser believes are undervalued.
- -> The Portfolio will normally invest at least 65% of its total assets in
large-cap companies with good prospects for improvement in earnings trends or
asset values.
- -> The Portfolio focuses more on capital growth and growth of income than on
current income.
- -> The Portfolio will be comprised of the equity securities of many companies
that are undervalued or out of current investment favor.
- -> The Portfolio will be diversified among many issuers representing many
different industries.
Principal Risks
The principal risks of investing in the Portfolio are:
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be less
than the purchase payments you (the owner of the Contract) originally
invested in the Portfolio.
* Larger more established companies may be unable to respond quickly
to new competitive challenges such as changes in technology and
consumer tastes. Many larger companies also may not be able to attain
the high growth rate of successful smaller companies, especially
during extended periods of economic expansion.
* The portfolio manager's judgment that a particular security is
undervalued in relation to the company's fundamental economic values
may prove incorrect. Stocks of undervalued companies may never achieve
their potential value.
Developing Growth Portfolio
Investment Objective
* The Developing Growth Portfolio seeks long-term growth of capital through a
diversified and actively-managed portfolio consisting of developing growth
companies, many of which are traded over the counter.
Principal Investment Strategies
- -> The Portfolio normally will invest at least 65% of its total assets in
securities of smaller companies considered to be in the developing growth phase
which is one generally characterized by a dramatic rate of growth.
- -> The Portfolio also may invest in companies in their formative stage.
- -> In selecting securities for the Portfolio, the management of the Portfolio
looks at:
* special characteristics that it believes will help their growth;
* certain financial characteristics; and
* certain characteristics of management of companies that it is considering,
in addition to those that are implied by the financial data.
- -> The securities selected for the Portfolio are analyzed solely on
traditional investment fundamentals and not on trends indicated by technical
analyses.
Principal Risks
The principal risks of investing in the Portfolio are:
* Investments in small to medium sized companies may produce higher
returns than investments in companies with larger capitalizations;
however, companies with smaller capitalizations may have a higher risk
of failure than larger companies.
* Growth-style investing: Different types of stocks tend to shift into and
out of favor with stock market investors depending on market and economic
conditions. Because the Portfolio focuses on growth-style stocks, the
Portfolio's performance may at times be better or worse than the
performance of stock funds that focus on other types of stocks, or that have
a broader investment style.
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
Lord Abbett Growth and Income Portfolio
Investment Objective
* The Lord Abbett Growth and Income Portfolio seeks to achieve long-term
growth of capital and income without excessive fluctuation in market value.
Principal Investment Strategies
- -> The Portfolio intends to keep its assets invested in those securities which
are selling at reasonable prices in relation to value.
- -> The Portfolio will normally invest in common stocks, including securities
convertible into common stocks, of large, seasoned U.S. and multinational
companies which the Sub-Adviser believes are undervalued.
Principal Risks
The principal risks of investing in the Portfolio are:
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* The portfolio manager's judgment that a particular security is
undervalued in relation to the company's fundamental economic values
may prove incorrect. Stocks of undervalued companies may never achieve
their potential value.
* Larger more established companies may be unable to respond quickly to
new competitive challenges such as changes in technology and consumer
tastes. Many larger companies also may not be able to attain the high
growth rate of successful smaller companies, especially during extended
Periods of economic expansion.
- -> Portfolios Managed by FIRMCO, LLC
Balanced Portfolio
Investment Objective
* The Balanced Portfolio seeks to maximize total return through a combination
of growth of capital and current income consistent with the preservation of
capital.
Principal Investment Strategies
- -> The Portfolio uses a disciplined approach of allocating assets among three
major asset groups.
* equity securities
* fixed income securities
* cash equivalents
- -> The Sub-Adviser allocates the Portfolio's assets based upon its evaluation
of the relative attractiveness of the three major asset groups.
- -> The Portfolio's policy is generally to invest at least 25% of the value of
its total assets in fixed-income securities and no more than 75% in equity
securities, although the percentage allocations will vary.
- -> The equity securities in which the Portfolio invests include common stock,
preferred stock, rights, warrants and convertible securities.
- -> The fixed income securities in which the Portfolio invests include U.S.
Government securities or other investment grade fixed-income and related debt
securities, including mortgage backed securities.
- -> The Portfolio may invest up to 25% of its total assets in non-mortgage
asset-backed securities.
Principal Risks
The principal risks of investing in the Portfolio are:
* The major risk for the Portfolio is that the portfolio managers may not
correctly anticipate the relative performance of different asset
categories for specific periods resulting in the Portfolio underperforming
other types of asset allocation investments or other types of investments
in general. In addition, the Portfolio is subject to other risks
described below. These risks may be moderated, however, by the greater
variety of asset types in which the Portfolio is generally expected to
to be invested, as compared with those of other Portfolios.
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* the risk that an issuer of a fixed income security owned by the
Portfolio may be unable to make interest or principal payments.
* the risk that fluctuations in interest rates may affect the value of
the Portfolio's interest-paying fixed income securities.
* the risk that the holder of a mortgage underlying a mortgage-backed
security owned by the Portfolio will prepay principal, particularly
during periods of declining interest rates.
Equity Income Portfolio
Investment Objective
* The Equity Income Portfolio seeks to provide an above-average level of
income consistent with long-term capital appreciation.
Principal Investment Strategies
- -> The Portfolio intends to invest, under normal market and economic
conditions, substantially all of its assets in common stock, preferred stock,
rights, warrants and securities convertible into common stock.
- -> The Sub-Adviser will select stocks based on a number of quantitative
factors including
* dividend yield
* current and future earnings potential compared to stock prices
* total return potential
* other measures of value, if appropriate, such as cash flow, asset
values or book value
- -> Under normal market and economic conditions, the Portfolio will invest at
least 65% of its total assets in income-producing equity securities. The stocks
or securities in which the Portfolio invests may be expected to produce an above
average level of income (as measured by the S&P 500).
- -> The Portfolio may invest up to 15% of its total assets indirectly in
foreign securities through the purchase of such obligations as ADRs and EDRs.
Principal Risks
The principal risks of investing in the Portfolio are:
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* Securities of non-U.S. companies are subject to risks in addition to
the normal risks of investments, such as changes in value related to
changes in currency exchange rates, additional transaction costs and
more difficulty in selling the securities.
Growth & Income Equity Portfolio
Investment Objective
* The Growth & Income Equity Portfolio seeks to provide long-term capital
growth, with income as a secondary consideration.
Principal Investment Strategies
- -> The Portfolio intends to invest, under normal market and economic
conditions, substantially all of its assets in common stock, preferred stock,
rights, warrants and securities convertible into common stock.
- -> The Sub-Adviser selects stocks based on a number of factors including:
* historical and projected earnings
* growth and asset value
* earnings compared to stock prices generally (as measured by the S&P 500)
* consistency of earnings growth and earnings quality
- -> The Portfolio may invest up to 15% of its total assets indirectly in
foreign securities through the purchase of such obligations as ADRs and EDRs.
Principal Risks
The principal risks of investing in the Portfolio are:
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* Securities of non-U.S. companies are subject to risks in addition to
the normal risks of investments, such as changes in value related to
changes in currency exchange rates, additional transaction costs and
more difficulty in selling the securities.
- -> Portfolios Managed by Riggs Bank N.A.
Riggs Stock Portfolio
Investment Objective
* The Riggs Stock Portfolio seeks to provide growth of capital and income.
Principal Investment Strategies
- -> The Portfolio pursues its investment objective primarily through equity
investments, such as common stocks and securities convertible into common
stocks, generally of readily recognizable companies whose earnings and dividends
are growing at above average rates.
- -> Under normal market conditions, the Portfolio will invest at least 65% of
its assets in stocks which will be primarily of high quality large
capitalization domestic companies. The Portfolio may also invest in preferred
stocks, corporate bonds, notes, warrants and rights.
- -> The Portfolio may invest up to 20% of its net assets in ADRs.
- -> The Sub-Adviser uses a value-oriented approach applying value criteria to a
listing of 750 stocks to produce a list of securities from which it selects the
issues it believes to be especially attractive.
Principal Risks
The principal risks of investing in the Portfolio are:
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* Larger more established companies may be unable to respond quickly
to new competitive challenges such as changes in technology and
consumer tastes. Many larger companies also may not be able to attain
the high growth rate of successful smaller companies, especially
during extended periods of economic expansion.
* The portfolio manager's judgment that a particular security is
undervalued in relation to the company's fundamental economic values
may prove incorrect. Stocks of undervalued companies may never achieve
their potential value.
* Securities of non-U.S. companies are subject to risks in addition to
the normal risks of investments, such as changes in value related to
changes in currency exchange rates, additional transaction costs and
more difficulty in selling the securities.
Riggs Small Company Stock Portfolio
Investment Objective
* The Riggs Small Company Stock Portfolio seeks to provide long-term capital
appreciation.
Principal Investment Strategies
- -> The Portfolio pursues its investment objectives by investing primarily in a
broad, diversified range of equity securities comprising the small
capitalization sector of the United States equity market (companies which have a
market capitalization of up to $1.2 billion). These equity securities will be
primarily common stocks and securities convertible into common stocks.
- -> Under normal market conditions, the Portfolio will invest at least 65% of
its assets in equity securities of companies that have a market value
capitalization of up to $1.2 billion.
- -> The Sub-Adviser uses the same value oriented approach as is described with
respect to the Riggs Stock Portfolio above and applies it to the small
capitalization sector of the equity market.
- -> The Portfolio may purchase investment grade corporate debt obligations.
Principal Risks
The principal risks of investing in the Portfolio are:
* Investments in small to medium sized companies may produce higher
returns than investments in companies with larger capitalizations;
however, companies with smaller capitalizations may have a higher risk
of failure than larger companies.
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
* The portfolio manager's judgment that a particular security is
undervalued in relation to the company's fundamental economic values
may prove incorrect. Stocks of undervalued companies may never achieve
their potential value.
Riggs U.S. Government Securities Portfolio
Investment Objective
* The Riggs U.S. Government Securities Portfolio seeks to provide current
income.
Principal Investment Strategies
- -> The Portfolio pursues its investment objective by investing primarily in
securities which are
* primary or direct obligations of the U.S. government or its
instrumentalities or
* which are guaranteed by the U.S. government, its agencies or
instrumentalities.
- -> The Portfolio may also invest in
* corporate debt obligations
* bank instruments
* commercial paper
* certain collateralized mortgage obligations (CMOs) supported by direct
or indirect obligations of the U.S. government or its instrumentalities.
-> The Portfolio will normally invest at least 65% of the value of its
total assets in U.S. government securities.
Principal Risks
The principal risks of investing in the Portfolio are:
* the risk that an issuer of a fixed income security owned by the
Portfolio may be unable to make interest or principal payments.
* the risk that fluctuations in interest rates may affect the value of
the Portfolio's interest-paying fixed income securities.
* the risk that the holder of a mortgage underlying a mortgage-backed
security owned by the Portfolio will prepay principal, particularly
during periods of declining interest rates.
* There is no assurance that the Sub-Adviser will find securities that
meet the goals of the Portfolio or that the companies the Sub-Adviser
selects will reach their potential value. The value of the securities
purchased by the Portfolio may decline as a result of economic,
political or market conditions or an issuer's financial circumstances.
The value of your investment in a Portfolio at any given time may be
less than the purchase payments you (the owner of the Contract)
originally invested in the Portfolio.
BAR CHARTS AND TABLES
The following tables and charts are provided to illustrate the variability of
the investment returns that each Portfolio shown below has earned in the past.
* Average annual total return measures a Portfolio's performance over time,
and compares those returns to a representative index. Periods of 1, 5, and 10
years (or, since inception as applicable) are presented.
* The graphs of year-by-year returns examine volatility by illustrating a
Portfolio's historic highs and lows.
* In general, as reflected in this section, Portfolios with higher average
annual total returns tend to be more volatile.
* Return calculations do not reflect insurance product fees or other charges
and, if included, these charges would reduce each Portfolio's past performance.
Also, past performance does not necessarily indicate how a particular Portfolio
will perform in the future.
* Certain Portfolios have commenced investment operations relatively recently
and consequently there is only a limited performance history shown below. A
longer history might give a clearer indication of the risks involved in
investing in the Portfolios.
* The Emerging Markets Equity Portfolio and the Riggs Small Company Stock
Portfolio have not yet commenced investment operations. The Lord Abbett Growth
and Income Portfolio commenced investment operations on January 8, 1999. The
Riggs U.S. Government Securities Portfolio commenced investment operations on
October 15, 1999, and the Riggs Stock Portfolio commenced investment operations
on November 3, 1999. Therefore, bar charts and annual return tables have not
been included for these Portfolios.
QUALITY BOND PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1997 9.06%
1998 8.37%
1999 -1.54%
Best Quarter: 9/30/96 4.15% Worst Quarter: 6/30/99 -1.46%
Since May 1, 1996
One Year Ended (Date of initial
12/31/99 public offering)
--------------- -----------------
Portfolio average annual total return -1.54% 5.79%
Salomon Brothers Broad Investment
Grade Bond Index -0.84% 6.43%
The Salomon Brothers Broad Investment Grade Bond Index (BIG) is a market-
capitalized weighted index which includes fixed-rate Treasury, government
sponsored, corporate (Baa3/BBB or better) and mortgage securities. The
Index does not reflect any expenses.
SMALL CAP STOCK PORTFOLIO
The following will be depicted as a bar chart in the printed material.)
1997 20.89%
1998 -5.40%
1999 44.56%
Best Quarter: 12/31/99 35.13% Worst Quarter: 9/30/98 -21.49%
Since May 1, 1996
One Year Ended (Date of initial
12/31/99 public offering)
--------------- -----------------
Portfolio average annual total return 44.56% 17.30%
Russell 2000 Index 21.26% 10.87%
The Russell 2000 Index is an unmanaged index consisting of the stocks of 2000
U.S.-based companies. The Index does not include fees or expenses and is not
available for direct investment.
LARGE CAP STOCK PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1997 33.25%
1998 32.31%
1999 17.64%
Best Quarter: 12/31/98 22.93% Worst Quarter: 9/30/98 -9.85%
Since May 1, 1996
One Year Ended (Date of initial
12/31/99 public offering)
--------------- -----------------
Portfolio average annual total return 17.64% 26.52%
Standard & Poor's 500 Stock Index 21.04% 23.93%
The S&P 500 Index is an unmanaged index consisting of the stocks of 500 of
the largest U.S.-based companies. The Index does not include fees or expenses
and is not available for direct investment.
SELECT EQUITY PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1997 31.55%
1998 22.56%
1999 9.71%
Best Quarter: 12/31/98 21.63% Worst Quarter: 6/30/99 -12.95%
Since May 1, 1996
One Year Ended (Date of initial
12/31/99 public offering)
--------------- -----------------
Portfolio average annual total return 9.71% 19.44%
Standard & Poor's 500 Stock Index 21.04% 23.93%
The S&P 500 Index is an unmanaged index consisting of the stocks of 500 of
the largest U.S.-based companies. The Index does not include fees or expenses
and is not available for direct investment.
INTERNATIONAL EQUITY PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1997 5.96%
1998 14.07%
1999 28.52%
Best Quarter: 12/31/98 19.07% Worst Quarter: 9/30/98 -16.54%
Since May 1, 1996
One Year Ended (Date of initial
12/31/99 public offering)
--------------- -----------------
Portfolio average annual total return 28.52% 15.26%
Morgan Stanley Capital International
Europe, Asia, and Far East (EAFE)
Index 27.30% 13.64%
The Morgan Stanley Capital International Europe, Australia and Far East (EAFE)
Index is an unmanaged index and is an aggregate of 15 individual country
indexes that collectively represent many of the major markets of the world.
The Index does not include fees or expenses and is not available for direct
investment.
BOND DEBENTURE PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1997 15.63%
1998 6.26%
1999 3.40%
Best Quarter: 6/30/97 6.25% Worst Quarter: 9/30/98 -4.31%
Since May 1, 1996
One Year Ended (Date of initial
12/31/99 public offering)
--------------- -----------------
Portfolio average annual total return 3.40% 10.32%
Lehman Brothers Aggregate Bond Index ____% _____%
First Boston High Yield Index 3.28% 6.98%
Merrill Lynch Convertible Index 44.31% 20.23%
The First Boston High Yield Index is representative of the lower rated debt
(including straight-preferred stocks) investments in the portfolio. The
Merrill Lynch Convertible Index is representative of the equity-related
securities in the portfolio. The Lehman Brothers Aggregate Bond Index is
an unmanaged index of average yield U.S. investment grade bonds.
MID-CAP VALUE PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1998 1.11%
1999 5.71%
Best Quarter: 6/30/99 16.83% Worst Quarter: 9/30/98 -17.02%
Since August 20,
1997 (Date of
One Year Ended commencement of
12/31/99 operations)
--------------- -----------------
Portfolio average annual total return 5.71% 4.95%
Russell MidCap Index 17.71% 14.77%
The Russell Midcap Index measures the performance of the 800 smallest
securities in the Russell 1000 Index, which represent approximately 35%
of the total market capitalization. The Index does not reflect any expenses.
The Index is shown from the first full month since the Portfolio's inception.
LARGE CAP RESEARCH PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1998 21.04%
1999 25.54%
Best Quarter: 12/31/98 19.72% Worst Quarter: 9/30/98 -12.37%
Since August 20,
1997 (Date of
One Year Ended commencement of
12/31/99 operations)
--------------- -----------------
Portfolio average annual total return 25.54% 18.96%
Standard & Poor's 500 Stock Index 21.04% 23.05%
S&P 500/BARRA Value Index _____% _____%
The S&P 500 Index is an unmanaged index consisting of the stocks of 500 of the
largest U.S.-based companies. The S&P 500/BARRA Value Index contains companies
(representing approximately 50% of the S&P 500's market capitalization) with
lower price-to-book ratios. These Indices do not include fees or expenses and
are not available for direct investment. These Indices are shown from the first
full month since the Portfolio's inception.
DEVELOPING GROWTH PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1998 6.60%
1999 32.47%
Best Quarter: 12/31/98 26.01% Worst Quarter: 9/30/98 -21.82%
Since August 20,
1997 (Date of
One Year Ended commencement of
12/31/99 operations)
--------------- -----------------
Portfolio average annual total return 32.47% 18.35%
Russell 2000 Index 21.26% 8.87%
The Russell 2000 Index is an unmanaged index of 2000 small company stocks.
The Index is shown from the first full month since the Portfolio's inception.
BALANCED PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1998 13.31%
1999 7.14%
Best Quarter: 12/31/98 11.64% Worst Quarter: 9/30/99 -5.16%
Since July 1, 1997
(Date of
One Year Ended commencement of
12/31/99 operations)
--------------- -----------------
Portfolio average annual total return 7.14% 10.60%
Standard & Poor's 500 Stock Index 21.04% 18.84%
Salomon Brothers Broad Investment
Grade Bond Index -0.84% 4.52%
The S&P 500 Index is an unmanaged index consisting of the stocks of 500 of
the largest U.S.-based companies. The Index does not include fees or expenses
and is not available for direct investment.
The Salomon Brothers Broad Investment Grade Bond Index (BIG) is a market-
capitalized weighted index which includes fixed-rate Treasury, government
sponsored, corporate (Baa3/BBB or better) and mortgage securities. The
Index does not reflect any expenses.
EQUITY INCOME PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1998 9.35%
1999 2.51%
Best Quarter: 3/31/98 12.31% Worst Quarter: 9/30/98 -9.34%
Since July 1, 1997
(Date of
One Year Ended commencement of
12/31/99 operations)
--------------- -----------------
Portfolio average annual total return 2.51% 9.78%
Russell 1000 Index 20.92% 20.39%
The Russell 1000 Index consists of the largest 1000 companies in the Russell
3000 Index. This Index represents the universe of large capitalization stocks
from which most active money managers typically select. The Index does not
reflect any expenses.
GROWTH & INCOME EQUITY PORTFOLIO
(The following will be depicted as a bar chart in the printed material.)
1998 14.95%
1999 16.17%
Best Quarter: 12/31/98 20.31% Worst Quarter: 9/30/98 -13.62%
Since July 1, 1997
(Date of
One Year Ended commencement of
12/31/99 operations)
--------------- -----------------
Portfolio average annual total return 16.17% 15.86%
Standard & Poor's 500 Stock Index 21.04% 18.84%
The S&P 500 Index is an unmanaged index consisting of the stocks of 500 of
the largest U.S.-based companies. The Index does not include fees or expenses
and is not available for direct investment.
DESCRIPTION OF THE PORTFOLIOS
Each Portfolio of the Trust has its own investment objective. Except where
otherwise noted, these objectives may be changed without shareholder approval.
Since investment in any Portfolio involves both opportunities for gain and risks
of loss, we cannot give you assurance that the Portfolios will achieve their
objectives. You should carefully review the objectives and investment practices
of the Portfolios and consider your ability to assume the risks involved before
allocating payments to particular Portfolios.
While certain of the investment techniques, instruments and risks associated
with each Portfolio are referred to in the discussion that follows, additional
information on these subjects appears in the Appendix to this Prospectus.
However, those discussions do not list every type of investment, technique, or
risk to which a Portfolio may be exposed. Further, the Portfolios may change
their investment practices at any time without notice, except for those policies
that this Prospectus or the Statement of Additional Information ("SAI")
specifically identify as requiring a shareholder vote to change. Unless
otherwise indicated, all percentage limitations, as well as the characterization
of a company's capitalization, are evaluated as of the date of purchase of the
security.
Each Portfolio may invest in money market instruments as a temporary defensive
measure during, or in anticipation of, adverse market conditions. This could
help a Portfolio avoid losses but may mean lost opportunities.
The investment objectives, principal investment strategies and principal risks
of each Portfolio have been described under the sections captioned "Investment
Objectives" and "Principal Investment Strategies and Risks of Each Portfolio" in
the "Risk/Return Summary." The discussion below provides further information
concerning the principal investment strategies and risks of each Portfolio.
Principal Investment Strategies
Portfolios Managed by J.P. Morgan Investment Management Inc.
Quality Bond Portfolio
The Portfolio is designed for investors who seek a total return over time that
is higher than that generally available from a portfolio of shorter-term
obligations while recognizing the greater price fluctuation of longer-term
obligations.
The Sub-Adviser actively manages the Portfolio's duration, the allocation of
securities across market sectors, and the selection of specific securities
within sectors. Based on fundamental, economic and capital markets research, the
Sub-Adviser adjusts the duration of the Portfolio in light of market conditions
and the Sub-Adviser's interest rate outlook. For example, if interest rates are
expected to fall, the duration may be lengthened to take advantage of the
expected associated increase in bond prices. The Sub-Adviser selects specific
securities which it believes are undervalued for purchase using:
* advanced quantitative tools
* analysis of credit risk
* the expertise of a dedicated trading desk
* the judgment of fixed income portfolio managers and analysts
Duration is a measure of the weighted average maturity of the bonds held in the
Portfolio and can be used as a measure of the sensitivity of the Portfolio's
market value to changes in interest rates. Under normal market conditions, the
Portfolio's duration will range between one year shorter and one year longer
than the duration of the U.S. investment grade fixed income universe, as
represented by Salomon Brothers Broad Investment Grade Bond Index, the
Portfolio's benchmark. Currently, the benchmark's duration is approximately
5 years. The maturities of the individual securities in the Portfolio may
vary widely, however.
The Portfolio may invest in a broad range of debt securities of domestic and
foreign issuers. These securities will be of various types and maturities and
will include:
* debentures
* notes
* mortgage securities
* equipment trust certificates
* zero coupon securities
* other collateralized securities
Collateralized securities are backed by a pool of assets such as loans or
receivables which generate cash flow to lower the payments due on the
securities.
The Portfolio may invest in obligations issued or guaranteed by the U.S.
Government and backed by the full faith and credit of the United States
including
* Treasury securities
* GNMA Certificates
* Obligations of the Farmers Home Administration and the Export Import Bank
The Portfolio may also invest in obligations issued or guaranteed by U.S.
Government agencies or instrumentalities where the Portfolio must look
principally to the issuing or guaranteeing agency for ultimate repayment. Some
examples of agencies or instrumentalities issuing these obligations are the
Federal Farm Credit System, the Federal Home Loan Banks and the Federal National
Mortgage Association. Although these governmental issuers are responsible for
payments on their obligations, they do not guarantee their market value.
The Portfolio may also invest in
* municipal obligations that have been issued on a taxable basis or that
have an attractive yield excluding tax considerations
* debt securities of foreign governments and governmental entities
It is a current policy of the Portfolio that under normal circumstances at least
65% of its total assets will consist of securities that are rated at least A by
Moody's or S&P or that are unrated and in the Sub-Adviser's opinion are of
comparable quality. In the case of 30% of the Portfolio's investments, the
Portfolio may purchase debt securities that are rated Baa or better by Moody's
or BBB or better by S&P or are unrated and in the Sub-Adviser's opinion are of
comparable quality. The remaining 5% of the Portfolio's assets may be invested
in debt securities that are rated Ba or better by Moody's or BB or better by S&P
or are unrated and in the Sub-Adviser's opinion are of comparable quality.
Securities rated Baa by Moody's or BBB by S&P are considered investment grade,
but have some speculative characteristics. Securities rated Ba by Moody's or BB
by S&P are below investment grade and considered to be speculative with regard
to payment of interest and principal.
Small Cap Stock Portfolio
The Portfolio is designed for investors who are willing to assume the somewhat
higher risk of investing in small companies in order to seek a higher return
over time than might be expected from a portfolio of stocks of large companies.
The Portfolio may also serve as an efficient vehicle to diversify an existing
portfolio by adding the equities of smaller U.S. companies. The small company
holdings of the Portfolio are primarily companies included in the Russell 2000
Index.
The Sub-Adviser seeks to enhance the Portfolio's total return relative to that
of the U.S. small company universe. To do so, the Sub-Adviser uses research,
valuation and a stock selection process. The Sub-Adviser continually screens the
universe of small capitalization companies to identify for further analysis
those companies which exhibit favorable characteristics such as significant and
predictable cash flow and high quality management. Based on fundamental research
and using a dividend discount model, the Sub-Adviser ranks these companies
within economic sectors according to their relative value. The Sub-Adviser then
selects for purchase the most attractive companies within each economic sector.
The Sub-Adviser uses a stock selection process to seek to enhance returns and
reduce volatility in the market value of the Portfolio relative to that of the
U.S. small company universe. The Sub-Adviser believes that under normal market
conditions, the Portfolio will have sector weightings comparable to that of the
U.S. small company universe, although it may moderately under- or over-weight
selected economic sectors. In addition, the Sub-Adviser buys stocks that are
identified as undervalued and considers selling them when they appear
overvalued.
The Portfolio's net assets invested in equity securities will consist of common
stocks and other securities with equity characteristics such as preferred
stocks, warrants, rights and convertible securities. The Portfolio's primary
equity investments are the common stocks of small U.S. companies and, to a
limited extent, similar securities of foreign corporations. The common stock in
which the Portfolio may invest includes the common stock of any class or series
or any similar equity interest, such as trust or limited partnership interests.
These equity investments may or may not pay dividends and may or may not carry
voting rights. The Portfolio invests in securities listed on a securities
exchange or traded in an over-the-counter market, and may invest in certain
restricted or unlisted securities.
Large Cap Stock Portfolio.
Ordinarily, the Portfolio pursues its investment objective by investing
primarily in dividend-paying common stock. The Portfolio may also invest in
other equity securities, consisting of, among other things,
* non-dividend-paying common stock,
* preferred stock,
* securities convertible into common stock, such as convertible preferred
stock and convertible bonds, and
* warrants.
The Portfolio may also invest in American Depository Receipts (ADRs) and in
various foreign securities if U.S. exchange-listed.
The Portfolio is not subject to any limit on the size of companies in which it
may invest, but intends, under normal circumstances, to be fully invested to the
extent practicable in the stock of large- and medium-sized companies typically
represented by the S&P 500. In managing the Portfolio, the potential for
appreciation and dividend growth is given more weight than current dividends.
The Portfolio does not seek to achieve its objective with any individual
portfolio security, but rather it aims to manage the portfolio as a whole in
such a way as to achieve its objective. The Portfolio attempts to reduce risk by
investing in many different economic sectors, industries and companies.
Portfolio sector weightings will generally equal those of the S&P 500. In
selecting securities, the Sub-Adviser may emphasize securities that it believes
to be undervalued. Securities of a company may be undervalued for a variety of
reasons such as
* an overreaction by investors to unfavorable news about a company,
an industry, or the stock markets in general
* as a result of a market decline, poor economic conditions or tax-loss
selling, or
* actual or anticipated unfavorable developments affecting a company.
The Sub-Adviser uses a dividend discount model to rank companies within economic
sectors according to their relative value and then separates them into quintiles
by sector. The Portfolio will normally be comprised, based on the dividend
discount model, of stocks in the first three quintiles.
Select Equity Portfolio.
Ordinarily, the Portfolio pursues its investment objective by investing
primarily in dividend-paying common stock. The Portfolio may also invest in
other equity securities, consisting of, among other things,
* non-dividend-paying common stock,
* preferred stock,
* securities convertible into common stock, such as convertible preferred
stock and convertible bonds, and
* warrants.
The Portfolio may also invest in ADRs and in various foreign securities if
U.S. exchange-listed.
The Portfolio is not subject to any limit on the size of companies in which it
may invest, but intends, under normal circumstances, to be fully invested to the
extent practicable in the stock of large- and medium-sized companies primarily
included in the S&P 500. In managing the Portfolio, the potential for
appreciation and dividend growth is given more weight than current dividends.
The Portfolio does not seek to achieve its objective with any individual
portfolio security, but rather it aims to manage the portfolio as a whole in
such a way as to achieve its objective. The Portfolio attempts to reduce risk by
investing in many different economic sectors, industries and companies. The
Sub-Adviser may under- or over-weight selected economic sectors against the S&P
500's sector weightings to seek to enhance the Portfolio's total return or
reduce fluctuations in market value relative to the S&P 500. In selecting
securities, the Sub-Adviser may emphasize securities that it believes to be
undervalued. Securities of a company may be undervalued for a variety of reasons
such as
* an overreaction by investors to unfavorable news about a company, an
industry, or the stock markets in general
* as a result of a market decline, poor economic conditions, tax-loss
selling, or
* actual or anticipated unfavorable developments affecting a company.
The Sub-Adviser uses a dividend discount model to rank companies within economic
sectors according to their relative value and then separates them into quintiles
by sector. The Portfolio will primarily consist of stocks of companies from the
first and second quintiles.
International Equity Portfolio.
The Portfolio seeks to achieve its investment objective through country
allocation, stock selection and management of currency exposure. The Sub-Adviser
uses a disciplined portfolio construction process to seek to enhance returns and
reduce volatility in the market value of the Portfolio relative to that of the
EAFE Index.
Based on fundamental research, quantitative valuation techniques, and
experienced judgment, the Sub-Adviser uses a structured decision-making process
to allocate the Portfolio primarily across the developed countries of the world
outside the United States by under- or over-weighting selected countries in the
EAFE Index.
Using a dividend discount model and based on analysts' industry expertise,
securities within each country are ranked within economic sectors according to
their relative value. Based on this valuation, the Sub-Adviser selects the
securities which appear the most attractive for the Portfolio. The Sub-Adviser
believes that under normal market conditions, economic sector weightings
generally will be similar to those of the EAFE Index.
Finally, the Sub-Adviser actively manages currency exposure, in conjunction with
country and stock allocation, in an attempt to protect and possibly enhance the
Portfolio's market value. Through the use of forward foreign currency exchange
contracts, the Sub-Adviser will adjust the Portfolio's foreign currency
weightings to reduce its exposure to currencies deemed unattractive and, in
certain circumstances, increase exposure to currencies deemed attractive, as
market conditions warrant, based on fundamental research, technical factors, and
the judgment of a team of experienced currency managers.
The Portfolio's assets in equity securities of foreign issuers will consist of
common stocks and other securities with equity characteristics such as preferred
stock, warrants, rights and convertible securities. The common stock in which
the Portfolio may invest includes the common stock of any class or series or any
similar equity interest such as trust or limited partnership interests. The
Portfolio may also invest in securities of issuers located in developing
countries. The Portfolio invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in certain restricted or unlisted
securities.
Emerging Markets Equity Portfolio.
The Portfolio is designed for long-term investors who want exposure to the
rapidly growing emerging markets. The Sub-Adviser considers "emerging markets"
to be any country which is generally considered to be an emerging or developing
country by the World Bank, the International Finance Corporation, the United
Nations or its authorities. These countries generally include every country in
the world except
* Australia
* Austria
* Belgium
* Canada
* Denmark
* Finland
* France
* Germany
* Ireland
* Italy
* Japan
* Netherlands
* New Zealand
* Norway
* Spain
* Sweden
* Switzerland
* United Kingdom
* United States
The Portfolio will focus its investments in those emerging markets countries
which it believes have strongly developing economies and in which the markets
are becoming more sophisticated.
A company in an emerging market is one that:
* has its principal securities trading market in an emerging market
country;
* is organized under the laws of an emerging market;
* derives 50% or more of its total revenue from either goods produced,
sales made or services performed in emerging markets; or
* has at least 50% of its assets located in emerging markets.
The Sub-Adviser seeks to achieve the Portfolio's investment objective by a
disciplined process of country allocation and company selection. Based on
fundamental research, quantitative analysis, and experienced judgment, the
Sub-Adviser identifies those countries where economic and political factors,
including currency movements, are likely to produce above-average returns. Based
on their relative value, the Sub-Adviser then selects those companies in each
country's major industry sectors which it believes are best positioned and
managed to take advantage of these economic and political factors.
The Portfolio's investments are primarily denominated in foreign currencies but
it may also invest in securities denominated in the U.S. dollar or multinational
currency units. The Sub-Adviser will not routinely attempt to hedge the
Portfolio's foreign currency exposure. However, the Sub-Adviser may from time to
time engage in foreign currency exchange transactions if, based on fundamental
research, technical factors, and the judgment of experienced currency managers,
it believes the transactions would be in the Portfolio's best interest.
The Portfolio's assets in equity securities of companies in emerging markets
will consist of common stocks and other securities with equity characteristics
comprised of
* preferred stock
* warrants
* rights
* convertible securities
* trust certificates
* limited partnership interests
* equity participations
The common stock in which the Portfolio may invest includes the common stock of
any class or series or any similar equity interest, such as trust or limited
partnership interests. These equity investments may or may not pay dividends and
may or may not carry voting rights. The Portfolio invests in securities listed
on foreign or domestic securities exchanges and securities traded in foreign or
domestic over-the-counter markets, and may invest in certain restricted or
unlisted securities.
Certain emerging markets are closed in whole or in part to equity investments by
foreigners except through specifically authorized investment funds. The
Portfolio may acquire securities of other investment companies to the extent
permitted under federal securities laws. No more than 5% of the Portfolio's
total assets may be invested in the securities of any one investment company. As
a shareholder in an investment fund, the Portfolio would bear its share of that
investment fund's expenses, including its advisory and administration fees. At
the same time the Portfolio would continue to pay its own operating expenses.
Portfolios Managed by Lord, Abbett & Co.:
Bond Debenture Portfolio.
It is the belief of the Portfolio's management that a high total return (current
income and capital appreciation) may be derived from an actively-managed,
diversified debt- security portfolio. The Portfolio seeks unusual values,
particularly in lower-rated debt securities, some of which are convertible into
common stocks or have warrants to purchase common stocks.
Higher yield on debt securities can occur during periods of inflation when the
demand for borrowed funds is high. Also, buying lower-rated bonds when the
credit risk is above average but, in the view of Portfolio management, likely to
decrease, can generate higher yields. Such debt securities normally will consist
of
* secured debt obligations of the issuer (i.e., bonds)
* general unsecured debt obligations of the issuer (i.e., debentures) and
* debt securities which are subordinate in right of payment to other debt of
the issuer.
Capital appreciation potential is an important consideration in the selection of
portfolio securities. Capital appreciation may be obtained by
* investing in debt securities when the trend of interest rates is
expected to be down;
* investing in convertible debt securities or debt securities with
warrants attached entitling the holder to purchase common stock; and
* investing in debt securities of issuers in financial difficulties
when, in the view of Portfolio management, the problems giving rise to
such difficulties can be successfully resolved, with a consequent
improvement in the credit standing of the issuers (such investments
involve corresponding risks that interest and principal payments may
not be made if such difficulties are not resolved).
In no event will the Portfolio invest more than 10% of its gross assets at the
time of investment in debt securities which are in default as to interest or
principal.
The Portfolio must keep at least 20% of the value of its total assets in
* debt securities which, at the time of purchase, are rated within one
of the four highest grades determined either by Moody's or S&P,
* debt securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities,
* cash or cash equivalents (short-term obligations of banks,
corporations or the U.S. Government), or
* a combination of any of the foregoing
The Portfolio may invest up to 20% of its net assets, at market value, in debt
securities primarily traded in foreign countries - such foreign debt securities
normally will be limited to issues where there does not appear to be substantial
risk of nationalization, exchange controls, confiscation or other government
restrictions.
Subject to the percentage limitations for purchases of other than debt
securities described below, the Portfolio may purchase common and preferred
stocks.
The Portfolio may hold or sell any property or securities which it may obtain
through the exercise of conversion rights or warrants or as a result of any
reorganization, recapitalization or liquidation proceedings for any issuer of
securities owned by it. In no event will the Portfolio voluntarily purchase any
securities other than debt securities, if, at the time of such purchase or
acquisition, the value of the property and securities, other than debt
securities, in the Portfolio is greater than 20% of the value of its gross
assets.
The Portfolio may invest substantially in lower-rated bonds for their higher
yields which entail greater risks. Since the risk of default generally is higher
among lower-rated bonds, the research and analysis performed by the Sub-Adviser
are especially important in the selection of such bonds, which, if rated BB/Ba
or lower, often are described as "high-yield bonds" because of their generally
higher yields and referred to colloquially as "junk bonds" because of their
greater risks. In selecting lower-rated bonds for investment, the Sub-Adviser
does not rely upon ratings, which evaluate only the safety of principal and
interest, not market value risk, and which, furthermore, may not accurately
reflect an issuer's current financial condition. The Portfolio does not have any
minimum rating criteria for its investments in bonds and some issuers may
default as to principal and/or interest payments subsequent to the purchase of
their securities. Through portfolio diversification, good credit analysis and
attention to current developments and trends in interest rates and economic
conditions, investment risk can be reduced, although there is no assurance that
losses will not occur.
The Portfolio may invest in the securities markets of foreign countries.
Mid-Cap Value Portfolio
Under normal circumstances, at least 65% of the Portfolio's total assets will
consist of investments in mid-cap companies, determined at the time of purchase.
"Mid-cap" companies are defined for this purpose as companies whose outstanding
equity securities have an aggregate market value of between $500 million and $10
billion.
Selection of stocks is based on appreciation potential, without regard to
current income. The holdings in the Portfolio typically will be selected for
their potential for significant market appreciation from growing recognition of
substantial improvement in the company's financial results or increasing
anticipation of such improvement. This potential may derive from such factors as
* changes in the economic and financial environment,
* new or improved products or services,
* new or rapidly expanding markets,
* changes in management or structure of the company,
* price increases due to shortages of resources or productive capacity,
* improved efficiencies resulting from new technologies or changes in
distribution or
* changes in governmental regulations, political climate or competitive
conditions.
The companies represented will have a strong or, in the perception of Portfolio
management, an improving financial position. The outstanding stock of companies
in the Portfolio ordinarily will have an aggregate market value of not less than
approximately $50 million. At the time of purchase, the stocks may be largely
neglected by the investment community or, if widely followed, they may be out of
favor or at least controversial. Characteristically, the Portfolio will not
carry a large cash position as an investment strategy. While the Portfolio may
take short-term gains if deemed appropriate, normally the Portfolio will hold
securities in order to realize long-term capital gains. The Portfolio may invest
up to 10% of its net assets in securities (of the type described above) which
are primarily traded in foreign countries.
Large Cap Research Portfolio
The Portfolio will invest in companies on the basis of the fundamental economic
and business factors (such as government, fiscal and monetary policies,
employment levels, demographics, retail sales and market share) which Portfolio
management believes will affect future earnings and which Portfolio management
believes are the primary factors determining the future market valuation of
stocks. Although the prices of common stocks fluctuate and their dividends vary,
historically, common stocks have appreciated in value and their dividends have
increased when the companies they represent have prospered and grown.
In seeking to fulfill its objective, the Portfolio will invest also in both
small and middle-sized companies, as measured by the value of their outstanding
stock guided by the policies mentioned herein.
Portfolio management concentrates its research and stock selection on companies
that are undervalued or out of current investment favor and thus the investment
portfolio typically will encompass less market risk as measured by its
price-to-normal earnings and price-to-book value ratios. The Portfolio's
management process results in the sale of stocks that it judges to be overpriced
and reinvestment in other securities which it believes offer better values and
less market risk.
The Portfolio reflects the collective judgment of the Large Cap Research
Portfolio management team of the Sub-Adviser as to what securities represent the
greatest investment value, regardless of industry sector, market capitalization,
or Wall Street sponsorship. At the time of purchase, securities selected for the
Portfolio may be largely neglected by the investment community or, if widely
followed, they may be out of favor or at least controversial.
Up to 10% of the Portfolio's net assets (at the time of investment) may be
invested in foreign securities (of the type described herein) primarily traded
in foreign countries.
The Portfolio may invest in closed-end investment companies if bought in the
secondary market with a fee or commission no greater than the customary broker's
commission in compliance with applicable law. Shares of such investment
companies sometimes trade at a discount or premium in relation to their net
asset value and there may be duplication of fees, for example, to the extent
that the Portfolio and the closed-end investment company both charge a
management fee.
Neither an issuer's ceasing to be rated investment grade nor a rating reduction
below that grade will require elimination of a bond from the Portfolio.
Developing Growth Portfolio.
The Portfolio's present investment strategy, as developed by the Sub-Adviser, is
based on the four phases of corporate growth. As described below, only the
second (or developing growth) phase is characterized by a dramatic rate of
growth. The management of the Portfolio looks for companies in that phase and,
under normal circumstances, will invest at least 65% of the Portfolio's total
assets in securities of such companies. The Portfolio also may invest in
companies which are in their formative phase. Developing growth companies are
almost always small, usually young and their shares are generally traded over
the counter. Having, in the view of Portfolio management, passed the pitfalls of
the formative years, they are now in a position to grow rapidly in their market.
THE FOUR PHASES OF BUSINESS GROWTH
(as perceived by the Sub-Adviser)
PHASE 1 - FORMATIVE: Phase 1 has high risk. Companies in this phase are
formative and the perils of infancy take a high toll during these years. Skill
of management and growth of revenues and earnings permit some companies to
survive and advance into the second phase.
PHASE 2 - DEVELOPING GROWTH: Phase 2 usually is a period of swift
development, when growth occurs at a rate rarely equaled by established
companies in their mature years. The management of the Portfolio focuses on
companies which it believes are strongly positioned in this phase. Of course,
the actual growth of a company cannot be foreseen and it may be difficult to
determine in which phase a company is presently situated.
PHASE 3 - ESTABLISHED GROWTH: Phase 3 is a time of established growth when
competitive forces, regulations and internal bureaucracy often begin to blunt
the sharp edge of success in the marketplace.
PHASE 4 - MATURITY: Phase 4 is a time of maturity when companies ease into
a growth pattern that roughly reflects the increase in Gross Domestic Product.
At any given time, there are many hundreds of publicly-traded corporations in
the developing growth phase. In choosing from among them, Portfolio management
looks for special characteristics that will help their growth. These can include
* a unique product or service for which management foresees a rising demand;
* a special area of technological expertise;
* the ability to service a region that is growing faster than average;
* a competitive advantage or new opportunities in foreign trade or from
shifts in government priorities and programs;
* or an ability to take advantage of growth of consumers' discretionary
income and demographic changes.
The management of the Portfolio also looks for certain financial characteristics
such as:
* at least five years of higher-than-average growth of revenues and earnings
per share;
* higher-than-average returns on equity;
* ability to finance growth in the form of a lower-than-average ratio of
long-term debt to capital and price/earnings ratios that are below expected
growth rates.
Securities being considered for the Portfolio are analyzed solely on traditional
investment fundamentals. In addition to the financial data already mentioned,
the management of the Portfolio evaluates the market for
* each company's products or services,
* the strengths and weaknesses of competitors,
* the availability of raw materials,
* diversity of product mix, etc.
Finally, in assembling the investment portfolio, the management of the Portfolio
tries to diversify the Portfolio's investments. Within the bounds of other
criteria, the management of the Portfolio tries to invest in many securities and
industries so that any misjudgments it might make are adequately cushioned.
Lord Abbett Growth and Income Portfolio.
The Portfolio intends to keep its assets invested in those securities which are
selling at reasonable prices in relation to value and, to do so, it may have to
forego some opportunities for gains when, in the judgment of Portfolio
management , they carry excessive risk.
The Portfolio will try to anticipate major changes in the economy and select
stocks which it believes will benefit most from these changes.
The Portfolio will normally invest in common stocks. Although the prices of
common stocks fluctuate and their dividends vary, historically, common stocks
have appreciated in value and their dividends have increased when the companies
they represent have prospered and grown.
The Portfolio constantly seeks to balance the opportunity for profit against the
risk of loss. In the past, very few industries have continuously provided the
best investment opportunities. The Portfolio will take a flexible approach and
adjust the Portfolio to reflect changes in the opportunity for sound investments
relative to the risks assumed. Therefore, the Portfolio will sell stocks that
are judged to be overpriced and reinvest the proceeds in other securities which
are believed to offer better values for the Portfolio.
The Portfolio will not purchase securities for trading purposes. To create
reserve purchasing power and also for temporary defensive purposes, the
Portfolio may invest in straight bonds and other fixed-income securities.
Portfolios Managed by FIRMCO, LLC
Balanced Portfolio.
In pursuing the Portfolio's investment objective, the Sub-Adviser allocates the
Portfolio's assets based upon its evaluation of the relative attractiveness of
the major asset groups:
* equity securities
* fixed income securities
* cash equivalents
In an effort to better quantify the relative attractiveness of the major asset
groups over a one- to three-year period of time, the Sub-Adviser has
incorporated into its asset allocation decision-making process several dynamic
computer models which it has created. The purpose of these models is to show the
statistical impact of the Sub-Adviser's economic outlook upon the future returns
of each asset group. The models are especially sensitive to the forecasts for
inflation, interest rates and long-term corporate earnings growth. Investment
returns are normally heavily impacted by such variables and their expected
changes over time. Therefore, the Sub-Adviser's method attempts to take
advantage of changing economic conditions by increasing or decreasing the ratio
of stocks to bonds in the Portfolio. For example, if the Sub-Adviser expected
more rapid economic growth leading to better corporate earnings, it would
increase the Portfolio's holdings of equity securities and reduce its holdings
of fixed income securities and cash equivalents.
The fixed-income securities in which the Balanced Portfolio invests include U.S.
Government securities or other fixed-income and related debt securities rated in
one of the four highest rating categories assigned by a Rating Agency at the
time of purchase or in unrated investments deemed by the Sub-Adviser to be of
comparable quality pursuant to guidelines approved by the Trust's Board of
Trustees. Debt securities may include
* a broad range of fixed and variable rate bonds, debentures, notes, and
securities convertible into or exchangeable for common stock;
* dollar-denominated debt obligations of foreign issuers, including foreign
corporations and governments; and
* first mortgage loans, income participation loans, participation
certificates in pools of mortgages, including mortgages issued or guaranteed by
the U.S. Government, its agencies or instrumentalities, collateralized mortgage
obligations and other mortgage-related securities, and other asset-backed
securities.
The Portfolio may invest up to 10% of its total assets at the time of purchase
in dollar-denominated debt obligations of foreign issuers, either directly or
through ADRs and European Depositary Receipts ("EDRs"), and up to 25% of its
total assets at the time of purchase in non-mortgage asset-backed securities,
respectively.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. In making investment decisions, the Sub-Adviser will
consider a number of factors including
* current yield
* maturity
* yield to maturity
* anticipated changes in interest rates, and
* the overall quality of the investment.
The Portfolio seeks to provide a current yield greater than that generally
available from money market instruments.
The Portfolio may purchase asset-backed securities (i.e., securities backed by
mortgages, installment sale contracts, corporate receivables, credit card
receivables or other assets). Such securities are issued by entities such as the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") and by
private issuers.
Equity Income Portfolio.
Stocks purchased for the Portfolio generally will be listed on a national
securities exchange or will be unlisted securities with an established
over-the-counter market. A convertible security may be purchased for the
Portfolio when, in the Sub-Adviser's opinion, the price and yield of the
convertible security is favorable as compared to the price and yield of the
common stock.
Growth & Income Equity Portfolio
The Sub-Adviser selects stocks based on a number of factors, including
historical and projected earnings, growth and asset value, earnings compared to
stock prices generally (as measured by the Standard & Poor's 500 Index), and
consistency of earnings growth and earnings quality. Stocks purchased for the
Portfolio generally will be listed on a national securities exchange or will be
unlisted securities with an established over-the-counter market. A convertible
security may be purchased for the Portfolio when, in the Sub-Adviser's opinion,
the price and yield of the convertible security is favorable compared to the
price and yield of the common stock. The stocks or securities in which the
Portfolio invests may be expected to produce some income but income is not a
major criterion in their selection. In general, the Portfolio's stocks and
securities will be diversified over a number of industry groups in an effort to
reduce the risks inherent in such investments.
Portfolios Managed by Riggs Bank N.A.
Riggs Stock Portfolio.
In addition to the investments described in the section captioned "Principal
Investment Strategies and Risks of Each Portfolio," the Portfolio may invest in
* commercial paper rated A-1 by S&P, Prime-1 by Moody's, or F-1+ or F-1 by
Fitch, and money market instruments (including commercial paper) which are
unrated but deemed to be of comparable quality by the Sub-Adviser including
Canadian Commercial Paper and Europaper;
* certain instruments of domestic and foreign banks and savings associations;
and
* securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, including those obligations purchased on a when-issued or
delayed delivery basis.
In selecting investments for the Portfolio, the Sub-Adviser follows a
value-based, disciplined investment philosophy. Using a computer model and
hands-on fundamental analysis, stocks are selected based on such factors as
* low price/earnings ratios relative to earnings growth and history;
* rising earnings estimates;
* relative price strength;
* high or improving earnings; and
* credit quality.
Computer screens based upon value criteria are applied to a listing of 750
stocks that are selected based upon market capitalization, trading volume, and
availability of data, to rank them according to relative attractiveness. These
rankings are refined by additional screens focusing on earnings growth and
relative price strength. This computer model is complemented with the
Sub-Adviser's fundamental analysis to produce a list of securities from which
the Sub-Adviser will select what it believes to be especially attractive issues.
The relative price action of each stock is monitored, and price momentum is
followed to determine when the value of a security is beginning to be recognized
by the market.
Riggs Small Company Stock Portfolio.
In addition to the investments described in the section captioned "Principal
Investment Strategies and Risks of Each Portfolio," the Portfolio may invest in
* preferred stocks, real estate investment trusts, corporate bonds, notes,
warrants, and rights;
* ADRs of foreign companies;
* commercial paper rated A-1 by S&P, Prime-1 by Moody's, or F-1 by Fitch, and
money market instruments (including commercial paper) which are unrated but
deemed to be of comparable quality by the Sub-Adviser, including Canadian
Commercial Paper and Europaper;
* certain instruments of domestic and foreign banks and savings associations;
and
* securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, including those obligations purchased on a when-issued or
delayed delivery basis.
While the Portfolio will only purchase corporate debt obligations that, at the
time of purchase, are rated in the top three rating categories, in the event
that any such security is downgraded to the fourth category, the Portfolio may
continue to hold the security. In the event that any such security is downgraded
by a ratings service below the fourth highest rating category, the Portfolio
will dispose of the security.
In selecting investments for the Portfolio, the Sub-Adviser employs the same
value-based, disciplined investment philosophy that is described above with
respect to the Riggs Stock Portfolio, and applies it to the small capitalization
sector of the equity market. Using a computer model and hands-on fundamental
analysis, small capitalization stocks are selected based on such factors as:
* low price/earnings ratios relative to earnings growth and history;
* rising earnings estimates;
* relative price strength;
* high or improving earnings; and
* credit quality.
Computer screens based upon value criteria are applied to a listing of small
capitalization stocks that are selected using the same methodology that is used
for the Riggs Stock Portfolio to rank them according to relative attractiveness.
These rankings are refined by additional screens focusing on earnings growth and
relative price strength. This computer model is complemented with the
Sub-Adviser's fundamental analysis to produce a list of securities from which
the Sub-Adviser will select what it believes to be especially attractive issues.
The relative price action of each small capitalization stock is monitored, and
price momentum is followed to determine when the value of a security is
beginning to be recognized by the market.
Riggs U.S. Government Securities Portfolio
The Portfolio will invest primarily in U.S. government securities which include
* direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds;
* notes, bonds and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;
* notes, bonds and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding;
* notes, bonds and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities; and
* CMOs.
The Portfolio may invest up to 35% of its total assets in
* domestic issues of corporate debt obligations and U.S. dollar denominated
debt obligations of foreign corporations and governments rated
* Baa or better, Aaa, Aa, or A by Moody's Investor Services, Inc.
(Moody's)
* BBB or better, AAA, AA, or A by Standard and Poor's (S&P), or
* BBB or better, AAA, AA or A by Fitch IBCA, Inc. (Fitch);
* obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
* commercial paper which matures in 270 days or less so long as at least
two ratings are high quality ratings by NRSROs. Such ratings would include: A-1
by S&P, Prime-1 by Moody's, or F-1 by Fitch and, unrated but deemed to be of
comparable quality by the Sub-Advisers, including Canadian Commercial Paper and
Europaper; and
* certain instruments of domestic and foreign banks and savings
associations.
The Portfolio will only purchase corporate debt obligations that at the time of
purchase are rated investment grade or better. An investment grade security can
range from the highest rating (AAA) to medium quality (BBB). Securities in the
BBB category may be more susceptible to adverse economic conditions or changing
circumstances and the securities at the lower end of the BBB category may have
certain speculative characteristics. The Portfolio intends to limit its
investment in bonds rated in the lowest investment grade category to 10% of its
total assets.
The Portfolio may invest in CMOs which are rated A or better by an NRSRO and
which are issued by private entities such as investment banking firms and
companies related to the construction industry.
The CMOs in which the Portfolio may invest may be:
* privately issued securities which are 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;
* privately issued securities which are collateralized by pools of
mortgages in which payment of principal and interest are guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities; and
* other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal and
interest are supported by the credit of an agency or instrumentality of the U.S.
government.
The mortgage-related securities provide for a periodic payment consisting of
both interest and principal. The interest portion of these payments will be
distributed by the Portfolio as income, and the capital portion will be
reinvested.
The Portfolio may purchase participation interests from financial institutions
which give the Portfolio an undivided fractional ownership interest in debt
obligations such as
* pools of credit card receivables
* automobile installment loan contracts
* corporate loans or debt securities
* corporate receivables
* other types of debt obligations
These participation interests will be rated A or better by Moody's or by S&P or
not rated but determined to be of comparable quality.
PRINCIPAL RISKS
* Market Risks. All securities have market risk. The Sub-Advisers invest in
different types of securities and investment techniques all of which
involve varying amounts of risk. The value of bonds and other fixed income
securities will go up and down in response to changes in interest rates
charged by the Federal Reserve and the lending banks. Stocks may be
affected by the overall economy, both within and without the United States
and by changes in demand for certain products or in certain parts of the
market.
* Investment in Stocks. Stocks tend to go up and down in value more than do
bonds or other debt obligations (fixed income securities), making them more
volatile. Volatile securities have a greater potential return than do fixed
income securities, but have more risk of loss. Although, in the past,
stocks that have been held for a long period of time have provided higher
returns than less volatile securities, there is no assurance that they will
do so in the future.
* Investment in Bonds. The value of bonds and other debt obligations(fixed
income securities) will change when interest rates change. If interest
rates go down, the market value of bonds held by the Portfolio increases;
however if interest rates go up, the market value of bonds held by the
Portfolio goes down.
* Smaller Companies. Investment in the stocks of smaller companies has risks
in addition to the risk of investing in any stocks. Smaller companies have
less capitalization than larger companies and a greater risk of failing.
Smaller companies may be less diversified than larger companies and
therefore may be more at risk from economic changes that affect only
specific industries or markets. The securities of small companies may be
subject to more volatile market movements than securities of larger, more
established companies. Smaller companies may have limited product lines,
markets or financial resources, and they may depend upon a limited or less
experienced management group.
* Purchasing for Value. When a Sub-Adviser purchases stocks of companies that
other investors have not recognized as having value, there is a risk that
those stocks will never be recognized by other investors and therefore may
not achieve their potential value.
* Derivatives. Derivatives can be volatile investments and involve certain
risks. A Portfolio may be unable to limit its losses by closing a position
due to lack of a liquid market or similar factors. Losses may also occur if
there is not a perfect correlation between the value of futures or forward
contracts and the related securities. The use of futures may involve a high
degree of leverage because of low margin requirements. As a result, small
price movements in futures contracts may result in immediate and
potentially unlimited gains or losses to a Portfolio. Leverage may
exaggerate losses of principal. The amount of gains or losses on
investments in futures contracts depends on a Sub-Adviser's ability to
predict correctly the direction of stock prices, interest rates and other
economic factors.
* Foreign Securities. Investments in non-U.S. securities are subject to risks
in addition to the normal risks of investments. The value of non-U.S.
securities will change as the exchange rates for the currency in the
countries where the companies are located change. Some countries do not
have the same kinds of laws that protect the purchasers of securities, as
do countries with more established markets such as the United States.
Therefore, there is more risk in purchasing securities issued by companies
located in those countries. In addition, there may be less information
available about non-U.S. issuers, delays in settling sales of foreign
securities and governmental restrictions or controls that can adversely
affect the value of securities of foreign companies. Securities of foreign
companies may not be as easy to sell as securities of U.S. companies. A
Portfolio may incur additional costs in handling foreign securities, such
as increased sales costs and custody costs.
* Emerging Market Countries. The risks associated with investment in foreign
securities are heightened in connection with investments in the securities
of issuers in emerging markets countries, as these markets are generally
more volatile than the markets of developed countries.
* Mortgage-Backed Securities. There is a risk for a Portfolio when it
purchases mortgage-backed securities. Under these arrangements, the
Portfolio acquires an interest in a pool of loans and the mortgages
securing those loans. As the borrowers make principal and interest payments
on the loans, the Portfolio receives a share of those payments. The value
of the interests in these pools will go up and down as interest rates go up
and down in the same manner as bonds. In addition, however, the value is
reduced if the borrowers repay the loans earlier than predicted,
particularly when the interest rates on the repaid loans are higher than
current interest rates being paid for new loans that would replace the
repaid loans. The value of the interests is also reduced if the borrowers
default on the loans and the mortgaged property, collateral and/or other
guarantees securing the loans are not sufficient to cover the amounts in
default.
* Repurchase Agreements. Under a repurchase agreement the purchaser acquires
a debt instrument for a relatively short time. The seller of the debt
instrument agrees to repurchase the instrument and the purchaser agrees to
resell the instrument at a fixed price and time. Repurchase agreements give
the Portfolio the potential for increased returns, but also have similar
market risks to those of investing in mortgage dollar roll transactions
described below. If the value of the security that will be repurchased
increases above the repurchase price, the Portfolio will benefit. However,
if the value goes down, the Portfolio will be purchasing a security at a
price higher than its value. In addition in a repurchase agreement, there
is a risk that the other party will refuse to resell the security at the
end of the transaction period. The purchaser receives collateral from the
seller to back up the seller's agreement to repurchase; however, there is a
risk that the collateral may not be worth the amount paid by the purchaser
for the instrument. The purchaser may also have difficulty selling the
collateral.
* Mortgage Dollar Roll Transactions. Mortgage dollar roll transactions have
risks that are similar to those of reverse repurchase agreements. These
transactions can increase the return of a Portfolio if the market value of
the security sold by the Portfolio goes up to a price higher than the price
at which the Portfolio can repurchase the security. However, if the market
value goes down, the Portfolio will be purchasing a security at a price
that is higher than its market value.
* Borrowing. All of the Portfolios may borrow money for temporary or
emergency purposes. Certain Portfolios may engage in borrowing by
investing in dollar roll transactions, repurchase agreements or similar
securities. Certain Portfolios may borrow money or securities to increase
the return on a Portfolio. Borrowing money or securities increases the
assets that a Portfolio has available to invest. If the investments
are profitable, the return for the Portfolio is enhanced. However, if
the investments lose value, the losses are exaggerated.
* Lending Securities. Lending securities means that the Portfolio lends
securities that the Portfolio owns to a third party for a fee. The
Portfolio holds other assets of the borrower as collateral to insure the
repayment of the securities loaned. Lending Portfolio securities may result
in losses to the Portfolio if the borrower does not repay the securities
loaned and the Portfolio is unable to sell the collateral for an amount
equal to the value of the loaned securities.
* Below Investment Grade Bonds or Junk Bonds. Investing in below investment
grade bonds, such as the lower quality, higher yielding bonds called junk
bonds, can increase the risks of loss for a Portfolio. Junk bonds are bonds
that are issued by small companies or companies with limited assets or
short operating histories. These companies are more likely than more
established or larger companies to default on the bonds and not pay
interest or pay back the full principal amount. Third parties may not be
willing to purchase the bonds from the Portfolios, which means they may be
difficult to sell and some may be considered illiquid. Because of these
risks, the companies issuing the junk bonds pay higher interest rates than
companies issuing higher grade bonds. The higher interest rates can give
investors a higher return on their investment.
* Short Sales. Engaging in short sales of stock can increase the losses of
the Portfolio if the value of the stock increases before the Portfolio buys
the stock to cover the short sale.
* Illiquid and Restricted Securities. All Portfolios may invest certain
percentages of their assets in illiquid securities which are securities
which a Portfolio cannot easily sell or which it cannot sell quickly
(within seven days) without taking a reduced price for them. Any Portfolio
may invest in securities that the Portfolio cannot sell unless it meets
certain restrictions (restricted securities). The restrictions usually
relate to the initial sale of the security, such as securities purchased in
a private transaction or securities sold only to qualified purchasers. It
may take the Sub-Advisers more time to sell illiquid or restricted
securities than it would take them to sell other securities. A Portfolio
might be forced to sell the securities at a discount or be unable to sell
securities at all that are losing value.
* Cash Investments. In addition to the investments described above for each
Portfolio, each Sub-Adviser may keep a portion of a Portfolio's assets in
cash or in investments that are as liquid as cash such as money market
mutual funds. The Sub-Advisers keep the cash available to meet unexpected
expenditures such as redemptions. Investments in cash or similar liquid
securities (cash equivalents) generally do not provide as high a return as
would assets invested in other types of securities.
* Defensive Positions. The Sub-Advisers have described their strategies for
investing the assets of each Portfolio under normal market conditions.
Under extraordinary market, economic, political or other conditions, the
Sub-Advisers may not follow their normal strategies, but instead may take
certain temporary, defensive actions. These actions may include moving all
assets to cash or cash equivalent investments or taking extraordinary steps
to limit losses in response to adverse conditions. Defensive actions may
prevent a Portfolio from achieving its investment goal.
* Portfolio Turnover Rates. The rate of portfolio turnover is the annual
amount, expressed as a percentage, of a Portfolio's securities that it
replaces in one year. The portfolio turnover rate will not be a limiting
factor when it is deemed appropriate to purchase or sell securities for a
Portfolio. Some of the Sub-Advisers may buy and sell securities for the
Portfolios frequently, which increases a Portfolio's portfolio turnover
rate. Portfolio turnover may vary from year to year or within a year,
depending upon economic, market or business conditions and contributions
and withdrawals. To the extent that brokerage commissions and transaction
costs are incurred in buying and selling portfolio securities, the rate of
portfolio turnover could affect each Portfolio's net asset value. The
Sub-Advisers that actively trade Portfolio assets, expect that the
potentially improved performance from frequent transactions will offset the
higher costs; however, higher transaction costs can reduce the return of
the Portfolio. The historical rates of portfolio turnover for all of the
Portfolios are set forth herein under the Financial Highlights.
MANAGEMENT OF THE TRUST
THE TRUSTEES
The Trust is organized as a Massachusetts business trust. The overall
responsibility for the supervision of the affairs of the Trust vests in the
Trustees. The Trustees have entered into an Investment Advisory Agreement with
the Adviser to handle the day-to-day affairs of the Trust. The Trustees meet
periodically to review the affairs of the Trust and to establish certain
guidelines which the Adviser is expected to follow in implementing the
investment policies and objectives of the Trust.
ADVISER
Under an Investment Advisory Agreement dated April 1, 1996, as amended, the
Adviser, located at One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois
60181-4644, manages the business and affairs of the Portfolios and the Trust,
subject to the control of the Trustees.
The Adviser is an Illinois corporation which was incorporated on August 31, 1993
under the name Oakbrook Investment Advisory Corporation and is registered with
the Securities and Exchange Commission as an investment adviser under the
Investment Advisers Act of 1940. The Adviser changed its name to its present
name on January 17, 1996. Metropolitan Life Insurance Company (MetLife) is the
ultimate parent of the Adviser. MetLife, headquartered in New York City since
1868, is a leading provider of insurance and financial products and services
to individual and group customers. The Adviser has acted as the investment
adviser to the Trust, its sole account, since May 1, 1996.
The Investment Advisory Agreement authorizes the Adviser to manage the
investment of the assets of each Portfolio, based on the investment objectives
and policies of each Portfolio. The Adviser must develop a program for investing
the assets of each Portfolio that is consistent with the investment objective of
each Portfolio and that follows the policies and restrictions that the Board of
Trustees has set for the Portfolios. The Adviser may retain Sub-Advisers to
assist it. This Prospectus and the Statement of Additional Information describe
these policies. (See the back cover of this Prospectus to find out how to get a
free copy of the Statement of Additional Information.)
Compensation. The Adviser receives a fee, monthly, from each Portfolio for
management of the net assets of the Portfolio. The Adviser calculates the fee
based on the average daily net assets of each Portfolio. During 1999, the most
recent fiscal year of the Portfolios, each of the Portfolios paid the Adviser
the following percentage of its average daily net assets as compensation for its
services as investment adviser to the Portfolios:
Bond Debenture............................0.75%
Quality Bond..............................0.54%
International Equity......................0.79%
Select Equity.............................0.67%
Small Cap Stock...........................0.85%
Large Cap Stock...........................0.65%
Mid-Cap Value.............................1.00%
Large Cap Research........................1.00%
Developing Growth.........................0.90%
Balanced..................................1.00%
Equity Income.............................1.00%
Lord Abbett Growth and Income.............0.65%
Growth & Income Equity....................1.00%
The percentage of net assets paid to the Adviser as an investment advisory fee
1for each Portfolio changes with the amount of net assets in the Portfolio.
Generally the larger the net assets, the lower the fees as a percentage of net
assets.
Under the Investment Advisory Agreement, the Trust is obligated to pay the
Adviser a monthly fee at the following annual rates based on the average daily
net assets of a Portfolio:
<TABLE>
<CAPTION>
Average Daily
Portfolio Net Assets % Per Annum
- ---------------------- ------------------ ------------
<S> <C> <C>
Bond Debenture _______________ .75%
Quality Bond First $75 million .55%
Over $75 million .50%
International Equity First $50 million .85%
Over $50 million .75%
Select Equity First $50 million .75%
Over $50 million .65%
Emerging Markets
Equity First $25 million 1.25%
Over $25 million 1.05%
Small Cap Stock _______________ .85%
Large Cap Stock _______________ .65%
Mid-Cap Value _______________ 1.00%
Large Cap Research _______________ 1.00%
Developing Growth _______________ .90%
Lord Abbett
Growth and Income _______________ .65%
Balanced _______________ 1.00%
Equity Income _______________ 1.00%
Growth & Income Equity _______________ 1.00%
Riggs Stock _______________ .95%
Riggs Small Company Stock _______________ 1.00%
Riggs U.S. Government
Securities Portfolio _______________ .75%
</TABLE>
Other Services and Expenses. The Adviser is also responsible for the operation
of each Portfolio and the supervision of others who provide services to the
Portfolios such as custodians, accountants and transfer agents. The Adviser must
provide office space and the services of personnel to carry out the operations
of the Portfolios. The Adviser pays all ordinary office expenses for the Trust
and the Portfolios. The Adviser also pays the salaries and costs of persons
employed by the Adviser who serve as officers or Trustees of the Trust. The
Portfolios are responsible for all of their own direct expenses such as fees of
custodians, accountants, transfer agents and unaffiliated Trustees. Cova Life
and/or the Adviser and/or the Sub-Adviser(s) may at their discretion, but are
not obligated to, assume all or any portion of Trust expenses.
Cova Financial Services Life Insurance Company, Cova Life Management Company and
the Adviser have entered into an Investment Advisory Services Agreement, dated
April 1, 1996, the purpose of which is to ensure that the Adviser, which is
minimally capitalized, has adequate facilities and financing for the carrying on
of its business. Under the terms of the Agreement, Cova Financial Services Life
Insurance Company is obligated to provide the Adviser with adequate
capitalization in order for the Adviser to meet any minimum capital
requirements. Cova Financial Services Life Insurance Company is further
obligated to reimburse the Adviser or assume payment for any obligation incurred
by the Adviser. Cova Life Management Company is obligated to provide the Adviser
with facilities and personnel sufficient for the Adviser to perform its
obligations under the Investment Advisory Agreement.
Expense Reimbursement. Riggs Bank N.A. and Cova have agreed to voluntarily
reimburse the Riggs Stock and Riggs U.S. Government Securities Portfolios for
all operating expenses (exclusive of the management fees) in excess of
approximately .10%. Cova reimburses the other investment portfolios, except the
Select Equity, Small Cap Stock and International Equity Portfolios, for all
operating expenses (exclusive of the management fees) in excess of approximately
.30% for the Mid-Cap Value, Large Cap Research and Developing Growth Portfolios
and in excess of approximately .10% for the other investment portfolios. Prior
to May 1, 1999, Cova had reimbursed expenses in excess of approximately .10%
with respect to the Select Equity, Small Cap Stock, International Equity,
Mid-Cap Value, Large Cap Research and Developing Growth Portfolios.
TRUST ADMINISTRATION
The Adviser retains Investors Bank & Trust Company ("IBTC"), a Massachusetts
trust company, to supervise various aspects of the Trust's administrative
operations and to perform certain specific services including, but not limited
to, the preparation and filing of Trust reports and tax returns, pursuant to an
Administration Agreement between the Trust, the Adviser and IBTC. IBTC also
serves as the transfer agent for the Trust.
SUB-ADVISERS AND PORTFOLIO MANAGEMENT
The Investment Advisory Agreement allows the Adviser to contract with third
parties to provide some or all of its duties to the Portfolios under the
Investment Advisory Agreement. The Adviser has contracted with the Sub-Advisers
listed below to provide day-to-day management of the assets of each of the
Portfolios. Under the terms of the agreements between each Sub-Adviser and the
Adviser, the Sub-Adviser will develop a plan for investing the assets of each
Portfolio, select the assets to be purchased and sold by each Portfolio, select
the broker-dealer or broker-dealers through which the Portfolio will buy and
sell its assets, and negotiate the payment of commissions, if any, to those
broker-dealers. Each Sub-Adviser follows the policies set by the Adviser and the
Board of Trustees for each of the Portfolios.
Compensation. Under the Sub-Advisory Agreements, the Adviser has agreed to pay
each Sub-Adviser a fee for its services out of the fees the Adviser receives
from the Portfolios. During 1999, the most recent fiscal year of the Portfolios,
the Adviser paid the Sub-Advisers fees based on the following percentages of
each Portfolio's average daily net assets:
Bond Debenture............................0.50%
Quality Bond..............................0.29%
International Equity......................0.54%
Select Equity.............................0.42%
Small Cap Stock...........................0.60%
Large Cap Stock...........................0.40%
Mid-Cap Value.............................0.75%
Large Cap Research........................0.75%
Developing Growth.........................0.65%
Balanced..................................0.65%
Equity Income.............................0.66%
Growth & Income Equity....................0.65%
The percentage of net assets paid to the Sub-Advisers as fees for their services
to each Portfolio changes with the amount of net assets in the Portfolio.
Generally the larger the net assets, the lower the fees as a percentage of net
assets.
Under the terms of each Sub-Advisory Agreement, the Adviser shall pay to each
Sub-Adviser, as full compensation for services rendered under the Sub-Advisory
Agreement with respect to each Portfolio, monthly fees at the following annual
rates based on the average daily net assets of each Portfolio:
<TABLE>
<CAPTION>
Average Daily Sub-Advisory
Portfolio Net Assets Fee
- ---------------------- ------------------ -------------
<S> <C> <C>
Bond Debenture _______________ .50%
Quality Bond First $75 million .30%
Over $75 million .25%
International Equity First $50 million .60%
Over $50 million .50%
Emerging Markets Equity First $25 million 1.00%
Over $25 million .80%
Select Equity First $50 million .50%
Over $50 million .40%
Large Cap Stock __________________ .40%
Small Cap Stock __________________ .60%
Mid-Cap Value __________________ .75%
Large Cap Research __________________ .75%
Developing Growth __________________ .65%
Lord Abbett Growth and
Income __________________ .40%
Balanced __________________ .75%
Equity Income __________________ .75%
Growth & Income Equity __________________ .75%
Riggs Stock __________________ .70%
Riggs Small Company
Stock __________________ .75%
Riggs U.S. Government
Securities __________________ .50%
</TABLE>
FIRMCO, LLC currently waives .25% of its sub-advisory compensation with
respect to the Balanced, Equity Income and Growth & Income Equity Portfolios.
J.P. MORGAN INVESTMENT MANAGEMENT INC., 522 Fifth Avenue, New York, New York
10036, a Delaware corporation, and a wholly-owned subsidiary of J.P. Morgan &
Co., Incorporated, is the Sub-Adviser for the Quality Bond, International
Equity, Select Equity, Large Cap Stock, Small Cap Stock and Emerging Markets
Equity Portfolios of the Trust.
Portfolio Managers
Quality Bond Portfolio
William G. Tennille, Vice President of the Sub-Adviser. Mr. Tennille is a
fixed income portfolio manager for separately managed accounts and commingled
funds with an emphasis on mortgage securities and derivatives. Prior to
joining J.P. Morgan in 1992, he managed a portfolio of mortgage securities for
Manufacturers Hanover/Chemical Bank's proprietary account and investment
portfolios at Deposit Guarantee National Bank, and First Florida Banks.
Mr. Tennille has also managed a regional sales and trading office for
Donaldson, Lufkin, & Jenrette. He is a graduate of the University of
North Carolina.
James J. Dougherty, Vice President of the Sub-Adviser. Mr. Dougherty is a fixed
income portfolio manager who leads the Fixed Income Strategy Implementation
Group (SIG). Prior to his current assignment, Mr. Dougherty was co-Head of the
Mortgage investment team with primary responsibility for asset backed and
commercial mortgage backed securities investments. Mr. Dougherty joined Morgan
in 1986 and worked in Equity Real Estate and Auditing prior to joining the
Fixed Income group in 1992. He holds a B.S. in finance from Boston College and
an M.B.A. from New York University.
Large Cap Stock Portfolio
Nanette Buziak, Vice President of the Sub-Adviser. Ms. Buziak is a portfolio
manager in the Sub-Adviser's Structured Equity Group with responsibility
for the daily implementation and maintenance of structured equity portfolios.
Prior to joining J.P. Morgan in 1997, Ms. Buziak spent four years at First
Marathon America, Inc., where she traded Convertible Bond Arbitrage and Stock
Index Arbitrage strategies. She earned her B.B.A. from Bryant College where
her concentration was Applied Actuarial Mathematics and Finance.
Timothy Devlin, Vice President of the Sub-Adviser. Mr. Devlin is a portfolio
manager in the Sub-Adviser's Structured Equity Group. He joined J.P. Morgan
in 1996. Earlier, he was with Mitchell Hutchins Asset Management where he
managed risk-controlled equity portfolios including index, enhanced index
and market neutral strategies. Mr. Devlin holds a B.A. in economics from
Union College.
Bernard Kroll, Managing Director of the Sub-Adviser. Mr. Kroll is a portfolio
manager in the Sub-Adviser's Structured Equity Group. Prior to joining J.P.
Morgan in 1996, Mr. Kroll was an equity derivatives specialist at Goldman
Sachs & Co., founded his own options broker-dealer, and managed several
derivatives businesses at Kidder, Peabody & Co. Mr. Kroll received an M.B.A.
in Finance from New York University, and a B.A. in Economics from Stanford
University.
International Equity Portfolio
Nigel F. Emmett, Vice President of the Sub-Adviser. Mr. Emmett is a
portfolio manager with the Sub-Adviser's International Equity Group. He
joined J.P. Morgan in 1997. Previously, he was employed by Brown Brothers
Harriman & Co. in New York and Gartmore Investment in London. He earned a
B.A. degree in Economics from Manchester University, is an Associate Member
of the Institute of Investment Management and Research (AIMR), and is a
Chartered Financial Analyst.
Paul Quinsee, Managing Director of the Sub-Adviser. Mr. Quinsee, an
international equity portfolio manager and Chairman of the Sub-Adviser's
International Equity Strategy Group, relocated to the Sub-Adviser's New York
office in 1996. He joined the Sub-Adviser's London office in 1992 as an
international portfolio manager. Previously, he spent five years as an
equity portfolio manager with Citibank and two years with Schroder Capital
Management in London. Mr. Quinsee has an honours degree from the University
of Durham and is an Associate of the Society of Investment Analysts.
Robert Stewart, Vice President of the Sub-Adviser. Mr. Stewart is a
portfolio manager in the Sub-Adviser's Currency Group. A J.P. Morgan
employee since 1993, Mr. Stewart worked initially in both the Sub-Adviser's
Equity and Fixed Income groups, before transferring to the Currency Group
in 1995. Mr. Stewart holds a B.S.c. (Hons) in geography from the University
of Southampton which he obtained in 1991. He attended J.P. Morgan's
Investment Management Training Program (NY) in 1997.
Small Cap Stock Portfolio
Marian U. Pardo, Managing Director of the Sub-Adviser. Ms. Pardo is a
portfolio manager in the Small Cap Equity Group. She has been with J.P.
Morgan since 1968, having joined the investment management business in
1980 as a research analyst. Ms. Pardo has held a number of positions at
J.P. Morgan including managing equity and convertible funds and large-
cap equity portfolios for individual clients and institutional investors.
Ms. Pardo is a graduate of Barnard College.
Alexandra Wells, Vice President of the Sub-Adviser. Ms. Wells is a portfolio
manager in the Small Cap Equity Group. She joined J.P. Morgan in 1992
initially working as an analyst in the Equity Research department before
moving to the Equity and Balanced Group as a portfolio manager in 1995. Ms.
Wells transferred to JPMIM London in 1997 where she spent a year as a
portfolio manager responsible for US equities before joining the Small Cap
Equity Group in March of 1998. Ms. Wells holds a BA in English and Economics
from Smith College and an MBA in Finance from the Stern School of Business
at New York University.
Select Equity Portfolio
Thomas M. Luddy, Managing Director of the Sub-Adviser. Mr. Luddy is Head
of US Equity Research. A J.P. Morgan employee since 1976, Mr. Luddy has
held numerous key positions in the firm, including such roles as, Global
Head of Equity and Chief Investment Officer. He started as an equity
research analyst, becoming a portfolio manager in 1982 and has managed
portfolios in his various roles for most of the past 18 years. Mr. Luddy
holds a B.S. in economics and mathematics from St. Peter's College and
an M.B.A. from the Wharton School of the University of Pennsylvania. He is
a Chartered Financial Analyst.
Peggy Adams, Vice President of the Sub-Adviser. Ms. Adams is a portfolio
manager in the Sub-Adviser's Equity and Balanced group. Since joining
Morgan in 1989, she has had assignments in Corporate Finance, Risk
Arbitrage, and Institutional Equity Sales. Ms. Adams received her A.B.
from Brown University and an MPPM from Yale School of Management.
LORD, ABBETT & CO. ("LORD ABBETT"), 90 Hudson Street, Jersey City, NJ 07302.
Lord Abbett has been an investment manager for 70 years and currently
manages approximately $35 billion in a family of mutual funds and other
advisory accounts. Lord Abbett is the Sub-Adviser for the Bond Debenture,
Mid-Cap Value, Large Cap Research, Developing Growth and Lord Abbett Growth
and Income Portfolios.
Christopher J. Towle, Executive Vice President of Lord Abbett, is Portfolio
Manager for the Bond Debenture Portfolio. Mr. Towle joined Lord Abbett in 1987
as Assistant Fixed Income Portfolio Manager and assumed full responsibilities as
Fixed Income Portfolio Manager in August, 1995. Prior to joining Lord Abbett,
Mr. Towle was an Assistant Vice President and Portfolio Manager with American
International Group. He earned a B.A. degree in economics from Rutgers
University and is a Chartered Financial Analyst.
Edward K. von der Linde is primarily responsible for the day-to-day management
of the Mid-Cap Value Portfolio. Mr. von der Linde has been with Lord Abbett
since 1988 and has over 12 years of investment experience.
Robert G. Morris, a Lord Abbett partner, is primarily responsible for the
day-to-day management of the Large Cap Research Portfolio. Prior to joining Lord
Abbett in 1991, Mr. Morris was Vice President and Manager of Chase Manhattan
Bank, N.A. Mr. Morris delegates management duties to a committee consisting, at
any time, of three Lord Abbett employees from the Research Department. The
members of the committee have staggered terms to assure continuity and a forum
for different judgments as to what securities represent the greatest investment
value, regardless of industry sector, market capitalization or Wall Street
sponsorship.
Stephen J. McGruder serves as portfolio manager for the Developing Growth
Portfolio. Prior to joining Lord Abbett, Mr. McGruder had served as Vice
President of Wafra Investments Advisory Group, a private investment company,
since October 1988. Mr. McGruder has over 25 years of experience in the
investment business.
W. Thomas Hudson, Jr. is primarily responsible for the day-to-day management of
the Lord Abbett Growth and Income Portfolio. Mr. Hudson has been employed by
Lord Abbett since 1982.
FIRSTAR INVESTMENT AND RESEARCH MANAGEMENT COMPANY, LLC ("FIRMCO"). FIRMCO,
with its main office at Firstar Center, 777 East Wisconsin Avenue, 8th Floor,
Milwaukee, Wisconsin 53202, is the Sub-Adviser for the Balanced, Equity Income
and Growth & Income Equity Portfolios. FIRMCO serves as the Sub-Adviser to
each Portfolio as a result of the merger of each Portfolio's former sub-adviser,
Mississippi Valley Advisors Inc., into FIRMCO on March 1, 2000. FIRMCO is a
subsidiary of Firstar Corporation. As of December 31, 1999, FIRMCO had
approximately $35.3 billion in assets under investment management.
Peter Merzian is the person primarily responsible for the day-to-day management
of the Balanced Portfolio. Mr. Merzian, a Senior Associate, has been with MVA
since 1993 and prior thereto was employed as a portfolio manager of another
financial institution.
FIRMCO's Equity Committee is responsible for the day-to-day management of the
Growth & Income Equity and Equity Income Portfolios. The Committee has managed
the Portfolios since 1998.
RIGGS BANK N.A., 5700 RiverTech Court, Riverdale, MD 20737-1250. Riggs Bank N.A.
is the Sub-Adviser for the Riggs Stock, Riggs Small Company Stock and Riggs U.S.
Government Securities Portfolios.
John H. Lockhart is the person primarily responsible for the day-to-day
management of the Riggs Stock, Riggs Small Company Stock and Riggs U.S.
Government Securities Portfolios.
PORTFOLIO SHARES
Distribution and Redemption
All Portfolios of the Trust sell shares to the separate accounts ("Variable
Accounts") of Cova Financial Services Life Insurance Company and its affiliated
life insurance companies (collectively, "Cova Life") as a funding vehicle for
the Contracts offered by Cova Life. No fee is charged upon the sale or
redemption of the Trust's shares. Expenses of the Trust are passed through to
the Variable Accounts of Cova Life, and therefore, are ultimately borne by
Contract owners. In addition, other fees and expenses are assessed by Cova Life
at the separate account level. (See the Prospectus for the Contract for a
description of all fees and charges relating to the Contract.)
Price of Shares
The Portfolios will buy or sell shares at the price determined at the end of
each day during which the New York Stock Exchange is open for trading (see Net
Asset Value, below). The Portfolios must receive your order by 4:00 p.m. Eastern
time for you to receive the price for that day. The Portfolios will buy or sell
shares for orders they receive after 4:00 p.m. at the price calculated for the
next day on which the New York Stock Exchange is open.
Placing Orders for Shares
The prospectus for your Contract describes the procedures for investing your
purchase payments or premiums in shares of the Portfolios. You may obtain a copy
of that prospectus, free of charge, from Cova Life or from the person who sold
you the Contract. The Adviser and Cova Life will not consider an order to buy or
sell shares in the Portfolios as received until the order meets the requirements
for documentation or signatures described in the prospectus for your Contract.
The Portfolios do not charge any fees for selling (redeeming) shares. You should
review the prospectus for your Contract to see if Cova Life charges any fees for
redeeming your interest in the Contract or for moving your assets from one
Portfolio to another.
Payment for Redemptions
Payment for orders to sell (redeem) shares will be made within seven days after
the Adviser receives the order.
Suspension or Rejection of Purchases and Redemptions
The Portfolios may suspend the offer of shares, or reject any specific request
to purchase shares from a Portfolio at any time. The Portfolios may suspend
their obligation to redeem shares or postpone payment for redemptions when the
New York Stock Exchange is closed or when trading is restricted on the Exchange
for any reason, including emergency circumstances established by the Securities
and Exchange Commission.
Right to Restrict Transfers
Neither the Trust nor the Variable Accounts are designed for professional market
timing organizations, other entities, or individuals using programmed, large
and/or frequent transfers. The Variable Accounts, in coordination with the
Trust, reserve the right to temporarily or permanently refuse exchange requests
if, in the Adviser's judgment, a Portfolio would be unable to invest effectively
in accordance with its investment objectives and policies, or would otherwise
potentially be adversely affected. In particular, a pattern of exchanges that
coincides with a "market timing" strategy may be disruptive to a Portfolio and
therefore may be refused. Investors should consult the Variable Account
prospectus that accompanies this Trust Prospectus for information on other
specific limitations on the transfer privilege.
Net Asset Value
The value or price of each share of each Portfolio (net asset value per share)
is calculated at the close of business, usually 4:00 p.m., of the New York Stock
Exchange, every day that the New York Stock Exchange is open for business. The
value of all assets held by each Portfolio at the end of the day, is determined
by subtracting all liabilities and dividing the total by the total number of
shares outstanding. This value is provided to Cova Life, which uses it to
calculate the value of your interest in your Contract. It is also the price at
which shares will be bought or sold in the Portfolios for orders they received
that day.
The value of the net assets of the Portfolio is determined by obtaining market
quotations, where available, usually from pricing services. Short-term debt
instruments maturing in less than 60 days are valued at amortized cost.
Securities for which market quotations are not available are valued at their
fair value as determined, in good faith, by the Adviser based on policies
adopted by the Board of Trustees.
Some of the Portfolios trade securities on foreign markets or in foreign
currencies. Those markets are open at different times and occasionally on
different days than securities traded on the New York Stock Exchange. Exchange
rates for foreign currencies are usually determined at 1:00 p.m. rather than
4:00 p.m. These factors may mean that the value of the securities held by these
Portfolios may change after the close of business of the New York Stock
Exchange.
Dividends and Distributions
Each Portfolio will declare and distribute dividends from net ordinary income
and will distribute its net realized capital gains, if any, at least annually.
Cova Life generally directs that all dividends and distributions of the
Portfolios be reinvested in the Portfolios under the terms of the Contracts.
Tax Matters
The Trust intends to qualify as a regulated investment company under the tax law
and, as such distributes substantially all of each Portfolio's ordinary net
income and capital gains each calendar year as a dividend to the Variable
Accounts funding the Contracts to avoid an excise tax on certain undistributed
amounts. The Trust expects to pay no income tax. Dividends are reinvested in
additional full and partial shares of the Portfolio as of the dividend payment
date.
The Trust and its Portfolios intend to comply with special diversification and
other tax law requirements that apply to investments under the Contracts. Under
these rules, shares of the Trust will generally only be available through the
purchase of a variable life insurance or annuity contract. Income tax
consequences to Contract owners who allocate purchase payments or premiums to
Trust shares are discussed in the prospectus for the Contracts that accompanies
this Prospectus.
Additional Information
This Prospectus sets forth concisely the information about the Trust and each
Portfolio that you should know before you invest money in a Portfolio. Please
read this Prospectus carefully and keep it for future reference. The Trust has
prepared and filed with the Securities and Exchange Commission a Statement of
Additional Information that contains more information about the Trust and
the Portfolios. You may obtain a free copy of the Statement of
Additional Information from your registered representative who offers you the
Contract. You may also obtain copies by calling the Trust at 1-800-831-LIFE or
by writing to the Trust at the following address: Cova Financial Services Life
Insurance Company, One Tower Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-
4644.
Legal Proceedings
Neither the Trust nor any Portfolio is involved in any material legal
proceedings. Neither the Adviser nor any Sub-Adviser is involved in any legal
proceedings that if decided against any such party would materially affect the
ability of the party to carry out its duties to the Portfolios. None of such
persons is aware of any litigation that has been threatened.
DESCRIPTION OF CERTAIN INVESTMENTS, TECHNIQUES AND RISKS
STRATEGIC TRANSACTIONS. Certain Portfolios may purchase and sell
exchange-listed and over-the-counter put and call options on
* securities,
* financial futures,
* fixed-income and equity indices and other financial instruments and
purchase and sell financial futures contracts.
Certain Portfolios may also enter into various currency transactions such as
* currency forward contracts,
* currency futures contracts,
* currency swaps or options on currencies or currency futures,
* stock index futures contracts, and
* options on stock indexes and stock index futures contracts.
Collectively, all of the above are referred to as "Strategic Transactions."
Strategic Transactions are hedging transactions which may be used to
* attempt to protect against possible changes in the market value of
securities held in or to be purchased for a Portfolio,
* to protect a Portfolio's unrealized gains in the value of its portfolio
securities,
* to facilitate the sale of such securities for investment purposes,
* to manage the effective interest rate exposure of a Portfolio,
* to protect against changes in currency exchange rates, or
* to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities.
Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of a Portfolio to utilize these
Strategic Transactions successfully will depend on a Sub-Adviser's ability to
predict pertinent market movements, which cannot be assured. The Portfolios will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Sub-Adviser's view as to certain market movements is incorrect, the risk
that the use of such Strategic Transactions could result in losses greater than
if they had not been used. Use of put and call options may result in losses to a
Portfolio, force the sale of portfolio securities at inopportune times or for
prices other than at current market values, limit the amount of appreciation a
Portfolio can realize on its investments or cause a Portfolio to hold a security
it might otherwise sell. The use of currency transactions can result in a
Portfolio incurring losses as a result of a number of factors including the
imposition of exchange controls, suspension of settlements or the inability to
deliver or receive a specified currency.
The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Portfolio's position. In addition, futures
and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Portfolio might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value and possibly income. The Strategic Transactions that the Portfolios may
use and some of their risks are described more fully in the Statement of
Additional Information.
REPURCHASE AGREEMENTS. The Portfolios may enter into repurchase agreements
with selected commercial banks and broker-dealers, under which the Portfolio
acquires securities and agrees to resell the securities at an agreed upon time
and at an agreed upon price. The Portfolio accrues as interest the difference
between the amount it pays for the securities and the amount it receives upon
resale. At the time the Portfolio enters into a repurchase agreement, the value
of the underlying security including accrued interest will be equal to or exceed
the value of the repurchase agreement and, for repurchase agreements that mature
in more than one day, the seller will agree that the value of the underlying
security including accrued interest will continue to be at least equal to the
value of the repurchase agreement. Each Sub-Adviser will monitor the value of
the underlying security in this regard. The Portfolio will enter into repurchase
agreements only with commercial banks whose deposits are insured by the Federal
Deposit Insurance Corporation and whose assets exceed $500 million or
broker-dealers who are registered with the Securities and Exchange Commission.
In determining whether the Portfolio should enter into a repurchase agreement
with a bank or broker-dealer, the Sub-Adviser will take into account the
credit-worthiness of the party and will monitor its credit-worthiness on an
ongoing basis in accordance with standards by the Board of Trustees. In the
event of a default by the party, the delays and expenses potentially involved in
establishing the Portfolio's rights to, and in liquidating, the security may
result in a loss to the Portfolio.
WHEN ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and no interest accrues to a Portfolio until
settlement takes place. At the time a Portfolio makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction, reflect the value each day of such securities in determining its
net asset value and, if applicable, calculate the maturity for the purposes of
average maturity from that date. At the time of settlement a when-issued
security may be valued at less than the purchase price. To facilitate such
acquisitions, each Portfolio will maintain on the Trust's records a segregated
account with liquid assets, consisting of cash, U.S. Government securities or
other appropriate securities, in an amount at least equal to such commitments.
On delivery dates for such transactions, each Portfolio will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If a Portfolio chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. It is the current policy of each Portfolio not to enter into
when-issued commitments exceeding in the aggregate 15% (except for the Quality
Bond Portfolio) of the market value of the Portfolio's total assets, less
liabilities other than the obligations created by when-issued commitments. There
is no current policy limiting the percentage of assets of the Quality Bond
Portfolio which may be invested in when-issued commitments.
U.S. GOVERNMENT OBLIGATIONS. Certain Portfolios may invest in securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities
which historically have involved little risk of loss of principal if held to
maturity. However, due to fluctuations in interest rates, the market value of
such securities may vary during the period a shareholder owns shares of a
Portfolio. Examples of the types of U.S. Government obligations that may be held
by the Portfolios, subject to their investment objectives and policies, include,
in addition to U.S. Treasury bonds
* notes and bills, the obligations of Federal Home Loan Banks,
* Federal Farm Credit Banks,
* Federal Land Banks,
* the Federal Housing Administration,
* Farmers Home Administration,
* Export-Import Bank of the United States,
* Small Business Administration,
* Government National Mortgage Association ("GNMA"),
* Federal National Mortgage Association ("FNMA"),
* Federal Home Loan Mortgage Corporation ("FHLMC"),
* General Services Administration,
* Student Loan Marketing Association,
* Central Bank for Cooperatives,
* Federal Intermediate Credit Banks,
* Resolution Trust Corporation, and
* Maritime Administration.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of GNMA, are supported by the full faith and credit of the U.S.
Treasury;
* others such as the Export-Import Bank of the United States, are supported
by the right of the issuer to borrow from the Treasury;
* others, such as those of FNMA, are supported by the discretionary authority
of the U.S. Government to purchase the agency's obligations;
* still others such as those of the Student Loan Marketing Association, are
supported only by the credit of the instrumentality.
There is no assurance that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, certain Portfolios may invest in
* bills,
* notes and bonds (including zero coupon bonds) issued by the U.S. Treasury,
* as well as "stripped" U.S. Treasury obligations offered under the Separate
Trading of Registered Interest and Principal Securities ("STRIPS") program or
Coupon Under Bank-Entry Safekeeping ("CUBES") program or other stripped
securities issued directly by agencies or instrumentalities of the U.S.
Government.
STRIPS and CUBES represent either future interest or principal payments and are
direct obligations of the U.S. Government that clear through the Federal Reserve
System. Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Sub-Adviser will consider the liquidity needs of a Portfolio when any
investments in zero coupon obligations or other principal- only obligations are
made.
PARTICIPATION INTERESTS. Certain Portfolios may purchase participation interests
from financial institutions (such as commercial banks, savings associations, and
insurance companies), or from single-purpose, stand-alone finance subsidiaries
or trusts of such institutions, or from other special purpose entities.
Single-purpose, stand-alone finance subsidiaries or trusts and special purpose
entities generally do not have any significant assets other than the receivables
securing the participation interests. Participation interests give a Portfolio
an undivided fractional ownership interest in debt obligations. The debt
obligations may include
* pools of credit card receivables
* automobile installment loan contracts
* corporate loans or debt securities
* corporate receivables or other types of debt obligations
In addition to being supported by the stream of payments generated by the debt
obligations, payments of principal and interest on the participation interests
may be supported up to certain amounts and for certain periods of time by
* irrevocable letters of credit
* insurance policies and/or
* other credit agreements issued by financial institutions unaffiliated
with the issuers and by monies on deposit in certain bank accounts of the
issuer.
Payments of interest on the participation interests may also rely on payments
made pursuant to interest rate swap agreements made with other unaffiliated
financial institutions.
If the participation interests include the unconditional written right to demand
payment at par value plus accrued interest from the issuer, the Demand Feature
will be used in determining the maturity of the participation interest. So long
as the Demand Feature can require payment by the issuer within seven days, the
participation interest will not be deemed to be illiquid. The secondary market,
if any, for certain of these obligations may be extremely limited and any such
obligations purchased by a Portfolio will be regarded as illiquid, unless they
include the seven-day Demand Feature. Such illiquid obligations will be included
within the percentage limitation of each Portfolio on investment of its net
assets in illiquid securities.
VARIABLE AND FLOATING RATE INSTRUMENTS. Certain Portfolios may purchase
rated or unrated variable and floating rate instruments. These instruments may
include variable rate master demand notes that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Unrated instruments purchased by a Portfolio will be determined
by the Sub-Adviser to be of comparable quality at the time of purchase to rated
instruments that may be purchased. The absence of an active secondary market for
a particular variable or floating rate instrument, however, could make it
difficult for a Portfolio to dispose of an instrument if the issuer were to
default on its payment obligation. A Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances and
subject to their investment policies, certain Portfolios may invest in
securities issued by other investment companies which invest in securities in
which such Portfolios are permitted to invest. These Portfolios may invest in
securities of other investment companies to the extent permitted under the 1940
Act--that is, a Portfolio may invest up to 10% of its total assets in securities
of other investment companies so long as not more than 3% of the outstanding
voting stock of any one investment company is held by the Portfolio. In
addition, not more than 5% of a Portfolio's total assets may be invested in the
securities of any one investment company. As a shareholder in an investment
fund, a Portfolio would bear its share of that investment fund's expenses,
including its advisory and administration fees. At the same time the Portfolio
would continue to pay its own operating expenses.
RESTRICTED AND ILLIQUID SECURITIES. The Portfolios may each invest in
securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted and illiquid securities in all
Portfolios will be valued at fair value as determined in good faith by or at the
direction of the Trustees for the purposes of determining the net asset value of
each Portfolio. Restricted securities salable among qualified institutional
buyers without restriction pursuant to Rule 144A under the Securities Act of
1933 that are determined to be liquid by the Sub-Adviser under guidelines
adopted by the Board of Trustees of the Trust (under which guidelines the
Sub-Adviser will consider factors such as trading activities and the
availability of price quotations) will not be treated as restricted securities
by the Portfolios pursuant to such rules.
LOANS OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements, all of the Portfolios may lend their securities to selected
commercial banks or broker-dealers up to a maximum of 25% of the assets of each
Portfolio (except up to 33 1/3% with respect to the Emerging Markets Equity
Portfolio and the Portfolios managed by Mississippi Valley Advisors Inc. and
Riggs Bank N.A.). Such loans must be callable at any time and be continuously
secured by collateral deposited by the borrower in a segregated account with the
Trust's custodian consisting of cash or of securities issued or guaranteed by
the U.S. Government or its agencies, which collateral is equal at all times to
at least 100% of the value of the securities loaned, including accrued interest.
A Portfolio will receive amounts equal to earned income for having made the
loan. Any cash collateral pursuant to these loans will be invested in
short- term instruments. A Portfolio is the beneficial owner of the loaned
securities in that any gain or loss in the market price during the loan inures
to the Portfolio and its shareholders. Thus, when the loan is terminated, the
value of the securities may be more or less than their value at the
beginning of the loan. In determining whether to lend its portfolio securities
to a bank or broker-dealer, a Portfolio will take into account the
credit-worthiness of such borrower and will monitor such credit- worthiness on
an ongoing basis in as much as a default by the other party may cause delays or
other collection difficulties. A Portfolio may pay finders' fees in connection
with loans of its portfolio securities.
REVERSE REPURCHASE AGREEMENTS AND BORROWINGS. The Portfolios may enter into
reverse repurchase agreements with selected commercial banks or broker-dealers
with respect to securities which could otherwise be sold by the Portfolios.
Reverse repurchase agreements involve sales by a Portfolio of Portfolio assets
concurrently with an agreement by the Portfolio to repurchase the same assets at
a later date at a fixed price which is greater than the sales price. The
difference between the amount the Portfolio receives for the securities and the
amount it pays on repurchase is deemed to be a payment of interest by the
Portfolio. Each Portfolio will maintain, in a segregated account with its
custodian, cash, Treasury bills, or other U.S. Government Securities having an
aggregate value equal to the amount of commitment to repurchase, including
accrued interest, until payment is made. Each Portfolio will enter into reverse
repurchase agreements only with commercial banks whose deposits are insured by
the Federal Deposit Insurance Corporation and whose assets exceed $500 million
or broker-dealers who are registered with the SEC. In determining whether a
Portfolio should enter into a reverse repurchase agreement with a bank or
broker-dealer, each Sub-Adviser will take into account the credit-worthiness of
the party and will monitor the credit-worthiness on an ongoing basis. During the
reverse repurchase agreement period, a Portfolio continues to receive principal
and interest payments on these securities. Reverse repurchase agreements involve
the risk that the market value of the securities retained by the Portfolio may
decline below the price of the securities the Portfolio has sold but is
obligated to repurchase under the agreement. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes
insolvent, a Portfolio's use of the proceeds of the agreement may be restricted
pending a determination by the other party, or its trustee or receiver, whether
to enforce the Portfolio's obligation to repurchase the securities. Reverse
repurchase agreements create leverage and will be treated as borrowings for the
purposes of each Portfolio's investment restriction on borrowings.
Each of the Mid-Cap Value, Large Cap Research, Developing Growth, Lord Abbett
Growth and Income, Riggs Stock, Riggs Small Company Stock and Riggs U.S.
Government Securities Portfolios may borrow from banks (as defined in the 1940
Act) in amounts up to 33 1/3% of its total assets (including the amount
borrowed). Each of the Mid-Cap Value, Large Cap Research, Developing Growth and
Lord Abbett Growth and Income Portfolios may borrow up to an additional 5% of
its total assets for temporary purposes. Each of the Select Equity, Large Cap
Stock and Small Cap Stock Portfolios is permitted to borrow money for
extraordinary or emergency purposes in amounts up to 10% of the value of the
Portfolio's total assets. Each of the Quality Bond, International Equity and
Emerging Markets Equity Portfolios is permitted to borrow money for
extraordinary or emergency purposes in amounts up to 30% of the value of the
Portfolio's total assets and in connection with reverse repurchase agreements.
The Bond Debenture Portfolio is permitted to borrow money for extraordinary or
emergency purposes in amounts up to 5% of the Portfolio's gross assets.
Each of the Balanced, Equity Income and Growth & Income Equity Portfolios may
borrow money from banks for temporary defensive purposes in amounts not in
excess of 10% of the Portfolio's total assets at the time of such borrowing.
Borrowing by a Portfolio creates an opportunity for increased net income but, at
the same time, creates special risk considerations such as changes in the net
asset value of the shares and in the yield on the Portfolio. Although the
principal of such borrowings will be fixed, the Portfolio's assets may change in
value during the time the borrowing is outstanding. Borrowing will create
interest expenses for the Portfolio which can exceed the income from the assets
retained. To the extent the income derived from securities purchased with
borrowed funds exceeds the interest the Portfolio will have to pay, the
Portfolio's net income will be greater than if borrowing were not used.
Conversely, if the income from the assets retained with borrowed funds is not
sufficient to cover the cost of borrowing, the net income of the Portfolio will
be less than if borrowing were not used.
SHORT SALES. Certain Portfolios may utilize short sales on securities to
implement their investment objectives. A short sale is effected when it is
believed that the price of a particular investment will decline, and involves
the sale of an investment which the Portfolio does not own in the hope of
purchasing the same investment at a later date at a lower price. To make
delivery to the buyer, the Portfolio must borrow the investment, and the
Portfolio is obligated to return the investment to the lender, which is
accomplished by a later purchase of the investment by the Portfolio.
The Portfolio will incur a loss as a result of the short sale if the price of
the investment increases between the date of the short sale and the date on
which the Portfolio purchases the investment to replace the borrowed investment.
The Portfolio will realize a gain if the investment declines in price between
those dates. The amount of any gain will be decreased and the amount of any loss
increased by any premium or interest the Portfolio may be required to pay in
connection with a short sale. It should be noted that possible losses from short
sales differ from those that could arise from a cash investment in that the
former may be limitless while the latter can only equal the total amount of the
Portfolio's investment in the investment. For example, if the Portfolio
purchases a $10 investment, the most that can be lost is $10. However, if the
Portfolio sells a $10 investment short, it may have to purchase the investment
for return to the lender when the market value is $50, thereby incurring a loss
of $40. The amount of any gain or loss on a short sale transaction is also
dependent on brokerage and other transaction costs.
CONVERTIBLE SECURITIES. The convertible securities in which a Portfolio may
invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time.
WARRANTS. A Portfolio may invest in warrants, which entitle the holder to
buy common stock from the issuer at a specific price (the strike price) for a
specific period of time. The market price of warrants may be substantially lower
than the current market price of the underlying securities, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with respect to
the underlying securities and do not represent any rights in the assets of the
issuing company. A warrant will expire worthless if it is not exercised on or
prior to the expiration date.
MONEY MARKET INSTRUMENTS. Certain Portfolios are permitted to invest in
money market instruments although they intend to stay invested in equity
securities to the extent practical in light of their objectives and long-term
investment perspective. These Portfolios may make money market investments
pending other investment or settlement, for liquidity or in adverse market
conditions. The money market investments permitted for these Portfolios include
U.S. Government Securities, other debt securities, commercial paper, bank
obligations and repurchase agreements. These Portfolios may also invest in
short-term obligations of sovereign foreign governments, their agencies,
instrumentalities and political subdivisions.
FINANCIAL HIGHLIGHTS
Financial Information
The following information is intended to help you understand the financial
performance of the Portfolios since the time they were first offered to the
public. The total returns in the table represent the rate that an investor would
have earned or lost on an investment in the Portfolios, assuming reinvestment of
all dividends and distributions. This information has been audited by KPMG LLP,
independent auditors, whose report, along with the Portfolios' financial
statements, are included in the Annual Report for the Trust. The Annual Report
is incorporated into the Statement of Additional Information for the Trust. You
will find information about how to get a free copy of the annual report and
Statement of Additional Information on the back cover of this Prospectus.
The Emerging Markets Equity Portfolio and the Riggs Small Company Stock
Portfolio had not commenced investment operations as of December 31, 1999.
COVA SERIES TRUST
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Small Cap Stock
Portfolio
--------------------------------------------------------------------
For the period
from May 1, 1996
Year ended Year ended Year ended (date of initial
December 31, December 31, December 31, public offering) to
1999 1998 1997 December 31, 1996
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.982 $ 13.105 $ 10.922 $ 10.512
-------------- -------------- --------------- ------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.015 0.051 0.057 0.057
Net realized and unrealized gains 5.307 (0.722) 2.217 0.843
-------------- -------------- --------------- ------------------
Total from investment operations 5.322 (0.671) 2.274 0.900
-------------- -------------- --------------- ------------------
DISTRIBUTIONS
Dividends from net investment income (0.035) (0.017) (0.055) (0.055)
Distributions from net realized gains ---- (0.435) (0.036) (0.435)
-------------- -------------- --------------- ------------------
Total distributions (0.035) (0.452) (0.091) (0.490)
-------------- -------------- --------------- ------------------
NET ASSET VALUE, END OF PERIOD $ 17.269 $ 11.982 $ 13.105 $ 10.922
-------------- -------------- --------------- ------------------
TOTAL RETURN 44.56% (5.40%) 20.89% 8.65%*
-------------- -------------- --------------- ------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 109.3 $ 78.2 $ 59.8 $ 14.7
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 1.05% 0.95% 0.95% 0.95%**
Net investment income 0.11% 0.45% 0.56% 0.87%**
PORTFOLIO TURNOVER RATE 123.5% 62.4% 79.1% 102.4% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 1.09% 1.12% 1.39% 2.68% **
Ratio of Net Investment Income to Average Net Assets: 0.07% 0.28% 0.12% (0.86%)**
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Quality Bond
Portfolio
-------------------------------------------------------------------
For the period
from May 1, 1996
Year ended Year ended Year ended (date of initial
December 31, December 31, December 31, public offering) to
1999 1998 1997 December 31, 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.020 $ 10.405 $ 10.082 $ 9.897
------------- ------------- ------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.459 0.490 0.446 0.459
Net realized and unrealized gains (0.631) 0.365 0.452 0.102
------------- ------------- ------------- -------------------
Total from investment operations (0.172) 0.855 0.898 0.561
------------- ------------- ------------- -------------------
DISTRIBUTIONS
Dividends from net investment income (0.119) (0.240) (0.531) (0.376)
Distributions from net realized gains (0.060) ---- (0.044) ----
------------- ------------- ------------- -------------------
Total distributions (0.179) (0.240) (0.575) (0.376)
------------- ------------- ------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 10.669 $ 11.020 $ 10.405 $ 10.082
------------- ------------- ------------- -------------------
TOTAL RETURN (1.54%) 8.37% 9.06% 5.68% *
------------- ------------- ------------- -------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 95.6 $ 45.8 $ 18.6 $ 5.8
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 0.64% 0.65% 0.65% 0.65% **
Net investment income 5.67% 5.59% 5.92% 5.94% **
PORTFOLIO TURNOVER RATE 369.5% 255.4% 163.7% 181.3% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 0.71% 0.86% 1.08% 1.52% **
Ratio of Net Investment Income to Average Net Assets: 5.60% 5.38% 5.49% 5.07% **
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Select Equity
Portfolio
-----------------------------------------------------------------------
For the period
from May 1, 1996
Year ended Year ended Year ended (date of initial
December 31, December 31, December 31, public offering) to
1999 1998 1997 December 31, 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 16.076 $ 13.966 $ 10.742 $ 10.084
-------------- -------------- -------------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.074 0.091 0.078 0.081
Net realized and unrealized gains 1.451 2.983 3.294 0.771
-------------- -------------- -------------- ----------------
Total from investment operations 1.525 3.074 3.372 0.852
-------------- -------------- -------------- ----------------
DISTRIBUTIONS
Dividends from net investment income (0.043) (0.046) (0.077) (0.081)
Distributions from net realized gains (1.446) (0.918) (0.071) (0.113)
-------------- -------------- -------------- ----------------
Total distributions (1.489) (0.964) (0.148) (0.194)
-------------- -------------- -------------- ----------------
NET ASSET VALUE, END OF PERIOD $ 16.112 $ 16.076 $ 13.966 $ 10.742
-------------- -------------- -------------- ----------------
TOTAL RETURN 9.71% 22.56% 31.55% 8.52% *
-------------- -------------- -------------- ----------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 249.7 $ 197.8 $ 106.9 $ 23.8
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 0.77% 0.78% 0.83% 0.85% **
Net investment income 0.55% 0.68% 0.81% 1.35% **
PORTFOLIO TURNOVER RATE 133.8% 182.9% 134.8% 123.9% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: N/A 0.86% 1.00% 1.70% **
Ratio of Net Investment Income to Average Net Assets: N/A 0.60% 0.64% 0.50% **
* Non-annualized
** Annualized
N/A Not Applicable
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Large Cap Stock
Portfolio
-----------------------------------------------------------------------
For the period
from May 1, 1996
Year ended Year ended Year ended (date of initial
December 31, December 31, December 31, public offering) to
1999 1998 1997 December 31, 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.115 $ 13.845 $ 11.112 $ 10.003
-------------- -------------- -------------- ------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.105 0.098 0.113 0.124
Net realized and unrealized gains 3.057 4.357 3.560 1.304
-------------- -------------- -------------- ------------------
Total from investment operations 3.162 4.455 3.673 1.428
-------------- -------------- -------------- ------------------
DISTRIBUTIONS
Dividends from net investment income (0.026) (0.043) (0.118) (0.122)
Distributions from net realized gains (0.576) (0.142) (0.822) (0.197)
-------------- -------------- -------------- ------------------
Total distributions (0.602) (0.185) (0.940) (0.319)
-------------- -------------- -------------- ------------------
NET ASSET VALUE, END OF PERIOD $ 20.675 $ 18.115 $ 13.845 $ 11.112
-------------- -------------- -------------- ------------------
TOTAL RETURN 17.64% 32.31% 33.25% 14.35% *
-------------- -------------- -------------- ------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 263.1 $ 103.8 $ 32.3 $ 16.8
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 0.75% 0.75% 0.75% 0.75% **
Net investment income 0.75% 0.77% 0.99% 1.56% **
PORTFOLIO TURNOVER RATE 63.2% 62.4% 59.5% 35.5% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 0.76% 0.94% 1.08% 1.23% **
Ratio of Net Investment Income to Average Net Assets: 0.74% 0.58% 0.66% 1.08% **
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
International Equity
Portfolio
-----------------------------------------------------------------------
For the period
from May 1, 1996
Year ended Year ended Year ended (date of initial
December 31, December 31, December 31, public offering) to
1999 1998 1997 December 31, 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.857 $ 11.472 $ 10.959 $ 10.215
-------------- -------------- -------------- ------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.083 0.117 0.122 0.096
Net realized and unrealized gains 3.534 1.491 0.539 0.755
-------------- -------------- -------------- ------------------
Total from investment operations 3.617 1.608 0.661 0.851
-------------- -------------- -------------- ------------------
DISTRIBUTIONS
Dividends from net investment income (0.068) (0.220) (0.137) (0.086)
Distributions from net realized gains (0.181) (0.003) (0.011) (0.021)
-------------- -------------- -------------- ------------------
Total distributions (0.249) (0.223) (0.148) (0.107)
-------------- -------------- -------------- ------------------
NET ASSET VALUE, END OF PERIOD $ 16.225 $ 12.857 $ 11.472 $ 10.959
-------------- -------------- -------------- ------------------
TOTAL RETURN 28.52% 14.07% 5.96% 8.44% *
-------------- -------------- -------------- ------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 138.1 $ 104.5 $ 68.8 $ 15.6
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 1.10% 0.91% 0.95% 0.95% **
Net investment income 0.62% 0.97% 1.35% 1.43% **
PORTFOLIO TURNOVER RATE 82.8% 74.0% 74.1% 48.2% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 1.15% 1.09% 1.53% 3.80% **
Ratio of Net Investment Income to Average Net Assets: 0.57% 0.79% 0.77% (1.42%)**
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Bond Debenture
Portfolio
-----------------------------------------------------------------------
For the period
from May 1, 1996
Year ended Year ended Year ended (date of initial
December 31, December 31, December 31, public offering) to
1999 1998 1997 December 31, 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.381 $ 12.112 $ 10.970 $ 10.098
-------------- -------------- -------------- -----------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.710 0.682 0.544 0.345
Net realized and unrealized gains (0.293) 0.072 1.147 0.949
-------------- -------------- -------------- -----------------
Total from investment operations 0.417 0.754 1.691 1.294
-------------- -------------- -------------- -----------------
DISTRIBUTIONS
Dividends from net investment income (0.244) (0.349) (0.549) (0.342)
Distributions from net realized gains (0.079) (0.136) ---- (0.080)
-------------- -------------- -------------- -----------------
Total distributions (0.323) (0.485) (0.549) (0.422)
-------------- -------------- -------------- -----------------
NET ASSET VALUE, END OF PERIOD $ 12.475 $ 12.381 $ 12.112 $ 10.970
-------------- -------------- -------------- -----------------
TOTAL RETURN 3.40% 6.26% 15.63% 12.89% *
-------------- -------------- -------------- -----------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 170.2 $ 120.0 $ 55.4 $ 7.7
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 0.85% 0.85% 0.85% 0.85% **
Net investment income 6.74% 6.58% 6.68% 7.26% **
PORTFOLIO TURNOVER RATE 46.7% 84.7% 100.3% 58.1% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 0.86% 0.93% 1.07% 2.05% **
Ratio of Net Investment Income to Average Net Assets: 6.73% 6.50% 6.46% 6.06% **
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Mid-Cap Value
Portfolio
-----------------------------------------------------
For the period
from August 20, 1997
Year ended Year ended (commencement
December 31, December 31, of operations) to
1999 1998 December 31, 1997
-----------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.583 $ 10.481 $ 10.000
-------------- -------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.042 0.032 0.010
Net realized and unrealized gains 0.557 0.087 0.481
-------------- -------------- -------------------
Total from investment operations 0.599 0.119 0.491
-------------- -------------- -------------------
DISTRIBUTIONS
Dividends from net investment income (0.014) (0.017) (0.010)
Distributions from net realized gains ---- ---- ----
-------------- -------------- -------------------
Total distributions (0.014) (0.017) (0.010)
-------------- -------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 11.168 $ 10.583 $ 10.481
-------------- -------------- -------------------
TOTAL RETURN 5.71% 1.11% 4.90% *
-------------- -------------- -------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 29.4 $ 18.3 $ 2.2
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 1.25% 1.10% 1.10% **
Net investment income 0.50% 0.44% 0.97% **
PORTFOLIO TURNOVER RATE 64.3% 41.0% 1.5% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 1.41% 1.68% 8.41% **
Ratio of Net Investment Income to Average Net Assets: 0.34% (0.14%) (6.34%)**
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Large Cap Research
Portfolio
---------------------------------------------------
For the period
from August 20, 1997
Year ended Year ended (commencement
December 31, December 31, of operations) to
1999 1998 December 31, 1997
---------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.964 $ 9.905 $ 10.000
-------------- -------------- -----------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.026 0.069 0.017
Net realized and unrealized gains 3.023 2.023 (0.096)
-------------- -------------- -----------------
Total from investment operations 3.049 2.092 (0.079)
-------------- -------------- -----------------
DISTRIBUTIONS
Dividends from net investment income (0.022) (0.033) (0.016)
Distributions from net realized gains ---- ---- ----
-------------- -------------- -----------------
Total distributions (0.022) (0.033) (0.016)
-------------- -------------- -----------------
NET ASSET VALUE, END OF PERIOD $ 14.991 $ 11.964 $ 9.905
-------------- -------------- -----------------
TOTAL RETURN 25.54% 21.04% (0.74%)*
-------------- -------------- -----------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 36.0 $ 13.9 $ 1.4
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 1.25% 1.10% 1.10% **
Net investment income 0.41% 0.97% 1.53% **
PORTFOLIO TURNOVER RATE 67.7% 103.0% 1.3% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 1.38% 1.95% 10.04% **
Ratio of Net Investment Income to Average Net Assets: 0.28% 0.12% (7.41%)**
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Developing Growth
Portfolio
-----------------------------------------------------
For the period
from August 20, 1997
Year ended Year ended (commencement
December 31, December 31, of operations) to
1999 1998 December 31, 1997
-----------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.241 $ 10.549 $ 10.000
-------------- -------------- --------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.073) (0.025) 0.002
Net realized and unrealized gains 3.717 0.723 0.549
-------------- -------------- --------------------
Total from investment operations 3.644 0.698 0.551
-------------- -------------- --------------------
DISTRIBUTIONS
Dividends from net investment income ---- ---- (0.002)
Distributions from net realized gains ---- (0.006) ----
-------------- -------------- --------------------
Total distributions ---- (0.006) (0.002)
-------------- -------------- --------------------
NET ASSET VALUE, END OF PERIOD $ 14.885 $ 11.241 $ 10.549
-------------- -------------- --------------------
TOTAL RETURN 32.47% 6.60% 5.52% *
-------------- -------------- --------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 33.6 15.9 $ 1.7
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 1.15% 1.00% 1.00% **
Net investment income (0.73%) (0.47%) 0.18% **
PORTFOLIO TURNOVER RATE 53.2% 18.7% 9.1% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 1.34% 1.70% 9.00% **
Ratio of Net Investment Income to Average Net Assets: (0.92%) (1.17%) (7.82%)**
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Lord Abbett
Growth and Income
Portfolio
------------------
For the period from
January 8, 1999
(commencement of
operations) to
December 31, 1999
------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.603
------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.274
Net realized and unrealized gains 2.194
------------------
Total from investment operations 2.468
------------------
DISTRIBUTIONS
Dividends from net investment income ----
Distributions from net realized gains ----
------------------
Total distributions ----
------------------
NET ASSET VALUE, END OF PERIOD $ 24.071
------------------
TOTAL RETURN 11.38% *
------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 887.0
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 0.70% **
Net investment income 1.24% **
PORTFOLIO TURNOVER RATE 70.8% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: N/A
Ratio of Net Investment Income to Average Net Assets: N/A
* Non-annualized
** Annualized
N/A Not Applicable
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Balanced
Portfolio
---------------------------------------------------
For the period
from July 1, 1997
Year ended Year ended (commencement
December 31, December 31, of operations) to
1999 1998 December 31, 1997
---------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.398 $ 10.389 $ 10.000
-------------- -------------- -----------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.232 0.223 0.123
Net realized and unrealized gains 0.581 1.152 0.477
-------------- -------------- -----------------
Total from investment operations 0.813 1.375 0.600
-------------- -------------- -----------------
DISTRIBUTIONS
Dividends from net investment income (0.233) (0.222) (0.124)
Distributions from net realized gains (0.120) (0.144) (0.087)
-------------- -------------- -----------------
Total distributions (0.353) (0.366) (0.211)
-------------- -------------- -----------------
NET ASSET VALUE, END OF PERIOD $ 11.858 $ 11.398 $ 10.389
-------------- -------------- -----------------
TOTAL RETURN 7.14% 13.31% 6.01% *
-------------- -------------- -----------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 9.7 $ 4.6 $ 1.5
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 1.10% 1.10% 1.10% **
Net investment income 2.52% 2.54% 2.74% **
PORTFOLIO TURNOVER RATE 27.4% 36.0% 13.6% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 2.06% 3.08% 3.81% **
Ratio of Net Investment Income to Average Net Assets: 1.56% 0.56% 0.03% **
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Equity Income
Portfolio
---------------------------------------------------
For the period
from July 1, 1997
Year ended Year ended (commencement
December 31, December 31, of operations) to
1999 1998 December 31, 1997
---------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.626 $ 11.047 $ 10.000
-------------- -------------- ------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.194 0.167 0.074
Net realized and unrealized gains 0.107 0.862 1.192
-------------- -------------- ------------------
Total from investment operations 0.301 1.029 1.266
-------------- -------------- ------------------
DISTRIBUTIONS
Dividends from net investment income (0.190) (0.167) (0.074)
Distributions from net realized gains (0.568) (0.283) (0.145)
-------------- -------------- ------------------
Total distributions (0.758) (0.450) (0.219)
-------------- -------------- ------------------
NET ASSET VALUE, END OF PERIOD $ 11.169 $ 11.626 $ 11.047
-------------- -------------- ------------------
TOTAL RETURN 2.51% 9.35% 12.69% *
-------------- -------------- ------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 7.0 $ 4.7 $ 1.7
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 1.10% 1.10% 1.10% **
Net investment income 1.85% 1.79% 1.65% **
PORTFOLIO TURNOVER RATE 58.8% 79.4% 17.9% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 2.23% 2.69% 3.58% **
Ratio of Net Investment Income to Average Net Assets: 0.72% 0.20% (0.83%)**
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Growth & Income Equity
Portfolio
-----------------------------------------------------
For the period
from July 1, 1997
Year ended Year ended (commencement
December 31, December 31, of operations) to
1999 1998 December 31, 1997
-----------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.995 $ 10.710 $ 10.000
-------------- -------------- --------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.049 0.057 0.033
Net realized and unrealized gains 1.890 1.538 0.793
-------------- -------------- --------------------
Total from investment operations 1.939 1.595 0.826
-------------- -------------- --------------------
DISTRIBUTIONS
Dividends from net investment income (0.049) (0.058) (0.032)
Distributions from net realized gains (0.097) (0.252) (0.084)
-------------- -------------- --------------------
Total distributions (0.146) (0.310) (0.116)
-------------- -------------- --------------------
NET ASSET VALUE, END OF PERIOD $ 13.788 $ 11.995 $ 10.710
-------------- -------------- --------------------
TOTAL RETURN 16.17% 14.95% 8.26% *
-------------- -------------- --------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 16.4 $ 9.1 $ 2.4
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 1.10% 1.10% 1.10% **
Net investment income 0.45% 0.65% 0.87%
PORTFOLIO TURNOVER RATE 37.8% 57.5% 18.1% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 1.59% 2.00% 3.51% **
Ratio of Net Investment Income to Average Net Assets: (0.04%) (0.25%) (1.54%)**
* Non-annualized
** Annualized
</TABLE>
<PAGE>
COVA SERIES TRUST
FINANCIAL HIGHLIGHTS
FOR A SHARE HELD THROUGHOUT THE PERIODS INDICATED
<TABLE>
<CAPTION>
Riggs Riggs
U.S. Government Securities Stock
Portfolio Portfolio
For the period For the period
from November 3, 1999 from November 3, 1999
(date of initial (date of initial
public offering) to public offering) to
December 31, 1999 December 31, 1999
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.158 $ 10.107
-------------- --------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.081 0.072
Net realized and unrealized gains (0.194) 0.109
-------------- --------------
Total from investment operations (0.113) 0.181
-------------- --------------
DISTRIBUTIONS
Dividends from net investment income ---- ----
Distributions from net realized gains ---- ----
-------------- --------------
Total distributions ---- ----
-------------- --------------
NET ASSET VALUE, END OF PERIOD $ 10.045 $ 10.288
-------------- --------------
TOTAL RETURN (1.18%) * 1.78% *
-------------- --------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of period (In millions) $ 0.3 $ 0.2
RATIOS TO AVERAGE NET ASSETS (1):
Expenses 0.85% ** 1.05% **
Net investment income 6.10% ** 6.29% **
PORTFOLIO TURNOVER RATE 10.5% * 4.2% *
(1) If certain expenses had not been reimbursed by the
Adviser, total return would have been lower and the
ratios would have been as follows:
Ratio of Operating Expenses to Average Net Assets: 41.14% ** 95.97% **
Ratio of Net Investment Income to Average Net Assets: (34.19%) ** (88.63%) **
* Non-annualized
** Annualized
</TABLE>
PERFORMANCE OF THE PORTFOLIOS
Performance information for the Portfolios of the Trust, including a bar chart
and average annual total return information since the inception of the
Portfolios, is contained in this Prospectus under the heading "Bar Charts and
Tables."
COMPARABLE PERFORMANCE
Public Fund Performance
Each of the Bond Debenture Portfolio, the Mid-Cap Value Portfolio, the Large Cap
Research Portfolio and the Developing Growth Portfolio has a substantially
similar investment objective and follows substantially the same investment
strategies as certain mutual funds whose shares are sold to the public. Each of
these public mutual funds is managed by Lord, Abbett & Co., the same Sub-Adviser
which manages each of the corresponding Portfolios.
The historical performance of each of these public mutual funds is shown below.
This performance data should not be considered as an indication of future
performance of the Portfolios. The public mutual fund performance figures shown
below:
* reflect the deduction of the historical fees and expenses paid by the
public mutual funds and not those to be paid by the Portfolios
* do not reflect Contract fees or charges imposed by Cova Life.
Investors should refer to the Variable Account prospectus for
information describing the Contract fees and charges. These fees and
charges will have a detrimental effect on Portfolio performance.
The Portfolios and their corresponding public mutual fund series are expected to
hold similar securities. However, their investment results are expected to
differ for the following reasons:
* differences in asset size and cash flow resulting from purchases and
redemptions of Portfolio shares may result in different security
selections
* differences in the relative weightings of securities
* differences in the price paid for particular portfolio holdings
* differences relating to certain tax matters
The following table shows average annualized total returns for each comparable
public mutual fund for its fiscal 1999 year (ended December 31, 1999). Also
shown are performance comparisons between these public mutual funds.
BOND DEBENTURE PORTFOLIO
Corresponding 1 5 10
Public Fund Year Year Year
_________________________________________________________________
Lord Abbett - Bond
Debenture Fund, Inc. 3.91% 9.89% 10.23%
MID-CAP VALUE PORTFOLIO
Corresponding 1 5 10
Public Fund Year Year Year
_________________________________________________________________
Lord Abbett -
Mid-Cap Value Fund 4.23% 15.84% 12.23%
LARGE CAP RESEARCH PORTFOLIO
Corresponding 1 5 Since
Public Fund Year Year Inception
(June 3, 1992)
_________________________________________________________________
Lord Abbett Research Fund
(Large Cap Series) 17.38% 22.24% 19.08%
DEVELOPING GROWTH PORTFOLIO
Corresponding 1 5 10
Public Fund Year Year Year
_________________________________________________________________
Lord Abbett
Developing Growth Fund 38.16% 28.34% 19.44%
CORRESPONDING PORTFOLIO PERFORMANCE - LORD ABBETT GROWTH AND INCOME PORTFOLIO
The Lord Abbett Growth and Income Portfolio, which is managed by Lord, Abbett &
Co., commenced operations on January 8, 1999. It is managed with investment
objectives, policies and strategies substantially similar to those used in
managing the Growth and Income Portfolio ("Corresponding Portfolio") of Lord
Abbett Series Fund, Inc., a mutual fund whose shares are offered only
* to life insurance companies for allocation to certain of their separate
accounts established for the purpose of funding variable annuity contracts and
variable life insurance policies and
* to tax-qualified pension and retirement plans.
This Corresponding Portfolio is managed by the same portfolio manager of Lord,
Abbett & Co. who manages the Lord Abbett Growth and Income Portfolio.
The historical performance of the Corresponding Portfolio is shown below. This
performance data should be not considered as an indication of future performance
of the Portfolios. The Corresponding Portfolio performance figures shown below:
* reflect the deduction of the historical fees and expenses paid by the
Corresponding Portfolio and not those to be paid by the Lord Abbett Growth and
Income Portfolio
* do not reflect Contract fees or charges imposed by Cova Life. Investors
should refer to the Variable Account prospectus for information describing the
Contract fees and charges. These fees and charges will have a detrimental effect
on the performance of the Lord Abbett Growth and Income Portfolio.
The Lord Abbett Growth and Income Portfolio and the Corresponding Portfolio are
expected to hold similar securities. However, their investment results are
expected to differ for the following reasons:
* differences in asset size and cash flow resulting from purchases and
redemptions of Portfolio shares may result in different security selections
* differences in the relative weightings of securities
* differences in the price paid for particular portfolio holdings
The following table shows average annual total return for the time periods shown
for the Corresponding Portfolio (for the periods ended 12/31/99).
LORD ABBETT GROWTH AND INCOME PORTFOLIO
Corresponding 1 5 Since
Portfolio Year Year Inception
(December 11, 1989)
_________________________________________________________________
Lord Abbett Series Fund, Inc.
(Growth and Income Portfolio) 16.74% 20.55% 16.25%
PRIVATE ACCOUNT PERFORMANCE
The Select Equity, Large Cap Stock, Small Cap Stock and Quality Bond Portfolios,
each of which is managed by J.P. Morgan Investment Management Inc., commenced
public sale of their shares on May 1, 1996. Each of these Portfolios has
investment objectives, policies and strategies which are substantially similar
to those employed by J.P. Morgan Investment Management Inc. with respect to
certain Private Accounts.
The Balanced, Equity Income and Growth & Income Equity Portfolios, managed by
MVA, commenced investment operations as of July 1, 1997. Each of these
Portfolios has investment objectives, policies and strategies which are
substantially similar to those employed by MVA with respect to certain Private
Accounts.
The Riggs U.S. Government Securities and the Riggs Stock Portfolios, managed by
Riggs Bank N.A., commenced investment operations on October 15, 1999 and
November 3, 1999, respectively. The Riggs Small Company Stock Portfolio has not
yet commenced investment operations. Each of these Portfolios has investment
objectives, policies and strategies which are substantially similar to those
employed by Riggs Bank N.A. with respect to certain Private Accounts.
Thus, the performance information derived from these Private Accounts may be
deemed relevant to the investor. The performance of the Portfolios will vary
from the Private Account composite information in that
* each Portfolio will be actively managed and its investments will vary from
time to time
* each Portfolio's investments will not be identical to the past portfolio
investments of the Private Accounts
* the Private Accounts are not subject to certain investment limitations,
diversification requirements and other restrictions imposed by federal tax
and securities laws
* the Private Accounts do not reflect Contract fees or charges imposed by
Cova Life. Investors should refer to the Variable Account prospectus for
information describing the Contract fees and charges. These fees and
charges will have a detrimental effect on Portfolio performance.
The Portfolios and their corresponding Private Accounts are expected to hold
similar securities. However, their investment results are expected to differ
for the following reasons:
* differences in asset size and cash flow resulting from purchases and
redemptions of Portfolio shares may result in different security selections
* differences in the relative weightings of securities
* differences in the price paid for particular portfolio holdings.
The chart below shows performance information derived from historical composite
performance of the Private Accounts. The performance figures shown below
represent the performance results of the composites of comparable Private
Accounts, adjusted to reflect the deduction of the fees and expenses paid or
anticipated to be paid by the Portfolios. Investors should be aware that the
Private Account composites are not substitutes for the performance histories of
the Portfolios. The Private Account composite performance figures are
time-weighted rates of return which include all income and accrued income and
realized and unrealized gains or losses, but do not reflect the deduction of
investment advisory fees actually charged to the Private Accounts. Inception was
June 1, 1987 for the Public Bond Composite, November 1, 1989 for the Structured
Stock Selection Composite, January 1, 1989 for the Equity Income Composite,
for the RIMCO Large Capitalization Composite and the RIMCO Small Capitalization
Composite and January 1, 1992 for the RIMCO Total Return Gov/Corp. Composite.
PRIVATE ACCOUNT COMPOSITE PERFORMANCE
REDUCED BY PORTFOLIO FEES AND EXPENSES
FOR THE PERIODS ENDED 12/31/99
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
10 Years
or Since
Portfolio 1 Year 5 Years Inception
- ------------------------------ ------- -------- ----------
<S> <C> <C> <C>
Active Equity
Composite 12.94% 24.11% 17.45%
(Select Equity Portfolio)
Structured Stock Selection
Composite
(Large Cap Stock Portfolio) 18.58% 28.67% 18.86%
Small Cap Directly Invested
Composite 43.29% 22.85% 15.05%
(Small Cap Stock Portfolio)
Public Bond
Composite (1.53)% 7.09% 7.93%
(Quality Bond Portfolio)
Balanced
Composite 9.11% 15.33% 11.50%
(Balanced Portfolio)
Equity Income
Composite 1.28% 20.18% 14.42%
(Equity Income Portfolio)
Growth & Income Equity
Composite 15.13% 22.31% 15.54%
(Growth & Income Equity
Portfolio)
RIMCO Large Capitalization
Composite (0.23)% 19.96% 15.61%
(Riggs Stock Portfolio)
RIMCO Small Capitalization
Composite (1.80)% 14.85% 20.19%
(Riggs Small Company
Stock Portfolio)
RIMCO Total Return Gov/Corp
Composite (0.92)% 6.82% 6.09%
(Riggs U.S. Government
Securities Portfolio)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERFORMANCE RECAP Performance
1 Yr or Since 10 Yrs or
Portfolio Type Inception 5 Yrs Since Inception
- ---------- ---- ------ ------ ----------------
MANAGED BY J. P. MORGAN
INVESTMENT MANAGEMENT INC.
Select Equity Private Account 12.94% 24.11% 17.45%
Composite
Existing Portfolio 9.71% -- 19.44%*
Small Cap Stock Private Account 43.29% 22.85% 15.05%
Composite
Existing Portfolio 44.56% -- 17.30%*
Quality Bond Private Account (1.53)% 7.09% 7.93%
Composite
Existing Portfolio (1.54)% -- 5.79%*
Large Cap Stock Private Account 18.58% 28.67% 18.86%
Composite
Existing Portfolio 17.64% -- 26.52%*
International Equity Existing Portfolio 28.52% -- 15.26%*
MANAGED BY LORD, ABBETT & CO.
Bond Debenture Public Fund 3.91% 9.89% 10.23%
Existing Portfolio 3.40% -- 10.32%*
Mid-Cap Value Public Fund 4.23% 15.84% 12.23%
Existing Portfolio 5.71% -- 4.95%*
Large Cap Research Public Fund 17.38% 22.24% 19.08%
Existing Portfolio 25.54% -- 18.96%*
Developing Growth Public Fund 38.16% 28.34% 19.44%
Existing Portfolio 32.47% -- 18.35%*
Lord Abbett Growth and Income Corresponding Portfolio 16.74% 20.55% 16.25%
Existing Portfolio 11.38% - 11.38%*
MANAGED BY FIRMCO, LLC
Balanced Private Account 9.11% 15.33% 11.50%
Composite
Existing Portfolio 7.14% -- 10.60%*
Equity Income Private Account 1.28% 20.18% 14.42%
Composite
Existing Portfolio 2.51% -- 9.78%*
Growth & Income Equity Private Account 15.13% 22.31% 15.54%
Composite
Existing Portfolio 16.17% -- 15.86%*
MANAGED BY THE TRUST DIVISION
OF RIGGS BANK N.A.
Riggs Stock Private Account
Composite (0.23)% 19.96% 15.61%
Existing Portfolio 1.78% -- 1.78%
Riggs Small Company Stock Private Account
Composite (1.80)% 14.85% 20.19%
Existing Portfolio -- -- --
Riggs U.S. Government Private Account
Securities Composite (0.92)% 6.82% 6.09%
Existing Portfolio (1.18)% -- (1.18)%*
- ----------------------------- ------------------ ------ ------- -------
</TABLE>
* The inception date for the Quality Bond, Small Cap Stock, Large Cap Stock,
Select Equity, International Equity and Bond Debenture Portfolios is May 1,
1996. The inception date for the Balanced, Equity Income and Growth &
Income Equity Portfolios is July 1, 1997. The inception date for the
Mid-Cap Value, Large Cap Research and Developing Growth Portfolios is
August 20, 1997. The inception date for the Lord Abbett Growth and Income
Portfolio is January 8, 1999. The inception date for the Riggs U.S.
Government Securities Portfolio is October 15, 1999 and the inception date
for the Riggs Stock Portfolio is November 3, 1999. The Riggs Small Company
Stock Portfolio has not yet commenced investment operations. All of the
inception dates shown in this paragraph are the dates from which the
average annual total return computations are calculated for these
Portfolios.
(1) Investors should not consider the performance data of these Private
Accounts and Public Funds as an indication of the future performance of the
respective Portfolios. The figures also do not reflect the deduction of any
insurance fees or charges which are imposed by Cova Life in connection with its
sale of Contracts. Investors should refer to the Variable Account prospectus
describing the Contracts for information pertaining to these insurance fees and
charges. All fees and charges will have a detrimental effect on the performance
of a Portfolio.
ADDITIONAL PERFORMANCE INFORMATION
Further information about the Trust's performance is contained in the Annual
Report to shareholders which may be obtained, without charge, by calling (800)
831-LIFE, or writing Cova Life at One Tower Lane, Suite 3000, Oakbrook Terrace,
Illinois 60181-4644.
COVA SERIES TRUST
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
Additional information about the Trust and its Portfolios can be found in the
Statement of Additional Information. Additional information about the
Portfolios' investments is available in the Trust's annual and semi-annual
reports to shareholders. In the annual report, you will find a discussion of the
market conditions and investment strategies that significantly affected the
performance of the Portfolios during their last fiscal year. The Statement of
Additional Information and the annual and semi-annual reports are available on
request without charge for any person having an interest in the Trust.
The Trust can provide you with a free copy of these materials or other
information about the Trust. You may reach the Trust
By Mail: Cova Series Trust
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
By Phone: 1-800-831-LIFE
Or you may view or obtain these documents from the Securities and Exchange
Commission:
* Call the Commission at 1-202-942-8090 for information on the operation
of the Public Reference Room
* Reports and other information about the Trust are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov
* Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at [email protected], or by writing the Commission's
Public Reference Section, Wash. D.C. 20549-0102
On the Internet: www.sec.gov
The Trust's Investment Company Act filing number is 811-5252.
Information about the purchase and sale of the Trust shares and the related
costs is included in the prospectus for the Contracts that offer the Portfolios
as investments.
PART B
STATEMENT OF ADDITIONAL INFORMATION
COVA SERIES TRUST
One Tower Lane, Suite 3000
Oakbrook Terrace, Illinois 60181-4644
The date of this Statement of Additional Information is May 1, 2000
This Statement of Additional Information is not a prospectus. It contains
information that supplements the information in the prospectus dated May 1,
2000, for the Trust and its Portfolios. It also contains additional information
that may be of interest to you. The prospectus incorporates this Statement of
Additional Information by reference. You may obtain a free copy of the
prospectus from your registered representative who offered or sold you your
variable annuity contract or variable life insurance policy that uses the
Portfolios for investment. You may also obtain copies by calling Cova Financial
Services Life Insurance Company at 1-800-831-LIFE or by writing to: Cova
Financial Services Life Insurance Company, One Tower Lane, Suite 3000, Oakbrook
Terrace, Illinois 60181-4644.
TABLE OF CONTENTS
PAGE
THE TRUST 3
INVESTMENT STRATEGIES AND RISKS 3
INVESTMENT LIMITATIONS 31
DESCRIPTION OF SECURITIES RATINGS 45
MANAGEMENT OF THE TRUST 45
OFFICERS AND TRUSTEES 46
SUBSTANTIAL SHAREHOLDERS 50
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS 50
CUSTODIAN 50
DIVIDENDS 50
TAX STATUS 50
NET ASSET VALUES 51
PERFORMANCE DATA 51
LEGAL COUNSEL AND INDEPENDENT AUDITORS 53
INVESTMENT ADVISORY AGREEMENT 53
PORTFOLIO TRANSACTIONS 57
FINANCIAL STATEMENTS 58
APPENDIX 59
THE TRUST
History
The Trust was established as a Massachusetts business trust under the laws of
Massachusetts by a Declaration of Trust dated July 9, 1987 (the "Declaration of
Trust"). The Trust changed its name from "Van Kampen Merritt Series Trust" to
its current name on May 1, 1996.
Classification
The Trust is an open-end, management investment company. It is divided into
different series, each of which has its own assets, investment objectives and
policies. Each is managed separately, using distinct strategies appropriate to
its objectives and policies. The Trust currently has seventeen Portfolios. The
Trust may authorize additional Portfolios in the future. The Trust cannot change
its classification as an open-end, management investment company without the
consent of a majority of its shareholders. A Portfolio that is currently
diversified cannot change to nondiversified without the approval of a majority
of the shareholders of that Portfolio.
Shareholder Liability
Under Massachusetts law, shareholders of a trust may be held personally liable
as partners for the obligations of the trust under certain circumstances. The
Declaration of Trust contains an express disclaimer of shareholder liability in
connection with Trust property or the acts, obligations, or affairs of the
Trust. The Declaration of Trust also provides for indemnification out of a
Portfolio's property of any shareholder of that Portfolio held personally liable
for the claims and liabilities to which a shareholder may become subject by
reason of being or having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Portfolio itself would be unable to meet its
obligations. A copy of the Declaration of Trust is on file with the Secretary of
State of The Commonwealth of Massachusetts.
INVESTMENT STRATEGIES AND RISKS
Summary
The prospectus for the Trust describes the principal strategies of each of the
Portfolios and the risks of those strategies. This Section describes the
strategies that are not principal strategies for the Portfolios, but which the
Sub-Advisers may use in managing a Portfolio and the risks of those strategies.
Some of these strategies could affect the return of the Portfolio. Additional
information on certain Portfolios is also provided.
ADDITIONAL INFORMATION - PORTFOLIOS MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT
INC.
QUALITY BOND PORTFOLIO. The Quality Bond Portfolio is designed to be an
economical and convenient means of making substantial investments in a domestic
and foreign issuer, subject to certain quality and other restrictions. See
"Quality and Diversification Requirements. The Portfolio's investment objective
is to provide a high total return consistent with moderate risk of capital and
maintenance of liquidity. Although the net asset value of the Portfolio will
fluctuate, the Portfolio attempts to conserve the value of its investments to
the extent consistent with its objective.
The Portfolio attempts to achieve its investment objective by investing in
high grade corporate and government debt obligations and related securities of
domestic and foreign issuers described in the Prospectus and this Statement of
Additional Information.
INVESTMENT PROCESS
Duration/yield curve management: The Sub-Adviser's duration decision begins
with an analysis of real yields, which its research indicates are generally a
reliable indicator of longer term interest rate trends. Other factors the
Sub-Adviser studies in regard to interest rates include economic growth and
inflation, capital flows and monetary policy. Based on this analysis, the
Sub-Adviser forms a view of the most likely changes in the level and shape of
the yield curve -- as well as the timing of those changes -- and sets the
Portfolio's duration and maturity structure accordingly. The Sub-Adviser
typically limits the overall duration of the Portfolio to a range between one
year shorter and one year longer than that of the Salomon Brothers Broad
Investment Grade Bond Index, the benchmark index.
Sector allocations: Sector allocations are driven by the Sub-Adviser's
fundamental and quantitative analysis of the relative valuation of a broad array
of fixed income sectors. Specifically, the Sub-Adviser utilizes market and
credit analysis to assess whether the current risk-adjusted yield spreads of
various sectors are likely to widen or narrow. The Sub-Adviser then overweights
(underweights) those sectors its analysis indicates offer the most (least)
relative value, basing the speed and magnitude of these shifts on valuation
considerations.
Security selection: Securities are selected by the portfolio manager, with
substantial input from the Sub-Adviser's fixed income analysts and traders.
Using quantitative analysis as well as traditional valuation methods, the
Sub-Adviser's applied research analysts aim to optimize security selection
within the bounds of the Portfolio's investment objective. In addition, credit
analysts -- supported by the Sub-Adviser's equity analysts -- assess the
creditworthiness of issuers and counterparties. A dedicated trading desk
contributes to security selection by tracking new issuance, monitoring dealer
inventories, and identifying attractively priced bonds. The traders also handle
all transactions for the Portfolio.
SELECT EQUITY PORTFOLIO AND LARGE CAP STOCK PORTFOLIO. The investment
objective of each Portfolio is long-term growth of capital and income.
In normal circumstances, at least 65% of each Portfolio's net assets will
be invested in equity securities consisting of common stocks and other
securities with equity characteristics comprised of preferred stock, warrants,
rights, convertible securities, trust certificates, limited partnership
interests and equity participations (collectively, "Equity Securities"). Each
Portfolio's primary equity investments are the common stock of large and medium
sized U.S. corporations and, to a limited extent, similar securities of foreign
corporations.
INVESTMENT PROCESS
Research: The Sub-Adviser's domestic equity analysts, each an industry
specialist, follow 700 predominantly large- and medium-sized U.S.
companies -- 500 of which form the universe for each Portfolio's investments.
Their research goal is to forecast normalized, longer term earnings and
dividends for the most attractive companies among those they cover. In doing
this, they may work in concert with the Sub-Adviser's international equity
analysts in order to gain a broader perspective for evaluating industries and
companies in today's global economy.
Valuation: The analysts' forecasts are converted into comparable expected
returns by a dividend discount model, which calculates those expected returns
by comparing a company's current stock price with the "fair value" price
forecasted by its estimated long term earnings power. Within each sector,
companies are ranked by their expected return and grouped into quintiles: those
with the highest expected returns (Quintile 1) are deemed the most undervalued
relative to their long-term earnings power, while those with the lowest expected
returns (Quintile 5) are deemed the most overvalued.
Stock Selection: A diversified portfolio is constructed using disciplined
buy and sell rules. The specific names selected reflect the portfolio manager's
judgment concerning the soundness of the underlying forecasts, the likelihood
that the perceived misevaluation will be corrected within a reasonable time
frame and the magnitude of the risks versus the rewards. Portfolio sector
weightings are held close to those of the S&P 500 Index, reflecting the
Sub-Adviser's belief that its research has the potential to add value at the
individual stock level, but not at the sector level. Sector neutrality is also
seen as a way to help protect the portfolio from macroeconomic risks, and --
together with diversification -- represents an important element of the
Sub-Adviser's risk control strategy. A dedicated trading desk handles all
transactions for the Portfolio.
SMALL CAP STOCK PORTFOLIO. This Portfolio is designed for investors who are
willing to assume the somewhat higher risk of investing in small companies in
order to seek a higher return over time than might be expected from a portfolio
of stocks of large companies. The Portfolio's investment objective is to provide
a high total return from a portfolio of Equity Securities of small companies.
The Portfolio attempts to achieve its investment objective by investing
primarily in the common stock of small U.S. companies included in the Russell
2000 Index, which is composed of 2000 common stocks of U.S. companies with
market capitalizations ranging between $100 million and $2 billion.
INVESTMENT PROCESS
Research: The Sub-Adviser's domestic equity analysts -- each an industry
specialist -- continuously monitor the small cap stocks in their respective
sectors with the aim of identifying companies that exhibit superior financial
strength and operating returns. Meetings with management and on-site visits play
a key role in shaping their assessments. Their research goal is to forecast
normalized, long-term earnings and dividends for the most attractive small cap
companies among those they monitor -- a universe that generally contains a total
of approximately 600 names. Because the Sub-Adviser's analysts follow both the
larger and smaller companies in their industries -- in essence, covering their
industries from top to bottom -- they are able to bring broad perspective to the
research they do on both.
Valuation: The analysts' forecasts are converted into comparable expected
returns by the Sub-Adviser's dividend discount model, which calculates those
returns by comparing a company's current stock price with the "fair value" price
forecasted by its estimated long-term earnings power. Within each industry,
companies are ranked by their expected returns and grouped into quintiles: those
with the highest expected returns (Quintile 1) are deemed the most undervalued
relative to their long-term earnings power, while those with the lowest expected
returns (Quintile 5) are deemed the most overvalued.
Stock Selection: A diversified portfolio is constructed using disciplined
buy and sell rules. Purchases are concentrated among the stocks in the top two
quintiles of the rankings: the specific names selected reflect the portfolio
manager's judgment concerning the soundness of the underlying forecasts, the
likelihood that the perceived misevaluation will soon be corrected and the
magnitude of the risks versus the rewards. Once a stock falls into the third
quintile because its price has risen or its fundamentals have deteriorated -- it
generally becomes a sale candidate. The portfolio manager seeks to hold sector
weightings close to those of the Russell 2000 Index, the Portfolio's benchmark,
reflecting the Sub-Adviser's belief that its research has the potential to add
value at the individual stock level, but not at the sector level. Sector
neutrality is also seen as a way to help to protect the portfolio from
macroeconomic risks, and -- together with diversification -- represents an
important element of the Sub-Adviser's investment strategy.
INTERNATIONAL EQUITY PORTFOLIO. This Portfolio is designed for investors
with a long-term investment horizon who want to diversify their portfolios by
investing in an actively managed portfolio of non-U.S. securities that seeks to
outperform the Morgan Stanley Capital International Europe, Australia and Far
East Index (the "EAFE Index"). The Portfolio's investment objective is to
provide a high total return from a portfolio of Equity Securities of foreign
corporations.
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of foreign corporations. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of developed
foreign countries render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: The Sub-Adviser's country allocation decision begins
with a forecast of equity risk premiums, which provide a valuation signal by
measuring the relative attractiveness of stocks versus bonds. Using a
proprietary approach, the Sub-Adviser calculates this risk premium for each of
the nations in the Portfolio's universe, determines the extent of its deviation
- - -- if any -- from its historical norm, and then ranks countries according to
the size of those deviations. Countries with high (low) rankings are
overweighted (underweighted) in comparisons to the EAFE Index to reflect the
above-average (below-average) attractiveness of their stock markets. In
determining weightings, the Sub-Adviser analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk premium forecast. The Sub-Adviser places limits on the total size of the
Portfolio's country over- and under-weightings relative to the EAFE Index.
Stock selection: The Sub-Adviser's international equity analysts, each an
industry and country specialist, forecast normalized earnings and dividend
payouts for roughly 1,000 non-U.S. companies -- taking a long-term perspective
rather than the short time frame common to consensus estimates. These forecasts
are converted into comparable expected returns by a dividend discount model, and
then companies are ranked from most to least attractive by industry and country.
A diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate the purchases in the top third
of the rankings, and to keep sector weightings close to those of the EAFE Index,
the Portfolio's benchmark. Once a stock falls into the bottom third of the
rankings, it generally becomes a sales candidate. Where available, warrants and
convertibles may be purchased instead of common stock if they are deemed a more
attractive means of investing in an undervalued company.
Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the Portfolio's return. The Sub-Adviser's currency decisions are supported by a
proprietary tactical mode which forecasts currency movements based on an
analysis of four fundamental factors -- trade balance trends, purchasing power
parity, real short-term interest differentials and real bond yields -- plus a
technical factor designed to improve the timing of transactions. Combining the
output of this model with a subjective assessment of economic, political and
market factors, the Sub-Adviser's currency group recommends currency strategies
that are implemented in conjunction with the Portfolio's investment strategy.
EMERGING MARKETS EQUITY PORTFOLIO. This Portfolio is designed for investors
with a long term investment horizon who want exposure to the rapidly growing
emerging markets. The Portfolio's investment objective is to provide a high
total return from a portfolio of equity securities of companies in emerging
markets.
The Portfolio seeks to achieve its investment objective by investing
primarily in equity securities of emerging markets issuers. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of emerging
markets countries render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: The Sub-Adviser's country allocation decision begins
with a forecast of the expected return of each market in the Portfolio's
universe. These expected returns are calculated using a proprietary valuation
method that is forward looking in nature rather than based on historical data.
The Sub-Adviser then evaluates these expected returns from two different
perspectives: first, it identifies those countries that have high real expected
returns relative to their own history and other nations in their universe.
Second, it identifies those countries that it expects will provide high returns
relative to their currency risk. Countries that rank highly on one or both of
these scores are overweighted relative to the Portfolio's benchmark, the MSCI
Emerging Markets Free Index, while those that rank poorly are underweighted. To
help contain risk, the Sub-Adviser places limits on the total size of the
Portfolio's country over- and under-weightings.
Stock selection: The Sub-Adviser's 12 emerging market equity analysts--
each an industry specialist--monitor a universe of approximately 900 companies
in these countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
on this research, and then a diversified portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the Portfolio's holdings in the stocks deemed most undervalued, and
to keep sector weightings relatively close to those of the index. Stocks are
generally held until they fall into the bottom half of the Sub-Adviser's
rankings.
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, each Portfolio may invest in money market
instruments to the extent consistent with its investment objective and policies.
A description of the various types of money market instruments that may be
purchased by the Portfolios appears below. See "Quality and Diversification
Requirements."
U.S. TREASURY SECURITIES. Each of the Portfolios may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Portfolios may invest
in obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, each Portfolio must look principally
to the federal agency issuing or guaranteeing the obligations for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which each Portfolio may invest that are not backed by the full
faith and credit of the United States include, but are not limited to,
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation and the U.S. Postal Service, each of which has the right to borrow
from the U.S. Treasury to meet its obligations, and obligations of the Federal
Farm Credit System and the Federal Home Loan Banks, both of whose obligations
may be satisfied only by the individual credits of each issuing agency.
Securities which are backed by the full faith and credit of the United States
include obligations of the Government National Mortgage Association, the Farmers
Home Administration, and the Export-Import Bank.
FOREIGN GOVERNMENT OBLIGATIONS. Each of the Portfolios, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments."
STRIPPED U.S. GOVERNMENT OBLIGATIONS. As described in the Prospectus and
subject to their respective investment policies, certain Portfolios may hold
stripped U.S. Treasury securities, including (1) coupons that have been stripped
from U.S. Treasury bonds, which are held through the Federal Reserve Bank's
book-entry system called "Separate Trading of Registered Interest and Principal
of Securities" ("STRIPS") or (2) through a program entitled "Coupon Under
Book-Entry Safekeeping" ("CUBES"). Certain Portfolios may also acquire U.S.
Government obligations and their unmatured interest coupons that have been
stripped by a custodian bank or investment brokerage firm. Having separated the
interest coupons from the underlying principal of the U.S. Government
obligations, the holder will resell the stripped securities in custodial receipt
programs with a number of different names, including "Treasury Income Growth
Receipts" ("TIGRS") and "Certificates of Accrual on Treasury Securities"
("CATS"). Such securities may not be as liquid as STRIPS and CUBES and are not
viewed by the staff of the SEC as U.S. Government securities for purposes of the
1940 Act.
The stripped coupons are sold separately from the underlying principal,
which is sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. Purchasers of stripped principal-only
securities acquire, in effect, discount obligations that are economically
identical to the zero coupon securities that the Treasury Department sells
itself. In the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer or holder), the underlying U.S. Treasury
bonds and notes themselves are held in trust on behalf of the owners.
The U.S. Government does not issue stripped Treasury securities directly.
The STRIPS program, which is ongoing, is designed to facilitate the secondary
market in the stripping of selected U.S. Treasury notes and bonds into separate
interest and principal components. Under the program, the U.S. Treasury
continues to sell its notes and bonds through its customary auction process. A
purchaser of those specified notes and bonds who has access to a book-entry
account at a Federal Reserve bank, however, may separate the Treasury notes and
bonds into interest and principal components. The selected Treasury securities
thereafter may be maintained in the book-entry system operated by the Federal
Reserve in a manner that permits the separate trading and ownership of the
interest and principal payments.
For custodial receipts, the underlying debt obligations are held separate
from the general assets of the custodian and nominal holder of such securities,
and are not subject to any right, charge, security interest, lien or claim of
any kind in favor of or against the custodian or any person claiming through the
custodian. The custodian is also responsible for applying all payments received
on those underlying debt obligations to the related receipts or certificates
without making any deductions other than applicable tax withholding. The
custodian is required to maintain insurance for the protection of holders of
receipts or certificates in customary amounts against losses resulting from the
custody arrangement due to dishonest or fraudulent action by the custodian's
employees. The holders of receipts or certificates, as the real parties in
interest, are entitled to the rights and privileges of the underlying debt
obligations, including the right, in the event of default in payment of
principal or interest, to proceed individually against the issuer without acting
in concert with other holders of those receipts or certificates or the
custodian.
VARIABLE AND FLOATING RATE INSTRUMENTS. Subject to their respective
investment limitations, certain Portfolios may purchase variable and floating
rate obligations. The Sub-Advisers will consider the earning power, cash flows
and other liquidity ratios of the issuers and guarantors of such obligations
and, for obligations subject to a demand feature, will monitor their financial
status to meet payment on demand. In determining average weighted portfolio
maturity, a variable or floating rate instrument issued or guaranteed by the
U.S. Government, its agencies and instrumentalities, or a variable or floating
rate instrument scheduled on its face to be paid in 397 days or less, will be
deemed to have a maturity equal to the period remaining until the obligation's
next interest rate adjustment. Other variable or floating rate notes will be
deemed to have a maturity equal to the longer of the period remaining to the
next interest rate adjustment or the time the Portfolio can recover payment of
principal as specified in the instrument.
BANK OBLIGATIONS. Each of the Portfolios, unless otherwise noted in the
Prospectus or below, may invest in negotiable certificates of deposit, time
deposits and bankers' acceptances of (i) banks, savings and loan associations
and savings banks which (for those Portfolios managed by J.P. Morgan Investment
Management Inc. except the International Equity Portfolio) have more than $2
billion in total assets and are organized under the laws of the United States or
any state, (ii) foreign branches of these banks or of foreign banks of
equivalent size (Euros) and (iii) U.S. branches of foreign banks of equivalent
size (Yankees) with respect to the Portfolios managed by J.P. Morgan Investment
Management Inc. See "Foreign Investments." Bank instruments may include
Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs"), Eurodollar Time Deposits ("ETDs") and Canadian Time Deposits.
ECDs are issued by foreign branches of U.S. or foreign banks. Yankee CDs are
U.S. dollar-denominated certificates of deposit issued by U.S. branches of
foreign banks and held in the United States. ETDs are U.S. dollar-denominated
deposits in foreign branches of U.S. or foreign banks. Canadian Time Deposits
are U.S. dollar-denominated deposits issued by branches of major Canadian banks
located in the United States. The Portfolios will not invest in obligations for
which J.P. Morgan Investment Management Inc., or any of its affiliated persons,
is the ultimate obligor or accepting bank. Each of the Portfolios may also
invest in obligations of international banking institutions designated or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter-American Development Bank, or the World Bank).
COMMERCIAL PAPER. Each of the Portfolios may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. The monies loaned to the borrower come
from accounts managed by a Sub-Adviser or its affiliates, pursuant to
arrangements with such accounts. Interest and principal payments are credited to
such accounts. The Sub-Adviser, or its affiliates, acting as a fiduciary on
behalf of its clients, has the right to increase or decrease the amount provided
to the borrower under an obligation. The borrower has the right to pay without
penalty all or any part of the principal amount then outstanding on an
obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Federal
Reserve commercial paper composite rate, the rate on master demand obligations
is subject to change. Repayment of a master demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest and
principal of the obligations on demand which is continuously monitored by the
Sub-Adviser. Since master demand obligations typically are not rated by credit
rating agencies, the Portfolios may invest in such unrated obligations only if
at the time of an investment the obligation is determined by the Sub-Adviser to
have a credit quality which satisfies the Portfolio's quality restrictions. See
"Quality and Diversification Requirements." Although there is no secondary
market for master demand obligations, such obligations are considered by the
Portfolios to be liquid because they are payable upon demand. The Portfolios do
not have any specific percentage limitation on investments in master demand
obligations.
REPURCHASE AGREEMENTS. Each of the Portfolios may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Trustees of the Trust. In a repurchase agreement, a Portfolio
buys a security from a seller that has agreed to repurchase the same security at
a mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Portfolio is invested in the agreement
and is not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a
Portfolio to the seller. The period of these repurchase agreements will usually
be short, from overnight to one week, and at no time will the Portfolios invest
in repurchase agreements for more than thirteen months. The securities which are
subject to repurchase agreements, however, may have maturity dates in excess of
thirteen months from the effective date of the repurchase agreement. The
Portfolios will always receive securities as collateral whose market value is,
and during the entire term of the agreement remains, at least equal to 100% of
the dollar amount invested by the Portfolios in each agreement plus accrued
interest, and the Portfolios will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer to the account of the
Custodian. If the seller defaults, a Portfolio might incur a loss if the value
of the collateral securing the repurchase agreement declines and might incur
disposition costs in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization upon disposal of the collateral by a Portfolio may be delayed or
limited.
Each of the Portfolios may make investments in other debt securities with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described in the prospectus or this Statement of Additional
Information.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in the Prospectus, certain of the Portfolios may invest in
bonds and other debt securities of domestic and foreign issuers to the extent
consistent with their investment objectives and policies. A description of these
investments appears in the prospectus and below. See "Quality and
Diversification Requirements." For information on short-term investments in
these securities, see "Money Market Instruments."
ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Payments of principal and interest may be guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the entities issuing the securities.
The asset-backed securities in which a Portfolio may invest are subject to the
Portfolio's overall credit requirements. However, asset-backed securities, in
general, are subject to certain risks. Most of these risks are related to
limited interests in applicable collateral. For example, credit card debt
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts on credit card debt
thereby reducing the balance due. Additionally, if the letter of credit is
exhausted, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs).
Certain Portfolios may invest in CMOs. Privately issued CMOs generally represent
an ownership interest in a pool of federal agency mortgage pass-through
securities, such as those issued by the Government National Mortgage
Association. The terms and characteristics of the mortgage instruments may vary
among pass- through mortgage loan pools. The market for such CMOs has expanded
considerably since its inception. The size of the primary issuance market and
the active participation in the secondary market by securities dealers and other
investors make government-related pools highly liquid.
Generally speaking, the mortgages underlying mortgage-backed securities often
may be prepaid without penalty or premium. Therefore, mortgage-backed securities
are generally subject to higher prepayment risks than most other types of debt
instruments. Prepayment risks on mortgage securities tend to increase during
periods of declining mortgage interest rates, because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that a Portfolio receives from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage securities
may be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools, such as
collateralized mortgage obligations, prepayments may be allocated to one tranche
of securities ahead of other tranches, in order to reduce the risk of
prepayments for the other tranches. Prepayments may result in a capital loss to
a Portfolio to the extent that the prepaid mortgage securities were purchased at
a market premium over their stated principal amount. Conversely, the prepayment
of mortgage securities purchased at a market discount from their stated
principal amount will accelerate the recognition of interest income by a
Portfolio, which would be taxed as ordinary income when distributed to the
shareholders.
EQUITY INVESTMENTS
As discussed in the prospectus, certain of the Portfolios invest primarily
in Equity Securities. The Equity Securities in which these Portfolios invest
include those listed on any domestic or foreign securities exchange or traded in
the over-the-counter market as well as certain restricted or unlisted
securities. A discussion of the various types of equity investments which may be
purchased by these Portfolios appears in the prospectus and below. See "Quality
and Diversification Requirements."
EQUITY SECURITIES. The Equity Securities in which these Portfolios may
invest may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
The convertible securities in which these Portfolios may invest include any
debt securities or preferred stock which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of convertible preferred stock, the holders' claims on assets and
earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.
RIGHTS AND WARRANTS
Certain of the Portfolios may participate in rights offerings and purchase
warrants, which are privileges issued by corporations enabling the owners to
subscribe to and purchase a specified number of shares of the corporation at a
specified price during a specified period of time. Subscription rights normally
have a short life span to expiration. Warrants may have a life ranging from less
than a year to twenty years or may be perpetual. However, most warrants have
expiration dates after which they are worthless. The purchase of rights or
warrants involves the risk that the Portfolio could lose the purchase value of a
right or warrant if the right to subscribe to additional shares is not exercised
prior to the rights' or warrants' expiration. Also, the purchase of rights or
warrants involves the risk that the effective price paid for the right or
warrant added to the subscription price of the related security may exceed the
value of the subscribed security's market price such as when there is no
movement in the level of the underlying security.
FOREIGN INVESTMENTS
Each of the Portfolios may invest in foreign securities. The International
Equity Portfolio and the Emerging Markets Equity Portfolio make substantial
investments in foreign countries. The Quality Bond, Select Equity, Large Cap
Stock and Small Cap Stock Portfolios may invest in certain foreign securities.
The Quality Bond Portfolio may invest in U.S. and non-U.S. dollar-denominated
fixed income securities of foreign issuers including in countries with
emerging economies or securities markets. The Select Equity and Large Cap
Stock Portfolios may invest in equity securities of foreign corporations listed
on a U.S. securities exchange. The Small Cap Stock Portfolio may invest in
equity securities of foreign issuers that are listed on a national securities
exchange or denominated or principally traded in the U.S. dollar. The Quality
Bond Portfolio, Select Equity Portfolio, Large Cap Stock Portfolio and the Small
Cap Stock Portfolio do not expect to invest more than 25%, 5%, 5%, and 5%,
respectively, of their total assets at the time of purchase in securities of
foreign issuers. In the case of the Quality Bond Portfolio, any foreign
commercial paper must not be subject to foreign withholding tax at the time of
purchase. Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depositary Receipts ("ADRs") and European
Depositary Receipts ("EDRs"). (See "ADRs and EDRs", below.) Foreign investments
may also include ECDs, ETDs, Yankee CDs, Canadian Commercial Paper and
Europaper.
Since investments in foreign securities may involve foreign currencies, the
value of a Portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. Certain of the Portfolios may enter
into forward commitments for the purchase or sale of foreign currencies in
connection with the settlement of foreign securities transactions or to manage
the Portfolios' currency exposure related to foreign investments.
Different risks may exist for ECDs, ETDs and Yankee CDs because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as reserve requirements, loan limitations, examinations, accounting,
auditing, and recordkeeping, and the public availability of information.
Brady Bonds
Certain Portfolios may invest in Brady bonds, which are securities created
through the exchange of existing commercial bank loans to public and private
entities in certain emerging markets for new bonds in connection with debt
restructurings. Brady bonds have been issued since 1989 and do not have a long
payment history. In light of the history of defaults of countries issuing Brady
bonds on their commercial bank loans, investments in Brady bonds may be viewed
as speculative. Brady bonds may be fully or partially collateralized or
uncollateralized, are issued in various currencies (but primarily the dollar)
and are actively traded in over-the-counter secondary markets. Incomplete
collateralization of interest or principal payment obligations results in
increased credit risk. Dollar-denominated collateralized Brady bonds, which may
be fixed-rate bonds or floating-rate bonds, are generally collateralized by U.S.
Treasury zero coupon bonds having the same maturity as the Brady bonds.
Investing in Emerging Markets
Certain Portfolios may invest in countries with emerging economies or securities
markets. Political and economic structures in many of such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of more
developed countries. Certain of such countries may have in the past failed to
recognize private property rights and have at times nationalized or expropriated
the assets of private companies. As a result, the risks described above,
including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of a Portfolio's investments in those countries and the
availability to a Portfolio of additional investments in those countries. The
small size and inexperience of the securities markets in certain of such
countries and the limited volume of trading in securities in those countries may
make a Portfolio's investments in such countries illiquid and more volatile than
investments in more developed countries, and a Portfolio may be required to
establish special custodial or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.
Transaction costs in emerging markets may be higher than in the United States
and other developed securities markets. As legal systems in emerging markets
develop, foreign investors may be adversely affected by new or amended laws
and regulations or may not be able to obtain swift and equitable enforcement
of existing law.
Certain Portfolios may make investments denominated in emerging markets
currencies. Some countries in emerging markets also may have managed currencies,
which are not free floating against the U.S. dollar. In addition, emerging
markets are subject to the risk of restrictions upon the free conversion of
their currencies into other currencies. Any devaluations relative to the U.S.
dollar in the currencies in which the Portfolio's securities are quoted would
reduce the Portfolio's net asset value.
Restrictions on Investment and Repatriation
Certain emerging markets limit, or require governmental approval prior to,
investments by foreign persons. Repatriation of investment income and capital
from certain emerging markets is subject to certain governmental consents. Even
where there is no outright restriction on repatriation of capital, the mechanics
of repatriation may affect the operation of a Portfolio.
CONVERSION TO THE EURO
Like other mutual funds, the Trust could be affected by problems relating to
the conversion of European currencies into the Euro, which extends from 1/1/99
to 7/1/02.
The Trust is taking steps to ensure that the systems used by the Trust's major
service providers are compliant with Euro issues.
At the same time, it is impossible to know whether the ongoing conversion, which
could disrupt Trust operations and investments if problems arise, has been
adequately addressed until the conversion is complete.
ADRs AND EDRs
Certain Portfolios may invest their assets in securities such as ADRs and
EDRs, which are receipts issued by a U.S. bank or trust company evidencing
ownership of underlying securities issued by a foreign issuer. ADRs and EDRs may
be listed on a national securities exchange or may trade in the over-the-counter
market. ADR and EDR prices are denominated in U.S. dollars, even though the
underlying security may be denominated in a foreign currency. The underlying
security may be subject to foreign government taxes which would reduce the yield
on such securities. Investments in such instruments involve risks similar to
those of investing directly in foreign securities. Such risks include political
or economic instability of the issuer or the country of issue, the difficulty of
predicting international trade patterns and the possibility of imposition of
exchange controls. Such securities may also be subject to greater fluctuations
in price than securities of domestic corporations. In addition, there may be
less publicly available information about a foreign company than about a
domestic company. Foreign companies generally are not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and no interest accrues to a Portfolio until
settlement takes place. At the time a Portfolio makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction, reflect the value each day of such securities in determining its
net asset value and, if applicable, calculate the maturity for the purposes of
average maturity from that date. At the time of settlement a when-issued
security may be valued at less than the purchase price. To facilitate such
acquisitions, each Portfolio will maintain on the Trust's records a segregated
account with liquid assets, consisting of cash, U.S. Government securities or
other appropriate securities, in an amount at least equal to such commitments.
On delivery dates for such transactions, each Portfolio will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If a Portfolio chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. It is the current policy of each Portfolio not to enter into
when-issued commitments exceeding in the aggregate 15% (except for the Quality
Bond Portfolio) of the market value of the Portfolio's total assets, less
liabilities other than the obligations created by when-issued commitments. There
is no current policy limiting the percentage of assets of the Quality Bond
Portfolio which may be invested in when-issued commitments.
SECURITIES OF OTHER INVESTMENT COMPANIES. Securities of other investment
companies may be acquired by each of the Portfolios to the extent permitted
under the Investment Company Act of 1940, as amended ("1940 Act"). These limits
require that, as determined immediately after a purchase is made, (i) not more
than 5% of the value of a Portfolio's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group, and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by a Portfolio.
REVERSE REPURCHASE AGREEMENTS. Each of the Portfolios may enter into
reverse repurchase agreements. In a reverse repurchase agreement, a Portfolio
sells a security and agrees to repurchase the same security at a mutually agreed
upon date and price. For purposes of the 1940 Act it is also considered as a
borrowing of money by the Portfolio and, therefore, a form of leverage. The
Portfolios will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, a Portfolio will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of the
proceeds is greater than the interest expense of the transaction. A Portfolio
will not invest the proceeds of a reverse repurchase agreement for a period
which exceeds the duration of the reverse repurchase agreement. A Portfolio may
not enter into reverse repurchase agreements exceeding in the aggregate
one-third of the market value of its total assets, less liabilities other than
the obligations created by reverse repurchase agreements. Each Portfolio will
establish and maintain on the Trust's records a separate account with a
segregated portfolio of securities in an amount at least equal to its purchase
obligations under its reverse repurchase agreements.
MORTGAGE DOLLAR ROLL TRANSACTIONS. Certain of the Portfolios of the Trust
may engage in mortgage dollar roll transactions with respect to mortgage
securities issued by the Government National Mortgage Association, the Federal
National Mortgage Association and the Federal Home Loan Mortgage Corporation. In
a mortgage dollar roll transaction, the Portfolio sells a mortgage backed
security and simultaneously agrees to repurchase a similar security on a
specified future date at an agreed upon price. During the roll period, the
Portfolio will not be entitled to receive any interest or principal paid on the
securities sold. The Portfolio is compensated for the lost interest on the
securities sold by the difference between the sales price and the lower price
for the future repurchase as well as by the interest earned on the reinvestment
of the sales proceeds. The Portfolio may also be compensated by receipt of a
commitment fee. When the Portfolio enters into a mortgage dollar roll
transaction, liquid assets in an amount sufficient to pay for the future
repurchase are segregated with the Custodian. Mortgage dollar roll transactions
are considered reverse repurchase agreements for purposes of the Portfolio's
investment restrictions.
LOANS OF PORTFOLIO SECURITIES. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolios in the normal settlement time, generally five business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Portfolio
will consider all facts and circumstances including the creditworthiness of the
borrowing financial institution, and no Portfolio will make any loans in excess
of one year.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolios may
invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in the Prospectus.
As to illiquid investments, a Portfolio is subject to a risk that should
the Portfolio decide to sell them when a ready buyer is not available at a price
the Portfolio deems representative of their value, the value of the Portfolio's
net assets could be adversely affected. Where an illiquid security must be
registered under the Securities Act of 1933, as amended (the "1933 Act") before
it may be sold, a Portfolio may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Portfolio might obtain a less
favorable price than prevailed when it decided to sell.
REAL ESTATE INVESTMENT TRUSTS
Certain Portfolios may purchase interests in real estate investment trusts.
Risks associated with real estate investments include the fact that equity and
mortgage real estate investment trusts are dependent upon management skill and
are not diversified, and are, therefore, subject to the risk of financing single
projects or unlimited number of projects. They are also subject to heavy cash
flow dependency, defaults by borrowers, and self-liquidation. Additionally,
equity real estate investment trusts may be affected by any changes in the value
of the underlying property owned by the trusts, and mortgage real estate
investment trusts may be affected by the quality of any credit extended. These
risks may be mitigated by selecting real estate investment trusts diversified by
sector (shopping malls, apartments building complexes, and health care
facilities) and geographic location.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Each of the Portfolios intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of these Portfolios
is subject to the following fundamental limitations: (1) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except obligations of the U.S. Government, its agencies and instrumentalities,
and (2) the Portfolio may not own more than 10% of the outstanding voting
securities of any one issuer. As for the other 25% of the Portfolio's assets not
subject to the limitation described above, there is no limitation on investment
of these assets under the 1940 Act, so that all of such assets may be invested
in securities of any one issuer, subject to the limitation of any applicable
state securities laws. Investments not subject to the limitations described
above could involve an increased risk to a Portfolio should an issuer, or a
state or its related entities, be unable to make interest or principal payments
or should the market value of such securities decline.
QUALITY BOND PORTFOLIO. The Quality Bond Portfolio invests principally in a
diversified portfolio of "high grade" and "investment grade" securities.
Investment grade debt is rated, on the date of investment, within the four
highest ratings of Moody's, currently Aaa, Aa, A and Baa, or of Standard &
Poor's, currently AAA, AA, A and BBB, while high grade debt is rated, on the
date of the investment, within the two highest of such ratings. The Quality Bond
Portfolio may also invest up to 5% of its total assets in securities which are
"below investment grade." Such securities must be rated, on the date of
investment, Ba by Moody's or BB by Standard & Poor's. The Portfolio may invest
in debt securities which are not rated or other debt securities to which these
ratings are not applicable, if in the opinion of the Sub-Adviser, such
securities are of comparable quality to the rated securities discussed above. In
addition, at the time the Portfolio invests in any commercial paper, bank
obligation or repurchase agreement, the issuer must have outstanding debt rated
A or higher by Moody's or Standard & Poor's, the issuer's parent corporation, if
any, must have outstanding commercial paper rated Prime-1 by Moody's or A-1 by
Standard & Poor's, or if no such ratings are available, the investment must be
of comparable quality in the Sub-Adviser's opinion.
CONVERTIBLE AND OTHER DEBT SECURITIES. Certain of the Portfolios may invest
in convertible debt securities, for which there are no specific quality
requirements. In addition, at the time a Portfolio invests in any commercial
paper, bank obligation or repurchase agreement, the issuer must have outstanding
debt rated A or higher by Moody's or Standard & Poor's, the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in the Sub-Adviser's opinion. At the
time the Portfolio invests in any other short-term debt securities, they must
berated A or higher by Moody's or Standard & Poor's, or if unrated, the
investment must be of comparable quality in the Sub-Adviser's opinion.
In determining suitability of investment in a particular unrated security,
the Sub-Adviser takes into consideration asset and debt service coverage, the
purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
GNMA CERTIFICATES
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION. The Government National Mortgage
Association is a wholly-owned corporate instrumentality of the United States
within the U.S. Department of Housing and Urban Development. GNMA's principal
programs involve its guarantees of privately issued securities backed by pools
of mortgages.
NATURE OF GNMA CERTIFICATES. GNMA Certificates are mortgage-backed
securities. The Certificates evidence part ownership of a pool of mortgage
loans. The Certificates which a Portfolio purchases are of the modified
pass-through type. Modified pass-through Certificates entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
fees paid to the GNMA Certificate issuer and GNMA, regardless of whether or not
the mortgagor actually makes the payment.
GNMA Certificates are backed by mortgages and, unlike most bonds, their
principal amount is paid back by the borrower over the length of the loan rather
than in a lump sum at maturity. Principal payments received by the Portfolio
will be reinvested in additional GNMA Certificates or in other permissible
investments.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal of and interest on securities backed by a pool of
mortgages insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. The GNMA guarantee
is backed by the full faith and credit of the United States. GNMA is also
empowered to borrow without limitation from the U.S. Treasury if necessary to
make any payments required under its guarantee. The net asset value and return
of the Portfolio will, however, fluctuate depending on market conditions and
other factors.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is likely
to be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will result in the return of a portion of principal invested before
the maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary widely, it is
not possible to predict accurately the average life of a particular issue of
GNMA Certificates. However, statistics published by the Federal Housing
Administration are normally used as an indicator of the expected average life of
GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest of
GNMA Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, but only by the amount of the
fees paid to GNMA and the GNMA Certificate issuer.
The coupon rate by itself, however, does not indicate the yield which will
be earned on the Certificates for the following reasons:
1. Certificates are usually issued at a premium or discount, rather than at
par.
2. After issuance, Certificates usually trade in the secondary market at a
premium or discount.
3. Interest is paid monthly rather than semi-annually as is the case for
traditional bonds. Monthly compounding has the effect of raising the effective
yield earned on GNMA Certificates.
4. The actual yield of each GNMA Certificate is influenced by the
prepayment experience of the mortgage pool underlying the Certificate. If
mortgagors prepay their mortgages, the principal returned to Certificate holders
may be reinvested at higher or lower rates.
MARKET FOR GNMA CERTIFICATES. Since the inception of the GNMA
mortgage-backed securities program in 1970, the amount of GNMA Certificates
outstanding has grown rapidly. The size of the market and the active
participation in the secondary market by securities dealers and many types of
investors make GNMA Certificates highly liquid instruments. Quotes for GNMA
Certificates are readily available from securities dealers and depend on, among
other things, the level of market rates, the Certificate's coupon rate and the
prepayment experience of the pool of mortgages backing each Certificate.
FNMA AND FHLMC CERTIFICATES. Mortgage-backed securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed Mortgage
Pass-through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States, but are supported by the right of the issuer to
borrow from the Treasury. FNMA is a government-sponsored organization owned
entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-backed securities issued
by the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Bank. Freddie
Macs entitle the holder to timely payment of interest, which is guaranteed by
the FHLMC. FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
LOWER GRADE SECURITIES
Certain of the Portfolios may invest in lower-grade income securities. (The
Bond Debenture Portfolio may invest a substantial portion of its assets in
medium and lower grade corporate debt securities entailing certain risks.) Such
lower grade securities are rated BB or B by S&P or Ba or B by Moody's and are
commonly referred to as "junk bonds." Investment in such securities involves
special risks, as described herein. Liquidity relates to the ability of the
Portfolio to sell a security in a timely manner at a price which reflects the
value of that security. As discussed below, the market for lower grade
securities is considered generally to be less liquid than the market for
investment grade securities. The relative illiquidity of some of the Portfolio's
portfolio securities may adversely affect the ability of the Portfolio to
dispose of such securities in a timely manner and at a price which reflects the
value of such security in the Sub-Adviser's judgment. The market for less liquid
securities tends to be more volatile than the market for more liquid securities
and market values of relatively illiquid securities may be more susceptible to
change as a result of adverse publicity and investor perceptions than are the
market values of higher grade, more liquid securities.
The Portfolio's net asset value will change with changes in the value of
its portfolio securities. Because the Portfolio will invest in fixed income
securities, the Portfolio's net asset value can be expected to change as general
levels of interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed income securities can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities can be expected to decline. Net asset value and market value
may be volatile due to the Portfolio's investment in lower grade and less liquid
securities. Volatility may be greater during periods of general economic
uncertainty.
The Portfolio's investments are valued pursuant to guidelines adopted and
periodically reviewed by the Board of Trustees. To the extent that there is no
established retail market for some of the securities in which the Portfolio may
invest, during periods of reduced market liquidity and in the absence of readily
available market quotations for securities held in the Portfolio's portfolio,
the valuation of such securities becomes more difficult and judgment may play a
greater role in the valuation of the Portfolio's securities due to the reduced
availability of reliable objective data. To the extent that the Portfolio
invests in illiquid securities and securities which are restricted as to resale,
the Portfolio may incur additional risks and costs. Illiquid and certain
restricted securities are particularly difficult to dispose of.
Lower grade securities generally involve greater credit risk than higher
grade securities. A general economic downturn or a significant increase in
interest rates could severely disrupt the market for lower grade securities and
adversely affect the market value of such securities. In addition, in such
circumstances, the ability of issuers of lower grade securities to repay
principal and to pay interest, to meet projected financial goals and to obtain
additional financing may be adversely affected. Such consequences could lead to
an increased incidence of default for such securities and adversely affect the
value of the lower grade securities in the Portfolio's portfolio and thus the
Portfolio's net asset value. The secondary market prices of lower grade
securities are less sensitive to changes in interest rates than are those for
higher rated securities, but are more sensitive to adverse economic changes or
individual issuer developments. Adverse publicity and investor perceptions,
whether or not based on rational analysis, may also affect the value and
liquidity of lower grade securities.
Yields on the Portfolio's portfolio securities can be expected to fluctuate
over time. In addition, periods of economic uncertainty and changes in interest
rates can be expected to result in increased volatility of the market prices of
the lower grade securities in the Portfolio's portfolio and thus in the net
asset value of the Portfolio. Net asset value and market value may be volatile
due to the Portfolio's investment in lower grade and less liquid securities.
Volatility may be greater during periods of general economic uncertainty. The
Portfolio may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of interest or a repayment of principal
on its portfolio holdings, and the Portfolio may be unable to obtain full
recovery thereof. In the event that an issuer of securities held by the
Portfolio experiences difficulties in the timely payment of principal or
interest and such issuer seeks to restructure the terms of its borrowings, the
Portfolio may incur additional expenses and may determine to invest additional
capital with respect to such issuer or the project or projects to which the
Portfolio's portfolio securities relate.
A Portfolio will rely on the Sub-Adviser's judgment, analysis and
experience in evaluating the creditworthiness of an issue. In this evaluation,
the Sub-Adviser will take into consideration, among other things, the issuer's
financial resources, its sensitivity to economic conditions and trends, its
operating history, the quality of the issuer's management and regulatory
matters. The Sub-Adviser also may consider, although it does not rely primarily
on, the credit ratings of S&P and Moody's in evaluating fixed-income securities.
Such ratings evaluate only the safety of principal and interest payments, not
market value risk. Additionally, because the creditworthiness of an issuer may
change more rapidly than is able to be timely reflected in changes in credit
ratings, the Sub-Adviser continuously monitors the issuers of such securities
held in the Portfolio's portfolio. The Portfolio may, if deemed appropriate by
the Sub-Adviser, retain a security whose rating has been downgraded below B by
S&P or below B by Moody's, or whose rating has been withdrawn.
With respect to Portfolios which may invest in these unrated income
securities, achievement by the Portfolio of its investment objective may be more
dependent upon the Sub-Adviser's investment analysis than would be the case if
the Portfolio were investing exclusively in rated securities.
STRATEGIC TRANSACTIONS
As described in the Prospectus, certain Portfolios of the Trust may, but
are not required to, utilize various other investment strategies as described
below to hedge various market risks (such as interest rates, currency exchange
rates and broad or specific market movements) or to manage the effective
maturity or duration of a Portfolio's income securities. Such strategies are
generally accepted by modern portfolio managers and are regularly utilized by
many mutual funds and other institutional investors. Techniques and instruments
may change over time as new instruments and strategies are developed or
regulatory changes occur.
In the course of pursuing these investment strategies, a Portfolio may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and income indices and other financial instruments, purchase
and sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars and enter into
various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions" or
"Derivatives"). Strategic Transactions are hedging transactions which may be
used to attempt to protect against possible changes in the market value of
securities held in or to be purchased for a Portfolio's portfolio resulting from
securities markets or exchange rate fluctuations, to protect a Portfolio's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of a Portfolio's portfolio, or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities.
Any or all of these investment techniques may be used at any time and there
is no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of a Portfolio to utilize these
Strategic Transactions successfully will depend on the Sub-Adviser's ability to
predict pertinent market movements, which cannot be assured. A Portfolio will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Sub-Adviser's view as to certain market movements is incorrect, the risk
that the use of such Strategic Transactions could result in losses greater than
if they had not been used. Use of put and call options may result in losses to a
Portfolio, force the sale or purchase of portfolio securities at inopportune
times or for prices other than current market values, limit the amount of
appreciation a Portfolio can realize on its investments or cause a Portfolio to
hold a security it might otherwise sell. The use of currency transactions can
result in a Portfolio incurring losses as a result of a number of factors
including the imposition of exchange controls, suspension of settlements or the
inability to deliver or receive a specified currency. The use of options and
futures transactions entails certain other risks. In particular, the variable
degree of correlation between price movements of futures contracts and price
movements in the related portfolio position of a Portfolio creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of a Portfolio's position. In addition, futures and options markets
may not be liquid in all circumstances and certain over-the-counter options may
have no markets. As a result, in certain markets, a Portfolio might not be able
to close out a transaction without incurring substantial losses, if at all.
Although the use of futures and options transactions for hedging should
tend to minimize the risk of loss due to a decline in the value of the hedged
position, at the same time they tend to limit any potential gain which might
result from an increase in value of such position. Finally, the daily variation
margin requirements for futures contracts would create a greater ongoing
potential financial risk than would purchases of options, where the exposure is
limited to the cost of the initial premium. Losses resulting from the use of
Strategic Transactions would reduce net asset value, and possibly income, and
such losses can be greater than if the Strategic Transactions had not been
utilized. Income earned or deemed to be earned, if any, by a Portfolio from its
Strategic Transactions will generally be taxable income of the Trust. See "Tax
Status" in the Prospectus.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Portfolio assets in special accounts,
as described below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Portfolio's purchase of a put option on a security 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
by giving the Portfolio the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. A Portfolio's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Portfolio against an increase in the price of the
underlying instrument that it intends to purchase in the future by fixing the
price at which it may purchase such instrument. An American style put or call
option may be exercised at any time during the option period while a European
style put or call option may be exercised only upon expiration or during a fixed
period prior thereto. As described in the Prospectus, certain Portfolios of the
Trust are authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC 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 such options.
The discussion below uses the OCC as a paradigm, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options 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 are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Portfolio's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) 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 outstanding options on that exchange would generally 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 cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. A
Portfolio will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Portfolio to require the
Counterparty to sell the option back to the Portfolio at a formula price within
seven days. The Portfolios expect generally to enter into OTC options that have
cash settlement provisions, although they are not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the 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. Accordingly, the Sub-Adviser 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 satisfied. A Portfolio will engage in OTC option transactions
only with United States 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 which have received (or the
guarantors of the obligation of which have received) a short-term credit rating
of "A-1" from Standard & Poor's Corporation or "P-1" from Moody's Investors
Service, Inc. or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO").
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 in its portfolio or will
increase a Portfolio's income. The sale of put options can also provide income.
A Portfolio may purchase and sell call options on securities, including
U.S. Treasury and agency securities, municipal obligations, mortgage-backed
securities, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets and or securities
indices, currencies and futures contracts. All calls sold by a Portfolio must be
"covered" (i.e., the Portfolio must own the securities or futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. Even though a Portfolio will receive
the option premium to help protect it against loss, a call sold by a Portfolio
exposes the Portfolio during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Portfolio to hold a security or
instrument which it might otherwise have sold. In selling calls on securities
not owned by the Portfolio, the Portfolio may be required to acquire the
underlying security at a disadvantageous price in order to satisfy its
obligations with respect to the call.
A Portfolio may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, municipal
obligations, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments (whether or not it holds the above
securities in its portfolio) and on securities indices, currencies and futures
contracts other than futures on individual corporate debt and individual equity
securities. 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 such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that a
Portfolio may be required to buy the underlying security at a disadvantageous
price above the market price.
General Characteristics of Futures. Certain Portfolios of the Trust may
enter into financial futures contracts or purchase or sell put and call options
on such futures as a hedge against anticipated interest rate, currency, equity
or income market changes, for duration management and for risk management
purposes. Futures are generally bought and sold on the commodities exchanges
where they are listed with payment of initial and variation margin as described
below. The purchase of a futures contract creates a firm obligation by a
Portfolio, as purchaser, to take delivery from the seller of the specific type
of financial instrument called for in the contract at a specific future time for
a specified price (or, with respect to index futures and Eurodollar instruments,
the net cash amount). The sale of a futures contract creates a firm obligation
by the 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 index futures and Eurodollar 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 such option.
The Portfolio's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and, in particular,
with the rules and regulations of the Commodity Futures Trading Commission.
Typically, maintaining a futures contract or selling an option thereon requires
the Portfolio to deposit with a financial intermediary, as security for its
obligations, an amount of cash or other specified assets (initial margin) which
initially is typically 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 on a daily basis as the mark to market
value of the contract fluctuates. The purchase of options on financial futures
involves payment of a premium for the option without any further obligation on
the part of the Portfolio. If the Portfolio exercises an option on a futures
contract it will be obligated to post initial margin (and potential subsequent
variation margin) for the resulting futures position just as it would for any
position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price nor that
delivery will occur.
A Portfolio will not enter into a futures contract or related option
(except for closing transactions) for other than bona fide hedging purposes if,
immediately thereafter, the sum of the amount of its initial margin and premiums
on open futures contracts and options thereon would exceed 5% of the Portfolio's
total assets (taken at current value); 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.
Options on Securities Indices and Other Financial Indices. A Portfolio also
may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives it
would achieve through the sale or purchase of options on individual securities
or other instruments. Options on securities indices and other financial indices
are similar to options on a security or other instrument except that, rather
than settling by physical delivery of the underlying instrument, they settle by
cash settlement, i.e., an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level
of the index upon which the option is based exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option (except if,
in the case of an OTC option, physical delivery is specified). This amount of
cash is equal to the excess of the closing price of the index over the exercise
price of the option, which also may be multiplied by a formula value. The seller
of the option is obligated, in return for the premium received, to make delivery
of this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. Certain Portfolios of the Trust may engage in
currency transactions with Counterparties in order to hedge the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. A Portfolio may enter into
currency transactions with Counterparties which have received (or the guarantors
of the obligations of such Counterparties have received) a credit rating of A-1
or P-1 by S&P or Moody's, respectively, or that have an equivalent rating from
an NRSRO or (except for OTC currency options) are determined to be of equivalent
credit quality by the Sub-Adviser.
Dealings by the Portfolios in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Portfolio, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
A Portfolio will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended to wholly or
partially offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency other than with respect to cross hedging and proxy hedging as described
below.
A Portfolio may cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Portfolio has or in which the
Portfolio expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, a Portfolio may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the
Portfolio's portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which some or all of the Portfolio's portfolio
securities are or are expected to be denominated, and to buy U.S. dollars. For
example, if the Sub-Adviser considers the Austrian schilling as being linked to
the German deutschemark (the "D-mark") and the Trust holds securities
denominated in schillings and the Sub-Adviser believes that the value of
schillings will decline against the U.S. dollar, the Sub-Adviser may enter into
a contract to sell D-marks and buy dollars. Currency hedging involves some of
the same risks and considerations as other transactions with similar
instruments. Currency transactions can result in losses to a Portfolio if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. Further, there is the risk that the perceived linkage between
various currencies may not be present or may not be present during the
particular time that the Portfolio is engaging in proxy hedging. If a Portfolio
enters into a currency hedging transaction, the Portfolio will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Portfolio if it is unable to deliver or receive currency or funds
in settlement of obligations and could also cause hedges it has entered into to
be rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. Certain Portfolios of the Trust 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 ("component" transactions),
instead of a single Strategic Transaction, as part of a single or combined
strategy when, in the opinion of the Sub-Adviser, it is in the best interest of
the Portfolio to do so. A combined transaction will usually contain elements of
risk that are present in each of its component transactions. Although combined
transactions are normally entered into based on the Sub-Adviser's judgment that
the combined strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the combination will
instead increase such risks or hinder achievement of the portfolio management
objective.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into
which certain Portfolios may enter are interest rate, currency and index swaps
and the purchase or sale of related caps, floors and collars. The Portfolios
expect to enter into these transactions primarily to preserve a return or spread
on a particular investment or portion of their portfolios, to protect against
currency fluctuations, as a duration management technique or to protect against
any increase in the price of securities the Portfolio anticipates purchasing at
a later date. The Portfolios intend to use these transactions as hedges and not
as speculative investments and will not sell interest rate caps or floors where
they do not own securities or other instruments providing the income stream the
Portfolios may be obligated to pay. Interest rate swaps involve the exchange by
the Portfolio with another party of their respective commitments to pay or
receive interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. A currency swap is an
agreement to exchange cashflows on a notional amount of two or more currencies
based on the relative value differential among them. An index swap is an
agreement to swap cash flows on a notional amount based on changes in the values
of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
A Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the
Sub-Adviser and the Portfolio believe such obligations do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to its borrowing restrictions. A Portfolio will not enter into any swap,
cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least "A" by S&P or Moody's or has an
equivalent equity rating from an NRSRO or is determined to be of equivalent
credit quality by the Sub-Adviser. If there is a default by the Counterparty,
the Portfolio may have contractual remedies pursuant to the agreements related
to the transaction. The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as principals
and agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
EURODOLLAR INSTRUMENTS. Certain Portfolios of the Trust may make
investments in Eurodollar instruments. Eurodollar instruments are U.S.
dollar-denominated futures contracts or options thereon which are linked to the
London Interbank Offered Rate ("LIBOR"), although foreign currency-denominated
instruments are available from time to time. Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to obtain
a fixed rate for borrowings. A Portfolio might use Eurodollar futures contracts
and options thereon to hedge against changes in LIBOR, to which many interest
rate swaps and income instruments are linked.
RISKS OF STRATEGIC TRANSACTIONS OUTSIDE THE UNITED STATES. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantee, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in a Portfolio's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lower trading volume
and liquidity.
USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions,
in addition to other requirements, require that the Portfolio segregate liquid
high-grade assets with its custodian to the extent Portfolio obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Portfolio to pay or deliver securities or assets must be covered at all
times by the securities, instruments or currency required to be delivered, or,
subject to any regulatory restrictions, an amount of cash or liquid high-grade
debt securities at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option 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 liquid high-grade debt securities 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 which correlate with the index or to segregate liquid high-grade
assets equal to the excess of the index value over the exercise price on a
current basis. A put option written by a Portfolio requires the Portfolio to
segregate liquid, high-grade assets equal to the exercise price.
Except when a Portfolio enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Portfolio to buy or sell
currency will generally require the Portfolio to hold an amount of that currency
or liquid securities denominated in that currency equal to the Portfolio's
obligations or to segregate liquid high-grade assets equal to the amount of the
Portfolio's obligation.
OTC options entered into by a Portfolio, including those on securities,
currencies, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when a
Portfolio sells these instruments it will only segregate an amount of assets
equal to its accrued net obligations, as there is no requirement for payment or
delivery of amounts in excess of the net amount. These amounts will equal 100%
of the exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Portfolio, or the in-the-money amount plus
any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Portfolio sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Portfolio will segregate,
until the option expires or is closed out, cash or cash equivalents equal in
value to such excess. OCC issued and exchange listed options sold by the
Portfolio other than those above generally settle with physical delivery or with
an election of either physical delivery or cash settlement, and the Portfolio
will segregate an amount of assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement, will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the Portfolio must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt securities or other acceptable assets.
With respect to swaps, a Portfolio will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high-grade
securities having a value equal to the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to a Portfolio's net
obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. A Portfolio may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Portfolio could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Portfolio. Moreover, instead of segregating assets if the Portfolio
held a futures or forward contract, it could purchase a put option on the same
futures or forward contract with a strike price as high or higher than the price
of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction, no segregation is required. However, if it terminates
prior to such time, assets equal to any remaining obligation would need to be
segregated.
The Trust's activities involving Strategic Transactions may be limited by
the requirements of Subchapter M of the Internal Revenue Code for qualification
as a regulated investment company. See "Tax Status" in the Prospectus.
INVESTMENT LIMITATIONS
The Trust has adopted the following restrictions and policies relating to
the investment of assets of the Portfolios and their activities. These are
fundamental policies and may not be changed without the approval of the holders
of a majority of the outstanding voting shares of each Portfolio affected (which
for this purpose and under the Investment Company Act of 1940 means the lesser
of (i) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are present or represented by proxy and (ii) more than 50% of
the outstanding shares). A change in policy affecting only one Portfolio may be
effected with the approval of a majority of the outstanding shares of such
Portfolio. Where an investment restriction or policy restricts it to a specified
percentage of its total assets in any type of instrument, that percentage is
measured at the time of purchase. Except as noted hereunder, there will be no
violation of any investment policy or restriction if that restriction is
complied with at the time the relevant action is taken notwithstanding a later
change in the market value of an investment, in net or total assets, in the
securities rating of the investment or any other change.
QUALITY BOND PORTFOLIO
The Quality Bond Portfolio of the Trust may not:
1. Borrow money, except from banks for extraordinary or emergency purposes
and then only in amounts up to 30% of the value of the Portfolio's total assets,
taken at cost at the time of such borrowing and except in connection with
reverse repurchase agreements permitted by Investment Restriction No. 8.
Mortgage, pledge, or hypothecate any assets except in connection with any such
borrowing in amounts up to 30% of the value of the Portfolio's net assets at the
time of such borrowing. The Portfolio will not purchase securities while
borrowings (including reverse repurchase agreements) exceed 5% of the
Portfolio's total assets. This borrowing provision facilitates the orderly sale
of portfolio securities, for example, in the event of abnormally heavy
redemption requests. This provision is not for investment purposes. Collateral
arrangements for premium and margin payments in connection with the
Portfolio's's hedging activities are not deemed to be a pledge of assets;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Portfolio's
total assets would be invested in securities or other obligations of any one
such issuer. This limitation shall not apply to securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities or to permitted
investments of up to 25% of the Portfolio's total assets;
3. Purchase the securities of an issuer if, immediately after such
purchase, the Portfolio owns more than 10% of the outstanding voting securities
of such issuer. This limitation shall not apply to permitted investments of up
to 25% of the Portfolio's total assets;
4. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Portfolio's total assets. For purposes of industry concentration,
there is no percentage limitation with respect to investments in U.S. Government
securities;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Portfolio's
investment objective and policies;
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, commodity contracts, except for the
Portfolio's interest in hedging activities as described under "Investment
Objectives and Policies"; or interests in oil, gas, or mineral exploration or
development programs. However, the Portfolio may purchase debt obligations
secured by interests in real estate or issued by companies which invest in real
estate or interests therein including real estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position in securities, except in the course of the Portfolio's
hedging activities, unless at all times when a short position is open the
Portfolio owns an equal amount of such securities, provided that this
restriction shall not be deemed to be applicable to the purchase or sale of
when-issued securities or delayed delivery securities;
8. Issue any senior security, except as appropriate to evidence
indebtedness which constitutes a senior security and which the Portfolio is
permitted to incur pursuant to Investment Restriction No. 1 and except that the
Portfolio may enter into reverse repurchase agreements, provided that the
aggregate of senior securities, including reverse repurchase agreement, shall
not exceed one-third of the market value of the Portfolio's total assets, less
liabilities other than obligations created by reverse repurchase agreements. The
Portfolio's arrangements in connection with its hedging activities as described
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof;
9. Acquire securities of other investment companies, except as permitted by
the 1940 Act; or
10. Act as an underwriter of securities.
SELECT EQUITY, LARGE CAP STOCK AND SMALL CAP STOCK PORTFOLIOS
Each of the Select Equity, Large Cap Stock and Small Cap Stock Portfolios
may not:
1. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Portfolio's total assets. For purposes of industry concentration,
there is no percentage limitation with respect to investments in U.S. Government
securities;
2. Borrow money, except from banks for extraordinary or emergency purposes
and then only in amounts not to exceed 10% of the value of the Portfolio's total
assets, taken at cost, at the time of such borrowing. Mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts not to exceed 10% of the value of the Portfolio's net assets at the time
of such borrowing. The Portfolio will not purchase securities while borrowings
exceed 5% of the Portfolio's total assets. This borrowing provision is included
to facilitate the orderly sale of portfolio securities, for example, in the
event of abnormally heavy redemption requests, and is not for investment
purposes. Collateral arrangements for premium and margin payments in connection
with the Portfolio's hedging activities are not deemed to be a pledge of assets;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Portfolio's
total assets would be invested in securities or other obligations of any one
such issuer. This limitation shall not apply to issues of the U.S. Government,
its agencies or instrumentalities and to permitted investments of up to 25% of
the Portfolio's total assets;
4. Purchase the securities of an issuer if, immediately after such
purchase, the Portfolio owns more than 10% of the outstanding voting securities
of such issuer;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Portfolio's
investment objective and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts, except for the
Portfolio's interest in hedging activities as described under "Investment
Objectives and Policies"; or interests in oil, gas, or mineral exploration or
development programs. However, the Portfolio may purchase securities or
commercial paper issued by companies which invest in real estate or interests
therein, including real estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, except in the course of the Portfolio's hedging
activities, provided that this restriction shall not be deemed to be applicable
to the purchase or sale of when-issued securities or delayed delivery
securities;
8. Acquire securities of other investment companies, except as permitted by
the 1940 Act;
9. Act as an underwriter of securities;
10. Issue any senior security, except as appropriate to evidence
indebtedness which the Portfolio is permitted to incur pursuant to Investment
Restriction No. 2. The Portfolio's arrangements in connection with its hedging
activities as described in "Investment Objectives and Policies" shall not be
considered senior securities for purposes hereof; or
11. Purchase any equity security if, as a result, the Portfolio would then
have more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio may not:
1. Borrow money, except from banks for extraordinary or emergency purposes
and then only in amounts up to 30% of the value of the Portfolio's net assets at
the time of borrowing, and except in connection with reverse repurchase
agreements and then only in amounts up to 33 1/3% of the value of the
Portfolio's net assets; or purchase securities while borrowings, including
reverse repurchase agreements, exceed 5% of the Portfolio's total assets. The
Portfolio will not mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not to exceed 30% of the value
of the Portfolio's net assets at the time of such borrowing;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Portfolio's
total assets would be invested in securities or other obligations of any one
such issuer. This limitation shall not apply to securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities or to permitted
investments of up to 25% of the Portfolio's total assets;
3. Purchase the securities of an issuer if, immediately after such
purchase, the Portfolio owns more than 10% of the outstanding voting securities
of such issuer. This limitation shall not apply to permitted investments of up
to 25% of the Portfolio's total assets;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would exceed 25% of the
value of the Portfolio's total assets. For purposes of industry concentration,
there is no percentage limitation with respect to investments in U.S. Government
securities;
5. Make loans, except through the purchase or holding of debt obligations
(including restricted securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Portfolio's
investment objective and policies, see "Investment Practices" in the Prospectus
and "Investment Objectives and Policies" in this Statement of Additional
Information;
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real property, including limited partnership interests, commodities, or
commodity contracts, except for the Portfolio's interests in hedging and foreign
exchange activities as described under "Investment Practices" in the Prospectus;
or interests in oil, gas, mineral or other exploration or development programs
or leases. However, the Portfolio may purchase securities or commercial paper
issued by companies that invest in real estate or interests therein including
real estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position in securities, except to obtain such short-term credit
as necessary for the clearance of purchases and sales of securities, provided
that this restriction shall not be deemed to apply to the purchase or sale of
when-issued securities or delayed delivery securities;
8. Acquire securities of other investment companies, except as permitted by
the 1940 Act;
9. Act as an underwriter of securities, except insofar as the Portfolio may
be deemed to be an underwriter under the 1933 Act by virtue of disposing of
portfolio securities; or
10. Issue any senior security, except as appropriate to evidence
indebtedness which the Portfolio is permitted to incur pursuant to Investment
Restriction No. 1. The Portfolio's arrangements in connection with its hedging
activities as described in "Investment Practices" in the Prospectus shall not be
considered senior securities for purposes hereof.
EMERGING MARKETS EQUITY PORTFOLIO
The Emerging Markets Equity Portfolio may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Portfolio's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
2. Borrow money, except that the Portfolio may (i) borrow money from banks
for temporary or emergency purposes (not for leveraging purposes) and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and (ii)
in total do not exceed 33 1/3% of the value of the Portfolio's total assets
(including the amount borrowed)less liabilities (other than borrowings). If at
any time any borrowings come to exceed 33 1/3% of the value of the Portfolio's
total assets, the Portfolio will reduce its borrowings within three business
days to the extent necessary to comply with the 33 1/3% limitation;
3. With respect to 75% of its total assets, purchase any security if, as a
result, (a) more than 5% of the value of the Portfolio's total assets would be
invested in securities or other obligations of any one issuer; or (b) the
Portfolio would hold more than 10% of the outstanding voting securities of that
issuer. This limitation shall not apply to Government securities (as defined in
the 1940 Act);
4. Make loans to other persons, except through the purchase of debt
obligations, loans of portfolio securities, and participation in repurchase
agreements;
5. Purchase or sell physical commodities or contracts thereon, unless
acquired as a result of the ownership of securities or instruments, but the
Portfolio may purchase or sell futures contracts or options (including options
on futures contracts, but excluding options or futures contracts on physical
commodities) and may enter into foreign currency forward contracts;
6. Purchase or sell real estate, but the Portfolio may purchase or sell
securities that are secured by real estate or issued by companies (including
real estate investment trusts) that invest or deal in real estate;
7. Underwrite securities of other issuers, except to the extent the
Portfolio, in disposing of portfolio securities, may be deemed an underwriter
within the meaning of the 1933 Act; and
8. Issue senior securities, except as permitted under the 1940 Act or any
rule, order or interpretation thereunder.
BOND DEBENTURE PORTFOLIO
The Bond Debenture Portfolio of the Trust may not:
1. Sell short or buy on margin, although it may obtain short-term credit as
needed to clear purchases of securities;
2. Buy or sell put or call options, although it may buy, hold or sell
warrants acquired with debt securities;
3. Borrow in excess of 5% of the Portfolio's gross assets taken at cost or
market value whichever is lower at the time of borrowing, and then only as a
temporary measure for extraordinary or emergency purposes;
4. Act as an underwriter of securities issued by others, except where it
may be deemed to be an underwriter by selling a portfolio security requiring
registration under the Securities Act of 1933;
5. Invest knowingly more than 15% of its gross assets in illiquid
securities;
6. Make loans, except for (a) time or demand deposits with banks, (b)
purchasing commercial paper or publicly-offered debt securities at original
issue or otherwise, (c) short-term repurchase agreements with sellers of
securities the Portfolio has bought and (d) loans of portfolio securities to
registered broker-dealers if 100% secured by cash or cash equivalents, made in
full compliance with applicable regulations and which, in management's opinion,
do not expose the Portfolio to significant risks or impair its qualification for
pass-through tax treatment under the Internal Revenue Code;
7. Pledge, mortgage, or hypothecate its assets;
8. Buy or sell real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein) or oil, gas or other mineral leases,
or commodities, or commodity contracts although it may buy securities of
companies that deal in such interests (however, the Portfolio may hold and sell
any of the aforementioned or any other property acquired through ownership of
other securities, although the Portfolio may not purchase securities for the
purpose of acquiring those interests);
9. Buy securities issued by any other open-end investment company (except
pursuant to a plan of merger, consolidation or acquisition of assets), although
it may invest up to 5% of its gross assets, taken at market value at the time of
investment, in closed-end investment companies, provided such purchase is made
in the open market and does not involve the payment of a fee or commission
greater than the customary broker's commission;
10. Invest more than 5% of its gross assets, taken at market value at the
time of investment in securities of companies with less than three years'
continuous operation, including predecessor companies;
11. With respect to 75% of its gross assets, buy the securities of any
issuer if the purchase causes it (a) to have more than 5% of its gross assets
invested in the securities of such issuer (except obligations of the United
States, its agencies or instrumentalities) or (b) to own more than 10% of the
outstanding voting securities of such issuer;
12. Hold securities of any issuer, any of whose officers, directors or
security holders is an officer, director or partner of the Adviser or
Sub-Adviser or an officer or director of the Portfolio, if after the purchase of
the securities of such issuer, one or more of such persons owns beneficially
more than 1/2 of 1% of the securities of such issuer and such persons together
own beneficially more than 5% of such securities;
13. Concentrate its investments in a particular industry, though, if it is
deemed appropriate to its investment objective, up to 25% of the market value of
its gross assets at the time of investment may be invested in any one industry
classification used for investment purposes;
14. Buy from or sell to any of the Trust's directors, employees, or the
Investment Adviser or Sub-Adviser or any of its officers, directors, partners or
employees, any securities other than shares of the Portfolio's common stock; or
15. Invest more than 10% of the market value of its gross assets at the
time of investment in debt securities which are in default as to interest or
principal.
With respect to investment restriction 5. above, securities subject to
legal or contractual restrictions on resale, which are determined by the Board
of Trustees, or by the Sub-Adviser pursuant to delegated authority, to be liquid
are considered liquid securities.
GROWTH & INCOME EQUITY, BALANCED AND EQUITY INCOME PORTFOLIOS
The Growth & Income Equity, Balanced and Equity Income Portfolios of the
Trust may not:
1. Purchase securities of any one issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities), if,
immediately after and as a result of such investments, more than 5% of the
Portfolio's total assets would be invested in the securities of such issuer, or
more than 10% of the issuer's outstanding voting securities would be owned by
the Portfolio or the Trust, except that up to 25% of the Portfolio's total
assets may be invested without regard to such limitations.
2. Purchase any securities which would cause 25% or more of the Portfolio's
total assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry, provided that, however, (a) with respect to each Portfolio, (i) there
is no limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements secured
by obligations of the U.S. Government or its agencies or instrumentalities, and
with respect to the Equity Income Portfolio only, securities issued by domestic
banks, thrifts or savings institutions; (ii) wholly-owned finance companies will
be considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (iii)
utilities will be divided according to their services (for example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry).
3. Borrow money or issue senior securities, except that the Portfolio may
borrow from banks and enter into reverse repurchase agreements for temporary
defensive purposes in amounts not in excess of 10% of the Portfolio's total
assets at the time of such borrowing; or mortgage, pledge, or hypothecate any
assets, except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the Portfolio's
total assets at the time of such borrowing; or purchase securities while its
borrowings exceed 5% of its total assets. A Portfolio's transactions in futures
and related options (including the margin posted by a Portfolio in connection
with such transactions), and securities held in escrow or separate accounts in
connection with a Portfolio's investment practices described in this Statement
of Additional Information are not subject to this limitation.
4. Make loans, except that each Portfolio may purchase or hold debt
instruments, lend portfolio securities, enter into repurchase agreements and
make other investments in accordance with its investment objective and policies.
5. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to a Portfolio's transactions in options, and futures contracts and
related options, and (b) a Portfolio may obtain short-term credits as may be
necessary for the clearance of purchases and sales of portfolio securities.
6. Make investments for the purpose of exercising control or management.
7. Purchase or sell real estate, provided that each Portfolio may invest in
securities secured by real estate or interests therein or issued by companies or
investment trusts which invest in real estate or interests therein.
8. Act as an underwriter of securities within the meaning of the Securities
Act of 1933 except insofar as a Portfolio might be deemed to be an underwriter
upon disposition of portfolio securities acquired within the limitation on
purchases of restricted securities and except to the extent that the purchase of
obligations directly from the issuer thereof in accordance with a Portfolio's
investment objective, policies and limitations may be deemed to be underwriting.
9. Purchase or sell commodity contracts, or invest in oil, gas or mineral
exploration or development programs, except that each of the Balanced Portfolio
and the Equity Income Portfolio may, to the extent appropriate to its investment
objective, purchase publicly traded securities of companies engaging in whole or
in part in such activities and may invest in futures contracts and related
options in accordance with their respective investment activities and policies.
10. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as a Portfolio might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
a Portfolio's investment objective, policies and limitations may be deemed to be
underwriting.
LORD ABBETT GROWTH AND INCOME PORTFOLIO
The Lord Abbett Growth and Income Portfolio may not:
1. sell short securities or buy securities or evidences of interests
therein on margin, although it may obtain short-term credit necessary for the
clearance of purchases of securities;
2. buy or sell put or call options, although it may buy, hold or sell
rights or warrants, write covered call options and enter into closing purchase
transactions as discussed below;
3. borrow money which is in excess of one-third of the value of its total
assets taken at market value (including the amount borrowed) and then only from
banks as a temporary measure for extraordinary or emergency purposes (borrowings
beyond 5% of such total assets may not be used for investment leverage to
purchase securities but solely to meet redemption requests where the liquidation
of the Portfolio's investment is deemed to be inconvenient or disadvantageous);
4. lend money or securities to any person except that it may enter into
short-term repurchase agreements with sellers of securities it has purchased,
and it may lend its portfolio securities to registered broker-dealers where the
loan is 100% secured by cash or its equivalent as long as it complies with
regulatory requirements and the Portfolio deems such loans not to expose the
Portfolio to significant risk (investment in repurchase agreements exceeding 7
days and in other illiquid investments is limited to a maximum of 5% of a
Portfolio's assets);
5. pledge, mortgage or hypothecate its assets; however, this provision does
not apply to permitted borrowing mentioned above or to the grant of escrow
receipts or the entry into other similar escrow arrangements arising out of the
writing of covered call options;
6. buy or sell real estate including limited partnership interests therein
(except securities of companies, such as real estate investment trusts, that
deal in real estate or interests therein), or oil, gas or other mineral leases,
commodities or commodity contracts in the ordinary course of its business,
except such interests and other property acquired as a result of owning other
securities, though securities will not be purchased in order to acquire any of
these interests;
7. invest more than 5% of its gross assets, taken at market value at the
time of investment, in companies (including their predecessors) with less than
three years' continuous operation;
8. buy securities if the purchase would then cause a Portfolio to have more
than (i) 5% of its gross assets, at market value at the time of purchase,
invested in securities of any one issuer, except securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, or (ii) 25% of its
gross assets, at market value at the time of purchase, invested in securities
issued or guaranteed by a foreign government, its agencies or instrumentalities;
9. buy voting securities if the purchase would then cause a Portfolio to
own more than 10% of the outstanding voting stock of any one issuer;
10. own securities in a company when any of its officers, directors or
security holders is an officer or Trustee of the Trust or an officer, director
or partner of the investment adviser or sub-adviser, if after the purchase any
of such persons owns beneficially more than 1/2 of 1% of such securities and
such persons together own more than 5% of such securities;
11. concentrate its investments in any particular industry, but if deemed
appropriate for attainment of its investment objective, up to 25% of its gross
assets (at market value at the time of investment) may be invested in any one
industry classification used for investment purposes; or
12. buy securities from or sell them to the Trust's officers, directors, or
employees, or to the investment adviser or sub-adviser or to their partners,
directors and employees.
LARGE CAP RESEARCH, DEVELOPING GROWTH AND MID-CAP VALUE PORTFOLIOS
The Large Cap Research, Developing Growth and Mid-Cap Value Portfolios may
not:
1. borrow money, except that (i) the Portfolio may borrow from banks (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act")) in
amounts up to 33 1/3% of its total assets (including the amount borrowed), (ii)
the Portfolio may borrow up to an additional 5% of its total assets for
temporary purposes, (iii) the Portfolio may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio securities
and (iv) the Portfolio may purchase securities on margin to the extent permitted
by applicable law;
2. pledge its assets (other than to secure borrowings, or to the extent
permitted by the Portfolio's investment policies as permitted by applicable
law);
3. engage in the underwriting of securities, except pursuant to a merger or
acquisition or to the extent that, in connection with the disposition of its
portfolio securities, it may be deemed to be an underwriter under federal
securities laws;
4. make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar instruments
shall not be subject to this limitation, and except further that the Portfolio
may lend its portfolio securities, provided that the lending of portfolio
securities may be made only in accordance with applicable law;
5. buy or sell real estate (except that the Portfolio may invest in
securities directly or indirectly secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein) or
commodities or commodity contracts (except to the extent the Portfolio may do so
in accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act, as, for example, with futures
contracts);
6. with respect to 75% of the gross assets of the Portfolio, buy securities
of one issuer representing more than (i) 5% of the Portfolio's gross assets,
except securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or (ii) 10% of the voting securities of such issuer;
7. invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding securities of the
U.S. Government, its agencies and instrumentalities); or
8. issue senior securities to the extent such issuance would violate
applicable laws.
RIGGS STOCK, RIGGS SMALL COMPANY STOCK AND RIGGS U.S. GOVERNMENT SECURITIES
PORTFOLIOS
1. The Portfolios will not issue senior securities except that a Portfolio
may borrow money directly or through reverse repurchase agreements in amounts up
to one-third of the value of its total assets, including the amount borrowed;
and except to the extent that a Portfolio may enter into futures contracts. The
Portfolios will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the Portfolio by enabling a Portfolio to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. A Portfolio will not purchase any
securities while any borrowings in excess of 5% of its total assets are
outstanding. During the period any reverse repurchase agreements are
outstanding, a Portfolio will restrict the purchase of portfolio securities to
money market instruments maturing on or before the expiration date of the
reverse repurchase agreements, but only to the extent necessary to assure
completion of the reverse repurchase agreements.
2. The Portfolios will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as are necessary
for clearance of purchases and sales of securities. The deposit or payment by a
Portfolio of initial or variation margin in connection with futures contracts or
related options transactions is not considered the purchase of a security on
margin.
3. The Portfolios will not mortgage, pledge, or hypothecate any assets,
except to secure permitted borrowings. In these cases the Portfolios may pledge
assets having a value of 15% of assets taken at cost. For purposes of this
restriction, (a) the deposit of assets in escrow in connection with the writing
of covered put or call options and the purchase of securities on a when-issued
basis; and (b) collateral arrangements with respect to (i) the purchase and sale
of stock options and (ii) initial or variation margin for futures contracts will
not be deemed to be pledges of a Portfolio's assets. Margin deposits for the
purchase and sale of futures contracts and related options are not deemed to be
a pledge.
4. The Portfolios will not lend any of their respective assets except
portfolio securities up to one-third of the value of total assets. This shall
not prevent a Portfolio from purchasing or holding U.S. government obligations,
money market instruments, variable amount demand master notes, bonds,
debentures, notes, certificates of indebtedness, or other debt securities,
entering into repurchase agreements, or engaging in other transactions where
permitted by a Portfolio's investment objective, policies, and limitations or
the Trust's Declaration of Trust.
5. The Portfolios will not invest more than 10% of their respective net
assets in securities subject to restrictions on resale under the Securities Act
of 1933, except for commercial paper issued under Section 4(2) of the Securities
Act of 1933 and certain other restricted securities which meet the criteria for
liquidity as established by the Board of Trustees.
6. The Portfolios will not invest in commodities, except to the extent that
they may engage in transactions involving futures contracts or options on
futures contracts.
7. The Portfolios will not purchase or sell real estate, including limited
partnership interests, although they may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities which are
secured by real estate or interests in real estate.
8. With respect to 75% of the value of its respective total assets, each
Portfolio will not purchase securities issued by any one issuer (other than
cash, cash items or securities issued or guaranteed by the government of the
United States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities), if as a result more than 5% of the value of
its total assets would be invested in the securities of that issuer. No
Portfolio will acquire more than 10% of the outstanding voting securities of any
one issuer.
9. A Portfolio will not invest 25% or more of the value of its respective
total assets in any one industry (other than securities issued by the U.S.
government, its agencies, or instrumentalities or repurchase agreements
collateralized by these securities).
10. A Portfolio will not underwrite any issue of securities, except as a
Portfolio may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
Except with respect to the Portfolios' policy of borrowing money, if a
percentage limitation is adhered to at the time of investment, a later increase
or decrease in percentage resulting from any change in value or net assets will
not result in a violation of such restriction.
For purposes of their policies and limitations, the Portfolios consider
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings association having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
NON-FUNDAMENTAL INVESTMENT LIMITATIONS
The investment limitations described below are not fundamental policies of the
Portfolios described and may be changed by the Trustees without shareholder
approval.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS - QUALITY BOND PORTFOLIO, SELECT EQUITY
PORTFOLIO, LARGE CAP STOCK PORTFOLIO, SMALL CAP STOCK PORTFOLIO AND
INTERNATIONAL EQUITY PORTFOLIO
These non-fundamental investment policies require that each such Portfolio may
not:
(i) Acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of the Portfolio's total assets would be in investments that are illiquid;
(ii) Purchase any security if, as a result, the Portfolio would then have
more than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years;
(iii) Invest in warrants (other than warrants acquired by the Portfolio as
part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed 5%
of the value of the Portfolio's net assets or if, as a result, more than 2% of
the Portfolio's net assets would be invested in warrants not listed on a
recognized U.S. or foreign stock exchange, to the extent permitted by applicable
state securities laws; or
(iv) Purchase or retain securities of any issuer if, to the knowledge of
the Portfolio, any of the Portfolio's officers or Trustees or any officer of the
Advisor individually owns more than 1/2 of 1% of the issuer's outstanding
securities and such persons owning more than 1/2 of 1% of such securities
together beneficially own more than 5% of such securities, all taken at market.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS - EMERGING MARKETS EQUITY PORTFOLIO
The Portfolio may not:
(i) Acquire securities of other investment companies, except as permitted
by the 1940 Act or any rule, order or interpretation thereunder, or in
connection with a merger, consolidation, reorganization, acquisition of assets
or an offer of exchange;
(ii) Acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of the Portfolio's net assets would be in investments that are illiquid;
(iii) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the SEC
or its staff. Transactions in futures contracts and options shall not constitute
selling securities short; or
(iv) Purchase securities on margin, but the Portfolio may obtain such short
term credits as may be necessary for the clearance of transactions.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS - LARGE CAP RESEARCH, DEVELOPING GROWTH
AND MID-CAP VALUE PORTFOLIOS
Each Portfolio may not:
1. borrow in excess of 5% of its gross assets taken at cost or market
value, whichever is lower at the time of borrowing, and then only as a temporary
measure for extraordinary or emergency purposes;
2. make short sales of securities or maintain a short position except to
the extent permitted by applicable law;
3. invest knowingly more than 15% of its net assets (at the time of
investment) in illiquid securities, except for securities qualifying for resale
under Rule 144A of the Securities Act of 1933, deemed to be liquid by the Board
of Trustees;
4. invest in the securities of other investment companies as defined in the
1940 Act except as permitted by applicable law;
5. invest in securities of issuers which, with their predecessors, have a
record of less than three years' continuous operations, if more than 5% of the
Portfolio's total assets would be invested in such securities (this restriction
shall not apply to mortgaged-backed securities, asset-backed securities or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities);
6. hold securities of any issuer if more than 1/2 of 1% of the securities
of such issuer are owned beneficially by one or more officers or Trustees of the
Trust or by one or more partners or members of the Trust's underwriter or
investment adviser if these owners in the aggregate own beneficially more than
5% of the securities of such issuer;
7. invest in warrants if, at the time of the acquisition, its investment in
warrants, value at the lower of cost or market, would exceed 5% of the
Portfolio's total assets (included within such limitation, but not to exceed 2%
of the Portfolio's total assets, are warrants which are not listed on the New
York or American Stock Exchange or a major foreign exchange);
8. invest in real estate limited partnership interests or interests in oil,
gas or other mineral leases, or exploration or other development programs,
except that the Portfolio may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or other development activities;
9. write, purchase or sell puts, calls, straddles, spreads or combinations
thereof, except to the extent permitted in the Portfolio's prospectus and
statement of additional information, as they may be amended from time to time;
or
10. buy from or sell to any of its officers, Trustees, employees, or its
investment adviser or any of its officers, directors, partners or employees, any
securities other than shares of the Portfolio's common stock.
NON-FUNDAMENTAL INVESTMENT LIMITATIONS - RIGGS STOCK, RIGGS SMALL COMPANY
STOCK AND RIGGS U.S. GOVERNMENT SECURITIES PORTFOLIOS
1. The Portfolios will not invest more than 15% of the value of their
respective net assets in illiquid securities, including repurchase agreements
providing for settlement more than seven days after notice, over-the-counter
options and certain restricted securities not determined by the Trustees to be
liquid.
2. Unless permitted by order of the Securities and Exchange Commission, the
Portfolios will limit their respective investment in other investment companies
to no more than 3% of the total outstanding voting stock of any investment
company, and will not invest more than 5% of their respective total assets in
any one investment company, or invest more than 10% of their respective total
assets in investment companies in general. The Portfolios will purchase
securities of closed-end investment companies only in open market transactions
involving only customary broker's commissions. However, these limitations are
not applicable if the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets.
3. A Portfolio will not enter into transactions for the purpose of engaging
in arbitrage.
4. A Portfolio will not purchase securities of a company for the purpose of
exercising control or management.
5. The Riggs U.S. Government Securities Portfolio will not invest in
warrants. The Riggs Stock and Riggs Small Company Stock Portfolios may not
invest more than 5% of their respective net assets in warrants, including
those acquired in units or attached to other securities. For purposes of this
investment restriction, warrants will be valued at the lower of cost or market,
except that warrants acquired by the Portfolios in units with or attached to
securities may be deemed to be without value.
DESCRIPTION OF SECURITIES RATINGS
A description of the securities ratings is contained in the Appendix to the
Statement of Additional Information.
MANAGEMENT OF THE TRUST
Responsibilities of Trustees
The Board of Trustees of the Trust provides broad supervision over the affairs
of the Trust and the Portfolios. In carrying out their duties, the Trustees
follow the provisions of the Investment Company Act of 1940, the General Laws of
the Commonwealth of Massachusetts governing business trusts, the Declaration of
Trust of the Trust and its Bylaws. The Trustees approve contracts with the
investment adviser, custodians and other service providers on behalf of the
Portfolios. The Trustees also set broad policies for the management of the
assets of each Portfolio, including the pricing of securities owned by the
Portfolios and the policies governing investments by the Portfolios.
<TABLE>
<CAPTION>
OFFICERS AND TRUSTEES
MANAGEMENT OF THE TRUST
Principal Occupation During Past Five
Position(s) Held Years (and Positions held with Affiliated
Name, Address and Age with Registrant Persons or Principal Underwriters of the Registrant)
- - --------------------- --------------- ----------------------------------------------------
<S> <C> <C>
Lorry J. Stensrud* President and Chief President of Cova Financial Services Life
One Tower Lane, Suite 3000 Executive Officer Insurance Company ("Cova Life") since
Oakbrook Terrace, IL 60181- June, 1995; prior thereto, Executive Vice
4644 President of Cova
Age: 50
William C. Mair* Vice President, Vice President and Controller of Cova Life;
One Tower Lane, Suite 3000 Treasurer, Controller, Vice President, Treasurer and Controller of
Oakbrook, Terrace IL 60181- Chief Financial Officer, Cova Investment Advisory Corporation
4644 Chief Accounting Officer
Age: 58 and Trustee
Stephen M. Alderman Trustee Partner in the law firm of Garfield & Merel
211 West Wacker Drive
Chicago, IL 60606
Age: 40
Theodore A. Myers Trustee Senior Financial Advisor; formerly Chief
550 Washington Avenue Financial Officer of Qualitech Steel
Glencoe, IL 60022 Corporation, 1990-1994; Director of 34 Van
Age: 69 Kampen American Capital Mutual Funds;
member of Arthur Andersen C.F.O.
Advisory Committee.
Deborah A. Vohasek Trustee Principal, Vohasek Oetjen Marketing
7752 W. Lake Street
Morton Grove, IL 60053
Age: 36
R. Kevin Williams Trustee Partner in the law firm of O'Donnell, Byrne &
20 North Wacker Drive Williams from June 1993 through the
Chicago, IL 60606 present
Age: 46
William H. Wilton Vice President Vice President & Actuary of Cova Life; prior
One Tower Lane, Suite 3000 to October, 1992, Associate Actuary,
Oakbrook Terrace, IL 60181- Allstate Life Insurance Co., Northbrook, IL
4644
Age: 39
Bernard J. Spaulding Secretary Senior Vice President and General Counsel of
One Tower Lane, Suite 3000 Cova since March, 1999; Secretary of Cova since
Oakbrook Terrace, IL 60181- July 1, 1999; prior thereto, President of Delta
4644 Holdings
Age: 56
<FN>
* Interested person of the Trust within the meaning of the 1940 Act.
</FN>
</TABLE>
COMMITTEES
The Board has established two committees. The committees, their members and the
responsibilities of the committees are as follows:
PRICING COMMITTEE. The Pricing Committee has the responsibility of overseeing
the determination of the net asset value of the Portfolios and the calculation
of the value of any debt instrument, share of stock, or other Portfolio security
or asset. The members are as follows:
Drew Ahrens
William Flory
Terri Tanaka
AUDIT COMMITTEE. The Audit Committee makes recommendations to the Board
concerning the selection of the Trust's independent auditors and reviews with
such auditors the scope and results of the Trust's annual audit. The members are
as follows:
Stephen M. Alderman
Theodore A. Myers
Deborah A. Vohasek
R. Kevin Williams
COMPENSATION OF MANAGEMENT
Each Trustee of the Trust who is not an interested person of the Trust or
Adviser or Sub-Adviser receives an annual fee of $10,000 and an additional fee
of $1,000 for each Trustees' meeting attended. In addition, disinterested
Trustees who are members of any Board committees will receive a separate $1,000
fee for attendance of any committee meeting that is held on a day on which no
Board meeting is held.
The table below describes the compensation paid by the Trust during the past
fiscal year to each of the Trustees who is a not an interested person of the
Trust. None of the officers and no Trustee who is an interested person of the
Trust received compensation from the Trust during the past fiscal year.
<TABLE>
<CAPTION>
COMPENSATION TABLE
(1) (2) (3) (4) (5)
Total
Pension or Compensation
Retirement Estimated From Registrant
Aggregate Benefits Accrued Annual and Fund
Compensation As Part of Fund Benefits Upon Complex Paid to
Name of Person, Position From Registrant Expenses Retirement Trustees
- - ------------------------ --------------- -------- ---------- --------
<S> <C> <C> <C> <C>
William C. Mair, N/A N/A N/A N/A
Vice President, Treasurer,
Controller, Chief Financial
Officer, Chief Accounting
Officer and Trustee
Stephen M. Alderman, $15,000 N/A N/A $15,000
Trustee
Theodore A. Myers, $15,000 N/A N/A $15,000
Trustee
Deborah A. Vohasek, $15,000 N/A N/A $15,000
Trustee
R. Kevin Williams, $15,000 N/A N/A $15,000
Trustee
</TABLE>
SUBSTANTIAL SHAREHOLDERS
Shares of the Trust are issued and redeemed in connection with investments
in and payments under certain variable annuity contracts and variable life
insurance policies ("Variable Contracts") issued by Cova Financial Services Life
Insurance Company and/or its affiliated insurance companies. On March 31, 2000,
Cova Variable Annuity Account One, Cova Variable Life Account One and Cova
Variable Life Account Eight, separate accounts of Cova Financial Services Life
Insurance Company; Cova Variable Annuity Account Five and Cova Variable Life
Account Five, separate accounts of Cova Financial Life Insurance Company; and
First Cova Variable Annuity Account One, a separate account of First Cova Life
Insurance Company, together were known to the Board of Trustees and the
management of the Trust to own of record 99.71% of the Trust's shares.
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS
Cova Life has advised the Trust that as of March 31, 2000, there were no
persons owning Variable Contracts which would entitle them to instruct Cova Life
with respect to more than 5% of the voting securities of the Trust.
CUSTODIAN
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
Massachusetts 02116, is the custodian of the Trust and has custody of all
securities and cash of the Trust. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Trust. IBT also provides fund
administration and accounting services to the Trust and is the Trust's transfer
agent.
DIVIDENDS
All dividends are distributed to the separate accounts and will be automatically
reinvested in Trust shares. Dividends and distributions made by the Portfolios
are taxable, if at all, to Cova Life; they are not taxable to Variable Contract
owners.
TAX STATUS
It is the intention of the Trust to qualify as a "regulated investment company"
under Sub-chapter M of the Internal Revenue Code. If the Trust so qualifies and
distributes each year to its shareholders at least 90% of its net investment
income in each year, it will not be required to pay federal income taxes on any
income distributed to shareholders. Each Portfolio of the Trust distributes all
of its net income and gains to its shareholders (the separate accounts). Each
Portfolio is treated as a separate entity for Federal income tax purposes and,
therefore, the investments and results of the Portfolio are determined
separately for purposes of determining whether the Trust qualifies as a
"regulated investment company" and for purposes of determining net ordinary
income (or loss) and net realized capital gains (or losses).
Some of the Trust's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Trust and affect the holding period of the securities held by the Trust and the
character of the gains or losses realized by the Trust. These provisions may
also require the Trust to mark-to-market some of the positions in its portfolio
(i.e., treat them as if they were closed out), which may cause the Trust to
recognize income without receiving cash with which to make distributions in
amounts necessary to satisfy the 90% distribution requirement and the
distribution requirements for avoiding income and excise taxes. The Trust will
monitor its transactions and may make certain tax elections in order to mitigate
the effect of these rules and prevent disqualification of the Trust as a
regulated investment company.
Investments of the Trust in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Trust will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Trust may
have to dispose of securities that it would otherwise have continued to hold.
NET ASSET VALUES
Portfolio shares are sold and redeemed at a price equal to the share's net asset
value. The net asset value of a Portfolio is determined by calculating the total
value of the Portfolio's assets, deducting its total liabilities, and dividing
the result by the number of shares outstanding. The net asset value for each
Portfolio is computed once daily as of the close of the New York Stock Exchange,
Monday through Friday, except on customary business holidays, or except on any
day on which no purchase or redemption orders are received, or there is not a
sufficient degree of trading in the Portfolio's investments so that the
Portfolio's net asset value per share might be materially affected. The Trust
reserves the right to calculate the net asset value and to adjust the public
offering price based thereon more frequently than once a day if deemed
desirable.
Securities that are listed on a securities exchange are valued at their closing
sales price on the day of the valuation. Price valuations for listed securities
are based on market quotations where the security is primarily traded or, if not
available, are valued at the mean of the bid and asked prices on any valuation
date. Unlisted securities in a Portfolio are primarily valued based on their
latest quoted bid price or, if not available, are valued by a method determined
by the Trustees to accurately reflect fair value. Money market instruments
maturing in 60 days or less are valued on the basis of amortized cost, which
means that securities are valued at their acquisition cost to reflect a constant
amortization rate to maturity of any premium or discount, rather than at current
market value.
PERFORMANCE DATA
As required by regulations of the Securities and Exchange Commission, the
annualized total return of the Portfolios for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by the Portfolio over the period are reinvested. It
is then assumed that at the end of the period, the entire amount is redeemed.
The annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Quotations of average annual total return for a Portfolio will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Portfolio over a period of one, five and ten years (or, if less,
up to the life of a Portfolio, calculated pursuant to the formula:
(n)
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = an average annual total return
n = the number of years
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year period at the
end of the 1, 5, or 10 year period (or fractional portion
thereof)
From time to time, the investment adviser may reduce its compensation or assume
expenses in respect of the operations of a Portfolio in order to reduce the
Portfolio's expenses. Any such waiver or assumption would increase a Portfolio's
yield and total return during the period of the waiver or assumption.
Advertisements and other sales literature for the Portfolios may quote total
returns which are calculated for periods other than the 1-, 5- and 10-year
periods required by the Rules of the Securities and Exchange Commission or may
quote returns that do not reflect the deduction of all expenses incurred by a
Portfolio. The investment adviser may use these returns in advertising if the
investment adviser believes the nonstandard returns are useful. Nonstandard
returns are always accompanied by total returns calculated as required by Rules
of the Securities and Exchange Commission, which require performance to be
calculated for 1-, 5- and 10-year periods with the deduction of all expenses and
the assumption that all dividends and distributions are reinvested.
In addition, Portfolio performance may be advertised relative to certain indices
and benchmark investments. The composition of the investment in such indices are
the characteristics of such benchmark investments are not identical to, and in
some cases are very different from, those of a Portfolio. These indices and
averages are generally unmanaged and the items included in the calculations of
such indices and averages may be different from those of the equations used by
the Trust to calculate a Portfolio's performance figures.
A Portfolio's investment results will vary from time to time depending upon
market conditions, the composition of its investment portfolio and its operating
expenses. The effective yield and total return for a Portfolio should be
distinguished from the rate of return of a corresponding division of Cova Life's
separate account, which rate will reflect the deduction of additional charges,
including mortality and expense risk charges, and will therefore be lower.
Accordingly, performance figures for a Portfolio will only be advertised if
comparable performance figures for the corresponding division of the separate
account are included in the advertisements. Contract owners should consult the
Contract prospectus for further information. Each Portfolio's results also
should be considered relative to the risks associated with its investment
objectives and policies.
LEGAL COUNSEL AND INDEPENDENT AUDITORS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut is counsel to the
Trust and passes upon the legality of the Trust's shares.
The independent auditors for the Trust are KPMG LLP, 99 High Street,
Boston, Massachusetts 02110.
INVESTMENT ADVISORY AGREEMENT
Cova Investment Advisory Corporation (the "Investment Adviser"), One Tower
Lane, Suite 3000, Oakbrook Terrace, Illinois 60181-4644 is an Illinois
corporation which was incorporated on August 31, 1993 under the name Oakbrook
Investment Advisory Corporation and which is registered with the Securities and
Exchange Commission as an investment adviser under the Investment Advisers Act
of 1940.
The Investment Adviser commenced providing investment advisory services to
all Portfolios of the Trust as of May 1, 1996 pursuant to an Investment Advisory
Agreement dated April 1, 1996, as amended ("Investment Advisory Agreement").
Prior to this date, Van Kampen American Capital Investment Advisory Corp. had
acted as the investment adviser to all Portfolios of the Trust. The Investment
Advisory Agreement was most recently approved by the Board of Trustees on
November 12, 1999. The Investment Advisory Agreement was most recently approved
by the shareholders of each of the Portfolios of the Trust at a Special Meeting
of Shareholders held on January 6, 2000.
As described in the Prospectus, the Investment Adviser has retained
Sub-Advisers to assist it in managing the Portfolios. The Sub-Advisory
Agreements between the Investment Adviser and each of the Sub-Advisers were
approved most recently by the Board of Trustees on November 12, 1999 and by the
shareholders of each of the Portfolios of the Trust at a Special Meeting of
Shareholders held on January 6, 2000.
Under the terms of the Investment Advisory Agreement, the Investment
Adviser is obligated to (i) manage the investment and reinvestment of the assets
of each Portfolio of the Trust in accordance with each Portfolio's investment
objective and policies and limitations, or (ii) in the event that the Investment
Adviser shall retain a sub-adviser or sub-advisers, to supervise and implement
the investment activities of any Portfolio for which any such sub-adviser has
been retained, including responsibility for overall management and
administrative support including managing, providing for and compensating any
sub-advisers; and to administer the Trust's affairs. The Investment Advisory
Agreement further provides that the Investment Adviser agrees, among other
things, to administer the business affairs of each Portfolio, to furnish offices
and necessary facilities and equipment to each Portfolio, to provide
administrative services for each Portfolio, to render periodic reports to the
Board of Trustees of the Trust with respect to each Portfolio, and to permit any
of its officers or employees, or those of any sub-adviser to serve without
compensation as trustees or officers of the Portfolio if elected to such
positions.
The Investment Advisory Agreement provides that the Investment Adviser will
not be liable for any error in judgment or of law, or for any loss suffered by
the Trust in connection with the matters to which the agreement relates, except
a loss resulting from willful misfeasance, bad faith, or gross negligence on the
part of the Investment Adviser in the performance of its obligations and duties,
or by reason of its reckless disregard of its obligations and duties under the
Agreement.
The Investment Adviser's activities are subject to the review and
supervision of the Trust's Trustees to whom the Investment Adviser renders
periodic reports of the Trust's investment activities.
The Investment Advisory Agreement may be terminated without penalty upon 60
days written notice by either party and will automatically terminate in the
event of assignment.
COMPENSATION. The Investment Adviser receives a fee from the Trust for its
services as investment adviser as described in the Prospectus.
The Investment Adviser calculates the fee each day that the New York Stock
Exchange is open for business based on the net asset value determined for that
day. The fee accrues daily and is paid monthly. The Investment Adviser received
the following fees from each Portfolio during the past three fiscal years.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name of
Portfolio Fiscal Year Ended
1999 1998 1997
Quality Bond Portfolio $ 505,285 $ 165,294 $ 56,257
Small Cap Stock Portfolio $ 687,540 $ 596,903 $292,360
Large Cap Stock Portfolio $1,479,955 $ 402,802 $130,631
Select Equity Portfolio $1,507,688 $1,023,054 $450,572
International Equity Portfolio $ 905,709 $ 717,933 $349,944
Bond Debenture Portfolio $1,210,327 $ 647,086 $196,145
Mid-Cap Value Portfolio $ 247,340 $ 92,358 $ 2,150
Large Cap Research Portfolio $ 241,534 $ 61,036 $ 1,521
Developing Growth Portfolio $ 203,145 $ 67,992 $ 1,753
Balanced Portfolio $ 73,532 $ 27,149 $ 6,200
Equity Income Portfolio $ 62,362 $ 30,163 $ 6,707
Growth & Income Equity Portfolio $ 131,419 $ 53,799 $ 8,283
Lord Abbett Growth & Income Portfolio $5,289,797 N/A N/A
Riggs Stock Portfolio $ 231 N/A N/A
Riggs U.S. Government Securities
Portfolio $ 368 N/A N/A
</TABLE>
The Investment Adviser received no advisory fee with respect to the Emerging
Markets Equity Portfolio or the Riggs Small Company Stock Portfolio through
December 31, 1999 in that these Portfolios had not yet commenced investment
operations as of that date.
EXPENSES OF THE TRUST
Although each Portfolio must bear the expenses directly attributable to it, the
Portfolios are expected to experience cost savings over the aggregate amount
that would be payable if each Portfolio were a separate fund, because they have
the same Trustees, accountants, attorneys and other general and administrative
expenses. Any expenses which are not directly attributable to a specific
Portfolio are allocated on the basis of the net assets of the respective
Portfolios.
For the year ended December 31, 1999, the expenses, taking into account the
waivers and expense assumptions, borne by the Bond Debenture Portfolio amounted
to $1,371,690 or .85% of its average net assets on an annualized basis; the net
expenses borne by the Quality Bond Portfolio amounted to $600,321 or .64% of its
average net assets on an annualized basis; the net expenses borne by the
International Equity Portfolio amounted to $1,253,973 or 1.10% of its average
net assets on an annualized basis; the net expenses borne by the Select Equity
Portfolio amounted to $1,737,044 or .77% of its average net assets on an
annualized basis; the net expenses borne by the Large Cap Stock Portfolio
amounted to $1,704,505 or .75% of its average net assets on an annualized basis;
the net expenses borne by the Small Cap Stock Portfolio amounted to $847,429 or
1.05% of its average net assets on an annualized basis; the net expenses borne
by the Balanced Portfolio amounted to $80,904 or 1.10% of its average net assets
on an annualized basis; the net expenses borne by the Equity Income Portfolio
amounted to $68,615 or 1.10% of its average net assets on an annualized basis;
the net expenses borne by the Growth & Income Equity Portfolio amounted to
$144,592 or 1.10% of its average net assets on an annualized basis; the net
expenses borne by the Mid-Cap Value Portfolio amounted to $308,331 or 1.25% of
its average net assets on an annualized basis; the net expenses borne by the
Large Cap Research Portfolio amounted to $301,679 or 1.25% of its average net
assets on an annualized basis; the net expenses borne by the Developing Growth
Portfolio amounted to $259,188 or 1.15% of its average net assets on an
annualized basis;; the net expenses borne by the Lord Abbett Growth and Income
Portfolio amounted to $5,736,259 or .70% of its average net assets on an
annualized basis; the net expenses borne by the Riggs Stock Portfolio amounted
to $255 or 1.05% of its average net assets on an annualized basis; and the net
expenses borne by the Riggs U.S. Government Securities Portfolio amounted to
$417 or .85% of its average net assets on an annualized basis.
Cova Life and/or the Adviser and/or the Sub-Adviser(s) may at their discretion,
but are not obligated to, assume all or any portion of Trust expenses. For the
year ended December 31, 1999, Cova Life and the Adviser together assumed
expenses of $59,975, with respect to the Quality Bond Portfolio; $55,853, with
respect to the International Equity Portfolio; $21,437 with respect to the Bond
Debenture Portfolio; $412, with respect to the Select Equity Portfolio; $21,826,
with respect to the Large Cap Stock Portfolio; $32,598, with respect to the
Small Cap Stock Portfolio; $70,427 with respect to the Balanced Portfolio;
$70,417 with respect to the Equity Income Portfolio; $64,401 with respect to the
Growth & Income Equity Portfolio; $39,659 with respect to the Mid-Cap Value
Portfolio; $31,960 with respect to the Large Cap Research Portfolio; $42,877
with respect to the Developing Growth Portfolio; $23,044 with respect to the
Riggs Stock Portfolio; and $24,025 with respect to the Riggs U.S. Government
Securities Portfolio.
CODE OF ETHICS
To mitigate the possibility that a Portfolio will be adversely affected by
personal trading of employees, the Trust, the Adviser and the Sub-Advisers have
adopted Codes of Ethics under Rule 17j-1 of the 1940 Act. These Codes contain
policies restricting securities trading in personal accounts of the portfolio
managers and others who normally come into possession of information on
portfolio transactions. These Codes comply, in all material respects, with the
recommendations of the Investment Company Institute. Employees subject to the
Codes of Ethics may invest in securities for their own investment accounts,
including securities that may be purchased or held by the Trust.
SUB-ADVISERS
APPOINTMENT. The Investment Adviser has entered into agreements with registered
investment advisers to carry out the management of the assets of the Portfolios
based on the investment objectives and policies of the Portfolios. The
Sub-Advisers are responsible for deciding which securities to purchase and sell
for the Portfolios and for placing trades for those securities. The prospectus
provides more information about the Sub-Advisers.
COMPENSATION. The Investment Adviser pays the Sub-Advisers fees for their
services, as described in the Prospectus, out of the compensation the Investment
Adviser receives from each Portfolio.
INVESTMENT DECISIONS
Investment decisions for the Trust and for the other investment advisory
clients of the Sub-Advisers are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment, and the size of their investments
generally. Frequently, a particular security may be bought or sold for only one
client or in different amounts and at different times for more than one but less
than all clients. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the security. In addition,
purchases or sales of the same security may be made for two or more clients of a
Sub-Adviser on the same day. In such event, such transactions will be allocated
among the clients in a manner believed by the Sub-Adviser to be equitable to
each. In some cases, this procedure could have an adverse effect on the price or
amount of the securities purchased or sold by the Trust. Purchase and sale
orders for the Trust may be combined with those of other clients of a
Sub-Adviser in the interest of achieving the most favorable net results for the
Trust.
PORTFOLIO TRANSACTIONS
Transactions on U.S. stock exchanges and other agency transactions involve
the payment by the Trust of negotiated brokerage commissions. Such commissions
vary among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities often involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the over-the-counter markets, but the price paid by the Trust usually
includes an undisclosed dealer commission or mark-up. In underwritten offerings,
the price paid by the Trust includes a disclosed, fixed commission or discount
retained by the underwriter or dealer. It is currently intended that the
Sub-Advisers will place all orders for the purchase and sale of portfolio
securities for the Trust and buy and sell securities for the Trust through a
substantial number of brokers and dealers. In so doing, the Sub-Advisers will
use their best efforts to obtain for the Trust the best price and execution
available. In seeking the best price and execution, the Sub-Advisers, having in
mind the Trust's best interests, will consider all factors they deem relevant,
including, by way of illustration, price, the size of the transaction, the
nature of the market for the security, the amount of the commission, the timing
of the transaction taking into account market prices and trends, the reputation,
experience, and financial stability of the broker-dealer involved, and the
quality of service rendered by the broker-dealer in other transactions.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical, and quotation services from broker-dealers who
execute portfolio transactions for the clients of such advisers. Consistent with
this practice, the Sub-Advisers may receive research, statistical, and quotation
services from any broker-dealers with whom they place the Trust's portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities, and recommendations as
to the purchase and sale of securities. Some of these services may be of value
to the Sub-Advisers and/or their affiliates in advising various other clients
(including the Trust), although not all of these services are necessarily useful
and of value in managing the Trust. The management fees paid by the Trust are
not reduced because the Sub-Advisers and/or their affiliates may receive such
services. As permitted by Section 28(e) of the Securities Exchange Act of 1934,
a Sub-Adviser may cause a Portfolio to pay a broker-dealer who provides
brokerage and research services to the Sub-Adviser an amount of disclosed
commission for effecting a securities transaction for the Portfolio in excess of
the commission which another broker-dealer would have charged for effecting that
transaction provided that the Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised. A Sub-Adviser's authority to cause a Portfolio to pay any such
greater commissions is also subject to such policies as the Adviser or the
Trustees may adopt from time to time.
COMMISSIONS PAID BY THE PORTFOLIOS. The following are the aggregate amounts of
commissions paid by each of the Portfolios for brokerage during the past three
fiscal years:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name of Fiscal Year Ended
Portfolio
1999 1998 1997
Quality Bond Portfolio $ 10,634 N/A N/A
Small Cap Stock Portfolio $ 128,288 $ 91,650 $ 69,720
Large Cap Stock Portfolio $ 174,716 $ 59,636 $ 18,544
Select Equity Portfolio $ 564,579 $437,251 $174,538
International Equity Portfolio $ 267,666 $255,634 $280,279
Bond Debenture Portfolio $ 5,341 $ 3,461 N/A
Mid-Cap Value Portfolio $ 109,084 $ 53,000 $ 3,986
Large Cap Research Portfolio $ 54,923 $ 23,532 $ 1,399
Developing Growth Portfolio $ 25,992 $ 15,664 $ 1,204
Balanced Portfolio $ 6,617 $ 3,945 $ 1,215
Equity Income Portfolio $ 12,897 $ 10,665 $ 2,451
Growth & Income Equity Portfolio $ 16,692 $ 13,871 $ 3,580
Lord Abbett Growth and Income Portfolio $1,325,443 N/A N/A
Riggs Stock Portfolio $ 320 N/A N/A
Riggs U.S. Government Securities
Portfolio N/A N/A N/A
</TABLE>
FINANCIAL STATEMENTS
The Financial Statements and notes thereto for the year ended December 31, 1999
and the independent auditors' report thereon appear in the Trust's Annual Report
for the year ended December 31, 1999, which is incorporated by reference into
this Statement of Additional Information. The Trust delivers a copy of the
Annual Report to investors. In addition, the Trust will furnish, without charge,
additional copies of such Annual Report and copies of the Statement of
Additional Information to investors which may be obtained without charge by
calling the Life Company at (800) 831-LIFE.
APPENDIX - DESCRIPTION OF CORPORATE BOND RATINGS
STANDARD & POOR'S CORPORATION. A brief description of the applicable Standard &
Poor's Corporation ("S&P") rating symbols and their meanings (as published by
S&P) follows:
An S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
LONG-TERM CORPORATE 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 highest 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 adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC - Debt rated 'BB', 'B', 'CCC', or 'CC' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'CC' the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C - This rating is reserved for income bonds on which no interest is being
paid.
D - Debt rated 'D' is in default, and payment of interest and/or repayment
of principal is in arrears.
PLUS (+) OR MINUS (-): The ratings from 'A' to 'B' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise judgment with respect to such likelihood and risk.
L - The letter 'L' indicates that the rating pertains to the principal
amount of those bonds where the underlying deposit collateral is fully insured
by the Federal Deposit Insurance Corp.
[DAGGER] - Continuance of the rating is contingent upon S&P's receipt of
closing documentation confirming investments and cash flow.
* - Continuance of the rating is contingent upon S&P's receipt of an
executed copy of the escrow agreement.
NR - Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
MOODY'S INVESTORS SERVICE, INC. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings (as published
by Moody's Investors Service, Inc.) follows:
LONG-TERM CORPORATE BONDS.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e. they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
NOTE: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1 and B 1.
COMMERCIAL PAPER RATINGS
COMMERCIAL PAPER
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. The four categories are as
follows:
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
delineated with the numbers 1, 2 and 3 to indicate the relative degree
of safety. Those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign designation.
A-1 This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for
issues designated "A-1."
A-3 Issues carrying this designation have a satisfactory capacity for
timely of payment. They are, however, somewhat more vulnerable to the
adverse effects changes in circumstances than obligations carrying the
higher designations.
B Issues rated "B" are regarded as having only an adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C&D These ratings indicate that the issue is either in default or is
expected to be in default upon maturity.
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+." "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity factors
are strong and supported by good fundamental protection factors. Risk factors
are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity factors
and company fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good. Risk factors
are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection factors
qualify issue as investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics. Liquidity is
not sufficient to ensure against disruption in debt service. Operating factors
and market access may be subject to a high degree of variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree than
issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this rating
have a satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this rating
have characteristics suggesting that the degree of assurance for timely payment
is adequate; however, near-term adverse changes could cause these securities to
be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this rating
have characteristics suggesting a minimal degree of assurance for timely payment
and are vulnerable to near-term adverse changes in financial and economic
conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to indicate
that the rating is based upon a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
or incomplete payment of principal or interest of unsubordinated instruments
having a maturity of one year or less which are issued by United States
commercial banks, thrifts and non-bank banks; non-United States banks; and
broker-dealers. The following summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade category
and indicates that while the debt is more susceptible to adverse developments
(both internal and external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is considered adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by a strong capacity for timely repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment.
Such capacity is more susceptible to adverse changes in business, economic or
financial conditions than for obligations in higher categories.
"B" - Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to ensure
timely repayment.
"D" - Obligations which have a high risk of default or which are currently
in default.
VARIABLE RATE DEMAND BOND RATINGS
Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a variable rate demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, 'AAA/A-1') or if the nominal maturity is short, a rating of
'SP-1+/AAA' is assigned.
NOTES
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in 3 years or less will likely receive a
note rating. Notes maturing beyond 3 years will most likely receive a long-term
debt rating. The following criteria will be used in making that assignment:
- - Amortization schedule (the longer the final maturity relative to other
maturities the more likely it will be treated as a note).
- - Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be treated as a note). Note rating
symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
PREFERRED STOCK RATINGS (STANDARD & POOR'S)
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA A preferred stock issue rated 'AA' also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated 'AAA'.
A An issue rated 'A' is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB An issue rated 'BBB' is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB Preferred stock rated 'BB', 'B' and 'CCC' is regarded, on balance, as
B Predominantly speculative with respect to the issuer's capacity to pay
CCC preferred stock obligations. 'BB' indicates the lowest degree of
speculation and 'CCC' the highest degree of speculation. While such issues will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
CC The rating 'CC' is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C A preferred stock rated 'C' is a non-paying issue.
D A preferred stock rated 'D' is a non-paying issue with the issuer in
default on debt instruments.
PLUS (+) OR MINUS (-): To provide more detailed indications of preferred
stock quality, the ratings from 'AA' to 'B' may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
NR This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
A preferred stock rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE, INC. - A brief description of the applicable
Moody's Investors Service, Inc. rating symbols with respect to preferred stock
and their meanings (as published by Moody's Investors Service, Inc.) follows:
PREFERRED STOCK RATINGS (MOODY'S)
Preferred stock rating symbols and their definitions are as follows:
aaa: An issue which is rated 'aaa' is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa: An issue which is rated 'aa' is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated 'a' is considered to be an upper-medium
preferred stock. While risks are judged to be somewhat greater than in the 'aaa'
and 'aa' classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa: An issue which is rated 'baa' is considered to be a medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
ba: An issue which is rated 'ba' is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b: An issue which is rated 'b' generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated 'caa' is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
ca: An issue which is rated 'ca' is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual payment.
c: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
NOTE: Beginning May 3, 1982, Moody's began applying numerical modifiers 1,
2 and 3 in each rating classification from "aa" through "b" in its preferred
stock rating system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Declaration of Trust(1)
(b) By-laws of Trust(1)
(c) Not Applicable
(d)(1) Form of Investment Advisory Agreement
(d)(2) Form of Sub-Advisory Agreement - J.P. Morgan Investment
Management Inc.
(d)(3) Form of Sub-Advisory Agreement - Lord, Abbett & Co.
(d)(4) Form of Sub-Advisory Agreement - Mississippi Valley
Advisors Inc.
(d)(5) Form of Sub-Advisory Agreement - Riggs Bank N.A.
(e)(1) Principal Underwriters Agreement(3)
(e)(2) Form of Addendum to Principal Underwriters Agreement(3)
(f) Not Applicable
(g) Custodian Contract (2)
(h) Administration Agreement (2)
(i) Consent and Opinion of Counsel
(j) Consent of Independent Auditors
(k) Financial Statements - incorporated herein by reference to the Trust's
Annual Report dated December 31, 1999, as filed electronically with
the Securities and Exchange Commission on March 8, 2000.
(l) Agreement Governing Contribution of Capital(3)
(m) Not Applicable
(n) Financial Data Schedules*
(o) Not Applicable
(p)(1) Registrant's Code of Ethics
(p)(2) Adviser's Code of Ethics
(p)(3) Sub-Adviser's Code of Ethics - J.P. Morgan Investment Management
Inc.
(p)(4) Sub-Adviser's Code of Ethics - Lord, Abbett & Co.
(p)(5) Sub-Adviser's Code of Ethics - Mississippi Valley Advisors Inc.
(p)(6) Sub-Adviser's Code of Ethics - Riggs Bank N.A. (to be filed by
amendment)
(1) incorporated by reference to Registrant's Post-Effective Amendment No. 14
filed electronically on April 26, 1996.
(2) incorporated by reference to Registrant's Post-Effective Amendment No. 15
filed electronically on October 18, 1996.
(3) incorporated by reference to Registrant's Post-Effective Amendment No. 19
filed electronically on April 16, 1998.
* Previously filed.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
The shares of the Trust are currently sold to Cova Variable Annuity Account One
and Cova Variable Life Account One of Cova Financial Services Life Insurance
Company; Cova Variable Annuity Account Five and Cova Variable Life Account Five
of Cova Financial Life Insurance Company; and to First Cova Variable Annuity
Account One of First Cova Life Insurance Company which together control all
Portfolios of the Trust through their share ownership thereof.
ITEM 25. INDEMNIFICATION
Please see Article 5.3 of the Registrant's Agreement and Declaration of Trust
(Exhibit 1) for indemnification of officers and trustees. Registrant's trustees
and officers are also covered by an Errors and Omissions Policy. Section 5 of
the Investment Advisory Agreement between the Registrant and Cova Investment
Advisory Corporation ("Adviser") provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
obligations or duties under the Investment Advisory Agreement on the part of the
Adviser, the Adviser shall not be liable to the Registrant or to any shareholder
of the Registrant for any error in judgment or of law, or for any loss suffered
by the Registrant in connection with the matters to which the Investment
Advisory Agreement relates.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers and controlling persons of the
Registrant and the Adviser pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant and the Adviser in connection with the successful
defense of any action, suit or proceeding) is asserted against the Registrant by
such trustee, officer or controlling person or Adviser in connection with the
shares being registered the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
See "Management of the Trust" in the Prospectus and "Officers and Trustees" in
the Statement of Additional Information for information regarding the Investment
Adviser. For information as to the business, profession, vocation or employment
of a substantial nature of each of the officers and directors of the Investment
Adviser, reference is made to the Investment Adviser's current Form ADV filed
under the Investment Advisers Act of 1940, incorporated herein by reference
(File No. 801-45567).
With respect to information regarding the Sub-Advisers, reference is hereby made
to "Management of the Trust" in the Prospectus. For information as to the
business, profession, vocation or employment of a substantial nature of each of
the officers and directors of the Sub-Advisers, reference is made to the current
Form ADVs of the Sub-Advisers filed under the Investment Advisers Act of 1940,
incorporated herein by reference and the file numbers of which are as follows:
Lord, Abbett & Co.
File No. 801-6997
J.P. Morgan Investment Management Inc.
File No. 801-21011
FIRMCO, LLC
File No. 801-28084
ITEM 27. PRINCIPAL UNDERWRITERS
Not Applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at One Tower Lane, Suite
3000, Oakbrook Terrace, Illinois 60181-4644 or at Investors Bank & Trust
Company, 89 South Street, Boston, Massachusetts 02111; and (ii) by the Adviser
will be maintained at its offices, located at One Tower Lane, Suite 3000,
Oakbrook Terrace, Illinois 60181-4644; and (iii) by each of the Sub-Advisers at
their respective offices as follows: J.P. Morgan Investment Management Inc., 522
Fifth Avenue, New York, NY 10036; Lord, Abbett & Co., 90 Hudson Street, Jersey
City, NJ 07302; FIRMCO, LLC, Firstar Center, 777 East Wisconsin Avenue, 8th
Floor, Milwaukee, Wisconsin 53202; and Riggs Bank N.A., 5700 RiverTech Court,
Riverdale, MD 20737-1250.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Not Applicable.
SIGNATURES
Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
the Registrant certifies that it meets the requirements of Securities Act Rule
485(b) and has duly caused this Post-Effective Amendment No. 23 to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Oakbrook Terrace, and State of Illinois on the
11th day of April, 2000.
COVA SERIES TRUST
By: /S/LORRY J. STENSRUD
_____________________________________
Lorry J. Stensrud
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 23 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/LORRY J. STENSRUD President 4/11/00
- ----------------------- (Principal Executive Officer) -------
Lorry J. Stensrud
Vice President, Treasurer,
/S/WILLIAM C. MAIR* Controller and Trustee (Prin- 4/11/00
- ----------------------- cipal Financial Officer and -------
William C. Mair Principal Accounting Officer)
/S/STEPHEN M. ALDERMAN* Trustee 4/11/00
- ----------------------- -------
Stephen M. Alderman
/S/THEODORE A. MYERS* Trustee 4/11/00
- ----------------------- -------
Theodore A. Myers
/S/DEBORAH A. VOHASEK* Trustee 4/11/00
- ----------------------- -------
Deborah A. Vohasek
/S/R. KEVIN WILLIAMS* Trustee 4/11/00
- ----------------------- -------
R. Kevin Williams
</TABLE>
*By:/s/LORRY J. STENSRUD
---------------------------------
Lorry J. Stensrud, Attorney-in-Fact
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Stephen M. Alderman, a Trustee of
Cova Series Trust, a Massachusetts Business Trust (the "Trust"), do hereby
appoint Lorry J. Stensrud and Bernard J. Spaulding as my attorney and agent, for
me, and in my name as a Trustee of the Trust on behalf of the Trust or
otherwise, with full power to make, execute and sign all amendments to the
Trust's Registration Statement on Form N-1A under the Securities Act of 1933 and
the Investment Company Act of 1940, and to file with the Securities and Exchange
Commission and any other regulatory authority having jurisdiction over the offer
and sale of shares of the Trust, such amendments, and any and all amendments and
supplements thereto, and any and all exhibits and other documents requisite in
connection therewith granting unto said attorneys and each of them, full power
and authority to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 10th day of August, 1999.
WITNESS:
/s/RAYMOND A. O'HARA III /s/STEPHEN M. ALDERMAN
- -------------------------------- --------------------------------------
Stephen M. Alderman
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Theodore A. Myers, a Trustee of
Cova Series Trust, a Massachusetts Business Trust (the "Trust"), do hereby
appoint Lorry J. Stensrud and Bernard J. Spaulding as my attorney and agent, for
me, and in my name as a Trustee of the Trust on behalf of the Trust or
otherwise, with full power to make, execute and sign all amendments to the
Trust's Registration Statement on Form N-1A under the Securities Act of 1933 and
the Investment Company Act of 1940, and to file with the Securities and Exchange
Commission and any other regulatory authority having jurisdiction over the offer
and sale of shares of the Trust, such amendments, and any and all amendments and
supplements thereto, and any and all exhibits and other documents requisite in
connection therewith granting unto said attorneys and each of them, full power
and authority to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 10th day of August, 1999.
WITNESS:
/s/RAYMOND A. O'HARA III /s/THEODORE A. MYERS
- -------------------------------- --------------------------------------
Theodore A. Myers
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Deborah A. Vohasek, a Trustee of
Cova Series Trust, a Massachusetts Business Trust (the "Trust"), do hereby
appoint Lorry J. Stensrud and Bernard J. Spaulding as my attorney and agent, for
me, and in my name as a Trustee of the Trust on behalf of the Trust or
otherwise, with full power to make, execute and sign all amendments to the
Trust's Registration Statement on Form N-1A under the Securities Act of 1933 and
the Investment Company Act of 1940, and to file with the Securities and Exchange
Commission and any other regulatory authority having jurisdiction over the offer
and sale of shares of the Trust, such amendments, and any and all amendments and
supplements thereto, and any and all exhibits and other documents requisite in
connection therewith granting unto said attorneys and each of them, full power
and authority to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 10th day of August, 1999.
WITNESS:
/s/RAYMOND A. O'HARA III /s/DEBORAH A. VOHASEK
- -------------------------------- --------------------------------------
Deborah A. Vohasek
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, R. Kevin Williams, a Trustee of
Cova Series Trust, a Massachusetts Business Trust (the "Trust"), do hereby
appoint Lorry J. Stensrud and Bernard J. Spaulding as my attorney and agent, for
me, and in my name as a Trustee of the Trust on behalf of the Trust or
otherwise, with full power to make, execute and sign all amendments to the
Trust's Registration Statement on Form N-1A under the Securities Act of 1933 and
the Investment Company Act of 1940, and to file with the Securities and Exchange
Commission and any other regulatory authority having jurisdiction over the offer
and sale of shares of the Trust, such amendments, and any and all amendments and
supplements thereto, and any and all exhibits and other documents requisite in
connection therewith granting unto said attorneys and each of them, full power
and authority to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 10th day of August, 1999.
WITNESS:
/s/RAYMOND A. O'HARA III /s/R. KEVIN WILLIAMS
- -------------------------------- --------------------------------------
R. Kevin Williams
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, William C. Mair, Vice President,
Treasurer, Controller and a Trustee (Principal Financial Officer and Principal
Accounting Officer) of Cova Series Trust, a Massachusetts Business Trust (the
"Trust"), do hereby appoint Lorry J. Stensrud and Bernard J. Spaulding as my
attorney and agent, for me, and in my name as Vice President, Treasurer,
Controller and a Trustee (Principal Financial Officer and Principal Accounting
Officer) of the Trust on behalf of the Trust or otherwise, with full power to
make, execute and sign all amendments to the Trust's Registration Statement on
Form N-1A under the Securities Act of 1933 and the Investment Company Act of
1940, and to file with the Securities and Exchange Commission and any other
regulatory authority having jurisdiction over the offer and sale of shares of
the Trust, such amendments, and any and all amendments and supplements thereto,
and any and all exhibits and other documents requisite in connection therewith
granting unto said attorneys and each of them, full power and authority to do
and perform each and every act that said attorney may deem necessary or
advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 10th day of August, 1999.
WITNESS:
/s/RAYMOND A. O'HARA III /s/WILLIAM C. MAIR
- -------------------------------- --------------------------------------
William C. Mair
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that I, Lorry J. Stensrud, President
(Principal Executive Officer) of Cova Series Trust, a Massachusetts Business
Trust (the "Trust"), do hereby appoint Bernard J. Spaulding as my attorney and
agent, for me, and in my name as President (Principal Executive Officer) of the
Trust on behalf of the Trust or otherwise, with full power to make, execute and
sign all amendments to the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933 and the Investment Company Act of 1940, and to file with
the Securities and Exchange Commission and any other regulatory authority having
jurisdiction over the offer and sale of shares of the Trust, such amendments,
and any and all amendments and supplements thereto, and any and all exhibits and
other documents requisite in connection therewith granting unto said attorney,
full power and authority to do and perform each and every act that said attorney
may deem necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand this 23rd day of August, 1999.
WITNESS:
/s/BERNARD J. SPAULDING /s/LORRY J. STENSRUD
- -------------------------------- --------------------------------------
Lorry J. Stensrud
INDEX TO EXHIBITS
EX-23(d)(1) Form of Investment Advisory Agreement
EX-23(d)(2) Form of Sub-Advisory Agreement - J.P. Morgan Investment
Management Inc.
EX-23(d)(3) Form of Sub-Advisory Agreement - Lord, Abbett & Co.
EX-23d)(4) Form of Sub-Advisory Agreement - Mississippi Valley
Advisors Inc.
EX-23(d)(5) Form of Sub-Advisory Agreement - Riggs Bank N.A.
EX-23(i) Consent and Opinion of Counsel
EX-23(j) Consent of Independent Auditors
EX-23(p)(1) Registrant's Code of Ethics
EX-23(p)(2) Adviser's Code of Ethics
EX-23(p)(3) Sub-Adviser's Code of Ethics - J.P. Morgan Investment Management,
Inc.
EX-23(p)(4) Sub-Adviser's Code of Ethics - Lord, Abbett & Co.
EX-23(p)(5) Sub-Adviser's Code of Ethics - Mississippi Valley Advisors Inc.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of ________, by and between
COVA SERIES TRUST (the "Trust"), a Massachusetts business trust, and
COVA INVESTMENT ADVISORY CORPORATION (the "Advisor"), an Illinois corporation.
1. (a) Retention of Advisor by Trust. The Trust hereby employs the Advisor to
act as the investment advisor for and to (i) manage the investment and
reinvestment of the assets of the Quality Bond Portfolio, Small Cap Stock
Portfolio, Large Cap Stock Portfolio, Select Equity Portfolio, International
Equity Portfolio, Bond Debenture Portfolio, Mid-Cap Value Portfolio, Large Cap
Research Portfolio, Developing Growth Portfolio, Lord Abbett Growth and Income
Portfolio, Balanced Portfolio, Equity Income Portfolio, Growth & Income Equity
Portfolio, Riggs Stock Portfolio and Riggs U.S. Government Securities
Portfolio, each being a sub-trust of the Trust (hereinafter referred to
individually as the "Sub-Trust"), in accordance with each such Sub-Trust's
investment objective and policies and limitations, or (ii) in the event the
Advisor shall retain a sub-advisor in accordance with the provisions of
sub-paragraph (b) hereunder, to supervise and implement the investment
activities of any Sub-Trust for which such sub-advisor has been retained,
including responsibility for overall management and administrative support
including managing, providing for and compensating any sub-advisors; and to
administer its affairs to the extent requested by, and subject to the review and
supervision of, the Board of Trustees of the Trust for the period and upon the
terms herein set forth. The Advisor shall select the entities with or through
which the purchase, sale or loan of securities is to be effected; provided that
the Advisor will place orders pursuant to its investment determinations either
directly with the issuer or with a broker or dealer, and if with a broker or
dealer, (a) will attempt to obtain the best net price and most favorable
execution of its orders, and (b) may nevertheless in its discretion purchase and
sell portfolio securities from and to brokers and dealers who provide the
Advisor with research, analysis, advice and similar services and pay such
brokers and dealers in return a higher commission or spread than may be charged
by other brokers or dealers.
The Trust hereby authorizes any entity or person associated with the Advisor or
any sub-advisor retained by Advisor pursuant to this Agreement, which is a
member of a national securities exchange, to effect any transaction on the
exchange for the account of the Trust which is permitted by Section 11(a) of the
Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Trust
hereby consents to the retention of compensation for such transactions in
accordance with Rule 11a2-2(T)(a)(iv).
The investment of funds shall be subject to all applicable restrictions of
applicable law and of the Declaration of Trust and By-Laws of the Trust, and
resolutions of the Board of Trustees of the Trust with respect to each Sub-Trust
as may from time to time be in force and delivered or made available to the
Advisor.
(b) Advisor's Acceptance of Employment. The Advisor accepts such employment and
agrees during such period to render such services, to select, retain and
compensate any sub-advisors, to supply investment research and portfolio
management (including without limitation the selection of securities for each
Sub-Trust to purchase, hold or sell and the selection of brokers through whom
such Sub-Trust's portfolio transactions are executed, in accordance with the
policies adopted by the Sub-Trust and its Board of Trustees), to administer the
business affairs of each Sub-Trust, to furnish offices and necessary facilities
and equipment to each Sub-Trust, to provide administrative services for each
Sub-Trust, to render periodic reports to the Board of Trustees of the Trust with
respect to each Sub-Trust, and to permit any of its officers or employees, or
those of any sub-advisor to serve without compensation as trustees or officers
of the Sub-Trust if elected to such positions.
(c) Independent Contractor. The Advisor and any sub-advisors shall be deemed to
be independent contractors under this Agreement and any sub-advisory agreements
with the Advisor and, unless otherwise expressly provided or authorized, shall
have no authority to act for or represent the Trust or any Sub-Trust in any way
or otherwise be deemed an agent of the Trust or any Sub-Trust.
(d) Non-Exclusive Agreement. The services of the Advisor to any Sub-Trust under
this Agreement are not to be deemed exclusive, and the Advisor shall be free to
render similar services or other services to others so long as its services
hereunder are not impaired thereby.
2. (a) Fee. For the services and facilities described in Section 1, each
Sub-Trust will pay to the Advisor at the end of each calendar month an
investment management fee equal to a percentage of the average daily net assets
of such Sub-Trust as set forth in Schedules A through O attached hereto and
incorporated by reference herein.
(b) Determination of Net Asset Value. The net asset value of each Sub-Trust
shall be calculated as of the close of the New York Stock Exchange (the
"Exchange") on each day the Exchange is open for trading or such other time or
times as the trustees may determine in accordance with the provisions of
applicable law and of the Declaration of Trust and By-Laws of the Trust, and
resolutions of the Board of Trustees of the Trust as from time to time in force.
For the purpose of the foregoing computations, on each day when net asset value
is not calculated, the net asset value of a share of beneficial interest of each
Sub-Trust shall be deemed to be the net asset value of such share as of the
close of business of the last day on which such calculation was made.
(c) Proration. For the month and year in which this Agreement becomes effective
or terminates, there shall be an appropriate proration of the Advisor's fee on
the basis of the number of days that the Agreement is in effect during such
month and year, respectively.
3. Expenses. In addition to the fee of the Advisor, the Sub-Trust shall assume
and pay any expenses for services rendered by a custodian for the safekeeping of
such Sub-Trust's securities or other property, for keeping its books of account,
for any other charges of the custodian and for calculating the net asset value
of the Sub-Trust as provided above. Neither the Advisor nor any sub-advisor
shall be required to pay, and each Sub-Trust shall assume and pay, the charges
and expenses of its operations, including compensation of the trustees of the
Trust (other than those who are interested persons of the Advisor or any
sub-advisor and other than those who are interested persons of the principal
underwriter of the Sub-Trust but not of the Advisor or any sub-advisor, if the
principal underwriter has agreed to pay such compensation), charges and expenses
of independent accountants, of legal counsel and of any transfer or dividend
disbursing agent, costs of acquiring and disposing of portfolio securities,
interest (if any) on obligations incurred by such Sub-Trust, costs of share
certificates, membership dues in the Investment Company Institute or any similar
organization, costs of reports and notices to shareholders, costs of registering
shares of such Sub-Trust under the federal securities laws, miscellaneous
expenses and all taxes and fees to federal, state or other governmental agencies
on account of the registration of securities issued by such Sub-Trust, filing of
corporate documents or otherwise. Neither the Trust nor any Sub-Trust shall pay
or incur any obligation for any management or administrative expenses for which
the Trust or such Sub-Trust intends to seek reimbursement from the Advisor
without first obtaining the written approval of the Advisor. The Advisor shall
arrange, if desired by the Trust, for officers or employees of the Advisor or
any sub-advisor to serve, without compensation from the Trust, as trustees,
officers or agents of the Trust if duly elected or appointed to such positions
and subject to their individual consent to any limitations imposed by law.
4. Interested Persons. Subject to applicable statutes and regulations, it is
understood that trustees, officers, shareholders and agents of the Trust or any
Sub-Trust are or may be interested in the Advisor or any sub-advisor as
trustees, directors, officers, shareholders, agents or otherwise and that the
trustees, directors, officers, shareholders and agents of the Advisor may be
interested in the Trust and any Sub-Trust as trustees, officers, shareholders,
agents or otherwise.
5. Liability. The Advisor shall not be liable for any error in judgment or of
law, or for any loss suffered by the Trust or any Sub-Trust in connection with
the matters to which this Agreement or any sub-advisory agreement relates,
except (1) a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Advisor in the performance of its obligations and
duties, or (2) by reason of its reckless disregard of its obligations and duties
under this Agreement.
6. (a) Term. This Agreement shall become effective on the date hereof and shall
remain in full force until _______________ unless sooner terminated
as hereinafter provided. This Agreement shall continue in force from
year to year thereafter, but only as long as such continuance is specifically
approved at least annually in the manner required by the Investment Company Act
of 1940, as amended (the "Investment Company Act"). Any sub-advisory agreement
between the Advisor and any sub-advisor shall remain in full force and effect
from its date of effectiveness until the second anniversary of such date unless
sooner terminated as hereinafter provided. Any such sub-advisory agreement shall
continue in force from year to year thereafter, but only as long as such
continuance is specifically approved at least annually in the manner required by
the Investment Company Act.
(b) Termination. This Agreement, and any sub-advisory agreement between the
Advisor and any sub-advisor, shall be submitted to the shareholders of the Trust
and each Sub-Trust for approval at a shareholders' meeting and shall
automatically terminate if not approved by a majority of the shares of the
Sub-Trust present and voting at such meeting. This Agreement, and any
sub-advisory agreement between the Advisor and any sub-advisor, shall
automatically terminate in the event of its assignment. This Agreement, and any
sub-advisory agreement between the Advisor and any sub-advisor, may be
terminated at any time without the payment of any penalty by a majority of the
Board of Trustees of the Trust, by vote of the outstanding shares of beneficial
interest of any Sub-Trust or, in the case of this Advisory Agreement only, by
the Advisor or, in the case of a sub-advisory agreement between the Advisor and
any sub-advisor, the sub-advisor, on sixty (60) days written notice to the other
party. The Trust or any Sub-Trust may effect termination by action of the Board
of Trustees or by vote of a majority of the outstanding shares of beneficial
interest of such Sub-Trust, accompanied by appropriate notice. No sub-advisory
agreement shall be cancelable by the Advisor without the approval of a majority
of the Board of Trustees of the Trust. Any sub-advisory agreement will terminate
automatically in the event of the termination of this Agreement.
(c) Payment upon Termination. Termination of this Agreement shall not affect the
right of the Advisor to receive payment on any unpaid balance of the
compensation described in Section 2 earned prior to such termination.
7. Consistency with Sub-Advisory Agreements. The Advisor shall not enter into
any sub-advisory agreement with any sub-advisor respecting the management of
assets of any Sub-Trust which is inconsistent with the terms hereof or with the
Investment Company Act or the Investment Advisers Act of 1940.
8. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder shall not
be thereby affected.
9. Notices. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
10. Disclaimer. The Advisor acknowledges and agrees that, as provided by Section
5.5 of the Declaration of Trust of the Trust, the shareholders, trustees,
officers, employees and other agents of the Trust and any Sub-Trust shall not
personally be bound by or liable hereunder, nor shall resort be had to their
private property for the satisfaction of any obligation or claim hereunder.
IN WITNESS WHEREOF, the Trust and the Advisor have caused this Agreement to be
executed on the day and year first above written.
COVA INVESTMENT ADVISORY CORPORATION
By:____________________________________________
COVA SERIES TRUST
By:____________________________________________
EXHIBIT A
COVA SERIES TRUST
BOND DEBENTURE PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
_____________ , the Bond Debenture Portfolio shall pay to the Advisor at
the end of each calendar month an investment management fee equal to
.750 of 1% of the average daily net assets of the Bond Debenture Portfolio.
EXHIBIT B
COVA SERIES TRUST
QUALITY BOND PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
____________, the Quality Bond Portfolio shall pay to the Advisor at the end
of each calendar month an investment management fee equal to a percentage of
the average daily net assets of the Quality Bond Portfolio as follows:
Average Daily Net Assets % Per Annum
First $75 Million .550 of 1%
Over $75 Million .500 of 1%
EXHIBIT C
COVA SERIES TRUST
SELECT EQUITY PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
______________, the Select Equity Portfolio shall pay to the Advisor at the
end of each calendar month an investment management fee equal to a
percentage of the average daily net assets of the Select Equity Portfolio
as follows:
Average Daily Net Assets % Per Annum
First $50 Million .750 of 1%
Over $50 Million .650 of 1%
EXHIBIT D
COVA SERIES TRUST
LARGE CAP STOCK PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
_______________, the Large Cap Stock Portfolio shall pay to the Advisor at the
end of each calendar month an investment management fee equal to .650 of 1% of
the average daily net assets of the Large Cap Stock Portfolio.
EXHIBIT E
COVA SERIES TRUST
SMALL CAP STOCK PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
_______________, the Small Cap Stock Portfolio shall pay to the Advisor at the
end of each calendar month an investment management fee equal to .850 of 1% of
the average daily net assets of the Small Cap Stock Portfolio.
EXHIBIT F
COVA SERIES TRUST
INTERNATIONAL EQUITY PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
______________ , the International Equity Portfolio shall pay to the Advisor
at the end of each calendar month an investment management fee equal
to a percentage of the average daily net assets of the International Equity
Portfolio as follows:
Average Daily Net Assets % Per Annum
First $50 Million .850 of 1%
Over $50 Million .750 of 1%
EXHIBIT G
COVA SERIES TRUST
MID-CAP VALUE PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
_________________, the Mid-Cap Value Portfolio shall pay to the Advisor at the
end of each calendar month an investment management fee of 1.00% of the
average daily net assets of the Mid-Cap Value Portfolio.
EXHIBIT H
COVA SERIES TRUST
LARGE CAP RESEARCH PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
______________, the Large Cap Research Portfolio shall pay to the Advisor at the
end of each calendar month an investment management fee of 1.00% of the average
daily net assets of the Large Cap Research Portfolio.
EXHIBIT I
COVA SERIES TRUST DEVELOPING GROWTH PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
______________, the Developing Growth Portfolio shall pay to the Advisor at the
end of each calendar month an investment management fee of .90% of the average
daily net assets of the Developing Growth Portfolio.
EXHIBIT J
COVA SERIES TRUST
LORD ABBETT GROWTH AND INCOME PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
_________________, the Lord Abbett Growth and Income Portfolio shall pay to the
Advisor at the end of each calendar month an investment management fee of .65%
of the average daily net assets of the Lord Abbett Growth and Income Portfolio.
EXHIBIT K
COVA SERIES TRUST
BALANCED PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
______________, the Balanced Portfolio shall pay to the Advisor at the end of
each calendar month an investment management fee of 1.00% of the average
daily net assets of the Balanced Portfolio.
EXHIBIT L
COVA SERIES TRUST
EQUITY INCOME PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
__________________, the Equity Income Portfolio shall pay to the Advisor at the
end of each calendar month an investment management fee of 1.00% of the
average daily net assets of the Equity Income Portfolio.
EXHIBIT M
COVA SERIES TRUST
GROWTH & INCOME EQUITY PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
_________________, the Growth & Income Equity Portfolio shall pay to the Advisor
at the end of each calendar month an investment management fee of 1.00% of the
average daily net assets of the Growth & Income Equity Portfolio.
EXHIBIT N
COVA SERIES TRUST
RIGGS STOCK PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
_______________, the Riggs Stock Portfolio shall pay to the Advisor at the end
of each calendar month an investment management fee of .95% of the average daily
net assets of the Riggs Stock Portfolio.
EXHIBIT O
COVA SERIES TRUST
RIGGS U.S. GOVERNMENT SECURITIES PORTFOLIO
In accordance with Section 2(a) of the Investment Advisory Agreement dated
_____________________, the Riggs U.S. Government Securities Portfolio shall pay
to the Advisor at the end of each calendar month an investment management fee of
.75% of the average daily net assets of the Riggs U.S. Government Securities
Portfolio.
COVA SERIES TRUST
SUB-ADVISORY AGREEMENT
This Agreement is made between COVA INVESTMENT ADVISORY CORPORATION, an Illinois
corporation, having its principal place of business in Oakbrook Terrace,
Illinois (hereinafter referred to as the "Advisor"), J.P. Morgan Investment
Management Inc., a Delaware corporation, having its principal place of business
in New York, New York (hereinafter referred to as the "Sub-Advisor") and Cova
Series Trust, a Massachusetts business trust (hereinafter referred to as the
"Trust").
WHEREAS, the Trust, an open-end diversified management investment company, as
that term is defined in the Investment Company Act of 1940, as amended (the
"Act"), that is registered as such with the Securities and Exchange Commission
has appointed Advisor as investment adviser for and to the Quality Bond
Portfolio, the International Equity Portfolio, the Select Equity Portfolio, the
Large Cap Stock Portfolio and the Small Cap Stock Portfolio, each being a
sub-trust of the Trust (referred to individually as the "Sub-Trust"), pursuant
to the terms of an investment advisory agreement between the Trust and Advisor
("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain investment
management services for the Sub-Trusts as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment adviser for the Sub-Trusts. Subject to the
oversight and review of Advisor and the Board of Trustees of the Trust,
Sub-Advisor shall manage the investment and reinvestment of the assets of the
Sub-Trusts. Sub-Advisor will determine in its discretion, subject to the
oversight and review of Advisor, the investments to be purchased or sold, will
provide Advisor with records concerning its activities which Sub-Advisor is
required to maintain by applicable law or regulation, and will render regular
reports as Advisor may reasonably request to Advisor and to officers and
Trustees of the Trust concerning its discharge of the foregoing
responsibilities.
Subject to paragraph 5 hereof, Sub-Advisor, in its supervision of the
investments of the Sub-Trusts, will be guided by each Sub-Trust's investment
objectives and policies and the provisions and restrictions contained in the
Declaration of Trust and By-Laws of the Trust and as set forth in the
Registration Statement and exhibits as may be on the file with the Securities
and Exchange Commission, all as communicated by Advisor to Sub-Advisor.
Sub-Advisor shall be deemed to be an independent contractor under this Agreement
and, unless otherwise expressly provided or authorized, shall have no authority
to act for or represent the Trust or any Sub-Trust in any way or otherwise be
deemed an agent of the Trust or any Sub-Trust.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Trusts by Sub-Advisor hereunder, the sub-advisory fees set forth in Exhibit
A attached hereto. During the term of this Agreement, Sub-Advisor will bear all
expenses incurred by it in the performance of its duties hereunder. The expenses
not to be borne by the Sub-Advisor include, without limitation, the following:
organizational costs, taxes, interest, brokerage fees and commissions,
Directors' fees, Securities and Exchange Commission fees and state Blue Sky
qualification fees, advisory fees, charges of custodians, transfer and dividend
disbursing agents' fees, certain insurance premiums, industry association fees,
outside auditing and legal expenses, costs of independent pricing services,
costs of maintaining existence, costs attributable to investor services
(including, without limitation, telephone and personnel expenses), costs of
preparing and printing prospectuses and statements of additional information for
regulatory purposes and for distribution to existing stockholders, costs of
stockholders' reports and meetings, and any extraordinary expenses.
3. Term. The term of this Agreement shall begin on the date of its execution and
shall remain in effect for two years from that date and from year to year
thereafter, subject to the provisions for termination and all of the other terms
and conditions hereof, if such continuation is specifically approved at least
annually in the manner required by the Act. This Agreement shall be submitted to
the shareholders of the Trust and each Sub-Trust for approval at a shareholders'
meeting and shall automatically terminate if not approved by a majority of the
shares of the Sub-Trust present and voting at such meeting.
4. Termination. This Agreement may be terminated at any time without the payment
of any penalty, by a majority of the Board of Trustees of the Trust, by a vote
of the majority of the outstanding shares of beneficial interest of any
Sub-Trust or by the Sub-Advisor on sixty (60) days written notice to the
Advisor.
This Agreement will terminate five (5) business days after the Sub-Advisor
receives written notice of the termination of the Investment Advisory Agreement.
Notwithstanding any provision of this Agreement, this Agreement may not be
canceled by the Advisor without the approval of a majority of the Board of
Trustees of the Trust.
This Agreement shall automatically terminate in the event of its assignment (as
defined in the Act). The Sub-Advisor may employ or contract with any other
person, persons, corporation, or corporations at its own cost and expense as it
shall determine in order to assist it in carrying out its obligations and duties
under this Agreement.
5. Guidelines and Reports. The Advisor agrees on an on-going basis to provide or
cause to be provided to the Sub-Advisor guidelines, which may include each
Sub-Trust's current prospectus and statement of additional information, to be
revised as provided below (the "Guidelines"), setting forth limitations by
dollar amount or percentage of net assets, on the types of securities in which
the Sub-Trusts are permitted to invest or investment activities in which the
Sub-Trusts are permitted to engage. Among other matters, the Guidelines shall
set forth clearly the limitations imposed upon the Sub-Trusts as a result of
relevant diversification requirements under state and federal law pertaining to
insurance products, including, without limitation, the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Guidelines shall remain in effect until 12:00 p.m. on the third business day
following actual receipt by the Sub-Advisor of a written notice, denominated
clearly as such, setting forth revised Guidelines. Sub-Advisor agrees to provide
quarterly reports to Advisor, executed by a duly authorized officer of
Sub-Adviser, within ten (10) business days of the close of each calendar quarter
certifying as to compliance with said Guidelines. In addition to the quarterly
reports, Advisor may request and Sub-Advisor agrees to provide Section 817
diversification compliance reports at more frequent intervals, as reasonably
requested by Advisor.
The Advisor agrees to cause to be delivered to a person designated in writing
for such purpose by the Sub-Advisor, within ten (10) business days after each
quarter end and within ten (10) business days after each month end when the
result of the prior quarter's test reflected short-three income exceeding 20% of
total income, or more often as necessary, a written report dated the date of its
delivery (the "Report") with respect to each Sub-Trust's compliance for its
current fiscal year with the short-three test set forth in Section 851 (b)(3) of
the Code (the "short-three test"). The Report shall include in chart form the
Sub-Trust's gross income (within the meaning of Section 851 of the Code) from
the beginning of the current fiscal year to the date of the Report and its
cumulative income and gains described in Section 851 (b)(3) of the Code for such
period. The Report shall be required only as long as the short-three test
remains a requirement of the Code. The Trust and the Advisor agree that the
Sub-Advisor may rely on the Guidelines and the Report without independent
verification of their accuracy.
6. Liability and Indemnification. The Sub-Advisor shall not be liable for any
error in judgment or of law, or for any loss suffered by the Trust or any
Sub-Trust in connection with the matters to which this Agreement relates, except
(1) a loss resulting from willful misfeasance, bad faith or gross negligence on
the part of the Sub-Advisor in the performance of its obligations and duties or
(2) by reason of its reckless disregard of its obligations and duties under this
Agreement. The Advisor agrees to indemnify and hold harmless the Sub-Advisor
from and against any and all claims, losses, liabilities or damages (including
reasonable attorneys' fees and other related expenses), howsoever arising, from
or in connection with this Agreement or the performance by the Sub-Advisor of
its duties hereunder, provided, however, that nothing contained herein shall
require that the Sub-Advisor be indemnified for any loss suffered by the Trust
or the Advisor due to the Sub-Advisor's willful misfeasance, bad faith or gross
negligence on its part in the performance of its obligations and duties or from
reckless disregard of its obligations and duties under this Agreement.
7. Brokerage. The Sub-Advisor shall place all orders for the purchase and sale
of portfolio securities for the accounts of the Sub-Trusts with broker-dealers
selected by the Sub-Advisor. In executing portfolio transactions and selecting
broker-dealers, the Sub-Advisor will use its best efforts to seek best execution
on behalf of the Sub-Trusts. In assessing the best execution available for any
transaction, the Sub-Advisor shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Sub-Advisor
may also consider the brokerage and research services (as those terms are used
in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Sub-Trusts and/or other accounts over which the Sub-Advisor or an affiliate of
the Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Trusts to pay a
broker-dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Sub-Trusts which is in excess of the
amount of commission another broker-dealer would have charged for effecting that
transaction if, but only if, the Sub-Advisor determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of the
parties, provided that the amendment shall be approved in the manner required by
the Act.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Illinois.
10. Registration as an Investment Advisor. Advisor and Sub-Advisor hereby
acknowledge each is registered as an investment adviser under the Investment
Advisers Act of 1940, it will use its reasonable best efforts to maintain such
registration, and it will promptly notify the other if it ceases to be so
registered, if its registration is suspended for any reason, or if it is
notified by any regulatory organization or court of competent jurisdiction that
it should show cause why its registration should not be suspended or terminated.
11. Services to Other Companies or Accounts. The Trust and the Adviser
understand that the Sub-Adviser now acts, will continue to act and may act in
the future as investment adviser to fiduciary and other managed accounts and as
investment adviser to other investment companies, and the Trust and the Adviser
have no objection to the Sub-Adviser so acting, provided that whenever a
Sub-Trust and one or more other accounts or investment companies advised by the
Sub-Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a methodology believed
to be equitable to each entity. The Sub-Adviser agrees to allocate similar
opportunities to sell securities. The Trust and the Adviser recognize that, in
some cases, this procedure may limit the size of the position that may be
acquired or sold for a Sub-Trust. In addition, the Trust understands that the
persons employed by the Sub-Adviser to assist in the performance of the
Sub-Adviser's duties hereunder will not devote their full time to such service
and nothing contained herein shall be deemed to limit or restrict the right of
the Sub-Adviser or any affiliate of the Sub-Adviser to engage in and devote time
and attention to other business or to render services of whatever kind or
nature.
12. Books and Records. In compliance with the requirements of Rule 31a-3 under
the Act, the Sub-Adviser hereby agrees that all records which it maintains for
the Sub-Trusts are the property of the Trust and further agrees to surrender
promptly to the Trust copies of any of such records upon the Trust's or the
Adviser's request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the Act the records relating to its activities
hereunder required to be maintained by Rule 31a-1 under the Act and to preserve
the records relating to its activities hereunder required by Rule 204-2 under
the Investment Advisers Act of 1940, as amended, for the period specified in
said Rule.
13. Disclosure. Neither the Trust nor the Advisor shall, without the prior
written consent of the Sub-Adviser, make representations regarding the
Sub-Adviser or any affiliates in any disclosure document, advertisement, sales
literature or other promotional materials. Sub-Adviser shall respond in writing
within ten (10) business days of any such request for prior written consent from
Adviser or any affiliate and in the event Sub-Adviser does not respond in
writing, Sub-Adviser shall be deemed to have disapproved the disclosure
document, advertisement, sales literature or other promotional materials
submitted to Sub-Adviser.
14. Miscellaneous. All notices provided for by this Agreement shall be in
writing and shall be deemed given when received, against appropriate receipt, by
the President in the case of the Sub-Adviser, the President in the case of the
Adviser, and the Trust's Secretary in the case of the Trust, or such other
person a party shall designate by notice to the other parties. No provision of
this Agreement may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. This Agreement constitutes
the entire agreement among the parties hereto and supersedes any prior agreement
among the parties relating to the subject matter hereof. The paragraph headings
of this Agreement are for convenience of reference and do not constitute a part
hereof.
Witness the due execution hereof this _____ day of __________ .
Attest: COVA INVESTMENT ADVISORY
CORPORATION
______________________________ By: ___________________________
Attest: J.P. MORGAN INVESTMENT
MANAGEMENT INC.
______________________________ By: ___________________________
Attest: COVA SERIES TRUST
______________________________ By: ___________________________
EXHIBIT A
COVA SERIES TRUST
SUB-ADVISORY COMPENSATION
For all services rendered by Sub-Advisor hereunder, Advisor shall pay to
Sub-Advisor and Sub-Advisor agrees to accept as full compensation for all
services rendered hereunder, fees at the end of each calendar month equal to a
percentage of the average daily net assets of the Sub-Trusts as follows:
Portfolio Average Daily Net Assets % Per Annum
- --------------- ------------------------- -------------
Quality Bond Portfolio First $75 million .30 of 1%
Over $75 million .25 of 1%
International First $50 million .60 of 1%
Equity Portfolio Over $50 million .50 of 1%
Select Equity Portfolio First $50 million .50 of 1%
Over $50 million .40 of 1%
Large Cap .40 of 1%
Stock Portfolio
Small Cap .60 of 1%
Stock Portfolio
COVA SERIES TRUST
SUB-ADVISORY AGREEMENT
This Agreement is made between COVA INVESTMENT ADVISORY CORPORATION, an Illinois
corporation, having its principal place of business in Oakbrook Terrace,
Illinois (hereinafter referred to as the "Advisor"), Lord, Abbett & Co., a New
York partnership, having its principal place of business in New York, New York
(hereinafter referred to as the "Sub-Advisor") and Cova Series Trust, a
Massachusetts business trust (hereinafter referred to as the "Trust") and is
effective _____________.
WHEREAS, the Trust, an open-end diversified management investment company, as
that term is defined in the Investment Company Act of 1940, as amended (the
"Act"), that is registered as such with the Securities and Exchange Commission
has appointed Advisor as investment adviser for and to the Bond Debenture
Portfolio, Mid-Cap Value Portfolio, Large Cap Research Portfolio, Developing
Growth Portfolio and Lord Abbett Growth and Income Portfolio, each being a
sub-trust of the Trust (referred to individually as the "Sub-Trust"), pursuant
to the terms of an investment advisory agreement between the Trust and Advisor
("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain investment
management services for the Sub-Trusts as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment adviser for the Sub-Trusts. Subject to the
oversight and review of Advisor and the Board of Trustees of the Trust,
Sub-Advisor shall manage the investment and reinvestment of the assets of the
Sub-Trusts. Sub-Advisor will determine in its discretion, subject to the
oversight and review of Advisor, the investments to be purchased or sold, will
provide Advisor with records (if any) concerning its activities pursuant to the
agreement and will render regular reports to Advisor and to officers and
Trustees of the Trust concerning its discharge of the foregoing
responsibilities.
Sub-Advisor, in its supervision of the investments of the Sub-Trusts, will be
guided by the Sub-Trusts' investment objectives and policies and the provisions
and restrictions contained in the Declaration of Trust and By-Laws of the Trust
and as set forth in the Registration Statement and exhibits as may be on the
file with the Securities and Exchange Commission, all as communicated by Advisor
to Sub-Advisor.
Sub-Advisor shall be deemed to be an independent contractor under this Agreement
and, unless otherwise expressly provided or authorized, shall have no authority
to act for or represent the Trust or any Sub-Trust in any way or otherwise be
deemed an agent of the Trust or any Sub-Trust.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Trusts by Sub-Advisor hereunder, the sub-advisory fees set forth in Exhibit
A attached hereto. During the term of this Agreement, Sub-Advisor will bear all
expenses incurred by it in the performance of its duties hereunder.
3. Term. The term of this Agreement shall begin on the date of its execution and
shall remain in effect for two years from that date and from year to year
thereafter, subject to the provisions for termination and all of the other terms
and conditions hereof, if such continuation is specifically approved at least
annually in the manner required by the Act. This Agreement shall be submitted to
the shareholders of the Trust and each Sub-Trust for approval at a shareholders'
meeting and shall automatically terminate if not approved by a majority of the
shares of the Sub-Trust present and voting at such meeting.
4. Termination. This Agreement may be terminated at any time without the payment
of any penalty, by a majority of the Board of Trustees of the Trust, by a vote
of the majority of the outstanding shares of beneficial interest of any
Sub-Trust or by the Sub-Advisor on sixty (60) days written notice to the
Advisor.
This Agreement will terminate automatically in the event of the termination of
the Investment Advisory Agreement
Notwithstanding any provision of this Agreement, this Agreement may not be
canceled by the Advisor without the approval of a majority of the Board of
Trustees of the Trust.
This Agreement shall automatically terminate in the event of its assignment. The
Sub-Advisor may employ or contract with any other person, persons, corporation,
or corporations at its own cost and expense as it shall determine in order to
assist it in carrying out its obligations and duties under this Agreement.
5. Sub-Advisor's Representations. Sub-Advisor represents and warrants that the
Sub-Trusts will at all times be invested in such a manner as to ensure
compliance with Subchapter M of the Internal Revenue Code, relating to the
diversification requirements for regulated investment companies. Sub-Advisor
will be held harmless when direction from the Advisor or Trust causes non-
compliance. Sub-Advisor agrees to provide quarterly reports to Advisor, executed
by a duly authorized officer of Sub-Advisor, within seven (7) days of the close
of each calendar quarter certifying as to compliance. In addition to the
quarterly reports, Advisor may request and Sub-Advisor agrees to provide
diversification compliance reports at more frequent intervals, as reasonably
requested by Advisor.
6. Liability. The Sub-Advisor shall not be liable for any error in judgment or
of law, or for any loss suffered by the Trust or any Sub-Trust in connection
with the matters to which this Agreement relates, except (1) a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Sub-Advisor in the performance of its obligations and duties or (2) by reason of
its reckless disregard of its obligations and duties under this Agreement.
7. Brokerage. The Sub-Advisor shall place all orders for the purchase and sale
of portfolio securities for the accounts of the Sub-Trusts with broker-dealers
selected by the Sub-Advisor. In executing portfolio transactions and selecting
broker-dealers, the Sub-Advisor will use its best efforts to seek best execution
on behalf of the Sub-Trusts. In assessing the best execution available for any
transaction, the Sub-Advisor shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Sub-Advisor
may also consider the brokerage and research services (as those terms are used
in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Sub-Trust and/or other accounts over which the Sub-Advisor or an affiliate of
the Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Trusts to pay a
broker-dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for a Sub-Trust which is in excess of the
amount of commission another broker-dealer would have charged for effecting that
transaction if, but only if, the Sub-Advisor determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of the
parties, provided that the amendment shall be approved in the manner required by
the Act.
9. Services to Other Customers and Accounts. It is understood that the services
of the Sub-Advisor are not deemed to be exclusive, and nothing in this Agreement
shall prevent the Sub-Advisor, or any officer, director, partner or employee
thereof, from providing similar services to other companies and other clients
(whether or not their investment objectives and policies are similar to those of
the Trust) or to engage in other activities. When other clients of the
Sub-Advisor desire to purchase or sell the same portfolio security at the same
time as the Trust, it is understood that such purchases and sales will be made
as nearly as practicable on a pro rata basis in proportion to the amounts
desired to be purchased or sold by each client.
10. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Illinois.
11. Registration as an Investment Advisor. Advisor and Sub-Advisor hereby
acknowledge each is registered as an investment adviser under the Investment
Advisers Act of 1940, it will use its reasonable best efforts to maintain such
registration, and it will promptly notify the other if it ceases to be so
registered, if its registration is suspended for any reason, or if it is
notified by any regulatory organization or court of competent jurisdiction that
it should show cause why its registration should not be suspended or terminated.
Witness the due execution hereof this _____ day of ___________.
Attest: COVA INVESTMENT ADVISORY
CORPORATION
______________________________ By: ___________________________
Attest: LORD, ABBETT & CO.
______________________________ By: ___________________________
Attest: COVA SERIES TRUST
______________________________ By: ___________________________
EXHIBIT A
COVA SERIES TRUST
SUB-ADVISORY COMPENSATION
For all services rendered by Sub-Advisor hereunder, Advisor shall pay to
Sub-Advisor and Sub-Advisor agrees to accept as full compensation for all
services rendered hereunder, fees at the end of each calendar month equal to a
percentage of the average daily net assets of the Sub-Trusts as follows:
Portfolio % Per Annum
- ------------ ------------------
Bond Debenture Portfolio .50 of 1%
Mid-Cap Value Portfolio .75 of 1%
Large Cap Research Portfolio .75 of 1%
Developing Growth Portfolio .65 of 1%
Lord Abbett Growth and Income Portfolio .40 of 1%
SUB-ADVISORY AGREEMENT
This Agreement is made between COVA INVESTMENT ADVISORY CORPORATION, an Illinois
corporation, having its principal place of business in Oakbrook Terrace,
Illinois (hereinafter referred to as the "Advisor"), MISSISSIPPI VALLEY ADVISORS
INC., a Missouri corporation, having its principal place of business in St.
Louis, Missouri (hereinafter referred to as the "Sub-Advisor") and COVA SERIES
TRUST, a Massachusetts business trust (hereinafter referred to as the "Trust").
WHEREAS, the Trust, an open-end diversified management investment company, as
that term is defined in the Investment Company Act of 1940, as amended (the
"Act"), that is registered as such with the Securities and Exchange Commission,
has appointed Advisor as investment adviser for and to the Balanced Portfolio,
Equity Income Portfolio and Growth & Income Equity Portfolio, each being a
sub-trust of the Trust (referred to individually as a "Sub-Trust" and
collectively as the "Sub-Trusts"), pursuant to the terms of an investment
advisory agreement dated as of ____________ between the Trust and Advisor
("Investment Advisory Agreement");
WHEREAS, Sub-Advisor is engaged in the business of rendering investment
management services; and
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain investment
management services for the Sub-Trusts as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment adviser for the Sub-Trusts. Subject to the
oversight and review of Advisor and the Board of Trustees of the Trust,
Sub-Advisor shall manage the investment and reinvestment of the assets of the
Sub-Trusts. Sub-Advisor will determine in its discretion, subject to the
oversight and review of Advisor, the investments to be purchased or sold, will
provide Advisor with records concerning its activities which Advisor or the
Trust is required to maintain and will render regular reports to Advisor and to
officers and Trustees of the Trust concerning its discharge of the foregoing
responsibilities.
Sub-Advisor, in its supervision of the investments of the Sub-Trusts, will be
guided by the Sub-Trusts' investment objectives and policies and the provisions
and restrictions contained in the Declaration of Trust and By-Laws of the Trust
and as set forth in the Registration Statement and exhibits as may be on file
with the Securities and Exchange Commission, all as communicated by Advisor to
Sub-Advisor. Advisor hereby undertakes to provide Sub-Advisor with copies of
such Declaration of Trust and ByLaws and Registration Statement and exhibits as
well as any amendments as the same become available from time to time.
Sub-Advisor shall be deemed to be an independent contractor under this Agreement
and, unless otherwise expressly provided or authorized, shall have no authority
to act for or represent the Trust or any Sub-Trust in any way or otherwise be
deemed an agent of the Trust or any Sub-Trust.
The services furnished by Sub-Advisor hereunder are deemed not to be exclusive,
and nothing in this Agreement shall (i) prevent Sub-Advisor or any affiliated
person (as defined in the Act) of Sub-Advisor from acting as investment adviser
or manager for any other person or persons, including other management
investment companies with investment objectives and policies the same as or
similar to those of the Sub-Trusts, or (ii) limit or restrict Sub-Advisor or any
such affiliated person from buying, selling or trading any securities or other
investments (including any securities or other investments which the Sub-Trusts
are eligible to buy) for its or their own accounts or for the accounts of others
for whom it or they may be acting; provided, however, that Sub-Advisor agrees
that it will not undertake any activities which, in its reasonable judgment,
will adversely affect the performance of its obligations to the Sub-Trusts under
this Agreement and provided that all such activities are in conformity with all
applicable provisions of the Trust's Registration Statement.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Sub-Trusts by Sub-Advisor hereunder, the sub-advisory fees set forth in Exhibit
A attached hereto. During the term of this Agreement, Sub-Advisor will bear all
expenses incurred by it in the performance of its duties hereunder, other than
the cost of securities, commodities and other investments (including brokerage,
commissions and other charges, if any) purchased for the Sub-Trusts.
3. Term. The term of this Agreement shall begin on the date of its execution and
shall remain in effect for two years from that date and from year to year
thereafter, subject to the provisions for termination and all of the other terms
and conditions hereof, if such continuation is specifically approved at least
annually in the manner required by the Act. This Agreement shall be submitted to
the shareholders of the Trust and each Sub-Trust for approval and shall
automatically terminate if not approved by a majority of the shares of the
Sub-Trust.
4. Termination. This Agreement may be terminated at any time without the payment
of any penalty, by a majority of the Board of Trustees of the Trust, by a vote
of the majority of the outstanding shares of beneficial interest of any
Sub-Trust or by the Sub-Advisor on sixty (60) days written notice to the
Advisor.
This Agreement will terminate automatically in the event of the termination of
the Investment Advisory Agreement.
Notwithstanding any provision of this Agreement, this Agreement may not be
cancelled by the Advisor without the approval of a majority of the Board of
Trustees of the Trust.
This Agreement shall automatically terminate in the event of its assignment. The
Sub-Advisor may employ or contract with any other person, persons, corporation,
or corporations at its own cost and expense as it shall determine in order to
assist it in carrying out its obligations and duties under this Agreement.
5. Sub-Advisor's Representations. Sub-Advisor represents and warrants that each
Sub-Trust will at all times be invested in such a manner as to ensure compliance
with Section 817(h) of the Internal Revenue Code of 1986, as amended, and
Treasury Regulations, Section 1.817-5, relating to the diversification
requirements for variable annuity endowment, or life insurance contracts and any
amendments or other modifications to such Section or Regulation. Sub-Advisor
will be relieved of this obligation and shall be held harmless when direction
from the Advisor or Trustees causes non-compliance with Section 817(h) and/or
Regulation Section 1.817-5. Sub-Advisor agrees to provide quarterly reports to
Advisor, executed by a duly authorized officer of Sub-Advisor, within seven (7)
days of the close of each calendar quarter certifying as to compliance with said
Section or Regulations. In addition to the quarterly reports, Advisor may
request and Sub-Advisor agrees to provide Section 817 diversification compliance
reports at more frequent intervals, as reasonably requested by Advisor.
6. Liability. The Sub-Advisor shall not be liable for any error in judgment or
of law, or for any loss suffered by the Trust or any Sub-Trust in connection
with the matters to which this Agreement relates, except (1) a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Sub-Advisor in the performance of its obligations and duties or (2) by reason of
its reckless disregard of its obligations and duties under this Agreement.
Notwithstanding the foregoing, it is agreed that the relative investment
performance of the Sub-Trusts shall not constitute a breach by Sub-Advisor of
its obligations under this Agreement.
7. Portfolio Transactions Brokerage. Investment decisions for the Sub-Trusts
shall be made by Sub-Advisor independently from those for any other investment
companies and accounts advised or managed by Sub-Advisor. The Sub-Trusts and
such investment companies and accounts may, however, invest in the same
securities. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Sub-Trust and/or another investment
company or account, the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner which Sub-Advisor believes to be
equitable to the Sub-Trust and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by the Sub-Trust or the size of the position obtained or sold by the
Sub-Trust. To the extent permitted by law, Sub-Advisor may aggregate the
securities to be sold or purchased for the Sub-Trusts with those to be sold or
purchased for other investment companies or accounts in order to obtain best
execution.
Sub-Advisor shall place all orders for the purchase and sale of portfolio
securities for the accounts of the Sub-Trusts with broker-dealers selected by
the Sub-Advisor. In executing portfolio transactions and selecting
broker-dealers, the Sub-Advisor will use its best efforts to seek best execution
on behalf of the Sub-Trusts. In assessing the best execution available for any
transaction, the Sub-Advisor shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker-dealer, and the
reasonableness of the commission, if any (all for the specific transaction and
on a continuing basis). In evaluating the best execution available, and in
selecting the broker-dealer to execute a particular transaction, the Sub-Advisor
may also consider the brokerage and research services (as those terms are used
in Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to
the Sub-Trusts and/or other accounts over which the Sub-Advisor or an affiliate
of the Sub-Advisor (to the extent permitted by law) exercises investment
discretion. The Sub-Advisor is authorized to cause the Sub-Trusts to pay a
broker-dealer who provides such brokerage and research services a commission for
executing a portfolio transaction for the Sub-Trusts which is in excess of the
amount of commission another broker-dealer would have charged for effecting that
transaction if, but only if, the Sub-Advisor determines in good faith that such
commission is reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised.
8. Amendment. This Agreement may be amended at any time by agreement of the
parties, provided that the amendment shall be approved in the manner required by
the Act.
9. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Illinois.
10. Registration as an Investment Advisor. Advisor and Sub-Advisor each hereby
acknowledges that it is registered as an investment adviser under the Investment
Advisers Act of 1940, that it will use its reasonable best efforts to maintain
such registration, and that it will promptly notify the other if it ceases to be
so registered, if its registration is suspended for any reason, or if it is
notified by any regulatory organization or court of competent jurisdiction that
it should show cause why its registration should not be suspended or terminated.
Witness the due execution hereof this ______ day of ___________.
Attest: COVA INVESTMENT ADVISORY
CORPORATION
______________________________ By: ___________________________
Attest: MISSISSIPPI VALLEY ADVISORS INC.
______________________________ By: ___________________________
Attest: COVA SERIES TRUST
______________________________ By: ___________________________
EXHIBIT A
COVA SERIES TRUST
SUB-ADVISORY COMPENSATION
For all services rendered by Sub-Advisor hereunder, Advisor shall pay to
Sub-Advisor and Sub-Advisor agrees to accept as full compensation for all
services rendered hereunder, fees accrued daily and paid at the end of each
calendar month equal to a percentage of the average daily net assets of the
Sub-Trusts as follows:
Portfolio % Per Annum
- ------------ ------------------
Balanced Portfolio .75 of 1%
Equity Income Portfolio .75 of 1%
Growth & Income Equity Portfolio .75 of 1%
SUB-ADVISORY AGREEMENT
This Agreement is made between COVA INVESTMENT ADVISORY CORPORATION, an Illinois
corporation, having its principal place of business in Oakbrook Terrace,
Illinois (hereinafter referred to as the "Advisor"), RIGGS BANK N.A., a national
banking association, having its principal place of business in Washington, D.C.
(hereinafter referred to as the "Sub-Advisor") and COVA SERIES TRUST, a
Massachusetts business trust (hereinafter referred to as the "Trust").
WHEREAS, the Trust, an open-end diversified management investment company, as
that term is defined in the Investment Company Act of 1940, as amended (the
"Act"), organized under the laws of Massachusetts as a business trust and a
series type of investment company issuing separate classes (or series) of
shares, that is registered as such with the Securities and Exchange Commission
("SEC"), has appointed Advisor as investment adviser for and to Riggs Stock
Portfolio and Riggs U.S. Government Securities Portfolio (referred to
individually as a "Portfolio" and collectively as the "Portfolios"), pursuant to
the terms of an investment advisory agreement dated as of _____________________
between the Trust and Advisor ("Investment Advisory
Agreement");
WHEREAS, Advisor is an investment adviser, registered with the SEC under the
Investment Advisers Act of 1940 ("Advisers Act");
WHEREAS, Sub-Advisor, which provides investment management services to clients,
is a national banking association that is not required to register with the SEC
under the Advisers Act;
WHEREAS, Advisor desires to retain Sub-Advisor to provide certain investment
management services for the Portfolios as more fully described below;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:
1. Retention of Sub-Advisor. Advisor hereby retains Sub-Advisor to assist
Advisor in its capacity as investment adviser for the Portfolios. Subject to the
oversight and review of Advisor and the Board of Trustees of the Trust,
Sub-Advisor shall manage the investment and reinvestment of the assets of the
Portfolios and shall, in the name of the Portfolios, place orders for the
execution of the Portfolios' portfolio transactions. Sub-Advisor will maintain
records adequately demonstrating Sub-Advisor's compliance with its obligations
under this Agreement and will furnish to Advisor and the Trust's Board of
Trustees such periodic and special reports as each may reasonably request.
Sub-Advisor, in its supervision of the investments of the Portfolios, will be
guided by the Portfolios' investment objectives and policies and the provisions
and restrictions contained in the Declaration of Trust and By-Laws of the Trust
and as set forth in the Registration Statement and exhibits as may be on file
with the SEC, all of which have been provided by Advisor to Sub-Advisor as of
the date this Agreement is executed by the parties hereto. Advisor hereby
undertakes to provide Sub-Advisor with copies of such Declaration of Trust and
Bylaws and Registration Statement and exhibits as well as any amendments as the
same become available from time to time.
Sub-Advisor shall be deemed to be an independent contractor under this Agreement
and, unless otherwise expressly provided or authorized, shall have no authority
to act for or represent the Trust or any Portfolio in any way or otherwise be
deemed an agent of the Trust or any Portfolio.
The services furnished by Sub-Advisor hereunder are deemed not to be exclusive,
and nothing in this Agreement shall (i) prevent Sub-Advisor or any affiliated
person (as defined in the Act) of Sub-Advisor from acting as investment adviser
or manager for any other person or persons, including other management
investment companies with investment objectives and policies the same as or
similar to those of the Portfolios, or (ii) limit or restrict Sub-Advisor or any
such affiliated person from buying, selling or trading any securities or other
investments (including any securities or other investments which the Portfolios
are eligible to buy) for its or their own accounts or for the accounts of others
from whom it or they may be acting; provided, however, that Sub-Advisor agrees
that, in performing its obligations under this Agreement, Sub-Advisor will not
take any action, which in Sub-Advisor's reasonable judgment, would be adverse to
the interests of the Portfolios and Sub-Advisor's activities shall conform with
all applicable provisions of the Trust's Registration Statement.
Advisor shall furnish Sub-Advisor, copies of all prospectuses, statements of
additional information, proxy statements, reports to shareholders, sales
literature, or other material prepared for distribution to interest holders of
the Trust or the public that refer in any way to Sub-Advisor, prior to: (i)
filing with the SEC or the National Association of Securities Dealers ("NASD"),
and (ii) distribution. Advisor agrees that such material shall not be filed or
distributed, if Sub-Advisor reasonably objects in writing within ten (10)
business days (or such other time as may be mutually agreed) after receipt
thereof. In the event this Agreement is terminated, Advisor will continue to
furnish to Sub-Advisor copies of any of the above-mentioned materials that refer
in any way to Sub-Advisor, in accordance with the provisions hereof.
Sub-Advisor is authorized to honor and act on any written notice, instruction or
confirmation given by Advisor, on behalf of the Trust, that is signed by any
person authorized by Advisor to provide instructions to Sub-Advisor ("Authorized
Person"). The names, addresses and specimen signatures of Authorized Persons
will be provided by Advisor to Sub-Advisor from time to time. Sub-Advisor shall
not be liable for acting in good faith upon the instructions, confirmation or
authority of Authorized Persons, notwithstanding that it shall be subsequently
shown that the same was not given or signed or sent by an Authorized Person.
2. Fee. Advisor shall pay to Sub-Advisor, for all services rendered to the
Portfolios by Sub-Advisor hereunder, a monthly sub-advisory fee based on the
value of the average daily net assets of each Portfolio, computed in accordance
with the compensation schedule set forth in Exhibit A attached hereto. During
the term of this Agreement, Sub-Advisor will bear all expenses incurred by it in
the performance of its duties hereunder, other than the cost of securities,
commodities and other investments (including brokerage, commissions and other
charges, if any) purchased for the Portfolios.
3. Term. The term of this Agreement shall begin on the date of its execution and
shall remain in effect for two years from that date and from year to year
thereafter, subject to the provisions for termination and other terms and
conditions hereof, if such continuation is specifically approved at least
annually (a) either (i) by the Trust's Board of Trustees or (ii) a majority of
the outstanding voting securities of each Portfolio, as defined in Section
2(a)(42) of the Act; and (b) by the affirmative vote of a majority of the
Trustees who are not parties to this Agreement or "interested persons" of a
party to this Agreement, within the meaning of Section 2(a)(19) of the Act,
other than as Trustees of the Trust, by votes cast in person at a meeting
specifically called for such purpose.
4. Termination. This Agreement may be terminated with respect to a Portfolio at
any time without the payment of any penalty, by a vote of a majority of the
Board of Trustees of the Trust, by a vote of the majority of the outstanding
shares of beneficial interest of a Portfolio or by Sub-Advisor on sixty (60)
days written notice to Advisor.
This Agreement will terminate automatically in the event of the termination of
the Investment Advisory Agreement.
Notwithstanding any provision of this Agreement, this Agreement may not be
canceled by Advisor without the approval of a majority of the Board of Trustees
of the Trust.
This Agreement shall automatically terminate in the event of its assignment.
Sub-Advisor may employ or contract, at its own costs and expense, with any other
person, persons, corporation, or corporations as it shall determine in order to
assist it in carrying out its obligations and duties under this Agreement.
5. Representations. (a) Sub-Advisor represents, warrants, and agrees as follows:
(1) Sub-Advisor (i) is a national bank that is excluded from the definition of
an investment adviser, under Section 202(a)(11) of the Advisers Act, and is not
required to register with the SEC thereunder; (ii) is not prohibited by the Act
or the Advisers Act from performing the services contemplated by this Agreement;
(iii) has met, and will continue to meet for so long as this Agreement remains
in effect, any applicable federal or state requirements or the requirements of
any regulatory or industry self-regulatory agency, necessary in order to perform
the services contemplated by this Agreement; (iv) has the authority to enter
into and perform the services contemplated by this Agreement; and (v) will
immediately notify the Trust and Advisor of the occurrence of any event that
would disqualify Sub-Advisor from serving as an investment adviser for a
registered investment company pursuant to Section 9(a) of the Act or otherwise.
(b) Advisor represents, warrants, and agrees as follows: (1) Advisor (i) is
registered as an investment adviser under the Advisers Act and will continue to
be so registered for so long as this Agreement remains in effect; (ii) is not
prohibited by the Act or the Advisers Act from performing the services
contemplated by this Agreement; (iii) has met, and will continue to meet for so
long as this Agreement remains in effect, any applicable federal or state
requirements or the requirements of any regulatory or industry self-regulatory
agency, necessary in order to perform the services contemplated by this
Agreement; (iv) has the authority to enter into and perform the services
contemplated by this Agreement; and (v) will immediately notify the Trust and
Sub-Advisor of the occurrence of any event that would disqualify Advisor from
serving as an investment adviser for an investment company pursuant to Section
9(a) of the Act, or otherwise.
(c) The Trust represents, warrants and agrees as follows: (1) the Trust (i) is
an open-end registered management investment company registered under the
Securities Act of 1933 and the Act, and will continue to be so registered for so
long as this Agreement remains in effect; (ii) is not prohibited by the Act or
by its Declaration of Trust or By-Laws from entering into this Agreement; (iii)
has the authority to enter into this Agreement; and (iv) will immediately notify
Advisor and Sub-Advisor in the event that (x) it shall apply to the SEC for an
order declaring that it shall cease to be an investment company under the Act,
(y) the Board of Trustees shall determine to terminate a Portfolio by merger,
substitution or otherwise, or (z) the SEC commences or initiates any action or
proceeding against the Trust for violations of any federal securities law or
regulation, or which might have a material adverse effect on the Trust's
activities as described in the registration statement pertaining to the Trust
filed with the SEC.
6. Compliance with Section 817(h). Sub-Advisor represents and warrants that such
Portfolio will at all times be invested in such a manner as to ensure compliance
with Section 817(h) of the Internal Revenue Code of 1986, as amended, and
Treasury Regulations Section 1.817-5, relating to the diversification
requirements for variable annuity endowment, or life insurance contracts and any
amendments or other modifications to such Section or Regulation. Sub-Advisor
will be relieved of this obligation and shall be held harmless when direction
from Advisor or Trustees causes non-compliance with Section 817(h) and/or
Regulation Section 1.817-5. Sub-Advisor agrees to provide quarterly reports to
advisor, executed by a duly authorized officer of Sub-Advisor, within seven (7)
days of the close of each calendar quarter certifying as to compliance with said
Section or Regulations. In addition to the quarterly reports, Advisor may
request and Sub-Advisor agrees to provide Section 817 diversification compliance
reports at more frequent intervals, as reasonably requested by Advisor.
7. Liability. Sub-Advisor shall not be liable to Advisor or the Trust for any
act, omission or any error in judgment or of law, or for any loss suffered by
the Trust or any Portfolio in connection with the matters to which this
Agreement relates, except (1) a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of Sub-Advisor in the performance of its
obligations and duties hereunder or (2) by reason of the Sub-Advisor's reckless
disregard of its obligations and duties under this Agreement. Notwithstanding
the foregoing, it is agreed that the investment performance of the Portfolios
shall not be used to determine whether there has been a breach by Sub-Advisor of
its obligations under this Agreement.
8. Portfolio Transactions Brokerage. Investment decisions for the Portfolios
shall be made by Sub-Advisor independently from those for any other investment
companies and accounts advised or managed by Sub-Advisor. The Portfolios and
such other investment companies and accounts may, however, invest in the same
securities as those acquired for the Portfolios. When a purchase or sale of the
same security is made at substantially the same time on behalf of a Portfolio
and/or another investment company or account, the transaction will be averaged
as to price, and available investments allocated as to amount, in a manner which
Sub-Advisor believes to be equitable to the Portfolio and such other investment
company or account. Advisor expressly understands and agrees that in some
instances, this investment procedure may adversely affect the price paid or
received by the Portfolio or the size of the position obtained or sold by the
Portfolio. To the extent permitted by law, Sub-Advisor may aggregate the
securities to be sold or purchased for the Portfolios with those to be sold or
purchased for other investment companies or accounts in order to obtain best
execution.
Sub-Advisor shall place all orders for the purchase and sale of portfolio
securities for the accounts of the Portfolios with broker-dealers selected by
Sub-Advisor. In executing portfolio transactions and selecting broker-dealers,
Sub-Advisor will use its best efforts to seek best execution on behalf of the
Portfolios. In assessing the best execution available for any transaction,
Sub-Advisor shall consider all factors it deems relevant, including the breadth
of the market in the security, the price of the security, financial condition
and execution capability of the broker-dealer, and the reasonableness of the
commission, if any (all for the specific transaction and on a continuing basis).
In evaluating the best execution available, and in selecting the broker-dealer
to execute a particular transaction, Sub-Advisor may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934, as amended) provided to the Portfolios and/or
other accounts over which Sub-Advisor or an affiliate of Sub-Advisor (to the
extent permitted by law) exercises investment discretion. Sub-Advisor is
authorized to cause the Portfolios to pay a broker-dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Portfolios which is in excess of the amount of commission
another broker-dealer would have charged for effecting that transaction if, but
only if, Sub-Advisor determines in good faith that such commission is reasonable
in relation to the value of the brokerage and research services provided by such
broker-dealer viewed in terms of that particular transaction or in terms of all
of the accounts over which investment discretion is so exercised.
9. Amendment. This Agreement may be amended at any time by agreement of the
parties, provided that the amendment shall be approved in the manner required by
the Act.
10. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Illinois, except to the extent that federal
law governs the transactions contemplated hereby.
Witness the due execution hereof this ________day of ___________________.
Attest: COVA INVESTMENT ADVISORY
CORPORATION
______________________________ By: ___________________________
Attest: RIGGS BANK N.A.
______________________________ By: ___________________________
Attest: COVA SERIES TRUST
______________________________ By: ___________________________
EXHIBIT A
COVA SERIES TRUST
SUB-ADVISORY COMPENSATION
Advisor shall pay to Sub-Advisor and Sub-Advisor agrees to accept as full
compensation for all services rendered hereunder, fees accrued daily and paid 30
days after the end of each calendar month, computed as follows: Portfolio net
assets (before advisory fee) x annual advisory fee rate/365 x number of days in
period. The daily fee for non-business days (weekends and holidays) is included
in the calculation for the next business day.
Portfolio % Per Annum
- ------------ ------------------
Riggs Stock Portfolio .70 of 1%
Riggs U.S. Government Securities Portfolio .50 of 1%
No Sub-Advisory fees shall be paid under this Agreement until all working
capital contributions made by Advisor and/or its affiliates have been withdrawn
from the Portfolios and repaid to the contributing party.
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 28, 2000
Board of Trustees
Cova Series Trust
One Tower Lane
Suite 3000
Oakbrook Terrace, IL 60181-4644
Re: Opinion of Counsel - Cova Series Trust
---------------------------------------
Ladies and Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-1A with respect to Cova Series Trust.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. Cova Series Trust ("Trust") is a valid and existing unincorporated
voluntary association, commonly known as a business trust.
2. The Trust is a business Trust created and validly existing pursuant
to the Massachusetts Laws.
3. All of the prescribed Trust procedures for the issuance of the shares
have been followed, and, when such shares are issued in accordance with the
Prospectus contained in the Registration Statement for such shares, all state
requirements relating to such Trust shares will have been complied with.
4. Upon the acceptance of purchase payments made by shareholders in
accordance with the Prospectus contained in the Registration Statement and upon
compliance with applicable law, such shareholders will have legally-issued,
fully paid, non-assessable shares of the Trust.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration.
We consent to the reference to our Firm under the caption "Legal Counsel"
contained in the Statement of Additional Information which forms a part of
the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/RAYMOND A. O'HARA III
------------------------------
Raymond A. O'Hara III
Consent of Independent Auditors
The Board of Trustees and Shareholders of
Cova Series Trust:
We consent to the use of our report dated February 4, 2000 incorporated by
reference herein this Post-Effective Amendment No. 23 to Registration
Statement under the Securities Act of 1933 and to the references to our
firm under the headings, "Financial Highlights" in the prospectus and
"Legal Counsel and Independent Auditors" in the statement of additional
information.
/S/ KPMG LLP
Boston, Massachusetts
April 24, 2000
COVA SERIES TRUST
CODE OF ETHICS
COVA SERIES TRUST
CODE OF ETHICS
This Code of Ethics ("Code") is adopted by:
Cova Series Trust, a registered investment company ("Trust") on behalf of
its series (each series of which is referred to as a "Portfolio") and Cova
Investment Advisory Corporation ("Adviser"), the investment adviser of all
pursuant to Rule 17j-1 promulgated by the Securities and Exchange
Commission (the "Rule") under the Investment Company Act of 1940.
Statement of General Principles
This Code is adopted in recognition of the general fiduciary principles
that govern personal investment activities of all individuals associated with
the Trust, Portfolio and the Adviser.
It is the duty at all times to place the interests of Portfolio
shareholders first. Priority must be given to Portfolio trades over
personal securities trades.
Individuals are prohibited from trading on the basis of material non-public
information as defined by federal courts and the SEC in interpreting Rule
10b-5 under the Securities Exchange Act of 1934. Individuals are prohibited
from trading in their personal accounts before trades in the Portfolio for
the same security ("front-running").
All personal securities transactions must be 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 individual's position of trust and
responsibility.
Individuals should not take advantage of their positions.
TABLE OF CONTENTS
-----------------
Page
----
1. General Prohibitions
2. Definitions
Access Person
Advisory Person
Beneficial Interest
Blind Trust
Compliance Department
Day
For his or her own account
Immediate Family
Investment Company
Personnel
Portfolio Manager
Related Issuer
Security
3. Required Compliance Procedures
3.1 Preclearance of Securities Transactions by Access Persons
3.2 Post-Trade Monitoring of Precleared Transactions
3.3 Disclosure of Personal Holdings
3.4 Certification of Compliance With Code of Ethics
4. Restrictions and Disclosure Requirements
4.1 Initial Public Offerings
4.2 Private Placements
4.3 Related Issuers
4.4 Blackout Periods
4.5 Same Day Price Switch
4.6 Short-term Trading Profits
4.7 Gifts
4.8 Service as Director of Publicly Traded Companies
4.9 Insider Trading - Prevention of Use of Non-Public Information
5. Procedures with Regard to Dissemination of Information
6. Reporting by Access Persons
6.1 General Requirement
6.2 Disinterested Trustees
6.3 Contents
7. Code of Ethics Board
8. Annual Report to Board of Trustees
9. Implementation
9.1 Forms
9.2 Exceptions
9.3 Compliance by Sub-Advisers
APPENDIX
1. General Prohibitions
No individual associated with the Trust, Portfolio, or the Adviser in connection
with the purchase or sale, directly or indirectly, by such person of a security
held or to be acquired by such Trust or Portfolio, shall:
Employ any device, scheme or artifice to defraud such Trust or Portfolio;
Make to such Trust or Portfolio any untrue statement of a material fact or
omit to state to such Trust or Portfolio a material fact necessary in order
to make the statements made, in light of the circumstances under which they
are made, not misleading;
Engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any such Trust or Portfolio;
Engage in any manipulative practice with respect to such Trust or
Portfolio;
Engage in any transaction in a security while in possession of material
nonpublic information regarding the security or the issuer of the security;
or
Engage in any transaction intended to raise, lower, or maintain the price
of any security or to create a false appearance of active trading.
2. Definitions
The following words have the following meanings, regardless of whether such
terms are capitalized or not in this Code:
Access Person - all Trustees, directors, officers, or Advisory Persons of
the Portfolio or Adviser.
Advisory Person - any employee of the Portfolio or Adviser, (or of any
company in a control relationship to the Portfolio, or 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 by the
Portfolio, or whose functions relate to the making of any recommendations with
respect to such purchases or sales.
Beneficial Interest - a person has a beneficial interest in an account in
which he or she may profit or share in the profit from transactions. Without
limiting the foregoing, a person has a beneficial interest when the securities
in the account are held:
(i) in his or her name;
(ii) in the name of any of his or her Immediate Family;
(iii)in his or her name as trustee for himself or herself or for his or her
Immediate Family;
(iv) in a trust in which he or she has a beneficial interest or is the
settlor with a power to revoke;
(v) by another person and he or she has a contract or an understanding
with such person that the securities held in that person's name are
for his or her benefit;
(vi) in the form of a right to acquisition of such security through the
exercise of warrants, options, rights, or conversion rights;
(vii) by a partnership of which he or she is a member;
(viii) by a corporation which he or she uses as a personal trading medium;
(ix) by a holding company which he or she controls; or
(x) any other relationship in which a person would have beneficial
ownership under Section 16 of the Securities Exchange Act of 1934 and
the rules and regulations thereunder, except that the determination of
direct or indirect beneficial interest shall apply to all securities
which an Access Person has or acquires.
Any person who wishes to disclaim a beneficial interest in any securities must
submit a written request to the Compliance Department explaining the reasons
therefor. Any disclaimers granted by the Compliance Department must be made in
writing. Without limiting the foregoing, if a disclaimer is granted to any
person with respect to shares held by a member or members of his or her
Immediate Family, the provisions of this Code of Ethics applicable to such
person shall not apply to any member or members of his or her Immediate Family
for which such disclaimer was granted.
Blind Trust - a trust in which an Access Person or employee has beneficial
interest or is the settlor with a power to revoke, with respect to which the
Compliance Department has determined that such Access Person or employee has no
direct or indirect influence or control and no knowledge of transactions
therein, provided, however, that direct or indirect influence or control of such
trust is held by a person or entity not associated with Adviser or any affiliate
of Adviser and not a relative of such Access Person or employee.
Compliance Department - Adviser's Compliance Department.
Day - a calendar day.
Designated Access Person - Any Access Person who in the course of his/her
regular duties knows of or has access to information regarding transactions that
will be made or have been effected on behalf of any Portfolio. The Compliance
Department will maintain a list of names of the Designated Access Persons.
For his or her own account - transactions in securities held in an
individual's own name or for any account in which he or she has beneficial
interest.
Immediate Family - any of the following relatives sharing the same
household with an individual: child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, sister-in-law, including adoptive
relationships.
Investment Company - each registered investment company and series thereof
for which the Adviser is the investment adviser.
Investment Personnel - each Portfolio Manager, and any Access Person who,
in connection with his or her regular functions or duties, provides information
and advice to a Portfolio Manager or who helps execute a Portfolio Managers
decisions.
Portfolio Manager - an Access Person who has or shares principal day-to-day
responsibility for managing the portfolio of any Portfolio.
Related Issuer - an issuer with respect to which an Investment Personnel or
his or her Immediate Family: (i) has a business relationship with such issuer or
any promoter, underwriter, officer, director, or employee of such issuer; or
(ii) is related to any officer, director or employee of such issuer.
Security - any option, stock or option thereon, instrument, bond,
debenture, preorganization certificate, investment contract, any other interest
commonly known as a security, and any security or instrument related to, but not
necessarily the same as, those held or to be acquired by a Portfolio; provided,
however, that the following shall not be considered a "security": securities
issued by the United States Government, bankers' acceptances, bank certificates
of deposit, commercial paper, shares of registered open-end investment
companies, commodities, futures, and options on futures.
3. Required Compliance Procedures
3.1 Preclearance of Securities Transactions
(a) Every [Designated] Access Person and member of his or her
Immediate Family must obtain prior approval from the Compliance Department
before executing any personal securities transaction for his or her own
account.
[(b) Every Access Person and member of his or her Immediate Family
must obtain prior written approval from the Compliance Department regarding
a transaction in a Security for his or her own account or for his or her
Immediate Family if such Access Person, at the time of that transaction,
knew or, in the ordinary course of fulfilling his or her official duties as
an Access Person should have known about any security that, during the
15-day period immediately preceding the date of the transaction by the
Access Person, was purchased or sold by a Portfolio or was being considered
by the Adviser for purchase or sale by a Portfolio.
(c) Before approving any transaction requiring Preclearance,] Before
executing any such transaction, the Compliance Department shall determine
that:
(i) No [Portfolio for which the Adviser has direct day-to-day
portfolio management and transaction responsibility,] has a
pending "buy" or "sell" order in that security;
(ii) The security does not appear on any "restricted" list of the
Adviser; and
(iii)Such transaction is not short selling or option trading that
is economically opposite any pending transaction for any
Portfolio for which the Adviser has direct day-to-day
portfolio management and transaction responsibility.]
(d) The following securities are exempt from preclearance
requirements:
(i) Securities transactions where neither the [Designated]
Access Person nor his or her Immediate Family knows [of the
transaction before it is completed or securities
transactions for Access Persons under Section 3.1(b) where
such Access Person does not know] of the transaction before
its is completed;
(ii) The acquisition of securities through stock dividends,
dividend reinvestments, stock splits, reverse stock splits,
mergers, consolidations, spin-offs, or other similar
corporate reorganizations or distributions generally
applicable to all holders of the same class of securities;
(iii)The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the
issue, and sales of such rights so acquired;
(iv) Repurchase agreements;
(v) Options on the Standard & Poor's "500" Composite Stock Price
Index; and
(vi) Other securities that may from time to time be so designated
in writing by the Code of Ethics Board.
(e) Notwithstanding the foregoing provisions of this Section 3.1, a
disinterested Trustee of the Trust must obtain prior written approval from
the Compliance Department regarding a transaction in a security for his or
her own account or for his or her Immediate Family only if such 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
about any security that, during the 15-day period immediately preceding the
date of the transaction by the Trustee, was purchased or sold by a
Portfolio or was being considered by the Adviser for purchase or sale by a
Portfolio.
(f) Obtaining preclearance approval does not constitute a waiver of
any prohibitions, restrictions, or disclosure requirements in this Code of
Ethics.
3.2 Post-Trade Monitoring of Precleared Transactions.
After the Compliance Department has granted preclearance to [a
Designated] Access Person or member of his or her Immediate Family [or any
Access Person under Section 3.1(b) with respect to any personal securities
transaction, the investment activity of such [Designated Access Person or]
Access Person and member of his or her Immediate Family shall be monitored
by the Compliance Department to ascertain that such activity conforms to
the preclearance so granted and the provisions of this Code.
3.3 Disclosure of Personal Holdings.
All [Designated Access Persons] are required to disclose all their
personal securities holdings and those of their Immediate Family to the
Compliance Department upon commencement of employment and thereafter on an
annual basis.
3.4 Certification of Compliance With Code of Ethics.
All Access Persons are required to certify annually in writing that
they have:
(a) read and understand the Code of Ethics and recognize that they are
subject thereto;
(b) complied with the requirements of the Code of Ethics;
(c) disclosed or reported all personal securities transactions
required to be disclosed or reported pursuant to the requirements of the
Code; and
(d) with respect to any blind trusts in which such person has a
beneficial interest, that such person has no direct or indirect influence
or control and no knowledge of any transactions therein.
4. Restrictions and Disclosure Requirements
4.1 Initial Public Offerings.
All [Designated Access Persons] and members of their Immediate Family
are prohibited from acquiring any securities in an initial public offering,
in order to preclude any possibility of their profiting improperly from
their positions on behalf of a Portfolio.
4.2 Private Placements.
(a) No [Designated Access Persons] or member of his or her Immediate
Family may acquire any securities in private placements without prior
written approval by the Compliance Department.
(b) Prior approval shall take into account, among other factors,
whether the investment opportunity should be reserved for a Trust or
Portfolio and its shareholders and whether the opportunity is being offered
to an individual by virtue of his or her position or relationship to the
Trust or Portfolio.
(c) [A Designated Access Person] who has (or a member of whose
Immediate Family has) acquired securities in a private placement is
required to disclose that investment to the Portfolio Manager when such
[Designated Access Person] plays a part in any subsequent consideration of
an investment in the issuer for any Trust or Portfolio; provided, however,
that if such [Designated Access Person] is the Portfolio Manager, such
[Designated Access Person] shall make such disclosure to the Compliance
Department. In any such circumstances, the decision to purchase securities
of the issuer for a Trust or Portfolio is subject to an independent review
by Investment Personnel with no personal interest in the issuer. Such
independent review shall be made in writing and furnished to the Compliance
Department.
4.3 Related Issuers.
Investment Personnel are required to disclose to the Portfolio Manager
when they play a part in any consideration of an investment by a Trust or
Portfolio in a Related Issuer; provided, however, that if such Investment
Personnel is the Portfolio Manager, such investment Personnel shall make
such disclosure to the Compliance Department. In any such circumstances,
the decision to purchase securities of the Related Issuer for a Trust or
Portfolio is subject to an independent review by Investment Personnel with
no personal interest in the Related Issuer. Such independent review shall
be made in writing and furnished to the Compliance Department.
4.4 Blackout Periods.
(a) No [Designated] Access Person or member of his or her Immediate
Family may execute a securities transaction [in any security] on a day [in]
which any [Portfolio] has a pending "buy" or "sell" order in that same
security until that order is executed or withdrawn; provided, however, that
this prohibition shall apply to a disinterested Trustee only if such
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 about any security that, during the 15-day period immediately
preceding the date of the transaction by that Trustee, was purchased or
sold by a Portfolio or was being considered by the Adviser for purchase or
sale by a Portfolio; and further provided, however, that this prohibition
shall not apply to [in the case of] de minimis transactions (e.g.,
transactions involving a relatively small number of shares of a company
with a large market capitalization and high average daily trading volume).
(b) No Portfolio Manager or member of his or her Immediate Family may
buy or sell a security for his or her own account within seven (7) Days
before or after a Portfolio that he or she manages trades in that security,
provided, however, that this prohibition shall not apply to:
(i) Securities transactions effected in any account over which such
employee has no direct or indirect influence or control,
including blind trusts;
(ii) Securities transactions that are non-volitional on the part of
either the Access Person or the Portfolio;
(iii)Securities transactions where neither the Portfolio Manager nor
his or her Immediate Family knows of the transaction before it is
completed;
(iv) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all
holders of the same class of securities,
(v) The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the issue,
and sales of such rights so acquired;
(vi) Repurchase agreements;
(vii)Options on the Standard & Poor's "500" Composite Stock Price
Index; and
(vii)Other securities that may from time to time be so designated in
writing by the Code of Ethics Board
(c) Any profits on trades within the proscribed periods shall be
disgorged to the Portfolio.
(d) The foregoing blackout periods should not operate to the detriment
of any Investment Company. Without limiting the scope or meaning of this
statement, the following procedure is to be implemented under extraordinary
situations:
(i) If a Portfolio Manager of a Portfolio or member of his or her
Immediate Family has executed a transaction in a security for his
or her own account and within seven (7) Days thereafter such
security is considered for purchase or sale by such Portfolio,
such Portfolio Manager shall submit a written memorandum to the
Compliance Department prior to the entering of the purchase or
sale order for the Portfolio. Such memorandum shall describe the
circumstances underlying the consideration of such transaction
for the Portfolio.
(ii) Based on such memorandum and other factors it deems relevant
under the specific circumstances, the Compliance Department shall
have authority to determine that the prior transaction by the
Portfolio Manager or member of his or Immediate Family for his or
her own account shall not be considered a violation of the
provisions of paragraph (b) of this section.
(iii)The Compliance Department shall make a written record of any
determination made under paragraph (d)(ii) of this section,
including the reasons therefor. The Compliance Department shall
maintain records of any such memoranda and determinations and
provide copies thereof as part of its monthly reports to the
Board of Trustees of the Trust.
4.5 Same Day Price Switch.
(a) If any employee of a Portfolio, or the Adviser or member of his or
her Immediate Family purchases a security (other than a fixed income
security) for his or her own account, and subsequent thereto a Portfolio
purchases the same security during the same day, then, to the extent that
the price paid per share by the Portfolio for such purchase is less
favorable than the price paid per share by such employee, the Portfolio
shall have the benefit of the more favorable price per share.
(b) If any such employee or member of his or her Immediate Family sells
a security for his or her own account and subsequent thereto a Portfolio sells
the same security during the same day, then, to the extent that the price per
share received by the Portfolio for such sale is less favorable than the price
per share received by the employee, the Portfolio shall have the benefit of the
more favorable price per share.
(c) An amount of money necessary to effectuate the price adjustment
shall be transferred from the account of the employee subject to the price
adjustment policies, to the Portfolio's account. The price adjustment shall
be limited to the number of shares purchased or sold by the employee or the
number of shares purchased or sold by the Portfolio, whichever is smaller.
(d) Notwithstanding the foregoing, price switching shall not apply to:
(i) Securities transactions effected in any account over which such
employee has no direct or indirect influence or control,
including blind trusts;
(ii) Securities transactions that are non-volitional on the part of
either the Access Person or the Portfolio;
(iii)Securities transactions where neither the employee nor his or
her Immediate Family knows of the transaction before it is
completed;
(iv) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all
holders of the same class of securities;
(v) The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the issue,
and sales of such rights so acquired;
(vi)Repurchase agreements;
(vii)Options on the Standard & Poor's "500" Composite Stock Price
Index; or
(viii)Other securities that may from time to time be so designated in
writing by the Code of Ethics Board
4.6 Short-term Trading Profits.
(a) No [Designated Access Person] or member of his or her Immediate
Family may profit in the purchase and sale, or sale and purchase, of the
same (or equivalent) securities within sixty (60) Days, provided, however,
that this prohibition shall not apply to:
(i) Securities transactions effected in any account over which such
employee has no direct or indirect influence or control,
including blind trusts;
(ii) Securities transactions that are non-volitional on the part of
either the Access Person or the Portfolio;
(iii)Securities transactions where neither the Investment Personnel
nor his or her Immediate Family knows of the transaction before
it is completed;
(iv) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all
holders of the same class of securities;
(v) The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the issue,
and sales of such rights so acquired;
(vi) Repurchase agreements;
(vii)Options on the Standard & Poor's "500" Composite Stock Price
Index; and
(viii) Other securities that may from time to time be so designated in
writing by the Code of Ethics Board.
(b) Any profits on trades within the proscribed periods shall be
disgorged to a charity to be determined by the Compliance Department.
(c) In determining the applicability of this section, determinations
shall be made based upon a last-in, first-out ("LIFO") calculation;
provided, however, that such determinations shall be solely for purposes of
this Code of Ethics and shall not have any applicability for tax or other
purposes.
4.7 Gifts.
(a) All Access Persons and employees are prohibited from receiving any
gift or other thing of more than de minimis value from any person or entity
that does business with or on behalf of the Portfolio in any one year.
(b) All gifts must be reported in writing to the Compliance Department
no more than 30 days after the end of each calendar quarter.
(c) The foregoing restrictions do not apply to customary and
occasional (i) business meals, (ii) tickets to sports or cultural events,
or (iii) business entertainment.
4.8 Service as Director of Publicly Traded Companies.
Investment Personnel are prohibited from serving on the Boards of
Directors of publicly traded companies, absent prior authorization based
upon the determination that such board service would not be inconsistent
with the interests of the Trust and its shareholders.
4.9 Insider Trading - Prevention of Use of Non-Public Information
Access Persons are prohibited from trading on material non-public
information, as defined by federal courts and the SEC interpreting Rule
10b-5 under the Securities Exchange Act of 1934 for their personal accounts
or on behalf of the Trust. Neither will Access Persons disclose such
information to anyone other than legal counsel.
"Material non-public information" is any information: (i) about a
company, or (ii) the market for the company's securities, (iii) which has
come directly or indirectly from the company or from an outsider to the
company in a position to influence the market for the securities of the
company, (iv) which has not been disclosed generally to the marketplace,
(v) the dissemination of which is likely to affect the market price of any
of the company's securities or is likely to be considered important by a
reasonable investor in determining whether to trade in such securities.
"Material information" is generally defined as information which there
is a substantial likelihood that a reasonable investor would consider is
important in making his or her investment decisions, or information which
is reasonably certain to have an effect on the price of a company's
securities. Access Persons should assume that information is "material" if
it relates to such matters as dividend increases or decreases, earnings
estimates, significant expansion or curtailment of operations, significant
increase or decline in orders for products of the company, significant
merger or acquisition proposals or agreements, significant new products or
discoveries, extraordinary management changes or the purchase or sale of
substantial assets.
Material information can, of course, come directly from the company or
its affiliates, professional advisors or others associated with the company
who may be considered "insiders" ("inside information"). However, it can
also come from a complete outsider to the company who is in a position to
affect the market price of the securities of the company ("market
information"). 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 when reports on
various companies would appear in the Wall Street Journal and whether those
reports would be favorable or not.
"Non-Public information" is information about a company which is known
to a select number of people and has not been disclosed to the public
generally. An Access Person should consider material information to be
non-public unless he or she can identify the manner in which the
information has been made public; for example, its being announced on the
broad tape, contained in a report filed with the SEC, or published in a
trade journal or a widely circulated newspaper.
5. Procedures with Regard to Dissemination of Information.
(a) The Adviser, and the Portfolio, and their officers, partners and
employees, shall not disclose to any disinterested Trustee of the Trust
information regarding the consideration or decision to purchase or sell a
particular security when it is contemplated that such action will be taken
within the next 15 days, unless it is:
(i) requested in writing by a disinterested Trustee of the Trust or
requested through a formal action of the Board of the Trust or any
committee thereof;
(ii) given because it is determined that the disinterested Trustee should
have the information so that he or she may effectively carry out his
or her duties; or
(iii)given so that the Adviser may carry out its duties as investment
adviser of a Portfolio.
(b) If any information regarding transactions contemplated by the
Portfolio is given to a disinterested Trustee, such disinterested Trustee
shall be advised at that time that he or she and any other Portfolio
Trustee receiving such information will be considered a Portfolio Manager
with respect to any security held or to be acquired by the Portfolio, as
indicated in the information which has been disclosed, for the next
succeeding 22 days, and the Adviser shall so notify the Compliance
Department. At such time, the Trustee shall be reminded by the Adviser of
the provisions of Sections 3.3, 4.4, and 6.2 of this Code.
(c) Subject to Sections 5(a) and 5(b), Access Persons are prohibited
from revealing information relating to current or anticipated investment
intentions, portfolio transactions or activities of Portfolios except to
persons whose responsibilities require knowledge of the information.
6. Reporting by Access Persons.
6.1 General Requirement.
Every Access Person shall report to the Trust and Compliance
Department the information described in Section 6.3 with respect to
transactions in any security in which such Access Person or member of his
or her Immediate Family has, or by reason of such transaction acquires, any
direct or indirect beneficial interest; provided, however, that no report
is required with respect to transactions effected for any account over
which such person does not have any direct or indirect influence or
control.
6.2 Disinterested Trustees.
(a) A disinterested Trustee of the Trust need only report a
transaction in a security if such Trustee, at the time of that transaction,
knew or, in the ordinary course of fulfilling his or her official duties as
a Trustee, should have known that, during the 15-day period immediately
preceding the date of the transaction by that Trustee, such security was
purchased or sold by a Portfolio or was being considered for purchase or
sale by the Adviser.
(b) Notwithstanding the foregoing, disinterested Trustees are required
to report to the Compliance Department in writing whenever they own
individually more than 1/2 of 1% of the outstanding shares of any publicly
held issuer, together with the number of shares so owned.
6.3 Contents.
Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(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; and
(iv) The name of the broker, dealer or bank with or through whom the
transaction was effected.
Unless otherwise stated, no report shall be construed as an admission by the
person making such report that he or she has any direct or indirect beneficial
interest in the security to which the report relates.
7. Code of Ethics Board.
A Code of Ethics Board shall be created by the Adviser and the Trust
composed of three members, two of whom shall be disinterested Trustees
selected by the Board of Trustees of the Trust and one of whom shall be
selected by the Adviser.
Any person who has knowledge of any violation of this Code shall
report said violation to the Code of Ethics Board.
The Code of Ethics Board shall consult regularly and meet no less
frequently than annually with the Compliance Department regarding the
implementation of this Code. The Compliance Department shall provide the
Code of Ethics Board with such reports as are required herein or as are
requested by the Code of Ethics Board.
A quarterly report shall be provided to the Trustees of the Trust
certifying that except as specifically disclosed to the Code of Ethics
Board, the Compliance Department knows of no violation of this Code. A
representative of the Compliance Department shall attend meetings of the
Trustees no less frequently than quarterly to report on the implementation
of this Code.
The Adviser and the Trustees of the Trust shall have authority to
impose sanctions for violations of this Code. The Code of Ethics Board
shall make recommendations regarding sanctions to be imposed on Access
Persons who violate this Code. Such recommendations may include a letter of
censure, suspension or termination of the employment of the violator,
forfeiture of profits, forfeiture of personal trading privileges,
forfeiture of gifts, or any other penalty the Code of Ethics Board deems to
be appropriate. All such recommendations shall be submitted to the Adviser
and the Board of Trustees of the Trust.
8. Annual Report to Board of Trustees.
The Adviser shall prepare an annual report to the Board of Trustees of
the Trust that:
(i) summarizes existing procedures concerning personal investing and
any changes in the procedures made during the past year;
(ii) identifies any violations requiring significant remedial action
during the past year; and
(iii)identifies any recommended changes in existing restrictions or
procedures based upon the Portfolio's experience under the Code
of Ethics, evolving industry practices, or developments in
applicable laws or regulations.
9. Implementation.
9.1 Forms.
The Compliance Department is authorized, with the advice of counsel,
to prepare written forms for use in implementing this Code.
9.2 Exceptions.
Exceptions to the requirements of this Code shall rarely, if ever, be
granted. However, the Compliance Department shall have authority to grant
exceptions on a case-by-case basis. Any exceptions granted must be in
writing and reported to the Code of Ethics Board.
9.3 Compliance by Sub-Advisers.
Any Advisory Person of a Sub-Adviser, as those are identified in the
Trust's then current prospectus, shall be deemed in compliance with this
Code if the Code of Ethics of such Sub-Adviser has been reviewed by the
Board of Trustees of the Trust, and the Sub-Adviser, on a quarterly basis,
provides the Trust with a statement of compliance by the Advisory Person
with the Sub-Adviser's Code of Ethics.
COVA INVESTMENT ADVISORY CORPORATION
CODE OF ETHICS
COVA INVESTMENT ADVISORY CORPORATION
CODE OF ETHICS
This Code of Ethics ("Code") is adopted by:
Cova Investment Advisory Corporation ("Adviser" or "Firm"), a registered
investment Adviser, acting as investment Adviser to Cova Series Trust
(referred to herein as "Trust") comprised of individual portfolios
(referred to herein individually as the "Portfolio"), pursuant to Rule
17j-1 promulgated by the Securities and Exchange Commission (the "Rule")
under the Investment Company Act of 1940.
Statement of General Principles
This Code is adopted in recognition of the general fiduciary principles
that govern personal investment activities of all individuals associated with
the Adviser.
It is the duty of all individuals associated with the Adviser at all times
to place the interests of the Trust's shareholders first. Priority must be
given to the Trust's trades over personal securities trades.
Individuals are prohibited from trading on the basis of material non-public
information as defined by federal courts and the SEC in interpreting Rule
10b-5 under the Securities Exchange Act of 1934. Individuals are also
prohibited from trading in their personal accounts before trades in a
Portfolio of the Trust for the same security ("front-running").
All personal securities transactions must be 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 individual's position of trust and
responsibility.
Individuals should not take advantage of their positions with the Adviser.
TABLE OF CONTENTS
-----------------
Page
----
1. General Prohibitions
2. Definitions
Access Person
Advisory Person
Beneficial Interest
Blind Trust
Compliance Department
Day
For his or her own account
Immediate Family
Investment Company
Personnel
Related Issuer
Security
3. Required Compliance Procedures
3.1 Preclearance of Securities Transactions by Access Persons
3.2 Post-Trade Monitoring of Precleared Transactions
3.3 Disclosure of Personal Holdings
3.4 Certification of Compliance With Code of Ethics
4. Restrictions and Disclosure Requirements
4.1 Initial Public Offerings
4.2 Private Placements
4.3 Blackout Periods
4.5 Same Day Price Switch
4.6 Short-term Trading Profits
4.7 Gifts
4.8 Service as Director of Publicly Traded Companies
4.9 Insider Trading - Prevention of Misuse of Non-Public Information
5. Procedures with Regard to Dissemination of Information
6. Reporting by Access Persons
6.1 General Requirement
6.2 Contents
7. Compliance Department
8. Annual Report to Board of Trustees
9. Implementation
9.1 Forms
9.2 Exceptions
APPENDIX
1. General Prohibitions
No individual associated with the Adviser in connection with the purchase or
sale, directly or indirectly, by such person of a security held or to be
acquired by the Trust, shall:
Employ any device, scheme or artifice to defraud such Trust;
Make to the Trust any untrue statement of a material fact or omit to state
to the Trust a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not
misleading;
Engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any such Portfolio of the Trust;
Engage in any manipulative practice with respect to such Portfolio;
Engage in any transaction in a security while in possession of material
nonpublic information regarding the security or the issuer of the security;
or
Engage in any transaction intended to raise, lower, or maintain the price
of any security or to create a false appearance of active trading.
2. Definitions
The following words have the following meanings, regardless of whether such
terms are capitalized or not in this Code:
Access Person - all directors, officers, or Advisory Persons of the
Adviser.
Advisory Person - any employee of the Adviser, (or of any company in a
control relationship to 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 by any Portfolio of the Trust, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales.
Beneficial Interest - a person has a beneficial interest in an account in
which he or she may profit or share in the profit from transactions. Without
limiting the foregoing, a person has a beneficial interest when the securities
in the account are held:
(i) in his or her name;
(ii) in the name of any of his or her Immediate Family;
(iii)in his or her name as trustee for himself or herself or for his or
her Immediate Family;
(iv) in a trust in which he or she has a beneficial interest or is the
settlor with a power to revoke;
(v) by another person and he or she has a contract or an understanding
with such person that the securities held in that person's name are
for his or her benefit;
(vi) in the form of a right to acquisition of such security through the
exercise of warrants, options, rights, or conversion rights;
(vii)by a partnership of which he or she is a member;
(viii) by a corporation which he or she uses as a personal trading medium;
(ix) by a holding company which he or she controls; or
(x) any other relationship in which a person would have beneficial
ownership under Section 16 of the Securities Exchange Act of 1934 and
the rules and regulations thereunder, except that the determination of
direct or indirect beneficial interest shall apply to all securities
which an Access Person has or acquires.
Any person who wishes to disclaim a beneficial interest in any securities must
submit a written request to the Compliance Department explaining the reasons
therefor. Any disclaimers granted by the Compliance Department must be made in
writing. Without limiting the foregoing, if a disclaimer is granted to any
person with respect to shares held by a member or members of his or her
Immediate Family, the provisions of this Code of Ethics applicable to such
person shall not apply to any member or members of his or her Immediate Family
for which such disclaimer was granted.
Blind Trust - a trust in which an Access Person or employee has beneficial
interest or is the settlor with a power to revoke, with respect to which the
Compliance Department has determined that such Access Person or employee has no
direct or indirect influence or control and no knowledge of transactions
therein, provided, however, that direct or indirect influence or control of such
trust is held by a person or entity not associated with Adviser or any affiliate
of Adviser and not a relative of such Access Person or employee.
Compliance Department - Adviser's Compliance Department.
Day - a calendar day.
For his or her own account - transactions in securities held in an
individual's own name or for any account in which he or she has beneficial
interest.
Immediate Family - any of the following relatives sharing the same
household with an individual: child, stepchild, grandchild, parent, stepparent,
grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, sister-in-law, including adoptive
relationships.
Investment Company - each registered investment company and series thereof
for which the Adviser is the investment adviser.
Investment Personnel - Any Access Person who, in connection with is or her
regular functions or duties, provides information and advice to the Trust or
advisory accounts or who helps execute the Adviser's decisions.
Related Issuer - an issuer with respect to which an Investment Personnel or
his or her Immediate Family: (i) has a business relationship with such issuer or
any promoter, underwriter, officer, director, or employee of such issuer; or
(ii) is related to any officer, director or employee of such issuer.
Security - any option, stock or option thereon, instrument, bond,
debenture, pre-organization certificate, investment contract, any other interest
commonly known as a security, and any security or instrument related to, but not
necessarily the same as, those held or to be acquired by a Portfolio; provided,
however, that the following shall not be considered a "security": securities
issued by the United States Government, bankers' acceptances, bank certificates
of deposit, commercial paper, shares of registered open-end investment
companies, commodities, futures, and options on futures.
3. Required Compliance Procedures
3.1 Preclearance of Securities Transactions by Access Persons.
(a) Every Access Person and member of his or her Immediate Family must
obtain prior approval from the Compliance Department before executing any
personal securities transaction for his or her own account. Before
executing any such transaction, the Compliance Department shall determine
that:
(i) No Investment Company has a pending "buy" or "sell" order in that
security;
(ii) The security does not appear on any "restricted" list of the
Adviser; and
(iii)Such transaction is not short selling or option trading that is
economically opposite any pending transaction for any Investment
Company.
(b) The following securities are exempt from preclearance
requirements:
(i) Securities transactions where neither the Access Person nor his
or her Immediate Family knows of the transaction before it is
completed;
(ii) The acquisition of securities through stock dividends, dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all
holders of the same class of securities;
(iii)The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the issue,
and sales of such rights so acquired;
(iv) Repurchase agreements;
(v) Options on the Standard & Poor's "500" Composite Stock Price
Index; and
(vi) Other securities that may from time to time be so designated in
writing by the Code of Ethics Board.
(c) Obtaining preclearance approval does not constitute a waiver of
any prohibitions, restrictions, or disclosure requirements in this Code of
Ethics.
3.2 Post-Trade Monitoring of Precleared Transactions.
After the Compliance Department has granted preclearance to an Access
Person or member of his or her Immediate Family with respect to any
personal securities transaction, the investment activity of such Access
Person and member of his or her Immediate Family shall be monitored by the
Compliance Department to ascertain that such activity conforms to the
preclearance so granted and the provisions of this Code.
3.3 Disclosure of Personal Holdings.
All Investment Personnel are required to disclose all their personal
securities holdings and those of their Immediate Family to the Compliance
Department upon commencement of employment and thereafter on an annual
basis.
3.4 Certification of Compliance With Code of Ethics.
All Access Persons are required to certify annually in writing that
they have:
(a) read and understand the Code of Ethics and recognize that they are
subject thereto;
(b) complied with the requirements of the Code of Ethics;
(c) disclosed or reported all personal securities transactions
required to be disclosed or reported pursuant to the requirements of the
Code; and
(d) with respect to any blind trusts in which such person has a
beneficial interest, that such person has no direct or indirect influence
or control and no knowledge of any transactions therein.
4. Restrictions and Disclosure Requirements
4.1 Initial Public Offerings.
All Investment Personnel and members of their Immediate Family are
prohibited from acquiring any securities in an initial public offering, in
order to preclude any possibility of their profiting improperly from their
positions on behalf of a Portfolio.
4.2 Private Placements.
(a) No Investment Personnel or member of his or her Immediate Family
may acquire any securities in private placements without prior written
approval by the Compliance Department.
(b) Prior approval shall take into account, among other factors,
whether the investment opportunity should be reserved for a Trust or
Portfolio and its shareholders and whether the opportunity is being offered
to an individual by virtue of his or her position or relationship to the
Portfolio.
(c) An Investment Personnel who has (or a member of whose Immediate
Family has) acquired securities in a private placement is required to
disclose such investment to the Compliance Department when such Investment
Personnel plays a part in any subsequent consideration of an investment in
the issuer for any Portfolio of the Trust. In any such circumstances, the
decision to purchase securities of the issuer for a Portfolio of the Trust
is subject to an independent review by Investment Personnel with no
personal interest in the issuer. Such independent review shall be made in
writing and furnished to the Compliance Department.
4.3 Blackout Periods.
(a) No Access Person or member of his or her Immediate Family may
execute a securities transaction on a day during which any Investment
Company has a pending "buy" or "sell" order in that same security until
that order is executed or withdrawn; provided, however that this
prohibition shall not apply to an Access Person for de minimis transactions
(e.g., transactions involving a relatively small number of shares of a
company with a large market capitalization and high average daily trading
volume).
(b) No Portfolio Manager or member of his or her Immediate Family may
buy or sell a security for his or her own account within seven (7) Days
before or after a Portfolio that he or she manages trades in that security,
provided, however, that this prohibition shall not apply to:
(i) Securities transactions effected in any account over which
such employee has no direct or indirect influence or
control, including blind trusts;
(ii) Securities transactions that are non-volitional on the part
of either the Access Person or the Portfolio;
(iii)Securities transactions where neither the Portfolio Manager
nor his or her Immediate Family knows of the transaction
before it is completed;
(iv) The acquisition of securities through stock dividends,
dividend reinvestments, stock splits, reverse stock splits,
mergers, consolidations, spin-offs, or other similar
corporate reorganizations or distributions generally
applicable to all holders of the same class of securities;
(v) The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the
issue, and sales of such rights so acquired;
(vi) Repurchase agreements;
(vii)Options on the Standard & Poor's "500" Composite Stock
Price Index; and
(viii) Other securities that may from time to time be so
designated in writing by the Code of Ethics Board.
(c) Any profits on trades within the proscribed periods shall be
disgorged to the Portfolio.
(d) The foregoing blackout periods should not operate to the detriment
of any Investment Company. Without limiting the scope or meaning of this
statement, the following procedure is to be implemented under extraordinary
situations:
(i) If a Portfolio Manager of a Portfolio or member of his or
her Immediate Family has executed a transaction in a
security for his or her own account and within seven (7)
Days thereafter such security is considered for purchase or
sale by such Portfolio, such Portfolio Manager shall submit
a written memorandum to the Compliance Department prior to
the entering of the purchase or sale order for the
Portfolio. Such memorandum shall describe the circumstances
underlying the consideration of such transaction for the
Portfolio.
(ii) Based on such memorandum and other factors it deems relevant
under the specific circumstances, the Compliance Department
shall have authority to determine that the prior transaction
by the Portfolio Manager or member of his or her Immediate
Family for his or her own account shall not be considered a
violation of the provisions of paragraph (b) of this
section.
(iii)The Compliance Department shall make a written record of
any determination made under paragraph (d)(ii) of this
section, including the reasons therefor. The Compliance
Department shall maintain records of any such memoranda and
determinations.
4.5 Same Day Price Switch.
(a) If any employee of the Adviser or member of his or her Immediate
Family purchases a security (other than a fixed income security) for his or
her own account, and subsequent thereto a Portfolio purchases the same
security during the same day, then, to the extent that the price paid per
share by the Portfolio for such purchase is less favorable than the price
paid per share by such employee, the Portfolio shall have the benefit of
the more favorable price per share.
(b) If any such employee or member of his or her Immediate Family
sells a security for his or her own account and subsequent thereto a
Portfolio sells the same security during the same day, then, to the extent
that the price per share received by the Portfolio for such sale is less
favorable than the price per share received by the employee, the Portfolio
shall have the benefit of the more favorable price per share.
(c) An amount of money necessary to effectuate the price adjustment
shall be transferred from the account of the employee subject to the price
adjustment policies, to the Portfolio's account. The price adjustment shall
be limited to the number of shares purchased or sold by the employee or the
number of shares purchased or sold by the Portfolio, whichever is smaller.
(d) Notwithstanding the foregoing, price switching shall not apply to:
(i) Securities transactions effected in any account over which
such employee has no direct or indirect influence or
control, including blind trusts;
(ii) Securities transactions that are non-volitional on the part
of either the Access Person or the Portfolio;
(iii)Securities transactions where neither the employee nor his
or her Immediate Family knows of the transaction before it
is completed;
(iv) The acquisition of securities through stock dividends,
dividend reinvestments, stock splits, reverse stock splits,
mergers, consolidations, spin-offs, or other similar
corporate reorganizations or distributions generally
applicable to all holders of the same class of securities;
(v) The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the
issue, and sales of such rights so acquired;
(vi) Repurchase agreements;
(vii)Options on the Standard & Poor's "500" Composite Stock
Price Index; or
(viii) Other securities that may from time to time be so
designated in writing by the Code of Ethics Board .
4.6 Short-term Trading Profits.
(a) No Investment Personnel or member of his or her Immediate Family
may profit in the purchase and sale, or sale and purchase, of the same (or
equivalent) securities within sixty (60) days, provided, however, that this
prohibition shall not apply to:
(i) Securities transactions effected in any account over which
such employee has no direct or indirect influence or
control, including blind trusts;
(ii) Securities transactions that are non-volitional on the part
of either the Access Person or the Portfolio;
(iii)Securities transactions where neither the Investment
Personnel nor his or her Immediate Family knows of the
transaction before it is completed;
(iv) The acquisition of securities through stock dividends,
dividend reinvestments, stock splits, reverse stock splits,
mergers, consolidations, spin-offs, or other similar
corporate reorganizations or distributions generally
applicable to all holders of the same class of securities;
(v) The acquisition of securities through the exercise of rights
issued by an issuer pro rata to all holders of a class of
securities, to the extent the rights were acquired in the
issue, and sales of such rights so acquired;
(vi) Repurchase agreements;
(vii)Options on the Standard & Poor's "500" Composite Stock
Price Index; and
(viii) Other securities that may from time to time be so
designated in writing by the Code of Ethics Board.
(b) Any profits on trades within the proscribed periods shall be
disgorged to a charity to be determined by the Compliance Department.
(c) In determining the applicability of this section, determinations
shall be made based upon a last-in, first-out ("LIFO") calculation;
provided, however, that such determinations shall be solely for purposes of
this Code of Ethics and shall not have any applicability for tax or other
purposes.
4.7 Gifts.
(a) All Access Persons and employees are prohibited from receiving any
gift or other thing of more than de minimis value from any person or entity
that does business with or on behalf of the Trust in any one year.
(b) All gifts must be reported in writing to the Compliance Department
no more than 30 days after the end of each calendar quarter.
(c) The foregoing restrictions do not apply to customary and
occasional (i) business meals, (ii) tickets to sports or cultural events,
or (iii) business entertainment.
4.8 Service as Director of Publicly Traded Companies.
Investment Personnel are prohibited from serving on the Boards of
Directors of publicly traded companies, absent prior authorization based
upon the determination that such board service would not be inconsistent
with the interests of the Trust and its shareholders.
4.9 Insider Trading - Prevention of Misuse of Non-Public Information
In accordance with Section 204A of the Investment Advisers Act of
1940, the following procedures are adopted to prevent the misuse of
non-public information.
All employees of the Adviser are prohibited from trading on material
non-public information, as defined by federal courts and the SEC
interpreting Rule 1Ob-5 under the Securities Exchange Act of 1934 for
their personal accounts or on behalf of the Trust or any advisory accounts.
Neither will such employee disclose such information to anyone other than
legal counsel.
"Material non-public information" is any information: (i) about a
company, or (ii) the market for the company's securities, (iii) which has
come directly or indirectly from the company or from an outsider to the
company in a position to influence the market for the securities of the
company, (iv) which has not been disclosed generally to the marketplace,
(v) the dissemination of which is likely to affect the market price of any
of the company's securities or is likely to be considered important by a
reasonable investor in determining whether to trade in such securities.
"Material information" is generally defined as information which there
is a substantial likelihood that a reasonable investor would consider is
important in making his or her investment decisions, or information which
is reasonably certain to have an effect on the price of a company's
securities. Employees should assume that information is "material" if it
relates to such matters as dividend increases or decreases, earnings
estimates, significant expansion or curtailment of operations, significant
increase or decline in orders for products of the company, significant
merger or acquisition proposals or agreements, significant new products or
discoveries, extraordinary management changes or the purchase or sale of
substantial assets.
Material information can, of course, come directly from the company or
its affiliates, professional Advisers or others associated with the company
who may be considered "insiders" ("inside information"). However, it can
also come from a complete outsider to the company who is in a position to
affect the market price of the securities of the company ("market
information"). 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 when reports on
various companies would appear in the Wall Street Journal and whether those
reports would be favorable or not.
"Non-Public information" is information about a company which is known
to a select number of people and has not been disclosed to the public
generally. An employee should consider material information to be
non-public unless he or she can identify the manner in which the
information has been made public; for example, its being announced on the
broad tape, contained in a report filed with the SEC, or published in a
trade journal or a widely circulated newspaper.
5. Procedures with Regard to Dissemination of Information.
Access Persons are prohibited from revealing information relating to
current or anticipated investment intentions, portfolio transactions or
activities of Portfolios except to persons whose responsibilities require
knowledge of the information.
6. Reporting by Access Persons.
6.1 General Requirement.
Every Access Person shall report to the Compliance Department the
information described in Section 6.2 with respect to transactions in any
security in which such Access Person or member of his or her Immediate
Family has, or by reason of such transaction acquires, any direct or
indirect beneficial interest; provided, however, that no report is required
with respect to transactions effected for any account over which such
person does not have any direct or indirect influence or control.
6.2 Contents.
Every report shall be made not later than 10 days after the end of the
calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(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; and
(iv) The name of the broker, dealer or bank with or through whom the
transaction was effected.
Unless otherwise stated, no report shall be construed as an admission by the
person making such report that he or she has any direct or indirect beneficial
interest in the security to which the report relates.
7. Compliance Department
The Adviser's Compliance Department shall be responsible for implementation
of this Code of Ethics.
Any person who has knowledge of any violation of this Code shall report
said violation to the Compliance Department.
The Compliance Department shall provide the management of the Adviser with
such reports as are required herein or as are requested by management.
A quarterly report shall be provided to the Trustees of the Trust
certifying that except as specifically disclosed to the Compliance Department,
the Compliance Department knows of no violation of this Code. A representative
of the Compliance Department shall attend meetings of the Trustees no less
frequently than quarterly to report on the implementation of this Code.
The Adviser shall have authority to impose sanctions for violations of this
Code. Such recommendations may include a letter of censure, suspension or
termination of the employment of the violator, forfeiture of profits, forfeiture
of personal trading privileges, forfeiture of gifts, or any other penalty the
officer designated by the Adviser deems to be appropriate. All such
recommendations shall be submitted to the management of the Adviser.
8. Annual Report to Board of Trustees.
The Adviser shall prepare an annual report to the Board of Trustees of the
Trust that:
(i) summarizes existing procedures concerning personal investing and any
changes in the procedures made during the past year;
(ii) identifies any violations requiring significant remedial action during
the past year; and
(iii)identifies any recommended changes in existing restrictions or
procedures based upon the Adviser's experience under the Code of
Ethics, evolving industry practices, or developments in applicable
laws or regulations.
9. Implementation.
9.1 Forms.
The Compliance Department is authorized, with the advice of counsel,
to prepare written forms for use in implementing this Code. Such forms
shall be attached as an Appendix to this Code and shall be disseminated to
all individuals subject to the Code.
9.2 Exceptions.
Exceptions to the requirements of this Code shall rarely, if ever, be
granted. However, the Compliance Department shall have authority to grant
exceptions on a case-by-case basis. Any exceptions granted must be in
writing and reported to the Compliance Department.
APPENDIX
--------
A list of contact persons referenced in the Code, such as those who are
responsible for preclearing trades
Preclearance Authorization Request
A form to report holdings in securities
A form acknowledging receipt of the Code
A form acknowledging compliance with the Code
A form letter directing brokers to send duplicate confirmations of transactions
to the Compliance Department
Quarterly Report of Securities Transactions
Quarterly Report of Securities Transactions
1. Full Name:_________________________________________
2. Department:________________________________________
3. Position:__________________________________________
4. Report for Calendar Quarter Ending ________________.
5. Securities Transactions for Calendar Quarter:
<TABLE>
<CAPTION>
If no transactions need be reported, answer "None."
---------------------------------------------------
Amount of Price at Broker or Bank
Title of Date of Nature of Security Which Affecting
Security Transaction Transaction Involved Affected Transaction
- -------- ----------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
</TABLE>
______________________
Signature
______________________
Date
INSTRUCTIONS
1. Transactions required to be reported. You should report every transaction
in which you acquired or disposed of any beneficial ownership in any
security during the calendar quarter.
For reporting purposes, you are regarded as having a beneficial ownership
in securities held.
(i) for your benefit by others (e.g., brokers, custodians and pledgees);
(ii) for the benefit of your spouse or minor children or for any other
relative who shares your home unless you do not exercise any direct or
indirect influence or control over his transactions and do not
otherwise advise him as to his transactions;
(iii) by a partnership of which you are a partner;
(iv) by a corporation of which you area controlling person and which is
used by you alone or with a small group as a medium for investing or
trading in securities; and
Even though you acquire or dispose of beneficial ownership in the
securities involved, none of the following transactions need be reported:
(i) transactions in securities which are direct obligations of the United
States; and
(ii) transactions affected in any account over which neither you nor any
other Director, Officer, or employee of Cova Financial Services Life
Insurance Company or Cova Financial Life Insurance Company has any
direct or indirect influence or control.
In reporting a transaction, you may disclaim beneficial ownership of the
security.
2. Title of Security. State the name of the Issuer and the class of the
security (e.g., common stock or designated issue of debt securities).
3. Date of Transaction. In the case of a market transaction, state the trade
date (and not the settlement date).
4. Nature of Transaction. State the character of the transaction (e.g.,
purchase, sale, gift, bequest, stock dividend, or exercise of option).
5. Amount of Security Involved. State the number of shares of stock or the
face amount of debt securities. If your ownership interest was through a
partnership, corporation, or trust, state the entire amount of securities
involved in the transaction. In such cases, you may also indicate, if you
wish, the extent of your interest in the partnership, corporation, or
trust.
6. Price at Which Affected. State the purchase or sale price per share or
other unit, exclusive of brokerage commissions or other costs of execution.
7. Broker or Bank Affecting Transaction. State the name of the broker, dealer
or bank with or through whom the transaction was affected.
8. Signature. Date and sign report.
9. Filing of Report. A report should be filed within 10 days after the end of
each calendar quarter.
ANNUAL CERTIFICATION OF COMPLIANCE WITH THE CODE OF ETHICS
I certify that during the past year:
1. I have read and understand the Code of Ethics and recognize that I am
subject to the Code;
2. have complied with the requirements of the Code of Ethics;
3. I have disclosed or reported all personal securities transactions
required to be disclosed or reported pursuant to the requirements of
the Code; and
4. With respect to any blind trusts in which I have a beneficial
interest, I have no direct or indirect influence or control and no
knowledge of any transactions therein.
_____________________________________
Access Person Signature
_____________________________________
Print Name
Date:_____________________
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
I acknowledge that I have received the current Code of Ethics and represent
that:
1. I have reviewed the Code of Ethics, and I fully understand its terms
and applicability to me.
2. I will fulfill all required reporting as outlined in the Code,
including disclosing or reporting all personal securities transactions
which are required to be disclosed or reported pursuant to the Code.
3. will comply with all the requirements of the Code of Ethics.
__________________________________
Access Person Signature
__________________________________
Print Name
Date:____________________
PERSONAL HOLDINGS
In accordance with Section 3.3 of the Code of Ethics, please provide a list of
all personal securities holdings, including those of your immediate family as
defined in the Code. This disclosure is required upon commencement of employment
and thereafter on an annual basis.
(1) Name of Investment Personnel:__________________________________
(2) If different than (1), name of the person in whose name the account is
held:__________________________________________________________
(3) Relationship of (2) to (1):____________________________________
(4) Broker at which Account is maintained:_________________________
(5) Account Number:________________________________________________
(6) Contact person at Broker and phone number:_____________________
(7) For each account, attach the most recent account statement listing
securities in that account. If you or your immediate family own securities
that are not listed in an attached account statement, list them below:
Name of Security Quantity Value Custodian
---------------- -------- ----- ---------
1. _________________________________________________________________________
2. _________________________________________________________________________
3. _________________________________________________________________________
4. _________________________________________________________________________
5. _________________________________________________________________________
6. _________________________________________________________________________
(attach separate sheet if necessary)
I certify that this form and the attached statements (if any) constitute all of
my personal securities holdings and those held in accounts of my immediate
family.
_____________________________________
Investment Personnel Signature
Dated:__________________ _____________________________________
Print Name
FORM OF LETTER TO BROKER, DEALER OR BANK
(Date)
(Broker Name and Address)
Subject: Account #__________________
Dear_______________:
In accordance with the monitoring requirements of the investment adviser with
which I am associated, you are requested to promptly send duplicate
confirmations of my [covered persons] transactions, as well as duplicate
periodic statements for the referenced account to Cova Investment Advisory
Corporation. Please address the confirmations and statements directly to:
CONFIDENTIAL
_________________, Compliance Department
Cova Investment Advisory Corporation
_________________________
_________________________
Your cooperation is appreciated. If you have any questions regarding these
requests, please contact me or ___________________of Cova Investment Advisory
Corporation at (XXX) XXX-XXXX.
Sincerely,
(Name of Access Person)
PRECLEARANCE AUTHORIZATION REQUEST
1. Name of Access Person:_____________________________________
2. If different than (1), name of person in whose account the trade will
occur:_____________________________________________________
3. Relationship of (2) to (1):________________________________
4. Name of Security:__________________________________________
5. Maximum number of shares or units to be purchased or sold or amount of
bond:______________________________________________________
6. Desired trade date:________________________________________
7. Name and phone number of broker to effect transaction:_____________________
8. Check if applicable: Purchase_____ Market Order___ Sale___ Gift___ Limit
Order____ (Limit Order Price____)
9. In connection with the foregoing transaction, I hereby make the foregoing
representations and warranties:
(a) I do not possess any material nonpublic information regarding the
Security or the issuer of the Security.
(b) I am not engaging in this transaction with the intent to raise, lower,
or maintain the price of the Security or to create a false appearance
of active trading.
(c) To my knowledge:
(1) The Security [is/is not] (circle one) held by the Portfolios
advised by Cova Investment Advisory Corporation.
(2) There are no outstanding buy or sell orders for this Security by
Cova Series Trust.
(3) The Security (or equivalent security) is not on any "restricted"
list of Cova Investment Advisory Corporation and is not actively
being considered for purchase or sale by Cova Series Trust.
(4) The proposed transaction is not short selling or option trading
that is economically opposite any pending transaction by Cova
Series Trust.
(d) I have read the Code of Ethics within the prior 12 months and believe
that the proposed trade fully complies with the requirements of the
Code.
Investment Personnel Only:
(e) The Security is not being acquired in an initial public offering.
(f) The Security is not being acquired in a private placement or, if it
is, I have reviewed Section 4.2 of the Code and have attached hereto a
written explanation of such transaction.
(g) If I am purchasing or selling the Security with an expectation of a
transaction profit, I have not directly or indirectly (through any
member of my immediate family, any account in which I have a
Beneficial Interest or otherwise) sold or purchased the Security (or
an equivalent security) in the prior 60 days.
Investment Personnel Only:
(h) None of the accounts for which I have access to information on trading
has purchased or sold this Security (or equivalent security) within
the past seven (7) calendar days and I do not expect any such accounts
to purchase or sell the Securities within seven (7) calendar days of
my purchase or sale.
___________________________ ____________________
Access Person Print Name
CERTIFICATION OF DESIGNATED ACCESS PERSON DESIGNEE
The undersigned hereby certifies that the above Access Person (a) directly
instructed me to complete this Form on his or her behalf, (b) to the best of my
knowledge, was out of the office at the time of such instruction and has not
returned, and (c) confirmed to me that the representations and warranties
contained in this form are accurate.
____________________________ ____________________
Access Person Designee Print Name
AUTHORIZATION
Authorized By:______________________ Date:__________________ Time:__________
CODE OF ETHICS
1. Purposes
This Code of Ethics (the "Code") has been adopted by the Directors of J.P.
Morgan Investment Management Inc. (the "Adviser"), in accordance with
Rule 17j-1(c) promulgated 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 (defined in Section 2(k) of this Code) by investment companies,
if effected by associated persons of such companies. The purpose of this Code is
to adopt provisions reasonably necessary to prevent Access Persons from engaging
in any unlawful conduct as set forth in Rule 17j-1(b) as follows:
It is unlawful for any affiliated person of or principal underwriter for a
Fund, or any affiliated person of an investment adviser of or principal
underwriter for a Fund, in connection with the purchase or sale, directly or
indirectly, by the person of a Security Held or to be Acquired by the Fund:
(a) To employ any device, scheme or artifice to defraud the Fund;
(b) 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;
(c) To engage in any act, practice, or course of business that operates or
would operate as a fraud or deceit on the Fund; or
(d) To engage in any manipulative practice with respect to the Fund.
2. Definitions
(a) "Access Person" means any director, officer, general partner or
Advisory Person of the Adviser.
(b) "Administrator" means Morgan Guaranty Trust Company.
(c) "Advisory Person" means (i) any employee of the Adviser or the
Administrator (or any company in a control relationship to 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 securities for a Fund, or whose functions relate
to the making of any recommendations with respect to such purchases or
sales; and (ii) any natural person in a control relationship to the
Adviser who obtains information concerning recommendations regarding
the purchase or sale of securities by a Fund.
(d)"Beneficial ownership" shall be interpreted in the same manner as it
would be under Exchange Act Rule 16a-1(a)(2)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.
(e)"Control" has the same meaning as in Section 2(a)(9) of the Act.
(f)"Covered Security" shall have the meaning set forth in Section 2(a)(36)
of the Act, except that it shall not include shares of open-end funds,
direct obligations of the United States Government, bankers'
acceptances, bank certificates of deposit, commercial paper and high
quality short-term debt instruments, including repurchase agreements.
(g)"Fund" means an Investment Company registered under the Investment
Company Act of 1940.
(h)"Initial Public Offering" means an offering of Securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Sections 13 or 15(d) of the Securities Exchange Act.
(i)"Limited Offering" means an offering that is exempt from registration
under the Securities Act pursuant to Section 4(2) or Section 4(6) or
pursuant to Rule 504, Rule 505, or Rule 506 under the Securities Act.
(j)"Purchase or sale of a Covered Security" includes, among other things,
the writing of an option to purchase or sell a Covered Security.
(k)"Security Held or to be Acquired" by a Adviser means: (i) any Covered
Security which, within the most recent 15 days, is or has been held by
a Fund or other client of the Adviser or is being or has been
considered by the Adviser for purchase by a Fund or other client of
the Adviser; and (ii) any option to purchase or sell, and any security
convertible into or exchangeable for, a Covered Security described in
Section 2(k)(i) of this Code.
3. Statement of Principles
It is understood that the following general fiduciary principles govern the
personal investment activities of Access Persons:
(a)the duty to at all times place the interests of shareholders and other
clients of the Adviser first;
(b)the requirement that all personal securities transactions be conducted
consistent with this Code of Ethics and in such a manner as to avoid any
actual or potential conflict of interest or any abuse of an individual's
position of trust and responsibility;
(c)the fundamental standard that Investment Personnel may not take
inappropriate advantage of their position; and
(d)all personal transactions must be oriented toward investment, not
short-term or speculative trading.
It is further understood that the procedures, reporting and recordkeeping
requirements set forth below are hereby adopted and certified by the Adviser as
reasonably necessary to prevent Access Persons from violating the provisions of
this Code of Ethics.
4. Procedures to be followed regarding Personal Investments by Access Persons
(a)Pre-clearance requirement. Each Access Person must obtain prior written
approval from his or her group head (or designee) and from the Adviser's
trading desk before transacting in any Covered Security based on certain
quidelines set forth from time to time by the Adviser's compliance
Department. For details regarding transactions in mutual funds, see Section
4(e).
(b)Brokerage transaction reporting requirement. Each Access Person working
in the United States must maintain all of his or her accounts and the
accounts of any person of which he or she is deemed to be a beneficial
owner with a broker designated by the Adviser and must direct such broker
to provide broker trade confirmations to the Adviser's legal/compliance
department, unless an exception has been granted by the Adviser's
legal/compliance department. Each Access Person to whom an exception to the
designated broker requirement has been granted must instruct his or her
broker to forward all trade confirms and monthly statements to the
Adviser's legal/compliance department. Access Persons located outside the
United States are required to provide details of each brokerage transaction
of which he or she is deemed to be the beneficial owner, to the Adviser's
legal/compliance group, within the customary period for the confirmation of
such trades in that market.
(c)Initial public offerings (new issues). Access Persons are prohibited
from participating in Initial Public Offerings, whether or not J.P. Morgan
or any of its affiliates is an underwriter of the new issue, while the
issue is in syndication.
(d)Minimum investment holding period. Each Access Person is subject to a
60-day minimum holding period for personal transactions in Covered
Securities. An exception to this minimum holding period requirement may be
granted in the case of hardship as determined by the legal/compliance
department.
(e)Mutual funds. Each Access Person must pre-clear transactions in shares
of closed-end Funds with the Adviser's trading desk, as they would with any
other Covered Security. See Section 4(a). Each Access Person must obtain
pre-clearance from his or her group head(or designee) before buying or
selling shares in an open-end Fund or a sub-advised Fund managed by the
Adviser if such Access Person or the Access Person's department has had
recent dealings or responsibilities regarding such mutual fund.
(f)Limited offerings. An Access Person may participate in a limited
offering only with written approval of such Access Person's group head (or
designee) and with advance notification to the Adviser's compliance group.
(g)Blackout periods. Advisory Persons are subject to blackout periods 7
calendar days before and after the trade date of a Covered Security where
such Advisory Person makes, participates in, or obtains information
regarding the purchase or sale of such Covered Security for any of their
client accounts. In addition, Access Persons are prohibited from executing
a transaction in a Covered Security during a period in which there is a
pending buy or sell order on the Adviser's trading desk.
(h)Prohibitions. Short sales are generally prohibited. Transactions in
options, rights, warrants, or other short-term securities and in futures
contracts (unless for bona fide hedging) are prohibited, except for
purchases of options on widely traded indices specified by the Adviser's
compliance group if made for investment purposes.
(i)Securities of J.P. Morgan. No Access Person may buy or sell any security
issued by J.P. Morgan from the 27th of each March, June, September, and
December until the first full business day after earnings are released in
the following month. All transactions in securities issued by J.P. Morgan
must be pre-cleared with the Adviser's compliance group and executed
through an approved trading area. Transactions in options and short sales
of J.P. Morgan stock are prohibited.
(j)Certification requirements. In addition to the reporting requirements
detailed in Sections 6 below, each Access Person, no later than 30 days
after becoming an Access Person, must certify to the Adviser's compliance
group that he or she has complied with the broker requirements in Section
4(b).
5. Other Potential Conflicts of Interest
(a)Gifts. No employee of the Adviser or the Administrator may (i)accept
gifts, entertainment, or favors from a client, potential client, supplier,
or potential supplier of goods or services to the Adviser or the
Administrator unless what is given is of nominal value and refusal to
accept it would be discourteous or otherwise harmful to the Adviser or
Administrator; (ii)provide excessive gifts or entertainment to clients or
potential clients; and (iii) offer bribes, kickbacks, or similar
inducements.
(b)Outside Business Activities. The prior consent of the Chairman of the
Board of J.P. Morgan, or his or her designee, is required for an officer of
the Adviser or Administrator to engage in any business-related activity
outside of the Adviser or Administrator, whether the activity is
intermittent or continuing, and whether or not compensation is received.
For example, such approval is required such an officer to become:
-An officer, director, or trustee of any corporation (other than a
nonprofit corporation or cooperative corporation owning the building
in which the officer resides);
-A member of a partnership (other than a limited partner in a
partnership established solely for investment purposes);
-An executor, trustee, guardian, or similar fiduciary advisor (other
than for a family member).
6. Reporting Requirements
(a) Every Access Person must report to the Adviser:
(i)Initial Holdings Reports. No later than 10 days after the person
becomes an Access Person, the following information: (A) 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; (B) the name of any
broker, dealer or bank with whom the Access Person maintained an
account in which any Covered Securities were held for the direct or
indirect benefit of the Access Person as of the date the person became
an Access Person; and (C) the date that the report is submitted by the
Access Person.
(ii)Quarterly Transaction Reports. No later than 10 days after the end
of a calendar quarter, with respect to any transaction during the
quarter in a Covered Security in which the Access Person had any
direct or indirect Beneficial Ownership: (A) the date of the
transaction, the title, the interest rate and maturity date (if
applicable), the number of shares and principal amount of each Covered
Security involved; (B) the nature of the transaction; (C) the price of
the Covered Security at which the transaction was effected; (D) the
name of the broker, dealer or bank with or through which the
transaction was effected; and (E) the date that the report is
submitted by the Access Person.
(iii)New Account Report. No later than 10 days after the calendar
quarter, with respect to any account established by the Access Person
in which any Covered Securities were held during the quarter for the
direct or indirect benefit of the Access Person: (A) the name of the
broker, dealer or bank with whom the Access Person established the
account; (B) the date the account was established; and (C) the date
that the report is submitted by the Access Person.
(iv)Annual Holdings Report. Annually, the following information (which
information must be current as of a date no more than 30 days before
the report is submitted): (A) the title, number of shares and
principal amount of each Covered Security in which the Access Person
had any direct or indirect beneficial ownership; (B) the name of any
broker, dealer or bank with whom the Access Person maintains an
account in which any Covered Securities are held for the direct or
indirect benefit of the Access Person: and (C) the date that the
report is submitted by the Access Person.
(b) Exceptions from the Reporting Requirements.
(i) Notwithstanding the provisions of Section 6(a), no Access Person
shall be required to make:
A. a report with respect to transactions effected for any account
over which such person does not have any direct or indirect
influence or control;
B. a Quarterly Transaction or New Account Report under Sections
6(a)(ii) or (iii) if the report would duplicate information
contained in broker trade confirmations or account statements
received by the Adviser with respect to the Access Person no
later than 10 days after the calendar quarter end, if all of the
information required by Sections 6(a)(ii) or (iii), as the case
may be, is contained in the broker trade confirmations or account
statements, or in the records of the Adviser.
(c) Each Access Person shall promptly report any transaction
which is, or might appear to be, in violation of this Code. Such
report shall contain the information required in Quarterly
Transaction Reports filed pursuant to Section 6(a)(ii).
(d) All reports prepared pursuant to this Section 6 shall be
filed with the appropriate compliance personnel designated by the
Adviser and reviewed in accordance with procedures adopted by
such personnel.
(e) The Adviser will identify all Access Persons who are required
to file reports pursuant to this Section 6 and will inform them
of their reporting obligation.
(f) The Adviser no less frequently than annually shall furnish to
a Fund's board of directors for their consideration a written
report that:
(a) describes any issues under this Code of Ethics or related
procedures since the last report to the board of directors,
including, but limited to, information about material violations
of the Code or procedures and sanctions imposed in response to
the material violations; and
(b) certifies that the Adviser has adopted procedures reasonably
necessary to prevent Access Persons from violating this Code of
Ethics.
7. Recordkeeping Requirements
The Adviser must at its principal place of business maintain records in the
manner and extent set out in this Section of this Code and must make available
to the Securities and Exchange Commission (SEC) at any time and from time to
time for reasonable, periodic, special or other examination:
(a) A copy of its code of ethics that is in effect, or at any time within
the past five years was in effect, must be maintained in an easily
accessible place;
(b) A record of any violation of the code of ethics, and of any action
taken as a result of the violation, must be maintained in an easily
accessible place for at least five years after the end of the fiscal
year in which the violation occurs;
(c) A copy of each report made by an Access Person as required by Section
6(a) including any information provided in lieu of a quarterly
transaction report, must be maintained for at least five years after
the end of the fiscal year in which the report is made or the
information is provided, the first two years in an easily accessible
place.
(d) A record of all persons, currently or within the past five years, who
are or were required to make reports as Access Persons or who are or
were responsible for reviewing these reports, must be maintained in an
easily accessible place.
(e) A copy of each report required by 6(f) above must be maintained for at
least five years after the end of the fiscal year in which it is made,
the first two years in an easily accessible place.
(f) A record of any decision and the reasons supporting the decision to
approve the acquisition by Access Persons of securities under Section
4(f) above, for at least five years after the end of the fiscal year
in which the approval is granted.
8. Sanctions
Upon discovering a violation of this Code, the Directors of the Adviser may
impose such sanctions as they deem appropriate, including, inter alia, financial
penalty, a letter of censure or suspension or termination of the employment of
the violator.
LORD, ABBETT & CO.
LORD ABBETT-SPONSORED FUNDS
AND
LORD ABBETT DISTRIBUTOR LLC
CODE OF ETHICS
I. Statement of General Principles
The personal investment activities of any officer, director, trustee or
employee of the Lord Abbett-sponsored Funds (the Funds) or any partner
or employee of Lord, Abbett & Co. (Lord Abbett) will be governed by the
following general principles: (1) Covered Persons have a duty at all
times to place first the interests of Fund shareholders and, in the
case of employees and partners of Lord Abbett, beneficiaries of managed
accounts; (2) all securities transactions by Covered Persons shall be
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
individual's position of trust and responsibility; and (3) Covered
Persons should not take inappropriate advantage of their positions with
Lord Abbett or the Funds.
II. Specific Prohibitions
No person covered by this Code, shall purchase or sell a security,
except an Excepted Security, if there has been a determination to
purchase or sell such security for a Fund (or, in the case of any
employee or partner of Lord, Abbett, for another client of Lord
Abbett), or if such a purchase or sale is under consideration for a
Fund (or, in the case of an employee or partner of Lord Abbett, for
another client of Lord Abbett), nor may such person have any dealings
in a security that he may not purchase or sell for any other account in
which he has Beneficial Ownership, or disclose the information to
anyone, until such purchase, sale or contemplated action has either
been completed or abandoned.
III. Obtaining Advance Approval
Except as provided in Sections V and VI of this Code, all proposed
transactions in securities (privately or publicly owned) by Covered
Persons, except transactions in Excepted Securities, should be approved
consistent with the provisions of this Code in advance by one of the
partners of Lord Abbett. In order to obtain approval, the Covered
Person must send their request via e-mail to Isabel Herrera, or in her
absence, Chrissy DeCicco, who will obtain a partner's approval. After
approval has been obtained, the Covered Person may act on it within the
next seven business days, unless he sooner learns of a contemplated
action by Lord Abbett. After the seven business days, or upon hearing
of such contemplated action, a new approval must be obtained.
Furthermore, in addition to the above requirements, partners and
employees directly involved must disclose information they may have
concerning securities they may want to purchase or sell to any
portfolio manager who might be interested in the securities for the
portfolios they manage.
IV. Reporting and Certification Requirements; Brokerage Confirmations
(1) Except as provided in Sections V and VI of this Code, within
10 days following the end of each calendar quarter each
Covered Person must file with Ms. Herrera a signed Security
Transaction Reporting Form. The form must be signed and filed
whether or not any security transaction has been effected. If
any transaction has been effected during the quarter for the
Covered Person's account or for any account in which he has a
direct or indirect Beneficial Ownership, it must be reported.
Excepted from this reporting requirement are transactions
effected in any accounts over which the Covered Person has no
direct or indirect influence or control and transactions in
Excepted Securities. Ms. Herrera is responsible for reviewing
these transactions promptly and must bring any apparent
violation to the attention of the General Counsel of Lord
Abbett.
(2) Each employee and partner of Lord Abbett will upon
commencement of employment and annually thereafter disclose
all personal securities holdings and annually certify that:
(i) they have read and understand this Code and recognize they
are subject hereto; and (ii) they have complied with the
requirements of this Code and disclosed or reported all
securities transactions required to be disclosed or reported
pursuant to the requirements of this Code.
(3) Each employee and partner of Lord Abbett will direct his
brokerage firm to send copies of all confirmations and all
monthly statements directly to Ms. Herrera.
(4) Each employee and partner of Lord Abbett who has a
Fully-Discretionary Account (as defined in Section VI) shall
disclose all pertinent facts regarding such Account to Lord
Abbett's General Counsel upon commencement of employment. Each
such employee or partner shall thereafter annually certify on
the prescribed form that he or she has not and will not
exercise any direct or indirect influence or control over such
Account, and has not discussed any potential investment
decisions with such independent fiduciary in advance of any
such transactions.
V. Special Provisions Applicable to Outside Directors and Trustees of the
Funds
The primary function of the Outside Directors and Trustees of the Funds
is to set policy and monitor the management performance of the Funds'
officers and employees and the partners and employees of Lord Abbett
involved in the management of the Funds. Although they receive complete
information as to actual portfolio transactions, Outside Directors and
Trustees are not given advance information as to the Funds'
contemplated investment transactions.
An Outside Director or Trustee wishing to purchase or sell any security
will therefore generally not be required to obtain advance approval of
his security transactions. If, however, during discussions at Board
meetings or otherwise an Outside Director or Trustee should learn in
advance of the Funds' current or contemplated investment transactions,
then advance approval of transactions in the securities of such
company(ies) shall be required for a period of 30 days from the date of
such Board meeting. In addition, an Outside Director or Trustee can
voluntarily obtain advance approval of any security transaction or
transactions at any time.
No report described in Section IV (1) will be required of an Outside
Director or Trustee unless he knew, or in the ordinary course of
fulfilling his official duties as a director or trustee should have
known, at the time of his transaction, that during the 15-day period
immediately before or after the date of the transaction (i.e., a total
of 30 days) by the Outside Director or Trustee such security was or was
to be purchased or sold by any of the Funds or such a purchase or sale
was or was to be considered by a Fund. If he makes any transaction
requiring such a report, he must report all securities transactions
effected during the quarter for his account or for any account in which
he has a direct or indirect Beneficial Ownership interest and over
which he has any direct or indirect influence or control. Each Outside
Director and Trustee will direct his brokerage firm to send copies of
all confirmations of securities transactions to Ms. Herrera, and
annually make the certification required under Section IV(2)(i) and
(ii). Outside Directors' and Trustees' transactions in Excepted
Securities are excepted from the provisions of this Code.
It shall be prohibited for an Outside Director or Trustee to (i) trade
on material non-public information, or (ii) trade in options with
respect to securities covered by this Code without advance approval
from Lord Abbett. Prior to accepting an appointment as a director of
any company, an Outside Director or Trustee will advise Lord Abbett and
discuss with Lord Abbett's Managing Partner whether accepting such
appointment creates any conflict of interest or other issues.
If an Outside Director or Trustee, who is a director or an employee of,
or consultant to, a company, receives a grant of options to purchase
securities in that company (or an affiliate), neither the receipt of
such options, nor the exercise of those options and the receipt of the
underlying security, requires advance approval from Lord Abbett.
Further, neither the receipt nor the exercise of such options and
receipt of the underlying security is reportable by such Outside
Director or Trustee. Finally, neither the receipt nor the exercise of
such options shall be considered "trading in options" within the
meaning of the preceding paragraph of this Section V.
VI. Additional Requirements relating to Partners and Employees of Lord Abbett
It shall be prohibited for any partner or employee of Lord Abbett:
(1) To obtain or accept favors or preferential treatment of any
kind or gift or other thing having a value of more than $100
from any person or entity that does business with or on behalf
of the investment company---no partner or employee shall have
any ownership interest in a brokerage firm;
(2) to trade on material non-public information or otherwise fail
to comply with the Firm's Statement of Policy and Procedures
on Receipt and Use of Inside Information adopted pursuant to
Section 15(f) of the Securities Exchange Act of 1934 and
Section 204A of the Investment Advisers Act of 1940;
(3) to trade in options with respect to securities covered under
this Code;
(4) to profit in the purchase and sale, or sale and purchase, of
the same (or equivalent) securities within 60 calendar days
(any profits realized on such short-term trades shall be
disgorged to the appropriate Fund or as otherwise determined);
(5) to trade in futures or options on commodities, currencies or
other financial instruments, although the Firm reserves the
right to make rare exceptions in unusual circumstances which
have been approved by the Firm in advance;
(6) to engage in short sales or purchase securities on margin;
(7) to buy or sell any security within seven business days before
or after any Fund (or other Lord Abbett client) trades in that
security (any profits realized on trades within the proscribed
periods shall be disgorged to the Fund (or the other client)
or as otherwise determined);
(8) to subscribe to new or secondary public offerings, even though
the offering is not one in which the Funds or Lord Abbett's
advisory accounts are interested;
(9) to become a director of any company without the Firm's prior
consent and implementation of appropriate safeguards against
conflicts of interest.
In connection with any request for approval, pursuant to Section III of
this Code, of an acquisition by partners or employees of Lord Abbett of
any securities in a private placement, prior approval will take into
account, among other factors, whether the investment opportunity should
be reserved for any of the Funds and their shareholders (or other
clients of Lord Abbett) and whether the opportunity is being offered to
the individual by virtue of the individual's position with Lord Abbett
or the Funds. An individual's investment in privately-placed securities
will be disclosed to the Managing Partner of Lord Abbett if such
individual is involved in consideration of an investment by a Fund (or
other client) in the issuer of such securities. In such circumstances,
the Fund's (or other client's) decision to purchase securities of the
issuer will be subject to independent review by personnel with no
personal interest in the issuer.
If a spouse of a partner or employee of Lord Abbett who is a director
or an employee of, or a consultant to, a company, receives a grant of
options to purchase securities in that company (or an affiliate),
neither the receipt nor the exercise of those options requires advance
approval from Lord Abbett or reporting. Any subsequent sale of the
security acquired by the option exercise by that spouse would require
advance approval and is a reportable transaction.
Advance approval is not required for transactions in any account of a
Covered person if the Covered Person has no direct or indirect
influence or control ( a "Fully-Discretionary Account"). A Covered
person will be deemed to have "no direct or indirect influence or
control" over an account only if : (i) investment discretion for the
account has been delegated to an independent fiduciary and such
investment discretion is not shared with the employee, (ii) the Covered
Person certifies in writing that he or she has not and will not discuss
any potential investment decisions with such independent fiduciary
before any transaction and (iii) the General Counsel of Lord Abbett has
determined that the account satisfies these requirements. Transaction
in Fully-Discretionary Accounts by an employee or partner of Lord
Abbett are subject to the post-trade reporting requirements of this
Code.
VII. Enforcement
The Secretary of the Funds and General Counsel for Lord Abbett (who may
be the same person) each is charged with the responsibility of
enforcing this Code, and may appoint one or more employees to aid him
in carrying out his enforcement responsibilities. The Secretary shall
implement a procedure to monitor compliance with this Code through a
periodic review of personal trading records provided under this Code
against transactions in the Funds and managed portfolios. The Secretary
shall bring to the attention of the Funds' Audit Committees any
apparent violations of this Code, and the Audit Committees shall
determine what action shall be taken as a result of such violation. The
record of any violation of this Code and any action taken as a result
thereof, which may include suspension or removal of the violator from
his position, shall be made a part of the permanent records of the
Audit Committees of the Funds. The Secretary shall also prepare an
annual report to the directors or trustees of the Funds that (a)
summarizes Lord Abbett's procedures concerning personal investing,
including the procedures followed by partners in determining whether to
give approvals under Section III and the procedures followed by Ms.
Herrera in determining pursuant to Section IV whether any Funds have
determined to purchase or sell a security or are considering such a
purchase or sale, and any changes in those procedures during the past
year, and (b) identifies any recommended changes in the restrictions
imposed by this Code or in such procedures with respect to the Code and
any changes to the Code based upon experience with the Code, evolving
industry practices or developments in the regulatory environment.
The Audit Committee of each of the Funds and the General Counsel of
Lord Abbett may determine in particular cases that a proposed
transaction or proposed series of transactions does not conflict with
the policy of this Code and exempt such transaction or series of
transactions from one or more provisions of this Code.
VIII. Definitions
"Covered Person" means any officer, director, trustee, director or
trustee emeritus or employee of any of the Funds and any partner or
employee of Lord Abbett. (See also definition of "Beneficial
Ownership.")
"Excepted Securities" are shares of the Funds, bankers' acceptances,
bank certificates of deposit, commercial paper, shares of registered
open-end investment companies and U.S. Government securities.
"Outside Directors and Trustees" are directors and trustees who are not
"interested persons" as defined in the Investment Company Act of 1940.
"Security" means any stock, bond, debenture or in general any
instrument commonly known as a security and includes a warrant or right
to subscribe to or purchase any of the foregoing and also includes the
writing of an option on any of the foregoing.
"Beneficial Ownership" is interpreted in the same manner as it would be
under Section 16 of the Securities Exchange Act of 1934 and Rule 16a-1
thereunder. Accordingly, "beneficial owner" includes any Covered Person
who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest (i.e. the ability to share in profits
derived from such security) in any equity security, including:
(i) securities held by a person's immediate family sharing
the same house (with certain exceptions);
(ii) a general partner's interest in portfolio securities
held by a general or limited partnership;
(iii) a person's interest in securities held in trust as
trustee, beneficiary or settlor, as provided in Rule
16a-8(b); and
(iv) a person's right to acquire securities through
options, rights or other derivative securities.
"Gender/Number" whenever the masculine gender is used herein, it
includes the feminine gender as well, and the singular includes the
plural and the plural includes the singular, unless in each case the
context clearly indicates otherwise.
FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY, LLC
CODE OF ETHICS
This Code of Ethics has been adopted by Firstar Investment Research & Management
Company, LLC (FIRMCO) in compliance with section 204A and rule 204-2(a)(12) of
the Investment Advisers Act of 1940 (the "Act") as well as rule 17j-1 of the
Investment Company Act of 1940 (the "40 Act") to establish standards and
procedures to ensure persons having knowledge of the investments and investment
intentions of FIRMCO's clients uphold their fiduciary duties to the firm's
clients. This Code is also intended to establish procedures reasonably designed
to prevent the misuse of material, nonpublic information by FIRMCO or any person
associated with FIRMCO.
I. Objective
No employee of FIRMCO shall use any information concerning investments or
investment intentions of our clients, or his or her ability to influence such
investment intentions, for personal gain or in a manner detrimental to the
interest of our clients. All investments and investment practices of FIRMCO
employees involving a possible conflict of interest should be avoided so as to
prevent any impairment of a person's ability to be disinterested in making
investment decisions on behalf of FIRMCO clients. No employee shall use material
inside information in connection with any decision or recommendation to purchase
or sell any security, and no employee shall engage in transactions which violate
federal or state securities laws. FIRMCO encourages its employees to utilize
FIRMCO advised common trust funds or mutual funds, other open-end mutual funds
or other exempt securities for the investment of personal assets.
II. Definitions (as used in this Code)
A. "Beneficial Ownership" means any interest by which an employee or any
member of his or her immediate family sharing the same household can
directly or indirectly derive a monetary benefit from the purchase or
sale or ownership of a security. As a general matter, "beneficial
ownership" will be attributed to an employee in all instances where
the person (i) possesses the ability to purchase or sell the security
(or the ability to direct the disposition of the security); (ii)
possesses the voting power (including the power to vote or to direct
the voting) over such security; or (iii) receives any benefits
substantially equivalent to those of ownership.
Although the following is not an exhaustive list, a person generally
would be regarded to be the beneficial owner of the following:
1. securities held in the person's own name;
2. securities held with another in joint tenancy, as tenants in
common, or in other joint ownership arrangements;
3. securities held by a bank or broker as a nominee or custodian on
such person's behalf or pledged as collateral for a loan;
4. securities held by members of the person's immediate family
sharing the same household ("immediate family" means any child,
stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, including
adoptive relationships);
5. securities held by a relative not residing in the person's home
if the person is a custodian, guardian, or otherwise has
controlling influence over the purchase, sale, or voting of such
securities;
6. securities held by a trust for which the person serves as a
trustee and in which the person has a pecuniary interest
(including pecuniary interests by virtue of performance fees and
by virtue of holdings by the person's immediate family);
7. securities held by a trust in which the person is a beneficiary
and has or shares the power to make purchase or sale decisions;
8. securities held by a general partnership or limited partnership
in which the person is a general partner; and
9. securities owned by a corporation which is directly or indirectly
controlled by, or under common control with, such person.
Any uncertainty as to whether an employee beneficially owns a security
should be brought to the attention of the Compliance Officer.
B. "Employee" means any officer, member of the Board of Managers or
employee of FIRMCO.
C. "Personal Account" means any and all accounts of which an employee is
a beneficial owner.
D. "Purchase or sale of a security" includes, among other things, an
option to purchase or sell a security, and a purchase or sale of any
security convertible into or exchangeable for a covered security.
E. "Exempt Security" means:
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 (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),
including repurchase agreements;
3. shares of registered open-end investment companies; and
4. units of common trust funds;
5. Firstar Corporation Stock.
F. "Exempt Transactions" means that the restrictions of Sections IV and V
shall not apply to:
1. Securities acquired through stock dividends, automatic dividend
reinvestments, stock splits, reverse stock splits, mergers,
consolidations, spin-offs, or other similar corporate
reorganizations or distributions generally applicable to all
holders of the same class of securities;
2. Securities acquired 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.
G. "Material Inside Information" means confidential information of such a
nature that there is a substantial likelihood that a reasonable
investor would consider it important in deciding whether to buy, sell
or hold securities.
III. Standards of Conduct
A. Conflicts of Interest. In any matter involving both the personal
accounts of an employee and securities held or to be acquired by a
FIRMCO client account managed by such employee, the employee shall
resolve any known or reasonably anticipated conflict of interest in
favor of the FIRMCO managed account. All investments and investment
practices involving a possible conflict of interest shall be avoided
to the extent practicable in order to prevent any impairment of an
employee's ability to be disinterested in connection with his or her
services for the FIRMCO managed accounts and to avoid the possible use
for a personal account of investment recommendations and other
information generated on behalf of FIRMCO managed accounts. Strict
adherence to the provisions of this Code of Ethics should assist the
employee in avoiding such conflicts of interest.
B. Disclosure of Material Positions or Recent Trading. At no time may any
employee recommend or authorize the holding, purchase or sale of any
security by any FIRMCO managed account without first disclosing the
existence of any material (in relationship to personal financial
circumstances) position (long or short) in such security held by, or
recent trading in such security by, any personal account of such
employee. This disclosure should be made to the Compliance Officer.
C. Reports and Other Information. Reports and all other information
relating to a particular security or to an industry prepared or
acquired for use by FIRMCO or any FIRMCO managed account are the
property of FIRMCO and shall not go outside the office without
permission of the President or an officer designated by her/him, and
shall not be used for personal accounts of an employee under any
circumstances.
IV. Personal Trading Restrictions
A. Blackout Periods. No employee may purchase or sell shares of any
security in which he or she has or thereby acquires a direct or
indirect beneficial ownership interest if:
1. FIRMCO's trading desk has a pending buy or sell order in that
same security;
2. FIRMCO's trading desk has executed a buy or sell order in that
security during that day;
3. The security has been purchased or sold in a FIRMCO account
managed by the employee within the last seven business days;
4. The security will be purchased or sold in a FIRMCO account
managed by the employee within the next seven business days; or
5. The employee, in connection with his/her job responsibilities,
has recommended an investment rating change in that security
within the last seven business days or is considering an
investment rating change within the next seven business days.
B. Blackout Exemptions. Blackout periods do not apply to:
1. Exempt securities;
2. Exempt transactions; and
3. S&P 500 Securities as discussed in Section V.(D).
C. Initial Public Offerings ("IPOs"). No employee may acquire any
securities in an initial public offering.
D. Private Placements. No employee may acquire any securities in a
private placement from a publicly traded company. No employee may
acquire any securities in a private placement from a non-publicly
traded company without prior approval from the President after
consultation with the Compliance Officer. In a request for approval,
the employee should document that there is no conflict with any FIRMCO
client account or the investment strategy of the firm. In determining
whether approval should be granted, the following should be considered
and documented:
1. Whether the investment opportunity should be reserved for FIRMCO
and its managed accounts; and
2. Whether the opportunity is being offered to an individual by
virtue of his/her position with FIRMCO.
In the event approval is granted, the employee must disclose the
investment when he/she plays a material role in FIRMCO's subsequent
consideration of an investment in the issuer. In such circumstances,
FIRMCO's decision to purchase securities of the issuer will be subject
to an independent review by investment personnel with no personal
interest in the issuer.
E. Short-Term Trading Profits. In general, FIRMCO advocates long-term
investing. No employee may profit from the purchase and sale, or sale
and repurchase, of the same or equivalent securities within 60
calendar days if, at any time during those 60 days, the securities
were included on any FIRMCO model portfolio or purchase list. All
other short-term profits realized require the approval of the
Compliance Officer before the transaction that triggers the short-term
gain is executed. Any profits realized in violation of this policy
should be disgorged, as discussed in Section XII.(B).
F. Short Sales. No employee may short sell any security.
V. Pre-clearance for Personal Security Transactions
A. General Pre-clearance Provisions. All employees must obtain advance
written clearance using the form provided in Exhibit C from the
President, Vice President of Operations or Compliance Officer for
every purchase, sale or gift of any security in which he or she has or
thereby acquires a direct or indirect beneficial ownership interest in
a personal account. Exhibit C may be obtained on the Lotus Notes
Policy Database.
B. Pre-clearance exemptions. Advance clearance is not required for:
1. Exempt securities;
2. Exempt transactions;
3. Stock in closely held corporations, service corporations,
professional corporations, units in a LLC, partnership interests,
or similar family businesses;
4. Securities purchased through a matching program of an
employer-sponsored retirement plan by any member of the person's
immediate family sharing the same household;
5. Stock in highly leveraged institutions ("hedge funds");
6. Securities whose performance are directly tied to an index (for
example, SPDRS); and
7. Gifts received and employer sponsored stock purchase programs
described below (Sections V(F)(3) and (4)).
C. Factors Considered. Generally the following factors will be considered
in determining whether or not to clear a proposed transaction:
1. Whether the amount or nature of the transaction is likely to
affect the price or market for the security;
2. Whether the individual proposing the purchase or sale is likely
to benefit from purchases or sales being made or being considered
by FIRMCO for any of its clients;
3. Whether the transaction is likely to harm any FIRMCO client.
D. S&P 500 Securities. Advance clearance will generally be provided for
purchases or sales of securities issued by any company included in the
Standard and Poor's 500 Stock Index and in an amount of 500 or fewer
shares each day (considered to be a de minimis trade) as long as (1)
the nature of the transaction is unlikely to affect the price or
market for the security; (2) the individual proposing the purchase or
sale is unlikely to benefit from purchases or sales being made or
considered by FIRMCO for any of its clients; and (3) the transaction
is unlikely to harm any FIRMCO client.
E. Approval Window. Once approved, a trade authorization is effective for
the remainder of the trading day. Failing to execute the transaction
will void the pre-clearance approval, and a new request for
pre-clearance must be submitted. Gifts of shares of personal
securities are provided three business days to direct the gift.
F. Other Pre-clearance Considerations.
1. Denied Authorization. Advance clearance of a personal transaction
may be refused without specifying any reason for the refusal.
2. Gifted Securities. It is generally understood that the physical
transfer of gifted shares may occur several days after the
employee directs the broker to transfer the shares, for reasons
beyond the employee's control. Therefore, the employee must
direct his/her broker to transfer the shares within the three-day
trading window provided by the clearance. The employee should
then monitor the physical transfer of the security to ensure that
it occurs in a timely manner, and the employee shall notify the
Compliance Officer of the specific date of transfer if the actual
physical transfer occurs outside of the approved trading window.
3. Gifts Received. Gifts received in a personal account do not
require advance clearance. However, the employee should disclose
the receipt of such gift to the Compliance Officer in connection
with the quarterly reporting requirements, as discussed in
Section VI.
4. Employer Sponsored Stock Purchase Programs. Members of an
employee's immediate family sharing the same household may
participate in employer sponsored individual security purchase
programs, either through an employer sponsored retirement account
or through a taxable program. Such transactions do not require
pre-clearance. However, the employee is required to notify the
Compliance Officer prior to initial enrollment in such a program
and to report purchases in the individual security in connection
with the quarterly reporting requirements, as discussed in
Section VI. In reporting information related to participation in
such programs, the employee may hide any information on the
account statement that does not relate to the individual
security.
VI. Reporting Requirements
A. Quarterly Transaction Reports. Within ten calendar days after the end
of each calendar quarter, each employee shall make a written report to
the Compliance Officer of all transactions (including those which
received advance clearance) occurring in the quarter by which they
acquired or disposed of a beneficial ownership interest in any
security. Employees are not required to report transactions for exempt
securities. The report must contain the following information with
respect to each reportable transaction:
1. Date and nature of transaction (i.e. purchase, sale, gift or
other acquisition or disposition);
2. Title, the interest rate and maturity date (if applicable), the
number of shares and the principal amount of the security
involved;
3. Price at which it was effected;
4. Name of the broker, dealer or bank with or through whom the
transaction was effected; and
5. Date of the report.
The report also must contain the following information with respect to
any account established by the employee in which any non-exempt
securities were held during the quarter for the direct or indirect
benefit of the employee:
1. Name of the broker, dealer or bank with whom the employee
established the account;
2. Date the account was established; and
3. Date of the report.
The report must be filed by all employees even if no reportable
transactions were made during the quarter. The report may be on the
form attached hereto as Exhibit A and may consist of broker statements
that provide at least the same information.
B. Annual Holdings Reports. Within 30 calendar days after the end of each
calendar year, each employee shall make a written report to the
Compliance Officer of all security holdings in which he or she has a
direct or indirect beneficial ownership interest. Employees are not
required to report holdings of exempt securities. The report must
contain the following information:
1. Title, number of shares and principal amount of each covered
security in which the employee had any direct or indirect
beneficial ownership interest;
2. Name of any broker, dealer or bank with whom the employee
maintains an account in which any securities are held for the
direct or indirect benefit of the employee; and
3. Date of the report.
The report may be on the form attached hereto as Exhibit B.
C. Initial Holdings Reports. Within ten calendar days after commencement
of employment with FIRMCO, each new employee shall make a written
report to the Compliance Officer of all security holdings in which he
or she has a direct or indirect beneficial ownership interest. New
employees are not required to report holdings of exempt securities.
The report must contain the following information:
1. Title, number of shares and principal amount of each covered
security in which the new employee had any direct or indirect
beneficial ownership interest when the person became an employee;
2. Name of any broker, dealer or bank with whom the new employee
maintained an account in which any securities were held for the
direct or indirect benefit of the new employee as of the date the
person became an employee; and
3. Date of the report.
The report may be on the form attached hereto as Exhibit B (New
Employee Version).
D. Brokerage Accounts. All employees are required to direct their
broker/dealer(s) to supply the Compliance Officer with duplicate
copies of all trade confirmations and periodic statements for every
account in which he or she has a direct or indirect beneficial
ownership interest and in which non-exempt securities are held.
E. Certification of Compliance. Each employee is required to reconfirm
adherence to this Code of Ethics on an annual basis within thirty days
following year-end (refer to Exhibit B).
VII. Material Inside Information
A. Insider Trading. No employee may purchase or sell shares of any
security, either personally or on behalf of others (including private
accounts managed by the employee), while in possession of material,
nonpublic information about the security, or communicate material,
nonpublic information to others in violation of the law. This conduct
is frequently referred to as "insider trading."
B. Identifying Material Inside Information. If you are unsure whether you
are in possession of material inside information, ask yourself the
following questions:
1. Is the information material?
2. Is this information an investor would consider important in
making his or her investment decisions?
3. Is this information that could reasonably affect the market price
of the securities if generally disclosed?
4. Is the information non-public?
5. To whom has this information been provided?
6. Has the information effectively been communicated to the
marketplace? (For example, published in Reuters, The Wall Street
Journal or other publications of general circulation?)
C. Procedures. If upon consideration of the above you believe the
information may be material and non-public, you should promptly report
it to the President, Vice President of Operations or Compliance
Officer. Upon determination by one or all of them that the information
is material inside information, the following actions, as deemed
necessary, will promptly be taken:
1. Halt all trading in the security or securities of the pertinent
issuer and all recommendations thereof;
2. Ascertain the validity and nonpublic nature of the information
with the issuer of the securities;
3. Request the issuer or other appropriate parties to disseminate
the information promptly to the public if the information is
valid and nonpublic;
4. In the event the information is not publicly disseminated and is
of a significant nature, notify legal counsel and request advice
as to what further steps should be taken before transactions or
recommendations in the securities are resumed.
D. Restricted List. The security will be added to the firm's
Restricted List, a listing of those securities about which FIRMCO
has material, nonpublic information. FIRMCO employees are
restricted from trading or recommending any security included on
the Restricted List. The list is maintained by the Compliance
Officer and access to the list is restricted to those individuals
required to review the list, at the discretion of the Compliance
Officer. Those individuals may include, but are not limited to
the President, Vice President of Operations, Director of Equity
Research and Equity Traders.
VIII. Service on Public Company Boards
FIRMCO employees must obtain the prior approval of the President to serve as a
director on the board of a publicly traded company. A determination by the
President that the board service would be consistent with the interests of the
firm and its clients should be noted in the approval. In any instance in which
board service is authorized, employees serving as directors must not participate
in making investment decisions regarding the purchase or sale of that company's
securities in FIRMCO managed accounts. In addition, the employee should make
appropriate disclosures on their conflict acknowledgment forms annually
thereafter.
IX. Gifts
All employees are prohibited from receiving moneys in any form (other than their
FIRMCO compensation package) or receiving gifts, gratuities, hospitalities or
other things of more than $100 in face or retail value annually from any person
or entity that does business with or on behalf of FIRMCO or any of its clients.
Such prohibition shall not apply to seasonal gifts made generally available to
all employees at FIRMCO's offices or to meals and/or entertainment provided in
the ordinary course of business and consistent in cost with FIRMCO's standards
for employee expenditures.
X. External Communication
Employees should not communicate information about Firstar Corporation to
outside entities. All questions or comments regarding Firstar should be directed
to the Chief Financial Officer of Firstar Corporation. All Firstar specific
press inquiries should be directed to Firstar's Head of Public Relations. All
FIRMCO specific press inquiries should be directed to FIRMCO's President or an
officer designated by her/him.
XI. Confidentiality of Client Transactions
All information concerning securities being considered for purchase or sale by
FIRMCO for any of its clients shall be kept confidential by all employees. It
shall be the responsibility of the Compliance Officer to report any inadequacy
found to FIRMCO's Board of Managers.
XII. Sanctions for Violation of the Code
A. Personal Trading Violations. Upon discovering a violation of the Code,
FIRMCO's President and/or Board of Managers may impose such sanctions as
deemed appropriate, including a verbal or written warning, letter of
censure, suspension or termination of employment of the violator.
B. Disgorgement. If a security is purchased in violation of FIRMCO's Code,
the Compliance Officer may, upon review of the facts and circumstances
surrounding the violation, require the employee to "break the trade" or
reverse the transaction immediately, regardless of whether a profit or loss
occurs from the transaction. The employee must disgorge any profits and
assume any losses, even if the transaction was done innocently and
discovered afterward.
Any moneys accrued in the event of a personal trading violation shall not
benefit the employee or FIRMCO. Employees are required to remit the
disgorged profits to FIRMCO within five days of the reversing transaction
(calculating their personal capital gain resulting from the reversal, and
retaining the amount to pay the tax due on the gain.). A net payment in the
form of a cashier's check made payable to a charity of the employee's
choice should be given to FIRMCO for mailing. However, should FIRMCO
managed accounts incur a loss as a result of the personal trade, then full
disgorgement regardless of taxes due must be made to the accounts.
C. Insider Trading Violations. Trading securities while in possession of
material, nonpublic information or improperly communicating that
information to others may expose violators to stringent penalties. Criminal
sanctions may include a fine of up to $1,000,000 and/or ten years
imprisonment. The SEC can recover the profits gained or losses avoided
through the violative trading, impose a penalty of up to three times the
illicit windfall, and issue an order permanently barring the person or
persons from the securities industry. Finally, the violator may be sued by
investors seeking to recover damages for insider trading violations. In
addition to the foregoing, any violation of FIRMCO's policies with respect
to insider trading can be expected to result in serious sanctions by FIRMCO
as set forth in Section A above, including dismissal of the person or
persons involved.
XIII. Approved Exceptions to the Code
Exceptions to the Code may be extended in rare circumstances with the
approval of one of the following: Compliance Officer, Vice President of
Operations, or the President. Exceptions will only be granted in
circumstances where strict adherence to the Code results in unfavorable
treatment to any FIRMCO client or inequitable or unfair treatment to an
employee with no harm to a FIRMCO client. In no circumstances shall an
exception be granted which is likely to harm any FIRMCO client. All
approved exceptions will be reported to the Board of Managers in a timely
manner.
XIV. Required Board Reporting
All violations of the Code of Ethics shall be reported to the Board of
Managers in a timely manner with a summary of corrective action taken. If
no corrective action is deemed necessary, the report shall state the reason
for no such action. The Compliance Officer shall report any other
transaction deemed necessary for Board review.
XV. Required Records
The Compliance Officer shall maintain and review the required records to
evidence compliance with this Code.
Approved by FIRMCO's Board of Directors, June 1994
Amended by FIRMCO's Board of Managers, February 2000
Exhibit A
FIRSTAR INVESTMENT RESEARCH &
MANAGEMENT COMPANY, LLC
SECURITY TRANSACTION REPORT
FOR THE QUARTER ENDED
The following lists all transactions in securities in which I had any direct or
indirect beneficial ownership interest during the last calendar quarter. (If no
transactions took place, write "none reportable.") Copies of quarterly brokerage
statements are acceptable forms of reporting. Please write "see attached" and
attach a copy of brokerage statement(s) which accurately reports securities
transactions. I have excluded all transactions in Exempt Securities as defined
within the FIRMCO Code of Ethics. This report has been signed, dated and
returned to the Compliance Officer no later than 10 days after the calendar
quarter end.
<TABLE>
<CAPTION>
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
Purchase, Title of Security Principal Broker, Dealer or
Date Sale, Other and Number of Shares Amount Price Bank
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
<S> <C> <C> <C> <C> <C>
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
</TABLE>
Of the transactions identified above, if any, I have listed below the
transactions in securities that I have purchased/sold or considered
purchasing/selling in a FIRMCO managed account. If no such transactions
took place, write "none reportable."
<TABLE>
<CAPTION>
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
Purchase, Title of Security Principal Broker, Dealer or
Date Sale, Other and Number of Shares Amount Price Bank
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
<S> <C> <C> <C> <C> <C>
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
- ---------------- ------------------ ---------------------- -------------- -------------- ------------------------
</TABLE>
All employees are required to direct their broker/dealer(s) to supply the
Compliance Officer with duplicate copies of all trade confirmations and periodic
statements for every account in which he or she has a direct or indirect
beneficial ownership interest and in which non-exempt securities are held. I
have identified below any account opened during the last calendar quarter which
requires reporting under the Code.
Name of Broker, Dealer or Bank Account Number Date Established
Signature_________________________
Name______________________________
Date______________________________
Exhibit B
FIRSTAR INVESTMENT RESEARCH &
MANAGEMENT COMPANY, LLC
ANNUAL REPORTING
FOR THE YEAR ENDED ______
Section 1: Confirmation of Compliance
I have received a copy of the FIRMCO Code of Ethics as amended by the Board of
Managers in February 2000. I agree to comply with my responsibilities as
described within such Code.
Section 2: Report of Security Holdings
The following lists all security holdings in which I have a direct or indirect
beneficial ownership interest as of the date indicated below. Copies of year-end
brokerage statements are acceptable forms of reporting.
I have excluded any holdings of Firstar Corporation stock, open-end mutual
funds, common trust funds, U.S. Treasury obligations, and other securities
defined as exempt within the Code of Ethics. (If I hold no reportable holdings I
have written "none reportable".)
Number Principal Broker, Dealer
Title of Security of Shares Amount or Bank
Section 3: Brokerage Statements and Confirmations
FIRMCO's Code of Ethics requires all employees to direct their broker/dealer or
bank to supply the Compliance Officer with duplicate copies of all trade
confirmations and periodic statements for every account in which he or she has
or had a direct or indirect beneficial ownership interest.
FIRMCO currently receives duplicate statements and corresponding trade
confirmations for the following accounts:
In compliance with FIRMCO's Code of Ethics, the above listing of accounts is
accurate with the exceptions, if any, listed below. Accounts that solely hold
exempt securities as defined within the Code of Ethics may be excluded.
This report has been signed, dated and returned to the Compliance Officer no
later than 30 days after the calendar year end.
Signature_________________________
Name______________________________
Date______________________________
FIRSTAR INVESTMENT RESEARCH &
MANAGEMENT COMPANY, LLC
ANNUAL REPORTING
(NEW EMPLOYEE VERSION)
Section 1: Confirmation of Compliance
I have received a copy of the FIRMCO Code of Ethics as amended by the Board of
Managers in February 2000. I agree to comply with my responsibilities as
described within such Code.
Section 2: Report of Security Holdings
The following lists all security holdings in which I have a direct or indirect
beneficial ownership interest as of the date indicated below. Copies of
brokerage statements are acceptable forms of reporting.
I have excluded any holdings of Firstar Corporation stock, open-end mutual
funds, common trust funds, U.S. Treasury obligations, and other securities
defined as exempt within the Code of Ethics. (If I hold no reportable holdings I
have written "none reportable".)
Number Principal Broker, Dealer
Title of Security of Shares Amount or Bank
Section 3: Brokerage Statements and Confirmations
FIRMCO's Code of Ethics requires all employees to direct their broker/dealer or
bank to supply the Compliance Officer with duplicate copies of all trade
confirmations and periodic statements for every account in which he or she has
or had a direct or indirect beneficial ownership interest.
The following lists the accounts for which I have directed my broker/dealer(s)
to provide FIRMCO with duplicate statements and corresponding trade
confirmations. Accounts which solely hold exempt securities as defined within
the Code of Ethics may be excluded.
This report has been signed, dated and returned to the Compliance Officer no
later than 10 days after my start date with FIRMCO.
Signature_________________________
Name______________________________
Date______________________________
Exhibit C
Firstar Investment Research & Management Company, LLC
Personal Securities Transaction Pre-Clearance Form
Employee Name:
<TABLE>
<CAPTION>
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
Purchase/ Approximate Broker/Dealer
Sale/Other Security Quantity Price Bank
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
- ------------------- ---------------------------------------- --------------- ------------------ ----------------------
o Being traded by: ( ) Self ( ) Spouse ( ) Child ( ) Other - Please describe
o I have research responsibility over this security: ( ) Yes ( ) No ( ) N/A
o This transaction triggers a short-term profit, as defined within the Code: ( ) Yes ( ) No
o Security has been purchased by me in FIRMCO managed accounts within the last 6 months:
( ) Yes ( ) No ( ) N/A
To the best of my knowledge, this proposed transaction does not violate the provisions of the FIRMCO Code of
Ethics.
Time and Date
Employee Signature: Requested:
- -------------------------------------------------------------------------------------------------------------------
FOR COMPLIANCE USE ONLY
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
S&P 500 security: ( ) Yes ( ) No Security held in lead accounts: ( ) Yes ( ) No
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Security traded in managed accounts of the employee within last 7 business days: ( ) Yes ( ) No
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------------------------------------------
Contact in Trading:
- -------------------------------------------------------------------------------------------------------------------
Contact in Portfolio Management/Research, if necessary:
- -------------------------------------------------------------------------------------------------------------------
Pending Trades: ( ) Yes ( ) No Trades executed within the day: ( ) Yes ( ) No
- -------------------------------------------------------------------------------------------------------------------
Compliance Completed/Checked By:
- -------------------------------------------------------------------------------------------------------------------
NOTIFICATION OF APPROVAL OR DENIAL
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Date: Time Responded:
- -------------------------------------------------------------------------------------------------------------------
Approved: Denied: Approved Trading Window:
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Comments:
- -------------------------------------------------------------------------------------------------------------------
Authorized/Denied By:
</TABLE>
