As filed with the Seecurities and Exchange Commission on
February 14, 1997
Securities Act File No. 33-27352
Investment Company Act File No. 811-5780
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 16 X
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 X
Amendment No. 19
ENDEAVOR SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
2101 East Coast Highway, Suite 300
Corona del Mar, California 92625
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Are Code: (800) 854-8393
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James R. McInnis
-------------------------
President
Endeavor Series Trust
2101 East Coast Highway, Suite 300, Corona del Mar, California 92625
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(Name and Address of Agent for Service)
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Copies to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP
1025 Connecticut Avenue, N.W. Washington, D.C. 20036
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It is proposed that this filing will become effective:
<PAGE>
immediately upon filing pursuant to paragraph (b) on ____________
pursuant to paragraph (b) 60 days after filing pursuant to paragraph
(a)(1) on ____________ pursuant to paragraph (a)(1)
X 75 days after filing pursuant to paragraph (a)(2) on pursuant to
paragraph (a)(2) of Rule 485 This post-effective amendment designates a
new effective date for a previously filed post-effective amendment.
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The Registrant has previously filed a declaration of indefinite registration
of shares of beneficial interest of its TCW Money Market Portfolio (formerly,
Money Market Portfolio), TCW Managed Asset Allocation Portfolio (formerly,
Managed Asset Allocation Portfolio), T. Rowe Price International Stock
Portfolio (formerly, Global Growth Portfolio), Value Equity Portfolio
(formerly, Quest for Value Equity Portfolio), Value Small Cap Portfolio
(formerly, Quest for Value Small Cap Portfolio), Dreyfus U.S. Govern
Securities Portfolio (formerly, U.S. Government Securities Portfolio), T. Rowe
Price Equity Income Portfolio, T. Rowe Price Growth Stock Portfolio,
Opportunity Value Portfolio and Enhanced Index Portfolio pursuant to Rule
24f-2 under the Investment Company Act of 1940, as amended, (the "1940 Act").
Registrant's Rule 24f-2 Notice, on behalf of its TCW Money Market Portfolio,
TCW Managed Asset Allocation Portfolio, T. Rowe Price International Stock
Portfolio, Value Equity Portfolio, Value Small Cap Portfolio, Dreyfus U.S.
Government Securities Portfolio, T. Rowe Price Equity Income Portfolio, T.
Rowe Price Growth Stock Portfolio, Opportunity Value Portfolio and Enhanced
Index Portfolio for the fiscal year ended December 31, 1996 is expected to be
filed on or about February 28, 1996.
<PAGE>
ENDEAVOR SERIES TRUST
Cross Reference Sheet
Pursuant to Rule 495(a)
Part A
Item Registration Statement
No. Caption Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial
Information Financial Highlights
4. General Description
of Registrant Cover Page; The Fund;
Investment Objectives and
Policies
5. Management of the Fund The Fund; Management of
the Fund; Additional
Information
5A. Management's Discussion
of Fund Performance Not Applicable
6. Capital Stock and Other
Securities The Fund; Dividends,
Distributions and Taxes;
Organization and
Capitalization of the
Fund; Additional
Information
7. Purchase of Securities
Being Offered Sale and Redemption of
Shares
8. Redemption or Repurchase Sale and Redemption of
Shares
9. Pending Legal Proceedings Not Applicable
PART B
Item Registration Statement Caption in Statement
No. Caption of Additional Information
<PAGE>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and
History Organization and
Capitalization of the Fund
13. Investment Objectives and
Policies Investment Objectives and
Policies
14. Management of the Fund Management of the Fund
15. Control Persons and
Principal Holders of
Securities Management of the Fund
16. Investment Advisory and
Other Services Management of the Fund
17. Brokerage Allocation and
Other Practices Portfolio Transactions
18. Capital Stock and Other
Securities Organization and
Capitalization of the Fund
19. Purchase, Redemption and
Pricing of Securities
Being Offered Net Asset Value;
Redemption of Shares
20. Tax Status Taxes
21. Underwriters Management of the Fund
22. Calculation of
Performance Data Performance Information
23. Financial Statements Financial Statements
PART C
The information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C to this Post-Effective Amendment.
<PAGE>
Prospectus
ENDEAVOR SERIES TRUST
Endeavor Series Trust (the "Fund") is a diversified, open-end management
investment company, that offers a selection of managed investment portfolios,
each with its own investment objective designed to meet different investment
goals. There can be no assurance that these investment objectives will be
achieved.
This Prospectus describes the following ten portfolios currently offered
by the Fund (the "Portfolios").
* TCW Money Market Portfolio
* TCW Managed Asset Allocation Portfolio
* T. Rowe Price International Stock Portfolio
* Value Equity Portfolio
* Dreyfus Small Cap Valluue Portfolio
* Dreyfus U.S. Government Securities Portfolio
* T. Rowe Price Equity Income Portfolio
* T. Rowe Price Growth Stock Portfolio
* Opportunity Value Portfolio
* Enhanced Index Portfolio
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus sets forth concisely the information about the Fund and the
Portfolios that a prospective investor should know before investing. Please
read the Prospectus and retain it for future reference. Additional information
contained in a Statement of Additional Information also dated May 1, 1997 has
been filed with the Securities and Exchange Commission and is available upon
request without charge by writing or calling the Fund at the address or
telephone number set forth on the back cover of this Prospectus. The Statement
of Additional Information is incorporated by reference into this Prospectus.
The date of this Prospectus is May 1, 1997.
<PAGE>
THE FUND
Endeavor Series Trust is a diversified, open-end management investment
company that offers a selection of managed investment portfolios. Each
portfolio constitutes a separate mutual fund with its own investment objective
and policies. The Fund currently issues shares of ten portfolios. The Trustees
of the Fund may establish additional portfolios at any time.
Shares of the Portfolios are issued and redeemed at their net asset value
without a sales load and currently are offered only to various separate
accounts of PFL Life Insurance Company and certain of its affiliates ("PFL")
to fund various insurance contracts, including variable life insurance
policies (whether scheduled premium, flexible premium or single premium
policies) or variable annuity contracts. These insurance contracts are
hereinafter referred to as the "Contracts." The rights of PFL as the record
holder for a separate account of shares of the Portfolios are different from
the rights of the owner of a Contract. The terms "shareholder" or
"shareholders" in this Prospectus refer to PFL and not to any Contract owner.
The structure of the Fund permits Contract owners, within the limitations
described in the appropriate Contract, to allocate the amounts held by PFL
under the Contracts for investment in the various portfolios of the Fund. See
the prospectus and other material accompanying this Prospectus for a
description of the Contracts, which portfolios of the Fund are available to
Contract owners, and the relationship between increases or decreases in the
net asset value of shares of the portfolios (and any dividends and
distributions on such shares) and the benefits provided under the Contracts.
It is conceivable that in the future it may be disadvantageous for
scheduled premium variable life insurance separate accounts, flexible and
single premium variable life insurance separate accounts, and variable annuity
separate accounts to invest simultaneously in the Fund due to tax or other
considerations. The Trustees of the Fund intend to monitor events for the
existence of any irreconcilable material conflict between or among such
accounts, and PFL will take whatever remedial action may be necessary.
Investment Objectives
The Investment objectives of the Portfolios are as follows:
TCW Money Market Portfolio (formerly, Money Market Portfolio) - seeks
current income, preservation of capital and maintenance of liquidity through
investment in short-term money market securities. The Portfolio's shares are
neither insured by nor guaranteed by the U.S. government. The Portfolio seeks
to maintain a constant net asset value of
<PAGE>
$1.00 per share although no assurances can be given that such constant net
asset value will be maintained.
TCW Managed Asset Allocation Portfolio (formerly, Managed Asset
Allocation Portfolio) - seeks high total return through a managed asset
allocation portfolio of equity, fixed income and money market securities.
T. Rowe Price International Stock Portfolio - seeks
long-term growth of capital through investments primarily in
common stocks of established non-U.S. companies.
Value Equity Portfolio (formerly, Quest for Value Equity Portfolio) -
seeks long term capital appreciation through investment in a diversified
portfolio of equity securities selected on the basis of a value oriented
approach to investing.
Dreyfus Small Cap Value Portfolio (formerly known as the Value Small Cap
Portfolio and prior to that the Quest for Value Small Cap Portfolio) - seeks
capital appreciation through investment in a diversified portfolio of equity
securities of companies with a median market capitalization of approximately
$750 million, provided that under normal market conditions at least 75% of the
Portfolio's investments will be in equity securities of companies with
capitalizations at the time of purchase between $150 million and $1.5 billion.
Dreyfus U.S. Government Securities Portfolio (formerly, U.S. Government
Securities Portfolio) - seeks as high a level of total return as is consistent
with prudent investment strategies by investing under normal conditions at
least 65% of its assets in U.S. government debt obligations and
mortgage-backed securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
T. Rowe Price Equity Income Portfolio - seeks to provide substantial
dividend income and also capital appreciation by investing primarily in
dividend-paying common stocks of established companies.
T. Rowe Price Growth Stock Portfolio - seeks long-term growth of capital
and to increase dividend income through investment primarily in common stocks
of well-established growth companies.
Opportunity Value Portfolio - seeks growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages which will vary based upon the Portfolio
Adviser's assessment of relative values.
Enhanced Index Portfolio - seeks to earn a total return modestly in
excess of the total return performance of the S&P 500 Composite Stock Price
Index (the "S&P 500 Index") while maintaining a volatility of return similar
to the S&P 500
Index.
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables are based on a Portfolio share outstanding
throughout each period and should be read in conjunction with the financial
statements and related that also appear in the Fund's Annual Report dated
December 31, 1996 which is incorporated by reference into the Statement of
Additional Information. The financial statements contained in the Fund's
Annual Report have been audited by Ernst & Young LLP, independent auditors,
whose report appears in the Annual Report. Additional information concerning
the performance of the Fund is included in the Annual Report which may be
obtained without charge by writing the Fund at the address on the back cover
of this Prospectus.
<PAGE>
TCW MONEY MARKET PORTFOLIO*
Year Year Year
Ended Ended Ended
12/31/96 12/31/95 12/31/94
Operating
Performance:
Net asset
value,
beginning of
period $1.00 $1.00 $1.00
Net investment
income# 0.0479 0.0540 0.0337
Distributions:
Dividends frrom
net investment
incomee (00.0479) ((0.0540) (0.0336)
Distributions
from nneet
realized
capital gains --- ----- (0.0001)
Total
distributions (0.0479) (0.0540) (0.0337)
Net asset
value, end of
period $1.00 $1.00 $1.00
Total return++ 4.91% 5.54% 3.41%
Ratios to average net assets/supple- mental data:
Net assets,
end of period
(in 000's) $41,545 $27,551 $20,766
<PAGE>
Ratio of net
investment
income to
average net
assets 4.81% 5.37% 3.58%
Ratio of
operating
expenses to
average net
assets** 0.60% 0.60% 0.85%
======================
Year Year Period
Ended Ended Ended
12/31/93 12/31/92 12/31/91*
Operating
Performance:
Net asset
value,
beginning of
period $1.00 $1.00 $1.00
Net investment
income# 0.0218 0.0287 0.0377
Distributions:
Dividends from
net investment
income (0.0218) (0.0287) (0.0377)
Distributions
from net
realized
capital gains ----- ----- -----
Total
distributions (0.0218) (0.0287) (0.0377)
Net asset
value, end of
period $1.00 $1.00 $1.00
<PAGE>
Total return++ 2.19% 2.90% 3.84%
Ratios to average net assets/supple- mental data:
Net assets,
end of period
(in 000's) $12,836 $4,527 $1,907
Ratio of net
investment
income to
average net
assets 2.19% 2.84% 5.02%+
Ratio of
operating
expenses to
average net
assets** 0.99% 0.91% 0.00%+
------------------
* Effective May 1, 1996, the name of the Money Market Portfolio was changed
to TCW Money Market Portfolio. The Portfolio commenced operations on
April 8, 1991.
** Annualized operating expense ratios before waiver of fees and/or
reimbursement of expenses by investment manager for the years ended
December 31, 1993, December 31, 1992 and the period ended December 31,
1991 were 1.23%, 2.37% and 8.48%, respectively. + Annualized.
++ Total return represents the aggregate total return for the periods
indicated. The total return of the Portfolio does not reflect the charges
against the separate accounts of PFL or the Contracts.
# Net investment income/(loss) before fees waived and/or reimbursement of
expenses by investment manager for the years ended December 31, 1993,
December 31, 1992 and the period ended December 31, 1991 were $0.0195,
$0.0140 and $(0.0259), respectively.
<PAGE>
TCW MANAGED ASSET ALLOCATION PORTFOLIO*
Year Year Year
Ended Ended Ended
12/31/96 12/31/95 12/31/94+++
Operating
Performance:
Net asset
value,
beginning of
period $16.28 $13.48 $14.30
Net investment
income# 0.27 0.33 0.28
Net realized
and unrealized
gain/(loss) on
investments 2.61 2.72 (1.03)
Net increase/
(decrease) in
net assets
from
investment
operations 2.88 3.05 (0.75)
Distributions:
Dividends from
net investment
income (0.32) (0.25) (0.07)
Net asset
value, end of
period $18.84 $16.28 $13.48
Total Return++ 17.82% 22.91% (5.28)%
<PAGE>
Ratios to
average net
assets/
supplemental
data:
Net assets,
end of period
(in 000's) $240,210 $198,876 $172,449
Ratio of net
investment
income to
average net
assets 1.59% 2.12% 2.03%
Ratio of
operating
expenses to
average net
assets** 0.85%% 0.84% 0.90%
Portfolio
turnover rate 58% 93% 67%
Average
commission rate (per
share of
security) (a) $0.0041 --- ---
====================================
Year Year Period
Ended Ended Ended
12/31/93+++ 12/31/92+++ 12/31/91*
Operating
Performance:
Net asset
value,
beginning of
period $12.31 $11.37 $10.00
Net investment
income# 0.23 0.24 0.10
<PAGE>
Net realized
and unrealized
gain/(loss) on
investments 1.84 0.77 1.27
Net increase/
(decrease) in
net assets
from
investment
operations 2.07 1.01 1.37
Dividends from
net investment
income (0.08) (0.07) ---
Net asset
value, end of
period $14.30 $12.31 $11.37
Total Return++ 16.79% 9.01% 13.70%
Ratios to
average net
assets/
supplemental
data:
Net assets,
end of period
(in 000's) $96,657 $14,055 $4,247
Ratio of net
investment
income to
average net
assets 1.71% 2.11% 4.54%+
Ratio of
operating
expenses to
average net
assets** 1.12% 1.18% 0.00%+
Portfolio
turnover rate 67% 50% 61%
<PAGE>
Average
commission
rate (per
share of
security) (a) --- --- ---
---------------
* Effective May 1, 1996, the name of the Managed Asset Allocation Portfolio
was changed to TCW Managed Asset Allocation Portfolio. The Portfolio
commenced operations on April 8, 1991.
** Annualized operating expense ratios before waiver of fees and/or
reimbursement of expenses by investment manager for the year ended
December 31, 1992 and the period ended December 31, 1991 were 1.73% and
5.18%, respectively.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
The total return of the Portfolio does not reflect the charges against
the separate accounts of PFL or the Contracts.
+++ Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for this
period since use of the undistributed method does not accord with results
of operations.
# Net investment income/(loss) before fees waived and/or reimbursement of
expenses by investment manager for the year ended December 31, 1992 and
the period ended December 31, 1991 were $0.18 and $(0.01), respectively.
(a) Average commission rate paid per share of securities
purchased and sold by the Portfolio.
<PAGE>
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO*
Year Year Year
Ended Ended Ended
12/31/96+++ 12/31/95## 12/31/94
Operating
Performance:
Net asset value,
beginning of
period $12.19 $11.31 $11.99
Net investment
income/(loss)# 0.09 0.09 (0.02)
Net realized and
unrealized
gain/(loss) on
invesstments 1.76 1.06 (0.66))
Net increase/
(decrease) in
net assets from
investment
operations 1.85 1.15 (0.68)
Dissttributions:
Dividends from
net investment
income (0.09) --- ---
Distributions
from net
realized gains (0.00)*** (0.27) ---
Total
Distributions (0.09) (0.27) ---
Net asset value,
end of period $13.95 $12.19 $11.31
Total return++ 15.23% 10.37% (5.67)%
<PAGE>
Ratios to
average net
assets/
supplemental
data:
Net assets, end
of period (in
000's) $134,435 $92,352 $84,102
Ratio of net
investment
income/(loss) to
average net
assets 0.73% 0.81% (0.16%)
Ratio of
operating
expenses to
average net
assets** 1.18% 1.15% 1.16%
Portfolio
turnover rate 11% 111% 88%
Average
commission rate (per share of
security) (a) $0.0024 --- ---
===============================
Year Year Period
Ended Ended Ended
12/31/93+++ 12/31/92+++ 12/31/91*
Operating
Performance:
Net asset value,
beginning of
period $10.12 $10.52 $10.00
Net investment
income/(loss)# (0.04) 0.00*** 0.06
<PAGE>
Net realized and
unrealized
gain/(loss) on
investments 1.91 (0.38) 0.46
Net increase/
(decrease) in
net assets from
investment
operations 1.87 (0.38) 0.52
Distributions:
Dividends from
net investment
income --- (0.02) ---
Distributions
from net
realized gains --- --- ---
Total
Distributions --- (0.02) ---
Net asset value,
end of period $11.99 $10.12 $10.52
Total return++ 18.48% (3.61)% 5.20%
Ratios to
average net
assets/
supplemental
data:
Net assets, end
of period (in
000's) $52,777 $6,305 $3,200
Ratio of net
investment
income/(loss) to
average net
assets (0.31%) 0.01% 3.18%+
<PAGE>
Ratio of
operating
expenses to
average net
assets** 1.52% 1.43% 0.00%+
Portfolio
turnover rate 37% 34% 0%
Average
commission rate
(per share of
security) (a) --- --- ---
-----------------
* Effective March 24, 1995, the name of the Global Growth Portfolio was
changed to T. Rowe Price International Stock Portfolio and the investment
objective was changed from investment on a global basis to investment on
an international basis (i.e., in non-U.S. companies). The Portfolio
commenced operations on April 8, 1991.
** Annualized operating expense ratios before waiver of fees and/or
reimbursement of expenses by investment manager for the year ended
December 31, 1992 and the period ended December 31, 1991 were 2.10% and
6.83%, respectively.
*** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
The total return of the Portfolio does not reflect the charges against
the separate accounts of PFL or the Contracts.
+++ Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for this
period since use of the undistributed method does not accord with results
of operations.
# Net investment loss before fees waived and/or reimbursement of expenses
by investment manager for the year ended December 31, 1992 and the period
ended December 31, 1991 were $(0.07) and $(0.07), respectively.
## Rowe Price-Fleming International, Inc. became the
Portfolio's Adviser effective January 3, 1995.
(a) Average commission rate paid per share of securities
purchased and sold by the Portfolio.
<PAGE>
VALUE EQUITY PORTFOLIO*
Year Year Year Period
Ended Ended Ended Ended
12/31/96+++ 12/31/95 12/31/94 12/31/93*+++
Operating
Performance:
Net asset value,
beginning of
period $14.23 $10.69 $10.28 $10.00
Net investment
income# 0.20 0.15 0.09 0.05
Net realized and
unrealized gain
on investments 3.15 3.52 0.33 0.23
Net increase in
net assets from
investment
operations 3.35 3.67 0.42 0.28
Distributions:
Dividends from
net investment
income (0.13) (0.09) (0.01) ---
Distributions
from net
realized gains (0.24) (0.04) --- ---
Total
distributions (0.37) (0.13) (0.01) ---
Net asset value,
end of period $17.21 $14.23 $10.69 $10.28
Total return++ 23.84% 34.59% 4.09% 2.80%
<PAGE>
Ratios to
average net
assets/
supplemental
data:
Net assets, end
of period (in
000's) $127,927 $68,630 $32,776 $11,178
Ratio of net
investment
income to
average net
assets 1.29% 1.56% 1.31% 0.84%+
Ratio of
operating
expenses to
average net assets** 0.91% 0.86% 1.02% 1.30%+
Portfolio
turnover rate 27% 28% 56% 1%
Average
commission rate
(per share of
security)(a) $0.0569 --- --- ---
-----------------------
* Effective May 1, 1996, the name of the Quest for Value Equity Portfolio
was changed to Value Equity Portfolio. The Portfolio commenced operations
on May 27, 1993.
** Annualized expense ratio before waiver of fees by investment manager for
the period ended December 31, 1993 was 2.10%.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
The total return of the Portfolio does not reflect the charges against
the separate accounts of PFL or the Contracts.
+++ Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for this
period since use of the undistributed method did not accord with results
of operations.
# Net investment income before fees waived by investment manager for the
period ended December 31, 1993 was $0.00.
(a) Average commission rate paid per share of securities
purchased and sold by the Portfolio.
<PAGE>
DREYFUS SMALL CAP VALUE PORTFOLIO*
Year Year Year Year
Ended Ended Ended Ended
12/31/96+++## 12/31/95 12/31/94+++ 12/31/93*+++
Operating
Performance:
Net asset
value,
beginning of
period $12.22 $10.98 $11.18 $10.00
Net investment
income# 0.12 0.15 0.10 00.22
Net realized
and unrealizedd
gain/(loss) on
investments 2..995 1.36 (0.30) 0.96
Net increase/
(deccrease) in
net assets
from
invessttmentt
operations 3.07 1.51 (0.20) 1.18
Distributions:
Dividends from
net investment
income (0.14) (0.10) --- ---
Distributions
from net
realized gains (0.46) (0.17) --- ---
Total
distributions (0.60) (0.27) --- ---
Net asset
value, end of
period $14.69 $12.22 $10.98 $11.18
Total return++ 25.63% 14.05% (1.79)% 11.80%
<PAGE>
Ratios to
average net
assets/
supplemental
data:
Net assets,
end of period
(in 000's) $85,803 $52,597 $35,966 $12,699
Ratio of net
investment
income to
average net
assets 0.95% 1.56% 0.89% 3.98%+
Ratio of
operating
expenses to
average net
assets** 0.92% 0.87% 1.03% 1.30%+
Portfolio
turnover rate 171% 75% 77% 41%
Average
commission
rate (per
share of
security) (a) $0.0539 --- --- ---
-----------------------
* Effective October 29, 1996, the name of the Value Small Cap Portfolio was
changed to Dreyfus Small Cap Value Portfolio. On May 1, 1996, the name of
the Quest for Value Small Cap Portfolio was changed to Value Small Cap
Portfolio. The Portfolio commenced operations on May 4, 1993.
** Annualized operating expense ratio before waiver of fees by investment
manager for the period ended December 31, 1993 was 2.10%.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
The total return of the Portfolio does not reflect the charges against
the separate accounts of PFL or the Contracts.
+++ Per share amounts have been calculated using the monthly average share
method, which more appropriately presents
<PAGE>
the per share data for this period since use of the
undistributed method did not accord with results of
operations
# Net investment income before fees waived by investment manager for the
period ended December 31, 1993 was $0.18.
## The Dreyfus Corporation became the Portfolio's Adviser effective
September 16, 1996.
(a) Average commission rate paid per share of securities
purchased and sold by the Portfolio.
<PAGE>
DREYFUS U.S. GOVERNMENT SECURITIES PORTFOLIO*
Year Year Period
Ended Ended Ended
12/31/96+++ 12/31/95 12/31/94*+++
Operating performance:
Net asset value,
beginning of period $11.39 $9.96 $10.00
Net investment income# 0.62 0.30 0.24
Net realized and
unrealized gain/(loss)
on investments (0.44) 1.25 (0.28)
Net increase/(decrease)
in net assets resulting
from investment
operations 0.18 1.55 (0.04)
Distributions:
Dividends from net
investment income (0.22) (0.12) ---
Distributions from net
realized gains (0.12) --- ---
Total distributions (0.34) 0.12) ---
Net asset value, end of
period $11.23 $11.39 $9.96
Total return++ 1.81% 15.64% (0.40)%
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $24,727 $12,718 $3,505
Ratio of net investment
income to average net
assets 5.68% 5.58% 4.14%+
Ratio of operating
expenses to average net
assets** 0.82% 0.84% 0.78%+
Portfolio turnover rate 222% 161% 100%
------------------------
* Effective May 1, 1996, the name of the U.S. Government
Securities Portfolio was changed to Dreyfus U.S.
Government Securities Portfolio. The Portfolio commenced
operations on May 13, 1994.
** Annualized operating expense ratio before waiver of fees and
reimbursement of expenses by investment manager for the period ended
December 31, 1994 was 1.83%.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
The total return of the Portfolio does not reflect the charges against
the separate accounts of PFL or the Contracts.
+++ Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for this
period since use of the undistributed method did not accord with results
of operations.
# Net investment income before fees waived and reimbursement of expenses by
investment manager for the period ended December 31, 1994 was $0.18.
<PAGE>
T. ROWE PRICE EQUITY INCOME PORTFOLIO
Year Year
Ended Ended
12/31/96+++ 12/31/95*+++
Operating performance:
Net asset value,
beginning of year $13.05 $10.00
Net investment income 0.41 0.34
Net realized and
unrealized gain on
investments 2.17 2.71
Net increase in net
assets resulting from
investment operations 2.58 3.05
Distributions:
Dividends from net
investment income (0.10) ---
Distribution from net
realized gains (0.04) ---
Total distributions ---
Net asset value, end
of year $15.49 $13.05
Total return++ 19.88% 30.50%
Ratios to average net
assets/supplemental
data:
Net assets, end of
year (in 000's) $78,251 $21,910
<PAGE>
Ratio of net
investment income to
average net assets 2.89% 3.24%+
Ratio of operating
expenses to average
net assets 0.96% 1.15%+
Portfolio turnover
rate 19% 16%
Average commission
rate (per share of
security) (a) $0.0396 ---
--------------------------
* The Portfolio commenced operations on January 3, 1995.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
The total return of the Portfolio does not reflect the charges against
the separate accounts of PFL or the Contracts.
+++ Per share amounts have been calculated using the monthly average share
method which more appropriately presents the per share data for the
period since use of the undistributed method did not accord with results
of operations.
(a) Average commission rate paid per share of securities
purchased and sold by the Portfolio.
<PAGE>
T. ROWE PRICE GROWTH STOCK PORTFOLIO
Year Year
Ended Ended
12/31/96+++ 12/31/95*+++
Operating performance:
Net asset value,
beginning of year $13.72 $$10.00
Net investment income 0.11 0.08
Net realized and
unrealized gain on
investments 2.71 3.64
Net increase in net
assets reesulting from
investment operations 2.82 3.72
Distributions:
Dividends from net
investment income (0.01) ---
Distributions from net
realized gains (0.24) ---
Total distributions (0.25) ---
Net asset value, end
of year $16.29 $13.72
Total return++ 20.77% 37.20%
Ratios to average net
assets/supplemental
data:
Net assets, end of
year (in 000's) $59,732 $21,651
<PAGE>
Ratio of net investment income to
average net assets 0.75% 0.69%+
Ratio of operating
expenses to average
net assets 1.01% 1.26%+
Portfolio turnover 44% 64%
rate
Average commission
rate (per share of
security) (a) $0.0385 ---
--------------------
* The Portfolio commenced operations on January 3, 1995.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated.
The total return of the Portfolio does not reflect the charges against
the separate accounts of PFL or the Contracts.
+++ Per share amounts have been calculated using the monthly average share
method which more appropriately presents the per share data for the
period since use of the undistributed method did not accord with results
of operations
(a) Average commission rate paid per share of securities
purchased and sold by the Portfolio.
<PAGE>
OPPORTUNITY VALUE PORTFOLIO
Period
Ended
12/31/96*
Operating performance:
Net asset value,
beginning of year $10.00
Net investment loss# 0.00##
Net realized and
unrealized gain on
investments 0.06
Net increase in net
assets resulting from
investment operations 0.06
Net asset value, end
of year $10.06
Total return++ 0.60%
Ratios to average net
assets/supplemental
data:
Net assets, end of
year (in 000's) $701
Ratio of net
investment loss to
average net assets (0.99)%+
Ratio of operating
expenses to average 1.18%+
net assets**
Portfolio turnover
rate 0%
<PAGE>
Average commission
rate (per share of
security) (a)
$0.0600
-----------------
* The Portfolio commenced operations on November 15, 1996.
** Annualized operating expense ratio before waiver/reimbursement by
investment manager for the period ended December 31, 1996 was 12.69%.
+ Annualized.
++ Total return represents aggregate total return for the period indicated.
The total return of the Portfolio does not reflect the charges against
the separate accounts of PFL or the Contracts.
# Net investment loss before waiver/reimbursement of expenses by investment
manager for the period ended December 31, 1996 was ($0.04).
## Amount represents less than $(0.01) per share.
(a) Average commission rate paid per share of securities
purchased and sold by the Portfolio.
<PAGE>
--------------------
Endeavor Investment Advisers (the "Manager") has agreed, until terminated
by the Manager, to assume expenses of the Portfolios that exceed the rates
stated below. This has the effect of lowering each Portfolio's expense ratio
and of increasing returns otherwise available to investors at the time such
amounts are assumed. While this arrangement is in effect, the Manager pays all
expenses of the Portfolios to the extent they exceed the following percentages
of a Portfolio's average net assets: TCW Money Market - .99%, TCW Managed
Asset Allocation - 1.25%, T. Rowe Price International Stock - 1.53%, Value
Equity - 1.30%, Dreyfus Small Cap Value -1.30%, Dreyfus U.S. Government
Securities - 1.00%, T. Rowe Price Equity Income - 1.30%, T. Rowe Price Growth
Stock - 1.30%, Opportunity Value - 1.30% and Enhanced Index - 1.30%.
The offering of shares of the Enhanced Index Portfolio is expected to
commence on or about the date of this Prospectus. Accordingly, no financial
highlight data is available for shares of this Portfolio.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following is a brief description of the investment objectives and
policies of the Portfolios. The investment objective and the policies of each
Portfolio other than those listed under the caption "Investment Restrictions"
in the Statement of Additional Information are not fundamental policies and
may be changed by the Trustees of the Fund without the approval of
shareholders. Certain portfolio investments and techniques discussed below are
described in greater detail in the Statement of Additional Information. Due to
the uncertainty inherent in all investments, there can be no assurance that
the Portfolios will be able to achieve their respective investment objectives.
TCW Money Market Portfolio
The investment objective of the TCW Money Market Portfolio is to provide
current income, preservation of capital and liquidity through investment in
short-term money market securities.
The Portfolio seeks to maintain a constant net asset value of $1.00 per
share. If the Trustees believe that the extent of any deviation from a $1.00
price per share may result in material dilution or other unfair results to
shareholders, they will take such steps as they consider appropriate to
eliminate or reduce these consequences to the extent reasonably practicable.
This may include selling portfolio securities prior to maturity, shortening
the average maturity of the Portfolio, withholding or reducing dividends,
redeeming shares in kind, reducing the number of the Portfolio's outstanding
shares without monetary consideration, or utilizing a net asset value per
share determined by using available market quotations.
The Portfolio expects to invest in the following types of money market
securities:
* securities issued or guaranteed as to principal and
interest by the U.S. government or by its agencies
or instrumentalities ("U.S. government securities");
* certificates of deposit, bankers' acceptances and other obligations
issued or guaranteed by bank holding companies in the United States
and their subsidiaries;
* U.S. dollar denominated obligations ("Eurodollar obligations") of
bank holding companies in the United States, their subsidiaries and
their foreign branches or of the International Bank for
Reconstruction and Development (also known as the World Bank);
<PAGE>
* commercial paper and other short-term obligations
of, and variable amount master demand notes and
variable rate notes issued by U.S. and foreign
corporations; and
* repurchase agreements (see "Investment Strategies").
Investment Criteria. With respect to investments in money
market securities, in accordance with applicable regulations
of the Securities and Exchange Commission, the Portfolio will:
~ invest only in high quality money market instruments that
present minimal credit risks;
~ invest only in money market instruments with remaining or
implied maturities of thirteen months or less; and
~ maintain an average dollar weighted maturity of the Portfolio's
investments of 90 days or less.
The Portfolio will invest only in high quality money market instruments,
i.e., securities which have been assigned the highest quality ratings by
nationally recognized statistical rating organizations ("NRSROs") such as
"A-1" by Standard & Poor's Ratings Service, a division of McGraw-Hill
Companies, Inc. ("Standard & Poor's") or "Prime-1" by Moody's Investors
Service, Inc. ("Moody's"), or if not rated, determined to be of comparable
quality by the Portfolio's Adviser (as hereinafter defined); provided, that up
to 5% of the Portfolio's total assets may be invested in instruments assigned
the second highest quality ratings such as "A-2" or "Prime-2", or if not
rated, determined to be of comparable quality by the Portfolio's Adviser. For
a description of the NRSROs and their ratings, see the Appendix attached to
the Statement of Additional Information.
The Portfolio may not invest in the securities of any one issuer if,
immediately after such investment, more than 5% of the total assets of the
Portfolio (taken at current value) would be invested in the securities of such
issuer; provided, that this limitation does not apply to U.S. government
securities or to repurchase agreements secured by such securities and that
with respect to 25% of the Portfolio's total assets more than 5% may be
invested in securities of any one issuer for three business days after the
purchase thereof if the securities have been assigned the highest quality
ratings by NRSROs, or if not rated, have been determined to be of comparable
quality by the Portfolio's Adviser. With respect to U.S. government
securities, the Portfolio will not invest more than 55% of its assets in
securities issued or guaranteed by the U.S. Treasury or any single U.S.
government agency or instrumentality. See "Investment Restrictions" in the
Statement of Additional Information for a further description of the
Portfolio's investment criteria.
U.S. Government Securities. Securities issued or
guaranteed as to principal and interest by the U.S. government
<PAGE>
or its agencies and instrumentalities include U.S. Treasury obligations,
consisting of bills, notes and bonds, which principally differ in their
interest rates, maturities and times of issuance, and obligations issued or
guaranteed by agencies and instrumentalities which are supported by (i) the
full faith and credit of the U.S. Treasury (such as securities of the Small
Business Administration), (ii) the limited authority of the issuer to borrow
from the U.S. Treasury (such as securities of the Student Loan Marketing
Association) or (iii) the authority of the U.S. government to purchase certain
obligations of the issuer (such as securities of the Federal National Mortgage
Association). No assurance can be given that the U.S. government will provide
financial support to U.S. government agencies or instrumentalities as
described in clauses (ii) or (iii) above in the future, other than as set
forth above, since it is not obligated to do so by law.
Other Money Market Securities. Other money market securities in which the
Portfolio may invest include U.S. dollar denominated instruments (such as
bankers' acceptances, commercial paper, certificates of deposit and Eurodollar
obligations) issued or guaranteed by bank holding companies in the United
States, their subsidiaries and their foreign branches. These bank obligations
may be general obligations of the parent bank holding company or may be
limited to the issuing entity by the terms of the specific obligation or by
government regulation.
Obligations of the International Bank for Reconstruction and Development
(also known as the World Bank) are supported by subscribed but unpaid
commitments of its member countries. There can be no assurance that these
commitments will be undertaken or complied with in the future.
The other money market securities in which the Portfolio may invest also
include certain variable and floating rate instruments and participations in
corporate loans to corporations in whose commercial paper or other short-term
obligations the Portfolio may invest. Because the bank issuing the
participations does not guarantee them in any way, they are subject to the
credit risks generally associated with the underlying corporate borrower. To
the extent that the Portfolio may be regarded as a creditor of the issuing
bank (rather than of the underlying corporate borrower under the terms of the
loan participation), the Portfolio may also be subject to credit risks
associated with the issuing bank. The secondary market, if any, for these loan
participations is extremely limited and any such participations purchased by
the Portfolio will be regarded as illiquid.
Other money market securities in which the Portfolio may invest also
include bonds and notes with remaining maturities of thirteen months or less,
variable rate notes and variable amount master demand notes. A variable amount
master demand note differs from ordinary commercial paper in that it is issued
pursuant to a written agreement between the issuer and the holder, its amount
may be increased from time to time by
<PAGE>
the holder (subject to an agreed maximum) or decreased by the holder or the
issuer, it is payable on demand, the rate of interest payable on it varies
with an agreed formula and it is typically not rated by a rating agency.
Transfer of such notes is usually restricted by the issuer, and there is no
secondary trading market for them. Any variable amount master demand note
purchased by the Portfolio will be regarded as an illiquid security. See
"Investment Restrictions" in the Statement of Additional Information.
Foreign Securities. The Portfolio may invest up to 10% of its total
assets in the securities (payable in U.S. dollars) of foreign issuers in
developed countries and in the securities of foreign branches of U.S. banks
such as negotiable certificates of deposit (Eurodollars). Because the
Portfolio may invest in foreign securities, investment in the Portfolio
involves investment risks that are different in some respects from an
investment in a fund which invests only in debt obligations of U.S. domestic
issuers. Such risks may include adverse future political and economic
developments, the possible imposition of foreign withholding taxes on interest
income payable on the securities held in the Portfolio, possible seizure or
nationalization of foreign deposits, the possible establishment of exchange
controls, or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on securities in
the Portfolio. There may also be less publicly available information about a
foreign issuer than about a domestic issuer and foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to
domestic issuers.
The Portfolio may employ certain investment strategies which are
described under the caption "Investment Strategies" below and in the Statement
of Additional Information.
TCW Managed Asset Allocation Portfolio
The investment objective of the TCW Managed Asset Allocation Portfolio is
to provide high total return through a managed asset allocation portfolio of
equity, fixed income and money market securities. The Portfolio seeks to
achieve its objective by investing primarily in securities issued by United
States companies.
The composition of the Portfolio's investments will be based on the
determination by the Portfolio's Adviser of the appropriate weighting for each
asset class and will be adjusted periodically. In making adjustments to the
asset allocation, the Portfolio's Adviser will use its asset allocation model
and will integrate its view of the expected returns for each asset class,
conditions in the stock, bond and money markets, interest rate and corporate
earnings growth trends, and economic conditions.
<PAGE>
The asset class weightings may theoretically range from 0% to 100%,
although the Portfolio's Adviser expects these extremes to be reached rarely,
if at all, for any class. The Portfolio will be "rebalanced" or checked for
possible reallocation monthly or more often if market conditions demand.
The equity portion of the Portfolio will be invested in a diversified
selection of equity securities of established companies in sound financial
condition. The equity securities in which the Portfolio will be invested may
include common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks and warrants. The Portfolio's Adviser will
strive to achieve total returns from dividends and capital gains in excess of
those from broadly-based stock market indices, but will not incur excessive
risk of loss to do so.
The fixed income portion of the Portfolio will be invested in taxable
securities including securities issued or guaranteed by the U.S. government
and its agencies or instrumentalities, collateralized mortgage obligations
that are issued or guaranteed by the U.S. government or its agencies or
instrumentalities or that are collateralized by a portfolio of mortgages or
mortgage-related securities guaranteed by such an agency or instrumentality
and high grade corporate and mortgage-backed bonds with maturities typically
ranging from 2 to 30 years. The weighted average maturity of such investments
will generally range from 3 to 10 years and securities will, at time of
purchase, have ratings within the four highest rating categories established
by Moody's, Standard & Poor's, or a similar NRSRO or if not rated, be of
comparable quality as determined by the Portfolio's Adviser. The NRSROs'
descriptions of these bond ratings are set forth in the Appendix to the
Statement of Additional Information. Securities rated in the fourth highest
category may have speculative characteristics; changes in economic or business
conditions are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher grade bonds. Like the three
highest grades, however, these securities are considered investment grade.
Mortgage-backed bonds have yield and maturity characteristics
corresponding to the underlying mortgage loans. Thus, for example, unlike
other bonds, which pay a fixed rate of interest until maturity when the entire
principal amount comes due, payments on mortgage-backed bonds include both
interest and a partial repayment of principal. Fluctuating prepayments of
principal may result from the refinancing or foreclosure of the underlying
mortgage loans. Although maturities of the underlying mortgage loans range up
to 30 years, such prepayments may shorten the effective maturities. Because of
the prepayment feature, mortgage-backed bonds may be less effective than other
types of securities as a means of "locking in" attractive long-term interest
rates. This is caused by the need to reinvest repayments of principal
generally and the possibility of significant unscheduled
<PAGE>
prepayments resulting from declines in mortgage interest rates. As a result,
mortgage-backed bonds may have less potential for capital appreciation during
periods of declining interest rates than other investments of comparable
maturities, while having a comparable risk of decline during periods of rising
interest rates.
Foreign Securities. The Portfolio may invest up to 10% of its total
assets in equity securities (payable in U.S. dollars) of foreign issuers in
developed countries. Because the Portfolio may invest in foreign securities,
investment in the Portfolio involves investment risks that are different in
some respects from an investment in a fund which invests only in securities of
U.S. domestic issuers. Such risks may include adverse future political and
economic developments, the possible imposition of foreign withholding taxes on
interest income payable on the securities held in the Portfolio, possible
seizure or nationalization of foreign deposits, the possible establishment of
exchange controls, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on
securities in the Portfolio. There may also be less publicly available
information about a foreign issuer than about a domestic issuer and foreign
issuers are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic issuers.
The cash portion of the Portfolio will be invested in the same portfolio
securities that are eligible for investment by the TCW Money Market Portfolio
described above. The Portfolio may employ certain investment strategies which
are discussed under the caption "Investment Strategies" below and in the
Statement of Additional Information.
T. Rowe Price International Stock Portfolio
The T. Rowe Price International Stock Portfolio was formerly known as the
Global Growth Portfolio. Effective March 24, 1995, the name of the Global
Growth Portfolio was changed to T. Rowe Price International Stock Portfolio
and the Portfolio's investment objective was changed from seeking long-term
capital appreciation through a policy of investing in small capitalization
common stocks and their convertible equivalents on a global basis to the
investment objective and policies set forth below.
The investment objective of the T. Rowe Price International Stock
Portfolio is to seek long-term growth of capital through investments primarily
in common stocks of established non-U.S. companies.
Over the last 30 years, many foreign economies have grown faster than the
United States' economy, and the return from equity investments in these
countries has often exceeded the return on similar investments in the United
States. Moreover, there has normally been a wide and largely unrelated
variation
<PAGE>
in performance between international equity markets over this period. Although
there can be no assurance that these conditions will continue, the Portfolio's
Adviser, within the framework of diversification, seeks to identify and invest
in companies participating in the faster growing foreign economies and
markets. The Adviser believes that investment in foreign securities offers
significant potential for long-term capital appreciation and an opportunity to
achieve investment diversification.
The Adviser intends to invest substantially all of the Portfolio's assets
outside the United States and diversify investments broadly among countries
throughout the world developed, newly industrialized and emerging - by having
at least five different countries represented in the Portfolio. The Portfolio
may invest in countries of the Far East and Europe as well as South Africa,
Australia, Canada, and other areas (including developing countries). Further,
not more than 20% of the Portfolio's net asset value will be invested in
securities of issuers located in any one country with the exception of issuers
located in Australia, Canada, France, Japan, the United Kingdom or Germany
(where the investment limitation is 35%). In addition, the Adviser will
consider factors applicable to United States investors in making investment
decisions for the Portfolio.
In seeking its objective, the Portfolio invests primarily in common
stocks of established foreign companies which have, in the Adviser's opinion,
the potential for growth of capital. However, the Portfolio may also invest in
a variety of other equity related securities such as preferred stocks,
warrants and convertible securities, as well as corporate and governmental
debt securities, when considered consistent with the Portfolio's investment
objective and program. The Portfolio may also invest in investment funds which
have been authorized by the governments of certain countries specifically to
permit foreign investment in securities of companies listed and traded on the
stock exchanges in these respective countries. The Portfolio's investment in
these funds is subject to the provisions of the Investment Company Act of 1940
(the "1940 Act"). If the Portfolio invests in such investment funds, the
Portfolio's shareholders will bear not only their proportionate share of the
expenses of the Portfolio (including operating expenses and the fees of the
investment manager), but also will bear indirectly similar expenses of the
underlying investment funds. In addition, the securities of these investment
funds may trade at a premium of their net asset value. Under normal
conditions, the Portfolio's investments in securities other than common stocks
is limited to no more than 35% of its total assets.
In determining the appropriate distribution of investments among various
countries and geographic regions, the Portfolio's Adviser ordinarily considers
the following factors: prospects for relative economic growth between foreign
countries; expected levels of inflation; government policies influencing
business conditions; the outlook for
<PAGE>
currency relationships; and the range of individual investment
opportunities available to international investors.
In analyzing companies for investment, the Adviser ordinarily looks for
one or more of the following characteristics: an above-average earnings growth
per share; high return on invested capital; healthy balance sheet; sound
financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; efficient service; pricing flexibility; strength of management; and
general operating characteristics which will enable the companies to compete
successfully in their market place. While current dividend income is not a
prerequisite in the selection of portfolio companies, the companies in which
the Portfolio invests normally will have a record of paying dividends, and
will generally be expected to increase the amounts of such dividends in future
years as earnings increase. It is expected that the Portfolio's investments
will ordinarily be traded on exchanges located at least in the respective
countries in which the various issuers of such securities are principally
based.
In the event that future economic or financial conditions abroad
adversely affect equity securities, or stocks are considered overvalued, or
the Portfolio's Adviser believes that investing for defensive purposes is
appropriate, or in order to meet anticipated redemption requests, the
Portfolio may invest part or all of its assets in U.S. government securities,
investment-grade debt obligations of U.S. companies and high quality (within
the two highest rating categories assigned by a NRSRO) short-term debt
securities (with remaining maturities of one year or less) including
certificates of deposit, bankers' acceptances, commercial paper, short-term
corporate securities and repurchase agreements.
The international objectives of the Portfolio allow investors an
opportunity to achieve potentially higher returns, reflecting participation in
countries and economies with higher growth rates than those available
domestically. However, foreign investments involve certain risks that are not
present in domestic securities. Because the Portfolio intends to purchase
securities denominated in foreign currencies, a change in the value of any
such currency against the U.S. dollar will result in a change in the U.S.
dollar value of the Portfolio's assets and the Portfolio's income. In
addition, although a portion of the Portfolio's investment income may be
received or realized in such currencies, the Portfolio will be required to
compute and distribute its income in U.S. dollars. Therefore, if the exchange
rate for any such currency declines after the Portfolio's income has been
earned and computed in U.S. dollars but before conversion and payment, the
Portfolio could be required to liquidate portfolio securities to make such
distributions.
<PAGE>
The values of foreign investments and the investment income derived from
them may also be affected unfavorably by changes in currency exchange control
regulations. Although the Portfolio will invest only in securities denominated
in foreign currencies that are fully exchangeable into U.S. dollars without
legal restriction at the time of investment, there can be no assurance that
currency controls will not be imposed subsequently. In addition, the values of
foreign fixed income investments will fluctuate in response to changes in U.S.
and foreign interest rates.
There may be less information publicly available about a foreign issuer
than about a U.S. issuer, and foreign issuers are not generally subject to
accounting, auditing and financial reporting standards and practices
comparable to those in the United States. Foreign stock markets are generally
not as developed or efficient as, and may be more volatile than, those in the
United States. While growing in volume, they usually have substantially less
volume than U.S. markets and the Portfolio's investment securities may be less
liquid and subject to more rapid and erratic price movements than securities
of comparable U.S. companies. Equity securities may trade at price/earnings
multiples higher than comparable United States securities and such levels may
not be sustainable. There is generally less government supervision and
regulation of foreign stock exchanges, brokers and listed companies than in
the United States. Moreover, settlement practices for transactions in foreign
markets may differ from those in United States markets. Such differences may
include delays beyond periods customary in the United States and practices,
such as delivery of securities prior to receipt of payment, which increase the
likelihood of a "failed settlement." Failed settlements can result in losses
to the Portfolio. In less liquid and well developed stock markets, such as
those in some Asian and Latin American countries, volatility may be heightened
by actions of a few major investors. For example, substantial increases or
decreases in cash flows of mutual funds investing in these markets could
significantly affect stock prices and, therefore, share prices.
Foreign brokerage commissions, custodial expenses and other fees are also
generally higher than for securities traded in the United States.
Consequently, the overall expense ratios of international funds are usually
somewhat higher than those of typical domestic stock funds.
In addition, the economies, markets and political structures of a number
of the countries in which the Portfolio can invest do not compare favorably
with the United States and other mature economies in terms of wealth and
stability. Therefore, investments in these countries may be riskier, and will
be subject to erratic and abrupt price movements. Some economies are less well
developed and less diverse (for example, Latin America, Eastern Europe and
certain Asian countries), and more vulnerable to the ebb and flow of
international trade, trade barriers and other protectionist or
<PAGE>
retaliatory measures (for example, Japan, southeast Asia and Latin America).
Some countries, particularly in Latin America, are grappling with severe
inflation and high levels of national debt. Investments in countries that have
recently begun moving away from central planning and state-owned industries
toward free markets, such as the Eastern European or Chinese economies, should
be regarded as speculative.
Certain portfolio countries have histories of instability and upheaval
(Latin America) and internal politics that could cause their governments to
act in a detrimental or hostile manner toward private enterprise or foreign
investment. Any such actions, for example, nationalizing an industry or
company, could have a severe and adverse effect on security prices and impair
the Portfolio's ability to repatriate capital or income. The Portfolio's
Adviser will not invest the Portfolio's assets in countries where it believes
such events are likely to occur.
Income received by the Portfolio from sources within foreign countries
may be reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. The Portfolio's Adviser will attempt to minimize such
taxes by timing of transactions and other strategies, but there can be no
assurance that such efforts will be successful. Any such taxes paid by the
Portfolio will reduce its net income available for distribution to
shareholders.
The Portfolio may employ certain investment strategies which are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
Value Equity Portfolio
The investment objective of the Value Equity Portfolio is long-term
capital appreciation through investment in securities (primarily equity
securities) of companies that are believed by the Portfolio's Adviser to be
undervalued in the marketplace in relation to factors such as the companies'
assets or earnings.
It is the Portfolio Adviser's intention to invest in securities which in
its opinion possess one or more of the following characteristics: undervalued
assets, valuable consumer or commercial franchises, securities valuation below
peer companies, substantial and growing cash flow and/or a favorable price to
book value relationship.
Investment policies aimed at achieving the Portfolio's objective are set
in a flexible framework of securities selection which primarily includes
equity securities, such as common stocks, preferred stocks, convertible
securities, rights and warrants in proportions which vary from time to time.
Under normal circumstances at least 65% of the Portfolio's assets will be
invested in common stocks or
<PAGE>
securities convertible into common stocks. The Portfolio will invest primarily
in stocks listed on the New York Stock Exchange. In addition, it may also
purchase securities listed on other domestic securities exchanges or traded in
the domestic over-the-counter market and foreign securities that are listed on
a domestic or foreign securities exchange, traded in the domestic or foreign
over-the-counter markets or represented by American Depositary Receipts.
In the event that future economic or financial conditions adversely
affect equity securities, or stocks are considered overvalued, or the
Portfolio's Adviser believes that investing for defensive purposes is
appropriate, or in order to meet anticipated redemption requests, the
Portfolio may invest part or all of its assets in U.S. government securities
and high quality short-term debt securities (with remaining maturities of one
year or less) including certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate securities and repurchase agreements.
The Portfolio may invest in certain foreign securities which may
represent a greater degree of risk than investing in domestic securities.
These risks are discussed in the above section of this Prospectus describing
the T. Rowe Price International Stock Portfolio.
It is the present intention of the Portfolio's Adviser to invest no more
than 5% of the Portfolio's net assets in bonds rated below Baa3 by Moody's or
BBB by Standard & Poor's (commonly known as "junk bonds"). In the event that
the Portfolio's Adviser intends in the future to invest more than 5% of the
Portfolio's net assets in junk bonds, appropriate disclosures will be made to
existing and prospective shareholders. For information about the possible
risks of investing in junk bonds see "Investment Objective and Policies -
Lower Rated Bonds" in the Statement of Additional Information.
The Portfolio may employ certain investment strategies which are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
Dreyfus Small Cap Value Portfolio
The investment objective of the Dreyfus Small Cap Value Portfolio is to
seek capital appreciation through investments in a diversified portfolio of
equity securities of companies with a median market capitalization of
approximately $750 million, provided that under normal market conditions at
least 75% of the Portfolio's investments will be in equity securities of
companies with capitalizations at the time of purchase between $150 million
and $1.5 billion.
Small-capitalization companies are often under-priced for the following
reasons: (i) institutional investors, which currently represent a majority of
the trading volume in the shares of publicly-traded companies, are often less
interested
<PAGE>
in such companies because in order to acquire an equity position that is large
enough to be meaningful to an institutional investor, such an investor may be
required to buy a large percentage of the company's outstanding equity
securities and (ii) such companies may not be regularly researched by stock
analysts, thereby resulting in greater discrepancies in valuation.
The Portfolio will invest in equity securities of domestic and foreign
(up to 5% of its total assets) issuers which would be characterized as "value"
companies according to criteria established by the Portfolio's Adviser. To
manage the Portfolio, the Portfolio's Adviser classifies issuers as "growth"
or "value" companies. In general, the Portfolio's Adviser believes that
companies with relatively low price to book ratios, low price to earnings
ratios or higher than average dividend payments in relation to price should be
classified as value companies. Alternatively, companies which have above
average earnings or sales growth and retention of earnings and command higher
price to earnings ratios fit the more classic growth description.
While seeking desirable equity investments, the Portfolio may invest in
money market instruments consisting of U.S. Government securities,
certificates of deposit, time deposits, bankers' acceptances, short-term
investment grade corporate bonds and other short-term debt instruments, and
repurchase agreements. Under normal market conditions, the Portfolio does not
expect to have a substantial portion of its assets invested in money market
instruments. However, when the Portfolio's Adviser determines that adverse
market conditions exist, the Portfolio may adopt a temporary defensive posture
and invest all of its assets in money market instruments.
Equity securities consist of common stocks, preferred stocks and
securities convertible into common stocks. Securities purchased by the
Portfolio will be traded on the New York Stock Exchange, the American Stock
Exchange or in the over-the-counter market, and will also include options,
warrants, bonds, notes and debentures which are convertible into or
exchangeable for, or which grant a right to purchase or sell, such securities.
In addition, the Portfolio may purchase securities issued by closed-end
investment companies and foreign securities that are listed on a domestic or
foreign securities exchange, traded in domestic or foreign over-the-counter
markets or represented by American Depositary Receipts.
The Portfolio is expected to have greater risk exposure and reward
potential than a fund which invests primarily in larger-capitalization
companies. The trading volumes of securities of smaller-capitalization
companies are normally less than those of larger-capitalization companies.
This often translates into greater price swings, both upward and downward.
Since trading volumes are lower, new demand for the securities of such
companies could result in disproportionately large increases in the price of
such
<PAGE>
securities. The waiting period for the achievement of an investor's objectives
might be longer since these securities are not closely monitored by research
analysts and, thus, it takes more time for investors to become aware of
fundamental changes or other factors which have motivated the Portfolio's
purchase. Small-capitalization companies often achieve higher growth rates and
experience higher failure rates than do larger-capitalization companies.
The Portfolio may invest in certain foreign securities which may
represent a greater degree of risk than investing in domestic securities.
These risks are discussed in the above section of this Prospectus describing
the T. Rowe Price International Stock Portfolio.
The Portfolio may employ certain investment strategies which are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
Dreyfus U.S. Government Securities Portfolio
The investment objective of the Dreyfus U.S. Government
Securities Portfolio is to seek as high a level of total
return as is consistent with prudent investment strategies by
investing under normal conditions at least 65% of its assets
in U.S. government debt obligations and mortgage-backed
securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities ("U.S. Government Securities").
The Portfolio expects to invest in the following types of
U.S. Government Securities:
* U.S. Treasury obligations;
* obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government which are
backed by their own credit and may not be backed by
the full faith and credit of the U.S. government;
* mortgage-backed securities guaranteed by the
Government National Mortgage Association that are
supported by the full faith and credit of the U.S.
government and which are the "modified pass-through"
type of mortgage-backed security ("GNMA
Certificates"). Such securities entitle the holder
to receive all interest and principal payments due
whether or not payments are actually made on the
underlying mortgages;
* mortgage-backed securities guaranteed by agencies or
instrumentalities of the U.S. government which are
supported by their own credit but not the full faith
and credit of the U.S. government, such as the
Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association; and
<PAGE>
* collateralized mortgage obligations issued by private issuers for
which the underlying mortgage-backed securities serving as
collateral are backed (i) by the credit alone of the U.S. government
agency or instrumentality which issues or guarantees the
mortgage-backed securities, or (ii) by the full faith and credit of
the U.S. government.
Mortgage-Backed Securities. The mortgage-backed securities in which the
Portfolio invests represent participation interests in pools of mortgage loans
which are guaranteed by agencies or instrumentalities of the U.S. government.
However, the guarantee of these types of securities runs only to the principal
and interest payments and not to the market value of such securities. In
addition, the guarantee only runs to the portfolio securities held by the
Portfolio and not the purchase of shares of the Portfolio.
Mortgage-backed securities are issued by lenders such as mortgage
bankers, commercial banks, and savings and loan associations. Such securities
differ from conventional debt securities which provide for periodic payment of
interest in fixed amounts (usually semiannually) with principal payments at
maturity or specified call dates. Mortgage-backed securities provide for
monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. Principal prepayments
result from the sale of the underlying property or the refinancing or
foreclosure of underlying mortgages.
The yield of mortgage-backed securities is based on the average life of
the underlying pool of mortgage loans, which is computed on the basis of the
maturities of the underlying instruments. The actual life of any particular
pool may be shortened by unscheduled or early payments of principal and
interest. The occurrence of prepayments is affected by a wide range of
economic, demographic and social factors and, accordingly, it is not possible
to accurately predict the average life of a particular pool. For pools of
fixed rate 30-year mortgages, it has been common practice to assume that
prepayments will result in a 12-year average life. The actual prepayment
experience of a pool of mortgage loans may cause the yield realized by the
Portfolio to differ from the yield calculated on the basis of the average life
of the pool. In addition, if any of these mortgage-backed securities are
purchased at a premium, the premium may be lost in the event of early
prepayment which may result in a loss to the Portfolio.
Prepayments tend to increase during periods of falling interest rates,
while during periods of rising interest rates prepayments will most likely
decline. Reinvestment by the Portfolio of scheduled principal payments and
unscheduled prepayments may occur at higher or lower rates than the original
investment, thus affecting the yield of the Portfolio. Monthly interest
payments received by the
<PAGE>
Portfolio have a compounding effect which will increase the yield to
shareholders as compared to debt obligations that pay interest semiannually.
Because of the reinvestment of prepayments of principal at current rates,
mortgage-backed securities may be less effective than Treasury bonds of
similar maturity at maintaining yields during periods of declining interest
rates. Also, although the value of debt securities may increase as interest
rates decline, the value of these pass-through type of securities may not
increase as much due to the prepayment feature.
Collateralized Mortgage Obligations. Collateralized mortgage obligations
("CMOs"), which are debt obligations collateralized by mortgage loans or
mortgage pass-through securities, provide the holder with a specified interest
in the cash flow of a pool of underlying mortgages or other mortgage-backed
securities. Issuers of CMOs frequently elect to be taxed as a pass-through
entity known as real estate mortgage investment conduits. CMOs are issued in
multiple classes, each with a specified fixed or floating interest rate and a
final distribution date. The relative payment rights of the various CMO
classes may be structured in many ways. In most cases, however, payments of
principal are applied to the CMO classes in the order of their respective
stated maturities, so that no principal payments will be made on a CMO class
until all other classes having an earlier stated maturity date are paid in
full. The classes may include accrual certificates (also known as "Z-Bonds"),
which only accrue interest at a specified rate until other specified classes
have been retired and are converted thereafter to interest-paying securities.
They may also include planned amortization classes which generally require,
within certain limits, that specified amounts of principal be applied on each
payment date, and generally exhibit less yield and market volatility than
other classes.
Stripped Mortgage-Backed Securities. The Portfolio may also invest a
portion of its assets in stripped mortgage-backed securities ("SMBS"), which
are derivative multi-class mortgage securities. SMBS are usually structured
with two classes that receive different proportions of the interest and
principal distributions from a pool of mortgage assets. The Portfolio will
only invest in SMBS whose mortgage assets are U.S. Government Securities.
A common type of SMBS will be structured so that one class receives some
of the interest and most of the principal from the mortgage assets, while the
other class receives most of the interest and the remainder of the principal.
In the most extreme case, one class will receive all of the interest (the
interest-only or "IO" class) while the other class will receive all of the
principal (the principal-only or "PO" class). The yield to maturity on an IO
class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the Portfolio's yield
to maturity from these
<PAGE>
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Portfolio may fail to fully recoup
its initial investment in these securities even if the security is in one of
the highest rating categories.
The Portfolio may invest not more than 5% of its total assets in CMOs
deemed by its Adviser to be complex, such as floating rate and inverse
floating rate tranches and SMBS.
Non-Mortgage Asset Backed Securities. The Portfolio may invest in
non-mortgage backed securities including interests in pools of receivables,
such as motor vehicle installment purchase obligations and credit card
receivables. Such securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities. In addition, such securities generally will
have remaining estimated lives at the time of purchase of five years or less.
The purchase of non-mortgage backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset backed securities relating to
motor vehicle installment purchase obligations perfect their interests in
their respective obligations only by filing a financing statement and by
having the servicer of the obligations, which is usually the originator, take
custody thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is
a risk that such party could acquire an interest in the obligations superior
to that of holders of the asset backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing
claims of other parties. Due to the large number of vehicles involved,
however, the certificate of title to each vehicle financed, pursuant to the
obligations underlying the asset backed securities, usually is not amended to
reflect the assignment of the seller's security interest for the benefit of
the holders of the asset backed securities. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases,
be available to support payments on those securities. In addition, various
state and federal laws give the motor vehicle owner the right to assert
against the holder of the owner's obligation certain defenses such owner would
have against the seller of the motor vehicle. The assertion of
<PAGE>
such defenses could reduce payments on the related asset backed securities.
Insofar as credit card receivables are concerned, credit card holders are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such holders the right to set off certain amounts
against balances owed on the credit card, thereby reducing the amounts paid on
such receivables. In addition, unlike most other asset backed securities,
credit card receivables are unsecured obligations of the card holder.
U.S. Treasury Obligations. U.S. Treasury obligations
consist of bills, notes and bonds which principally differ in
their interest rates, maturities and times of issuance.
Obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government are supported by (i)
the full faith and credit of the U.S. Treasury (such as
securities of the Small Business Administration), (ii) the
limited authority of the issuer to borrow from the U.S.
Treasury (such as securities of the Student Loan Marketing
Association) or (iii) the authority of the U.S. government to
purchase certain obligations of the issuer (such as securities
of the Federal National Mortgage Association). No assurance
can be given that the U.S. government will provide financial
support to U.S. government agencies or instrumentalities as
described in clauses (ii) or (iii) above in the future, other
than as set forth above, since it is not obligated to do so by
law. The Portfolio will not invest more than 55% of the value
of its assets in GNMA Certificates or in securities issued or
guaranteed by any other single U.S. government agency or
instrumentality.
Corporate and Other Obligations. In seeking to obtain its investment
objective, the Portfolio may also invest in a broad range of debt securities,
other than U.S. Government Securities, with varying maturities such as
corporate convertible and non-convertible debt obligations such as fixed and
variable rate bonds. The weighted average maturity of such investments will
generally range from 2 to 10 years. Debt securities may also include money
market securities, including bank certificates of deposit and time deposits,
bankers' acceptances, prime commercial paper, high-grade, short-term corporate
obligations, and repurchase agreements with respect to these instruments.
Investment-grade debt securities are securities rated Baa or higher by
Moody's or BBB or higher by Standard & Poor's, and unrated securities that are
of equivalent quality in the opinion of the Portfolio's Adviser. The
NRSROs'descriptions of these bond ratings are set forth in the Appendix to the
Statement of Additional Information. Securities rated in the fourth highest
category may have speculative characteristics; changes in economic conditions
are more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade bonds. Like the three highest
grades, however, these securities are considered investment grade.
<PAGE>
Lower-Rated Securities. The Portfolio may also invest a portion of its
assets, not to exceed 25%, in securities rated below Baa by Moody's or BBB by
Standard & Poor's (commonly known as "junk bonds"), so long as they are
consistent with the Portfolio's objective of seeking as high a level of total
return as is consistent with prudent investment strategies. Such securities
may include bonds rated as low as C by Moody's and by Standard & Poor's. See
the Appendix to the Statement of Additional Information. The Portfolio's
Adviser anticipates that a substantial portion of the Portfolio's lower-rated
securities will be in the higher end of these ratings.
Lower-rated and comparable unrated securities (collectively referred to
in this discussion as "lower-rated securities") will likely have some quality
and protective characteristics that, in the judgment of the rating
organization, are out-weighed by large uncertainties or major risk exposures
to adverse conditions; and are predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligation.
While the market values of lower-rated securities tend to react less to
fluctuations in interest rate levels than the market values of higher-rated
securities, the market values of certain lower-rated securities also tend to
be more sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower- rated securities
generally present a higher degree of credit risk. Issuers of lower-rated
securities are often highly leveraged and may not have more traditional
methods of financing available to them so that their ability to service their
debt obligations during an economic downturn or during sustained periods of
rising interest rates may be impaired. The risk of loss due to default by such
issuers is significantly greater because lower-rated securities generally are
unsecured and frequently are subordinated to the prior payment of senior
indebtedness. The Portfolio may incur additional expenses to the extent that
it is required to seek recovery upon a default in the payment of principal or
interest on its portfolio holdings. The existence of limited markets for
lower-rated securities may diminish the Portfolio's ability to obtain accurate
market quotations for purposes of valuing such securities and calculating its
net asset value For additional information about the possible risks of
investing in junk bonds, see "Investment Objectives and Policies - Lower-Rated
Bonds" in the Statement of Additional Information.
Foreign Securities. The Portfolio may invest up to 15% of its total
assets in debt securities, including securities denominated in foreign
currencies of foreign issuers (including foreign governments) in developed
countries and emerging markets. Because the Portfolio may invest in foreign
securities, investment in the Portfolio involves investment risks that are
different in some respects from an investment
<PAGE>
in a fund which invests only in securities of U.S. domestic issuers. Such
risks may include adverse future political and economic developments, the
possible imposition of foreign withholding taxes on interest income payable on
the securities held in the Portfolio, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on securities in the Portfolio.
There may also be less publicly available information about a foreign issuer
than about a domestic issuer and foreign issuers are not generally subject to
uniform accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to domestic issuers.
The considerations described above generally are more of a concern in
developing countries inasmuch as their economic systems are generally smaller
and less diverse and mature and their political systems less stable than those
in developed countries. The Portfolio seeks to mitigate the risks associated
with these considerations through diversification and active portfolio
management.
The Portfolio may invest up to 35% of its assets in U.S.
dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations).
The Portfolio may employ certain investment strategies which are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
T. Rowe Price Equity Income Portfolio
The investment objective of the T. Rowe Price Equity Income Portfolio is
to seek to provide substantial dividend income and also capital appreciation
by investing primarily in dividend-paying common stocks of established
companies. In pursuing its objective, the Portfolio emphasizes companies with
favorable prospects for increasing dividend income, and secondarily, capital
appreciation. Over time, the income component (dividends and interest earned)
of the Portfolio's investments is expected to be a significant contributor to
the Portfolio's total return. The Portfolio's yield is expected to be
significantly above that of the S&P 500 Index. Total return will consist
primarily of dividend income and secondarily of capital appreciation (or
depreciation).
The investment program of the Portfolio is based on several premises.
First, the Portfolio's Adviser believes that, over time, dividend income can
account for a significant component of the total return from equity
investments. Second, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's
stock generally increases or decreases in response to short-term earnings and
market fluctuations, its
<PAGE>
dividends are generally less volatile. Finally, the Portfolio's Adviser
believes that stocks which distribute a high level of current income tend to
have less price volatility than those which pay below average dividends.
To achieve its objective, the Portfolio, under normal circumstances, will
invest at least 65% of its total assets in income-producing common stocks,
whose prospects for dividend growth and capital appreciation are considered
favorable by its Adviser. To enhance capital appreciation potential, the
Portfolio also uses a "value" approach and invests in stocks and other
securities its Adviser believes are temporarily undervalued by various
measures, such as price/earnings ratios. The Portfolio's investments will
generally be made in companies which share some of the following
characteristics:
* established operating histories;
* above-average current dividend yields relative to
the S&P 500 Index;
* low price/earnings ratios relative to the S&P 500
Index;
* sound balance sheets and other financial
characteristics; and
* low stock price relative to company's underlying value as measured
by assets, earnings, cash flow or business franchises.
Although the Portfolio will invest primarily in U.S. common stocks, it
may also purchase other types of securities, for example, foreign securities,
preferred stocks, convertible securities and warrants, when considered
consistent with the Portfolio's investment objective and program.
In the event that future economic or financial conditions adversely
affect equity securities, or stocks are considered overvalued, or the
Portfolio's Adviser believes that investing for defensive purposes is
appropriate, or in order to meet anticipated redemption requests, the
Portfolio may invest part or all of its assets in U.S. government securities
and high quality (within the two highest rating categories assigned by a
NRSRO) U.S. and foreign dollar-denominated money market securities including
certificates of deposit, bankers' acceptances, commercial paper, short-term
corporate securities and repurchase agreements.
The Portfolio may invest up to 25% of its total assets in
foreign securities. These include non-dollar denominated
securities traded outside the U.S. and dollar denominated
securities traded in the U.S. (such as American Depositary
Receipts). Such investments increase a portfolio's
diversification and may enhance return, but they may represent
a greater degree of risk than investing in domestic
securities. These risks are discussed in the above section of
<PAGE>
this Prospectus describing the T. Rowe Price International
Stock Portfolio.
The Portfolio may invest in debt securities of any type including
municipal securities, without regard to quality or rating. Such securities
would be purchased in companies which meet the investment criteria for the
Portfolio. The price of a bond fluctuates with changes in interest rates,
rising when interest rates fall and falling when interest rates rise. The
Portfolio, however, will not invest more than 10% of its total assets in
securities rated below Baa by Moody's or BBB by Standard & Poor's (commonly
known as "junk bonds"). Such securities may include bonds rated as low as C by
Moody's and by Standard & Poor's. See the Appendix to the Statement of
Additional Information. Investments in non-investment grade securities entail
certain risks which are discussed in the above section of this Prospectus
describing the Dreyfus U.S. Government Securities Portfolio under the heading
"Lower-Rated Securities."
The Portfolio may employ certain investment strategies which are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
T. Rowe Price Growth Stock Portfolio
The investment objectives of the T. Rowe Price Growth Stock Portfolio are
to seek long-term growth of capital and to increase dividend income through
investment primarily in common stocks of well-established growth companies. A
growth company is defined by the Portfolio's Adviser as one which: (1) has
demonstrated historical growth of earnings faster than the growth of inflation
and the economy in general; and (2) has indications of being able to continue
this growth pattern in the future. Total return will consist primarily of
capital appreciation or depreciation and secondarily of dividend income.
More than fifty years ago, Thomas Rowe Price pioneered the Growth Stock
Theory of Investing. It is based on the premise that inflation represents a
more serious, long-term threat to an investor's portfolio than stock market
fluctuations or recessions. Mr. Price believed that when a company's earnings
grow faster than both inflation and the economy in general, the market will
eventually reward its long-term earnings growth with a higher stock price. In
addition, the company should be able to raise its dividend in line with its
growth in earnings.
Although corporate earnings can be expected to be lower during periods of
recession, it is the Portfolio Adviser's opinion that, over the long term, the
earnings of well-established growth companies will not be affected adversely
by unfavorable economic conditions to the same extent as the earnings of more
cyclical companies. However, investors should be aware that the Portfolio's
share value may not
<PAGE>
always reflect the long-term earnings trend of growth
companies.
The Portfolio will invest primarily in the common stocks of a diversified
group of well-established growth companies. While current dividend income is
not a prerequisite in the selection of a growth company, the companies in
which the Portfolio will invest normally have a record of paying dividends and
are generally expected to increase the amounts of such dividends in future
years as earnings increase.
Although the Portfolio will invest primarily in U.S. common stocks, it
may also purchase other types of securities, for example, foreign securities,
preferred stocks, convertible securities and warrants, when considered
consistent with the Portfolio's investment objectives and program.
In the event that future economic or financial conditions adversely
affect equity securities, or stocks are considered overvalued, or the
Portfolio's Adviser believes that investing for defensive purposes is
appropriate, or in order to meet anticipated redemption requests, the
Portfolio may invest part or all of its assets in U.S. government securities
and high quality (within the two highest rating categories assigned by a
NRSRO) U.S. and foreign dollar-denominated money market securities including
certificates of deposit, bankers' acceptances, commercial paper, short-term
corporate securities and repurchase agreements.
The Portfolio may invest up to 30% of its total assets in
foreign securities. These include non-dollar denominated
securities traded outside the U. S. and dollar denominated
securities traded in the U. S. (such as American Depositary
Receipts). Such investments increase a portfolio's
diversification and may enhance return, but they may represent
a greater degree of risk than investing in domestic
securities. These risks are discussed in the above section of
this Prospectus describing the T. Rowe Price International
Stock Portfolio.
The Portfolio may employ certain investment strategies which are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
Opportunity Value Portfolio
The iveestment objective of the Opportunity Value Portfolio is to achieve
growth of capital over time through investment in a portfolio consisting of
common stocks, bonds and cash equivalents, the percentages of which will vary
based on the Portfolio Adviser's assessments of the relative outlook for such
investments. In seeking to achieve its investment objective, the types of
equity securities in which the Portfolio may invest will be securities of
companies that are believed by the Portfolio's Adviser to be undervalued in
the marketplace in relation to factors such as the companies' assets or
earnings. It is the Adviser's intention to invest
<PAGE>
in securities of companies which in its opinion possess one or more of the
following characteristics: undervalued assets, valuable consumer or commercial
franchises, securities valuation below peer companies, substantial and growing
cash flow and/or a favorable price to book value relationship. Investment
policies aimed at achieving the Portfolio's objective are set in a flexible
framework of securities selection which primarily includes equity securities,
such as common stocks, preferred stocks, convertible securities, rights and
warrants in proportions which vary from time to time. The Portfolio will
invest primarily in stocks listed on the New York Stock Exchange. In addition,
it may also purchase securities of companies, including companies with small
market capitalizations, listed on other domestic securities exchanges,
securities traded in the domestic over-the-counter market and foreign
securities provided that they are listed on a domestic or foreign securities
exchange or represented by American Depositary Receipts listed on a domestic
securities exchange or traded in domestic or foreign over-the-counter markets.
Investing in foreign securities may present a greater degree of risk than
investing in domestic securities. These risks are discussed in the above
section of this Prospectus describing the T. Rowe Price International Stock
Portfolio. Investing in the securities of small capitalization companies
involves greater risk exposure and reward potential than investments in larger
capitalization companies. These risks are discussed in the above section of
this Prospectus describing the Dreyfus Small Cap Value Portfolio.
Debt securities are expected to be predominantly investment grade
intermediate to long-term U.S. government and corporate debt, although the
Portfolio will also invest in high quality short-term money market and cash
equivalent securities and may invest almost all of its assets in such
securities when the Portfolio's Adviser deems it advisable in order to
preserve capital. The Portfolio's debt securities may also include
mortgage-backed securities issued by the U.S. government, its agencies or
instrumentalities and collateralized mortgage obligations that are issued or
guaranteed by the U.S. government or its agencies or instrumentalities or that
are collateralized by a portfolio of mortgages or mortgage-related securities
guaranteed by such an agency or instrumentality.
The effective maturity of a mortgage-backed security may be shortened by
unscheduled or early payment of principal and interest on the underlying
mortgages, which may affect the effective yield of such securities. The
principal that is returned may be invested in instruments having a higher or
lower yield than the prepaid instruments depending on then-current market
conditions.
Investment grade securities will, at the time of purchase, have ratings
within the four highest rating categories established by Moody's, Standard &
Poor's, or a
<PAGE>
similar NRSRO or, if not rated, be of comparable quality as determined by the
Portfolio's Adviser. The NRSROs' descriptions of these bond ratings are set
forth in the Appendix to the Statement of Additional Information. Securities
rated in the fourth highest category may have speculative characteristics;
changes in economic or business conditions are more likely to lead to a
weakened capacity to make principal and interest payments than in the case of
higher grade bonds. Like the three highest grades, however, these securities
are considered investment grade.
It is the present intention of the Portfolio's Adviser to invest no more
than 5% of the Portfolio's net assets in bonds rated below Baa3 by Moody's or
BBB by Standard & Poor's (commonly known as "junk bonds"). In the event that
the Portfolio's Adviser intends in the future to invest more than 5% of the
Portfolio's net assets in junk bonds, appropriate disclosures will be made to
existing and prospective shareholders. For information about the possible
risks of investing in junk bonds see "Investment Objectives and Policies -
Lower Rated Bonds" in the Statement of Additional Information.
The allocation of the Portfolio's assets among the different types of
permitted investments will vary from time to time based upon the Portfolio
Adviser's evaluation of economic and market trends and its perception of the
relative values available from such types of securities at any given time.
There is neither a minimum nor a maximum percentage of the Portfolio's assets
that may, at any given time, be invested in any of the types of investments
identified above. Consequently, while the Portfolio will earn income to the
extent it is invested in bonds or cash equivalents, the Portfolio does not
have any specific income objective. Although there is neither a minimum nor
maximum percentage of the Portfolio's assets that may, at any given time, be
invested in any of the types of investments identified above, it is
anticipated that most of the time the substantial majority of the Portfolio's
assets will be invested in common stocks.
The Portfolio may employ certain investment strategies which are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
Enhanced Index Portfolio
The investment objective of the Enhanced Index Portfolio is to earn a
total return modestly in excess of the total return performance of the S&P 500
Index (including the reinvestment of dividends) while maintaining a volatility
of return similar to the S&P 500 Index. The Portfolio is appropriate for
investors who seek a modestly enhanced total return relative to that of large
and medium sized U.S. companies typically represented in the S&P 500 Index.
The Portfolio intends to invest in securities of approximately 300 issuers,
which securities are rated by the Portfolio's Adviser to have above average
expected returns.
The Portfolio seeks to achieve its investment objective through
fundamental analysis, systematic stock valuation and disciplined portfolio
construction.
* Fundamental research: The Portfolio Adviser's
approximately 25 domestic equity analysts, each an
industry specialist with an average of approximately
12 years experience, follow over 900 predominantly
large and medium sized U.S. companies --
approximately 525 of which form the universe for the
Portfolio's investments. A substantial majority of
these companies are issuers of securities which are
included in the S&P 500 Index. The analysts'
research goal is to forecast normalized, longer term
earnings and dividends for the companies that they
cover.
* Systematic valuation: The analysts' forecasts are
converted into comparable exppected rted returns by a
dividend discount model, which calculates those
expected returns by solving for the rate of return
that equates the company's current stock price to
the present value of 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.
* Disciplined portfolio construction: A diversified
portfolio is constructed using disciplined buy and
sell rules. Portfolio sector weightings will
generally approximate those of the S&P 500 Index.
The Portfolio will normally be principally
comprised, based on the dividend discount model, of
stocks in the first three Quintiles. Finally, the
Portfolio holds a large number of stocks to enhance
its diversification.
Under normal market circumstances, the Portfolio's Adviser will invest at
least 65% of its net assets in equity securities consisting of common stocks
and other securities with equity characteristics such as trust interests,
limited partnership interests, preferred stocks, warrants, rights and
securities convertible into common stock. The Portfolio primary equity
investments will be the common stock of large and medium sized U.S. companies
with market capitalizations above $1 billion. Such securities will be listed
on a national securities exchange or traded in the over-the-counter market.
The Portfolio may invest in similar securities of foreign corporations,
provided that the securities of such corporations are included in the S&P 500
Index.
<PAGE>
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Since the Portfolio has a long-term investment
perspective, it does not intend to respond to short-term market fluctuations
or to acquire securities for the purpose of short-term trading; however, it
may take advantage of short-term trading opportunities that are consistent
with its objective.
During ordinary market conditions, the Portfolio's Adviser will keep the
Portfolio as fully invested as practicable in the equity securities described
above. In the event that future economic or financial conditions adversely
affect equity securities, or stocks are considered overvalued, or the
Portfolio's Adviser believes that investing for defensive purposes is
appropriate, or in order to meet anticipated redemption requests, the
Portfolio may invest part or all of its assets in U.S. government securities
and high quality (within the two highest rating categories assigned by a
NRSRO) U.S. dollar-denominated money market securities including certificates
of deposit, bankers' acceptances, commercial paper, short-term debt securities
and repurchase agreements.
Convertible bonds and other fixed income securities (other than money
market instruments) in which the Portfolio may invest will, at the time of
investment, have ratings within the four highest rating categories established
by Moody's, Standard & Poor's, or a similar NRSRO or, if not rated, be of
comparable quality as determined by the Portfolio's Adviser. The NRSROs'
descriptions of these bond ratings are set forth in the Appendix to the
Statement of Additional Information. Securities rated in the fourth highest
category may have speculative characteristics; changes in economic or business
conditions are more likely to lead to a weakened capacity to make principal
and interest payments than in the case of higher grade bonds. Like the three
highest grades, however, these securities are considered investment grade.
The Portfolio may invest in certain foreign securities which may
represent a greater degree of risk than investing in domestic securities.
These risks are discussed in the above section of this Prospectus describing
the T. Rowe Price International Stock Portfolio.
The Portfolio may employ certain investment strategies which are
discussed under the caption "Investment Strategies" below and in the Statement
of Additional Information.
Investment Strategies
In addition to making investments directly in securities, the Portfolios
(other than the TCW Money Market Portfolio) may write covered call and put
options and hedge their investments by purchasing options and engaging in
transactions in futures contracts and related options. The Adviser to the TCW
Managed Asset Allocation Portfolio does not presently intend to utilize
futures contracts and related options but may do so in the future. The
Advisers to the Dreyfus Small Cap Value Portfolio and the Opportunity Growth
Portfolio do not currently intend to write covered call and put options or
engage in transactions in futures contracts and related options, but may do so
in the future. The T. Rowe Price International Stock, Dreyfus U.S. Government
Securities, T. Rowe Price Equity Income, T. Rowe Price Growth Stock,
Opportunity Value and Enhanced Index Portfolios may engage in foreign currency
exchange transactions to protect against changes in future exchange rates. All
Portfolios except the TCW Money Market Portfolio may invest in American
Depositary Receipts and European Depositary Receipts. All Portfolios may enter
into repurchase agreements, may make forward commitments to purchase
securities, lend their portfolio securities and borrow funds under certain
limited circumstances. The T. Rowe Price Equity Income, T. Rowe Price Growth
Stock, T. Rowe Price International Stock and Dreyfus U.S. Government
Securities Portfolios may invest in hybrid instruments. The investment
strategies referred to above and the risks related to them are summarized
below and certain of these strategies are described in more detail in the
Statement of Additional Information.
Options and Futures Transactions. A Portfolio (other than the TCW Money
Market Portfolio) may seek to increase the current return on its investments
by writing covered call or covered put options. The Advisers to the Dreyfus
Small Cap Value Portfolio and the Opportunity Value Portfolio have no present
intention to engage in this strategy, but may do so in the future.
In addition, a Portfolio (other than the TCW Money Market Portfolio) may
at times seek to hedge against either a decline in the value of its portfolio
securities or an increase in the price of securities which its Adviser plans
to purchase through the writing and purchase of options on securities and any
index of securities in which the Portfolio may invest and the purchase and
sale of futures contracts and related options. The Advisers to the TCW Managed
Asset Allocation, Dreyfus Small Cap Value and Opportunity Value Portfolios
have no present intention to use this strategy, but may do so in the future.
The Adviser to the Dreyfus U.S. Government Securities Portfolio does not
presently intend to purchase or sell call or put options but may enter into
interest rate futures contracts and write and purchase put and call options on
such futures contracts. The Portfolio may purchase and sell interest rate
futures contracts as a hedge against changes in interest rates. A futures
contract is an agreement between two parties to buy and sell a security for a
set price on a future date. Futures contracts are traded on designated
"contracts markets" which, through their clearing corporations, guarantee
performance of the contracts. Currently, there are futures contracts based on
securities such as long-term U.S. Treasury bonds, U.S. Treasury notes, GNMA
Certificates and three-month U.S. Treasury bills.
<PAGE>
Generally, if market interest rates increase, the value of outstanding
debt securities declines (and vice versa). Entering into a futures contract
for the sale of securities has an effect similar to the actual sale of
securities, although the sale of the futures contracts might be accomplished
more easily and quickly. For example, if the Portfolio holds long-term U.S.
Government Securities and the Adviser anticipates a rise in long-term interest
rates, it could, in lieu of disposing of its portfolio securities, enter into
futures contracts for the sale of similar long-term securities. If interest
rates increased and the value of the Portfolio's securities declined, the
value of the Portfolio's futures contracts would increase, thereby protecting
the Portfolio by preventing the net asset value from declining as much as it
otherwise would have. Similarly, entering into futures contracts for the
purchase of securities has an effect similar to the actual purchase of the
underlying securities, but permits the continued holding of securities other
than the underlying securities. For example, if the Adviser expects long-term
interest rates to decline, the Portfolio might enter into futures contracts
for the purchase of long-term securities, so that it could gain rapid market
exposure that may offset anticipated increases in the cost of securities it
intends to purchase, while continuing to hold higher-yielding short-term
securities or waiting for the long-term market to stabilize.
A Portfolio (other than the TCW Money Market Portfolio) also may purchase
and sell listed put and call options on futures contracts. 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 (a long position if the
option is a call and a short position if the option is a put), at a specified
exercise price at any time during the option period. When an option on a
futures contract is exercised, delivery of the futures position is accompanied
by cash representing the difference between the current market price of the
futures contract and the exercise price of the option.
The Dreyfus U.S. Government Securities Portfolio may purchase put options
on interest rate futures contracts in lieu of, and for the same purpose as,
sale of a futures contract. It also may purchase such put options in order to
hedge a long position in the underlying futures contract in the same manner as
it purchases "protective puts" on securities. The purchase of call options on
interest rate futures contracts is intended to serve the same purpose as the
actual purchase of the futures contract, and the Portfolio will set aside cash
or cash equivalents sufficient to purchase the amount of portfolio securities
represented by the underlying futures contracts.
A Portfolio may not purchase futures contracts or related options if,
immediately thereafter, more than 33 1/3% (25% for the T. Rowe Price Equity
Income Portfolio, the T. Rowe Price Growth Stock Portfolio and the T. Rowe
Price International Stock Portfolio) of the Portfolio's total assets would be
so invested.
The Portfolios' Advisers generally expect that options and futures
transactions for the Portfolios will be conducted on securities and other
exchanges. In certain instances, however, a Portfolio may purchase and sell
options in the over-the-counter market. The staff of the Securities and
Exchange Commission considers over-the-counter options to be illiquid. A
Portfolio's ability to terminate option positions established in the
over-the-counter market may be more limited than in the case of exchange
traded options and may also involve the risk that securities dealers
participating in such
ch
transactions would fail to meet their obligations to the Portfolio. There can
be no assurance that a Portfolio will be able to effect closing transactions
at any particular time or at an acceptable price. The use of options and
futures involves the risk of imperfect correlation between movements in
options and futures prices and movements in the prices of the securities that
are being hedged. Expenses and losses incurred as a result of these hedging
strategies will reduce the Portfolio's current return. In many foreign
countries, futures and options markets do not exist or are not sufficiently
developed to be effectively used by a Portfolio.
Foreign Currency Transactions. The Dreyfus U.S. Government Securities, T.
Rowe Price Equity Income, T. Rowe Price Growth Stock, T. Rowe Price
International Stock, Opportunity Value and Enhanced Index Portfolios may
purchase foreign currency on a spot (or cash) basis, enter into contracts to
purchase or sell foreign currencies at a future date ("forward contracts"),
purchase and sell foreign currency futures contracts, and purchase exchange
traded and over-the-counter call and put options on foreign currency futures
contracts and on foreign currencies. The Adviser to a Portfolio may engage in
these transactions to protect against uncertainty in the level of future
exchange rates in connection with the purchase and sale of portfolio
securities ("transaction hedging") and to protect the value of specific
portfolio positions ("position hedging").
Hedging transactions involve costs and may result in losses. The Dreyfus
U.S. Government Securities, T. Rowe Price Equity Income, T. Rowe Price Growth
Stock, T. Rowe Price International Stock, Opportunity Value and Enhanced Index
Portfolios may write covered call options on foreign currencies to offset some
of the costs of hedging those currencies. A Portfolio will engage in
over-the-counter transactions only when appropriate exchange traded
transactions are unavailable and when, in the opinion of the Portfolio's
Adviser, the pricing mechanism and liquidity are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations. A Portfolio's ability to engage in hedging and related option
transactions may be limited by tax considerations.
<PAGE>
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which the Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can
achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.
Interest Rate Transactions. In order to attempt to protect the value of
its portfolio from interest rate fluctuations, the Dreyfus U.S. Government
Securities Portfolio may enter into various hedging transactions, such as
interest rate swaps and the purchase or sale of interest rate caps and floors.
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. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified index exceeds
a predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase
of an interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to receive payments
of interest on a notional principal amount from the party selling such
interest rate floor. The Adviser to the Portfolio expects to enter into these
transactions on behalf of the Portfolio primarily to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Portfolio anticipates
purchasing at a later date. The Portfolio intends to use these transactions as
a hedge and not as a speculative investment. The Portfolio will not sell
interest rate caps or floors that it does not own.
The Portfolio may enter into interest rate swaps, caps and floors on
either an asset-based or liability-based basis, depending on whether it is
hedging its assets or its liabilities, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out, with
the Portfolio receiving or paying, as the case may be, only the net amount of
the two payments. Inasmuch as these hedging transactions are entered into for
good faith hedging purposes, the Adviser to the Portfolio and the Fund believe
such obligations do not constitute senior securities and accordingly, will not
treat them as being subject to the Portfolio's borrowing restrictions. The net
amount of the excess, if any, of the Portfolio's obligations over its
entitlement with respect to each interest rate swap will be accrued on a daily
basis and an amount of cash or liquid securities having an aggregate net asset
value at least equal to the accrued excess will be maintained in a segregated
account by the Portfolio's custodian. The Portfolio will not enter into any
interest rate swap, cap or floor transactions unless the unsecured senior debt
or the claims-paying ability
<PAGE>
of the other party thereto is rated in the highest category of at least one
NRSRO at the time of entering into such transaction. If there is a default by
the other party to such a securities transaction, the Portfolio will have
contractual remedies pursuant to the agreements related to the transactions.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid. Caps and floors are more recent innovations for
which standardized documentation has not yet been developed and, accordingly,
they are less liquid than swaps.
Dollar Roll Transactions. The Dreyfus U.S. Government Securities
Portfolio may enter into dollar roll transactions with selected banks and
broker-dealers. Dollar roll transactions are comprised of the sale by the
Portfolio of mortgage-based securities, together with a commitment to purchase
similar, but not identical, securities at a future date. In addition, the
Portfolio is paid a fee as consideration for entering into the commitment to
purchase. Dollar rolls may be renewed after cash settlement and initially may
involve only a firm commitment agreement by the Portfolio to buy a security.
If the broker-dealer to whom the Portfolio sells the security becomes
insolvent, the Portfolio's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over the term of
the dollar roll; the security that the Portfolio is required to repurchase may
be worth less than the security that the Portfolio originally held, and the
return earned by the Portfolio with the proceeds of a dollar roll may not
exceed transaction costs. Dollar roll transactions are treated as borrowings
for purposes of the 1940 Act, and the aggregate of such transactions and all
other borrowings of the Portfolio (including reverse repurchase agreements)
will be subject to the requirement that the Portfolio maintain asset coverage
of 300% for all borrowings.
Reverse Repurchase Agreements. Each Portfolio is permitted to enter into
reverse repurchase agreements. In a reverse repurchase agreement, the
Portfolio sells a security and agrees to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of
the agreement. For the purposes of the 1940 Act it is considered a form of
borrowing by the Portfolio and, therefore, is a form of leverage. Leverage may
cause any gains or losses of the Portfolio to be magnified.
Borrowings. A Portfolio other than the Dreyfus U.S. Government
Securities, T. Rowe Price Equity Income, T. Rowe Price Growth Stock, T. Rowe
Price International Stock, Opportunity Value and Enhanced Index Portfolios may
borrow money for temporary purposes in amounts up to 5% of its total assets.
The Dreyfus U.S. Government Securities Portfolio may borrow from banks and
enter into reverse repurchase agreements or dollar rolls transactions in an
amount equal to up to 33 1/3% of the value of its net assets (computed at the
time the loan is made) to take advantage of investment opportunities and for
temporary, extraordinary or emergency purposes. The Dreyfus U.S. Government
Securities Portfolio may pledge up to 33 1/3% of its total assets to secure
these borrowings. If the Portfolio's asset coverage for borrowings falls below
300%, the Portfolio will take prompt action to reduce its borrowings.
The T. Rowe Price Equity Income, T. Rowe Price Growth Stock and T. Rowe
Price International Stock Portfolios may borrow money as a temporary measure
for emergency purposes, to facilitate redemption requests, or for other
purposes consistent with the Portfolio's investment objective and program in
an amount up to 33 1/3% of the Portfolio's net assets. Each Portfolio may
pledge up to 33 1/3% of its total assets to secure these borrowings. These
Portfolios may not purchase additional securities when borrowings exceed 5% of
total assets.
The Opportunity Value and Enhanced Index Portfolios may borrow money from
banks as a temporary measure for extraordinary or emergency purposes in
amounts up to 10% of their total assets. Neither Portfolio may purchase
additional securities when borrowings exceed 5% of total assets.
As a matter of operating policy, each of the Dreyfus U.S.
Government Securities, T. Rowe Price Equity Income, T. Rowe
Price Growth Stock and T. Rowe Price International Stock
Portfolios will limit all borrowings to no more than 25% of
such Portfolio's net assets.
American and European Depositary Receipts. All Portfolios except the TCW
Money Market Portfolio may purchase foreign securities in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other
securities convertible into securities of corporations in which the Portfolios
are permitted to invest pursuant to their respective investment objectives and
policies. These securities may not necessarily be denominated in the same
currency into which they may be converted. ADRs are receipts typically issued
by a United States bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs are receipts
issued in Europe by banks or depositories which evidence a similar ownership
arrangement. Generally, ADRs, in registered form, are designed for use in
United States securities markets and EDRs, in bearer form, are designed for
use in European securities markets.
Repurchase Agreements. All Portfolios may enter into repurchase
agreements with a bank, broker-dealer or other financial institution as a
means of earning a fixed rate of return on its cash reserves for periods as
short as overnight. A repurchase agreement is a contract pursuant to which a
Portfolio, against receipt of securities of at least equal value including
accrued interest, agrees to advance a
<PAGE>
specified sum to the financial institution which agrees to reacquire the
securities at a mutually agreed upon time (usually one day) and price. Each
repurchase agreement entered into by a Portfolio will provide that the value
of the collateral underlying the repurchase agreement will always be at least
equal to the repurchase price, including any accrued interest. The Portfolio's
right to liquidate such securities in the event of a default by the seller
could involve certain costs, losses or delays and, to the extent that proceeds
from any sale upon a default of the obligation to repurchase are less than the
repurchase price, the Portfolio could suffer a loss.
Forward Commitments. Each Portfolio may make contracts to purchase
securities for a fixed price at a future date beyond customary settlement time
("forward commitments") if it holds, and maintains until the settlement date
in a segregated account, cash or high-grade debt obligations in an amount
sufficient to meet the purchase price, or if it enters into offsetting
contracts for the forward sale of other securities it owns. Forward
commitments may be considered securities in themselves and involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of
the Portfolio's other assets. Where such purchases are made through dealers,
the Portfolio relies on the dealer to consummate the sale. The dealer's
failure to do so may result in the loss to the Portfolio of an advantageous
yield or price.
Securities Loans. Each Portfolio may seek to obtain additional income by
making secured loans of its portfolio securities with a value up to 33 1/3% of
its total assets. All securities loans will be made pursuant to agreements
requiring the loans to be continuously secured by collateral in cash or
high-grade debt obligations at least equal at all times to the market value of
the loaned securities. The borrower pays to the Portfolio an amount equal to
any dividends or interest received on loaned securities. The Portfolio retains
all or a portion of the interest received on investment of cash collateral or
receives a fee from the borrower. Lending portfolio securities involves risks
of delay in recovery of the loaned securities or in some cases loss of rights
in the collateral should the borrower fail financially.
Hybrid Instruments. The T. Rowe Price Equity Income, T. Rowe Price Growth
Stock and T. Rowe Price International Stock Portfolios may invest up to 10% of
their total assets, and the Dreyfus U.S. Government Securities Portfolio may
invest up to 5% of its total assets, in hybrid instruments. Hybrid instruments
have recently been developed and combine the elements of futures contacts or
options with those of debt, preferred equity or a depository instrument. Often
these hybrid instruments are indexed to the price of a commodity, particular
currency, or a domestic or foreign debt or equity securities index. Hybrid
instruments may take a variety of forms, including, but not limited to, debt
instruments with
<PAGE>
interest or principal payments or redemption terms determined by reference to
the value of a currency or commodity or securities index at a future point in
time, preferred stock with dividend rates determined by reference to the value
of a currency, or convertible securities with the conversion terms related to
a particular commodity. Hybrid instruments may bear interest or pay dividends
at below market (or even relatively nominal) rates. Under certain conditions,
the redemption value of such an instrument could be zero. Hybrid instruments
can have volatile prices and limited liquidity and their use by a Portfolio
may not be successful.
Fixed-Income Securities - Downgrades. If any security invested in by any
of the Portfolios loses its rating or has its rating reduced after the
Portfolio has purchased it, unless required by law, the Portfolio is not
required to sell or otherwise dispose of the security, but may consider doing
so.
Illiquid Securities. Each Portfolio may invest up to 10% (15% with
respect to T. Rowe Price International Stock Portfolio, T. Rowe Price Equity
Income Portfolio, T. Rowe Price Growth Stock Portfolio, Dreyfus Small Cap
Value Portfolio, Opportunity Value Portfolio and Enhanced Index Portfolio) of
its net assets in illiquid securities and other securities which are not
readily marketable, including non-negotiable time deposits, certain restricted
securities not deemed by the Fund's Trustees to be liquid and repurchase
agreements with maturities longer than seven days. Securities eligible for
resale pursuant to Rule 144A under the Securities Act of 1933, which have been
determined to be liquid, will not be considered by the Portfolios' Advisers to
be illiquid or not readily marketable and, therefore, are not subject to the
aforementioned 10% or 15% limits. The inability of a Portfolio to dispose of
illiquid or not readily marketable investments readily or at a reasonable
price could impair the Portfolio's ability to raise cash for redemptions or
other purposes. The liquidity of securities purchased by a Portfolio which are
eligible for resale pursuant to Rule 144A will be monitored by the Portfolios'
Advisers on an ongoing basis, subject to the oversight of the Trustees. In the
event that such a security is deemed to be no longer liquid, a Portfolio's
holdings will be reviewed to determine what action, if any, is required to
ensure that the retention of such security does not result in a Portfolio
having more than 10% or 15%, as applicable, of its assets invested in illiquid
or not readily marketable securities.
MANAGEMENT OF THE FUND
The Trustees and officers of the Fund provide broad supervision over the
business and affairs of the Portfolios and the Fund.
The Manager
<PAGE>
The Fund is managed by Endeavor Investment Advisers ("the Manager")
which, subject to the supervision and direction of the Trustees of the Fund,
has overall responsibility for the general management and administration of
the Fund. The Manager is a general partnership of which Endeavor Management
Co. is the managing partner. Endeavor Management Co., by whose employees all
management services performed under the management agreement are rendered to
the Fund, holds a 50.01% interest in the Manager and AUSA Financial Markets,
Inc., an affiliate of PFL, holds the remaining 49.99% interest therein.
Vincent J. McGuinness, a Trustee of the Fund, together with his family members
and trusts for the benefit of his family members, own all of Endeavor
Management Co.'s outstanding common stock. Mr. McGuinness is Chairman, Chief
Executive Officer and President of Endeavor Management Co.
The Manager is responsible for providing investment management and
administrative services to the Fund and in the exercise of such responsibility
selects the investment advisers for the Fund's Portfolios (the "Advisers") and
monitors the Advisers' investment programs and results, reviews brokerage
matters, oversees compliance by the Fund with various federal and state
statutes, and carries out the directives of the Trustees. The Manager is
responsible for providing the Fund with office space, office equipment, and
personnel necessary to operate and administer the Fund's business, and also
supervises the provision of services by third parties such as the Fund's
custodian and transfer agent. Pursuant to an administration agreement, First
Data Investor Services Group, Inc. ("FDISG") will assist the Manager in the
performance of its administrative responsibilities to the Fund.
As compensation for these services the Fund pays the Manager a monthly
fee at the following annual rates of each Portfolio's average daily net
assets: TCW Money Market Portfolio - .50%; TCW Managed Asset Allocation
Portfolio - .75%; T. Rowe Price International Stock Portfolio - .90%; Value
Equity Portfolio - .80%; Dreyfus Small Cap Value Portfolio - .80%; Dreyfus
U.S. Government Securities Portfolio - .65%; T. Rowe Price Equity Income
Portfolio - .80%; T. Rowe Price Growth Stock Portfolio - .80%; Opportunity
Value Portfolio - .80%; Enhanced Index Portfolio - .75%. The management fees
paid by the Portfolios (other than the TCW Money Market Portfolio and Dreyfus
U.S. Government Securities Portfolio), although higher than the fees paid by
most other investment companies in general, are comparable to management fees
paid for similar services by many investment companies with similar investment
objectives and policies. From the management fees, the Manager pays the
expenses of providing investment advisory services to the Portfolios,
including the fees of the Adviser of each Portfolio and the fees and expenses
of FDISG pursuant to the administration agreement.
In addition to the management fees, the Fund pays all expenses not
assumed by the Manager, including, without limitation, expenses for legal,
accounting and auditing
<PAGE>
services, interest, taxes, costs of printing and distributing reports to
shareholders, proxy materials and prospectuses, charges of its custodian,
transfer agent and dividend disbursing agent, registration fees, fees and
expenses of the Trustees who are not interested persons of the Fund,
insurance, brokerage costs, litigation, and other extraordinary or
nonrecurring expenses. All general Fund expenses are allocated among and
charged to the assets of the Portfolios of the Fund on a basis that the
Trustees deem fair and equitable, which may be on the basis of relative net
assets of each Portfolio or the nature of the services performed and relative
applicability to each Portfolio.
The Advisers
Pursuant to an investment advisory agreement with the Manager, the
Adviser to a Portfolio furnishes continuously an investment program for the
Portfolio, makes investment decisions on behalf of the Portfolio, places all
orders for the purchase and sale of investments for the Portfolio's account
with brokers or dealers selected by such Adviser and may perform certain
limited related administrative functions in connection therewith. For its
services, the Manager pays the Adviser a fee based on a percentage of the
average daily net assets of the Portfolio. An Adviser may place portfolio
securities transactions with broker-dealers who furnish it with certain
services of value in advising the Portfolio and other clients. In so doing, an
Adviser may cause a Portfolio to pay greater brokerage commissions than it
might otherwise pay. In seeking the most favorable price and execution
available, an Adviser may, if permitted by law, consider sales of the
Contracts as a factor in the selection of broker-dealers. OpCap Advisors may
select, under certain circumstances, Oppenheimer & Co., Inc., one of its
affiliates, to execute transactions for the Value Equity and Opportunity Value
Portfolios. T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. may utilize certain brokers indirectly related to them in
the capacity as broker in connection with the execution of transactions for
the T. Rowe Price Equity Income, T. Rowe Price Growth Stock and T. Rowe Price
International Stock Portfolios. J.P. Morgan Investment Management Inc. may
utilize certain brokers affiliated with it in connection with the execution of
transactions for the Enhanced Index Portfolio. See the Statement of Additional
Information for a further discussion of Portfolio trading.
The Board of Trustees of the Fund has authorized the Manager and the
Advisers to enter into arrangements with brokers who execute brokerage
transactions for the Portfolios whereby a portion of the commissions earned by
such brokers will be shared with a broker-dealer affiliate of the Manager. The
affiliated broker will act as an "introducing broker" in the transaction.
Subject to the requirements of applicable law including seeking best price and
execution of orders, commissions paid to executing brokers will not exceed
ordinary and customary brokerage commissions.
<PAGE>
The Board of Trustees has determined that the Fund's brokerage
commissions should be utilized for the Fund's benefit to the extent possible.
After reviewing various alternatives, the Board concluded that commissions
received by the broker-dealer affiliate of the Manager can be used to promote
the distribution of the Fund's shares including payments to broker-dealers who
sell the Contracts, the costs of training and educating such broker-dealers
with respect to the Contracts and other bona-fide distribution costs payable
to unaffiliated persons. Other than incidental costs related to establishing
the broker-dealer affiliate as an "introducing broker", no portion of the
commissions received by the broker-dealer affiliate of the Manager will be
retained for its or any affiliate's benefit. On a quarterly basis, the Manager
will report to the Board of Trustees the aggregate commissions received by its
broker-dealer affiliate and the distribution expenses paid from such
commissions. The Board of Trustees will periodically review the extent to
which the foregoing arrangement reduces distribution expenses currently being
incurred by the Manager or its affiliates on behalf of the Fund. The Board of
Trustees may determine from time to time other appropriate uses for the Fund
from the commissions it pays to executing brokers.
The Manager will not implement this program until any required exemptive
or no-action relief is obtained from the Securities and Exchange Commission.
TCW Funds Management, Inc. ("TCW") is the Adviser to the TCW Money Market
Portfolio and the TCW Managed Asset Allocation Portfolio. As compensation for
its services as investment adviser, the Manager pays TCW a monthly fee at the
annual rate of .25% of the average daily net assets of the TCW Money Market
Portfolio and .375% of the average daily net assets of the TCW Managed Asset
Allocation Portfolio. TCW is a wholly owned subsidiary of The TCW Group, Inc.,
whose subsidiaries, including Trust Company of the West and TCW Asset
Management Company, provide a variety of trust, investment management and
investment advisory services. TCW and its affiliates, which as of December 31,
1996 had approximately over $50 billion under management or committed for
management, provide investment advisory services to a number of open-end and
closed-end investment companies.
James M. Goldberg, a Managing Director and Chairman of
the Fixed Income Policy Committee of TCW, is the portfolio
manager for the TCW Money Market Portfolio. Mr. Goldberg has
been with TCW since 19884. Investment decisions for the equity
portion of the TCW Managed Asset Allocation Portfolio are made
by Norman Ridley in connsultation with Stefan D. Abrams. Mr.
Ridley is a Senior Vice President of TCW and has been with the
firm since 1985. Since 1992 Mr. Abrams has been a Managing
firm since 1985. Since 1992 Mr. Abrams has been a Managing
Director of TCW and is Director of Equity Strategy and Asset
Allocation. Investment decisions for the fixed income portion
of the TCW Managed Asset Allocation Portfolio are made by Mr.
Goldberg.
<PAGE>
OpCap Advisors ("OpCap") (formerly known as Quest for Value Advisors) is
the Adviser to the Value Equity Portfolio and the Opportunity Value Portfolio.
As compensation for its monthly fee at the annual rate of .40% of the average
daily net assets of each of the Value Equity and Opportunity Value Portfolios,
subject to reduction with respect to the Opportunity Value Portfolio in
certain circumstances.
OpCap is a majority-owned subsidiary of Oppenheimer Capital, a general
partnership which is registered as an investment adviser under the Investment
Advisers Act of 1940. The employees of Oppenheimer Capital render all
investment management services performed under the Investment Advisory
Agreement to the Portfolios. Oppenheimer Financial Corp. holds a 33% interest
in Oppenheimer Capital. Oppenheimer Capital, L.P., a Delaware limited
partnership of which Oppenheimer Financial Corp. is the sole general partner,
owns the remaining 67% interest of Oppenheimer Capital. The units of
Oppenheimer Capital, L.P. are traded on the New York Stock Exchange. OpCap and
its affiliates have operated as investment advisers to both mutual funds and
other clients since 1968, and had approximately $48.2 billion under management
as of December 31, 1996.
Eileen Rominger, Managing Director of Oppenheimer
Capital, is the portfolio manager for the Value Equity
Portfolio. Ms. Rominger has been with Oppenheimer Capital
since 1981. Richard J. Glasebrook II, Managing Director of
Oppenheimer Capital, is the portfolio manager for the
Opportunity Value Portfolio. Mr. Glasebrook has been with
Oppenheimer Capital since 1990. Mr. Glasebrook was recently
named by Morningstar, Inc. (an independent service that
monitors the performance of registered investment companies)
as its 1995 Variable Fund Manager of the Year.
The Dreyfus Corporation ("Dreyfus") is the Adviser to the Dreyfus U.S.
Government Securities Portfolio and the Dreyfus Small Cap Value Portfolio.
Dreyfus, which was formed in 1947, is a wholly-owned subsidiary of Mellon
Bank, N.A., which is a wholly-owned subsidiary of Mellon Bank Corporation
("Mellon"). As of December 31, 1996, Dreyfus managed or administered
approximately $82 billion in assets for more than 1.7 million investor
accounts nationwide. As compensation for its services as investment adviser,
the Manager pays Dreyfus a monthly fee at the annual rate of .15% of the
average daily net assets of the Dreyfus U.S. Government Securities Portfolio
and .375% of the average daily net assets of the Dreyfus Small Cap Value
Portfolio.
Prior to September 16, 1996, OpCap was the Adviser to the Dreyfus Small Cap
Value Portfolio (formerly known as the Value Small Cap Portfolio and prior to
that the Quest for Value Small Cap Portfolio). As compensation for its
services as investment adviser, the Manager paid OpCap a monthly fee at the
annual rate of .40% of the Portfolio's average daily net assets.
<PAGE>
Mellon is a publicly-owned multibank holding company incorporated under
Pennsylvania law in 1971 and registered under the Federal Bank Holding Company
Act of 1956, as amended. Mellon provides a comprehensive range of financial
products and services in domestic and selected international markets. Mellon
is among the twenty-five largest bank holding companies in the United States
based on total assets. Mellon's principal wholly-owned subsidiaries are Mellon
Bank, N.A., Mellon Bank (DE) National Association, Mellon Bank (MD), The
Boston Company, Inc., AFCO Credit Corporation and a number of companies known
as Mellon Financial Services Corporations. Through its subsidiaries, including
Dreyfus, Mellon managed more than $233 billion in assets as of December 31,
1996, including approximately $81 billion in mutual fund assets. As of
December 31, 1996, Mellon, through various subsidiaries, provided
non-investment services, such as custodial or administration services, for
more than $1,046 billion in assets, including approximately $57 billion in
mutual fund assets.
Prior to May 1, 1996, The Boston Company Asset
Management, Inc. ("Boston Company"), an affiliate of Dreyfus,
was the Dreyfus U.S. Government Securities Portfolio's
Adviser. Boston Company is a wholly-owned subsidiary of The
Boston Company, Inc., which is an indirect wholly-owned
subsidiary of Mellon.
Andrew S. Windmueller, who has been employed by Dreyfus
since October, 1994 and by The Boston Company, Inc. since
1986, is the portfolio manager for the Dreyfus U.S. Government
Securities Portfolio. Mr. Windmueller is a member of the
Fixed Income Strategy Committee and the Head of Credit
Research of Boston Company and Vice President of Boston
Company.
The portfolio managers for the Dreyfus Small Cap Value
Portfolio are David L. Diamond and Peter I. Higgins. Mr.
Diamond has been employed by Boston Company since June, 1991
and by Dreyfus since October, 1994. Mr. Higgins has been
employed by The Boston Company, Inc. since August, 1988, by
Boston Company since June, 1991 and by Dreyfus since February,
1996.
T. Rowe Price Associates, Inc. ("T. Rowe Price") is the
Adviser to the T. Rowe Price Equity Income Portfolio and the
T. Rowe Price Growth Stock Portfolio. As compensation for its
services as investment adviser, the Manager pays T. Rowe Price
a monthly fee at the annual rate of .40% of the daily net
assets of each of the T. Rowe Price Equity Income and T. Rowe
Price Growth Stock Portfolios. T. Rowe Price serves as
investment manager to a variety of individual and
institutional investor accounts, including limited and real
estate partnerships and other mutual funds.
Investment decisions with respect to the T. Rowe Price
Equity Income Portfolio are made by an Investment Advisory
Committee composed of the following members: Brian C. Rogers,
<PAGE>
Chairman, Thomas H. Broadus, Jr., Richard P. Howard, and
William J. Stromberg. The Committee Chairman has day-to-day
responsibility for managing the Portfolio and works with the
Committee in developing and executing the Portfolio's
investment program. Mr. Rogers has been Chairman of the
Committee since 1993. He joined T. Rowe Price in 1982 and has
been managing investments since 1983.
Investment decisions with respect to the T. Rowe Price
Growth Stock Portfolio are made by an Investment Advisory
Committee composed of the following members: John D.
Gillespie, Chairman, James A.C. Kennedy and Brian C. Rogers.
The Committee Chairman has day-to-day responsibility for
managing the Portfolio and works with the Committee in
developing and executing the Portfolio's investment program.
Mr. Gillespie has been Chairman of the Committee since 1994.
He joined T. Rowe Price in 1986 and has been managing
investments since 1989.
Rowe Price-Fleming International, Inc. ("Price-Fleming") is the Adviser
to the T. Rowe Price International Stock Portfolio (formerly the Global Growth
Portfolio). As compensation for its services as investment adviser, the
Manager pays Price-Fleming a monthly fee at an annual rate based on the
Portfolio's average daily net assets as follows: .75% up to $20 million; .60%
in excess of $20 million up to $50 million; andd .50% of assets in excess of
$50 million. At such time as the net assets of the Portfolio exceed $200
million, the fee shall be .50% of total average daily net assets.
Prior to January 1, 1995, Ivory & Sime International, Inc. ("I&S") and
Ivory & Sime plc acted as adviser and sub- adviser, respectively, for the
Global Growth Portfolio. As compensation for its services as investment
adviser, the Manager paid ISI a monthly fee at the annual rate of .45% of the
average daily net assets of the Portfolio up to $400 million and .30% of
average daily net assets in excess of $400 million. As compensation for its
services, Ivory & Sime plc received from ISI 78% of the gross monthly fees
paid by the Manager to ISI.
Price-Fleming was incorporated in Maryland in 1979 as a joint venture
between T. Rowe Price and Robert Fleming Holdings Limited ("Flemings").
Flemings is a diversified investment organization which participates in a
global network of regional investment offices in New York, London, Zurich,
Geneva, Tokyo, Hong Kong, Manila, Kuala Lampur, South Korea and Taiwan.
T. Rowe Price was incorporated in Maryland in 1947 as successor to the
investment counseling business founded by the late Thomas Rowe Price, Jr., in
1937. Flemings was incorporated in 1974 in the United Kingdom as successor to
the business founded by Robert Fleming in 1873. As of December 31, 1996, T.
Rowe Price and its affiliates managed more than
<PAGE>
$95 billion of assets of which Price-Fleming managed the U.S.
equivalent of approximately $25 billion.
The common stock of Price-Fleming is 50% owned by a wholly-owned
subsidiary of T. Rowe Price, 25% by a subsidiary of Fleming and 25% by Jardine
Fleming Group Limited ("Jardine Fleming"). (Half of Jardine Fleming is owned
by Flemings and half by Jardine Matheson Holdings Limited.) T. Rowe Price has
the right to elect a majority of the board of directors of Price-Fleming, and
Flemings has the right to elect the remaining directors, one of whom will be
nominated by Jardine Fleming.
Investment decisions with respect to the T. Rowe Price
International Stock Portfolio are made by an investment
advisory group composed of the following members: Martin G.
Wade, Christopher D. Alderson, Peter B. Askew, Mark J. T.
Edwards, John R. Ford, James B. M. Seddon, Benedict R. F.
Thomas and David J. L. Warren.
Martin Wade joined Price-Fleming in 1979 and has 27 years of experience
with the Fleming Group in research, client service and investment management.
(Fleming Group includes Flemings and/or Jardine Fleming). Christopher Alderson
joined Price-Fleming in 1988 and has 10 years of experience with the Fleming
Group in research and portfolio management. Peter Askew joined Price-Fleming
in 1988 and has 21 years of experience managing multi-currency fixed income
portfolios. Mark Edwards joined Price-Fleming in 1986 and has 15 years of
experience in financial analysis. John Ford joined Price- Fleming in 1982 and
has 16 years of experience with Fleming Group in research and portfolio
management. James Seddon joined Price-Fleming in 1987 and has nine years of
experience in investment management. Benedict Thomas joined Price- Fleming in
1988 and has seven years of portfolio management experience. David Warren
joined Price-Fleming in 1984 and has 16 years of experience in equity
research, fixed income research and portfolio management.
J.P. Morgan Investment Management Inc. ("Morgan") is the Adviser to the
Enhanced Index Portfolio. As compensation for its services as investment adviser
the Manager pays Morgan a monthly fee at the annual rate of .35% of the average
daily net assets of the Enhanced Index Portfolio.
Morgan is a wholly-owned subsidiary of J.P. Morgan and Co. Incorporated,
("J.P. Morgan"), a bank holding company. Through offices in New York City and
abroad, J.P. Morgan, through Morgan and other subsidiaries, including Morgan
Guaranty Trust Company of New York, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management (as of December 31, 1996) of over $178 billion (of which Morgan
advises over $176 billion). J.P. Morgan has a long history of service as
adviser, underwriter and lender to an extensive roster of major companies and as
a
<PAGE>
financial adviser to national governments. The firm, through its predecessor
firms, has been in business for over a century and has been managing
investments since 1913.
Investment decisions with respect to the Enhanced Index Portfolio are
made by an investment advisory group composed of Frederic A. Nelson, III,
James Wiess and Leon Roisenberg.
Mr. Nelson is a Managing Director of Morgan and is
responsible for the U.S. equity business, including active
equity and structured strategies. Mr. Nelson joined Morgan in
1994 after 14 years at Bankers Trust Company where he was part
of the Global Investment Management Group. Mr. Wiess, a Vice
President of Morgan, is a portfolio manager in the Equity and
Balanced Accounts Group with responsibility for portfolio
rebalancing and product research and development in structured
equity strategies. Mr. Wiess joined Morgan in 1992 and from
1984 to 1991 was employed by Oppenheimer & Co. Mr. Roisenberg
joined Morgan in 1996 as a Vice President. From 1991 to 1996,
Mr. Roisenberg was a quantative analyst/portfolio manager at
Bankers Trust Company.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio intends to qualify each year as a "regulated investment
company" under the Internal Revenue Code. By so qualifying, a Portfolio will
not be subject to federal income taxes to the extent that its net investment
income and net realized capital gains are distributed to shareholders.
It is the intention of each Portfolio to distribute substantially all its
net investment income. Although the Trustees of the Fund may decide to declare
dividends at other intervals, dividends from investment income of each
Portfolio are expected to be declared annually (except with respect to the TCW
Money Market Portfolio where dividends will be declared daily and paid
monthly) and will be distributed to the various separate accounts of PFL and
not to Contract owners in the form of additional full and fractional shares of
the Portfolio and not in cash. The result is that the investment performance
of the Portfolios, including the effect of dividends, is reflected in the cash
value of the Contracts. See the prospectus for the Contracts accompanying this
Prospectus.
All net realized long- or short-term capital gains of each Portfolio, if
any, will be declared and distributed at least annually either during or after
the close of the Portfolio's fiscal year and will be reinvested in additional
full and fractional shares of the Portfolio. In certain foreign countries,
interest and dividends are subject to a tax which is withheld by the issuer.
U.S. income tax treaties with certain countries reduce the rates of these
withholding taxes. The Fund intends to provide the documentation necessary to
achieve the lower treaty rate of withholding whenever
<PAGE>
applicable or to seek refund of amounts withheld in excess of
the treaty rate.
For a discussion of the impact on Contract owners of income taxes PFL may
owe as a result of (i) its ownership of shares of the Portfolios, (ii) its
receipt of dividends and distributions thereon, and (iii) its gains from the
purchase and sale thereof, reference should be made to the prospectus for the
Contracts accompanying this Prospectus.
SALE AND REDEMPTION OF SHARES
The Fund continuously offers shares of each Portfolio only to separate
accounts of PFL, but may at any time offer shares to a separate account of any
other insurer approved by the Trustees.
AEGON USA Securities, Inc. ("AEGON Securities"), an affiliate of PFL is
the principal underwriter and distributor of the Contracts. AEGON Securities
places orders for the purchase or redemption of shares of each Portfolio based
on, among other things, the amount of net Contract premiums or purchase
payments transferred to the separate accounts, transfers to or from a separate
account investment division, policy loans, loan repayments, and benefit
payments to be effected on a given date pursuant to the terms of the
Contracts. Such orders are effected, without sales charge, at the net asset
value per share for each Portfolio determined as of the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m., New York City
time), on that same date.
The net asset value of the shares of each Portfolio for the purpose of
pricing orders for the purchase and redemption of shares is determined as of
the close of the New York Stock Exchange, Monday through Friday, exclusive of
national business holidays. Net asset value per share is computed by dividing
the value of all assets of a Portfolio (including accrued interest and
dividends), less all liabilities of the Portfolio (including accrued expenses
and dividends payable), by the number of outstanding shares of the Portfolio.
The assets of the TCW Money Market Portfolio are valued at amortized cost and
the assets of the other Portfolios are valued on the basis of their market
values or, in the absence of a market value with respect to any portfolio
securities, at fair value as determined by or under the direction of the
Fund's Board of Trustees including the employment of an independent pricing
service, as described in the Statement of Additional Information.
Shares of the Portfolios may be redeemed on any day on which the Fund is
open for business.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise the "average annual or
cumulative total return" of the TCW Managed Asset Allocation, Value Equity,
Dreyfus Small Cap Value, Dreyfus
<PAGE>
U.S. Government Securities, T. Rowe Price Equity Income, T. Rowe Price Growth
Stock, T. Rowe Price International Stock, Opportunity Value and Enhanced Index
Portfolios or the "yield" and "effective yield" of the TCW Money Market and
Dreyfus U.S. Government Securities Portfolios and may compare the performance
of the Portfolios with that of other mutual funds with similar investment
objectives as listed in rankings prepared by Lipper Analytical Services, Inc.,
or similar independent services monitoring mutual fund performance, and with
appropriate securities or other relevant indices. The "average annual total
return" of a Portfolio refers to the average annual compounded rate of return
over the stated period that would equate an initial investment in that
Portfolio at the beginning of the period to its ending redeemable value,
assuming reinvestment of all dividends and distributions and deduction of all
recurring charges other than charges and deductions which are, or may be,
imposed under the Contracts. Figures will be given for the recent one, five
and ten year periods and for the life of the Portfolio if it has not been in
existence for any such periods. When considering "average annual total return"
figures for periods longer than one year, it is important to note that a
Portfolio's annual total return for any given year might have been greater or
less than its average for the entire period. "Cumulative total return"
represents the total change in value of an investment in a Portfolio for a
specified period (again reflecting changes in Portfolio share prices and
assuming reinvestment of Portfolio distributions). The TCW Money Market
Portfolio's "yield" refers to the income generated by an investment in the
Portfolio over a seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Portfolio is assumed to
be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The Dreyfus
U.S. Government Securities Portfolio may advertise its 30-day yield. Such
yield refers to the income that is generated over a stated 30-day (or one
month) period (which period will be stated in the advertisement), divided by
the net asset value per share on the last day of the period. The income is
annualized by assuming that the income during the 30-day period remains the
same each month over one year and compounded semi-annually. The methods used
to calculate "average annual and cumulative total return" and "yield" are
described further in the Statement of Additional Information.
The performance of each Portfolio will vary from time to time in response
to fluctuations in market conditions, interest rates, the composition of the
Portfolio's investments and expenses. Consequently, a Portfolio's performance
figures are historical and should not be considered representative of the
performance of the Portfolio for any future period.
<PAGE>
OpCap is the investment adviser of the Managed Portfolio of the
Accumulation Trust (formerly known as the Quest for Value Accumulation Trust)
(the "Accumulation Trust"), a registered open-end investment company whose
shares are sold to certain variable accounts of life insurance companies. The
Managed Portfolio of the Accumulation Trust is substantially similar to the
Opportunity Value Portfolio in that it has the same investment objective as
the Opportunity Value Portfolio and is managed using the same investment
strategies and techniques as contemplated for the Opportunity Value Portfolio.
The Opportunity Value Portfolio only recently commenced operations in
November, 1995 and, consequently, does not have a significant operating
history. See "Financial Highlights." Set forth below is certain performance
information regarding the Managed Portfolio of the Accumulation Trust which
has been obtained from OpCap, and is set forth in the current prospectus and
statement of additional information of the Accumulation Trust. Investors
should not rely on the following financial information as an indication of the
future performance of the Opportunity Value Portfolio.
Average Annual Total Return of Comparable Portfolio*(1)
For the Period
For the Year For the Five Years from Inception
Ended December Ended December to December 31,
31, 1996 31, 1996 1996(2)
Managed Portfolio
of Accumulation
Trust 22.77% 19.13% 20.09%
* On September 16, 1994, an investment company called Quest
for Value Accumulation Trust (the "Old Trust") was
effectively divided into two investment funds, the Old
Trust and the Accumulation Trust, at which time the
Accumulation Trust commenced operations. The total net
assets for the Managed Portfolio immediately after the
transaction was $682,601,380 with respect to the Old
Trust and $51,345,102 with respect to the Accumulation
Trust. For the period prior to September 16, 1994, the
performance figures above for the Managed Portfolio
reflect the performance of the corresponding Portfolio of
the Old Trust.
(1) Reflects waiver of all or a portion of the advisory fees and
reimbursements of other expenses. Without such waivers and
reimbursements, the average annual total return during the periods would
have been lower.
<PAGE>
(2) The Portfolio commenced operations on August 1, 1988.
Morgan is the investment manager of certain Private Accounts. At December
31, 1996 and as of the date of this Prospectus, the Enhanced Index Portfolio
had not commenced operations. However, these Private Accounts are
substantially similar to the Enhanced Index Portfolio in that they have the
same investment objectives as the Enhanced Index Portfolio and are managed
using the same investment strategies and techniques as contemplated for the
Enhanced Index Portfolio.
Investors should not rely on the following financial information as an
indication of the future performance of the Enhanced Index Portfolio. The
performance of the Enhanced Index Portfolio may vary from the Private Account
composite information because the Portfolio will be actively managed and its
investments will vary from time to time and will not be identical to the past
portfolio investments of the Private Accounts. Moreover, the Private Accounts
are not registered under the 1940 Act and therefore are not subject to certain
investment restrictions that are imposed by the 1940 Act, which, if imposed,
could have adversely affected the Private Accounts' performances. In addition,
the Private Accounts are not subject to the provisions of the Internal Revenue
Code with respect to "regulated investment companies," which provisions, if
imposed, could have adversely affected the Private Accounts' performances.
The chart below shows hypothetical performance information derived from
historical composite performance of the Private Accounts included in the
Structured Stock Selection Composite. The hypothetical performance figures
represent the actual performance results of the composite of comparable
Private Accounts, adjusted to reflect the deduction of the fees and expenses
anticipated to be paid by the Enhanced Index Portfolio. The actual 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.
Hypothetical Average Annual Total Return Information Derived
from Private Account Composite
For the For the Five For the Period
Year Ended Years Ended From Inception
December 31, December 31, (November 1, 1989)
1996 1996 to December 31, 1996
Structured
Stock
Selection
Composite 22.21% 15.45% 14.61%
<PAGE>
------------------
The calculations of total return assume the reinvestment of all dividends
and capital gains distributions on the reinvestment dates during the period
and the deduction of all recurring expenses that were charged to shareholder
accounts. The above tables do not reflect charges and deductions which are, or
may be, imposed under the Contracts.
ORGANIZATION AND CAPITALIZATION OF THE FUND
The Fund was established in November 1988 as a business trust under
Massachusetts law. The Fund has authorized an unlimited number of shares of
beneficial interest which may, without shareholder approval, be divided into
an unlimited number of series. Shares of the Fund are presently divided into
ten series of shares, one for each of the Fund's ten Portfolios. Shares are
freely transferable, are entitled to dividends as declared by the Trustees,
and in liquidation are entitled to receive the net assets of their respective
Portfolios, but not the net assets of the other Portfolios.
Fund shares are entitled to vote at any meeting of shareholders. The Fund
does not generally hold annual meetings of shareholders and will do so only
when required by law. Matters submitted to a shareholder vote must be approved
by each portfolio of the Fund separately except (i) when required by the 1940
Act, shares will be voted together as a single class and (ii) when the
Trustees have determined that the matter does not affect all portfolios, then
only shareholders of the affected portfolio will be entitled to vote on the
matter.
Owners of the Contracts have certain voting interests in respect of
shares of the Portfolios. See "Voting Rights" in the prospectus for the
Contracts accompanying this Prospectus for a description of the rights granted
Contract owners to instruct voting of shares.
ADDITIONAL INFORMATION
Transfer Agent and Custodian
All cash and securities of the Fund are held by Boston Safe Deposit and
Trust Company as custodian. First Data, located at 4400 Computer Drive,
Westborough, Massachusetts 01581, serves as transfer agent for the Fund.
Independent Auditors
Ernst & Young LLP, located at 200 Clarendon Street, Boston,
Massachusetts, 02116, serves as the Fund's independent auditors.
<PAGE>
Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement of which this
Prospectus forms a part, each such statement being qualified in all respects
by such reference.
<PAGE>
TABLE OF CONTENTS
Page
The Fund ENDEAVOR SERIES TRUST
Financial Highlights
Investment Objectives and Policies 2101 East Coast Highway,
TCW Money Market Portfolio Suite 300
TCW Managed Asset Allocation Corona del Mar, California 92625
Portfolio (800) 854-8396
T. Rowe Price International Stock
Portfolio Manager
Value Equity Portfolio
Dreyfus Small Cap Value Portfolio Endeavor Investment Advisers
Dreyfus U.S. Government Securities 2101 East Coast Highway
Portfolio Suite 300
T. Rowe Price Equity Income Corona del Mar, California 92625
Portfolio
T. Rowe Price Growth Stock Investment Advisers
Portfolio
Opportunity Value Portfolio TCW Funds Management, Inc.
Enhanced Index Portfolio 865 S. Figueroa Street
Investment Strategies Los Angeles, California 90071
Management of the Fund
The Manager OpCap Advisors
The Advisers One World Financial Center
Dividends, Distributions and Taxes New York, New York 10281
Sale and Redemption of Shares
Performance Information The Dreyfus Corporation
Organization and Capitalization 200 Park Avenue
of the Fund New York, New York 10166
Additional Information
Transfer Agent and Custodian T. Rowe Price Associates, Inc.
Independent Auditors 100 East Pratt Street
Baltimore, Maryland 21202
--------------
Rowe Price-Fleming International,
No person has been authorized to Inc.
give any information or to make any 100 East Pratt Street
representation not contained in this Baltimore, Maryland 21202
Prospectus and, if given or made,
such information or representation J.P. Morgan Investment
must not be relied upon as having Management Inc.
been authorized. This Prospectus 522 Fifth Avenue
does not constitute an offering of New York, New York 10036
any securities other than the
registered securities to which it Custodian
relates or an offer to any person in
any state or jurisdiction of the Boston Safe Deposit and Trust
United States or any country where Company
such offer would be unlawful. One Boston Place
Boston, Massachusetts 02108
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
ENDEAVOR SERIES TRUST
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the TCW Money Market Portfolio
(formerly, the Money Market Portfolio), the TCW Managed Asset Allocation
Portfolio (formerly, the Managed Asset Allocation Portfolio), the T. Rowe
Price International Stock Portfolio (formerly, the Global Growth Portfolio),
the Value Equity Portfolio (formerly, the Quest for Value Equity Portfolio),
the Dreyfus Small Cap Value Portfolio (formerly, the Value Small Cap Portfolio
and prior to that the Quest for Value Small Cap Portfolio), the Dreyfus U.S.
Government Securities Portfolio (formerly, the U.S. Government Securities
Portfolio), the T. Rowe Price Equity Income Portfolio, the T. Rowe Price
Growth Stock Portfolio, the Opportunity Value Portfolio and the Enhanced Index
Portfolio of Endeavor Series Trust (the "Fund"), dated May 1, 1997, which may
be obtained by writing the Fund at 2101 East Coast Highway, Suite 300, Corona
del Mar, California 92625 or by telephoning (800) 854-8396. Unless otherwise
defined herein, capitalized terms have the meanings given to them in the
Prospectus.
<PAGE>
TABLE OF CONTENTS
Page
Investment Objectives and Policies................ 3
Options and Futures Strategies............... 3
Foreign Currency Transactions................ 9
Repurchase Agreements........................ 13
Forward Commitments.......................... 14
Securities Loans............................. 14
Lower Rated Bonds ........................... 14
Interest Rate Transactions................... 16
Dollar Roll Transactions..................... 17
Portfolio Turnover........................... 18
Investment Restrictions........................... 19
Other Policies............................... 22
Performance Information........................... 23
Total Return................................. 24
Yield........................................ 26
Non-Standardized Performance................. 27
Portfolio Transactions............................ 27
Management of the Fund............................ 32
Trustees and Officers........................ 32
The Manager.................................. 38
The Advisers................................. 40
Redemption of Shares.............................. 44
Net Asset Value................................... 44
Taxes............................................. 47
Federal Income Taxes......................... 47
Organization and Capitalization of the Fund....... 48
Legal Matters..................................... 51
Custodian......................................... 51
Financial Statements.............................. 51
Appendix.......................................... A-1
----------------------
No person has been authorized to give any information or to make any
representation not contained in this Statement of Additional Information or in
the Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized. This Statement of Additional
Information does not constitute an offering of any securities other than the
registered securities to which it relates or an offer to any person in any
state or other jurisdiction of the United States or any country where such
offer would be unlawful.
The date of this Statement of Additional Information is May 1, 1997.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of
the investment objectives and policies of the Portfolios in
the Prospectus of the Fund. The Fund is managed by Endeavor
Investment Advisers. The Manager has selected TCW Funds
Management, Inc. as investment adviser for the TCW Money
Market Portfolio and the TCW Managed Asset Allocation
Portfolio, Rowe Price-Fleming International, Inc. as
investment adviser for the T. Rowe Price International Stock
Portfolio, OpCap Advisors (formerly, Quest for Value Advisors)
as investment adviser for the Value Equity Portfolio and
Opportunity Value Portfolio, The Dreyfus Corporation as
investment adviser for the Dreyfus U.S. Government Securities
Portfolio and Dreyfus Small Cap Value Portfolio, T. Rowe Price
Associates, Inc. as investment adviser for the T. Rowe Price
Equity Income Portfolio and T. Rowe Price Growth Stock
Portfolio and J.P. Morgan Investment Management Inc. as
investment adviser for the Enhanced Index Portfolio.
Options and Futures Strategies (All Portfolios except TCW
Money Market Portfolio)
A Portfolio may seek to increase the current return on its investments by
writing covered call or covered put options. In addition, a Portfolio may at
times seek to hedge against either a decline in the value of its portfolio
securities or an increase in the price of securities which its Adviser plans
to purchase through the writing and purchase of options including options on
stock indices and the purchase and sale of futures contracts and related
options. A Portfolio may utilize options or futures contracts and related
options for other than hedging purposes to the extent that the aggregate
initial margins and premiums do not exceed 5% of the Portfolio's net asset
value. The Adviser to the TCW Managed Asset Allocation Portfolio does not
presently intend to utilize options or futures contracts and related options
but may do so in the future. The Advisers to the Dreyfus Small Cap Value
Portfolio and the Opportunity Value Portfolio do not currently intend to write
covered put and call options or engage in transactions in futures contracts
and related options, but may do so in the future. Expenses and losses incurred
as a result of such hedging strategies will reduce a Portfolio's current
return.
The ability of a Portfolio to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices and
U.S. government securities are relatively new and still developing. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures. Therefore no assurance can be given that a
Portfolio will be able to utilize these instruments effectively for the
purposes stated below.
Writing Covered Options on Securities. A Portfolio may
write covered call options and covered put options on
optionable securities of the types in which it is permitted to
invest from time to time as its Adviser determines is
<PAGE>
appropriate in seeking to attain the Portfolio's investment objective. Call
options written by a Portfolio give the holder the right to buy the underlying
security from the Portfolio at a stated exercise price; put options give the
holder the right to sell the underlying security to the Portfolio at a stated
price.
A Portfolio may only write call options on a covered basis or for
cross-hedging purposes and will only write covered put options. A put option
would be considered "covered" if the Portfolio owns an option to sell the
underlying security subject to the option having an exercise price equal to or
greater than the exercise price of the "covered" option at all times while the
put option is outstanding. A call option is covered if the Portfolio owns or
has the right to acquire the underlying securities subject to the call option
(or comparable securities satisfying the cover requirements of securities
exchanges) at all times during the option period. A call option is for
cross-hedging purposes if it is not covered, but is designed to provide a
hedge against another security which the Portfolio owns or has the right to
acquire. In the case of a call written for cross-hedging purposes or a put
option, the Portfolio will maintain in a segregated account at the Fund's
custodian bank cash or short-term U.S. government securities with a value
equal to or greater than the Portfolio's obligation under the option. A
Portfolio may also write combinations of covered puts and covered calls on the
same underlying security.
A Portfolio will receive a premium from writing an option, which increases
the Portfolio's return in the event the option expires unexercised or is
terminated at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option, and the volatility of
the market price of the underlying security. By writing a call option, a
Portfolio will limit its opportunity to profit from any increase in the market
value of the underlying security above the exercise price of the option. By
writing a put option, a Portfolio will assume the risk that it may be required
to purchase the underlying security for an exercise price higher than its then
current market price, resulting in a potential capital loss if the purchase
price exceeds the market price plus the amount of the premium received.
A Portfolio may terminate an option which it has written prior to its
expiration by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The Portfolio
will realize a profit (or loss) from such transaction if the cost of such
transaction is less (or more) than the premium received from the writing of
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option may be offset in whole
or in part by unrealized appreciation of the underlying security owned by the
Portfolio.
<PAGE>
Purchasing Put and Call Options on Securities. A Portfolio may purchase
put options to protect its portfolio holdings in an underlying security
against a decline in market value. This protection is provided during the life
of the put option since the Portfolio, as holder of the put, is able to sell
the underlying security at the exercise price regardless of any decline in the
underlying security's market price. For the purchase of a put option to be
profitable, the market price of the underlying security must decline
sufficiently below the exercise price to cover the premium and transaction
costs. By using put options in this manner, any profit which the Portfolio
might otherwise have realized on the underlying security will be reduced by
the premium paid for the put option and by transaction costs.
A Portfolio may also purchase a call option to hedge against an increase
in price of a security that it intends to purchase. This protection is
provided during the life of the call option since the Portfolio, as holder of
the call, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. For the
purchase of a call option to be profitable, the market price of the underlying
security must rise sufficiently above the exercise price to cover the premium
and transaction costs. By using call options in this manner, any profit which
the Portfolio might have realized had it bought the underlying security at the
time it purchased the call option will be reduced by the premium paid for the
call option and by transaction costs.
No Portfolio intends to purchase put or call options if, as a result of
any such transaction, the aggregate cost of options held by the Portfolio at
the time of such transaction would exceed 5% of its total assets.
Purchase and Sale of Options and Futures on Stock Indices. A Portfolio may
purchase and sell options on stock indices and stock index futures contracts
either as a hedge against movements in the equity markets or for other
investment purposes.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the
closing level of that stock index is greater than, in the case of a call, or
less than, in the case of a put, the exercise price of the option. This amount
of cash is equal to such difference between the closing price of the index and
the exercise price of the option expressed in dollars times a specified
multiple. The writer of the option is obligated, in return for the premium
received, to make delivery of this amount. Unlike options on specific
securities, all settlements of options on stock indices are in cash and gain
or loss depends on general movements in the stocks included in the index
rather than price movements in particular stocks. Currently options traded
include the Standard & Poor's 500 Composite Stock Price Index, the NYSE
Composite Index, the AMEX Market Value Index, the National Over-The-Counter
Index,
<PAGE>
the Nikkei 225 Stock Average Index, the Financial Times Stock Exchange 100
Index and other standard broadly based stock market indices. Options are also
traded in certain industry or market segment indices such as the
Pharmaceutical Index.
A stock index futures contract is an agreement in which one party agrees
to deliver to the other an amount of cash equal to a specific dollar amount
times the difference between the value of a specific stock index at the close
of the last trading day of the contract and the price at which the agreement
is made. No physical delivery of securities is made.
If a Portfolio's Adviser expects general stock market prices to rise, it
might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy for the Portfolio. If in fact the stock index does
rise, the price of the particular equity securities intended to be purchased
may also increase, but that increase would be offset in part by the increase
in the value of the Portfolio's index option or futures contract resulting
from the increase in the index. If, on the other hand, the Portfolio's Adviser
expects general stock market prices to decline, it might purchase a put option
or sell a futures contract on the index. If that index does in fact decline,
the value of some or all of the equity securities held by the Portfolio may
also be expected to decline, but that decrease would be offset in part by the
increase in the value of the Portfolio's position in such put option or
futures contract.
Purchase and Sale of Interest Rate Futures. A Portfolio may purchase and
sell interest rate futures contracts on U.S. Treasury bills, notes and bonds
and Government National Mortgage Association ("GNMA") certificates either for
the purpose of hedging its portfolio securities against the adverse effects of
anticipated movements in interest rates or for other investment purposes.
A Portfolio may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the securities held by a Portfolio will fall, thus
reducing the net asset value of the Portfolio. This interest rate risk can be
reduced without employing futures as a hedge by selling such securities and
either reinvesting the proceeds in securities with shorter maturities or by
holding assets in cash. However, this strategy entails increased transaction
costs in the form of dealer spreads and brokerage commissions and would
typically reduce the Portfolio's average yield as a result of the shortening
of maturities.
The sale of interest rate futures contracts provides a means of hedging
against rising interest rates. As rates increase, the value of a Portfolio's
short position in the futures contracts will also tend to increase thus
offsetting all or a portion of the depreciation in the market value of the
Portfolio's investments that are being hedged. While the Portfolio will incur
commission expenses in selling and closing out futures positions (which is
done by taking an
<PAGE>
opposite position in the futures contract), commissions on futures
transactions are lower than transaction costs incurred in the purchase and
sale of portfolio securities.
A Portfolio may purchase interest rate futures contracts in anticipation
of a decline in interest rates when it is not fully invested. As such
purchases are made, it is expected that an equivalent amount of futures
contracts will be closed out.
A Portfolio will enter into futures contracts which are traded on national
or foreign futures exchanges, and are standardized as to maturity date and the
underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission ("CFTC"). Futures are traded in London at the London
International Financial Futures Exchange, in Paris, at the MATIF, and in Tokyo
at the Tokyo Stock Exchange.
Options on Futures Contracts. A Portfolio may purchase and write call and
put options on stock index and interest rate futures contracts. A Portfolio
may use such options on futures contracts in connection with its hedging
strategies in lieu of purchasing and writing options directly on the
underlying securities or stock indices or purchasing or selling the underlying
futures. For example, a Portfolio may purchase put options or write call
options on stock index futures or interest rate futures, rather than selling
futures contracts, in anticipation of a decline in general stock market prices
or rise in interest rates, respectively, or purchase call options or write put
options on stock index or interest rate futures, rather than purchasing such
futures, to hedge against possible increases in the price of equity securities
or debt securities, respectively, which the Portfolio intends to purchase.
In connection with transactions in stock index options, stock index
futures, interest rate futures and related options on such futures, a
Portfolio will be required to deposit as "initial margin" an amount of cash
and short-term U.S. government securities. The current initial margin
requirement per contract is approximately 2% of the contract amount.
Thereafter, subsequent payments (referred to as "variation margin") are made
to and from the broker to reflect changes in the value of the futures
contract. Brokers may establish deposit requirements higher than exchange
minimums.
Limitations. A Portfolio will not purchase or sell futures contracts or
options on futures contracts or stock indices for non-hedging purposes if, as
a result, the sum of the initial margin deposits on its existing futures
contracts and related options positions and premiums paid for options on
futures contracts or stock indices would exceed 5% of the net assets of the
Portfolio unless the transaction meets certain "bona fide hedging" criteria.
Risks of Options and Futures Strategies. The effective use
of options and futures strategies depends, among other things,
on a Portfolio's ability to terminate options and futures
<PAGE>
positions at times when its Adviser deems it desirable to do so. Although a
Portfolio will not enter into an option or futures position unless its Adviser
believes that a liquid market exists for such option or future, there can be
no assurance that a Portfolio will be able to effect closing transactions at
any particular time or at an acceptable price. The Advisers generally expect
that options and futures transactions for the Portfolios will be conducted on
recognized exchanges. In certain instances, however, a Portfolio may purchase
and sell options in the over-the-counter market. The staff of the Securities
and Exchange Commission considers over-the-counter options to be illiquid. A
Portfolio's ability to terminate option positions established in the
over-the-counter market may be more limited than in the case of exchange
traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Portfolio.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
the securities that are the subject of the hedge. The successful use of these
strategies also depends on the ability of a Portfolio's Adviser to forecast
correctly interest rate movements and general stock market price movements.
This risk increases as the composition of the securities held by the Portfolio
diverges from the composition of the relevant option or futures contract.
Foreign Currency Transactions (Dreyfus U.S. Government
Securities, T. Rowe Price Equity Income, T. Rowe Price Growth
Stock, T. Rowe Price International Stock, Opportunity Value
and Enhanced Index Portfolios)
Foreign Currency Exchange Transactions. The Dreyfus U.S.
Government Securities, T. Rowe Price Equity Income, T. Rowe
Price Growth Stock, T. Rowe Price International Stock,
Opportunity Value and Enhanced Index Portfolios may engage in
foreign currency exchange transactions to protect against
uncertainty in the level of future exchange rates. The Adviser
to a Portfolio may engage in foreign currency exchange
transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging"), and to protect
the value of specific portfolio positions ("position
hedging").
A Portfolio may engage in "transaction hedging" to protect against a
change in the foreign currency exchange rate between the date on which the
Portfolio contracts to purchase or sell the security and the settlement date,
or to "lock in" the U.S. dollar equivalent of a dividend or interest payment
in a foreign currency. For that purpose, a Portfolio may purchase or sell a
foreign currency on a spot (or cash) basis at the prevailing spot rate in
connection with the settlement of transactions in portfolio securities
denominated in that foreign currency.
If conditions warrant, a Portfolio may also enter into contracts to
purchase or sell foreign currencies at a future
<PAGE>
date ("forward contracts") and purchase and sell foreign currency futures
contracts as a hedge against changes in foreign currency exchange rates
between the trade and settlement dates on particular transactions and not for
speculation. A foreign currency forward contract is a negotiated agreement to
exchange currency at a future time at a rate or rates that may be higher or
lower than the spot rate. Foreign currency futures contracts are standardized
exchange-traded contracts and have margin requirements.
For transaction hedging purposes, a Portfolio may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures
contract gives a Portfolio the right to assume a short position in the futures
contract until expiration of the option. A put option on currency gives a
Portfolio the right to sell a currency at an exercise price until the
expiration of the option. A call option on a futures contract gives a
Portfolio the right to assume a long position in the futures contract until
the expiration of the option. A call option on currency gives a Portfolio the
right to purchase a currency at the exercise price until the expiration of the
option.
A Portfolio may engage in "position hedging" to protect against a decline
in the value relative to the U.S. dollar of the currencies in which its
portfolio securities are denominated or quoted (or an increase in the value of
currency for securities which the Portfolio intends to buy, when it holds cash
reserves and short-term investments). For position hedging purposes, a
Portfolio may purchase or sell foreign currency futures contracts and foreign
currency forward contracts, and may purchase put or call options on foreign
currency futures contracts and on foreign currencies on exchanges or
over-the-counter markets. In connection with position hedging, a Portfolio may
also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, it may be necessary for a Portfolio to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security or securities being hedged is less than the
amount of foreign currency the Portfolio is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security
or securities if the market value of such security or securities exceeds the
amount of foreign currency the Portfolio is obligated to deliver.
<PAGE>
Hedging transactions involve costs and may result in losses. A Portfolio
may write covered call options on foreign currencies to offset some of the
costs of hedging those currencies. A Portfolio will engage in over-the-counter
transactions only when appropriate exchange-traded transactions are
unavailable and when, in the opinion of the Portfolio's Adviser, the pricing
mechanism and liquidity are satisfactory and the participants are responsible
parties likely to meet their contractual obligations. A Portfolio's ability to
engage in hedging and related option transactions may be limited by tax
considerations.
Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities which a Portfolio owns or intends to
purchase or sell. They simply establish a rate of exchange which one can
achieve at some future point in time. Additionally, although these techniques
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, they tend to limit any potential gain which might result from the
increase in the value of such currency.
Currency Forward and Futures Contracts. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A
forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified amount of a
foreign currency at a future date at a price set at the time of the contract.
Foreign currency futures contracts traded in the United States are designed by
and traded on exchanges regulated by the CFTC, suchh as the New York
Mercantile Exchange. A Portfolio would enter into foreign currency futures
contracts solely for hedging or other appropriate investment purposes as
defined in CFTC regulations.
Forward foreign currency exchange contracts differ from foreign currency
futures contracts in certain respects. For example, the maturity date of a
forward contract may be any fixed number of days from the date of the contract
agreed upon by the parties, rather than a predetermined date in any given
month. Forward contracts may be in any amounts agreed upon by the parties
rather than predetermined amounts. Also, forward foreign exchange contracts
are traded directly between currency traders so that no intermediary is
required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, a Portfolio may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of
<PAGE>
an offsetting contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to the original
forward contract. Closing transactions with respect to futures contracts are
effected on a commodities exchange; a clearing corporation associated with the
exchange assumes responsibility for closing out such contracts.
Positions in foreign currency futures contracts may be closed out only on
an exchange or board of trade which provides a secondary market in such
contracts. Although a Portfolio intends to purchase or sell foreign currency
futures contracts only on exchanges or boards of trade where there appears to
be an active secondary market, there can be no assurance that a secondary
market on an exchange or board of trade will exist for any particular contract
or at any particular time. In such event, it may not be possible to close a
futures position and, in the event of adverse price movements, a Portfolio
would continue to be required to make daily cash payments of variation margin.
Foreign Currency Options. Options on foreign currencies operate similarly
to options on securities, and are traded primarily in the over-the-counter
market, although options on foreign currencies have recently been listed on
several exchanges. Such options will be purchased or written only when a
Portfolio's Adviser believes that a liquid secondary market exists for such
options. There can be no assurance that a liquid secondary market will exist
for a particular option at any specific time. Options on foreign currencies
are affected by all of those factors which influence foreign exchange rates
and investments generally.
The value of a foreign currency option is dependent upon the value of the
foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors
may be disadvantaged by having to deal in an odd lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
There is no systematic reporting of last sale information for foreign
currencies and there is no regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively
smaller transactions (less than $1 million) where rates may be less favorable.
The interbank market in foreign currencies is a global, around-the-clock
market. To the extent that the U.S. options markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in
the options markets.
<PAGE>
Foreign Currency Conversion. Although foreign exchange dealers do not
charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a
Portfolio at one rate, while offering a lesser rate of exchange should a
Portfolio desire to resell that currency to the dealer.
Repurchase Agreements (All Portfolios)
Each of the Portfolios may enter into repurchase agreements with a bank,
broker-dealer, or other financial institution but no Portfolio may invest more
than 10% (15% with respect to each of the T. Rowe Price Equity Income, T. Rowe
Price Growth Stock, T. Rowe Price International Stock, Dreyfus Small Cap
Value, Opportunity Value and Enhanced Index Portfolios) of its net assets in
repurchase agreements having maturities of greater than seven days. A
Portfolio may enter into repurchase agreements, provided the Fund's custodian
always has possession of securities serving as collateral whose market value
at least equals the amount of the repurchase obligation. To minimize the risk
of loss a Portfolio will enter into repurchase agreements only with financial
institutions which are considered by its Adviser to be creditworthy under
guidelines adopted by the Trustees of the Fund. If an institution enters an
insolvency proceeding, the resulting delay in liquidation of the securities
serving as collateral could cause a Portfolio some loss, as well as legal
expense, if the value of the securities declines prior to liquidation.
Forward Commitments (All Portfolios)
Each of the Portfolios may enter into forward commitments to purchase
securities. An amount of cash or short-term U.S. government securities equal
to the Portfolio's commitment will be deposited in a segregated account at the
Fund's custodian bank to secure the Portfolio's obligation. Although a
Portfolio will generally enter into forward commitments to purchase securities
with the intention of actually acquiring the securities for its portfolio (or
for delivery pursuant to options contracts it has entered into), the Portfolio
may dispose of a security prior to settlement if its Adviser deems it
advisable to do so. The Portfolio may realize short-term gains or losses in
connection with such sales.
Securities Loans (All Portfolios)
Each of the Portfolios may pay reasonable finders', administrative and
custodial fees in connection with loans of its portfolio securities. Although
voting rights or the right to consent accompanying loaned securities pass to
the borrower, a Portfolio retains the right to call the loan at any time on
reasonable notice, and will do so in order that the securities may be voted by
the Portfolio with respect to matters materially affecting the investment. A
Portfolio may also call a loan in order to sell the securities involved. Loans
of portfolio securities will only be made to borrowers
<PAGE>
considered by a Portfolio's Adviser to be creditworthy under
guidelines adopted by the Trustees of the Fund.
Lower Rated Bonds (Value Equity, Dreyfus U.S. Government
Securities, Opportunity Value and T. Rowe Price Equity Income
Portfolios)
The Value Equity Portfolio and Opportunity Value Portfolio may invest up
to 5% of their assets, the T. Rowe Price Equity Income Portfolio may invy
invest up to 10% of its assets, and the Dreyfus U.S. Government Securities
Portfolio may invest up to 25% of its assets in bonds rated below Baa3 by
Moody's Investors Service Inc. ("Moody's") or BBB by Standard & Poor's Ratings
Service, a division of McGraw-Hill Companies, Inc. ("Standard & Poor's")
(commonly known as "junk bonds"). Securities rated less than Baa by Moody's or
BBB by Standard & Poor's are classified as non-investment grade securities and
are considered speculative by those rating agencies. It is each Portfolio
Adviser's policy not to rely exclusively on ratings issued by credit rating
agencies but to supplement such ratings with the Adviser's own independent and
ongoing review of credit quality. Junk bonds may be issued as a consequence of
corporate restructurings, such as leveraged buyouts, mergers, acquisitions,
debt recapitalizations, or similar events or by smaller or highly leveraged
companies. When economic conditions appear to be deteriorating, junk bonds may
decline in market value due to investors' heightened concern over credit
quality, regardless of prevailing interest rates. Although the growth of the
high yield securities market in the 1980s had paralleled a long economic
expansion, in the past many issuers have been affected by adverse economic and
market conditions. It should be recognized that an economic downturn or
increase in interest rates is likely to have a negative effect on (i) the high
yield bond market, (ii) the value of high yield securities and (iii) the
ability of the securities' issuers to service their principal and interest
payment obligations, to meet their projected business goals or to obtain
additional financing. The market for junk bonds, especially during periods of
deteriorating economic conditions, may be less liquid than the market for
investment grade bonds. In periods of reduced market liquidity, junk bond
prices may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices
quoted for junk bonds by various dealers. Under such conditions, a Portfolio
may find it difficult to value its junk bonds accurately. Under such
conditions, a Portfolio may have to use subjective rather than objective
criteria to value its junk bond investments accurately and rely more heavily
on the judgment of the Fund's Board of Trustees. Prices for junk bonds also
may be affected by legislative and regulatory developments. For example,
recent federal rules require that savings and loans gradually reduce their
holdings of high-yield securities. Also, from time to time, Congress has
considered legislation to restrict or eliminate the corporate tax deduction
for interest payments or to regulate corporate restructurings such as
takeovers, mergers or leveraged buyouts. Such legislation, if enacted, could
depress the prices of outstanding junk bonds.
<PAGE>
Interest Rate Transactions (Dreyfus U.S. Government Securities
Portfolio)
Among the strategic transactions into which the Dreyfus U.S. Government
Securities Portfolio may enter are interest rate swaps and the purchase or
sale of related caps and floors. The Portfolio expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, 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 Portfolio intends to use these transactions as hedges and not
as speculative investments and will not sell interest rate caps or floors
where it does not own securities or other instruments providing the income
stream the Portfolio 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 cash flows on a notional amount of two or
more currencies based on the relative value differential among them and 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 the extent that a specific index exceeds a predetermined
interest rate, to receive payments of interest on a notional principal amount
from the party selling such cap. 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.
The 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 and floors are entered into for good faith hedging purposes, the
Adviser to the Portfolio and the Fund believe such obligations do not
constitute senior securities under the Investment Company Act of 1940 (the
"1940 Act") and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Portfolio will not enter into any swap, cap and
floor 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 Standard & Poor's or Moody's or has an
equivalent rating from a nationally recognized statistical rating organization
("NRSRO") or is determined to be of equivalent credit quality by the Adviser.
For a description of the NRSROs and their ratings, see the Appendix. 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 as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps
<PAGE>
and floors are more recent innovations for which standardized documentation
has not yet been fully developed and, accordingly, they are less liquid than
swaps.
With respect to swaps, the 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 and floors
require segregation of assets with a value equal to the Portfolio's net
obligations, if any.
Dollar Roll Transactions (Dreyfus U.S. Government Securities
Portfolio)
The Dreyfus U.S. Government Securities Portfolio may enter into "dollar
roll" transactions, which consist of the sale by the Portfolio to a bank or
broker-dealer (the "counterparty") of GNMA certificates or other
mortgage-backed securities together with a commitment to purchase from the
counterparty similar, but not identical, securities at a future date. The
counterparty receives all principal and interest payments, including
prepayments, made on the security while it is the holder. The Portfolio
receives a fee from the counterparty as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed over a period of several
months with a different repurchase price and a cash settlement made at each
renewal without physical delivery of securities. Moreover, the transaction may
be preceded by a firm commitment agreement pursuant to which the Portfolio
agrees to buy a security on a future date.
The Portfolio will not use such transactions for leveraging purposes and,
accordingly, will segregate cash, U.S. government securities or other high
grade debt obligations in an amount sufficient to meet its purchase
obligations under the transactions. The Portfolio will also maintain asset
coverage of at least 300% for all outstanding firm commitments, dollar rolls
and other borrowings.
Dollar rolls are treated for purposes of the 1940 Act as borrowings of the
Portfolio because they involve the sale of a security coupled with an
agreement to repurchase. Like all borrowings, a dollar roll involves costs to
the Portfolio. For example, while the Portfolio receives a fee as
consideration for agreeing to repurchase the security, the Portfolio forgoes
the right to receive all principal and interest payments while the
counterparty holds the security. These payments to the counterparty may exceed
the fee received by the Portfolio, thereby effectively charging the Portfolio
interest on its borrowing. Further, although the Portfolio can estimate the
amount of expected principal prepayment over the term of the dollar roll, a
variation in the actual amount of prepayment could increase or decrease the
cost of the Portfolio's borrowing.
The entry into dollar rolls involves potential risks of loss that are
different from those related to the securities underlying the transactions.
For example, if the counterparty becomes insolvent, the Portfolio's right to
purchase from the
<PAGE>
counterparty might be restricted. Additionally, the value of such securities
may change adversely before the Portfolio is able to purchase them. Similarly,
the Portfolio may be required to purchase securities in connection with a
dollar roll at a higher price than may otherwise be available on the open
market. Since, as noted above, the counterparty is required to deliver a
similar, but not identical, security to the Portfolio, the security that the
Portfolio is required to buy under the dollar roll may be worth less than an
identical security. Finally, there can be no assurance that the Portfolio's
use of the cash that it receives from a dollar roll will provide a return that
exceeds borrowing costs.
Portfolio Turnover
While it is impossible to predict portfolio turnover rates, the Advisers
to the Portfolios other than the Dreyfus U.S. Government Securities Portfolio,
Dreyfus Small Cap Value Portfolio and the TCW Money Market Portfolio
anticipate that portfolio turnover will generally not exceed 100% per year.
The Adviser to the Dreyfus U.S. Government Securities Portfolio anticipates
that portfolio turnover may exceed 200% per year, exclusive of dollar roll
transactions. The Adviser to the Dreyfus Small Cap Value Portfolio anticipates
that the Portfolio's portfolio turnover rate will generally not exceed 175%.
With respect to the TCW Money Market Portfolio, although the Portfolio intends
normally to hold its investments to maturity, the short maturities of these
investments are expected by the Portfolio's Adviser to result in a relatively
high rate of portfolio turnover. Higher portfolio turnover rates usually
generate additional brokerage commissions and expenses.
For the fiscal year ended December 31, 1996, the portfolio turnover rate
for the Dreyfus Small Cap Value Portfolio was 171% as compared with a turnover
rate of 75%% for the fiscal year ended December 31, 1995. The increase in
portfolio turnover rate was in connection with the change of the Portfolio's
investment adviser in September, 1996.
For the fiscal year ended December 31, 1996, the portfolio turnover rate
for the Dreyfus U.S. Government Securities Portfolio was 222% as compared with
a turnover rate of 161% for the period ended December 31, 1995. The increase
in portfolio turnover rate was due to an increased number of market-related
investment opportunities for the Portfolio.
INVESTMENT RESTRICTIONS
Except for restriction numbers 2, 3, 4, 11 and 12 with respect to the T.
Rowe Price Equity Income, T. Rowe Price Growth Stock, Opportunity Value and
Enhanced Index Portfolios and restriction number 11 with respect to the T.
Rowe Price International Stock and Dreyfus Small Cap Value Portfolios (which
restrictions are not fundamental policies), the following investment
restrictions (numbers 1 through 12) are fundamental policies, which may not be
changed without the approval of a majority of the outstanding shares of the
Portfolio, and apply to each of the Portfolios except as otherwise indicated.
As provided in the 1940 Act, a vote of a majority of the outstanding shares
necessary to amend a fundamental policy means the affirmative vote of the
lesser of (1) 67% or more of the shares present at a meeting, if the holders
of more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy, or (2) more than 50% of the outstanding shares of the
Portfolio.
A Portfolio may not:
1. Borrow money or issue senior securities (as defined in the 1940 Act),
provided that a Portfolio may borrow amounts not exceeding 5% of the value of
its total assets (not including the amount borrowed) for temporary purposes,
except that the Dreyfus U.S. Government Securities Portfolio may borrow from
banks or through reverse repurchase agreements or dollar roll transactions in
an amount equal to up to 33 1/3% of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or emergency purposes and
to take advantage of investment opportunities and may pledge up to 33 1/3% of
the value of its total assets to secure those borrowings; except that the T.
Rowe Price Equity Income Portfolio, the T. Rowe Price Growth Stock Portfolio
and T. Rowe Price International Stock Portfolio may (i) borrow for
non-leveraging, temporary or emergency purposes and (ii) engage in reverse
repurchase agreements and make other investments or engage in other
transactions, which may involve a borrowing, in a manner consistent with each
Portfolio's investment objective and program, provided that the combination of
(i) and (ii) shall not exceed 33 1/3% of the value of each Portfolios's total
assets (including the amount borrowed) less liabilities (other than
borrowings) and may pledge up to 33 1/3% of the value of its total assets to
secure those borrowings; except that the Opportunity Value Portfolio may
borrow money from banks or through reverse repurchase agreements for temporary
or emergency purposes in amounts up to 10% of its total assets; and except
that the Enhanced Index Portfolio may borrow money from banks for temporary or
emergency purposes or through reverse repurchase agreements in amounts up to
10% of its total assets.
2. Pledge, hypothecate, mortgage or otherwise encumber its assets, except to
secure borrowings permitted by restriction 1 above. Collateral arrangements
with respect to margin for futures contracts and options are not deemed to be
pledges or other encumbrances for purposes of this restriction.
3. Purchase securities on margin, except a Portfolio may obtain such
short-term credits as may be necessary for the clearance of securities
transactions and may make margin deposits in connection with transactions in
options, futures contracts and options on such contracts.
4. Make short sales of securities or maintain a short position for the
account of the Portfolio, unless at all times when a short position is open
the Portfolio owns an equal amount of such securities or owns securities
which, without payment of any further consideration, are convertible or
exchangeable for securities of the same issue as, and in equal amounts to, the
securities sold short.
<PAGE>
5. Underwrite securities issued by other persons, except to the extent that
in connection with the disposition of its portfolio investments it may be
deemed to be an underwriter under federal securities laws.
6. Purchase or sell real estate, although a Portfolio may purchase
securities of issuers which deal in real estate, securities which are secured
by interests in real estate and securities representing interests in real
estate.
7. Purchase or sell commodities or commodity contracts, except that all
Portfolios other than the TCW Money Market Portfolio may purchase or sell
financial futures contracts and related options. For purposes of this
restriction, currency contracts or hybrid investments shall not be considered
commodities.
8. Make loans, except by purchase of debt obligations in which the Portfolio
may invest consistently with its investment policies, by entering into
repurchase agreements or through the lending of its portfolio securities.
9. Invest in the securities of any issuer if, immediately after such
investment, more than 5% of the total assets of the Portfolio (taken at
current value) would be invested in the securities of such issuer or acquire
more than 10% of the outstanding voting securities of any issuer, provided
that this limitation does not apply to obligations issued or guaranteed as to
principal and interest by the U.S. government or its agencies and
instrumentalities or to repurchase agreements secured by such obligations and
that up to 25% of the Portfolio's total assets (taken at current value) may be
invested without regard to this limitation.
10. Invest more than 25% of the value of its total assets in any one
industry, provided that this limitation does not apply to obligations issued
or guaranteed as to interest and principal by the U.S. government, its
agencies and instrumentalities, and repurchase agreements secured by such
obligations, and in the case of the TCW Money Market Portfolio obligations of
domestic branches of United States banks.
11. Invest more than 10% (15% with respect to the T. Rowe Price Equity
Income Portfolio, the T. Rowe Price Growth Stock Portfolio, the T. Rowe Price
International Stock Portfolio, the Dreyfus Small Cap Value Portfolio, the
Opportunity Value Portfolio and the Enhanced Index Portfolio) of its assets
(taken at current value at the time of each purchase) in illiquid securities
including repurchase agreements maturing in more than seven days.
12. Purchase securities of any issuer for the purpose of
exercising control or management.
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess
or deficiency occurs or exists immediately after and as a result of such
investment.
Other Policies
<PAGE>
The TCW Money Market Portfolio may not invest in the securities of any one
issuer if, immediately after such investment, more than 5% of the total assets
of the Portfolio (taken at current value) would be invested in the securities
of such issuer, provided that this limitation does not apply to obligations
issued or guaranteed as to principal and interest by the U.S. government or
its agencies and instrumentalities or to repurchase agreements secured by such
obligations and that with respect to 25% of the Portfolio's total assets more
than 5% may be invested in securities of any one issuer for three business
days after the purchase thereof if the securities have been assigned the
highest quality rating by NRSROs, or if not rated, have been determined to be
of comparable quality. These limitations apply to time deposits, including
certificates of deposit, bankers' acceptances, letters of credit and similar
instruments; they do not apply to demand deposit accounts. For a description
of the NRSROs' ratings, see the Appendix.
In addition, the TCW Money Market Portfolio may not purchase any security
that matures more than thirteen months (397 days) from the date of purchase or
which has an implied maturity of more than thirteen months (397 days) except
as provided in (1) below. For the purposes of satisfying this requirement, the
maturity of a portfolio instrument shall be deemed to be the period remaining
until the date noted on the face of the instrument as the date on which the
principal amount must be paid, or in the case of an instrument called for
redemption, the date on which the redemption payment must be made, except
that:
1. An instrument that is issued or guaranteed by the U.S. government or any
agency thereof which has a variable rate of interest readjusted no less
frequently than every 25 months (762 days) may be deemed to have a maturity
equal to the period remaining until the next readjustment of the interest
rate.
2. A variable rate instrument, the principal amount of which is scheduled on
the face of the instrument to be paid in thirteen months (397 days) or less,
may be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
3. A variable rate instrument that is subject to a demand feature may be
deemed to have a maturity equal to the longer of the period remaining until
the next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
4. A floating rate instrument that is subject to a demand feature may be
deemed to have a maturity equal to the period remaining until the principal
amount can be recovered through demand.
5. A repurchase agreement may be deemed to have a maturity equal to the
period remaining until the date on which the repurchase of the underlying
securities is scheduled to occur, or where no date is specified, but the
agreement is subject to
<PAGE>
demand, the notice period applicable to a demand for the
repurchase of the securities.
6. A portfolio lending agreement may be treated as having a maturity equal
to the period remaining until the date on which the loaned securities are
scheduled to be returned, or where no date is specified, but the agreement is
subject to demand, the notice period applicable to a demand for the return of
the loaned securities.
Each of the Value Equity and Dreyfus Small Cap Value Portfolios may not
invest more than 5% of the value of its total assets in warrants not listed on
either the New York or American Stock Exchange. Each of the Opportunity Value
and Enhanced Index Portfolios will not invest in warrants if, as a result
thereof, more than 2% of the value of the total assets of the Portfolio would
be invested in warrants which are not listed on the New York Stock Exchange,
the American Stock Exchange, or a recognized foreign exchange, or more than 5%
of the value of the total assets of the Portfolio would be invested in
warrants whether or not so listed. However, the acquisition of warrants
attached to other securities is not subject to this restriction. Each of the
T. Rowe Price Equity Income, T. Rowe Price Growth Stock and T. Rowe Price
International Stock Portfolios will not invest in warrants if, as a result
thereof, the Portfolio will have more than 5% of the value of its total assets
invested in warrants; provided that this restriction does not apply to
warrants acquired as a result of the purchase of another security.
PERFORMANCE INFORMATION
Total return and yield will be computed as described below.
Total Return
Each Portfolio's "average annual total return" figures described and shown
in the Prospectus are computed according to a formula prescribed by the
Securities and Exchange Commission. The formula can be expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1000 payment
made at the beginning of the 1, 5, or 10 years (or other) periods at the end
of the 1, 5, or 10 years (or other) periods (or fractional portion thereof)
The table below shows the average annual total return for
the TCW Managed Asset Allocation, Value Equity, Dreyfus Small
Cap Value, Dreyfus U.S. Government Securities, T. Rowe Price
Equity Income, T. Rowe Price Growth Stock and Opportunity
Value Portfolios for the specific periods.
<PAGE>
With respect to the T. Rowe Price International Stock Portfolio which
commenced operation April 8, 1991, effective January 1, 1995, the Portfolio's
Adviser was changed to Rowe Price-Fleming International, Inc.
("Price-Fleming"). Prior to March 24, 1995, the Portfolio was known as the
Global Growth Portfolio. Subsequent to such time, the Portfolio's investment
objective was changed from investments in small capitalization companies on a
global basis to investments in a broad range of established companies on an
international basis (i.e., non-U.S. companies). Because of the change of the
Portfolio's Adviser, performance information for the period from inception to
December 31, 1995 is not presented. Such information is not reflective of
Price- Fleming's ability to manage the Portfolio. Information with respect to
the Portfolio's per share income and capital changes from inception through
December 31, 1996 is set forth in the Prospectus. Average annual total return
information for the period from inception to December 31, 1994 is available
upon written request to the Fund.
<PAGE>
For Period
For the One For the Five From Incep-
Year Period Year Period tion (1) to
Ended December Ended December December 31,
31, 1996 31, 1996 1996
TCW Managed Asset
Allocation(2).. 17.82%/17.82%* 12.66%/12.39%* 12.72%/12.41%*
T. Rowe Price
International
Stock.......... 15.23%/15.23%* N/A 12.77%/12.77%*
Value Equity(3).. 23.84%/23.84%* N/A 17.46%/17.32%*
Dreyfus Small
Cap Value(4)... 25.63%/25.63%* N/A 13.19%/13.07%*
T. Rowe Price
Equity Income(5) 19.88%/19.88%* N/A 25.19%/25.19%*
T. Rowe Price
Growth Stock(5). 20.77%/20.77%* N/A 28.85%/28.85%*
Dreyfus U.S.
Government
Securities(6).. 1.81%/1.81%* N/A 6.23%/6.08%*
Opportunity
Value(7).. N/A N/A .60%/.20%*
------------------------
* The figure shows what the Portfolio's performance would have been in the
absence of fee waivers and/or reimbursement of other expenses.
(1) With respect to T. Rowe Price International Stock
Portfolio, period commenced on January 1, 1995.
(2) The Portfolio commenced operations on April 8, 1991.
(3) The Portfolio commenced operations on May 27, 1993.
(4) The Portfolio commenced operations on May 4, 1993.
(5) The Portfolio commenced operations on January 3, 1995.
(6) The Portfolio commenced operations on May 13, 1994.
(7) The Portfolio commenced operations on November 15, 1996.
The calculations of total return assume the reinvestment of all dividends
and capital gains distributions on the reinvestment dates during the period
and the deduction of all recurring expenses that were charged to shareholders
accounts. The above table does not reflect charges and deductions which are,
or may be, imposed under the Contracts.
The performance of each Portfolio will vary from time to time in response
to fluctuations in market conditions, interest rates, the composition of the
Portfolio's investments and expenses. Consequently, a Portfolio's performance
figures
<PAGE>
are historical and should not be considered representative of
the performance of the Portfolio for any future period.
Yield
From time to time, the Fund may quote the TCW Money Market Portfolio's
and the Dreyfus U.S. Government Securities Portfolio's yield and effective
yield in advertisements or in reports or other communications to shareholders.
Yield quotations are expressed in annualized terms and may be quoted on a
compounded basis.
The annualized current yield for the TCW Money Market Portfolio is
computed by: (a) determining the net change in the value of a hypothetical
pre-existing account in the Portfolio having a balance of one share at the
beginning of a seven calendar day period for which yield is to be quoted; (b)
dividing the net change by the value of the account at the beginning of the
period to obtain the base period return; and (c) annualizing the results
(i.e., multiplying the base period return by 365/7). The net change in the
value of the account reflects the value of additional shares purchased with
dividends declared on the original share and any such additional shares, but
does not include realized gains and losses or unrealized appreciation and
depreciation. In addition, the TCW Money Market Portfolio may calculate a
compound effective annualized yield by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365/7 and
subtracting 1.
The Dreyfus U.S. Government Securities Portfolio's 30-day yield will be
calculated according to a formula prescribed by the Securities and Exchange
Commission. The formula can be expressed as follows:
YIELD = 2[(a-b+1)6-1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursement)
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the net asset value per share on the last day
of the period
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by the Portfolio at a
discount or premium, the formula generally calls for amortization of the
discount or premium; the amortization schedule will be adjusted monthly to
reflect changes in the market values of the debt obligations.
Yield information is useful in reviewing a Portfolio's performance, but
because yields fluctuate, such information cannot necessarily be used to
compare an investment in a
<PAGE>
Portfolio's shares with bank deposits, savings accounts and similar investment
alternatives which often provide an agreed or guaranteed fixed yield for a
stated period of time. Shareholders should remember that yield is a function
of the kind and quality of the instruments in the Portfolios' investment
portfolios, portfolio maturity, operating expenses and market conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a
Portfolio from the continuous sale of its shares will likely be invested in
instruments producing lower yields than the balance of the Portfolio's
investments, thereby reducing the current yield of the Portfolio. In periods
of rising interest rates, the opposite can be expected to occur.
Non-Standardized Performance
In addition to the performance information described above, the Fund may
provide total return information with respect to the Portfolios for designated
periods, such as for the most recent six months or most recent twelve months.
This total return information is computed as described under "Total Return"
above except that no annualization is made.
PORTFOLIO TRANSACTIONS
Subject to the supervision and control of the Manager and the Trustees of
the Fund, each Portfolio's Adviser is responsible for decisions to buy and
sell securities for its account and for the placement of its portfolio
business and the negotiation of commissions, if any, paid on such
transactions. Brokerage commissions are paid on transactions in equity
securities traded on a securities exchange and on options, futures contracts
and options thereon. Fixed income securities and certain equity securities in
which the Portfolios invest are traded in the over-the-counter market. These
securities are generally traded on a net basis with dealers acting as
principal for their own account without a stated commission, although prices
of such securities usually include a profit to the dealer. In over-the-counter
transactions, orders are placed directly with a principal market maker unless
a better price and execution can be obtained by using a broker. In
underwritten offerings, securities are usually purchased at a fixed price
which includes an amount of compensation to the underwriter generally referred
to as the underwriter's concession or discount. Certain money market
securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. U.S. government securities are generally
purchased from underwriters or dealers, although certain newly-issued U.S.
government securities may be purchased directly from the U.S. Treasury or from
the issuing agency or instrumentality. Each Portfolio's Adviser is responsible
for effecting its portfolio transactions and will do so in a manner deemed
fair and reasonable to the Portfolio and not according to any formula. The
primary consideration in all
<PAGE>
portfolio transactions will be prompt execution of orders in an efficient
manner at a favorable price. In selecting broker-dealers and negotiating
commissions, an Adviser considers the firm's reliability, the quality of its
execution services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference may be given
to brokers that provide the Portfolios or their Advisers with brokerage and
research services within the meaning of Section 28(e) of the Securities
Exchange Act of 1934. Each Portfolio's Adviser is of the opinion that, because
this material must be analyzed and reviewed, its receipt and use does not tend
to reduce expenses but may benefit the Portfolio by supplementing the
Adviser's research. In seeking the most favorable price and execution
available, an Adviser may, if permitted by law, consider sales of the
Contracts as described in the Prospectus a factor in the selection of
broker-dealers.
The Board of Trustees of the Fund has authorized the Manager and the
Advisers to enter into arrangements with brokers who execute brokerage
transactions for the Portfolios whereby a portion of the commissions earned by
such brokers will be shared with a broker-dealer affiliate of the Manager. The
affiliated broker will act as an "introducing broker" in the transaction.
Subject to the requirements of applicable law including seeking best price and
execution of orders, commissions paid to executing brokers will not exceed
ordinary and customary brokerage commissions.
The Board of Trustees has determined that the Fund's brokerage
commissions should be utilized for the Fund's benefit to the extent possible.
After reviewing various alternatives, the Board concluded that commissions
received by the broker-dealer affiliate of the Manager can be used to promote
the distribution of the Fund's shares including payments to broker-dealers who
sell the Contracts, the costs of training and educating such broker-dealers
with respect to the Contracts and other bona-fide distribution costs payable
to unaffiliated persons. Other than incidental costs related to establishing
the broker-dealer affiliate as an "introducing broker", no portion of the
commissions received by the broker-dealer affiliate of the Manager will be
retained for its or any affiliate's benefit. On a quarterly basis, the Manager
will report to the Board of Trustees the aggregate commissions received by its
broker-dealer affiliate and the distribution expenses paid from such
commissions. The Board of Trustees will periodically review the extent to
which the foregoing arrangement reduces distribution expenses currently being
incurred by the Manager or its affiliates on behalf of the Fund. The Board of
Trustees may determine from time to time other appropriate uses for the Fund
from the commissions it pays to executing brokers.
The Manager will not implement this program until any required exemptive
or no-action relief is obtained from the Securities and Exchange Commission.
An Adviser may effect portfolio transactions for other investment
companies and advisory accounts. Research services furnished by broker-dealers
through which a Portfolio effects
<PAGE>
its securities transactions may be used by the Portfolio's Adviser in
servicing all of its accounts; not all such services may be used in connection
with the Portfolio. In the opinion of each Adviser, it is not possible to
measure separately the benefits from research services to each of its
accounts, including a Portfolio. Whenever concurrent decisions are made to
purchase or sell securities by a Portfolio and another account, the
Portfolio's Adviser will attempt to allocate equitably portfolio transactions
among the Portfolio and other accounts. In making such allocations between the
Portfolio and other accounts, the main factors to be considered are the
respective investment objectives, the relative size of portfolio holdings of
the same or comparable securities, the availability of cash for investment,
the size of investment commitments generally held, and the opinions of the
persons responsible for recommending investments to the Portfolio and the
other accounts. In some cases this procedure could have an adverse effect on a
Portfolio. In the opinion of each Adviser, however, the results of such
procedures will, on the whole, be in the best interest of each of the
accounts.
The Adviser to the Value Equity and Opportunity Value Portfolios may
execute brokerage transactions through Oppenheimer & Co. Inc. ("Opco"), an
affiliated broker-dealer of the Adviser, acting as agent in accordance with
procedures established by the Fund's Board of Trustees, but will not purchase
any securities from or sell any securities to Opco acting as principal for its
own account.
The Adviser to the T. Rowe Price International Stock, T. Rowe Price
Equity Income annddanndd T. Rowe Price Growth Stock Portfolios may execute
portfolio transactions through certain affiliates of Robert Fleming Holdings
Limited and Jardine Fleming Group Limited, persons indirectly related to the
Adviser, acting as agent in accordance with procedures established by the
Fund's Board of Trustees, but will not purchase any securities from or sell
any securities to any such affiliate acting as principal for its own account.
The Adviser to the Enhanced Index Portfolio may execute portfolio
transactions through certain of its affiliated brokers, acting as agent in
accordance with the procedures established by the Fund's Board of Trustees,
but will not purchase any securities from or sell any securities to such
affiliate acting as principal for its own account.
For the year ended December 31, 1994, the TCW Money Market Portfolio did
not pay any brokerage commissions, while the TCW Managed Asset Allocation
Portfolio and T. Rowe Price International Stock Portfolio paid $175,548 and
$554,048, respectively, in brokerage commissions. For the year ended December
31, 1994, the Value Equity Portfolio and Dreyfus Small Cap Value Portfolio
paid $58,472 and $100,262, respectively, in brokerage commissions, of which
$32,796 (78.29%) with respect to the Value Equity Portfolio and $58,028
(72.78%) with respect to the Dreyfus Small Cap Value Portfolio was paid to
Opco. For the fiscal period ended December 31, 1994, the Dreyfus U.S.
Government Securities Portfolio paid no brokerage commissions. For the year
ended December 31, 1995, the TCW Money Market Portfolio and the Dreyfus U.S.
Government Securities Portfolio did not pay any brokerage commissions, while
the TCW Managed Asset Allocation Portfolio paid $187,103 in brokerage
commissions. For the year ended December 31, 1995, the T. Rowe Price
International Stock Portfolio, the Value Equity Portfolio and the Dreyfus
Small Cap Value Portfolio paid $395,753, $57,800, and $101,885, respectively,
in brokerage commissions of which $33,338 (8.42%), $15,101 (3.82%) and $673
(.17%) with respect to the T. Rowe Price International Stock Portfolio was
paid to Robert Fleming Holdings Limited and Jardine Fleming Group Limited, Ord
Minnett and OpCo, respectively, $29,271 (50.64%) with respect to the Value
Equity Portfolio and $36,216 (35.55%) with respect to the Dreyfus Small Cap
Value Portfolio was paid to OpCo. For the fiscal period ended December 31,
1995, the T. Rowe Price Equity Income Portfolio and the T. Rowe Price Growth
Stock Portfolio paid $18,059 and $39,447, respectively in brokerage
commissions of which $10 (0.06%) with respect to the T. Rowe Price Equity
Income Portfolio was paid to OpCo and $536 (1.36%), $507 (1.29%) and $23
(0.06%) with respect to the T. Rowe Price Growth Stock Portfolio was paid to
Boston Safe Deposit and Trust Company, Jardine Fleming Group Limited and OpCo,
respectively. For the year ended December 31, 1996, the Dreyfus U.S.
Government Securities Portfolio did not pay any brokerage commissions, while
the TCW Money Market Portfolio and the TCW Managed Asset Allocation Portfolio
paid $2,724 and $93,009 in brokerage commissions, respectively. For the year
ended December 31, 1996, the T. Rowe Price International Stock Portfolio, the
Value Equity Portfolio and the Dreyfus Small Cap Value Portfolio paid
$136,536, $90,589, and $398,554, respectively, in brokerage commissions of
which $4,462 (3.27%), $2,908 (2.13%) and $906 (.66%) with respect to the T.
Rowe Price International Stock Portfolio was paid to Robert Fleming Holdings
Limited and Jardine Fleming Group Limited, Ord Minnett and OpCo, respectively,
$35,624 (39.32%) with respect to the Value Equity Portfolio and $34,511
(8.66%) with respect to the Dreyfus Small Cap Value Portfolio was paid to
OpCo. For the fiscal year ended December 31, 1996, the T. Rowe Price Equity
Income Portfolio and the T. Rowe Price Growth Stock Portfolio paid $55,261 and
$69,409, respectively in brokerage commissions of which $120 (.22%) with
respect to the T. Rowe Price Equity Income Portfolio was paid to OpCo and
$3,037 (4.38%) and $63 (.09%) with respect to the T. Rowe Price Growth Stock
Portfolio was paid to Robert Flemings Holdings Limited and OpCo, respectively.
For the fiscal period ended December 31, 1996, the Opportunity Value Portfolio
paid $291 in brokerage commiss
MANAGEMENT OF THE FUND
Trustees and Officers
The Trustees and executive officers of the Trust, their ages and their
principal occupations during the past five years are set forth below. Unless
otherwise indicated, the business address of each is 2101 East Coast Highway,
Suite 300, Corona del Mar, California 92625.
<PAGE>
Principal
Position(s) Occupation(s)
Held with During Past
Name, Age and Address Registrant 5 Years
James R. McInnis (49) President President of Endeavor
Group (broker-dealer)
since June, 1991;
President of McGuinness &
Associates (insurance
marketing) from March,
1983 to June, 1991.
*Vincent J. McGuinness (62) Trustee Chairman, Chief Executive
Officer and Director of
McGuinness & Associates,
Endeavor Group, VJM
Corporation (oil and gas),
McGuinness Group
(insurance marketing) and
until January, 1994 Swift
Energy Marketing Company
and since September, 1988
Endeavor Management Co.;
President of VJM
Corporation, Endeavor
Management Co. and, since
February, 1996, McGuinness
& Associates.
Timothy A. Devine (62) Trustee Prior to September, 1993,
1424 Dolphin Terrace President and Chief
Corona del Mar, California Executive Officer, Devine
92625 Properties, Inc. Since
September, 1993, Vice
President, Plant Control,
Inc. (landscape
contracting and
maintenance).
<PAGE>
Principal
Position(s) Occupation(s)
Held with During Past
Name, Age and Address Registrant 5 Years
Thomas J. Hawekotte (62) Trustee President, Thomas J.
1200 Lake Shore Drive Hawekotte, P.C. (law
Chicago, Illinois 60610 practice).
Steven L. Klosterman (45) Trustee Since July, 1995,
462 Stevens Avenue President of Klosterman
Suite 206 Capital Corporation
Solana Beach, California (investment adviser);
92075 Investment Counselor,
Robert J. Metcalf &
Associates, Inc.
(investment adviser) from
August, 1990 to June,
1995.
*Halbert D. Lindquist (51) Trustee President, Lindquist
1650 E. Fort Lowell Road Enterprises, Inc.
Tucson, Arizona 85719-2324 (financial services) and
since December, 1987
Tucson Asset Management,
Inc. (financial services),
and since November, 1987,
Presidio Government
Securities, Incorporated
(broker-dealer).
R. Daniel Olmstead, Jr. (66) Trustee Rancher since December,
2885 N. River Road 1989.
St. Anthony, Idaho 83445
Norman Ridley (51) Vice Since 1985, Senior Vice
865 S. Figueroa Street President President, TCW Asset
Suite 1800 Management Company and
Los Angeles, California Trust Company of the West.
90017
<PAGE>
Principal
Position(s) Occupation(s)
Held with During Past
Name, Age and Address Registrant 5 Years
Ronald E. Robison (58) Vice Since November, 1987,
865 S. Figueroa Street President Managing Director and
Suite 1800 Chief Operating Officer,
Los Angeles, California TCW Funds Management Inc.;
90017 since March, 1990,
Managing Director, Trust
Company of the West and
TCW Asset Management
Company.
James M. Goldberg (51) Vice Since June, 1984, Managing
865 S. Figueroa Street President Director, TCW Asset
Suite 1800 Management Company and
Los Angeles, California Trust Company of the West
90017 and since January, 1987
Managing Director, TCW
Funds Management, Inc.
Eileen Rominger (42) Vice Since May, 1994, Managing
One World Financial Center President Director, Oppenheimer
New York, New York 10281 Capital, prior thereto
Senior Vice President, Oppenheimer
Capital; Portfolio Manager,
Oppenheimer Quest Value Fund, Inc.,
OCC Accumulation Trust, Enterprise
Accumulation Trust and Penn Series
Fund, open-end investment
companies.
<PAGE>
Principal
Position(s) Occupation(s)
Held with During Past
Name, Age and Address Registrant 5 Years
**Vincent J. McGuinness, Jr. Chief Since September, 1996,
(32) Financial Chief Financial Officer
Officer and since May, 1996,
(Treasurer) Director of Endeavor
Management Co.; since August, 1996,
Chief Financial officer of VJM
Corporation; since May, 1996,
Executive Vice President and
Director of Sales, Western Division
of Endeavor Group; Chief Financial
Officer of McGuinness & Associates;
since March, 1996, Director of
McGuinness Group. From July, 1993
to August, 1995 Rocky Mountain
Regional Marketing Director for
Endeavor Group. MBA graduate
student from September, 1991 to
May, 1993.
<PAGE>
Principal
Position(s) Occupation(s)
Held with During Past
Name, Age and Address Registrant 5 Years
Pamela A. Shelton (48) Secretary Since October, 1993,
Executive Secretary to
Chairman of the Board and
Chief Executive Officer
of, and since April, 1996,
Secretary of McGuinness &
Associates, Endeavor
Group, VJM Corporation,
McGuinness Group and
Endeavor Management Co.;
from July, 1992 to
October, 1993,
Administrative Secretary,
Mayor and City Council,
City of Laguna Niguel,
California; and from
November, 1986 to July,
1992, Executive Secretary
to Chairman of the Board
and Chief Executive
Officer of, and from
October, 1990 to July,
1992, Secretary of
McGuinness & Associates,
Endeavor Group, VJM
Corporation, McGuinness
Group, Endeavor Management
Co. and Swift Energy
Marketing Company.
* An "interested person" of th FFund s defined in the 1940
Act.
** Vincent J. McGuinness, Jr. is the son of Vincent J.
McGuinness.
No remuneration will be paid by the Fund to any Trustee or officer of the
Fund who is affiliated with the Manager or the Advisers. Each Trustee who is
not an affiliated person of the Fund will be reimbursed for out-of-pocket
expenses and receives an annual fee of $2,500 and $500 for attendance at each
regularly scheduled Trustees' meeting. Set forth below for each of the
Trustees of the Fund is the aggregate compensation paid to such Trustees for
the fiscal year ended December 31, 1996.
<PAGE>
COMPENSATION TABLE
Total
Compensation
From Fund
Aggregate and Fund
Name of Compensation Complex
Person From Fund Paid to Trustees
Vincent J. McGuinness $ - $ -
Timothy A. Devine 4,500 4,500
Thomas J. Hawekotte 4,500 4,500
Steven L. Klosterman 4,500 4,500
Halbert D. Lindquist 4,000 4,000
R. Daniel Olmstead 4,500 4,500
The Agreement and Declaration of Trust of the Fund provides that the Fund
will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved because
of their offices with the Fund, except if it is determined in the manner
specified in the Agreement and Declaration of Trust that they have not acted
in good faith in the reasonable belief that their actions were in the best
interests of the Fund or that such indemnification would relieve any officer
or Trustee of any liability to the Fund or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of his
duties. The Fund, at its expense, provides liability insurance for the benefit
of its Trustees and officers.
As of the date of this Statement of Additional Information, the officers
and Trustees of the Fund as a group owned less than 1% of the outstanding
shares of the Fund.
The Manager
The Management Agreement between the Fund and the Manager with respect to
the TCW Money Market, TCW Managed Asset Allocation and T. Rowe Price
International Stock Portfolios was approved by the Trustees of the Fund
(including all of the Trustees who are not "interested persons" of the
Manager) on July 20, 1992, and by the shareholders of the Fund on November 23,
1992. With respect to the Value Equity and Dreyfus Small Cap Value Portfolios,
the Management Agreement was approved by the Trustees of the Fund (including
all of the Trustees who are not "interested persons" of the Manager) on April
19, 1993 and by PFL Life Insurance Company, the sole shareholder of the Value
Equity and Dreyfus Small Cap Value Portfolios, on April 19, 1993. With respect
to the Dreyfus U.S. Government Securities Portfolio, the Management Agreement
was approved by the Trustees of the Fund (including all of the Trustees who
are not "interested persons" of the Manager) on January 24, 1994 and by PFL
Life Insurance Company, the sole shareholder of the Dreyfus U.S. Government
Securities Portfolio, on March 7, 1994. With respect to the T. Rowe Price
Equity Income and T. Rowe Price Growth Stock Portfolios, the Management
Agreement was approved by the Trustees of the Fund (including all of the
Trustees who are not "interested persons" of the Manager) on October 24, 1994
and by PFL Life Insurance Company, the sole shareholder of the T. Rowe Price
Equity Income and T. Rowe Price Growth Stock Portfolios, on November 1, 1994.
With respect to the Opportunity Value and Enhanced Index Portfolios, the
Management Agreement was approved by the Trustees of the Fund (including all
of the Trustees who are not "interested persons" of the Manager) on August 13,
1996 and by PFL Life Insurance Company, the sole shareholder of the
Opportunity Value and Enhanced Index Portfolios, on August 26, 1996. See
"Organization and Capitalization of the Fund." The Management Agreement will
continue in force for two years from its date, November 23, 1992 with respect
to the TCW Money Market, TCW Managed Asset Allocation and T. Rowe Price
International Stock Portfolios, April 19, 1993 with respect to the Value
Equity and Dreyfus Small Cap Value Portfolios, March 25, 1994 with respect to
the Dreyfus U.S. Government Securities Portfolio, December 28, 1994 with
respect to the T. Rowe Price Equity Income and T. Rowe Price Growth Stock
Portfolios, August 26, 1996 with respect to the Opportunity Value and Enhanced
Index Portfolios and from year to year thereafter, but only so long as its
continuation as to each Portfolio is specifically approved at least annually
(i) by the Trustees or by the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Portfolio, and (ii) by the vote
of a majority of the Trustees who are not parties to the Management Agreement
or "interested persons" (as defined in the 1940 Act) of any such party, by
votes cast in person at a meeting called for the purpose of voting on such
approval. The Management Agreement provides that it shall terminate
automatically if assigned, and that it may be terminated as to any Portfolio
without penalty by the Trustees of the Fund or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Portfolio
upon 60 days' prior written notice to the Manager, or by the Manager upon 90
days' prior written notice to the Fund, or upon such shorter notice as may be
mutually agreed upon. In the event the Manager ceases to be the Manager of the
Fund, the right of the Fund to use the identifying name of "Endeavor" may be
withdrawn.
The Advisers
The Investment Advisory Agreements between the Manager and TCW Funds
Management, Inc. were approved by the Trustees of the Fund (including all the
Trustees who are not "interested persons" of the Manager or of the Adviser) on
July 20, 1992, and by the shareholders of the Fund on November 23, 1992. The
Investment Advisory Agreements between the Manager and OpCap Advisors
(formerly known as Quest for Value Advisors) were approved by the Trustees of
the Fund (including all of the Trustees who are not "interested persons" of
the Manager or of the Adviser) on April 19, 1993 with respect to the Value
Equity Portfolio and August 13, 1996 with respect to the Opportunity Value
Portfolio and by PFL Life Insurance Company as sole shareholder of the Value
Equity and Opportunity Value Portfolios on April 19, 1993 and August 26, 1996,
respectively. The Investment Advisory Agreement between the Manager and The
Boston Company Asset Management, Inc. was approved by the Trustees of the Fund
(including all of the Trustees who are not "interested persons" of the Manager
or of the Adviser) on January 24, 1994 and by PFL Life Insurance Company as
sole shareholder of the Dreyfus U.S. Government Securities Portfolio on March
7, 1994. The Investment Advisory Agreement was transferred to The Dreyfus
Corporation effective May 1, 1996. The Investment Advisory Agreements between
the Manager and T. Rowe Price Associates, Inc. were approved by the Trustees
of the Fund (including all of the Trustees who are not "interested persons" of
the Manager or of the Adviser) on October 24, 1994 and by PFL Life Insurance
Company as sole shareholder of the T. Rowe Price Equity Income and T. Rowe
Price Growth Stock Portfolios on November 1, 1994. The Investment Advisory
Agreement between the Manager and J.P. Morgan Investment Management Inc. was
approved by the Trustees of the Fund (including all of the Trustees who are
not "interested persons" of the Manager or of the Adviser) on August 13, 1996
and by PFL Life Insurance Company as sole shareholder of the Enhanced Index
Portfolio on August 26, 1996. Effective January 1, 1995, Price-Fleming became
the Adviser of the T. Rowe Price International Stock Portfolio. The Investment
Advisory Agreement with Price-Fleming for the T. Rowe Price International
Stock Portfolio was approved by the Trustees of the Fund (including all of the
Trustees who are not "interested persons" of the Manager or of the Adviser) on
December 19, 1994 and by shareholders of the Portfolio on March 24, 19995.
Effective September 16, 1996, The Dreyfus Corporation becammee the Adviser of
the Dreyfus Small CCap Value Portfolio. The Investment Advisory Agreement with
The Dreyfus Corporation was approved by the Trustees of the Fund (including
all of the Trustees who are not "interested persons" of the Manager or of the
Adviser) on August 13, 1996 and by the shareholders of the Portfolio on
October 29, 1996. See "Organization and Capitalization of the Fund."
Each agreement will continue in force for two years from its date,
November 23, 1992 with respect to the TCW Money Market and TCW Managed Asset
Allocation Portfolios, April 19, 1993 with respect to the Value Equity
Portfolio, March 25, 1994 with respect to the Dreyfus U.S. Government
Securities Portfolio, December 28, 1994 with respect to the T. Rowe Price
Equity Income and T. Rowe Price Growth Stock Portfolios, January 1, 1995 with
respect to the T. Rowe Price International Stock Portfolio, September 16, 1996
with respect to the Dreyfus Small Cap Value Portfolio, November 4, 1996 with
respect to the Opportunity Value Portfolio and April 30, 1997 with respect to
the Enhanced Index Portfolio, and from year to year thereafter, but only so
long as its continuation as to a Portfolio is specifically approved at least
annually (i) by the Trustees or by the vote of a majority of the outstanding
voting securities (as defined in the 1940 Act) of the Portfolio, and (ii) by
the vote of a majority of the Trustees who are not parties to the agreement or
interested persons (as defined in the 1940 Act) of any such party, by votes
cast in person at a meeting called for the purpose of voting on such approval.
Each Investment Advisory Agreement provides that it shall terminate
automatically if assigned or if the Management Agreement with respect to the
related Portfolio terminates, and that it may be terminated as to a Portfolio
without penalty by the Manager, by the Trustees of the Fund or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Portfolio on not less than 60 days' (90 days' with respect to the Enhanced
Index Portfolio) prior written notice to the Adviser or by the Adviser on not
less than 150 days' prior written notice to the Manager, or upon such shorter
notice as may be mutually agreed upon.
The following table shows the fees paid by each of the Portfolios and any
fee waivers or reimbursements during the fiscal years ended December 31, 1994,
December 31, 1995 and December 31, 1996.
1996
Investment Investment
Management Management Other
Fee Fee Expenses
Paid Waived Reimbursed
TCW Money Market
Portfolio....... $ 165,212 $ -- --
TCW Managed Asset
Allocation
Portfolio....... 4,639,338 -- --
T. Rowe Price
International
Stock Portfolio. 1,015,179 -- --
Value Equity
Portfolio....... 768,579 -- --
Dreyfus Small
Cap Value
Portfolio....... 535,895 -- --
Dreyfus U.S.
Government
Securities
Portfolio....... 122,058 -- --
T. Rowe Price
Equity Income
Portfolio....... 369,356 -- --
T. Rowe Price
Growth Stock
Portfolio....... 313,356 -- --
Opportunity Value
Portfolio*...... 197 -- 2,802
1995**
Investment Investment
Management Management Other
Fee Fee Expenses
Paid Waived Reimbursed
TCW Money Market
Portfolio....... $ 117,465 $ --- ---
TCW Managed Asset
Allocation
Portfolio....... 1,388,652 --- ---
T. Rowe Price
<PAGE>
International
Stock Portfolio. 759,830 --- ---
Value Equity
Portfolio....... 395,205 --- ---
Dreyfus Small Cap
Value Portfolio. 339,672 --- ---
Dreyfus U.S.
Government Securities
Portfolio....... 42,531 --- ---
T. Rowe Price
Equity Income
Portfolio....... 70,664 --- ---
T. Rowe Price
Growth Stock
Portfolio....... 75,681 --- ---
1994
Investment
Management Investment Other
Fee Management Expenses
Paid Fee Waived Reimbursed
TCW Money Market
Portfolio........$ 111,100 $--- $ ---
TCW Managed Asset
Allocation
Portfolio....... 1,151,688 --- ---
T. Rowe Price
International
Stock Portfolio. 696,732 --- ---
Value Equity
Portfolio....... 191,316 --- ---
Dreyfus Small
Cap Value
Portfolio....... 214,198 --- ---
Dreyfus U.S.
Government
Securities
Portfolio***.... 8,087 8,087 4,955
---------------
* The information presented with respect to the Opportunity Value Portfolio
is for the period November 15, 1996 (commencement of operations) ended
December 31, 1996.
** The information presented for the T. Rowe Price Equity Income and T. Rowe
Price Growth Stock Portfolios is for the period January 3, 1995
(commencement of operations) ended December 31, 1995.
<PAGE>
*** The information presented with respect to the Dreyfus U.S. Government
Securities Portfolio is for the period May 13, 1994 (commencement of
operations) ended December 31, 1994.
---------------------------
Each Investment Advisory Agreement provides that the Adviser shall not be
subject to any liability to the Fund or the Manager for any act or omission in
the course of or connected with rendering services thereunder in the absence
of willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties on the part of the Adviser.
REDEMPTION OF SHARES
The Fund may suspend redemption privileges or postpone the date of
payment on shares of the Portfolios for more than seven days during any period
(1) when the New York Stock Exchange is closed or trading on the Exchange is
restricted as determined by the Securities and Exchange Commission, (2) when
an emergency exists, as defined by the Securities and Exchange Commission,
which makes it not reasonably practicable for a Portfolio to dispose of
securities owned by it or fairly to determine the value of its assets, or (3)
as the Securities and Exchange Commission may otherwise permit.
The value of the shares on redemption may be more or less than the
shareholder's cost, depending upon the market value of the portfolio
securities at the time of redemption.
NET ASSET VALUE
The net asset value per share of each Portfolio is determined as of the
close of regular trading of the New York Stock Exchange (currently 4:00 p.m.,
New York City time), Monday through Friday, exclusive of national business
holidays. The Fund will be closed on the following national business holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
the primary market is on a domestic or foreign exchange or which are traded
over-the-counter and quoted on the NASDAQ System will be valued at the last
sale price on the day of valuation or, if there was no sale that day, at the
last reported bid price, using prices as of the close of trading. Portfolio
securities not quoted on the NASDAQ System that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, will be valued at the most recently
quoted bid price provided by the principal market makers.
In the case of any securities which are not actively traded, reliable
market quotations may not be considered to be readily available. These
investments are stated at fair value as determined under the direction of the
Trustees. Such fair value is expected to be determined by utilizing
information furnished by a pricing service which determines valuations for
normal, institutional-size trading units of such securities using methods
based on market transactions for comparable
<PAGE>
securities and various relationships between securities which are generally
recognized by institutional traders.
If any securities held by a Portfolio are restricted as to resale, their
fair value will be determined following procedures approved by the Trustees.
The fair value of such securities is generally determined as the amount which
the Portfolio could reasonably expect to realize from an orderly disposition
of such securities over a reasonable period of time. The valuation procedures
applied in any specific instance are likely to vary from case to case.
However, consideration is generally given to the financial position of the
issuer and other fundamental analytical data relating to the investment and to
the nature of the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Portfolio in connection with
such disposition). In addition, specific factors are also generally
considered, such as the cost of the investment, the market value of any
unrestricted securities of the same class (both at the time of purchase and at
the time of valuation), the size of the holding, the prices of any recent
transactions or offers with respect to such securities and any available
analysts' reports regarding the issuer.
Notwithstanding the foregoing, short-term debt securities with maturities
of 60 days or less will be valued at amortized cost.
The TCW Money Market Portfolio's investment policies and method of
securities valuation are intended to permit the Portfolio generally to
maintain a constant net asset value of $1.00 per share by computing the net
asset value per share to the nearest $.01 per share. The Portfolio is
permitted to use the amortized cost method of valuation for its portfolio
securities pursuant to regulations of the Securities and Exchange Commission.
This method may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive
if it sold the instrument. The net asset value per share would be subject to
fluctuation upon any significant changes in the value of the Portfolio's
securities. The value of debt securities, such as those in the Portfolio,
usually reflects yields generally available on securities of similar yield,
quality and duration. When such yields decline, the value of a portfolio
holding such securities can be expected to decline. Although the Portfolio
seeks to maintain the net asset value per share of the Portfolio at $1.00,
there can be no assurance that net asset value will not vary.
The Trustees of the Fund have undertaken to establish procedures
reasonably designed, taking into account current market conditions and the
Portfolio's investment objective, to stabilize the net asset value per share
for purposes of sales and redemptions at $1.00. These procedures include the
determination, at such intervals as the Trustees deem appropriate, of the
extent, if any, to which the net asset value per share calculated by using
available market quotations deviates from $1.00 per share. In the event such
deviation exceeds one half of one percent, the Trustees are
<PAGE>
required to promptly consider what action, if any, should be
initiated.
With respect to the Portfolios other than the TCW Money Market Portfolio,
foreign securities traded outside the United States are generally valued as of
the time their trading is complete, which is usually different from the close
of the New York Stock Exchange. Occasionally, events affecting the value of
such securities may occur between such times and the close of the New York
Stock Exchange that will not be reflected in the computation of the
Portfolio's net asset value. If events materially affecting the value of such
securities occur during such period, these securities will be valued at their
fair value according to procedures decided upon in good faith by the Fund's
Board of Trustees. All securities and other assets of a Portfolio initially
expressed in foreign currencies will be converted to U.S. dollar values at the
mean of the bid and offer prices of such currencies against U.S. dollars last
quoted on a valuation date by any recognized dealer.
TAXES
Federal Income Taxes
Each Portfolio intends to qualify each year as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). By
so qualifying, a Portfolio will not be subject to federal income taxes to the
extent that its net investment income and net realized capital gains are
distributed.
In order to so qualify, a Portfolio must, among other things, (1) derive
at least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stocks or securities or foreign currencies, or other
income (including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stocks or
securities; (2) derive less than 30% of its gross income in each taxable year
from the sale or other disposition of stocks or securities held less than
three months (the Portfolio's transactions in future transactions, straddles
and options may be restricted in order to comply with this requirement); and
(3) diversify its holdings so that, at the end of each quarter of the
Portfolio's taxable year, (a) at least 50% of the market value of the
Portfolio's assets is represented by cash, government securities and other
securities limited in respect of any one issuer to 5% of the value of the
Portfolio's assets and to not more than 10% of the voting securities of such
issuer, and (b) not more than 25% of the value of its assets is invested in
securities of any one issuer (other than government securities).
As a regulated investment company, a Portfolio will not be subject to
federal income tax on net investment income and capital gains (short- and
long-term), if any, that it distributes to its shareholders if at least 90% of
its net investment income and net short-term capital gains for the taxable
year are distributed, but will be subject to tax at regular corporate rates on
any income or gains that are not
<PAGE>
distributed. In general, dividends will be treated as paid when actually
distributed, except that dividends declared in October, November or December
and made payable to shareholders of record in such a month will be treated as
having been paid by the Portfolio (and received by shareholders) on December
31, provided the dividend is paid in the following January. Each Portfolio
intends to satisfy the distribution requirement in each taxable year.
The Portfolios will not be subject to the 4% federal excise tax imposed
on registered investment companies that do not distribute all of their income
and gains each calendar year because such tax does not apply to a registered
investment company whose only shareholders are segregated asset accounts of
life insurance companies held in connection with variable annuity and/or
variable life insurance policies.
The Fund intends to comply with section 817(h) of the Code and the
regulations issued thereunder. As required by regulations under that section,
the only shareholders of the Fund and its Portfolios will be life insurance
company segregated asset accounts (also referred to as separate accounts) that
fund variable life insurance or annuity contracts and the general account of
PFL Life Insurance Company which provided the initial capital for the
Portfolios of the Fund. See the prospectus or other material for the Contracts
for additional discussion of the taxation of segregated asset accounts and of
the owner of the particular Contract described therein.
Section 817(h) of the Code and Treasury Department regulations thereunder
impose certain diversification requirements on the segregated asset accounts
investing in the Portfolios of the Fund. These requirements, which are in
addition to the diversification requirements applicable to the Fund under the
1940 Act and under the regulated investment company provisions of the Code,
may limit the types and amounts of securities in which the Portfolios may
invest. Failure to meet the requirements of section 817(h) could result in
current taxation of the owner of the Contract on the income of the Contract.
The Fund may therefore find it necessary to take action to ensure that a
Contract continues to qualify as a Contract under federal tax laws. The Fund,
for example, may be required to alter the investment objectives of a Portfolio
or substitute the shares of one Portfolio for those of another. No such change
of investment objectives or substitution of securities will take place without
notice to the shareholders of the affected Portfolio and the approval of a
majority of such shareholders and without prior approval of the Securities and
Exchange Commission, to the extent legally required.
ORGANIZATION AND CAPITALIZATION OF THE FUND
The Fund is a Massachusetts business trust organized on November 18,
1988. A copy of the Fund's Agreement and Declaration of Trust, as amended,
which is governed by Massachusetts law, is on file with the Secretary of State
of The Commonwealth of Massachusetts.
<PAGE>
The Trustees of the Fund have authority to issue an unlimited number of
shares of beneficial interest without par value of one or more series.
Currently, the Trustees have established and designated ten series. Each
series of shares represents the beneficial interest in a separate Portfolio of
assets of the Fund, which is separately managed and has its own investment
objective and policies. The Trustees of the Fund have authority, without the
necessity of a shareholder vote, to establish additional portfolios and series
of shares. The shares outstanding are, and those offered hereby when issued
will be, fully paid and nonassessable by the Fund. The shares have no
preemptive, conversion or subscription rights and are fully transferable.
The assets received from the sale of shares of a Portfolio, and all
income, earnings, profits and proceeds thereof, subject only to the rights of
creditors, constitute the underlying assets of the Portfolio. The underlying
assets of a Portfolio are required to be segregated on the Fund's books of
account and are to be charged with the expenses with respect to that
Portfolio. Any general expenses of the Fund not readily attributable to a
Portfolio will be allocated by or under the direction of the Trustees in such
manner as the Trustees determine to be fair and equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Portfolio and the other Portfolios.
Each share has one vote, with fractional shares voting proportionately.
Shareholders of a Portfolio are not entitled to vote on any matter that
requires a separate vote of the shares of another Portfolio but which does not
affect the Portfolio. The Agreement and Declaration of Trust does not require
the Fund to hold annual meetings of shareholders. Thus, there will ordinarily
be no annual shareholder meetings, unless otherwise required by the 1940 Act.
The Trustees of the Fund may appoint their successors until fewer than a
majority of the Trustees have been elected by shareholders, at which time a
meeting of shareholders will be called to elect Trustees. Under the Agreement
and Declaration of Trust, any Trustee may be removed by vote of two-thirds of
the outstanding shares of the Fund, and holders of 10% or more of the
outstanding shares can require the Trustees to call a meeting of shareholders
for the purpose of voting on the removal of one or more Trustees. If ten or
more shareholders who have been such for at least six months and who hold in
the aggregate shares with a net asset value of at least $25,000 inform the
Trustees that they wish to communicate with other shareholders, the Trustees
either will give such shareholders access to the shareholder lists or will
inform them of the cost involved if the Fund forwards materials to the
shareholders on their behalf. If the Trustees object to mailing such
materials, they must inform the Securities and Exchange Commission and
thereafter comply with the requirements of the 1940 Act.
PFL will vote sares of the Fund as described under the caption "Voting
Rightss" in the prospectus or other material for the Contracts which
accompanies the Prospectus.
As of January 31, 1997, the PFL Endeavor Variable Annuity Account owned
of record the following approximate percentages of the outstanding shares of
each Portfolio: 75% of the TCW Money Market Portfolio; 95% of the TCW Managed
Asset Allocation Portfolio; 90% of the T. Rowe Price International Stock
Portfolio; 86% of the Value Equity Portfolio; 89% of the Dreyfus Small Cap
Value Portfolio; 81% of the Dreyfus U.S. Government Securities Portfolio; 83%
of the T. Rowe Price Equity Income Portfolio; 81% of the T. Rowe Price Growth
Stock Portfolio; and 62% of the Opportunity Value Portfolio. As of January 31,
1997, the PFL Endeavor Platinum Variable Annuity Account owned of record the
following approximate percentages of the outstanding shares of each Portfolio:
23% of the TCW Money Market Portfolio; 4% of the TCW Managed Asset Allocation
Portfolio; 8% of the T. Rowe Price International Stock Portfolio; 12% of the
Value Equity Portfolio; 9% of the Dreyfus Small Cap Value Portfolio; 16% of
the Dreyfus U.S. Government Securities Portfolio; 24% of the T. Rowe Price
Equity Income Portfolio; 16% of the T. Rowe Price Growth Stock Portfolio; and
17% of the Opportunity Value Portfolio. As of January 31, 1997, the AUSA
Endeavor Variable Annuity Account
owned of record the following approximate percentages of the outstanding
shares of each Portfolio: 2% of the TCW Money Market Portfolio; 1% of the TCW
Managed Asset Allocation Portfolio; 2% of the T. Rowe Price International
Stock Portfolio; 2% of the Value Equity Portfolio; 2% of the Dreyfus Small Cap
Value Portfolio; 3% of the Dreyfus U.S. Government Securities Portfolio; 3% of
the T. Rowe Price Equity Income Portfolio; 3% of the T. Rowe Price Growth
Stock Portfolio; and 21% of the Opportunity Value Portfolio.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts
and obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation or instrument entered into or executed by
the Fund or the Trustees. The Agreement and Declaration of Trust provides for
indemnification out of Fund property for all loss and expense of any
shareholders held personally liable for obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund would be unable to
meet its obligations. The likelihood of such circumstances is remote.
LEGAL MATTERS
Certain legal matters are passed on for the Fund by Sullivan & Worcester
LLP of Washington, D.C.
CUSTODIAN
Boston Safe Deposit and Trust Company, located at One Boston Place,
Boston, Massachusetts 02108, serves as the custodian of the Fund. Under the
Custody Agreement, Boston Safe holds the Portfolios' securities and keeps all
necessary records and documents.
<PAGE>
FINANCIAL STATEMENTS
[To be completed by amendment]
APPENDIX
SECURITIES RATINGS
Standard & Poor's Bond Ratings
A Standard & Poor's corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. Debt
rated "AAA" has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong. Debt rated "AA" has a
very strong capacity to pay interest and to repay principal and differs from
the highest rated issues only in small degree. 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 of a higher rated category. Debt rated "BBB" is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to
pay interest and to repay principal for debt in this category than for higher
rated categories. Bonds rated "BB", "B", "CCC" and "CC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "CC" the
highest degree of speculation. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. 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.
Moody's Bond Ratings
Bonds rated "Aaa" by Moody's are judged to be of the best quality and to
carry the smallest degree of investment risk. Bonds rated "Aa" are judged to
be of high quality by all standards. Bonds rated "A" possess many favorable
investment attributes and are to be considered as higher medium grade
obligations. Bonds rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured and have
speculative characteristics as well. Bonds are rated "Ba", "B", "Caa", "Ca",
"C" when protection of interest and principal payments is questionable. A "Ba"
rating indicates some speculative elements while "Ca" represents a high degree
of speculation and "C" represents the lowest rated class of bonds. "Caa", "Ca"
and "C" bonds may be in default. Moody's applies numerical modifiers "1", "2"
and "3" in each generic rating classification from "Aa" to "B" in its
corporate bond 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 at the lower end of its generic rating category.
Standard & Poor's Commercial Paper Ratings
<PAGE>
"A" is the highest commercial paper rating category utilized by Standard
& Poor's, which uses the numbers "1+", "1", "2" and "3" to denote relative
strength within its "A" classification. Commercial paper issuers rated "A" by
Standard & Poor's have the following characteristics. Liquidity ratios are
better than industry average. Long-term debt rating is "A" or better. The
issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow are in an upward trend. Typically, the issuer is a
strong company in a well-established industry and has superior management.
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. The rating "C" is assigned to short-term debt
obligations with a doubtful capacity for repayment. An issue rated "D" is
either in default or is expected to be in default upon maturity.
Moody's Commercial Paper Ratings
"Prime-1" is the highest commercial paper rating assigned by Moody's,
which uses the numbers "1", "2" and "3" to denote relative strength within its
highest classification of Prime. Commercial paper issuers rated Prime by
Moody's have the following characteristics. Their short-term debt obligations
carry the smallest degree of investment risk. Margins of support for current
indebtedness are large or stable with cash flow and asset protection well
assured. Current liquidity provides ample coverage of near-term liabilities
and unused alternative financing arrangements are generally available. While
protective elements may change over the intermediate or longer terms, such
changes are most unlikely to impair the fundamentally strong position of
short-term obligations.
IBCA Limited/IBCA Inc. Commercial Paper Ratings. Short-term obligations,
including commercial paper, rated A-1+ by IBCA Limited or its affiliate IBCA
Inc., are obligations supported by the highest capacity for timely repayment.
Obligations rated A-1 have a very strong capacity for timely repayment.
Obligations rated A-2 have a strong capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic or
financial conditions.
Fitch Investors Service LLP. Commercial Paper Ratings. Fitch Investors Service
LLP employs the rating F-1+ to indicate issues regarded as having the
strongest degree of assurance for timely payment. The rating F-1 reflects an
assurance of timely payment only slightly less in degree than issues rated
F-1+, while the rating F-2 indicates a satisfactory degree of assurance for
timely payment, although the margin of safety is not as great as indicated by
the F-1+ and F-1 categories.
Duff & Phelps Inc. Commercial Paper Ratings. Duff & Phelps
Inc. employs the designation of Duff 1 with respect to top
grade commercial paper and bank money instruments. Duff 1+
indicates the highest certainty of timely payment: short-term
liquidity is clearly outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations. Duff 1-
indicates high certainty of timely payment. Duff 2 indicates
good certainty of timely payment: liquidity factors and
company fundamentals are sound.
<PAGE>
Thomson BankWatch, Inc. ("BankWatch") Commercial Paper Ratings. BankWatch will
assign both short-term debt ratings and issuer ratings to the issuers it
rates. BankWatch will assign a short-term rating ("TBW-1", "TBW-2", "TBW-3",
or "TBW-4") to each class of debt (e.g., commercial paper or non-convertible
debt), having a maturity of one-year or less, issued by a holding company
structure or an entity within the holding company structure that is rated by
BankWatch. Additionally, BankWatch will assign an issuer rating ("A", "A/B",
"B", "B/C", "C", "C/D", "D", "D/E", and "E") to each issuer that it rates.
Various of the NRSROs utilize rankings within rating categories indicated
by a + or -. The Portfolios, in accordance with industry practice, recognize
such rankings within categories as graduations, viewing for example Standard &
Poor's rating of A-1+ and A-1 as being in Standard & Poor's highest rating
category.
<PAGE>
This Part C, Item 24 (b) is to be used in future Edgar filings when
incorporating exhibits by reference. These exhibits have already been filed
electronically with SEC.
ENDEAVOR SERIES TRUST
PART C
Other Information
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part A:
Financial Highlights for the TCW
Money Market Portfolio, TCW Managed
Asset Allocation Portfolio, Value
Equity Portfolio, Value Small Cap
Portfolio, Dreyfus U.S. Government
Securities Portfolio, T. Rowe Price
International Stock Portfolio, T.
Rowe Price Equity Income Portfolio,
T. Rowe Price Growth Stock Portfolio
and Opportunity Value Portfolio for
the period ended December 31, 1996.
Included in Part B:
To be filed by amendment.
Included in Part C:
Consent of Independent Auditors will be filed by
amendment.
(b) Exhibits:
All references are to the Registrant's registration
statement on Form N-1A as filed with the SEC on March 7,
1989, File Nos. 33-27352 and 811-5780 (the "Registration
Statement").
Exhibit No. Description of Exhibits
(1)(a) Agreement and Declaration of
Trust is incorporated by
reference to Post-Effective
Amendment No. 14 to the
Registration Statement as filed
with the SEC on April 29, 1996
("Post-Effective Amendment No.
14").
(1)(b) Amendment No. 1 to Agreement
and Declaration of Trust is
incorporated by reference to
<PAGE>
Post-Effective Amendment No.
14.
(1)(c) Amendment No. 2 to Agreement
and Declaration of Trust is
incorporated by reference to
Post-Effective Amendment No.
14.
(1)(d) Amendment No. 3 to Agreement
and Declaration of Trust is
incorporated by reference to
Post-Effective Amendment No.
14.
(1)(e) Amendment No. 4 to Agreement
and Declaration of Trust is
incorporated by reference to
Post-Effective Amendment No. 14
(1)(f) Amendment No. 5 to Agreement
and Declaration of Trust is
incorporated by reference to
Post-Effective Amendment No.
14.
(1)(g) Amendment No. 6 to Agreement
and Declaration of Trust is
incorporated by reference to
Post-Effective Amendment No.
14.
(1)(h) Amendment No. 7 to Agreement
and Declaration of Trust is
incorporated by reference to
Post-Effective Amendment No.
15.
(2) Amended and Restated By-Laws
are incorporated by reference
to Post-Effective Amendment No.
14.
(3) Not Applicable.
(4)(a) Specimen certificate for shares
of beneficial interest of the
Domestic Money Market Portfolio
(now known as TCW Money Market
Portfolio) is incorporated by
reference to Post-Effective
Amendment No. 14.
(4)(b) Deleted
(4)(c) Specimen certificate for shares of beneficial
interest of the Domestic Managed Asset
Allocation Portfolio (now known as TCW Managed
Asset Allocation
<PAGE>
Portfolio) is incorporated by
reference to Post-Effective
Amendment No. 14.
(4)(d) Deleted
(4)(e) Specimen certificate for shares
of beneficial interest of the
Global Growth Portfolio (now
known as T. Rowe Price
International Stock Portfolio)
is incorporated by reference to
Post-Effective Amendment No.
14.
(4)(f) Specimen certificate for shares of beneficial
interest of the Quest for Value Equity
Portfolio (now known as Value Equity Portfolio)
is incorporated by reference to Post-Effective
Amendment No.
14.
(4)(g) Specimen certificate for shares of beneficial
interest of the Quest for Value Small Cap
Portfolio (now known as Value Small Cap
Portfolio) is incorporated by reference to
Post-Effective Amendment No.
14.
(4)(h) Specimen certificate for shares
of beneficial interest of the
U.S. Government Securities
Portfolio (now known as Dreyfus
U.S. Government Securities
Portfolio) is incorporated by
reference to Post-Effective
Amendment No. 14.
(4)(i) Specimen certificate for shares
of beneficial interest of the
T. Rowe Price Equity Income
Portfolio is incorporated by
reference to Post-Effective
Amendment No. 14.
(4)(j) Specimen certificate for shares
of beneficial interest of the
T. Rowe Price Growth Stock
Portfolio is incorporated by
reference to Post-Effective
Amendment No. 14.
(4)(k) Specimen certificate for shares of beneficial
interest of the Opportunity Value Portfolio is
incorporated by reference to Post-Effective
Amendment No.
15.
(4)(l) Specimen certificate for shares of beneficial
interest of the Enhanced Index Portfolio is
incorporated by reference to Post-Effective
Amendment No.
15.
(5)(a) Management Agreement dated November 23, 1992
between Registrant and Endeavor Investment
Advisers is incorporated by reference to
Post-Effective Amendment No.
14.
(5)(a)(1) Supplement dated April 29, 1993 to Management
Agreement between Registrant and Endeavor
Investment Advisers with respect to Quest for
Value Equity Portfolio and Quest for Value
Small Cap Portfolio is incorporated by
reference to Post-Effective Amendment No.
14.
(5)(a)(2) Supplement dated March 25, 1994 to Management
Agreement between Registrant and Endeavor
Investment Advisers with respect to U.S.
Government Securities Portfolio is incorporated
by reference to Post-Effective Amendment No.
14.
(5)(a)(3) Supplement dated December 28,
1994 to Management Agreement
between Registrant and Endeavor
Investment Advisers with
respect to the T. Rowe Price
Equity Income Portfolio and T.
Rowe Price Growth Stock
Portfolio is incorporated by
reference to Post-Effective
Amendment No. 14.
(5)(a)(4) Supplement to Management Agreement between
Registrant and Endeavor Investment Advisers
with respect to Opportunity Value Portfolio and
Enhanced Index Portfolio is filed herein.
(5)(b) Investment Advisory Agreement
between TCW Funds Management,
<PAGE>
Inc. and Endeavor Investment
Advisers with respect to the
Money Market Portfolio and
Managed Asset Allocation
Portfolio is incorporated by
reference to Post-Effective
Amendment No. 14.
(5)(c) Deleted
(5)(d) Deleted
(5)(e) Deleted
(5)(f) Investment Advisory Agreement between Quest for
Value Advisors and Endeavor Investment Advisers
with respect to Quest for Value Equity
Portfolio is incorporated by reference to
Post-Effective Amendment No.
14.
(5)(g) Investment Advisory Agreement
between The Boston Company
Asset Management, Inc. and
Endeavor Investment Advisers
with respect to the U.S.
Government Securities Portfolio
is incorporated by reference to
Post-Effective Amendment No.
14.
(5)(g)(1) Transfer and Assumption of Investment Advisory
Agreement among The Boston Company Asset
Management, Inc., The Dreyfus Corporation,
Endeavor Investment Advisers and Registrant
with respect to the Dreyfus U.S. Government
Securities Portfolio is incorporated by
reference to Post-Effective Amendment No.
14.
(5)(h) Investment Advisory Agreement
between T. Rowe Price
Associates, Inc. and Endeavor
Investment Advisers with
respect to the T. Rowe Price
Equity Income Portfolio is
incorporated by reference to
Post-Effective Amendment No.
14.
(5)(i) Investment Advisory Agreement
between T. Rowe Price
Associates, Inc. and Endeavor
<PAGE>
Investment Advisers with respect to the T. Rowe
Price Growth Stock Portfolio is incorporated by
reference to Post-Effective Amendment No.
14.
(5)(j) Investment Advisory Agreement
between Rowe Price-Fleming,
International, Inc. and
Endeavor Investment Advisers
with respect to the Global
Growth Portfolio is
incorporated by reference to
Post-Effective Amendment No.
14.
(5)(k) Investment Advisory Agreement between The
Dreyfus Corporation and Endeavor Investment
Advisers with respect to the Dreyfus Small Cap
Value Portfolio is filed herein.
(5)(l) Investment Advisory Agreement
between OpCap Advisors and
Endeavor Investment Advisers
with respect to the Opportunity
Value Portfolio is filed
herein.
(5)(m) Form of Investment Advisory
Agreement between J.P. Morgan
Investment Management Inc. and
Endeavor Investment Advisers
with respect to the Enhanced
Index Portfolio is incorporated
by reference to Post-Effective
Amendment No. 15.
(6) Participation Agreement between
Registrant, Endeavor Management
Co. and PFL Life Insurance
Company is incorporated by
reference to Post-Effective
Amendment No. 14.
(7) Not Applicable.
(8)(a) Custody Agreement between
Registrant and Boston Safe
Deposit and Trust Company is
incorporated by reference to
Post-Effective Amendment No.
14.
(8)(b) Supplement dated April 19, 1993
to Custody Agreement between
Registrant and Boston Safe
Deposit and Trust Company with
<PAGE>
respect to the Quest for Value
Equity Portfolio and Quest for
Value Small Cap Portfolio is
incorporated by reference to
Post-Effective Amendment No.
14.
(8)(c) Supplement dated December 30,
1994 to Custody Agreement
between Registrant and Boston
Safe Deposit and Trust Company
with respect to the T. Rowe
Price Equity Income Portfolio
and T. Rowe Price Growth Stock
Portfolio is incorporated by
reference to Post-Effective
Amendment No. 14.
(8)(d) Supplement dated March 25, 1994 to Custody
Agreement between Registrant and Boston Safe
Deposit and Trust Company with respect to the
U.S. Government Securities Portfolio is
incorporated by reference to Post-Effective
Amendment No.
14.
(8)(e) Supplement to Custody Agreement
between Registrant and Boston
Safe Deposit and Trust Company
with respect to the Opportunity
Value Portfolio and Enhanced
Index Portfolio is filed
herein.
(9)(a) Transfer Agency and Registrar
Agreement between Registrant
and The Shareholder Services
Group, Inc. (currently known as
First Data Investor Services
Group, Inc.) is incorporated by
reference to Post-Effective
Amendment No. 14.
(9)(b) License Agreement between
Endeavor Management Co. and
Registrant is incorporated by
reference to Post-Effective
Amendment No. 14.
(9)(b)(1) Amendment to License Agreement
between Endeavor Management Co.
and Registrant is incorporated
by reference to Post-Effective
Amendment No. 14.
(9)(c) Administration Agreement
between Endeavor Management Co.
and The Boston Company
<PAGE>
Advisors, Inc. is incorporated
by reference to Post-Effective
Amendment No. 14.
(9)(c)(1) Supplement dated April 19, 1993 to
Administration Agreement between Endeavor
Investment Advisers and The Boston Company
Advisors, Inc., with respect to the Quest for
Value Equity Portfolio and Quest for Value
Small Cap Portfolio is incorporated by
reference to Post-Effective Amendment No.
14.
(9)(c)(2) Consent to Assignment of
Administration Agreement dated
May 4, 1994 between Endeavor
Investment Advisers and The
Boston Company Advisors, Inc.
to The Shareholder Services
Group, Inc. is incorporated by
reference to Post-Effective
Amendment No. 14.
(9)(c)(3) Supplement dated October 24,
1994 to Administration
Agreement between Endeavor
Investment Advisers and The
Shareholder Services Group,
Inc. (currently known as First
Data Investor Services Group,
Inc.) with respect to the T.
Rowe Price Equity Income
Portfolio and T. Rowe Price
Growth Stock Portfolio is
incorporated by reference to
Post-Effective Amendment No.
14.
(9)(c)(4) Supplement dated March 25, 1994
to Administration Agreement
between Endeavor Investment
Advisers and The Boston Company
Advisors, inc. with respect to
the U.S. Government Securities
Portfolio is incorporated by
reference to Post-Effective
Amendment No. 14.
(9)(c)(5) Supplement dated July 1, 1996
to Administration Agreement
between Endeavor Investment
Advisors and First Data
Investor Services Group, Inc.
is filed herein.
(10) Not Applicable.
<PAGE>
(11) Consent of Independent Auditors
will be filed by amendment.
(12) Not Applicable.
(13) Subscription Agreement between Registrant and
PFL Life Insurance Company is incorporated by
reference to Post-Effective Amendment No.
14.
(14) Not Applicable.
(15) Not Applicable.
(16) Not Applicable.
(17) Financial Data Schedules are
filed herein.
(18) Not Applicable.
(19) Powers of Attorney are
incorporated by reference to
Post-Effective Amendment No. 14
and filed herein.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
As of the effective date of this Post-Effective Amendment, PFL Life
Insurance Company's separate accounts, PFL Endeavor Variable Annuity Account
and PFL Endeavor Platinum Variable Annuity Account, and AUSA Life Insurance
Company's separate account, AUSA Endeavor Variable Annuity Account, held all
the outstanding shares of the Registrant. PFL Life Insurance Company, a stock
life insurance company organized under the laws of the State of Iowa, and AUSA
Life Insurance Company, a stock life insurance company organized under the
laws of the State of New York, are each wholly-owned indirect subsidiaries of
AEGON USA, Inc., an Iowa corporation. All of the stock of AEGON USA, Inc. is
indirectly owned by AEGON n.v.
of The Netherlands.
Item 26. NUMBER OF HOLDERS OF SECURITIES
Set forth below are the number of record holders, as of January 31, 1996,
of the shares of beneficial interest of the Registrant.
<PAGE>
Number of
Record
Title of Class Holders
Shares of Beneficial Interest of the
TCW Money Market Portfolio ....... 3
Shares of Beneficial Interest of the
TCW Managed Asset Allocation
Portfolio ................ 3
Shares of Beneficial Interest of the
Value Equity Portfolio ......... 3
Shares of Beneficial Interest of the
Value Small Cap Portfolio ........ 3
Shares of Beneficial Interest of the
Dreyfus U.S. Government Securities
Portfolio ................ 3
Shares of Beneficial Interest of the
T. Rowe Price International Stock
Portfolio ................ 3
Shares of Beneficial Interest of the
T. Rowe Price Equity Income Portfolio .. 3
Shares of Beneficial Interest of the
T. Rowe Price Growth Stock Portfolio .. 3
Shares of Beneficial Interest of the
Opportunity Value Portfolio ....... 3
Shares of Beneficial Interest of the
Enhanced Index Portfolio. . . . . . . .. 1
Item 27. INDEMNIFICATION
Reference is made to the following documents:
Agreement and Declaration of Trust, as amended, as
filed as Exhibits 1(a) - 1(h) hereto;
Amended and Restated By-Laws as filed as Exhibit 2
hereto; and
Participation Agreement between Registrant, Endeavor
Management Co. and PFL Life Insurance Company as
filed as Exhibit 6 hereto.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the SEC 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
<PAGE>
than the payment by the Registrant of expenses incurred or paid by a Trustee,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by any such Trustee, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The Registrant, its Trustees and officers, Endeavor Investment Advisers
(the "Manager"), and persons affiliated with them are insured under a policy
of insurance maintained by the Registrant and the Manager within the limits
and subject to the limitations of the policy, against certain expenses in
connection with the defense of actions suits or proceedings, and certain
liabilities that might me imposed as a result of such actions, suits or
proceedings, to which they are parties by reason of being or having been such
Trustees or officers. The policy expressly excludes coverage for any Trustee
or officer whose personal dishonesty, fraudulent breach of trust, lack of good
faith, or intention to deceive or defraud has been finally adjudicated or may
be established or who willfully fails to act prudently.
Item 28. (a) Business and Other Connections of the
Investment Adviser
Investment Adviser - Endeavor Investment Advisers
The Manager is a registered investment adviser providing investment
management and administrative services to the Registrant.
The list required by this Item 28 of partners and their officers and
directors of the Manager together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years is incorporated by reference
to Schedule B and D of Form ADV filed by the Manager pursuant to the
Investment Advisers Act of 1940 (SEC No.
801-41827).
Item 28. (a) Business and Other Connections of Investment
Adviser
Investment Adviser - TCW Funds Management, Inc.
TCW Funds Management, Inc. ("TCW") is a wholly owned subsidiary of
The TCW Group, Inc. whose direct and indirect subsidiaries, including Trust
Company of the West and TCW Asset Management Company, provide a variety of
trust investment management and investment advisory services.
The list required by this Item 28 of officers and directors of TCW,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the
<PAGE>
past two years is incorporated by reference to Schedules A and D of Form ADV
filed by TCW pursuant to the Investment Advisers Act of 1940 (SEC file No.
801-29075).
Item 28 (a) Business and Other Connections of Investment
Adviser
Investment Adviser - OpCap Advisors
OpCap Advisors ("OpCap") (formerly known as Quest for Value
Advisors) is a subsidiary of Oppenheimer Capital, a registered investment
adviser, which provides a variety of investment management services for
clients. OpCap manages registered investment companies other than certain
Portfolios of the Registrant.
The list required by this Item 28 of the officers and directors of
OpCap, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years is incorporated by reference to Schedules
D and F of Form ADV filed by OpCap pursuant to the Investment Advisers Act of
1940 (SEC file No. 801-27180).
Item 28 (a) Business and Other Connections of Investment
Adviser
Investment Adviser - The Dreyfus Corporation
The Dreyfus Corporation ("Dreyfus") is a wholly owned subsidiary of
Mellon Bank, N.A. Dreyfus is a registered investment adviser founded in 1947
providing a variety of investment management services for clients.
The list required by this Item 28 of the officers and directors of
Dreyfus, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years is incorporated by reference to Schedules
A and D of Form ADV filed by Dreyfus pursuant to the Investment Advisers Act
of 1940 (SEC file No. 801-8147).
Item 28 (a) Business and Other Connections of Investment
Adviser
Investment Adviser - T. Rowe Price Associates, Inc.
T. Rowe Price Associates, Inc. ("T. Rowe Price")
serves as investment manager to a variety of individual and
institutional investors, including limited and real estate
partnerships and other mutual funds.
The list required by this Item 28 of officers and directors of T.
Rowe Price together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years is incorporated by reference to Schedules
A and D of Form ADV filed by T. Rowe Price pursuant to the Investment Advisers
Act of 1940 (SEC file No. 801-856).
<PAGE>
Item 28 (a) Business and Other Connections of Investment
Adviser
Investment Adviser - Rowe Price-Fleming
International, Inc.
Rowe Price-Fleming International, Inc. ("Price- Fleming") is a joint
venture between T. Rowe Price and Robert Fleming Holdings Limited
("Flemings"). Flemings is a diversified investment organization which
participates in a global network of regional investment offices in New York,
London, Zurich, Geneva, Tokyo, Hong Kong, Manila, Kuala Lumpur, South Africa
and Taiwan.
The list required by this Item 28 of officers and directors of
Price-Fleming, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years is incorporated by reference to Schedules
A and D of Form ADV filed by Price-Fleming pursuant to the Investment Advisers
Act of 1940 (SEC file No.
801-14714).
Item 28 (a) Business and Other Connections of Investment
Adviser
Investment Adviser - J.P. Morgan Investment
Management Inc.
J.P. Morgan Investment Management Inc. ("Morgan")
manages employee benefit funds of corporations, labor unions
and state and local governments and the accounts of other
institutional investors, including investment companies.
The list required by this Item 28 of officers and directors of
Morgan, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years is incorporated by reference to Schedules
A and D of Form ADV filed by Morgan pursuant to the Investment Advisers Act of
1940 (SEC file No. 801-21011).
Item 29 Principal Underwriter
(a) Inapplicable
(b) Inapplicable
Item 30 Location of Accounts and Records
The Registrant maintains the records required by Section 31(a) of
the 1940 Act and Rules 31a-1 to 31a-3 inclusive thereunder at its principal
office, located at 2101 East Coast Highway, Suite 300, Corona del Mar,
California 92625 as well as at the offices of its investment advisers and
administrator: TCW Funds Management, Inc., 865 S. Figueroa Street, Los
Angeles, California 90071; OpCap Advisors, c/o Oppenheimer Capital, One World
Financial Center, New York, New York 10281; The Dreyfus Corporation, 200 Park
Avenue, New York, New York 10166; T. Rowe Price Associates, Inc., 100 East
<PAGE>
Pratt Street, Baltimore, Maryland 21202; Rowe Price-Fleming International,
Inc., 100 East Pratt Street, Baltimore, Maryland 21202; J.P. Morgan Investment
Management Inc., 522 Fifth Avenue, New York, New York 10036 and First Data
Investor Services Group, Inc. ("First Data") (formerly, The Shareholder
Services Group, Inc.), located at 53 State Street, One Exchange Place, Boston,
Massachusetts 02109. Certain records, including records relating to the
Registrant's shareholders and the physical possession of its securities, may
be maintained pursuant to Rule 31a-3 at the main office of the Registrant's
transfer agent and dividend disbursing agent, First Data and the Registrant's
custodian, Boston Safe Deposit and Trust Company, located at One Boston Place,
Boston, Massachusetts 02108.
Item 31 Management Services
None
Item 32 Undertakings
(a) Inapplicable
(b) The Registrant undertakes to file a post-effective amendment,
using financial statments for its Enhanced Index Portfolio, which financial
statements need not be certified, within four to six months from the
commencement of operations of the Portfolio.
(c) The Registrant will furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, as amended, the Registrant, ENDEAVOR SERIES
TRUST, has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Corona del Mar, State of California on the 13th
day of February, 1997.
ENDEAVOR SERIES TRUST
Registrant
By: /s/James R. McInnis*
James R. McInnis
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below
by the following persons in the capacities and on the date(s) indicated.
Signature Title Date
/s/James R. McInnis* President February 13, 1997
James R. McInnis (Principal
executive
officer)
/s/Vincent J.
McGuinness, Jr.* Chief February 13, 1997
Vincent J. McGuinness, Financial
Jr. Officer
(Treasurer)
(principal
financial and
accounting
officer)
/s/Vincent J. McGuinness* Trustee February 13, 1997
Vincent J. McGuinness
/s/Timothy A. Devine* Trustee February 13, 1997
Timothy A. Devine
/s/Thomas J. Hawekotte* Trustee February 13, 1997
Thomas J. Hawekotte
/s/Steven L. Klosterman* Trustee February 13, 1997
Steven L. Klosterman
<PAGE>
/s/Halbert D. Lindquist* Trustee February 13, 1997
Halbert D. Lindquist
/s/R. Daniel Olmstead* Trustee February 13, 1997
R. Daniel Olmstead
* By: /s/Robert N. Hickey
Robert N. Hickey
Attorney-in-fact
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 4th day of November, 1996, by and between
OpCap Advisors, a Delaware general partnership (the "Adviser"), and Endeavor
Investment Advisers, a California general partnership (the "Manager").
WHEREAS, the Manager has been organized to serve as investment
manager and administrator of Endeavor Series Trust (the "Trust"), a
Massachusetts business trust which has filed a registration statement under
the Investment Company Act of 1940, as amended (the "1940 Act") and the
Securities Act of 1933 (the "Registration Statement"); and
WHEREAS, the Trust is comprised of several separate investment
portfolios, one of which is the Opportunity Value Portfolio (the "Portfolio");
and
WHEREAS, the Manager desires to avail itself of the services,
information, advice, assistance and facilities of an investment adviser to
assist the Manager in performing services for the Portfolio; and
WHEREAS, the Adviser is registered under the Investment Advisers
Act of 1940, as amended, and is engaged in the business of rendering
investment advisory services to investment companies and desires to provide
such services to the Manager;
NOW, THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. Employment of the Adviser. The Manager hereby employs the
Adviser to manage the investment and reinvestment of the assets of the
Portfolio, subject to the control and direction of the Trust's Board of
Trustees, for the period and on the terms hereinafter set forth. The Adviser
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth for the compensation
herein provided. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Manager, the Portfolio or the Trust in any way.
2. Obligations of and Services to be Provided by
the Adviser. The Adviser undertakes to provide the following
services and to assume the following obligations:
a. The Adviser shall manage the investment and reinvestment
of the portfolio assets of the Portfolio, all without prior consultation with
the Manager, subject to and in accordance with the respective investment
objectives and policies of the Portfolio set forth in the Trust's
<PAGE>
-2-
Registration Statement, as such Registration Statement may be amended from
time to time, and any written instructions which the Manager or the Trust's
Board of Trustees may issue from time-to-time in accordance therewith. In
pursuance of the foregoing, the Adviser shall make all determinations with
respect to the purchase and sale of portfolio securities and shall take such
action necessary to implement the same. The Adviser shall render regular
reports to the Trust's Board of Trustees and the Manager concerning the
investment activities of the Portfolio.
b. To the extent provided in the Trust's Registration
Statement, as such Registration Statement may be amended from time to time,
the Adviser shall, in the name of the Portfolio, place orders for the
execution of portfolio transactions with or through such brokers, dealers or
banks as it may select including affiliates of the Adviser and, complying with
Section 28(e) of the Securities Exchange Act of 1934, may pay a commission on
transactions in excess of the amount of commission another broker-dealer would
have charged.
c. In connection with the placement of orders for the
execution of the portfolio transactions of the Portfolio, the Adviser shall
create and maintain all necessary records pertaining to the purchase and sale
of securities by the Adviser on behalf of the Portfolio in accordance with all
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act. All records shall be the property
of the Trust and shall be available for inspection and use by the Securities
and Exchange Commission ("SEC"), the Trust, the Manager or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Adviser for the periods and in the places required by Rule 31a-2 under the
1940 Act.
d. The Adviser shall bear its expenses of
providing services pursuant to this Agreement.
3. Compensation of the Adviser. In consideration of services
rendered pursuant to this Agreement, the Manager will pay the Adviser a fee at
the annual rate of the value of the Portfolio's average daily net assets set
forth in Schedule A hereto. Such fee shall be accrued daily and paid monthly
as soon as practicable after the end of each month. If the Adviser shall serve
for less than the whole of any month, the foregoing compensation shall be
prorated. For the purpose of determining fees payable to the Adviser, the
value of the Portfolio's net assets shall be computed at the times and in the
manner specified in the Trust's Registration Statement.
4. Activities of the Adviser. The services of the
Adviser hereunder are not to be deemed exclusive, and the
<PAGE>
-3-
Adviser shall be free to render similar services to others and to engage in
other activities, so long as the services rendered hereunder are not impaired.
5. Use of Names. The Manager shall not use the name of the Adviser
or its parent, Oppenheimer Capital, in any prospectus, sales literature or
other material relating to the Trust in any manner not approved prior thereto
by the Adviser; provided, however, that the Adviser shall approve all uses of
its name and that of its parent which merely refer in accurate terms to its
appointment hereunder or which are required by the SEC or a state securities
commission; and, provided, further, that in no event shall such approval be
unreasonably withheld. The Adviser shall not use the name of the Trust or the
Manager in any material relating to the Adviser in any manner not approved
prior thereto by the Manager; provided, however, that the Manager shall
approve all uses of its or the Trust's name which merely refer in accurate
terms to the appointment of the Adviser hereunder or which are required by the
SEC or a state securities commission; and, provided further, that in no event
shall such approval be unreasonably withheld.
6. Liability of the Adviser. Absent willful misfeasance, bad
faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be liable for any
act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security. Nothing herein shall constitute a waiver of any rights
or remedies which the Trust may have under any federal or state securities
laws.
7. Limitation of Trust's Liability. The Adviser acknowledges that
it has received notice of and accepts the limitations upon the Trust's
liability set forth in its Agreement and Declaration of Trust. The Adviser
agrees that any of the Trust's obligations shall be limited to the assets of
the Portfolio and that the Adviser shall not seek satisfaction of any such
obligation from the shareholders of the Trust nor from any Trust officer,
employee or agent of the Trust.
8. Renewal, Termination and Amendment. This Agreement shall
continue in effect, unless sooner terminated as hereinafter provided, for a
period of two years from the date hereof and shall continue in full force and
effect for successive periods of one year thereafter, but only so long as each
such continuance as to the Portfolio is specifically approved at least
annually by vote of the holders of a majority of the outstanding voting
securities of the Portfolio or by vote of a majority of the Trust's Board of
Trustees; and
<PAGE>
-4-
further provided that such continuance is also approved annually by the vote
of a majority of the Trustees who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. This Agreement may be terminated as to
the Portfolio at any time, without payment of any penalty, by the Trust's
Board of Trustees, by the Manager, or by a vote of the majority of the
outstanding voting securities of the Portfolio upon 60 days' prior written
notice to the Adviser, or by the Adviser upon 150 days' prior written notice
to the Manager, or upon such shorter notice as may be mutually agreed upon.
This Agreement shall terminate automatically and immediately upon termination
of the Management Agreement dated November 23, 1992 between the Manager and
the Trust. This Agreement shall terminate automatically and immediately in the
event of its assignment. The terms "assignment" and "vote of a majority of the
outstanding voting securities" shall have the meaning set forth for such terms
in the 1940 Act. This Agreement may be amended at any time by the Adviser and
the Manager, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of a majority of the
Portfolio's outstanding voting securities.
9. Confidential Relationship. Any information and
advice furnished by either party to this Agreement to the
other shall be treated as confidential and shall not be
disclosed to third parties except as required by law.
10. Severability. If any provision of this
Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
11. Miscellaneous. This Agreement constitutes the full and
complete agreement of the parties hereto with respect to the subject matter
hereof. Each party agrees to perform such further actions and execute such
further documents as are necessary to effectuate the purposes hereof. This
Agreement shall be construed and enforced in accordance with and governed by
the laws of the State of California. The captions in this Agreement are
included for convenience only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed in several counterparts, all of which together shall
for all purposes constitute one Agreement, binding on all the parties.
<PAGE>
-5-
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first written above.
ENDEAVOR INVESTMENT ADVISERS
BY: Endeavor Management Co.,
Managing Partner
BY: Vincent J. McGuinness, C.E.O.
------------------------------
Authorized Officer
OPCAP ADVISORS
BY: Bernard H. Garil
------------------------------
Authorized Officer
<PAGE>
-6-
SCHEDULE A
Opportunity Value
Portfolio .40% of average daily
net assets; provided,
however
that no fee shall be
payable to the
Adviser until the
earlier of the events
specified in (a) or
(b) below:
(a) The net assets of
the Portfolio equal
or exceed
$25,000,000;
(b) The Adviser notifies the Manager
that after a specified date, which
date shall not be earlier than 6
months from the date of this
Investment Advisory Agreement, the
.40% fee will be due and payable.
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 16th day of September, 1996, by and between The
Dreyfus Corporation, a New York corporation (the "Adviser"), and Endeavor
Investment Advisers, a California general partnership (the "Manager").
WHEREAS, the Manager has been organized to serve as investment manager
and administrator of Endeavor Series Trust (the "Trust"), a Massachusetts
business trust which has filed a registration statement under the Investment
Company Act of 1940, as amended (the "1940 Act") and the Securities Act of
1933 (the "Registration Statement"); and
WHEREAS, the Trust is comprised of several separate investment
portfolios, one of which is the Value Small Cap Portfolio (the "Portfolio");
and
WHEREAS, the Manager desires to avail itself of the services,
information, advice, assistance and facilities of an investment adviser to
assist the Manager in performing services for the Portfolio; and
WHEREAS, the Adviser is registered under the Investment Advisers Act of
1940, as amended, and is engaged in the business of rendering investment
advisory services to investment companies and other institutional clients and
desires to provide such services to the Manager;
NOW, THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. Employment of the Adviser. The Manager hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Portfolio, subject
to the control and direction of the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Adviser hereby accepts such
employment and agrees during such period to render the services and to assume
the obligations herein set forth for the compensation herein provided. The
Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, except as expressly provided or authorized (whether
herein or otherwise), have no authority to act for or represent the Manager,
the Portfolio or the Trust in any way.
2. Obligations of and Services to be Provided by the
Adviser. The Adviser undertakes to provide the following
services and to assume the following obligations:
<PAGE>
-2-
a. The Adviser shall manage the investment and reinvestment of the
portfolio assets of the Portfolio, all without prior consultation with the
Manager, subject to and in accordance with the respective investment
objectives and policies of the Portfolio set forth in the Trust's Registration
Statement, as such Registration Statement may be amended from time to time,
and any written instructions which the Manager or the Trust's Board of
Trustees may issue from time-to-time in accordance therewith. In pursuance of
the foregoing, the Adviser shall make all determinations with respect to the
purchase and sale of portfolio securities and shall take such action necessary
to implement the same. The Adviser shall render regular reports to the Trust's
Board of Trustees and the Manager concerning the investment activities of the
Portfolio.
b. To the extent provided in the Trust's Registration Statement, as
such Registration Statement may be amended from time to time, the Adviser
shall, in the name of the Portfolio, place orders for the execution of
portfolio transactions with or through such brokers, dealers or banks as it
may select including affiliates of the Adviser and, complying with Section
28(e) of the Securities Exchange Act of 1934, may pay a commission on
transactions in excess of the amount of commission another broker-dealer would
have charged.
c. In connection with the placement of orders for the execution of
the portfolio transactions of the Portfolio, the Adviser shall create and
maintain all necessary records pertaining to the purchase and sale of
securities by the Adviser on behalf of the Portfolio in accordance with all
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act. All records shall be the property
of the Trust and shall be available for inspection and use by the Securities
and Exchange Commission ("SEC"), the Trust, the Manager or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Adviser for the periods and in the places required by Rule 31a-2 under the
1940 Act.
d. The Adviser shall bear its expenses of providing
services pursuant to this Agreement.
3. Compensation of the Adviser. In consideration of services rendered
pursuant to this Agreement, the Manager will pay the Adviser a fee at the
annual rate of the value of the Portfolio's average daily net assets set forth
in Schedule A hereto. Such fee shall be accrued daily and paid monthly as soon
as practicable after the end of each month. If the Adviser shall serve for
less than the whole of any month, the foregoing compensation shall be
prorated. For the purpose of determining fees payable to the Adviser, the
value of the Portfolio's net assets shall be computed at the times and in the
manner specified in the Trust's Registration Statement.
<PAGE>
-3-
4. Activities of the Adviser. The services of the Adviser hereunder are
not to be deemed exclusive, and the Adviser shall be free to render similar
services to others and to engage in other activities, so long as the services
rendered hereunder are not impaired.
5. Use of Names. The Adviser hereby consents to the name of the Portfolio
being changed, effective upon shareholder approval, to "Dreyfus Small Cap
Value Portfolio." The Manager shall not use the name of the Adviser or its
parent in any prospectus, sales literature or other material relating to the
Trust in any manner not approved prior thereto by the Adviser; provided,
however, that the Adviser shall approve all uses of its name and that of its
parent which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and, provided,
further, that in no event shall such approval be unreasonably withheld. The
Adviser shall not use the name of the Trust or the Manager in any material
relating to the Adviser in any manner not approved prior thereto by the
Manager; provided, however, that the Manager shall approve all uses of its or
the Trust's name which merely refer in accurate terms to the appointment of
the Adviser hereunder or which are required by the SEC or a state securities
commission; and, provided further, that in no event shall such approval be
unreasonably withheld.
The Manager recognizes that from time to time directors, officers and
employees of the Adviser may serve as directors, trustees, partners, officers
and employees of other corporations, business trusts, partnerships or other
entities (including other investment companies) and that such other entities
may include the name "Dreyfus" as part of their name, and that the Adviser or
its affiliates may enter into investment advisory, administration or other
agreements with such other entities. If the Adviser ceases to act as the
Portfolio's investment adviser pursuant to this Agreement, the Manager agrees
that, at the Adviser's request, it will cause the Trust to take all necessary
action to change the name of the Portfolio to a name not including "Dreyfus"
in any form or combination of words.
6. Liability of the Adviser. Absent willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the
part of the Adviser, the Adviser shall not be liable for any act or omission
in the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any security.
Nothing herein shall constitute a waiver of any rights or remedies which the
Trust may have under any federal or state securities laws.
7. Limitation of Trust's Liability. The Adviser
acknowledges that it has received notice of and accepts the
limitations upon the Trust's liability set forth in its
<PAGE>
-4-
Agreement and Declaration of Trust. The Adviser agrees that any of the Trust's
obligations shall be limited to the assets of the Portfolio and that the
Adviser shall not seek satisfaction of any such obligation from the
shareholders of the Trust nor from any Trust officer, employee or agent of the
Trust.
8. Renewal, Termination and Amendment. This Agreement shall continue in
effect, unless sooner terminated as hereinafter provided, for a period of two
years from the date hereof and shall continue in full force and effect for
successive periods of one year thereafter, but only so long as each such
continuance as to the Portfolio is specifically approved at least annually by
vote of the holders of a majority of the outstanding voting securities of the
Portfolio or by vote of a majority of the Trust's Board of Trustees; and
further provided that such continuance is also approved annually by the vote
of a majority of the Trustees who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. This Agreement may be terminated as to
the Portfolio at any time, without payment of any penalty, by the Trust's
Board of Trustees, by the Manager, or by a vote of the majority of the
outstanding voting securities of the Portfolio upon 60 days' prior written
notice to the Adviser, or by the Adviser upon 150 days' prior written notice
to the Manager, or upon such shorter notice as may be mutually agreed upon.
This Agreement shall terminate automatically and immediately upon termination
of the Management Agreement dated November 23, 1992 between the Manager and
the Trust. This Agreement shall terminate automatically and immediately in the
event of its assignment. The terms "assignment" and "vote of a majority of the
outstanding voting securities" shall have the meaning set forth for such terms
in the 1940 Act. This Agreement may be amended at any time by the Adviser and
the Manager, subject to approval by the Trust's Board of Trustees and, if
required by applicable SEC rules and regulations, a vote of a majority of the
Portfolio's outstanding voting securities.
9. Confidential Relationship. Any information and
advice furnished by either party to this Agreement to the
other shall be treated as confidential and shall not be
disclosed to third parties except as required by law.
10. Severability. If any provision of this Agreement
shall be held or made invalid by a court decision, statute,
rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
11. Miscellaneous. This Agreement constitutes the full
and complete agreement of the parties hereto with respect to
the subject matter hereof. Each party agrees to perform such
further actions and execute such further documents as are
necessary to effectuate the purposes hereof. This Agreement
<PAGE>
-5-
shall be construed and enforced in accordance with and governed by the laws of
the State of California. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. This Agreement may be
executed in several counterparts, all of which together shall for all purposes
constitute one Agreement, binding on all the parties.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
ENDEAVOR INVESTMENT ADVISERS
BY: Endeavor Management Co.,
Managing Partner
BY: Vincent J. McGuinness, C.E.O
-------------------------------
Authorized Officer
THE DREYFUS CORPORATION
BY: William F. Glavin, Jr.
-------------------------------
Authorized Officer
<PAGE>
-6-
SCHEDULE A
Value Small Cap
Portfolio .375% of average daily
net assets.
<PAGE>
SUPPLEMENT TO MANAGEMENT AGREEMENT
OPPORTUNITY VALUE PORTFOLIO
ENHANCED INDEX PORTFOLIO
Date: November 13, 1996
Endeavor Management Co.
Managing Partner
Endeavor Investment Advisers
Suite 300
2101 East Coast Highway
Corona del Mar, California 92625
Ladies and Gentlemen:
Endeavor Series Trust (the "Trust"), a Massachusetts business trust
created pursuant to an Agreement and Declaration of Trust filed with the
Secretary of State of The Commonwealth of Massachusetts, herewith supplements
its Management Agreement (the "Agreement") dated November 23, 1992 with
Endeavor Investment Advisers, a California general partnership (the
"Manager"), as follows:
1. Investment Description; Appointment. Pursuant to Section 1 of the
Agreement the Trust hereby notifies the Manager that it has established two
additional investment portfolios (the "New Investment Portfolios"), namely
OPPORTUNITY VALUE PORTFOLIO and the ENHANCED INDEX PORTFOLIO and that the New
Investment Portfolios should be included as "Portfolios" as that term is
defined in the Agreement.
2. Limitation of Liability. A copy of the Declaration of Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts and notice is
hereby given that this Agreement is executed on behalf of the Trustees of the
Trust as trustees and not individually and that the obligations of this
Agreement are not binding upon the Trustees or holders of shares of the Trust
individually but are binding only upon the assets and property of the Trust.
If the foregoing is in accordance with your understanding, kindly
indicate your acceptance hereof by signing and returning to us the enclosed
copy hereof.
Very truly yours,
<PAGE>
ENDEAVOR SERIES TRUST
By: James R. McInnis
---------------------
Authorized Officer
Accepted:
ENDEAVOR INVESTMENT ADVISERS
By: Endeavor Management Co.,
Managing Partner
By: Vincent J. McGuinness, C.E.O
-----------------------------
Authorized Officer
<PAGE>
AMENDMENT TO
SCHEDULE A
OPPORTUNITY VALUE PORTFOLIO .80% of average daily net
assets
ENHANCED INDEX PORTFOLIO .75% of average daily net
assets
ENDEAVOR INVESTMENT ADVISERS ENDEAVOR SERIES TRUST
By: Endeavor Management Co.,
Managing Partner
By: Vincent J. McGuinness, C.E.O By: James R. McInnis
---------------------------- -----------------
Date: November 13, 1996 Date: Novemeber 13, 1996
<PAGE>
SUPPLEMENT TO CUSTODY AGREEMENT
Date: November 4, 1996
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
Ladies and Gentlemen:
ENDEAVOR SERIES TRUST, an unincorporated business trust organized under
the laws of the Commonwealth of Massachusetts (the "Trust"), hereby
supplements its agreement with BOSTON SAFE DEPOSIT AND TRUST COMPANY, a trust
company organized under the laws of the Commonwealth of Massachusetts (the
"Custodian"), as follows:
1. Compensation. Pursuant to Section 3(b) of the Custody Agreement dated
March 28, 1991 (the "Agreement"), the Trust and the Custodian hereby agree
that the OPPORTUNITY VALUE PORTFOLIO AND ENHANCED INDEX PORTFOLIO (the
"Portfolios"), two new series of the Trust, created and designated in
accordance with the Trust's Master Trust Agreement, shall be considered
Portfolios of the Trust under the terms of the Agreement, and that the
Domestic and Global Fee Schedules currently in effect, and as may be amended
from time to time, under the Agreement shall apply to the Portfolios, as of
the date and year first written above.
2. Limitation of Liability. The term "Endeavor Series Trust" means and
refers to the Trustees from time to time serving under the Agreement and
Declaration of Trust dated November 18, 1988, as the same may subsequently
thereto have been, or subsequently hereto be, amended. It is expressly agreed
that the obligations of the trust hereunder shall not be binding upon any of
the Trustees, shareholders, nominees, officers, agents or employees of the
Trust, personally, but bind only the trust property of the Trust, as provided
in the Agreement and Declaration of Trust. The execution and delivery of this
Agreement have been authorized by the Trustees of the Trust and signed by an
authorized officer of the Trust, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in its Agreement and Declaration of Trust.
<PAGE>
If the foregoing is acceptable to you, kindly indicate your acceptance by
signing and returning the enclosed copy of this Supplement.
Very truly yours,
ENDEAVOR SERIES TRUST
By: James R. McInnis
---------------------
Title: President
Accepted and Agreed to:
BOSTON SAFE DEPOSIT AND TRUST COMPANY
By: Chris Healy
--------------------
-2-
<PAGE>
AMENDMENT NO. 3 TO ADMINISTRATION AGREEMENT
As of July 1, 1996, FIRST DATA INVESTOR SERVICES GROUP, INC., a
Massachusetts corporation ("FDISG") and ENDEAVOR INVESTMENT ADVISERS, a
California general partnership (the "Company"), hereby amend the
Administration Agreement dated March 28, 1991 (the "Agreement") as follows:
In consideration for the services which FDISG shall perform for the
Company and the Company's TCW Money Market Portfolio, TCW Managed Asset
Allocation Portfolio, T. Rowe Price International Stock Portfolio, Value
Equity Portfolio, Value Small Cap Portfolio, Dreyfus U.S. Government
Securities Portfolio, T. Rowe Price Equity Income Portfolio and T. Rowe Price
Growth Stock Portfolio (collectively, the "Existing Portfolios") and other
series of the Endeavor Series Trust which may become subject to the Agreement
("New Portfolios"), pursuant to the Agreement, the Company hereby agrees to
pay FDISG for the one year period commencing July 1, 1996 as follows:
Existing Portfolios (based on aggregate assets):
10 basis points on first $600 million 6 basis points on next $400
million 1 basis point on excess
New Portfolios.
Each New Portfolio with assets less than $40 million will have a minimum
annual charge of $40,000. Once assets in a New Portfolio are $40 million,
such Portfolio will become an Existing Portfolio and its assets will be
aggregated with those of the Existing Portfolios for purposes of
determining the fee for services as set forth above.
FDISG agrees to waive 50% of its administration fee during the first year
of operation of a New Portfolio if 50% or more of the management fee of
the Company is being waived. If less than 50% of the management fee is
being waived, FDISG will waive its fees at the same rate.
Out of Pocket Expenses:
Such fees do not include out-of-pocket disbursements of FDISG for which
FDISG shall be entitled to bill separately. Out-of-pocket disbursements
shall include, but shall not be limited to the items specified in
Schedule A to the Agreement, which Schedule may be modified by FDISG upon
not less than thirty days' prior written notice to the Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
FIRST DATA INVESTOR
SERVICES GROUP, INC.
By: Vincent J. Fabiani
-------------------
Title: Vice President
-------------------
ENDEAVOR INVESTMENT
ADVISERS
By: Vincent J. McGuinness
----------------------
Title: CEO - EMC
----------------------
-2-
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute and appoint Robert N. Hickey my
true and lawful attorney and agent, with full power to him to sign for myself,
and in my name and in the capacity indicated below, any and all Registration
Statements on Form N-1A of Endeavor Series Trust, and any and all amendments
thereto, and to file the same, with all exhibits thereto and other documents
in connection thereunder with the Securities and Exchange Commission, granting
unto said attorney and agent full power and authority to do and perform each
and every act and thing requisite or necessary to be done in connection
therewith as fully to all intents and purposes as I might or could do in
person, with full power of substitution and revocation; and I do hereby ratify
and confirm all that said attorney and agent may lawfully do or cause to be
done by virtue of this power of attorney.
WITNESS my hand as of the 31st day of January, 1997.
Vincent J. McGuinness, Jr.
--------------------------------------
Vincent J. McGuinness, Jr.
Chief Financial Officer (Treasurer)
(principal financial and accounting officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> ENDEAVOR SERIES MONEY MARKET
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 40,982,421
<INVESTMENTS-AT-VALUE> 40,982,421
<RECEIVABLES> 576,308
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 18,254
<TOTAL-ASSETS> 41,576,983
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,711
<TOTAL-LIABILITIES> 31,711
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,546,250
<SHARES-COMMON-STOCK> 41,546,250
<SHARES-COMMON-PRIOR> 27,551,382
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (978)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 41,545,272
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,787,472
<OTHER-INCOME> 0
<EXPENSES-NET> 198,150
<NET-INVESTMENT-INCOME> 1,589,322
<REALIZED-GAINS-CURRENT> (763)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,588,559
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,589,322)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44,833,447
<NUMBER-OF-SHARES-REDEEMED> (32,427,953)
<SHARES-REINVESTED> 1,589,374
<NET-CHANGE-IN-ASSETS> 13,994,105
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (215)
<GROSS-ADVISORY-FEES> 165,212
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 198,150
<AVERAGE-NET-ASSETS> 33,042,394
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> ENDEAVOR SERIES MANAGED ASSET ALLOCATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 173,382,532
<INVESTMENTS-AT-VALUE> 239,670,668
<RECEIVABLES> 799,384
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 145,247
<TOTAL-ASSETS> 240,615,299
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 405,672
<TOTAL-LIABILITIES> 405,672
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,032,046
<SHARES-COMMON-STOCK> 12,747,254
<SHARES-COMMON-PRIOR> 12,218,921
<ACCUMULATED-NII-CURRENT> 3,467,344
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (6,577,899)
<ACCUM-APPREC-OR-DEPREC> 66,288,136
<NET-ASSETS> 240,209,627
<DIVIDEND-INCOME> 1,790,500
<INTEREST-INCOME> 3,536,545
<OTHER-INCOME> 0
<EXPENSES-NET> 1,862,542
<NET-INVESTMENT-INCOME> 3,464,503
<REALIZED-GAINS-CURRENT> 2,436,181
<APPREC-INCREASE-CURRENT> 30,117,285
<NET-CHANGE-FROM-OPS> 36,017,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,944,143)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,280,847
<NUMBER-OF-SHARES-REDEEMED> (975,851)
<SHARES-REINVESTED> 223,337
<NET-CHANGE-IN-ASSETS> 41,333,937
<ACCUMULATED-NII-PRIOR> 3,944,143
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (9,011,239)
<GROSS-ADVISORY-FEES> 1,639,338
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,862,542
<AVERAGE-NET-ASSETS> 218,579,209
<PER-SHARE-NAV-BEGIN> 16.28
<PER-SHARE-NII> 0.27
<PER-SHARE-GAIN-APPREC> 2.61
<PER-SHARE-DIVIDEND> (0.32)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.84
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> ENDEAVOR SERIES T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 106,119,035
<INVESTMENTS-AT-VALUE> 127,544,052
<RECEIVABLES> 416,706
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6,752,647
<TOTAL-ASSETS> 134,713,405
<PAYABLE-FOR-SECURITIES> 45,723
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 232,435
<TOTAL-LIABILITIES> 278,158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114,902,369
<SHARES-COMMON-STOCK> 9,639,260
<SHARES-COMMON-PRIOR> 7,579,140
<ACCUMULATED-NII-CURRENT> 734,537
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (2,628,933)
<ACCUM-APPREC-OR-DEPREC> 21,427,274
<NET-ASSETS> 134,435,247
<DIVIDEND-INCOME> 2,103,294
<INTEREST-INCOME> 47,407
<OTHER-INCOME> 0
<EXPENSES-NET> 1,332,191
<NET-INVESTMENT-INCOME> 818,510
<REALIZED-GAINS-CURRENT> 1,815,599
<APPREC-INCREASE-CURRENT> 13,305,619
<NET-CHANGE-FROM-OPS> 15,939,728
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (773,317)
<DISTRIBUTIONS-OF-GAINS> (284)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,422,576
<NUMBER-OF-SHARES-REDEEMED> (421,555)
<SHARES-REINVESTED> 59,099
<NET-CHANGE-IN-ASSETS> 42,083,393
<ACCUMULATED-NII-PRIOR> 685,010
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (4,439,914)
<GROSS-ADVISORY-FEES> 1,015,179
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,332,191
<AVERAGE-NET-ASSETS> 112,797,617
<PER-SHARE-NAV-BEGIN> 12.19
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 1.76
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.00)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.95
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> ENDEAVOR SERIES VALUE EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 103,442,444
<INVESTMENTS-AT-VALUE> 129,792,152
<RECEIVABLES> 93,270
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6,933
<TOTAL-ASSETS> 129,892,355
<PAYABLE-FOR-SECURITIES> 1,748,674
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 216,386
<TOTAL-LIABILITIES> 1,965,060
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,774,751
<SHARES-COMMON-STOCK> 7,433,805
<SHARES-COMMON-PRIOR> 4,822,570
<ACCUMULATED-NII-CURRENT> 1,243,970
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,558,885
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26,349,689
<NET-ASSETS> 127,927,295
<DIVIDEND-INCOME> 1,200,032
<INTEREST-INCOME> 918,413
<OTHER-INCOME> 0
<EXPENSES-NET> 874,405
<NET-INVESTMENT-INCOME> 1,244,040
<REALIZED-GAINS-CURRENT> 4,558,830
<APPREC-INCREASE-CURRENT> 14,300,362
<NET-CHANGE-FROM-OPS> 20,103,232
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (773,280)
<DISTRIBUTIONS-OF-GAINS> (1,416,509)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,765,358
<NUMBER-OF-SHARES-REDEEMED> (294,404)
<SHARES-REINVESTED> 140,281
<NET-CHANGE-IN-ASSETS> 59,296,861
<ACCUMULATED-NII-PRIOR> 773,265
<ACCUMULATED-GAINS-PRIOR> 1,416,509
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 768,579
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 874,405
<AVERAGE-NET-ASSETS> 96,072,313
<PER-SHARE-NAV-BEGIN> 14.23
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 3.15
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.24)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.21
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> ENDEAVOR SERIES DREYFUS SMALL CAP VALUE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 80,218,831
<INVESTMENTS-AT-VALUE> 86,802,931
<RECEIVABLES> 1,623,400
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,962
<TOTAL-ASSETS> 88,431,293
<PAYABLE-FOR-SECURITIES> 2,496,583
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 131,262
<TOTAL-LIABILITIES> 2,627,845
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67,552,842
<SHARES-COMMON-STOCK> 5,838,975
<SHARES-COMMON-PRIOR> 4,303,847
<ACCUMULATED-NII-CURRENT> 634,795
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,031,711
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,584,100
<NET-ASSETS> 85,803,448
<DIVIDEND-INCOME> 625,496
<INTEREST-INCOME> 626,900
<OTHER-INCOME> 0
<EXPENSES-NET> 617,687
<NET-INVESTMENT-INCOME> 634,709
<REALIZED-GAINS-CURRENT> 11,050,747
<APPREC-INCREASE-CURRENT> 4,486,377
<NET-CHANGE-FROM-OPS> 16,171,833
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (669,363)
<DISTRIBUTIONS-OF-GAINS> (2,256,693)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,685,691
<NUMBER-OF-SHARES-REDEEMED> (373,076)
<SHARES-REINVESTED> 222,513
<NET-CHANGE-IN-ASSETS> 33,206,618
<ACCUMULATED-NII-PRIOR> 669,355
<ACCUMULATED-GAINS-PRIOR> 2,237,657
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 535,895
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 617,687
<AVERAGE-NET-ASSETS> 66,986,878
<PER-SHARE-NAV-BEGIN> 12.22
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 2.95
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (0.46)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.69
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> ENDEAVOR SERIES DREYFUS U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 24,867,658
<INVESTMENTS-AT-VALUE> 25,038,879
<RECEIVABLES> 1,399,079
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 11,138
<TOTAL-ASSETS> 26,449,096
<PAYABLE-FOR-SECURITIES> 1,693,105
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,789
<TOTAL-LIABILITIES> 1,721,894
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,774,287
<SHARES-COMMON-STOCK> 2,201,546
<SHARES-COMMON-PRIOR> 1,116,377
<ACCUMULATED-NII-CURRENT> 1,061,012
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (279,318)
<ACCUM-APPREC-OR-DEPREC> 171,221
<NET-ASSETS> 24,727,202
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,220,625
<OTHER-INCOME> 0
<EXPENSES-NET> 154,409
<NET-INVESTMENT-INCOME> 1,066,216
<REALIZED-GAINS-CURRENT> (284,458)
<APPREC-INCREASE-CURRENT> (151,333)
<NET-CHANGE-FROM-OPS> 630,425
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (365,881)
<DISTRIBUTIONS-OF-GAINS> (202,125)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,451,562
<NUMBER-OF-SHARES-REDEEMED> (419,777)
<SHARES-REINVESTED> 53,384
<NET-CHANGE-IN-ASSETS> 12,009,034
<ACCUMULATED-NII-PRIOR> 365,879
<ACCUMULATED-GAINS-PRIOR> 202,063
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 122,058
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 154,409
<AVERAGE-NET-ASSETS> 18,778,231
<PER-SHARE-NAV-BEGIN> 11.39
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> (0.44)
<PER-SHARE-DIVIDEND> (0.22)
<PER-SHARE-DISTRIBUTIONS> (0.12)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.23
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> ENDEAVOR SERIES T. ROWE PRICE EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 72,944,063
<INVESTMENTS-AT-VALUE> 80,821,842
<RECEIVABLES> 478,350
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8,060
<TOTAL-ASSETS> 81,308,252
<PAYABLE-FOR-SECURITIES> 2,962,646
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 94,750
<TOTAL-LIABILITIES> 3,057,396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67,126,345
<SHARES-COMMON-STOCK> 5,053,104
<SHARES-COMMON-PRIOR> 1,678,722
<ACCUMULATED-NII-CURRENT> 1,329,442
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,918,047
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,877,022
<NET-ASSETS> 78,250,856
<DIVIDEND-INCOME> 1,343,937
<INTEREST-INCOME> 437,183
<OTHER-INCOME> 0
<EXPENSES-NET> 445,256
<NET-INVESTMENT-INCOME> 1,335,864
<REALIZED-GAINS-CURRENT> 1,909,289
<APPREC-INCREASE-CURRENT> 5,690,833
<NET-CHANGE-FROM-OPS> 8,935,986
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (286,763)
<DISTRIBUTIONS-OF-GAINS> (123,166)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,441,208
<NUMBER-OF-SHARES-REDEEMED> (96,445)
<SHARES-REINVESTED> 29,619
<NET-CHANGE-IN-ASSETS> 56,340,362
<ACCUMULATED-NII-PRIOR> 286,763
<ACCUMULATED-GAINS-PRIOR> 123,163
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 369,356
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 445,256
<AVERAGE-NET-ASSETS> 46,169,532
<PER-SHARE-NAV-BEGIN> 13.05
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 2.17
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.49
<EXPENSE-RATIO> 0.96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 09
<NAME> ENDEAVOR SERIES SERIES T ROWE PRICE GROWTH STOCK PORTFOLI
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 52,066,286
<INVESTMENTS-AT-VALUE> 61,101,303
<RECEIVABLES> 70,669
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 11,109
<TOTAL-ASSETS> 61,183,081
<PAYABLE-FOR-SECURITIES> 1,361,102
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89,586
<TOTAL-LIABILITIES> 1,450,688
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,028,958
<SHARES-COMMON-STOCK> 3,667,172
<SHARES-COMMON-PRIOR> 1,577,707
<ACCUMULATED-NII-CURRENT> 237,483
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 430,691
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,035,261
<NET-ASSETS> 59,732,393
<DIVIDEND-INCOME> 556,890
<INTEREST-INCOME> 133,658
<OTHER-INCOME> 0
<EXPENSES-NET> 394,813
<NET-INVESTMENT-INCOME> 295,735
<REALIZED-GAINS-CURRENT> 375,035
<APPREC-INCREASE-CURRENT> 7,204,066
<NET-CHANGE-FROM-OPS> 7,874,836
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (34,313)
<DISTRIBUTIONS-OF-GAINS> (589,782)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,208,428
<NUMBER-OF-SHARES-REDEEMED> (161,680)
<SHARES-REINVESTED> 42,717
<NET-CHANGE-IN-ASSETS> 38,081,108
<ACCUMULATED-NII-PRIOR> 34,311
<ACCUMULATED-GAINS-PRIOR> 584,849
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 313,398
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 394,813
<AVERAGE-NET-ASSETS> 39,174,786
<PER-SHARE-NAV-BEGIN> 13.72
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 2.71
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> (0.24)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.29
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> ENDEAVER SERIES OPPORTUNITY VALUE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 342,554
<INVESTMENTS-AT-VALUE> 342,714
<RECEIVABLES> 161,041
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 233,658
<TOTAL-ASSETS> 737,413
<PAYABLE-FOR-SECURITIES> 7,681
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,607
<TOTAL-LIABILITIES> 36,288
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 700,673
<SHARES-COMMON-STOCK> 69,713
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 292
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 160
<NET-ASSETS> 701,125
<DIVIDEND-INCOME> 36
<INTEREST-INCOME> 15
<OTHER-INCOME> 0
<EXPENSES-NET> 319
<NET-INVESTMENT-INCOME> (268)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 160
<NET-CHANGE-FROM-OPS> (108)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 73,459
<NUMBER-OF-SHARES-REDEEMED> (3,746)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 701,125
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 197
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,121
<AVERAGE-NET-ASSETS> 209,300
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.00)
<PER-SHARE-GAIN-APPREC> 0.06
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.06
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
